How can you be a perpetual start-up?29 September, 2016 / Articles
Venmo’s story is a vintage ‘start-up’ tale: two people meet at university, launch a tech company from their apartment with a loan from their parents and in a few years sell it for millions of dollars. Starting life in 2009, the company was one of the earliest movers in the now flourishing ‘fin-tech’ sector. It was then acquired by Braintree, which was later acquired by PayPal.
Venmo is a ‘digital wallet’, which provides a frictionless way for friends and family to transfer funds to each other. In 2015 the company – which has proven especially popular with Millennials –processed $7.5 billion in payments, an increase of almost 175% on the previous year. And Venmo continues its rapid growth. In the second quarter of 2016, Venmo processed some of $4 billion in P2P payments, an increase of 141% year over year. Time Magazine said Venmo was ‘disrupting your wallet’, and its leaders have worked hard to maintain that creative innovation culture even as Venmo has grown into a major payments platform.
Andrew Kortina and Iqram Magdon-Ismail launched Venmo in 2009 as a music tech company that let users send texts to their favourite bands and get mp3 tracks emailed back. But they quickly shifted to a finance-focused business model when they identified a gap in the marketplace, after Mr Magdon-Ismail visited New York City for the weekend and forgot his wallet. The challenge of paying his partner back by cheque led to the idea of building an app that enabled individuals to pay back their friends for a shared taxi or covered meal.
From the beginning, people questioned the viability of person-to-person (P2P) payments as a business model, says Matt Hamilton, Venmo’s senior product manager, who has been with the company since 2011. “But we saw ourselves as pioneers. It wasn’t about doing something better. It was about doing something that had never been done before.”
The tiny payment app company quickly took off, partly because it gave users more than just a transactional experience. One of the most disruptive elements of the model is the newsfeed that lets users see what their friends are spending money on. It quickly became a favourite feature, with users logging in two-to-three times a week just to see what their friends are up to.
This fusion of a payment system with a social platform drew the attention of investors. Within a year of its launch, the founders closed $1.2 million in seed funding, and two years later Venmo was acquired for $26.2 million by Braintree, which was later acquired by PayPal for $800 million.
A hacktive innovation strategy
Despite its rapid rise to fame, Venmo staffers, who now number around 200, embody an entrepreneurial culture where employees constantly take chances. “As leaders our goal is to remove the barriers to innovation so our people can challenge the status quo,” says Michael Vaughan, the company’s COO. One of the team’s favourite ways to reinforce that message is through Hack Weeks (based on the Silicon Valley-inspired meaning of the word, to refer to clever modifications, rather than cyber-crime).
Staff participate in an annual week-long hacking challenge where they pitch ideas to drive the business forward, and employees team up to “hack them together”. “Anyone who has an idea can pitch it to the group, and people work on whatever project interests them,” says Mr Vaughan.
Mr Hamilton believes that these events reinforce the innovative spirit the company is built on and create a platform where good ideas can quickly emerge. He points to the app’s emoji “auto complete”, which was a Hack Week project that has since become one of Venmo’s most popular new features. “We never would have prioritised that project if it wasn’t for Hack Week.” With emojis featuring on more than a third of all Venmo transactions, this function allows users to type in the emoji expression they are looking for to save searching the archives, and gives pop-up emoji suggestions.
That thinking also helps the company drop ideas or products that are no longer working. For example, the app initially had a “trust” feature that let users auto-confirm payments between acquaintances, who frequently exchanged money with an accept/decline step. “In the early days it was core to Venmo’s existence,” Mr Vaughan says. But as the company grew, there was increasing confusion about what the trust feature did, which ultimately caused them to shut it down. That upset a lot of loyal users, he says, but it had reached the point where the feature hurt more than it helped.
“Rank and yank”
To avoid introducing customers to new features that may not stick, Mr Hamilton’s team has adopted Google’s “design sprint” methodology to rapidly prototype and test new ideas before rolling them out to customers. This helps them try a lot of things but then focus on the ones that show the greatest potential. “We have a lot of great ideas,” says Mr Hamilton. “My job is to make sure 85% of them never get built, because we only want to work on the ones that can deliver home runs.”
Mr Vaughan admits that such a “fast fail” attitude was easier to encourage when the company was small and had nothing to lose. “It’s easy to take risks when you are starting from scratch,” he says. His goal now is figuring out how the team can maintain that competitive edge while finding a place inside a publicly traded Fortune 500 firm. “It’s a balance,” he says. “We can’t spend all of our time trying out new ideas, but to be disruptive we have to keep innovating on behalf of our customers.” For now, Venmo will preserve Hack Weeks, and invite cross-functional teams to the table so new ideas can bubble up. “Innovation is in our DNA,” he says. “It’s how we will stay true to who we are.”