From Start-up to Stay-up: The Art of the Pivot

To­day, Finn AI is a lead­ing per­sonal bank­ing vir­tual as­sis­tant, but there were plenty of twists and turns in­volved in mak­ing this start-up a ‘stay-up’.

Rotman Management Magazine - - CONTENTS - By Steve Lowry

To­day, Finn AI is a lead­ing fin­tech with clients like VISA and BMO; but there were plenty of twists and turns in­volved in mak­ing this start-up a ‘stay-up’.

about to air, Na­talie Cartwright WITH THE DRAGON’S DEN EPISODE sits on edge. She isn’t ner­vous about her per­for­mance with the Dragons; the film­ing went well, and she was com­fort­able on stage. In­stead, she’s wor­ried that she and her co-founder, Jake Tyler, are the only peo­ple in the room of 40 em­ploy­ees, friends and in­vestors who know that their com­pany is on the verge of col­lapse. Payso, their free mo­bile app that sends money be­tween friends, has only a few weeks of cash left in the bank.

Na­talie and Jake shot the episode a year ear­lier, when Payso was on an up­swing. And since their con­tract with the CBC had pro­hib­ited them from dis­clos­ing whether they had taken fi­nanc­ing from the Dragons, they de­cided to throw a party at their Gas­town of­fice to cel­e­brate the episode and re­veal what had hap­pened. In the Den, they’d had an of­fer of $100,000 for 20 per cent of the com­pany, and while the cap­i­tal would have helped, it wouldn’t have changed the fact that Payso wasn’t grow­ing fast enough, so they turned it down.

The episode opens with Na­talie pulling out a large knife and lop­ping the top off a bot­tle of cham­pagne to cel­e­brate the Den’s 10th an­niver­sary. Cheek­ily, she asks the Dragons, “Do you have any change?” to demon­strate the dif­fi­culty of split­ting the tab in an in­creas­ingly cash­less world. Jake says he has the so­lu­tion to their bill-split­ting dilemma: Payso, an app that al­lows peo­ple to send money as eas­ily as send­ing a text mes­sage. The Dragons seem in­trigued but aren’t will­ing to make an of­fer that’s rich enough. The co-founders ap­pear un­fazed as they walk off set, arms around each other.

With the episode over, the of­fice ap­plauds and Na­talie pulls out a cer­e­mo­nial sabre and en­er­get­i­cally shears the top off a bot­tle of Beringer. The co-founders sin­cerely thank ev­ery­one for couches they’ve crashed on, pro­mo­tional help and their friends’ en­cour­age­ment through the tough points in build­ing a start-up. But as the evening winds down, Jake and Na­talie don’t say much. They’re both think­ing the same thing: They will need to pull the team to­gether very soon to tell them they’re shut­ting down.

The Wind­ing Path to Sucess

Fast-for­ward two and a half years and Jake, now 35, is the CEO of Finn AI, a block­buster Van­cou­ver start-up pi­o­neer­ing con­ver­sa­tional in­tel­li­gence in bank­ing apps on a global scale. Finn makes ar­ti­fi­cial in­tel­li­gence (AI) soft­ware for con­sumer-fac­ing fi­nan­cial in­sti­tu­tions—banks and credit unions such as BMO, ATB Fi­nan­cial and the Com­mon­wealth Bank of Aus­tralia — who host the com­pany’s technology un­der their own brands. The soft­ware gives cus­tomers bet­ter ac­cess to their bank ac­counts and var­i­ous per­sonal fi­nance tools.

Na­talie, also in her early thir­ties, is COO at Finn and has watched it grow from the two co-founders to over 50 em­ploy­ees in the past 15 months, with no signs of slow­ing down. One of the com­pany’s in­vestors, Hoot­suite co-founder David Ted­man, calls it “the fastest grow­ing busi­ness I have ever been a part of.”

Finn is com­pet­ing in a busy space where ven­ture cap­i­tal dol­lars are flow­ing into ar­ti­fi­cial in­tel­li­gence with dot-com ex­i­gency, and mas­sive play­ers like IBM and Mi­cro­soft are se­cur­ing much of the high ground. But as a highly ver­ti­cal­ized prod­uct, Finn com­petes with a rel­a­tively small num­ber of play­ers who are map­ping the spe­cial­ized needs of bank­ing cus­tomers. By anal­ogy, you could think of IBM’S Wat­son as try­ing to learn all the lan­guages in the world at once, while Finn is im­mers­ing it­self in the lo­cal cul­ture of users in a sin­gle re­gion, mak­ing its machines more flu­ent in ‘the lan­guage of money’.

