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That'll do, pig, that'll do (medium.com)
409 points by exolymph on May 13, 2016 | hide | past | web | favorite | 203 comments

This isn't about an "app". This is about a business that initiates transfers of money from one account to another. The people behind this didn't realize what business they were in.

If you want to initiate transactions in the financial system, you have to work through what happens when things go wrong, and be prepared, financially and operationally, to handle them. How does the money get from the parent's account to the kid's account? Note that if the kid can get cash out, you can't fund this with a credit card. Visa and MasterCard don't let you buy money with a credit card; that's too fraud-prone.

So, as someone pointed out, you're back to ACH debits. Getting set up for those is hard, for good reasons. It gives you a connection to other people's bank accounts. So you need financial strength, bonding, and good references.

Note that the chore list has to be secure, too. Otherwise the kid can add "Mow lawn, $1000", check off the item, and drain the parent's account.

If you try to do this by having the parent transfer money to you in advance, and you then release it to the kid later, you're now a depository institution. In most states, you have to be a bank or a money transmitter to do that. (It's so tempting to take the money and run, and that's happened enough times that such businesses are regulated.) Also, that's a pain for the parent. They might as well use Venmo.

PayPal was successful partly because, back when they were above the bike shop on University Avenue in Palo Alto, they started as a security token maker. So they had security people and were familiar with the problems. A big portion of PayPal's operating costs come from dealing with fraud. The legit transactions are fully automated; the problems require a big call center.

I don't understand why they couldn't simply release the app without the money transfer part, and it would just keep a tab of how much the parent owes the kid. Then, when the parent gave cash or whatever, the debt would just be wiped.

Pretty much "freshbooks for chores".

Here is the author answering a similar question: https://medium.com/@oscargodson/the-whole-concept-we-were-se...

(in short: a mixture of "that's not what people liked about the concept" and "not big enough of a goal"?)

You don't get to say what people like about something unless you let it out into the world. There are so many cases where people built and released something just to find out people love it for the reasons they never expected. This guy makes it sound like he knows why he failed but it's far from it. The biggest reason they failed was because they never released anything. The first thing you learn as soon as you release a product into real world is that people say one thing but do another--so many people say they love something but they never use it. Only way to get around is to release it in public and find the early adopters who WILL actually use it (instead of just saying they like it).

>> The first thing you learn as soon as you release a product into real world is that people say one thing but do another--so many people say they love something but they never use it. >> @galostoca above

That right there, is the whole truth. Not only do they not use it, they don't buy it to begin with. What sells and what people like are not the same as what they need or think they need.

Case in point. I developed a process, software and hardware, to take an ordinary photo and turn it into a 3D carving in the early 2000s. There were CNC programs that could do it with a lot of human touch-up, mesh manipulation, and machine coding, but mine went pretty seamlessly from photo to 'send it to the machine'.

Everybody, everybody is not just family and friends, loved it when they saw the photo and sample maple hardwood output side-by-side. People made statements like, 'I would pay an arm and a leg to have a door carved for my house'.

I brought the carvings to wooden boat shows with my and my partner's handmade seagoing kayaks, and people flocked around our table/booth. 'Can I get this on the kayak too?' Not one sale! The only money ever made by it was doing carvings on wooden urns for a local animal or pet cemetery. In similar fashion, I had an offer from a company that did bronze bas relief plaques for tombstones for a one-time purchase of my software! Needless to say, this didn't help with my emotional state, Stephen King references aside.

Thanks for sharing your experience. Yeah for the first couple of times I was heartbroken (It still happens), but now I've learned to embrace it. Nowadays when I have an idea, instead of asking the same dumb question to people "Would you use this?", I try to build an MVP as quickly as possible and let the product do the asking, and users answer with action instead of words.

Like Steve Jobs said, people don't know what they want. This is not a condescending comment, it's a great insight that comes from being able to understand how human mind works.

I still don't understand what made them want to reinvent venmo to pay kids for chores

Neither do I, it doesn't sound like a very fun challenge.

Where "reinvent" = something totally different. For one, it's not reciprocal, only the kid side gets money. Second, it involves chores, not splitting bills etc where money are shared. Third, it was supposed to use the currency to be able to buy apps etc, not get actual money. And lastly, there's the kids angle. Sure, it's about debt and value exchange, but that can be said for tons of apps, even a bitcoin exchange.

Would be a perfect way to introduce kids to cryptocurrency. No need to deal with regulatory agencies. The "points" (btc/ether) are actually worth something (whether more or less in the future).

kid marks they've completed task, parent xfer bits to kids wallet. Kid can now buy games at newegg or gift cards from tons of stores through Gyft.

the smart kids (like my oldest daughter) roll the dice and Alex p. Keaton it for long term savings that has decent potential to multiply in value.

I do this with my kids already, but with no app..just verbal "do this and I'll pay you $0.25 in bitcoin" an app with actual chore list they can work through and automate fund transfers would be awesome.

If you're a rich VC make sure you PM me to partner up. There's only one way to successfully monetize this, and I'm the only one who knows it.

Small target market but growing every day...the power of "frictionless transfer of value outside the insanely regulated walled garden of fiat banking and high finance"

Very close to what I was thinking. BTC or possibly a credit card for the kid to use. Doesn't need to go through a bank. Kid gets a card, parent accepts chore, piggybank charges parent, piggybank credits kid.

The problem as I see it is the founders didn't think about what they were doing, and didn't have the right attitude to find another way.

Yes, shift the fraud risk to the family situation; offer any actual financial transfer as an upgrade.

can bitcoin be converted into money outside the US?

There's plenty of exchanges outside USA. Safello is currently the big local one here in Sweden, and there's plenty of bigger ones in other European and Asian countries.

It sounds like they did the user research and found that having an actual debit card was a big part of the draw of the app.

I could believe that. When I was a college student, it was a big deal when my parents got me a credit card. Even if you are limited in what you can spend, it shows that you're integrated into the same financial system that adults are and can make your own choices with money. You don't get that with a virtual currency or parents dispensing out $20 bills.

Couldn't you just piggyback another service like PayPal to process the payments? The PayPal student debit Mastercard is/was available to anyone over the age of 13. Then when you specify the chore and amount, the app sends the amount to the kids' account and therefore the card.

The card doesn't seem to exist any more, but it sounds almost exactly like what this app does (without the todo list functionality). It's linked to a parents' account so they can provide cash for fuel/going out and can keep track of the kids' expenses.


The challenge is storing money, legally, on behalf of a customer. No normal startup can afford to get licensed.

So you need to legitimately work around the 'stored value' problem, i.e. you need to find a 3rd party with a legal solution. That's either a real bank account or a prepaid card. And the 3rd party has to have an API that allows you to open accounts, execute transactions, etc.

The card program requires a bank partner too. And card programs cost 10K+ a month to run, regardless of whether or not you have 1 card issued or 250,000. Lots of cash burn early.

So that's the target state. Johnie outlined some nice interim steps below, but this is not simple. Oscar took on a challenging business problem.

> When I was a college student, it was a big deal when my parents got me a credit card.

That sounds incredibly odd to me. Aren't you 18+ when you get into college? Couldn't you just get your own debit card without parental involvement?

If you're generating suitable income, which many college students are not, and have a suitable credit history, which many college students do not. Credit card companies want to make sure they'll be repaid. It's pretty common for them to require parental co-signers (or just issue an additional card on the parent's account) for people who don't have a full-time job.

For a debit card - yes, you can just open a bank account and get one. You need money in the bank account. If you arrange a way to automatically transfer money into a kids' bank account at the touch of the button, you end up with an app much like this postmortem.

Because then it's basically just another todo-list app that shares lists between parents and children. That's neat, but hardly the kind of thing that needs a whole company behind it with lots of funding.

So do it in your spare time over a few months, release it and charge 99 cents, and maybe make a little money

Company in the uk www.roostermoney.com is this

I'd pay for that.

Right on. If you're getting into the ACH debit business there's also a set of rules established by NACHA (aka 'NACHA compliance') which regulates the transactions and controls them to the point where you have to obtain payees explicit approval to move the funds.

Which is why if you pay your credit card statement by phone for example, you'll hear the service rep read the consent form for you to say 'yes' once they are done before they can withdraw the funds.

