It all started three years ago, I had this crazy idea to start a bank... For some reason I have always been intrigued by banks, I don't know if its because I love the idea of building systems that manage peoples money, or the fact that banks are this big black box, and I wanted to peer inside. For whatever reason, I saw it as an impeccable challenge, and I wanted to "solve" it.
Skip forward a couple months after I had this banking idea, I found two co-founders, and we began speaking with HNM(this isn't their real name...) a sort of fintech startup bank that was solving the pain-point fintechs have getting access to banking API's. It was at this point that we began our first "pivot"... What we learned about the financial industry is that banks, in this case HNM, really like transactions. We were initially under the assumption HNM would want deposits, and some, maybe most banks do, but HNM's operating model was to process transactions, taking a tiny piece of each one. Our contact at HNM, Sandy, explained to us why this was a great model, which then got us thinking, are we sure we want to be in the consumer digital banking space, or do we want to explore what a transaction based payments solution/startup may look like?
Ultimately we decided to explore a transaction based payments product, and then we decided to focus on the international side of things. Im not sure if it was because I had experience trading Forex in college, or because my friend owned a boot company that was paying its employees in Guatemala, or maybe it was the fact that this is a $200bn/yr industry, whatever reason we decided international was the way to go.
Fast forward 1 year after the initial bank idea, and we had begun developing an international payments app using HNM's banking API. We designed it to feel extremely similar to Venmo, building an entire system to manage balances, being able to send money to anyone with just an email address, etc. At this point we were acting like super nerdy engineers building a product that we thought would be an MVP and really not doing any market research. We eventually got to a point where we wanted to go live, but something kept nagging us, how do we make money off of the transaction?
In international payments, it is quite simple, you typically take whats called the "inter-bank exchange rate or mid market rate" (that is basically the rate that pops on your screen if you were to Google "USD to MXN"), then you would mark it up by a percentage and your revenue is the difference between your markup and the inter-bank exchange rate. So if you mark up the exchange rate 3% on a $1000 transfer, you would make $30 in revenue. Super simple right? That's what we thought, until we discovered the deep dark hole of international bank transfers...
Here is the shortened rundown. HNM at the time had access to a bunch of different currencies, but they only had "direct access", meaning they actually built those payment rails, to a few currencies, for the other currencies they leveraged a third party payments company. The problem with this, is that HNM was marking up the exchange rate that was being received from their third party, and that third party was marking up the exchange rate they received from one of their banking partners, so by the time it got to us and ultimately to our end user/customer it would have been marked up and cut down like 4 times! Do you see the problem? How are we supposed to compete when our solution is so much more expensive than the rest of the market? After finding all of this out we decided to explore the possibility of working with a third party payment provider so that we could cut out the middle man and get the best exchange rates, which would hopefully lead us to offering a more competitive product in the market.
Now we are easily a year and half since the original idea of starting a bank. We have been speaking with third party payment providers, and have finally found one that we think is extremely forward thinking and will be easy to work with. During the six months since we decided to work with a third party provider we have learned a ton and met a lot of people in the industry. It led us to believe we knew what type of product the market needs. Which now brings us to our second pivot...
We decided that instead of building a wallet based app (think PayPal and Venmo) we wanted to build a product that lets businesses, send money from a bank account in one country to a bank account in another country. In a nut shell it is an international accounts payable solution. We have decided that we are going to charge 1.5% per transaction, and focus on SMB's who are moving money from USA to Mexico. BAM! This is it, we are thrilled, but instead of jumping the gun, we build a truly basic MVP, get a few customers and start our business. Not sure if I have mentioned this yet, but up until now we all have been working full time jobs, doing all of this at night, early in the morning, or at lunch breaks, super hustler startup mode.
Lets fast forward now to December 2017. It has been almost two years since our initial bank inception and we have the epiphany that if we are going to really make our business successful one of us needs to take the jump and run it full time. Not sure if anyone has ever made the jump, but it is an extremely terrifying thought, and it truly is a "jump of faith". It took a lot of pep talk from one of my friends Tom McLaughlin who runs Mason, and a bit of encouragement from my fiance, now wife, but I decided to start the new year, 2018, completely self-employed.
The plan... I was going to focus on growing our company, finishing off some integration's, and get it setup so Richard, my co-founder could jump on and we could limit the amount of risk exposure we had. Plans sounds great in theory, but things happen, running a company is hard, and Richard ended up jumping on the full time train a bit early in March of 2018.
Now at this point we have a few customers, Richard and I are focused on driving sales to the company, but little did we know, that we know nothing about enterprise/b2b sales. We started reading as many books as we could, and eventually muster up the courage to start cold calling prospective companies. For the entire month of April, Richard and I dialed 50-100 companies a day each, with the intention of getting a decision maker on the phone and eventually closing the deal. What is funny/ironic is during the cold calling month of April, we learned more about our company, and about what the market wants than we did in the two years prior. Who would have thought? Definitely not the author of the lean startup ;)!
