Success isn’t always obvious. In fact, it rarely is. I recently met with one of my company’s advisors; at the end of our meeting, he casually asked, “a year from now, how will you know if Ivy is a success?” It’s a rather basic question. But, I had actually never put much thought into it … I didn’t think I needed to. On the surface, success seemed so clear and I assumed I’d know it when I achieved it.
Extreme success and extreme failure are abundantly clear. However, it’s unlikely that we’ll be the next Instagram or Pets.com – the overwhelming majority of companies fall somewhere in between. If we’re growing at 100% week-over-week for a year, that’s obviously success; but what about 5% or 10% or 20%? If we landed somewhere between Facebook and Color, how would we know if we performed well, average or poorly?
After thinking about this question, it became obvious that we needed real quantifiable goals in order to assess our progress. And very importantly, these goals would not only enable us to assess performance but also help motivate the team – chasing a half-baked dream in uninspiring, but working towards real, concrete goals can be extremely motivational.
To throw out a sports metaphor - we were like a NBA player entering the season with the ambition of ‘being the best’. But, we didn’t have any clear goals or metrics to measure our performance – we just wanted to be ‘great’. And in framing our season in this light, we were inevitably setting ourselves up for failure. After all, no matter how well we performed, we would have no way of knowing if were progressing towards or had achieved our goal.
After this conversation, we understood the need to set benchmarks for blocks, steals, rebounds, points, assists and so on. Setting these clearly defined ambitions will give us a measurable way to gauge performance and progress. So, throughout the season, we’re not chasing an impossible dream, we’re working every day to achieve clearly defined metrics. And after every game, we’ll know exactly how well we’re doing and can assess our performance accordingly. These goals will serve as motivation, pushing us in a way that an ephemeral dream never could.
After several days of thought, debate, sweat and tears, we finally nailed our success metrics. They include everything from user acquisition to cultural achievements. And these benchmarks are already serving as a compass. Everyone in the company now knows what we’re moving towards and is working together to hit these milestones. The value of these defined, shared and achievable ambitions simply cannot be underestimated. They’re pushing us to work harder and ship faster.
Learning Magic
About 9 months ago, I left my job to start a company. At the time, I had an idea (which subsequently changed) and an absurdly high tolerance for risk (which was fueled by the ridiculous overcompensation in financial services). A few months ago, we soft launched our payment platform, Ivy, at Duke University. Looking back over the prior months of work, it’s very clear that the trajectory of the business fundamentally changed when I committed myself to learning to code.
I didn’t start entirely from scratch - I took a few CS courses while an undergrad and tried off and on to learn programming over the prior few years. So when I buckled down in August - I had some context for the road ahead. But more importantly, I had a project I was passionate about building.
When talking to friends about this experience, I sometimes equate it to learning a new language. If you try to learn Spanish for the sake of learning Spanish, you probably won’t learn Spanish. (I know because I’ve tried to learn the language many times. And failed.) If, on the other hand, you learn Spanish for a reason - to speak to a relative, to live in the country, etc. - you’re much more likely to be successful.
Applied to programming, this means you really need to WANT to build something. It can be anything - a game, an app, & so on - the drive that this project provides, will fuel your desire to learn. And motivation is by far the hardest part. Contrary to what most people think, programing is not rocket science and it’s certainly far from magical. It takes some time to learn how to get things done and a whole lot more time to figure out how to get them done the right way.
After months of learning and relearning, I’m still far from being an expert. But that was really never the intention. At this point, I’m not going to be the best engineer on the planet. The reason for learning was to help expedite our early development and, more importantly, increase my ability to communicate with my cofounder and manage the company.
After going through this learning process, I now realize that I was completely flying blind before I gained this knowledge. And every extra bit I learn helps me better understand our service, challenges, and strengths.
In retrospect, learning to code most obviously enabled us to launch Ivy in half the time. During our initial phase of development, I was able to remove a lot of the frontend burden from my cofounder, enabling us work twice as fast. However, as we grow, I will increasingly do less and less of our engineering … until I don’t do any at all. Although eventually I won’t be directly using these skills on a daily basis, in the long term, this knowledge has and will continue to fundamentally improve my ability to manage and grow Ivy. Whether I’m recruiting, evaluating new features, or forging partnerships, having a deeper appreciation for and understanding of our technology will help me make much better decisions.