While Finn and Payso might sound noth­ing alike, they are the same com­pany. The route the com­pany took from fledg­ling con­sumer app to cut­ting-edge AI plat­form for big busi­ness was any­thing but straight. In fact, their story some­what dis­pels the no­tion of the founder who re­ceives a sud­den iphone-like vi­sion and then deftly con­jures it into be­ing. It does, how­ever, re­in­force the nar­ra­tive that hus­tle, per­sis­tence, and most cru­cially, agility are needed to take a com­pany from start-up to stay-up.

The team’s jour­ney be­gan in 2014 when Jake called Na­talie, his for­mer class­mate at Spain’s IE Busi­ness School, and asked, “Do you have Venmo in Canada?” Back in Van­cou­ver, Na­talie replied, “If we do, I’m not aware of it.” Venmo was the mar­ketlead­ing mo­bile pay­ment app in the U.S., and Jake saw an op­por­tu­nity to repli­cate its busi­ness model in an­other coun­try.

Al­though the pair had been friendly with each other, they were re­ally just ac­quain­tances. Nonethe­less, Na­talie sensed Jake’s com­mit­ment to this idea and told him, half in jest, “If you come to Van­cou­ver for this, I’m in!” Two weeks later she was at the air­port to greet him with his bike, snow­board and the wry smile she’d come to know well. Within a few short weeks, Jake was liv­ing a cou­ple of floors be­low Na­talie in her par­ents’ base­ment, sketch­ing out the plans for Payso, the app he saw as Canada’s Venmo. The co-founders’ de­ci­sions to save cash for the start-up by spend­ing an ‘in­tense’ few months in close quar­ters showed them that their re­la­tion­ship as col­leagues could han­dle the strains of en­trepreneur­ship.

In 2015, there was a grow­ing be­lief that the large in­cum­bent banks would suf­fer — and pos­si­bly die — as fin­tech start-ups grad- ually lured cus­tomers away with bet­ter cus­tomer ex­pe­ri­ences. With user trac­tion and some key en­dorse­ments, Payso showed early prom­ise. It was ac­cepted to a na­tional start-up ac­cel­er­a­tor called Highline and to pitch on Dragon’s Den. Na­talie sought out some in­tro­duc­tions from her brother Jon Cartwright — a suc­cess­ful start-up builder in his own right, with key roles at and One of the meet­ings Jon set up was be­tween Jake and David Ted­man at a bar in New York City, which led to Ted­man writ­ing the first ex­ter­nal cheque to fund Payso.

Chat­ting over cof­fee at one of Van­cou­ver’s best known tech hang­outs, Ted­man is de­cid­edly un­der­stated in de­scrib­ing his role in help­ing found Hoot­suite — one of the town’s big­gest suc­cess sto­ries — along with Ryan Holmes and Dario Meli. But when I ask what it takes to suc­ceed as an en­tre­pre­neur, it’s clear he has given this a lot of thought. His views cen­tre on the abil­ity of founders to read­ily ac­cept ev­ery chal­lenge that comes their way and con­stantly re­ori­ent their think­ing to stay on the wind­ing path to suc­cess.

Ted­man ad­mits that he wasn’t bowled over by the Payso pitch when he first heard it. He’s of­ten skep­ti­cal of founders who say they’re ‘cre­at­ing Uber for X’ — as­sum­ing that the play­book of a suc­cess­ful, well-known busi­ness will work in an­other con­text. On the plus side, Ted­man did like Payso’s di­verse, hard­work­ing team. At the time, Chief Technology Of­fi­cer Guru Si­vananda was liv­ing in In­dia and es­sen­tially cod­ing non-stop to get a beta ver­sion of Payso out the door for mar­ket test­ing. Ted­man saw that the ge­nial and highly com­mit­ted CTO was the es­sen­tial ‘third leg of the stool’, and he re­ally liked the way the team dis­played hu­mil­ity, a strong work ethic and mu­tual re­spect. They were quite un­like the cav­a­lier, brash founder types that some VCS are fond of in­vest­ing in.