Obtaining explicit approval doesn't sound like it needs a special regulation. That is standard contract law.

Does ACH have problems with actors making unapproved transactions from other's accounts?

Yes! Look up ACH fraud. ACH is such an antiquated system. The only pieces of information that you need to do an ach pull (transfer) is the routing number and account number. Lo and behold, this is the same information that is on every check that you give out.


To answer the other part of your question, originating financial institution (ODFI) can issue a chargeback up to 60 days after the money was sent. Unlike credit cards, there isn't a process for the merchant/service provider to refute the dispute.

So, the bank account owner can dispute the ACH transfer with their bank a month and a half later and it pretty much assured that they'll get their money back. Their bank isn't going to fight their own customer for it.

This information from my landlord is written into my lease agreement on my home. Every month I use his routing and account number to pay rent. I cringed when I read about ACH fraud.

It's also on the bottom of every check that anyone has written to you. It's a poor secret.

One bank I worked with essentially had two separate routing numbers - one for the checks vs one for ACH along with separate check and ACH/wire accounts for their corporate customers.

So, if I receive an ACH payment on a contract, I'm at risk of my bank pulling the funds from my account for 60 days?!

There are a few factors involved. If this is your personal checking account you're almost (lol) 100% safe.

If this is a merchant account which it needs to be if you're pulling from other ppl's accounts then yes. Hence the very strict consent rules. At the end of the day there's no guarantee of course but if it comes to litigation a recorded message with a verbal approval might tip the scale in your favor. Most merchants don't bother of course and just write this off as a cost of doing business and recoup the funds by factoring fraud costs into their prices.

Right. And yet, it is an app. They wanted to start a money transmitting business so they could provide the questionable value of a chore list app. And that is a big part of why this was a bad idea.

The easy way to do this would be to have it be an add-on feature for something like Wells Fargo Teen Checking.[1] That gets teens a debit card. The only allowed operation would be a transfer from the parent's account to the teen's account. It's not a standalone startup then, though, so you don't make tons of money. But Wells Fargo is having trouble in the mobile space, so credible app developers might find it worthwhile to talk to them.

[1] https://www.wellsfargo.com/checking/teen/

Seems like there are lots of good suggestions here. Would be good if there's a way for HN to offer advice before the startup dies.

I'm not sure why they couldn't have used Stripe's "send money to debit card" feature [1]. Or they could have integrated with Paypal's API. Or they could have integrated with Square Cash, for near-instant debit card to debit card transfers [2].

Finally, they could have simply kept track of a kid's balance for their parents, and made a button to send mom and dad a push notification that they would like their money the next time they are together. That probably would have been the most useful of all these things.

They certainly didn't have to let the fact that they couldn't do things exactly as seamlessly as they wanted be a startup killer. I have had this attitude in the past, but then I would look around and discover people doing similar things with great success, using the alternative methods around roadblocks that I had dismissed as unacceptable.

If they really wanted to pursue this project, they could have done it.

[1] https://stripe.com/blog/send-money-to-debit-cards

[2] https://cash.me

That's only allowed if the destination is a "seller", and the debit card is tied to a bank account. You can't send to random pre-paid credit cards. That would be the scammer's dream.

Also, Stripe transfers funds to recipients only once a day at best. For many accounts, it's once a week. (This is also true of Venmo, but they hide it from you in the app. Send some money to a nearly empty account with Venmo and then try to spend that money, and it becomes clear that Venmo's immediacy is an illusion.)

>Send some money to a nearly empty account with Venmo and then try to spend that money, and it becomes clear that Venmo's immediacy is an illusion.

Regular bank accounts work that way too, when you deposit a check.

In the US that's true. Here in 21st century Britain I can initiate a bank transfer to another person from my phone, and they can immediately spend that money.

But can you do that on a large scale?

In the UK yes. Their payment system is a long way ahead of that in the USA.

In fact, for much of the world, this "deposit a check" is definitely from last century. Instant transfer is reality in Europe, and even many countries in Africa and Asia operate mobile banking services where transfers happen right away.

The currency is not necessarily cryptocurrency; it can be "air-time".


Here is a dirty little trick to make sure your check appears instantly in your account -- first you cash the check, then you deposit that cash to your account.

I'm working on a fintech startup where the product is backed by a company with a ton of experience and cash. The complexity around moving money around and even advertising financial services is almost mind boggling. Doing this as an "outsider" seems downright impossible.

I'm surprised anyone thought this was a good venture funded business idea. And there's no reason to use cash. "Points" would be totally sufficient. In fact probably a lot better for the demographic.

It seems like this could have worked if the parent bought points and the kid could redeem earned points for gifts like Amazon gift cards, etc. This model is used by a lot of corporate reward programs.

Buyer beware. May of the things you mention are regulated or banned should be allowed, and let the buyers and businesses handle differences in court via contact law.

Contract law is just ~wonderful~ when you can't track down the person who's just run off with your life savings, or has invested it all badly and lost it entirely and no longer has any money to return to you. But let's punish people by destroying their lives for making bad decisions about who to trust, right?

Contracts can be tricky, and expensive, to enforce across national borders

I feel that there are structural problems with this business concept that wouldn't be solved by a bank partner / additional capital / etc. Note that I am not a parent.

The fact is that kids should not be paid for chores on a chore-by-chore basis. This is perhaps the way that you should do things if you just need labor from your children, and want someone who will rake the leaves for cheaper than a hired gardener. But most parents also want to teach their children good values, and one of the most important social things to learn is about reciprocity in relationships. In transactional relationships, where you will perhaps never see the person again, reciprocity must be established immediately (paying for a cab ride, tipping a pizza delivery person). But in social relationships, immediate 1-for-1 reciprocity actually damages the relationship. If you were invited to a dinner party, would you try to pay the host for the cost of your food? Of course not. If it's casual friends, you might bring a bottle of wine, and if it's very close friends, you may not even do that, as you know you will be inviting them over at some point. Paying a child per chore teaches them to treat their family obligations as transactional obligations, rather than teaching them about the nature of reciprocity in a close personal relationship.

Also, when teaching kids about money, I think that many parents prefer to teach kids about "the value of a dollar" with cash, rather than with a bank balance. My parents opened a bank account for me in 4th grade, which was very unusual at the time, to encourage me to save my money, but even then I found that spending money was and is a lot easier when it's a number on a screen than when it's paper money that you take out of your wallet. By first finding pennies and nickels on the street, then getting $5 bills from their parents, and then graduating into a bank account, people learn to appreicate just how many found nickels it takes to buy a flatscreen TV.

When I tunred 5, a beloved great aunt gave me a crip $20 bill for my birthday. My mom helped me open a bank account, and deposit the money (along with the contents of my piggy bank). About a week later, I wanted to know if I could get my $20 back out to admire it. I was told that I could get a $20 bill, but it would not be the same one. I found this very upsetting, and I think I may have cried.

They should have told you that $20 bills are like electrons: Every one of them is the same one. :-)

Not sure if the kid would believe it when he gets back a wrinkled old bill.

Whenever I've withdrawn money from a bank in person I've gotten nice clean bills, fwiw

Christ that's heartbreaking.

I can't tell if you're being serious. Are you? It doesn't seem heartbreaking to me at all, it seems goofy in a very typically childish way. It's a $20 bill, not the death of a pet (or a grandparent for that matter), or a parental divorce, or some other genuinely heartbreaking event.

Consider de Balzac's Eugenie Grandet: Monsieur Grandet is something of a tragic character, tormented by the fact that he could not both circulate his currency and have it too.

that's why we have to move back to gold standard.

Those aren't structural problems, they're a difference in opinion on how to raise kids. You may not think that's a good way to teach kids about finances but that just means you're not in the target market.

That's true. What I should have said was "market size problems." The size of the market depends on how many parents think that this would be a good idea to use with their kids.

> Paying a child per chore teaches them to treat their family obligations as transactional obligations, rather than teaching them about the nature of reciprocity in a close personal relationship.

Plus, the child then has the option of turning down the chores if they decide they don't need the money.