With its recent product launches and partnership announcements, Dwolla is quickly transforming from one of many consumer-facing mobile payment applications to a powerful B2B platform. Dwolla has built great settlement and payment infrastructure, which, due to its lower fees and speedy settlement, is gaining traction with businesses and even banks. They now just need to increase distribution; they’re fighting the uphill chicken and egg payments issue - how do you get businesses without consumers and consumers without businesses? It looks like they’re focused on solving the business side of the equation - and it could be working …
Apparently, I’m not the only one writing about the mainstream adoption of prepaid cards. Today, the WSJ published a story covering Bluebird, the prepaid card venture between Walmart and AMEX.
This venture is interesting because it highlights AMEX’s forray into the market. With its Gold and Platinum card focus, American Express has traditionally targeted the high-end consumer. This move indicates that either (a) the low end is getting more attractive or (b) the high end shows little growth potential.
Either way, I think Bluebird is just the beginning. Prepaid has an opportunity to wholesale replace bank accounts for many consumers - it may be a few years away, but it can and should happen.
My big takeaway: despite a ton of press, digital wallet development and adoption has just begun. We are currently presented with many incredibly imperfect solutions:
Google Wallet isn’t available on 3 out of the 4 major wireless carriers;
ISIS hasn’t officially launched;
Pay with Square has not seen much adoption (that may change post Starbucks integration);
PayPal only has a handful of major retailers;
Starbucks is handing over its platform to Square; and
LevelUp is struggling to profitably sign up merchants.
This list also leaves off other potential threats like Apple’s Passbook and Lemon.
At this point, it seems clear that digital wallet adoption will occur (after all, the US government, major banks and networks have made it a top priority), but, at the moment, no player has an undeniable right to win. The field is wide open …
Walmart just tomahawked Google’s effort to enter their stores. Instead of partnering with an existing mobile provider, Walmart and a handful of other retailers are trying to create their own payment platform, which will be much more focused on enhancing the merchant experience (i.e. better fraud management, reduced fees, and so on).
Walmart was a longshot Google Wallet partner - so this outcome is not terribly surprising. However, I found the reasons for Walmart’s refusal particularly insightful. Most notably:
… Cook explained that Walmart sees three types of mobile payment applications: a “slick application” that applies to a single use case, an application that layers onto the existing payment structure, and a “holistic solution” that not only provides interaction, but also solves for multiple use cases. According to Cook, Walmart is only interested in this holistic approach.
At the moment, it appears as though Google may just be developing a mobile interface sitting on top of users’ existing card(s). Square and others have gone much deeper and are providing both consumer and merchant benefits well before and after the moment of purchase. For instance, Square has dramatically simplified the process of accepting cards - from sign up to processing and fee payments.
Based on Walmart’s comments, consumer adoption may, very well, be determined and won behind the scenes - in the value-added services a payment player provides to help with risk, processing, and management. Just like Seamless Web won merchants (and thereby consumers) by powering restaurants’ backend management systems, mobile wallets may win merchants (and thereby consumers) by improving and simplifying pre- and post-transaction processes.
As a company that views payments as a gateway to data, Google would certainly appear to be in a great position to effect this change.
It’s becoming increasingly expensive to spend your own money. When I opened my first checking account, I had 1,000 different places I could park my life savings of $76. Today, however, I couldn’t beg a bank to hold those funds.
As it turns out, it costs ~$250 - $300 for a bank to maintain a checking account - this means that they must generate $20+ per month in fees just to break even. With interest rates hovering around 0% and government mandates to cut debit card interchange, banks must recoup those costs in overdraft, minimum balance, and all sorts of other painful (and usually hidden) fees.
As a result, the free checking account is going extinct. Amazingly, today only 39% of US banks offer a traditional “free” checking account, down from 79% in 2009. And the average consumer with a “free” account pays $28 per month in fees; less responsible users (maybe, like myself in college) pay $94 per month in fees.
These are astounding numbers, which, I believe, will serve to support the renewed relevance and mainstream adoption of an overlooked payment medium - prepaid debit cards. These cards, which were once only used by those who were terrible at buying gifts or didn’t have the resources to open a traditional account, will now be the best, least costly “banking” option for a massive subset of the US population.
High school and college students are a particularly interesting demographic - as rather irresponsible and low earning consumers, they could very well grow up using prepaid as their primary form of payment and, in doing so, help transform this medium from a fringe to a conventional financial product. Given the low regulation (relative to debit and credit cards) and the pervasive distribution channels, this should be a fun product to watch over the next few years.
LevelUp has been quietly building a quite expansive payment network. They’ve now set up shop and signed up merchants in large cities from Birmingham to Seattle. Purely based on press / PR, one would assume that Dwolla is the dominant force in the emerging landscape of 5th networks. However, based on merchant / geographic coverage and funding, LevelUp is well ahead. Dwolla is still focused in Iowa (although they’ve recently announced the opening of a NY office) and have raised around $6M vs. $32M for SCVNGR (parent co. of LevelUp).
