Daring to Dream Big With Taavet Hinrikus, Co-Founder Transferwise

Taavet Hinrikus, Co-Founder Transferwise, chats with Sanjay Swamy Managing Partner Prime Venture Partners.

Taavet has been building internet businesses since 1997. He has been Skype’s director of strategy until 2008, joining the company as its first ever employee.

Listen to the episode to learn about

2:05- Why Estonia has been one of the pioneers in adoption of digital technologies

4:16- Early days at Skype

8:30-How do you grow a team to 200 in 12 months

13:04- Birth story of TransferWise

17:39- How to not end up with technology debt

19:53- What is the magic formula to convince the right talent to join your team?

21:11- Transparency as a core value

24:48- Quick learning and adaptation to grow in a fast changing world.

Read the complete transcript below

Sanjay Swamy 0:57

Hello, everybody, welcome to another edition of the Prime Ventures podcast where we bring you conversations with some of the stars in the startup ecosystem. And it’s my great pleasure today to have with me, co-founder and chairman of one of the FinTech darlings of the world, TransferWise, Taavet Hinrikus. Welcome to the show.

Taavet Hinrikus 1:19

Hey, and thanks for having me.

Sanjay Swamy 1:21

Great. So many people know about your story. But to remind our audience, you grew up in Estonia. And you were also the first employee at Skype, which was probably one of the most exciting startups that initially came out of Estonia. And your resume says, employee number one at Skype, and then co founder at TransferWise, would love to know a little bit more about the environment in Estonia. We’ve seen a lot of examples of the digital government and things like that, and would love to know if you can share with us how it all started, and why Estonia has been one of the pioneers in adoption of digital technologies in government and so many other areas.

Taavet Hinrikus 2:05

Yeah, happy to do that, I think, to start with that, to really have to go a little bit back in history. So Estonia was part of the Soviet Union. So unfortunately, circumstances meant that after the Second World War, Estonia was part of Soviet Union. And so in 1991, we basically restarted the country from scratch. So we were lucky that we got the young people into the government to be very forward looking, and we’re quick to reform the country, towards a kind of a good modern capitalist model, and also it meant some of the infrastructure has to be rebuilt. And we could do it in a modern way.

So if you think about 1991, that’s when personal computers just arrived. And so we’ve built everything to work in a way that we thought the future would happen. And as a result of that Estonia had a very modern digital ID infrastructure. We had online banking, like, we have a very little reason to go visit the bank, because internet banking has been there since 1996. So the things are built in the modern way, during the time of rapid change in the world. And then the result of that is that I would say, Estonia, got lucky that Skype was started here, which really kick started the startup ecosystem. And we can see now at a number of startups per capita, Estonia is definitely the top and for a country of 1.3 million people today have four unicorns and I can tell you a couple more that are in the making.

Sanjay Swamy 4:01

That’s fascinating to hear. So tell us about your journey. When you joined Skype how did that come about? And tell us some of the war stories about the early days at Skype that we don’t read about in the media.

Taavet Hinrikus 4:16

So Skype was started by Janus and Niklas. But what people might not know is that before Skype, they started a company called Kazaa. It was a first online peer to peer file sharing network.

Sanjay Swamy 4:39

Around the same time as Napster. Right?

Taavet Hinrikus 4:42

Exactly. Napster got shut down by the American lawyers because it was centralised. And so Niklas and Janus hired a team of Estonian developers who built Kazaa in a distributed fashion. So that effectively it was impossible to control it to shut it down. And I joined them when they had just filled Kazaa. And they were thinking about the next thing to do. And kind of like I was 21 years old. Little did I know, but I could either join an Estonian IT company to build software for banks and telcos or I could join them. And I kind of figured that, I don’t think these guys are done with pausing mischief just yet. So I joined them and there’s not a single day where I would not be happy about the choice. And then we were working on a couple different projects and Skype became one of these and Skype idea really worked. And so that became the focus for their product team.

Now you asked me about the war stories, I think by the time Skype was launched, the world was very different, this startup bubble had just burst. It was very hard to raise capital for a thing called startup, the internet bubble had burst and people were pretty pessimistic about doing business on the internet, that was actually very hard to tell people that, hey, what we’re gonna do is, we’re gonna make phone calls using computers. And that’s gonna be a big business. So, like, literally, we went through the phases of having to work without getting a salary, just because there was no money in the bank, all of that. And then obviously, you don’t change the moment, you show people that, hey, we actually have a product that works. And when we launched Skype, I think we’ve got 10,000 viewers over the first weekend.