As a parent, let me say that I think it's ok to pay kids for chores, as long as it's clear that not everything you ask them to do gets them $$. Just these specific things. Then, when my kid has dropped yanked on her tablet power cord one to many times and has to buy another for $8, she appreciates those $8 more.

I agree that physical money teaches that lesson better, though. This app seems to be a solution in search of a problem.

As an aside, what is the deal with kids and tablet cords!?

(Vent over, you may resume your conversation.)

As a kid, I had a set of chores I was expected and required to do. Then there were chores I could do, above and beyond my normal list of chores, that I would be paid for. I had no allowance whatsoever.

I think this method is best. In addition to teaching me to be industrious and to spend my hard-earned money wisely, it had the (probably unexpected) side benefit of teaching me to negotiate raises. Upon deciding that the pay wasn't worth the labor involved (when I could mow neighbors' yards instead for more money), I mentioned this. My mom, who is in management, replied, "Well, what do you think these are worth, then?" And then we negotiated to a mutually-acceptable set of numbers. This probably happened again after I got my first part-time job at 15.

Extra chores, at a couple dollars each, are how I paid for my own NES and the handful of games I had as a kid, since my parents didn't buy me video games. You had better believe I took immaculate care of them.

That does sound like a reasonable approach. Some chores are just part of your obligations to the family, others are "extra credit."

Excellent point about reciprocity! Children should be encouraged to do good thinks (incl. acts of service) for each other not for payment, but for the sake of the relationship itself.

I'm surprised they got as far as they did with such a weak idea.

> Note that I am not a parent

Does that really matter? Starting to get a bit fed up with this concept that parents are somehow blessed with esoteric wisdom that people without children can't possibly grasp.

It's a fairly simple concept and surely even a childless person can understand where and why this went wrong. It's not as hard to imagine life with children as parents seem to believe.

I can imagine that once a person has more demands on their time, their willingness take the quick and dirty approach increases (TV babysitter, bribes for chores, etc)

> But in social relationships, immediate 1-for-1 reciprocity actually damages the relationship.

I'm not sure if your opinion here is anything more than cultural bias.

I see nothing inherantly damaging about such behavior.

When the people evolved have different financial condition, it _can_ easily damage the relationship.

If the host accepted money for food, they'd be opening themselves up to liability and be violating restaurant laws.

Agree with you in spirit though.

I'm not entirely sure why there needs to be a financial services or banking contract to build this app and startup. What's wrong with PayPal? Or bank accounts? Or Stripe/Square/Braintree? Paper checks?

This might be a little harsh for what seems like a sincerely useful app and startup, but the problem with the "Yo" startups is that it's just raking leaves (money) to compost them or light it on fire. If the value is in the app, sell the app. If the value is in other people's products and services, then there's no value in it. And if the value is in the "idea" then it's hopeless. If the value is in the fundraising, then we're lost.

What I don't see is why the idea, PiggyBank, couldn't be functional in the first week. Just like I don't see why a company needs $X billion with no imaginable costs or expenses to put that money toward.

Let's say it isn't possible to do mobile-to-mobile payments (which I think it is), or online payments, without owning a bank — then why not release the same app and when you do the chores for your parents or your uncle they put money in a jar? Beyond not making revenue, having users is at least some sort of reward. When you have the revolutionary breakthrough, add that to the app.

And finally, don't leave your job over something you think is a good idea. Make it a reality, and if it takes all of your time and it can support you, then make the jump.

Obviously these aren't things any founder wants to hear, but someone with a greater risk aversion might be able to be as productive with a more realistic focus than the average SV press release.

Edit: Obviously this is a little naïve considering all things, but I'd still like to see the payments possible on a "small business" scale of things.

I'm also curious about the bank integration issue, but I'm tired of people saying things like why app x or website y "couldn't be functional in the first week".

have you launched an app that you expect to build a company out of? it takes a lot more work than most people think. people love to over-simplify building software by saying 'its just an app', oh, twitter is just a list of sorted strings, seriously try building a solid, fleshed out product you expect thousands of users to use in 1 week. it's not that easy.

Reading a bit more into the financial side of things — PayPal users must be 18 or must be using their parent's account. Adults can have one personal and one business account, so that wouldn't really work. It also isn't easy to get a plastic PayPal card.

I hadn't thought about the minor accounts which obviously complicates things. It would have been harder to pitch but easier to start with small payments between friends in the app and work back around to the chores/PiggyBank idea.

Still seems reasonable to expect a parent to set up a bank account for their child and then facilitate PayPal deposits into an account. ACH deposits have low fees but they're delayed one or two days. Was instant gratification the blocking factor? Why not use Bitcoin, for the hell of it.

So I don't see what the problem is with — supply your own debit card, child's bank account, and adult PayPal account — then sign-up and press on.

Fair points. I really am commenting as an outsider, so don't think that I speak from experience. As a programmer, though, I am much more interested in seeing something built than in selling it or seeing it become popular, which fair enough are the next two places a startup can fail.

"One week" is also hyperbole because it isn't possible to deploy anything in that amount of time, so maybe in the first six-months is a fairer comparison.

> "One week" is also hyperbole because it isn't possible to deploy anything in that amount of time, so maybe in the first six-months is a fairer comparison.

Not true. One week is plenty of time to plonk down a website in a basic CMS with an email form, or even a bit of code that sends you a daily spreadsheet of orders or whatever. Often that's all you need to validate the idea.

Yup, and you can even spend $50 on AdWords and estimate your CAC by measuring conversion rates.

It is true that it's not easy. But one's job as a founder is to find a way to "make it functional in the first week". They even have a whole startup jargon for it--"Lean startup/MVP". You can sit and just complain how difficult it is and not do anything about it, or you can find a way to validate your hypothesis little by little. Again, I know this is not easy, but the OP should at least realize the reason he failed was not because the world fucked him up, it was because he couldn't come up with a clever way to validate his vision despite the difficulty. The better approach in this case would have been to figure out a way to release an MVP without trying to rely on an assumption that the bank deal will go through. There could have been many approaches like others pointed out in this thread.

> it's not that easy.

It really is.

I do a lot of contracting for startups and the vast majority of launchable MVPs can be built in a week.

PayPal, Stripe, Square, and Braintree (which is PayPal) are interested in helping merchants accept payments for goods and services. Dunno about Square, but PayPal and Stripe explicitly disallow the use of their platform to build any other money-sending service.

In generally children need to be driven to the bank by their parents, so why we'd also loop in a 3rd party (instead of the parent writing the child a check) is unclear.

My family solved this problem by maintaining an informal ledger and settling by transfer between our (linked) accounts at the same bank, but there's no way a random startup would get that kind of API from all the major banks - AFAIK even Mint is still screen scraping.

As a side note, your informal ledger and settling is basically how the entire securities industry is run (look up DTCC).

I agree with all of this except the one week thing.

But the thing is, these deadlines were self-imposed. It wasn't like someone else was imminently about to release a similar app and they had to race to get it working. At least spend the time to get it working and fully-functional before really shopping it around. Rather they wanted to churn out some half-baked, random "good sounding" idea and then when they got funding race to make it work.

In my experience when I'm building an app or something, I learn a lot about what features make sense and what's going to be really hard to implement while building it out privately or with a small team. I/we address those issues and look for solutions or other ways around and aren't on a schedule to ship some product and hire some backend database developer to fill some huge knowledge/experience gap on short notice.

Of course hindsight is 20/20, but I think not jumping the gun like this should be good business practice.

Really I see no reason why someone had to quit their job for something that wasn't even functional. If it's functional and getting some traction and has funding, great, quit your job and do it full time, imo.

As an aside and maybe an unpopular opinion, I really doubt the founder's long-haired look was helping the brand's perceived legitimacy. Though I don't have a problem with it personally, I know the "out there" look can turn a lot of people off.

> having users is at least some sort of reward. When you have the revolutionary breakthrough, add that to the app

Actually this approach "MVP" works well with web applications, but it doesn't work too well with mobile apps. In fact, it's quite the opposite. With mobile apps, you have to make a big splash in your launch, get most things right, and just minor tweaks once you're launched.

The alternative approach is to launch your MVP in a small and/or isolated market (a non-US country), hash it out there, and once you have your approach all figured out and your "revolutionary breakthrough" working, then do your main release worldwide.