It’s also interesting to note that LevelUp is offering a 0% processing fee for merchants. Although I don’t know the exact details, it appears as though their revenue is earned via performance incentives, like repeat purchases. If this is the case, their business model represents a substantial threat to Dwolla - Dwolla’s infrastructure is wholly focused on reducing merchant fees. As these two players grow, it will be interesting to see how they compete or potentially work together to change the processing landscape.
Who Doesn’t Have a Digital Wallet?
Last week, both Visa and MasterCard announced digital wallet initiatives. With so many players now in the eWallet space, it’s going to be interesting to see what leads to differentiation. Almost every player is delivering a similar platform with payment storage, instant offers / discounts, and online / mobile functionality. As such, this space is feeling like a land grab - whoever owns the real estate at checkout will win the consumer. If that’s the case, Visa and MasterCard have a distinct advantage (as they force retailer adoption).
This chart from the Boston fed shows consumer adoption of various payment types. There’s a number of interesting trends here:
1. Somehow in the mid 2000’s, 5% of Americans did not use cash. I have no idea how this is possible. But, don’t worry, we introduced cash to everyone by 2010.
2. Debit cards are on an incredible hot streak. Right before the economic downturn, they surpassed credit cards in % adoption and, over the last few years, they’ve started pulling away.
3. Credit card usage is steadily declining. I expected to see a decline after 2008, but adoption actually peaked in 2001. Besides the blip in ‘07, we’ve seen y-o-y declines for the past decade. This should be a major concern for many large banks - credit cards are extremely profitable. And it appears as though debit cards (with their lower fees and interchange) are slowly coming to dominate the marketplace. For credit cards to retain their market share, banks need to find a way to reduce the user friction and create experiences that minimize the “pain of paying”.
4. I don’t know what the BOS Fed means by “checks (blank)”, but it sounds pretty great … and somehow 85% of people use this mysterious financial product.
Leave Your Change Purse at Home
In 2020, your back will finally stop aching. According to a new Pew survey, in 8 years the majority of americans believe that all of their in-store payment transactions will occur digitally. That means: no more cash, no more credit cards, and no more coupons.
The Pew survey found that 65% of respondents agreed with the below statement:
By 2020, most people will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards. People will come to trust and rely on personal hardware and software for handling monetary transactions over the Internet and in stores. Cash and credit cards will have mostly disappeared from many of the transactions that occur in advanced countries.
Given the growth in smartphone adoption and the recent investments behind mobile transactions, its hard to argue with the above conclusion. After all, networks, banks, and merchants are all lining up to support this technology - the retirement of my wallet seems almost inevitable.
However, it’s important to note that 8 years is not too far away. So that means that the companies who currently have no mobile solution must start seriously thinking about filling that void. This may be obvious, but it’s readily overlooked - the banks and merchants with the strongest mobile platforms will be the players with the best foundation for growth once the digital tipping point occurs.
Mobile Opportunity
For some reason, merchants appear to be focused the wrong things when it comes to mobile payments. Everyone is attracted to the shiny object - digital wallets. But, why would I (or anyone) trust a retailer with all my credit card information? Merchants have very little right to win in this space, especially from a consumer trust perspective (of course, apple being the exception).
There appears to be some amazing low-hanging fruit that could dramatically impact performance, which, for some reason, is often overlooked when discussing the mobile payments opportunity.
Checkout Improvement: Millions of dollars have been invested to reduce the online checkout experience from 10 seconds to 9 seconds. However, very little has been invested in reducing the in-store checkout time. Mobile payments represent an amazing opportunity to reduce the in-store funnel, and thereby address a key brick and mortar pain point. For instance, Nordstrom recently rolled out mobile POS in their stores - and its genius. Think about the number of people who are convinced they’ll buy this pair of jeans or that pair of shoes, and on the walk to the register or the wait in line, decide to postpone the expense. Mobile POS enables Nordstrom to bring all of those sales forward. This benefit applies equally to a clothing retailer and a coffee shop.
Customer Relationships: Mobile payments represent the first viable means to immediately identify key consumers and give them the service / experience they have earned. Loyalty cards and points can now be stored on your phone and once a consumer enters a retailer’s geo fence, service representatives can immediately be notified and go to help that particular consumer. This represents a critical opportunity as it further incentivizes loyalty to brick and mortar stores by enhancing the benefit both functionally and experientially.