But to put this in context, there were probably less than 100 million people on the internet back then. So it was super exciting. And then it was really the question of, how quickly can we run to make sure everybody in the world is using this product. And it was funny, when we launched skype, there was MSN Messenger with a lot of users, ICQ, AOL. ICQ, which the older people might still remember, what’s it first like, instant messenger, and we were having discussions with ICQ, soon after Skype launch about the partnership. And letting ICQ people make voice calls, and it was pretty hard to say, no to them, we were looking at how quickly Skype is growing, a year from now we’re going to execute, but to believe in that and to say no to the partnership with the biggest messaging product was pretty ballsy. Lots of things like that will happen, then, it’s still hard to go through hyper growth. But in 2003, it was even harder because nobody had any idea of how, how do you grow a team from 20 people to 200 in 4 months?

Sanjay Swamy 8:21

So how long were you at Skype, and how big the company had grown to and in terms of number of minutes of calls and things like that.

Taavet Hinrikus 8:32

I spent about seven years at Skype in total, I left when we had hundreds of millions of customers and hundreds of millions in revenue. And during that time, I was fortunate to do pretty much all kinds of jobs in the company like all different jobs that existed. I started out managing engineering, the product development, partnerships, strategy, etc., I think the common theme is that I was always doing things which we did not know how to do.

So one day Niklas asked me, hey, Taavet, like, can we actually build a physical Skype phone? The next day, I flew to Taiwan. And then I kind of ended up as an 18 months around the world flight where I was flying from Taiwan, where all the hundred manufacturing happened to California, where’s hardware, OEM brands were back to London to Estonia until they got the product line, and the team during that period and sent the next step. It was like, hey, let’s have discussions with the likes of Yahoo in Silicon Valley to see what we can do. So like always figuring out new things that can or can’t be done. For a 20, 25 year old, it was very exciting.

Sanjay Swamy 9:48

I’m sure. And then, at some point, I think Skype was acquired initially by eBay. And that was a fairly large outcome at the time. Although in hindsight, probably might have done extremely well as an independent company in itself. So I guess having experienced that one exit, and then of course spun out and acquired by Microsoft, seems to be now a permanent home there. And of course, in these days of video conferencing with zoom and all these other environments, how do you think about what happened and what might have been, obviously, a $4 billion exit fee was a huge outcome. Any thoughts on that?

Taavet Hinrikus 10:31

I think actually, what happened at Skype is, after the sale, I think the founders have different priorities. We can see now there is a huge belief in founder led companies, maybe what happened at Skype was, the founders decided to move on and the rest of the company got lost in corporate discussions, issues, politics, and so on. Kind of like another way of putting it, the company lost its true north, which was to build communication experiences for users.

And when you start thinking about, oh, now we’re owned by eBay. And we have to do things which link up with eBay corporate goals, and you lose focus on the customers. And I think that was the beginning of the end, like literally, the last great feature that Skype built was video calling, which we launched in I think, 2004. And then after that, it was mostly I don’t want to say all downhill, but if we shouldn’t be using zoom right now, we should be using Skype. It is about founders focusing on a mission, which I think gives this company longevity, and focusing on building a better product for your users. And if you do that, and instead of focusing on revenue or profit, if you focus on users, that’s the secret to multiple decades of growth in business.

Sanjay Swamy 12:08

That’s a fascinating point, Taavet. I think, many a times and certainly in our audience, of the startup ecosystem, and founders and investors and so on, we constantly have this pull between looking for exits, versus just building and focusing on the customer and solving their problems. So I think these are great insights here. So let’s switch gears and fast forward to TransferWise. TransferWise, in some ways, has some similarities in terms of the type of customers you might have at least initially thought of. But how did that company come about? And, and then tell us about the early days? Why did you think it was an interesting opportunity, and of course, it has evolved dramatically. I would like to sort of get your thoughts on, did you have this view that it could become so big someday, or that something changes midway, where you realise the scale of the opportunity?

Taavet Hinrikus 13:04

TransferWise really started by looking at a personal problem. So during my Skype journey, I moved from Estonia, to London, but I was still getting my salary paid in Estonia. So every month I’m transferring money to London, every month, I realise that the bank is giving me a pretty bad deal. It’s very slow, takes multiple days, and the bank tells me it costs 25 euros to make the transfer. But they did not tell me that they also have a three or 5% markup on the exchange rate. So basically, that means that if you send 1000 euros, you lose 7-8% of it in total. And that’s a lot of money for a very bad service. So that’s the problem that I had, and my co-founder had the same problem. And we were like, wait a minute, is there a better way of doing it. And we found a better way of doing it. And we realised that there are hundreds of people around the world who have the very same problem.