In the sto­ries of suc­cess­ful start-ups, it is com­mon to find founders who started with a deep con­vic­tion about cus­tomers’

needs, but no ob­jec­tive proof that their busi­ness will work. Airbnb’s founders, for ex­am­ple, faced in­nu­mer­able re­jec­tions from in­vestors, who thought the idea that peo­ple would pay to sleep on some­one else’s air mat­tress was lu­di­crous. Sim­i­larly, in the early days of Spacex, Elon Musk couldn’t point to any ex­am­ples of pri­vate com­pa­nies build­ing space-ready rock­ets for less than hun­dreds of mil­lions of dol­lars. Al­though both com­pa­nies ul­ti­mately at­tracted hun­dreds of mil­lions in cap­i­tal, the vast ma­jor­ity of the fund­ing didn’t ar­rive un­til af­ter the founders had braved the ‘pitch-and-pray’ phase — the tra­verse from ‘zero to one’, as Peter Thiel put it in his book of the same ti­tle.

In the Payso team’s case, the clas­si­cal wis­dom im­parted at busi­ness school was to ex­ten­sively re­search a mar­ket be­fore en­ter­ing it. Yet if the founders had fol­lowed that ad­vice, they would have likely been de­terred from start­ing the busi­ness. In con­trast to the nar­ra­tive of the founder who pic­tures in high def­i­ni­tion how their idea will be used by so­ci­ety, it seems the re­al­ity for many busi­ness cre­ators is akin to the role of Bruce Wil­lis’ char­ac­ter in The Sixth Sense, whose vi­sion is so ob­scured by a drive to suc­ceed that he doesn’t al­low for the pos­si­bil­ity of hav­ing a six-inch hole in his torso. By will­ing se­lec­tive as­pects of re­al­ity out of their con­scious­ness, th­ese peo­ple are ca­pa­ble of feats that lit­er­ally defy logic.

The ‘hole’ in Payso’s ar­gu­ment was that Canada was not a big enough mar­ket to cre­ate an in­de­pen­dent Venmo. Jake and Na­talie re­count in­vestor pitches where they would say that, as first mover, Payso had a good chance of tak­ing the en­tire Cana­dian mar­ket. Hear­ing this, some in­vestors would say, in ef­fect, ‘So what? Even if you did, the re­turn you can gen­er­ate in this mar­ket is not enough to jus­tify the amount of money you want to raise.’ The founders heard this a few times, and though it nagged at them, they didn’t truly in­ter­nal­ize it un­til later fundrais­ing trou­bles prompted them to face the is­sue head on.

Mean­while, the launch of the Payso app went well. As promised, it en­abled users to send money be­tween cell­phones with­out trans­ac­tion fees. Their small mar­ket­ing team was able to find a num­ber of groups — stu­dent clubs at Mcgill and UBC — that would have their mem­bers down­load the app in or­der to par­tic­i­pate in so­cial events and out­ings. The prob­lem was that Payso didn’t re­ceive any rev­enue from its cus­tomers, and it cost an av­er­age of $5 in ad­ver­tis­ing to ac­quire each new user. With no im­me­di­ate rev­enue model, suc­cess would prob­a­bly have re­quired the com­pany to be ac­quired by a fi­nan­cial in­stitu- tion that could find value in Payso’s users by sell­ing them other bank­ing prod­ucts.

When they ul­ti­mately shut down their peer-to-peer cash ex­change, the com­pany had 10,000 cus­tomers who had made about $1,000,000 in pay­ments through the net­work. To­day, Finn AI’S clients num­ber in the low dou­ble-dig­its — but their com­bined mar­ket cap is over $200 bil­lion. No longer con­strained by a sin­gle na­tion’s econ­omy, the user base spans five coun­tries and four lan­guages.

A walk through Finn’s Yale­town of­fice shows that they are clearly ex­pect­ing more growth. There is a large, un­used area at the front — not far from the desk where, day and night, Si­vananda can still be found ham­mer­ing out code, but now as a per­ma­nent res­i­dent un­der Canada’s start-up visa pro­gram (along with his wife and young chil­dren).

The com­pany’s busi­ness model has evolved dras­ti­cally since the Payso days. In­stead of pay­ing out-of-pocket to ac­quire cus­tomers that might be pur­chased some­day by a fi­nan­cial in­sti­tu­tion, Finn now gen­er­ates reg­u­lar re­cur­ring rev­enue from banks. In ad­di­tion, the ex­po­sure it has to mil­lions of bank­ing cus­tomers en­ables the team to con­tin­u­ally en­hance the in­tel­li­gence of its sys­tem. The anonymized data they re­ceive from ev­ery con­sumer in­ter­ac­tion grows their dataset of global bank­ing cus­tomer needs. As Jake ex­plains, “what peo­ple in Nicaragua want from their banks isn’t dras­ti­cally dif­fer­ent from what peo­ple in Canada want, and we see sim­i­lar trends in Europe and South Africa. We’re learn­ing from our cus­tomers.”

