When does Skype's first employee decide it's time to move on and start his own start-up? I invite Taavet Hinrikus to YHP to share the story behind leaving Skype and the early days of TransferWise.
Taavet Hinrikus is the Co-Founder at TransferWise
Below is the full interview
Hi Taavet, thanks for doing this with me, I know you are very busy at the moment
Its my pleasure
Can you give us some background information about yourself, were you the entrepreneurial type growing up?
I’m Estonian, but I was born in the Soviet Union as Estonia at the time was part of the USSR. During those times you had to be very much hands on when you needed anything – the shops were empty and the only thing people had plenty of was time. One really had to take charge and solve problems in a creative way to get anything done.
In general Estonia now is very entrepreneurial – to get proof of that look at all the start-ups coming from Estonia at the moment – Erply, GrabCAD, Pipedrive and many more. This small country is producing a number of start-ups that is completely disproportional to the size of its population.
How did you end up being the first employee in Skype? How did you find out about the vacancy and how did you get the job?
I started working with Niklas and Janus on a different project before Skype existed. Later we started working on the idea that became Skype and so I ended up being the first employee in the team.
What was it like working with the founders when the company started, what were some of your early Skype memories?
In the beginning it was a very small and tightly knit team that was working together very hard to build this little application. That little application then became a global communication company. We valued speed above all and I remember one of the records being that we got a new feature launched and to the first 10k users in about 4 hours.
Leaving a big company can be very hard especially when you are the first employee, How did you know it was time for you to leave and why did you leave?
There’s always a world outside, so for me it was quite obvious that at one point you need to move on. In 2008 I had spent more than six years on Skype already and I was pondering what to do next. I figured that the next challenges in Skype would take me 2-3-4 years to accomplish, committing to that would have meant that I had spent 10 years in one place by the time I’m 30, so I figured its time for something new.
What would you say were some of the key things you learnt from that experience?
Stay humble and hungry. The experience of building a global company that touches everyone’s lives is invaluable.
Tell me about the early days, how the idea for TransferWise came about?
I move from Estonia to London around 2006. That’s when I started feeling the pain of international money transfer. I realised that when I send money between Estonia and the UK the banks take a cut of 5% at least. What’s even more upsetting is how they do it – most of the charge is hidden in the exchange rate. The banks try hard to make it extremely difficult to understand what you’re paying for. There is no transparency in the market!
What we started doing with TransferWise’s co-founder Kristo was a peer to peer model – I would transfer money locally to Kristo’s account in Estonia and he would do the same in London. Both of us making local payments which are free or very inexpensive. And we looked up the interbank rate on Reuters for exchanging GBP and EUR. Very soon we had saved each other thousands of pounds.
We utilised that model for a couple of years and then in 2010 started thinking about how to provide a similar service to everyone else who needs it. Quick check at how many people either live, work or study abroad revealed that there are in excess of 200M expats in the world – the need for these people to transfer money is huge!
What would you say was the hardest part of starting the business?
I think there is no such one thing, getting a new company off the ground is very difficult in general. The hardest could be the most important part – that is creating the best team. Finding the smart people that want to work together and create something meaningful.
How were you able to fund the business?
There are two sides to this – first lets talk about funding. Both me Kristo have put some money aside over the years. For me it also helped that I had stock options in Skype and I made a bit of money when Skype was sold to Ebay in 2005.
The other side of this is how much you spend. One of the big changes that has happened over the past 5-10 years is that starting a new business does not cost that much any more – you can be very lean at first and build the first prototype with not that much at all. As the company grows and you hire other people to work with you then of course your financial needs become higher, but by that time you many more options for funding.
What is TransferWise? Tell me how it works?
Essentially what we do is international money transfer. We save people time and money when they transfer money overseas.
Your local bank will take a 5% cut of any money you send overseas and often times you need to walk to the bank branch to make a foreign payment – we do it for a very low cost and in a very convenient way online.
What is your business model?
We charge a fee for every transaction. The fee is 1 EUR for transfers up to 300 EUR and slightly more for larger transfers.
Are you profitable?
Not yet, we are still in the growth and investment phase.
How has your market changed in the past few years? How has your business changed to keep pace?
We launched our business about one year ago. What we’ve learned over this time has very much re-enforced the point – the service provided by banks is exceptionally poor and expensive. We continuously have customers emailing us stories about how their banks are over charging them for anything.
During the first year we have helped our customers save half a million euros. Otherwise that money would have been paid to banks in various charges and hidden fees. This simply means that some banker’s bonuses are smaller thanks to this.
There is a wave of disruption happening in consumer finance where new specialist companies are taking over parts of banking and we’re a great example of this. Additionally you can see that Zopa and Lending Club are revolutionizing lending using the power of peer-to-peer, Bilbus and MarketInvoice are changing invoice factoring and working capital management and many more examples. Technology again is revolutionizing how consumers get their service and win. The times of banks charging ludicrous fees and providing really poor services to their customers are hopefully soon over!
What is an average workday like for you?
I usually start working around 9 in the morning and from there on its solid work for 10-12 hours also very often on weekends. Most of the work I do is with the great people that we have - we’re a team of 10 people now covering areas from marketing, development and operations to customer support.
Being an entrepreneur means that your job is not limited to 9-5 and then you go home and forget about it. Your business comes with you everywhere and you keep on spending cycles thinking about this all the time.
How is your company different from other competing and similar platforms out there?
People have called us the Skype of currency exchange, but rather we like to think of us as the EasyJet of money transfer. We’re low cost, fast and get the job done with no frills. Or even going farther, we could be like IKEA. What both IKEA and EasyJet have done is democratizing the world by disrupting some industry and making those services much more affordable and available to a large audience - that’s what we do as well!
What we value above all is transparency and keeping our customers happy. By saying transparency I mean that we always exchange money at the mid-market rate and clearly show what we charge for our service. There are no hidden fees or charges that get added at the end of transaction.
Above all we want our customers to be smart about their money and help them spend it cleverly.
What could you say has been some of the key things you’ve learnt so far as an entrepreneur?
You need the best team that will work in good times and also the bad times. Your business idea can change (and very likely will change in the early days of your company) making the team the biggest asset.
What has been your most memorable moment so far on your entrepreneurial journey?
Getting an email or phone call from a customer where they applaud us for great service is the highlight. That makes us understand that we’re doing something valuable for them. Lucky for us, we get quite a few of these.
What trends, startups, technology are you personally looking forward to in 2012?
Aside from the world of finance I think its exciting to look at everything that happens around mobile – we’re being continuously plugged in to high speed connection and having a powerful computer with us in our pocket. I think that we’re just seeing the beginning of what this means. Also there will be lots of interesting things happening in the intersection of medical/health technology and the power of internet and mobile.
What are your other plans for TransferWise in 2012?
Very simply put, our goal is to grow further and add new currencies. We will grow our transfer volumes by an order of magnitude this year. And we will be introducing new currencies very soon.
What pieces of advices could you give to aspiring entrepreneurs out there looking to start their business?
Success rarely comes overnight, if you are convinced of your idea then commit to it and make it happen. Don’t get scared after the first problem you encounter. Be prepared for a rollercoaster ride that is fun and risky with many ups and down.