Long story short here is this app isn't acting as a "merchant" rather as an intermediary between counterparties in financial transactions which requires banking relationships to be established to drive the flow of the funds.

Also keep in mind that Stripe/Square/Braintree etc are processors not banks. They will help you move the funds around but as far as where those are moved from/to that's on you even if you're a Merchant. Once you get into the "middle man" business the plot thickens quite a bit.

I was rather surprised that the founder who came from Stripe failed at this.

You would think coming from a bank startup would make you acutely aware of these problems. Apparently not.

The difference comes from experience with banks versus experience with credit cards. These are very different in terms of implementation. Companies like Stripe initially focused entirely on inserting themselves into the Credit Card ecosystem.

Banks are inherently slower to innovate and process because they are financially motivated to hold your money and collect interest by being slow. If you want to move money fast between banks, you will pay for that right with high transaction costs.

Credit card companies, on the flip slide, are incentivized to go faster because they make money through transaction volume. They want you to use the credit card more often so they can collect tiny fees on every transaction.

Payment companies typically focus on the credit cards first since frankly they are way easier to work with. They want to move money and they are happy to help with that process.

Founder came from Bank Simple, not Stripe. (I'm pretty sure you knew that already and made a simple mistake, but I wanted to clarify for others who may comment.)

Some people here are commenting on how bad the idea is. There are worse ideas out there that did and continue to do so much better.

The problem here I think was defining the MVP with a timeline. They could have just started with some virtual currency (like a point system) ... kids don't care about money or points as long as they accumulate something. This virtual currency or point system could have been used by parents to say to their kids "if you get 20 points I'll hand you a $20 bill".

You can make an app like that pretty fast, independent of any "partner ecosystem" and then if the idea lifts off then invite the big players into your ecosystem.

Everything they did was opposite.


> If you need to raise money to launch your product do that first. Don’t even think about building out your product outside of a very simplistic prototype.

There are products that need initial cash, but this isn't one of them. If they had a fully functional MVP that people could use and enjoy, funding would come to them.

My comment is late, but the thing I take away from this (and I'm biased) is that the VC-first track is as terrible as it's been made out to be for years. Now they have a real business, helping people for money, and all the crazy shit they had to deal with as a start-up isn't a factor now. They've bootstrapped, successfully, and NOW would be the time to start working on a product.

I get it, opening another consultancy isn't the most glamorous thing, but man it gets you to solvent quickly. Then you build a product in your off time WHILE being your own boss. The flexibility is awesome.

That's what we did. Somewhat accidentally, but it's awesome. Now we are a product company with no investors and 100% equity.

Now that's not to say that someone shouldn't take money - but do it now, after you're a business, after you stop wondering where the next dollar is coming from.

It's not a bad way to go.

So basically this was a 'to-do' app like you can find on any beginners tutorial (quick Google example: https://www.thepolyglotdeveloper.com/2015/03/create-todo-lis...) the only difference was banking integration which would have been trivial to add in, they could use paypal, stripe, take the payment themselves and pay the kids out in apple credits etc

Somehow not only did they convince some poor sap to give them $100,000 for it, but that wasn't enough, they had to keep 'fund raising'. They had no outlay at all, just build the app and deploy.

I'm really struggling to understand the mindset here, not just of the developers who didn't need any investment to write that app, but the people who actually dumped money into it.

The app is reasonably simple, except of course it's a little more involved than a to-do list from the get go since you have to maintain user's accounts, assigned tasks with mutable states, transaction history etc etc. But yea no rocket science.

Banking integration for this flow would be reasonably involved though. To get set up with a merchant account to take the funds is reasonably simple although you'd have to figure out how the payers tie their payment instruments to your system so you can actually charge them and then develop the functionality to drive that (more dev work). OK.

So now you have the funds that you need to be able to move to recipient's accounts. THIS is where the fun begins.

Provided that you have the registration flow for the recipients in place (which means more dev work but anyway) now you have to be able to disperse the funds to their accounts, track payment statuses, reconcile data across multiple sources so you are aware of the current state of the payment etc etc ad nauseam.

And if you're touching a credit card number don't forget about PCI compliance :)

I agree with the sentiment of convincing someone to give them money and then continuing to fundraise without a plan, but I think this is getting downvoted because you're acting like all this integration is trivial. It's really not. There are a million little things that take much longer to build/integrate than expected. But my contention is that even if it took a while to build/integrate/"pivot", there was no rush to do this part before seeking initial funding.

I love these type's of posts. Very raw, very honest. Sure it's a pitch for their new business but they deserve the free ad since they got me to read to the end.

Agreed. Is there a maintained list of posts about startup failures/learned lessons?

agree - sad i had to scroll down so far to see a comment like that ;(


I may be totally out of touch, but why would someone give someone else $100,000 for an app? And why wouldn't $100k be enough? By the end they needed $700,000 "bare minimum."

I just don't get how this can cost so much.

Making something like this in one's spare time while getting paid with a salaried "real" job seems like it would totally be sufficient to get moving.

But assuming it really takes $700k on hand to get these bank sponsors, why not just change the model slightly. For example, integrate with Square cash or something similar. Square is dead simple to use and the money arrives instantly, not sure if it's integrate-able in this manner though, but the concept stands.

And then maybe when the company is really successful with tens of thousands of subscribers, partner with someone to add direct bank account integration.

Sorry if this sounds callous because I really don't mean it to be, I'm just flabbergasted the amount of money involved for some app someone came up with randomly.

You really need about a million dollars to make a marketable product. (not a lifestyle business) You can either put a million dollars of your own blood, sweat and tears in, in which case it'll be the wildest ride of your life, or you can deploy capital.

It looks like it's just code but it's not. There's a dizzying array of skills and knowledge you must be able to deploy effectively. If your product is not in an established industry and niche, if a bank can't understand you, that makes everything much, much harder. There's a reason franchises do so well.

When you get started, you don't know what's going to hose you. It's easy in retrospect to say that they shouldn't have messed around with a business model requiring a bank partnership to get started without already having that partnership before building anything, but they didn't understand that going in.

> It's easy in retrospect to say that they shouldn't have messed around with a business model requiring a bank partnership to get started without already having that partnership before building anything, but they didn't understand that going in

Doesn't have to be in retrospect. Why didn't any of the dozens of experienced investors they met with tell them this? "You're too early" is too wishy washy for them to have got the message.

Because it's rarely in someone's self-interest to give honest feedback, which is true for investors, potential employers, departing employees, and almost anyone else in a position to issue some type of denial. Instead, they part with something ambiguous, non-committal, and ideally flattering because it covers their butts and allows them to backpedal if necessary. Since the stated reason for declining the relationship is airy, you can't really get in a shouting match over it if the applicant/founder/whatever disagrees, and you don't offend them and preclude the possibility of future engagement.

Politically and socially, it's almost always best to speak in platitudes, be ambiguous and non-committal, and refuse to give concrete information or rationale that could be used in the future to show that you were wrong about something. People usually do have a specific objection when they're turning down a request, but they just know that it doesn't help them to tell it to you, which is why it's always wise to cherish those who care enough about you to be honest.

> Because it's rarely in someone's self-interest to give honest feedback, which is true for [...] almost anyone in a position to issue some type of denial. Instead, they part with something ambiguous, non-committal, and ideally flattering because it covers their butts and allows them to backpedal if necessary.

I broke up with a girl a few hours ago and this sounds so cruelly true.

This is so true. Honest feedback is so rare yet so useful I'm surprised there aren't more people in the business of selling it. The number of people who could use a good business coach, therapist, etc. far exceeds the number of people actually making use of one.

>People usually do have a specific objection when they're turning down a request, but they just know that it doesn't help them to tell it to you, which is why it's always wise to cherish those who care enough about you to be honest.

This, exactly this.

The next time I hear non-committal platitudes from a potential business partner, I'll understand better what is really going on.

Thank you for pointing that out so clearly

"You really need about a million dollars to make a marketable product."


There are countless examples which disproves this (eg. Basecamp)

"You can either put a million dollars of your own blood, sweat and tears in, in which case it'll be the wildest ride of your life, or you can deploy capital."