In an even more notable turn of events, much of Finn’s busi­ness is now fi­nanced out of rev­enue. This has not stopped the team from rais­ing mil­lions in growth cap­i­tal from well-known in­vestors such as Yale­town Ven­ture Part­ners and Fly­ing Fish Ven­tures. Jake and Na­talie en­vi­sion ac­quir­ing cus­tomers rapidly and have brought in cap­i­tal to ac­cel­er­ate mar­ket­ing. Re­cent fundrais­ing ef­forts cul­mi­nated in $14 mil­lion fi­nanc­ing. Such a mile­stone would have felt very dis­tant to the founders af­ter their first few months on the road rais­ing funds for Payso.

To stay on the path to suc­cess, start-up op­er­a­tors some­times need to tell them­selves a happy story to keep their spir­its up. Other times, they need oth­ers to do it for them. One such oc­ca­sion was per­haps the turn­ing point in Payso’s for­tunes. It was an enig­matic con­ver­sa­tion be­tween Ted­man and Na­talie over lunch at a Gas­town cof­fee shop full of young free­lancers hunched over Mac­books. Ted­man had asked Na­talie to meet him for an

Finn AI’S clients num­ber in the low dou­ble-dig­its—but their com­bined mar­ket cap is over $200 bil­lion.

up­date and she had been dread­ing it. She had no good news to share: Af­ter 24 months of work­ing on Payso, all the funds Ted­man and his friends had put into the com­pany had been re­duced to a dou­ble-digit bank bal­ance.

When Na­talie reached a point in the con­ver­sa­tion where she felt she had to ac­knowl­edge this, she was sur­prised by Ted­man’s am­biva­lence. She re­calls say­ing, in ef­fect, “Dave, we have $76 left in our bank ac­count. I’m so sorry.” Look­ing straight at her, his only reaction was a slight nod of the head. At the end, Ted­man as­sured Na­talie that the team would some­how fig­ure this out.

Find­ing a Way Out

How could a small com­pany with no money and es­sen­tially no staff not only es­cape oblivion, but emerge with a new iden­tity in one of the hottest mar­ket sec­tors around? The an­swer lies in the art of the pivot — a life-sav­ing swerve that few start-up founders have the agility and re­silience to ex­e­cute.

Jake re­turned to Sil­i­con Val­ley with no re­main­ing pre­con­cep­tions or in­hi­bi­tions. At the time, any num­ber of CEOS of es­tab­lished tech com­pa­nies had the re­sources to mus­cle into the mar­ket for AI bank­ing tools, but Jake was among the few who were truly ready for the next big thing.

Around this time, Face­book had been sig­nalling it would start of­fer­ing com­merce in­side its Mes­sen­ger ser­vice, and at its F8 de­vel­oper con­fer­ence, the com­pany for­mally in­vited out­side de­vel­op­ers to build chat­bots for the ser­vice. With a mix of good luck and laud­able fore­sight, the Payso team had been ex­per­i­ment­ing with sim­i­lar func­tion­al­ity of­fered by the work­place col­lab­o­ra­tion com­pany Slack, which en­abled users to call in a money trans­fer while they were chat­ting back and forth on the plat­form. Slack it­self was ac­tu­ally a good case study for the Payso team be­cause the prod­uct had grown shock­ingly fast out of an­other busi­ness that ul­ti­mately didn’t suc­ceed.

Slack’s Cana­dian founder, Ste­wart But­ter­field, had twice started video gam­ing com­pa­nies that shut down af­ter pro­duc­ing highly pop­u­lar in­no­va­tions — first Flickr and then Slack. Sim­i­larly, ‘Finn by Payso’ emerged as an off­shoot that took far deeper root than any­one an­tic­i­pated. Sens­ing some early changes in the mar­ket, Ted­man and Jake won­dered to­gether: ‘Could we ride the crest of Mes­sen­ger for bank­ing?’ They no­ticed Wechat, the equiv­a­lent of Face­book in China, was hav­ing run­away suc­cess with this model and it spurred them on.

When asked about the key parts of Payso’s re­cov­ery, Jon ob­served that you need to “lis­ten to your cus­tomers about what they re­ally need. You may find there’s a much larger op­por­tu­nity if you take the time to lis­ten.” This trait dis­tin­guishes Jake and Na­talie from any num­ber of founders who don’t ul­ti­mately find their way. When cri­tiques pile up, it’s com­mon for peo­ple — par­tic­u­larly driven, in­tel­li­gent ones — to shut the world out and cling even more tightly to the views they hold as true.

