26. "inDinero has saved us thousands of
dollars and reduced the amount of
time I spend thinking about
accounting by many hours a week. A
fantastic investment."
- Kaz, CEO of Kash
Hi everyone. My name is AB, and I’m a venture partner and entrepreneur in residence at 500S one of the most active and global micro-VCs in the world. I’m based out of SF, where I help run the SF accelerator program and help startups with sales, growth, and pitching.
Today I’ve been invited to tell you about how my first company, inDinero went from being a “vitamin” to a “painkiller”
First, I want you to meet my co-founders.
Jess, the CEO, and I on the left. Andy, our CTO, on your right. Jess and I met as freshmen roommates in college. Jess has been starting businesses since she was 13 and never stopped, and the problem she kept facing was managing her finances and understanding how the business finances were doing, never could understand accounting software, and that’s why we created inDinero.
inDinero was a real-time financial dashboard. Small businesses could connect their bank and credit card accounts directly to our software, and we would categorize the transactions automatically, and present them real-time financials. It was a big problem, and people were excited about what we were building.
inDinero joined Silicon Valley accelerator YC in 2010 and we raised over $1M from many big investors, including Dave McClure in the early days of 500S, and many others.
Jess and I were 20 years old at the time. Andy was 19. Young female founder + big problem - we got a lot of attention.
We were featured in virtually every major American media outlet. including a show called Startup Kids. favorite story from this period of public attention: a Japanese media outlet wanted to interview Jess in our office for their kid’s program in Japan. I said no, and somehow the producers found my cell phone and called, and called, and eventually I got fed up and said, “If you want 30 minutes with Jess, it’ll cost you $1K” The next day, I had a check for $1K. So, all of this this PR was making our sign-ups grow really quickly - we had over 10K users signed in a few months. Business model was freemium with upgrades to $20/month plan. Feedback from our users was good.
Our team grew. This was our team having lunch made my chefs. We had a fancy office with a hot tub on the roof, where we would have parties.
Where we would invite our YC and startup friends. I could tell other founders were jealous of us at this time, but after a few months passed, reality began to sink in. I began to worry about us. I began to hate these types of parties. I was in charge of operations and customer happiness, and while our sign ups were growing, engagement began to wane, and even when we were converting people from the free plan to our $20/month plan. I knew we had a big problem:
We weren’t making any money. Not only were we not making much money, we were hemorrhaging cash. Maintaining financial software that connects accounts to tens of thousands of businesses is not cheap, so we were burning close 80K a month. So not only were we in danger of running out of money. we didn’t have a product that people were willing to pay for or a business model that was working. We began talking to our investors and advisors about what to do.
One of these investors was Steve Blank, the author of books like Four Steps to the Epiphany, and a forefather of the “lean startup” movement. It’s kinda funny if you think about it: we had one of the forefathers of the “lean startup” method as an advisor, there we were: growing too fast, spending money too early before finding our P/M fit. pretty much the opposite of a lean startup: we were a fat startup. We invited Steve to dinner and told him how bad things were, how our numbers weren’t growing, and he agreed with our assessment that we were probably going to die at this rate.
He said something to the effect of, “ you’ve failed, but that’s ok! because now you know you’ve failed, and now you can do something about it” Before this conversation with Steve, who I really looked up to, I was feeling really depressed. I didn’t know if I wanted to work in a startup anymore. But before Steve left, he did something I’ll never forget: he picked up my copy of 4 steps to the epiphany, his book, and wrote me this message:
His belief in us as a team really pulled us through, and many of our investors had similar messages: we believe in you guys - you’ll figure it out.
Spoiler alert: inDinero did not die. We’re alive, and now I’d like to share 5 lessons, or 5 things we learned while starting again.
The first lesson is:
Don’t look back.
After we realized inDinero 1.0 was dead, we were almost out of funding, and we made some radical changes, none of them easy. The first difficult thing was:
our employees ,the fancy office. got rid of the fancy office, our chefs, and moved back into a small apartment living room. while this was hard, it was also a huge relief. we didn’t have to pretend anymore that everything was going great. the pressure was gone. And when I say we fired everyone, I mean everyone, because next we fired our customers
our 20K businesses, first the non-paying users, then even the paying users,to cut the costs. This was the announcement that we were ending service.