So we thought maybe we can help people. But it started in a very entrepreneurial way. We were like, we have a better product. But we don’t really know if it’s going to work or not. And we can keep on pondering around this forever. Or we can just try. So we went ahead, and we launched a simple product, seeing if people are willing to trust two Estonian guys who just appear on the internet. And turns out they were willing to do it. So we launched the product. Later, the first guy sent us 2000 pounds. I wasn’t sure what I’m gonna do now. And then we started going from that it was while we knew that we were solving a big problem. And there’s a big market. It was very hard to see at that moment that it’s going to be a company with thousands of employees, millions and millions of customers and so on. We went from, at first, okay, this is cool.

So can we get to 1000 customers? Can we move 100 million dollars of our customers money? Then we realised, oh, that’s easy, can we move a billion? So basically, every year, we dared to dream bigger. Now I can see it in a way today, TransferWise has 7 million customers and now it’s like, Okay, can we get 200 million customers? I can see how that’s possible, it’s gonna take a while, but we constantly learned to dream bigger. Think about what else we can do. And this is also given me, like, I’ve thought about why this work, then can you predict if the company is going to work or not? And honestly, I think it’s impossible to predict if an idea will work or not, there are so many things that can kill a startup early on.

But, in many times, you really need to bet on the team has to build the product, and then we see what’s going to happen, you can look at, do you have a great team? Do they have a 10 times better product compared to what exists? And are they going after a big problem? Are they solving something which impacts many tens or hundreds or millions of people, instead of just building a better mousetrap that can only be used in your local, city or village.

Sanjay Swamy 16:26

Taavet in the last 30 seconds, you exactly describe what our philosophy is and what we are looking for, is that a 10x insight then is that a product where differentiation is the unique distribution strategy? And are they taking on a large problem? And does the team have some insights that will give it a head start? And beyond that, yes, there will be a lot of uncertainties that you will encounter. And some of them might or might not be detrimental to the business, but the ability to overcome some of these challenges and the thought process there.

It’s all we are trying to evaluate at an early stage beyond that, I think a lot of it is, is that just a large enough market? And we really appreciate that, thinking from your side as well. How have you looked at the technology? Because I’m sure the kind of scale that you’ve had, technology has evolved also quite dramatically over the last decade that the company’s been around. And often, entrepreneurs are faced with the dilemma of optimising and building the best product versus getting things out then in doing a quick hack, and then cleaning up and invariably, you end up with a lot of technology debt. What are some tips that you have for founders?

Taavet Hinrikus 17:39

I think it’s a very tricky topic, I think it really depends on getting your product market fit right. So once you know what you’re building, you need to get to technology strategy and plans. But the challenge is, at first until you know if it works as intended, you need to focus on speed. So you need to focus on speed to get your MVP out tomorrow, I think it’s wrong to build a fantastic basement, and then build a house and spend lots of time on it, and then go to market and turns out, instead of a five storey house, you need a one story house, which has a very big workspace. So the basement you build is completely useless.

At the moment you know, what your basement needed to work, I think, then you need to start fixing your technology shortcomings like the shortcuts, you just start fixing some right away, because they will come back to bite you later on otherwise, it’s happened in every company that I know, like at TransferWise, at one point in time where we have to put probably more than half or more engineers to work on building a basement, because we haven’t been doing it properly before. So I know it’s a question of focus and speed. Get your MVP out, focus on speed until you have some form of product market fit. And after that, I think you just need to put, whatever percentage of time into fixing the basement, making sure that the basement is actually the basement you need in a couple years time.

Sanjay Swamy 19:19

Got it. So I think a lot of the challenges with attracting senior people with the right experience to do things right. And realise, technology wise, and particularly the right architecture and constantly looking at that. One of the challenges that startups face, of course they have to balance, I would say the budgets with attracting the right talent. What is the magic formula that has worked for you in terms of being able to convince the right talent to join the company early on?

Taavet Hinrikus 19:53

I think you’re looking for people who want to join your mission, you’re looking for people who believe in what you’re doing and who want to right that wrong in the world, you really want people who are joining in the beginning because they think that this product needs to exist.

Sanjay Swamy 20:13

Just because someone’s making the world a better place.

Taavet Hinrikus 20:19

Down the road, you’re building your recruiting machine, and then you figure out your employee value prop and so on. But in the beginning, you really need people who are generalists and you need them to believe in the mission of the business.

Sanjay Swamy 20:36

One last question on TransferWise, the company has evolved in a company worth close to $5 billion market cap, several successful rounds of funding raise, but fundamentally in the UK is our revenue generating business, a profit generating this was fascinating to read your co founder Kristo’s tweet thread the other day about the amazing financial performance of the company. And normally private companies don’t need to be this transparent about the details. Why did you guys choose to be so open and public about the internals and the operations of the company?