Same thing.

Are you telling me that to "make a marketable product" you would need to pay 10 engineers $100k for a year?

Hell, just hire 5 engineers at $100k a year (which is expensive) and that still leaves you with a decent budget for marketing/sales/running costs.

Certainly enough to make a marketable product.

It's blatantly untrue no matter what way you cut it.

Generally you double an engineer's salary to arrive at the total cost to the firm of retaining their services. So that's 5 engineers for a year. This article puts a final estimate at 2.7x:


You also need to realize just how new and unproven Lean Startup ideas are in the larger context of business. In that world, a million is just getting started. Most software products in the world took much much more than a million dollars to make. You have to pay the project managers, creative team, etc etc.

> Generally you double an engineer's salary to arrive at the total cost to the firm of retaining their services.

It's a fair point thought I do think 1-3 engineers is still plenty for "most" startup products to get to MVP (not universal but general rule of thumb).

> You also need to realize just how new and unproven Lean Startup ideas are in the larger context of business. In that world, a million is just getting started. Most software products in the world took much much more than a million dollars to make. You have to pay the project managers, creative team, etc etc.

Established (and assumedly) revenue generating software is not the topic of the discussion. The comment I was referring to was that $1m is needed to make a marketable product. Its a bogus claim.

OK, we need to qualify what is meant by 'product'. I'm not talking about a palette swapped iteration on an existing product. I'm talking about something new that the market hasn't yet quite seen before. The sort of product Silicon Valley funds.

Even the palette-swaps generally cost anywhere from a quarter to half a million dollars to do properly, unless it really is cookie-cutter. I don't know the exact figures, but the company I worked for spent a sum in that neighborhood on an e-commerce site, and laughed at me when I told them I'd build them a new site in house for a modest pay raise. Software is really expensive, programmers have this blind spot around it I think because it's psychologically easier to undervalue software than it is to face the reality of economic exploitation.

It seems you have experience in this area and I don't want to belittle it, I won't contest your claim that you've done it for less, but I want to be clear that the expertise that allows you to do that is worth a lot of money, even if you didn't get paid for it. How much? Take $1 million and subtract what the firm actually paid to bring the new product to market, and there you go.

If it's your company, then you get to enjoy the competitive advantage that the cost savings affords you. If not, the people owning the company are arbitraging your expertise and they're getting the competitive advantage.

But it's not just your expertise. Your team has to be a cut above in order to build software products for less than the general market rate. Again, they are either getting compensated for it or they're not, in which case they form part of the competitive advantage of the firm. The entire Silicon Valley startup industry is organized around creating and exploiting this advantage, which is really why it seems to you that a million bucks is an outlandishly huge number.

> OK, we need to qualify what is meant by 'product'. I'm not talking about a palette swapped iteration on an existing product. I'm talking about something new that the market hasn't yet quite seen before. The sort of product Silicon Valley funds.

Something never seen before like Snapchat? Or something never seen before like Hyperloop? If its the latter then clearly you're correct in your assessment but most startups ambitions fall much closer to the former.

Your post here has got some valid points but you've moved away from the very specific "minimum $1m for a marketable product" to some very vague generalities.

> Even the palette-swaps generally cost anywhere from a quarter to half a million dollars to do properly

"Properly" is subjective. I could have a Snapchat clone developed easily for $100k - probably considerably less - lets just say iOS App and corresponding web app & server architecture. With the exception that it clearly wouldn't be able to handle the load Snapchat handles - but certainly enough to be marketable.

> which is really why it seems to you that a million bucks is an outlandishly huge number.

I never said a million dollars is a large number. I know how easy it is to blow through such an amount.

My argument was you don't need that amount to create a marketable product - whether you're a developer or not.

Perhaps In SV, you may be correct but most people do not live in SV.

The reason I feel so strongly about this is that your sentiment is a very dangerous one to propagate to new or would-be startup founders. Based on the number of downvotes I've received for disagreeing with your comment, it would seem that people believe you need $1m in the bank before you can go to market.

That's a very good way of making sure some entrepreneurs never bother trying.

Now you're backpedaling while accusing me of doing so.

> I could have a Snapchat clone developed easily for $100k - probably considerably less

Bearing in mind that a Snapchat clone by itself wouldn't be marketable, you'd need a lot of marketing to differentiate it, so could I. But you and I have expertise, and expertise is valuable and needs to be factored into the price. That's the point I'm trying to make. My old CEO knows nothing about software, he paid half a million for an e-commerce site. For a real software product built by someone who doesn't know what he's doing, a million dollars is the minimum. Anyone who comes to the table with less than that is going to get really badly burned.

If you come to the table with half a million worth of expertise, and zero dollars of capital, you will probably fail unless you focus hard on getting funded. I'd rate the skill of getting funded as worth around $150-200K. If you don't already have it, you're going to have to pour in more of your blood, sweat and tears.

> it would seem that people believe you need $1m in the bank before you can go to market.

No, they understand the meaning of "a million dollars of your own blood, sweat and tears".

It does absolutely no good to would-be founders if they try their hand at doing a startup thinking it's going to be easy. When I see these kinds of post-mortems, I see that clearly, a million bucks worth of effort wasn't put in. They worked too hard, and not smart enough. They didn't have the expertise to enter the market that they wanted to be in. They may not have literally thought that all of their competitors and potential partners were stupid and / or naive, but their business model implicitly assumed it. They failed to de-risk the business and the risk killed them.

> Are you telling me that to "make a marketable product" you would need to pay 10 engineers $100k for a year?

Engineering, product design, graphic design (these are not the same), marketing, and sales are all needed in various proportions, depending on the product, to make a "marketable product." Between all of those roles you could easily chew up $1million in 1 year when you account for e.g. ~2x salary:total cost of employee ratio and standard Silicon Valley compensation levels.

> Engineering, product design, graphic design (these are not the same), marketing, and sales are all needed in various proportions, depending on the product, to make a "marketable product."

I'm well aware. I've done this many times.

> Between all of those roles you could easily chew up $1million in 1 year

You could easily chewup $100 million too. Does that mean we should go ahead and say we can't make a marketable product for $100m? Of course not. Constraints are a fact of life - whether that be time/money/whatever. The challenge is getting to market given the resources at your disposal.

> standard Silicon Valley compensation

The business in question is based is OR. Also, and I'm going to sound facetious here but I'm really not trying to be, most businesses are not based in SV.

It did seem like a heck of a lot of money for an app that didn't really solve a big problem. It solved a small niggle, paying a child immediately over the app rather than wait and pay in cash a few hours later.

Maybe $700k is less than it sounds. Or maybe piggybank had some cunning plan to make a lot of money.

I don't think the app ever solved that problem. From the article, it sounds like the company spent most of its time trying to find a partner to implement that feature, but ran out of cash after being strung along by multiple Fortune 500 companies.

A small problem is a good thing if you have lots of people with similar problems, in which case your market can grow really large.

> I just don't get how this can cost so much.

Salaries. Adds up fast when you have, or need to have, multiple people working for you. Even more so in SF.

There are also lawyer fees. And in their case, office. I assume it's harder to raise capital if you are in mom's basement, specially after getting angel funding.

Two comments 1) If the investor had another idea of how to make the product work, why did that not come up earlier? You should be working "with" your angel investor, not selling your work to him so he can run it.

2) You took the wrong lesson from this. "Don't even think about building your product" is the wrong mentality. Build it quick and get a few people using it. Figure out what you need to do to get people using it. The MVP for piggybank didn't include payments (possibly) or it had something else.

The founders here didn't find a way to make this product work. It's a great idea (I think) and now the first Angel investor is going to take it and make it work because for some strange reason the founders saw the hard road, the one which could break them and destroy their dreams and they decided to run straight into that wall with their eyes closed instead of finding a different route around.

They got really screwed by their first banking partner. This is when having a good lawyer would have helped.

The correct course of action would have been to politely tell the bank that they would not free the bank from their duties under the contract but would welcome any new introductions. Under their duty to limit their damages, the startup would do everything possible to find a new bank partner, and if they did the original bank partner would be free from their obligations without paying any damages.

This way you get the bank to help you but still be liable under the contract if things do not work out.

