Charles Schwab revealed to Inc. in 1985 that not everything he touched turned to gold; early on, he lost money investing in a music festival and a wild animal drive-through park. When Aaron Patzer made Inc.'s 30 Under 30 list in 2008, two years after launching account aggregator Mint.com, he'd had a more straightforward path to success. But 30 years apart, they both made the same brilliant bet: that technology and human nature would combine to give ordinary people the knowledge and power to make their own financial decisions.
In a conversation with David Whitford.
Aaron, were you born for entrepreneurship?
Aaron Patzer: It's something I always wanted to do. I learned how to program when I was about 6. My dad taught me about compound interest when I was 12. I was using spreadsheets to do calculations and figure out how much I should put in every week and every month in order to have a billion dollars at the end.
Charles Schwab: I never knew the word billion when I was a kid.
Patzer: Well, there's been some inflation since then. My first business was a lawn-mowing business. That got me the $2,500 minimum I needed to invest in a Fidelity mutual fund--Fidelity Select software and computers.
Patzer: Sorry. That got me into investing, and then I wanted to invest more, so I started a business in high school building websites for people. No one knew that I was too young to legally sign the contracts. They always wondered why they couldn't reach me between the hours of 7 and 3. I used a pay phone to call people from school. Then I tried to start a couple of businesses in college. I failed a bunch of times before having my first success.
Chuck, what drove you to start your own business?
Schwab: Necessity. My family came through the Depression years. We didn't have much money. I didn't like that. I wanted a new bicycle, I didn't want a used bicycle. I had a chicken operation, I caddied--all the kinds of things that kids do. My big break came when the SEC deregulated commissions [in 1975]. Discounting was happening in retail, in airlines, in a lot of different places at that time in America. So I said, "Why not financial services?"
Both of you sold your companies pretty quickly. Aaron, was that the exit strategy you had in mind from the beginning?
Patzer: I honestly didn't have an exit strategy. When I started Mint, it was because I had been using Quicken and Microsoft Money, and they were just not good products. I built the tool I wanted to use for myself. I always felt like we were on the verge of collapse. Every month counted. Every week of revenue mattered. Then, one day, Brad Smith of Intuit called me up and said, "Hey, let's have breakfast." His opening statement was, "We'd like to buy your company for $100 million." I was just floored.
It took me four or five months before I made the decision to sell. We went back and forth. He got the price up to $175 million. I made the decision ultimately for two reasons. One, I don't come from a particularly wealthy family, and so it would change my personal situation in a very meaningful way. And two, I'm a bit old school with my investments. It was the recession when we were acquired in 2009. I didn't want to risk it.
Chuck, you sold out, too, but then you changed your mind.
Schwab: We were growing so fast. Access to capital was particularly difficult. Wall Street hated us. They didn't want us to succeed. When Bank of America came along, I thought I was working on a loan. Well, they changed their mind and wanted to buy the whole company. It was more money than I could ever have imagined at the time, so I was seduced to some degree by that. But I found out within three or four years that it wasn't the place I wanted to be permanently. Because we were under a bank holding company, we were highly restricted. We wanted to go into the mutual fund world, which we couldn't do. We couldn't go into the insurance world. We couldn't do a variety of things. My frustration kept building, and finally I convinced them that we should part company.
Chuck, you have long advocated that revenue--not earnings and certainly not just users or eyeballs--is the critical variable in the success or failure of a young company. Where does that conviction come from?
Schwab: As a young analyst just out of Stanford business school in the 1960s, I got to really understand what growth was about. Back then, you had to ask a customer to pay some money. That was the most important thing in getting a company off the ground. Later on, if you're really a good entrepreneur, then you can make money, but that's a test of a lot of other things, including management.
Aaron, do you agree?
Patzer: Mint.com is a free product for users. But we came up with another type of revenue model--lead generation. We would show you what was a better bank, when to consolidate your mortgages, what interest rate you can get, and we were paid quite lucratively for that.
You've got a new startup now; it's an advice application called Fountain. What's different the second time around?
Patzer: Raising money is a lot easier. With Mint, I had 50 no's before my first yes. With Fountain, I simply told a couple of VCs what the idea was, and they offered me $4 million in financing with no effort whatsoever, with really good terms.
Aaron, your turn to ask Chuck anything you want about entrepreneurship.
Patzer: I actually think the more important question is one on a more personal level. Which is, once you've achieved a certain level of financial and business success, what keeps you motivated and happy in life?
Schwab: Well, in the business part of the equation, I think I've built a company with great purpose. On the personal side, family is really important to me. I have a big family, five kids and 12 grandkids, so keeping that going is wonderful. And I do a lot of philanthropy. I'm chairman of the San Francisco Museum of Modern Art. Look out, Aaron. We're building a new building that costs millions of dollars. Your name could be there.
Chuck, if you could give Aaron and other young entrepreneurs one piece of advice, what would it be?
Schwab: You've got to take the road you need to take, and only you can make that calculation. Not your dad, not your friend. You have to take it if you feel it instinctively.
Patzer: That resonates with me. I don't have children, but I sometimes think about what I would give them as advice. I think I would give them two rules. The first is, do exactly what you--you personally--want to do, not what a parent or other people want you to do, or what you think the world wants you to do. And, No. 2, give it everything you've got.