Taavet Hinrikus 21:11

So transparency is something which is pretty important to us. So one of the key reasons we exist as a business is because banks are lying to us, banks did not tell us how much they are ripping us off, every time we make a transfer. So we made a big point about being transparent, about the way we treat our customers. And as part of that, we think that we want our customers to believe that TransferWise will be around for a long time, it’s healthy, that we tell them that, hey, here’s what our revenue is, like, here’s how much it’s growing.

We’re profitable. I think it just kind of adds to the trust factor. And we are in the trust business. So in that sense, I think we’re just doing the job to increase people’s belief that we are a trustworthy company, that will be around for decades to come. And also, while we are a private company now, I think there will be a time where we’re a public company, we’re trying to make sure that we’re actually running this company to standards, which are compatible with being a public company.

Sanjay Swamy 22:17

Great, that’s a very fascinating point. And I think the discipline and the confidence of reporting publicly and transparency is something that definitely, I think your customers certainly would appreciate a lot. Now TransferWise is available for users in India, to send money and receive money, what have you seen about the Indian market? And what are your plans for India that to the extent you can share? And how is the adoption in India?

Taavet Hinrikus 22:45

Well, India is a I think it’s a fascinating market, firstly, because it’s huge which is great. India is a big receiver of money sent from overseas. So we send a decent amount of the world’s money to India, and we’re very happy about that people are sending money from US to India or from UK to India, it’s also great to see some of the innovation happening with India stack and how actually a country of more than a billion people is going online and kind of the roles that the forward looking government is playing. We’re still working on getting the transferwise product right for India. I think things about regulation could be faster, and could be more suitable for doing business, online, certain parts, but we’re busy working on that.

Sanjay Swamy 23:44

And you mentioned, India stack, I had the privilege of working on the early days of Aadhaar as a full time volunteer, which was the national identity that we rolled out. And today, we just announced, UPI has just completed three years, and the number of real time money transfer transactions happening domestically in India, whether it’s for person to person or person to business payments, hit 1.8 billion transactions a month, for the month of September. And to put it in perspective, the card base payments in India is kind of saturated at about 200 million a month.

And UPI grew probably 200 million transactions month on month. And so it’s still seeing a steep upward slope. And the system allows you to fictionless movement of money, interbank, pretty much at no cost. So I think the whole idea of real time money transfer and payment and the whole payments networks are seeing a huge change. And I guess you guys are driving a lot of that in the cross border world.

Taavet Hinrikus 24:46

Absolutely. So UPI numbers say, I’m always surprised when I hear them. And then if you think about the speed of uptake, it’s been absolutely amazing.

Sanjay Swamy 24:58

Yes. It’s actually been one of the key reasons why, to the extent that, COVID has obviously has hit all of us very badly in the country and very tragic. But whatever business has been going very well, in India, it’s been largely, at least from the consumer side, UPI has played a very key role. So even my milkman or my newspaper delivery company, which preferred cash kind of accepted UPI, because it was real time and free today, they just don’t even bother, they just say UPI me the money or transfer the money, whether it’s on whichever app that they use, and it has played a key role and I shudder to think what things would have been like if we were in the cash economy three years ago, without UPI today?

So one last question. I know it’s been a fascinating 20 years for you, what are some lessons and takeaways that maybe you would have done differently in hindsight, in obviously, the great stuff happened at Skype and transferwise being like an amazing story. But if there’s something that you would have advised yourself 20 years ago, what would it be?

Taavet Hinrikus 26:04

I think it’s a hard question and the challenge is how do you come up with actual actionable insights? And what I would say is actually, my journey has turned out to be very well. And I think that the things to take away or learn from here for other people is, if you see a rocket ship company, absolutely make sure that you jump on the rocket ship.

That’s my experience with Skype, and if I think about the first hundred people TransferWise. I mean, it’s amazing to see what these people are doing now, and how this has accelerated their career. So I’m really excited about having TransferWise and startups around the world are doing amazing things. So find a place which will force you to learn the quickest. And then once you’ve done that, and you’re ready for the next phase, which is to be an entrepreneur on your own if you wish so. But quick learning and adaptation is the key to being successful in this changing world.

Sanjay Swamy 27:08

Quick learning and adaptation. I think that’s a fascinating final line for this podcast. Been a pleasure having you on the show. Thank you so much. Congratulations on the fabulous success at TransferWise. And look forward to watching the progress over the coming years. Thank you so much for being on our show.

Taavet Hinrikus 27:24

Thanks, Sanjay. And best of luck with Prime Ventures.

Sanjay Swamy 27:27

Thank you and look forward to being in touch.

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