Here we are going into May of 2018, still working on closing out some of the customers we had been talking to in April. Richard and I were working out of the WeWork in downtown Austin, we went outside to take a stroll, for the past week or so we had both been in a weird funk, and we weren't sure why. Maybe it was all the rejection from the cold calling, or maybe it was the dark thought in the back of our heads that we didn't truly believe in what we were selling? During that walk I looked at Richard and said "What we are building is not innovative, we have no competitive advantage other than the fact that we have a nice UI, how long can we sustain this model?". Then to my surprise Richard agreed with what I said. Enter Darth Vadar music... This is when we realized we were about to pivot again.
Now, here we are, 2 1/2 years into our business, self funding the whole thing, and we have this realization that what we are doing is not the right thing to do... What do we do from here? We definitely did not want to pivot AGAIN, but at the same time we knew that what we were building was not going to be sustainable for the future. For the next couple days we toss some ideas around, create a ping board, and try and think about all the data and concerns we collected from April. what we came up with was the beginning of Routefusion.
Our idea was this... All of the customers we had spoken to had one major concern thus far, and that was price. How do they know that we are going to give them the best price in the industry? Great question right? The only way to truly get the best price in the industry is to have some sort of marketplace that shows what the best prices are, sort of like Kayak. We knew that liquidity providers like to keep their pricing extremely close to themselves and do customer by customer pricing based off of the expected volume a prospect is going to "flow" through them. This meant the idea of a traditional Kayak type marketplace for global payments was off the table. What if instead we created a market network search algorithm that found the best exchange rate for a given currency pair between all of the liquidity providers, and then simply routed that payment through their payment rails, taking a percentage of the revenue generated? Now that, that was an innovative idea, and so then here it was, our third pivot. This pivot was different though, we had finally found a way to be extremely innovative in the space, this was an idea that was VC back-able, and with all of the industry experience and the connections we had been exposed to over the previous 2 1/2 years, we thought why not build this thing, raise some money, and shoot for the moon!? So that's what we did, we re-branded the company as Routefusion, and began building our new market network algorithms and fundraising.
From May-November of 2018 we built out our product, on-boarded some customers from our previous company and fundraised. We had been making such great traction and were getting so much interest from investors that we stopped focusing on acquiring customers (don't make that mistake), and were only focused on closing a pre-seed round of investment. During this time period we did get selected as one of North Americas top fintechs by Money 20/20 and made it the final rounds of Ycombinator and Techstars, but because we let our sales guard down, we couldn't close those accelerators, and couldn't get terms that we liked with investors. So November hit, and we truly felt like our backs were against the wall. We had gone almost an entire year and had very little revenue to show, we had no official sales/marketing strategy, but we had a product and vision that we knew was going to change the landscape of global payments. We decided to finish 2018 out really strong and see where that would land us in 2019.
Fast forward, to present day, mid February 2019, and we have developed a sophisticated marketing engine, finding leads and generating new ones on a fairly small budget. We have more customers in the pipeline than we can handle, so we brought on a new sales person to help. We also were needing help on some of our engineering tasks, so we brought on a junior dev. Something funny though has happened in between November and February, we somehow managed to make our 4th pivot...
We initially built Routefusion as a way to find the cheapest exchange rates, but what we found is that through our strategic partnerships we have unlocked the ability to set our own rates within the market, so we can go as low on pricing as we want, voiding the "lowest cost routing algorithms". Inadvertently, we have started connecting the "plumbing" between all of the third party payment providers. You see, in the crazy world of international payments, everyone has their own unique value proposition, some companies may be really good at handling micro payments, some companies may be amazing at high value low volume payments, etc. Either way you look at it, the industry is extremely siloed, and very diverse. What we have built is a way to connect all of these companies and value propositions together under one central unified API and user interface. My vision for this industry is that companies like Routefusion will become the de-facto solution for new fintechs, banks, financial inquisitions, etc, because we are unifying the industry under one roof. No longer do you need to go searching for multiple API's to handle your complex payout solutions, instead you can integrate with one API and get access to the entire industry, it is a no-brainer. So without even realizing it, we managed to pivot for the 4th time, which brings me to the moral of this article.
During the early stages of your company you are going to pivot, it is natural. Think of pivoting like being the captain of a boat. As the captain you have a destination in mind and are heading towards that destination. Along the way storms may arise, and you may have to veer slightly off course so you don't crash your vessel, but as long as you stay focused on where you are heading and don't do a complete 180 you will eventually arrive at your destination. Routefusion has made 4 different pivots and I know that our company is going to slightly pivot again, but at this point, they are going to be natural minor tweaks, not full on re-routes. Don't be afraid to make a pivot, it may seem like you are starting over, but its a natural progression, just be cognizant about how you are pivoting, and keep pushing forward, don't look back, and please don't turn around.
If you made it this far congratulations, you just read 2400 words!