Although these aren’t paradigm shifting strategies, they are opportunities that could meaningfully impact the in store experience and are certainly winnable for retailers. Many are investing significant resources behind hitting home runs, but it may be more prudent to hit a few singles and doubles.
Square (The New Groupon?)
Square is the hottest payments company on the planet … right now. This quora post got me thinking about whether or not square is actually as great as everyone thinks it is.
It’s an interesting thought because square has received nothing but amazing press. They have created an aura of inevitable success around the business. However, as you think about the industry, their success is anything but guaranteed. They are playing in an increasingly crowded marketplace and competing against extremely entrenched players. Every great move by square is countered by intuit, PayPal, and others.
Moreover, they are a firm with an incredible design edge, which can be a critical asset for a consumer-facing product. However, the core of their business, is merchant facing. And as noted in the above quora post, many merchants are choosing square for less competitively sustainable reasons - like their ability to settle merchant accounts with 24 hours - not for it’s look and feel.
This will be an interesting space to watch over the coming years. Square is going to battle with a war chest of venture capital, a stable of amazing designers and engineers, and an established base of small merchants. But it’s facing tough competition from much larger financial players with an ability to subsidize losses and out-execute the new guy.
Rewards
Credit and debit card rewards programs are losing their touch. There are now seven hundred different points or cash back options available, and everyone from AMEX to your local credit union are using the bait. Despite the widespread adoption, they are, in my opinion, one of the least impactful motivators of loyalty.
Many businesses fundamentally believe that loyalty = rewards. But, from Apple to JetBlue, we see that true loyalty is inspired by many other factors - experience, personalization, customer service, and so on. After all, think about the restaurants you truly love - are they the ones with punch card programs or are they the ones where the maitre d’ remembers your name or the chef cooks your burger just the way you like it? These non-rewards motivators often result in more effective and long-lasting customer relationships. They are simply more efficient relationship drivers.
Why is that?
From my perspective, rewards, like points or cash back, have been commoditized and are viewed as a de facto currency. Therefore, when people receive these bonuses, it often feels like the brand is “paying” the customer for their business. Obviously, this results in a rather superficial relationship - one that only lasts until a better offer comes along.
On the other hand, the aforementioned loyalty drivers, like personalization, user experience, and customer service are viewed quite differently. They represent a means to truly connect and form a deep emotional relationship with the customer. Dan Ariely calls these factors, social motivators (whereas money/rewards are market motivators).
To bring it full circle - relationships between companies and their consumers are very similar to friendships. One can “buy” a friend by showering them with gifts, which will likely result in a rather superficial bond. Or, conversely, a friendship could be forged through an emotional connection, shared ambition, and so on. The later results in something more sustainable and mutually beneficial.
Many credit card companies believe that money can buy deeper friendships. Unfortunately, I don’t believe this to be the case. Therefore, as one thinks about creating a loyalty program that actually inspires loyalty, rewards can (and probably should) be a component, but they should only be one piece of a larger platform.
Not Raising Money
Over the past few months, I have talked to lots of people about the fundraising process. And, across the board, everyone has told me that when meeting with investors for the first time, solely focus on gaining advice. It’s important to establish early in the meeting that I am not looking for money, just feedback. This makes sense for many reasons - I will not dwell on them all in this post. But, it is important to note one critical factor, solely focusing on feedback sets a collaborative tone for the meeting, enabling the two parties to truly get to know each other and creating an environment where the angel or VC can take an unbiased look at your business. If they are then interested, they’ll let you know and if they aren’t, you’ll at least get some good advice out of the conversation.
I don’t know why, but for some reason, it took me months to realize that this same approach works just as effectively in every other area of my business - from forming partnerships to recruiting. I am creating a payments business, which is a notoriously difficult industry to enter and requires deep relationships with banks, processors, merchants, and so on. Recently, I have taken a step back to assess what has been working and what has not. And I have realized that almost every party that is deeply interested in my business was initially contacted to gain advice. One call led to another which eventually led to an interest in a strategic alliance. The people at these institutions have, over a period of time, gained confidence in me and my business. Conversely, almost every party I have contacted with the expressed intent of forming a partnership has led to an immediate stiff arm - there are cases where it has worked, but the hit rate is significantly lower.
It seems terribly obvious in hindsight. After all, requesting money from an angel or VC and forming a partnership with a processor are actually very similar endeavors. The party across the table is evaluating you and your business and assessing whether or not this opportunity is worth their time and money. In any such situation, I would strongly suggest the “inception” approach - ask for advice, plant the idea seed, and help it grow over time.