Of course nothing here is legal advice, every situation is different, so do consult a lawyer for your own situation.

You think a big bank contract had them hold any liability?

Echoing what many others on this thread have said - FinTech isn't just hard, it's insanely fucking hard. The technology piece is truly the easy part. Build the app, design a nice interface, and so on.

Then you have to deal with the banks, and yes, you absolutely must deal with the banks. There is simply no way around it. Anything having to do with money is heavily regulated and for good reason.

The first rule of creating a product that involves money is that people will look for ways to exploit it (read: fraud). There are many great FinTech startups out there right now wanting to do great things and the simple truth is that it is orders of magnitude harder than just about anything else. Barring, maybe, sending people to Mars or disrupting the car industry. :)

I worked for a startup where we had to take credit card payments.

The first bank we dealt with let us sign up for a merchant account, even knowing the kind of business we were in would require 'cashing out' winnings, without batting an eye.

Then in the first weekend with our shiny new merchant account [1] we racked up 5 figures in sales and they froze the account. They said they suspected fraud. It was an insane hassle to get people their money back.

I assume the guy got a commission for signing us up; no loss to him if the merchant account didn't actually work for us. ¯\_(ツ)_/¯

Later on we found another way to pay people out, and signed up with a better merchant account that has redundancy,[2] i.e. it is backed by two merchant accounts behind the scenes, so we can switch to another one if one of them get's 'upset.'

Credit card merchant accounts can be shut down on you for any reason at any time, we've learned, leaving a complicated mess to sort out.

[1][2] After a considerable amount of development work to integrate with their API.

First sensible comment in a long long thread.

Just seems a bit absurd to me the amount of effort put into an idea that can be replicated in your own home by putting money in a jar for the kid and then when it's full enough to buy skyrim or whatever put the money in your pocket and order it off amazon for them.

Get to engage with your child on a person to person basis too… not parent via an app and servers.

Not to mention I really don't understand where all the investor money went with no product to show for it. Seen as the payment part never got fully fleshed out we're left with a several thousand dollar todo list...

The fact is that the solution needs to evolve as the kid gets older. This specific solution - a card based one - is best suited for teens.

What if your 14 year old is going to soccer camp in another state for a month? Handing them a jar stuffed with $400 of cash is not a great solution.

If your 14 year old is going to another state for a month then your 14 year old isn't going to be doing chores and you won't be needing to tip them for said chores.

I agree with theinternetman that this idea was ill-conceived and easily replicable.

It seems like they concentrated on the easy stuff (design, app, marketing), and ignored the hard stuff (banking). You need to do the opposite. Work out what is hard, get that started asap. Visit it every single day. When you are blocked and waiting, then you do the easy stuff.

Actually, they probably should have pushed the banking part to a phase 2, and actually finished building the rest, and opening that up to end users.

The debit card is a nice add-on to the concept, but not at all essential to execute the concept.

This sounds like a neat concept but then again is this something that really needs to be automated with an app?

A friend of mine made a kanban board for chores. There's some chores that have to be done within a week, and there's some that are optional. The optional one has money clipped to it and when the card for that chore is done the child can take the money. And the mother is the one that moves the card to done.

So kind of the same thing as this app, but a physical board. And I don't see how moving this to an app really enhances or disrupts the physical board.

This app is basically a todo list app with financial transactions just for the hell of it. A simple points system would have been enough and then the kid would show the score to the parents to get the money.

No better way to ruin children's motivation to do something for its own sake, than paying them for chores. Nothing personal, but I'm glad thjs project flopped. So many children are better off without external monetary motivators. Those will lead to disaster in their lives and 9-5 jobs they hate.

The lesson here friends is to fail faster. The lack of momentum on the kickstarter should have been a clear red flag.

Not really. Kickstarter for a software play is a fool's errand in the first place.

Kickstarter works best as a marketplace for things that don't yet exist.

How does software that is "free" (I'm guessing they planned on taking a fee off of transactions) have a value proposition for people on kickstarter?

Their big mistake was not having the payments backend as a secondary stage goal. They should have built the chore tracking sans payment integration (or using a typical payment processor like Stripe/Dwolla/PayPal to process), and got that up and running with real people. If they had a proven model for everything short of the debit card, fundraising would have been much easier than "we promise guys, this is totally going to work."

No MVP. No talking to users. No strategy. No surprise they failed.

MVP - build an app with parent login, child login and a points system for chores.

Talk to users (parents) by having chat in the app.

Find how to acquire users cheap, retain them, and make them pay. Go for a bank partnership when it is a compelling business proposition. Banks like money, not startups with no profits and no users.

A former Googler just launched www.nickel.co, which is an app for kids to manage their allowance. Their backing bank is Sutton Bank.

My guess is one of the partners that they were referring to is CorePro (http://corepro.io/) which was spun out of SmartyPig (https://www.smartypig.com/). Their backing bank was Lincoln Savings Bank.

One of the consumers of CorePro was Qapital (qapital.com). It seemed like recently, they switched models from Lincoln Savings Bank's individual account to Wells Fargo's custodial account.

In any case, if you're doing anything in consumer FinTech, the technology/product is the easy part. Banking partnership, customer acquisition, and unit economics is the hard part. Focus on solving the hard part first before building the technology.


One thing that they could have done for an MVP is a bring-your-own-bank-account model.

1) Parents would open a bank account for their kids (or the kid may already have their own bank account)

2) Integrate with Plaid Connect to get ACH info.

3) Use Dwolla ACH API (free) to transfer funds between parent's bank account to kid's bank account. (The downside of this is that this is a 2 legged ACH transfer which may take up to a week -- but for this use case, it shouldn't be a problem.)

This will get them the same value proposition that they would have had with bank integration. Once they prove out the demand, they can then optimize:

1) [Reduce ACH lag] Use an actual ACH processor that will handle the transfer between accounts. The downside is that this is expensive.

2) [Reduce ACH cost) Use a real bank (Wells Fargo, Chase, Citi) as an ACH processor -- this cuts out the lag in transfers. The catch to this is that to work with these banks, they want to see sufficient activity

3) [Eliminate need to bring your own bank] Partner with existing bank to provide account opening service. If you can prove sufficient activity and traction, many regional banks are interested in a lower cost customer acquisition channel and innovative products. Alternatively, use custodial accounts and they can earn float on the deposits.

What they were trying to do is jump to #3 before proving out the demand. Secondly, banks are approached all the time by startups to do these types of "partnerships". To banks, unless you can show traction or sufficient volume, it's not worth their time to work with you. The large banks (WF, Chase, etc) don't see much business from this area. The small banks don't have the resources or risk tolerance to do this. So you need to find the sweet spot of banks to establish these relationships. There are a number of regional banks that are willing to work with startups (tip: scout the ToS of these fintech startups to see who they have partnership with)

I'm not sure what their monetization strategy was going to be, but the unit economics here don't really work out for low deposit amounts.

(I've spent a lot of time research this area in FinTech)

Good points on batching ACH transactions cheaply. I think part of their pitch or spin was that it would be "instant" which quickly increased the required capital from something reasonable to something astronomical.

Exactly. They were too beholden to the goal of the debit card to just bump that to a phase 2 feature and finish out the core of the app (chore tracking). If they were able to get actual end users with regular usage and a sub-par payment model, they could have kept the momentum going to get to the goal.

The real takeaway here is get people using your stuff as early as possible, and add to that product incrementally - don't wait for everything to be perfect before launching (the enemy of good is perfect).

Yep, they could set up a regular or white-label Dwolla for their platform. https://www.dwolla.com/pricing Why would you be directly involved in money transfer if you don't absolutely need to??? Bank partnership for a kid's allowance app???????


Any chance we could chat? I am NY based and sounds like we tread similar territory. This analysis is scarily on point!


Sure, send me an email and let's connect.

I am new to posting here - can't see your email. I've put mine in my profile. Just pop me a note and will take it from there.

One of the things I see a lot of people screw up on is trying to get "traction" and buzz and virality going BEFORE they actually have something that is fully functional in people's hands. Seems to me that if your buzz dies out before the product is actually ready to be used in it's basic form...you're screwed.

No, this is probably the only thing they did right. Getting early traction is important for many reasons.

