How to get a Startup by with Nothing in the Bank | Intuit Founders Scott Cook & Tom Proulx

Our problem was we had all this great data and we had this great product and we showed these time trials and we thought, okay, now we've got it. We're going to go out and raise some venture capital because what does Procter Gamble do once they've gotten through all this product marketing or all the market testing and product development to develop this better product? Then they follow it up with a big retail launch with lots of advertising and all the stuff that we know about. That costs a lot of money. Up until this point, it was funded by Scott and us working for no money. Working without pay. A few employees that were not getting paid very much. We needed to raise some money so that we could launch this product. We went out to virtually every venture capitalist in the Valley. And we had these great charts to show all this data that we've just talked with you about, about the time savings and how our— here's what people want, here's what they're looking for, here's how the competitors stack up, here's what we've done, and this should be a slam dunk.

Or so we thought.

And not only was it not a slam dunk, but we never even got a second meeting with anyone, much less funding.

Oh, we did from a former roommate.

But he didn't fund us.

But he didn't fund us.

Right. So we were pretty stuck because our whole— we had this great product, we utterly failed to raise any kind of serious money. We got a little bit of angel money from friends and family and I think Scott took out a second mortgage, but nothing to the level that we were thinking we needed to do the kind of marketing launch that this product required. And so we really were kind of stuck and had to be very creative about how to launch the product. And I think at this point I want to stop and see what you might think we would have done if you were in our shoes given those circumstances. Give me your thoughts on how you launch a product with no money. And there's no internet, by the way, so you can't just say, oh, I'll put it up on a website. There was no website. Yeah. Find a customer to customize it for.

A single family?

School. I guess that would be one way of bootstrapping is finding a customer to pay.

Yeah, people like brand ambassadors who will not only use it but will love it. Just tell the world about it. And hire them, or they work for free? Well, if that product is good enough, maybe they could work for free. Maybe they could work for free. Okay, that's cool. Yeah? Free trial.

Free trial?

Uh-huh.

Still have to somehow get the word out that there's a free trial, and there's no internet. So how do you communicate with How do you communicate this free trial to customers?

That long ago? Cave drawings.

Yeah, right. You understand my point, right? So you can do direct mail, that costs money. You can put magazine ads out, that costs money. All of the ways that you have to communicate cost money. Yeah, what if the software is pre-installed?

Yeah, the hardware makers want to preinstall stuff that's already successful that everyone knows and wants. So if you're unknown, they kind of don't have any interest.

Yeah, they want to put— unless you pay them. They want to preinstall the stuff that's going to help them sell their computer. So an unknown product doesn't do that.

Just word of mouth, start with the people you know and then they will talk to the people they know.

Word of mouth. Made up a story and called the press to get interested. PR, yeah, all right. PR is it.

Make product free for customers who refer other customers. Free if you refer a friend.

What about co-branding with financial institutions who might want to sort of promote?

Give me a break.

You read the book. That's exactly what we did. We that's that's what we did. We went to banks. And the idea was— and you were, Scott, you were consulting for Wells Fargo, right?

Yeah, after I left P&G, I joined Bain Company, and one of my clients was Wells Fargo. And so this idea actually was suggested by the head of retail banking at the bank. When I told him I was leaving Bain Company to start this company, he said, well, come back and talk to us because we sell to the same customers you want to sell to. And so when we struck out getting any money, I thought of that. So maybe we should go back and talk to this guy. And we did. And then, as Tom was saying, Wells Fargo ponied up the money to actually market it here in California because we didn't have the money to market it.

Yeah.

And then Wells Fargo introduced us to other banks. And we eventually— we went through a long dry spell, but eventually we got banks in a bunch of— in about 10 states, 11 states to market it to their customers.

Right, so the idea was— so we went to Wells. So the idea was the banks would then market it. We would do a deal with the bank and these deals we would grant them exclusivity among financial institutions. We wouldn't— if a retail store wanted to carry our stuff, we weren't going to not sell to a real retail store, but that was not a big problem. But we went to Wells Fargo first and said, hey, we'll give you all of California. We won't do a deal with any of your competitors in California. And you market this to your customers. What's in it for them is, as Scott said, they were marketing to the same people.