In early 2016, Payso had been ac­cepted to a fin­tech ac­cel­er­a­tor in Sil­i­con Val­ley called Plug and Play, and Jake found that the fi­nan­cial in­sti­tu­tions he was pitch­ing were re­ally warm­ing to the idea of ‘ What­sapp for bank­ing’. By in­vok­ing the name of the wildly suc­cess­ful global mes­sag­ing app that Face­book had pur­chased for bil­lions, Jake was again us­ing the ‘Uber-for-x pitch’ that Ted­man had warned against—but it was work­ing. It be­came clear over a num­ber of weeks that ‘bots for banks’ would soon be in high de­mand.

Ted­man liked the strat­egy of ‘sell­ing pick­axes in a gold rush’ and lean­ing in to the grow­ing de­mand banks were fac­ing — help­ing them rather than com­pet­ing with them. Look­ing at the mar­ket, they found that Ka­sisto, a com­pany that had spun out of the re­search in­sti­tute that de­vel­oped much of Ap­ple’s Siri AI in­ter­face for the iphone, was the only com­pany with a mean­ing­ful pres­ence in bank­ing. Other than that, the play­ing field was wide open.

De­spite the fresh new think­ing, Finn now faced a ma­jor hurdle. It needed tens — maybe hun­dreds — of thou­sands of dol­lars to prop­erly test a chat­bot prod­uct. Yet it wouldn’t be able to raise money from new an­gel or VC in­vestors be­cause too much cap­i­tal had al­ready been put into an idea that didn’t pan out — es­sen­tially shack­ling the com­pany to the in­vestors who stood to lose their eq­uity if the busi­ness folded.

The lead­er­ship team called a meet­ing of the en­tire in­vestor syn­di­cate in March of 2016 to pitch the new story. It was clear to ev­ery­one that the meet­ing would ei­ther be the pin to hold the pivot to­gether or the joint that would buckle with the pres­sure of in­vestor fa­tigue.

The team had been work­ing cease­lessly to ex­plore the pivot and they put ev­ery­thing they had into the meet­ing. On the wall of their board­room, they mapped out the key themes and po­ten­tial turn­ing points of the con­ver­sa­tion. Jon, Ted­man and Jake de­lib­er­ated on who to ask first for sup­port and how they might build emo­tional mo­men­tum as the call went on.

When the hour came and Jake di­alled into the con­fer­ence line, there was no way to know which way things would go. He had al­most a sense of de­tach­ment as he be­gan lay­ing out the com­pany’s new plan. In the end, the group’s ef­forts were enough: Cheques started drop­ping like rain — spo­rad­i­cally at first, and then in a del­uge. The com­pany built up a strong bal­ance sheet as it climbed through higher and higher tiers of cus­tomer ap­proval — first in Canada and then the world.

In clos­ing

To­day, Finn AI sits on top of a sound base of technology and data. Nev­er­the­less, it needs to con­tinue mov­ing fast to se­cure as much of the grow­ing mar­ket for fi­nan­cial AI as pos­si­ble. It could soon seek to raise a large round of cap­i­tal from lead­ing U.S. VCS to get the fuel needed to main­tain its tra­jec­tory.

Road­shows and fundrais­ing at that level will bring a whole new set of chal­lenges, but the founders seem as ready as ever to make the most of their com­pany’s strengths and drive it to the next level. When I re­cently met Na­talie at Finn’s of­fice, we found our­selves stand­ing in front of a wall that fea­tures ev­ery em­ployee’s pic­ture. “The clear­est sign of our suc­cess,” she told me, “is the qual­ity of peo­ple we are at­tract­ing to work with us.”

The cer­e­mo­nial sabre from the Dragon’s Den is mounted promi­nently above the wall of pho­tos. As cor­po­rate touch­stones go, it’s quite evoca­tive — bring­ing to mind leg­ends of brave knights em­bold­ened by their ideals. And per­haps that’s one way to view the twisty, chal­leng­ing start-up jour­ney: as a mod­ern-day mythic quest that re­quires both courage and re­silience. Those with­out a sword need not ap­ply.

It started with two: Na­talie Cortwright and Jake Tyler, co-founders of Payso and Finn AI.

The Finn AI team con­tin­ues to grow.

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