- It gives you an opportunity to get early feedback from people interested in your product. If you can get an email you can talk to your users. - It gives you some early KPIs and a limited, but important understanding of acquisition channels. If you can't find any one who is interested in your product as a concept, how will you get users? - It motivates companies to get products out earlier. - It helps when talking to investors to mention that you have 1,000 people on a waiting list.

I agree though, you always need to get the product to market.

I get your point, but I think that if you're consumer focused, and your app doesn't actually do it's core function when you start drumming up hype, you're screwed. Consumers have a low attention span and want instant gratification. You may only have that once chance to get them hooked, and a beta sign up list has pretty low engagement rates. If they hear about the hype, find a beta sign up page, and bounce, you've lost them.

In the UK we have gohenry.co.uk. They partnered with Visa and the kids get a debit card, chip&pin and all, that I as a parent can set how and where they can spend their money, auto weekly allowances, chores and the payoff for them etc. Its works quite well, and I pay a few quid a month for the privilege.

GoHenry haven't really "partnered" with Visa.

They're just on a prepaid card program provided by IDT Financial Services (if scroll to the bottom you can see it listed).

Same company that provides prepaid cards to Osper.

There's a half dozen prepaid card providers in the UK.

There's also Marqeta in the US (used by doordash to by food on your behalf) who they could have used also well as a dozen other prepaid card providers.

They just made it hard for no reason.

'They just made it hard for no reason'. LOL. Osper has raised over 11MM. It takes a lot more than a kickstarter campaign to fire up a card program like Osper or GoHenry. Give Marqeta a call and check out their fee structure.

If there is constructive feedback here, it is that there were smaller, cheaper hops PiggyBank could have taken to get a smaller product out there earlier to validate assumptions. And if they had taken a few of these hops, they would have learned along the way, and maybe one day would have had a chance to pitch for a 10MM raise. But they didn't.

It feels like a typical 'first startup' experience - as founders, not employee. At least there is some really great collective feedback in this thread about how they could approach things differently if they were to try again. Unfortunately, little of it is on tap when there are just two people in a room trying to navigate a path.

Thanks for sharing Oscar.

> "It takes a lot more than a kickstarter campaign to fire up a card program like Osper or GoHenry."

No, it doesn't. At our startup we managed to get on a prepaid program without funding (we are a London based startup). Infact, through negotiation we even got the sign up fees waived.

And, we did all that before we had ANY funding.

> "Give Marqeta a call and check out their fee structure."

We did call Marqeta but they're not yet in the UK. Can't discuss pricing because of the NDA they make you sign but I can tell you that we didn't have to pay anything to Marqeta during development.

But, either way my issue is that they kept blaming their banking partners for the failure of their startup instead of taking an actual critical look at the mistakes they made.

I can't comment on the UK eco-system, but things are definitely more difficult in the US.

You first have to convince a prepaid provider to work with you. You'll need runway for this. You then have to convince a bank to back your card program. For this you also need runway. And if you get through that and start developing, you are immediately on a clock since card program fees are substantial when they kick in.

Let's say it takes you 6 months to get from scratch to launch and fees are waived up to that point. I'd guesstimate you now need a minimum of 25K retained users on your card program to cover costs. If you have a conversion rate of 5%, that means 500K downloads. And that's before factoring in churn.

The PiggyBank team raised 100K. They were two people and iOS only. It is a stretch to think they could achieve all of this before running out of cash.

I am with Johnie and a few others - the lesson is to try something less ambitious first and use success there to raise money to build something more ambitious.

Fair enough. They used the word "partnered" so I went with that.

There's also Osper:


Which is MasterCard rather than Visa.

I really find it hard to empathize with these kind of founder stories -- what I see is a technology that's trying to solve a problem where a problem doesn't really exist and then the frustration of failure. Maybe find a problem to solve that actually matters?

I'm not sure the writer wanted empathy

I came into this thread and expected to read encouraging and/or consoling comments, and instead all I see are people bashing the idea and its execution.

Of those bashing this business, how many of you have actually built something of your own, and of that group, how many of you have become successful doing it?

If you look hard enough, you can find flaws with any business concept. It's the entrepreneur's job to stay alive long enough to recognizing and fix those flaws. You don't fix them on day 1. Sometimes it takes years, even decades.

How about instead of tearing these guys apart for trying to build a business, we congratulate them for going all-in and paving the way for future entrepreneurs to get this concept right?

I agree for the most part. But this kind of effort needs to be criticized. They made huge mistakes and they need to be pointed out so that others can learn and do it better on their attempts.

Their execution, (and the idea), frankly, were awful.

Execute by all means but execute smartly.

Sounds to me like backseat entrepreneurship

The way I would have done it:

1) Parents are charged via typical merchant mechanism to fill their account with "credits" worth $0.99 each, costing $1.00, and can optionally allow the app to automatically top-up their account when low.

2) The service sends cash in a registered mail envelope at a frequency configurable by users, with mailing fees paid for by credits.

Then the business can function and grow a user-base, and by holding the balance, the company can build up a lot of cash-on-hand which will enable them move onto the bank integration they originally wanted. Bonus: receiving legitimate mail and getting cash in hand are very exciting experiences for a kid.

If you were to do this, you'd be violating multiple federal laws and regulations.

You have basically created a stored value and money transmitter business without the proper license. In addition, you've created a conduit for criminals to launder money.


* Liberty Reserve - https://www.justice.gov/opa/pr/founder-liberty-reserve-plead...

* Ripple - http://www.americanbanker.com/news/bank-technology/fincen-fi...

* FinCen MSB fines list - https://www.fincen.gov/news_room/ea/

Disrupting finance is hard for a reason.

also, it's illegal to send cash in the mail, period (though they seem to give a pass to kindly old grandmas sending five dollarses to their grandkids)

Oh! I stand corrected.

Wait a sec, so Uber, AirBNB, 99designs... etc etc, who all collect money & then disperse it to service providers... You are saying all of these companies require a special license?

Yes. Amazon for example was a normal merchant for years and did not need a money-transfer license. However, as soon as they decided to open a marketplace for 3rd party stores, they required licenses. And they got them.

The rule is simple - if you take and hold on to customer funds, you need to be licensed for money transfer in all the states you operate in.

Today, a few services like Braintree and Stripe offer a middle ground solution. Essentially, they will open an escrow account for your merchant customers, and you move any money your holding into the escrow. They will then hold the funds until you release them. This approach is clever, but still a legal grey area.

AirBnB, Uber, etc all use third party payment processors like Stripe Connect. They don't ever touch the money in the marketplace. They just instruct their payment processors to move the money. This allows the startup to stay outside of financial regulation while letting the processor handle all that.

If you're a marketplace startup, focus on your customers and your startup and outsource the highly regulated parts to third parties.


But it'd be part of the sharing economy. Must disrupt!

And now you are a money laundering service. Go to jail. Do not pass go, do not collect $200. This app would not get approved, and you'd have to literally lie to get this business model approved by any reputable credit card processor.

This is a great idea. It wouldn't have supported every use-case, but it would have executed the minimum viable requirements to get traction (I'm guessing, anyway).

I am completely clueless when it comes to finance regulations, but how does "sends cash in a registered mail envelope" not raise any red flags for people?

Why should it? Mailing cash is totally fine.

There are a couple of other red flags though.

I did a payment card thing back in the 90's with a couple of friends, during the first Internet wave. We actually got some traction and signed a few bank partners, but ultimately it is very hard to be disruptive when you require access to a massive, privately-owned network that is controlled by the same institutions you might be threatening. All you have to do is set eyes on Mastercard's marble palace on the Hudson to know who is calling the shots in that world.

Liberty Reserve would have solved all your problems, but Budovsky rots in jail. And you guys go through emotional roller-coaster with banksters who got lost in their own regulations.

Another observation - you had a great idea that delivers clear value. Didn't happen. Now, by looking at your web site, you quite successfully sell some bullshit to other bullshitters who sell their shit to VCs, who sell their shit to innocent bystanders. Hell of a transition.

I don't understand why they gave up the company instead of pivoting to the cashless approach that the original investor wanted anyway.