They—

it gave them with virtually no investment on their part other than a little bit of marketing money, but gave them kind of the aura of being this high-tech sort of bank versus their big competitor, which was Bank of America, had invested millions of dollars at the time building a whole home banking system, which again, with no internet, was a big deal because in order to do home banking without an internet, you had to actually put the pipes down to get the customers to be able to dial into your bank. It was a very expensive proposition. Wells Fargo with no money was able to deliver this technology product that delivered a lot of the benefits that home banking was purporting to deliver, namely time savings and accuracy and all this.

So we found these big fish. So rather than sell to consumers one at a time, we found these big fish and we sold them a bucket of units like 1,000 boxes, software was sold in boxes at the time, how quaint. And ultimately it almost killed us twice because yes, we sold 2 banks right away, Wells and then Bank of Hawaii, and then I was— Tom was building the Apple II version and I was on the road trying to sell more banks and a month would go by and we didn't land another bank. A month would go by, another month, and then we ran out of money.

Right.

So then we went to the 2 angels who had given us some money, went back to them and said, hey, things are— well, it's a little bit slow, but it's really working. We got these 2 banks and And neither angel came back for— didn't come back in for more. So we— that's when we had to stop paying salaries and had to return the rented furniture and the rented computers. We brought in the card tables from home. We used as printer stands, we used cases of unsold product. And we had a lot of cases of unsold product, so we had a lot of printer stands.

Yeah.

We—

my wife at the time was working for Crocker Bank. Crocker Bank had just gotten acquired by— who was it? Some other bank, I don't know. But as a result, all of their Crocker stationery was getting thrown away. And so she would come home with shopping bags full of Crocker Bank stationery, which we would then use for our stationery.

Yeah.

For years we had Crocker stationery. We stopped paying bills.

We didn't have the money to pay bills. But we learned you always want to pay 3 creditors so you have them for your credit references to get additional trade credit from additional people.

Right.

And you always have to pay— who is it— the phone company because they'll shut you off. So you always pay 3 creditors so you keep getting more credit. Lines of credit were invented. These things where at the time you could just call a line of credit. So I started drawing down, you know, they'd send you a mailer, sign up for a line of credit, and I'd sign up and then start dragging all the money into the company to pay those fuel bills. Yeah.

And, but, you know, our biggest expense, as will be your biggest expenses when you're getting started, are your salary expense. And we just couldn't pay salaries. So, you know, that went away. At the time, there were 7 of us. This was 1985. I believe. And there were 7 of us, so Scott and me and then 5 other folks. And 3 of us, 3 of the 7 left because they had bills to pay and couldn't work for no money.

They somehow expected a paycheck, I don't know.

The 2 other non-founders who stayed, one is my sister-in-law, so she stayed purely out of loyalty and nepotism.

Well, she called her father and said, oh, they're not paying, they told us they're not going to pay us any money, I left my job at the radio station, this is terrible. And he said— I only found this out decades later— he said, well, you promised to work for them, you should work for them. And when I heard the story, I said, well, yeah, we promised to pay you and we kind of reneged on that. But she stayed, thank God. She was basically— while I was selling, Tom was coding, she was everything else.

Yeah, she was everything else. So she was the entire operations. And then the 4th person who stayed was the gal that we had hired to write the manuals early on and became very close friends with her. And so she also stayed out of loyalty, and she also had a financial situation where she could afford to work for no money for a while. So it just worked out. I mean, we could not have kept going with fewer than the 4 of us.

Yeah.

It was just— if one other person had left, I don't think we could have pulled through. It was very difficult. And this went on for about 6 months that we were—

Right. And we knew we'd get some extra revenue when the Apple II version was done, so Tom was working on that. And then I eventually started clicking on the sales front, and we went from 2 banks to 10 banks, and we got money from every one of them. So then we finally had money coming in. We could start paying salaries. Of course, we gave lots of stock to the folks who had worked without pay. Suddenly he had money, and I started paying off— I'd borrowed from my dad and started paying that off on the lines of credit.