This was the breakup email I sent our users, basically telling them that we could not afford supporting them anymore and that their accounts would be deleted if they did not pay. A few months later, I had to fire the paying ones as well.
This was the backlash from Quora and Twitter about us. Many people were angry, and I think the public perception was that wewe done. But as this point, we were on a mission to pivot into something that would actually work.
Lesson 2: forget everything, and go back to customer pain. Jess and I began calling our friends and asking them why they never paid for inDinero, and they all said the same thing: we liked the dashboard, but at the the end of the day, what I really hate about my accounting is paying invoices or figuring out payroll, if only you solved that, I would actually pay a lot MORE than $20/month. Hmmm. So, without any idea that we could do it or if it would scale, that’s what we did. What was important to us then was that someone would pay us. We decided to keep our dashboard software, but instead of self service SaaS only, we decided to add more services. Instead of $20/month, we $500 per month. The pain was so great among our first customers that they wrote their credit card numbers down on pieces of paper.
Instead of hiring, Jess studied and passed her EA exam (exam to be able to file tax returns) and I began doing all of the accounting, bookkeeping, and payroll for our first group of clients. This was one of the hardest I’ve ever worked, but that’s when we really learned about this pain our clients were feeling, and though it was very manual at first, we began thinking of ways we could build features and scale.
And that’s how inDinero 2.0 was born. Today inDinero is an accounting, taxes, and payroll solution for any startup company incorporated in the US and other small businesses. Customers still get access to the financial dashboard, but they now have a back office solution for their accounting, taxes, and payroll all in one place. Companies today pay anywhere from $300-$6000/per month.
So that’s how we created the solution, but how did we grow this?
The answer may surprise you. some of you may follow 500 Startups Distro Snacks (and if you don’t, you should!) , you might know we specialize in all of these cool growth hacks like email marketing. But back then, I was a huge amateur! I didn’t know any of that. Our secret weapon was the only weapon I had:
Empathy pays.
Let me tell you how customer success generated us revenue without any outbound marketing efforts at all.
All I did was focus all my attention and efforts in delivering the best customer experience possible. I made it my mission to solve my customer’s biggest pain within the first week, until the new company was raving about inDinero. I added a referral program that would grant a free month for referring and also gift a free month to your friend, so this combined with service, almost every single new company hey would send me 2-3, sometimes up to 10 of their friends, 70-80% of them I would bring on. That’s how I generated $1M in ARR in 10 months. And this is still part of the inDinero culture today.
This is a review from a CEO who loves us. I meet a lot of startups who worry a lot about the top of their funnels, but don’t forget the bottom. Great service means better retention and the potential for low cost customer acquisition.
The 4th lesson I want to share is about metrics, specifically about which metrics we wasted time caring about and which helped us.
So let’s look at the difference between inDInero as a vitamin:
converting <1% to $20/m
high churn
Now, the painkiller.
($400-6k/m)
These are some metrics that matter. Every business is different, but it’s important to remember that you didn’t start your business to collect email addresses. Measure engagement. Measure revenue.
when we first killed the SaaS only model and told people that we were adding services, people were really skeptical. some people were even mean: saying things like, “how did you get YC to fund your lifestyle business accounting firm?” It makes sense - services aren’t scalable, right? If you aren’t solving a pain, you will never have to worry about scaling. We decided to go after the pain, and we’re now in the business of leveraging technology to make it more scalable than any accounting firm out there.
And if you look at our numbers, it doesn’t look so different than a pure SaaS model if you look at our subscription retention rate and margins.
Perhaps the most important lesson that I learned from my time at inDinero is that diverse teams win.
My cofounders and I could not have been more different. Our team was led by 2 opposite women, one intense and highly strategic/the one highly intuitive and empathetic. One of our first key hires was in his 50s. If you’re solving a big problem for a lot of people, a team with different perspectives will make your company stronger and able to solve harder problems.
I hope that my presentation today will help you start over if you fail, find your customer pain, value empathy, focus on the metrics that matter most for your business, and build diverse teams - so you can build great businesses. I also hope that you won’t have to burn $1M to figure it out.
Now, I’d like to open for questions.