Because this is a saturated market. They were differentiating by adding the bank integration.

See also:

* http://www.forbes.com/sites/learnvest/2013/06/11/need-to-man...

* http://www.jumpgapsoftware.com/allowance/index.html

The only thing the app did was: list the chores; pay the kid. Without the payments the app was a list app.

Not really going to pay the bills.

A distributed list app, actually, which is more functional and builds a network of users. It's possible to move out of monetary plans from that point to a bulletin board at least. Which can be free or $2 to download.

Distributed list is, to a first approximation, a solved problem. I wouldn't suggest trying to build a business on it. You need that twist that sets it apart from Keep, to name just one example.

I don't necessarily agree that one should avoid re-solving "solved problems". Couldn't someone have argued that social media was a "solved problem" between MySpace, Friendster, LiveJournal, etc. before Facebook and Twitter came along? What about the new restaurant down the street? Isn't "getting food" a solved problem?

Not only is there nothing wrong with copying a successful company and implementing a business model that's been proven many times over, but it's far and away how most businesses start. There are a lot of wealthy people out there who got fired or laid off and just decided to start up an entity that directly competed with their former employer. Zero creativity involved in the conception of the business and zero uniqueness in their core value proposition. The customers differentiate on the dressing.

Of course it's worthwhile to consider whether the field is crowded or not, but that shouldn't be the sole consideration.

> I don't necessarily agree that one should avoid re-solving "solved problems". Couldn't someone have argued that social media was a "solved problem" between MySpace, Friendster, LiveJournal, etc. before Facebook and Twitter came along?

Facebook and Twitter each, as I see it, sought out to solve very specific different problems -- that other alternatives had not at the time. Now, each branched out (and drifted) once successful, and those problems were put under the broader label of "social media", but they weren't really the same as either each other or pre-existing players in the broader "social media" space.

Not sure exactly how I'd articulate FB, but Twitter was all about providing a common one-to-many messaging platform that could be used online and via SMS.

Well, I don't know if you got this fired off before I got https://news.ycombinator.com/item?id=11692983 out, but I certainly hadn't seen your post before mine, so, thanks for proving my point.

I don't think it proves your point. Almost everyone has an analogous service competing against them, either because "great minds think alike" and other people noticed the same need around the same time (e.g. digg v. reddit) or because they heard of someone else doing it and thought it was a great idea they could jump in on. I listed Facebook and Twitter, but I could have gone on, there are many services that were once dominant and got overtaken by something that is functionally equivalent or even functionally worse, but had more attractive dressing that drew users in.

The things that caused Facebook to spread like wildfire were not "twists" or enhanced value propositions highlighted in marketing material, nor were they Facebook's raison d'etre. If we're being honest, the most probable reason Facebook came into being despite Friendster, MySpace, etc., was not some analysis of the marketplace, but it was probably as simple as Zuckerberg had some of the code sitting around from his failed contract with the Winklevosses, and he got a kick out of people submitting their profiles to his service. Not much of a twist there.

Facebook exploded basically by accident, and the rest is history. There's no reason that the next Facebook couldn't have a similar history.

The gist of what I'm saying is that "the twist" or the killer feature(s) or whatever you want to call the things that drive adoption are less announced (e.g., as the reason your startup exists) and more accidentally discovered, happened upon. That process of discovery occurs by a segment of applications entering the marketplace and iterating based on what they see their competitors doing and what they see their customers responding to. It's hard to know a priori just what combination of tweaks is going to excel out in the marketplace, so several competitors that don't have a unique value proposition (aka "twist") are valid. Any one could eventually stumble into a formula that allows them to win and overtake the incumbent.

I've never even heard of Keep, but I've heard of chores.

Well, the full domain will probably give you a hint of why I'd want a very solid "twist" before I went up against it: https://keep.google.com/ It's a default install on many Android phones I've had. Your app isn't going to get that.

And, just because I've been on the internet a while and I know what comes next, let me repeat my point: Yes, you can compete with built-in apps, but you need a twist. "Shared lists" is a solved problem; if that's all you've got, you've got nothing.

Go start up any Android phone and look at the installed apps.

Why do you even need an app if you're paying your own kid? Presumably, their account will be at the same bank as your account. I've had accounts with BofA and USAA and they both have super easy ways to send money to anyone else with an account at their bank. I'm sure most other banks do too.

This is what I am wondering as well. Both of the banks I have used in the past (one large national, one tiny credit union) have special "youth" checking accounts that can be co-owned by parent and child. Both of these banks had apps that let you transfer money between your own accounts super easily, and like you mentioned, between any accounts at their institutions fairly easily. You mentioned USAA, and I believe they actually let you send money to any old e-mail address (method of transfer depends on recipient and who they bank with).

The banks themselves aren't really sitting on the sidelines and waiting for disruption. Lots of them run "incubators" for their internal teams precisely to stay relevant. Apps like this face a real uphill climb.

> Why do you even need an app if you're paying your own kid?

It answers the first world tech-bro problem of having to keep cash handy and engage with your kid face to face not face to screen to screen to face.

My guess is that the lure of cash is so deep that it clouds original goals. I get a waft of it every now and then and it takes every ounce not to fall into that lure since getting out of that mentality is really, really hard.

My backseat quarterbacking here... I feel like these guys focused on the wrong things, the fascinating thing though is that with all the help they had, no one told them.

I would have got a marketing person in on day 1. Who needs a "back-end engineer" if you have no users using the product. I wouldn't have rewrote the app. Who cares how maintainable the app is if you have no users. I would have looked for a more realistic back-end route that can work today while I work on the bank integration (why not top up gift cards? I've paid people to write blog articles for me in Amazon Gift Cards. They're as good as cash.) basically, just keep plowing until get from zero to one. Even if one looks NOTHING like your original vision.

Great post-mortem thanks for sharing.

Did you try a model where your app would be a great vehicle to sell (yet another) credit card to parents plus additional cards to their kids? In that model transfer transactions would be internal to one company and maybe they would already have an API to interact.

In my country risk investment or VCs are nonexistent so every time I think about funding one of my ideas a possible option is to use a big business where they serve as the distribution channel while the app serves to drive sales. In telcos for instance, apps could be a selling point in corporate sales; say a job tracker that helps a telco nail a contract with a contractor firm.

This story rings a bell on so many levels.

Not because my stories are the same, but because the entrepreneurial journey is so long.

You have to try over and over and over again and keep learning every time and every time it fails for a new reason there's a new lesson.

It sounds like they were near bankruptcy right before they gave up the app.

How do you go from near bankruptcy to starting a consultant firm and generating income in your first month? Would love to hear that part of the story.

Sounds like "Don't count chickens before they hatch" or, in this case, don't allocate time or money or sign deals or promise things before are darned sure can do them -- better yet, have those things already done.

Or basically have a plan that has the startup go live and get revenue enough for break even before making promises. Then, when one of the unexpected things happens, the launch date is just pushed out another month or two but don't get into trouble with investors, bankers, lawyers, employees, etc.

> We were behind on payroll taxes

Don't ever do this:


Something I see a lot of in my area. A couple of people, usually friends, pair up for an app or a saas idea. It falls through for one reason or another. A little later the same folks end up launching a web dev agency, work on random contracts and make a ton of money. I have no idea why more people don't just pursue that to begin with. I have a friend who makes very good money doing this while keeping his full time job.

Much less of a sex appeal vs a successful B2C startup app.

But yeah, typically lucrative business isn't sexy business.

What parent really wants to complicate the fundamental lessons and experience that chore assignment and reward teach their kids?

Every thing, process, or task out there isnt always improveable by an app. Maybe all that wasted capital could of gone to kids who wont ever be given an allowance?

The irony here is that their banking partners may have had cofidence in the company if YC had accepted them, bringing in more investors. You just can lean startup everything, and yes, money can often buy you what you need.

So... ChoreMonster but with cash?

I was waiting for someone to mention ChoreMonster. That's the first thing I thought of http://techcrunch.com/2014/04/03/choremonster-an-app-to-get-...

At least the lunch looked pretty good

Reminds me of knox payments which seems abandoned

Andddd shit like this is why bitcoin was invented.

Fund via coinbase!

Thanks for the post mortem.

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