November 29, 2010
Octane: Jason Henrichs - COO & Co-Founder, PerkStreet Financial

We are excited to have Jason Henrichs as our guest on Octane this week.  Jason plays a very active role in the Boston startup community.  He is the COO & Co-Founder of an online consumer, financial services startup that is backed by Highland Capital Partners called PerkStreet Financial.  He has also played the role as either an investor at Rock Maple Ventures or a board member / advisor at companies like LocaModa and Memento.

PerkStreet Financial is a rapidly growing company that is creating a better, more sustainable model for banking.  Ultimately, their business model is focused on allowing consumers to earn rewards for spending responsibly on a debit card versus a credit card.  They have aligned the incentives to help improve the lives of its customers and to help change banking for the better!

VentureFizz:  Can you provide an overview as to your background and professional history? 

Jason Henrichs:  I
started as a project engineer in the check printing business. When the
internet revolution hit and checks were going to be obsolete overnight, I
moved to Boston to work for the Monitor Group. Most of my clients were
big companies seeking strategic help, but the most interesting projects
for me were the new ventures. I decided to forgo the traditional path to
business school and jumped into the world of start ups. Since then, I've
been involved in over 20 companies as a founder, executive, board
member or investor. Just before PerkStreet, I was doing a start up within
a public company, launching a student focused bank for the leading
provider of private student loans. 

VF:  What is PerkStreet Financial and what problem is the company solving?

JH:  PerkStreet
is a high rewards debit card and checking account tailored to meet the
needs of the online consumer. The majority of Americans are making the
decision to spend responsibly by using a debit card rather than going
into debt. Most debit cards don't have rewards and those that do are
minuscule; we wanted to create a product that rewarded making positive
choices by giving 2% cash back for debit spending which rivals even the
best credit cards. For most Americans, switching their spending to
PerkStreet could earn them over $600 a year with no black out dates,
expiring points or crazy conversion rates to get anything of value. 

VF:  How did you and the founding team come up with the idea behind PerkStreet Financial?

JH:  One
of our core fundamental beliefs when we started PerkStreet was that
America needed a financial services firm where the business and
customer incentives were aligned. Dan and I were both working in the
credit industry before PerkStreet and saw first hand the damage caused
by debt. Even if you pay off your credit card balance in full every
month, the incentives and product are structured to get you to spend
more than you intend. Those rewards are ultimately paid for by the
interest and fees when folks slip up and are subsidized by the annual
fees paid by the rest of us. These rewards programs are all about
getting the customer to take an action that benefits the business but
provides relatively little value back.

PerkStreet's cash back
rewards are fundamentally different. We don't rely on fees or customers
spending more than they intended to make money. We also don't play games
around redemption. While there is a great feel good element, it is also
an awesome business model because it is completely scaleable. Combined
with the rising importance of debit cards which already surpassed the
number of credit card transactions 5 years ago and the inability of
branch banks to adapt and you have all the elements necessary to come in
and be the disruptor. 

VF:  Throughout your career,
you have spent time on both sides of the table - either as a founder /
executive or an investors / board member.  What are the most common
mistakes that you see entrepreneurs make when building a startup?

JH:  The
first mistake that comes to mind is confusing the value of an idea vs.
the value of execution. Whether it is silly games about signing an NDA
before an investor can see the executive summary or endless iterations
on a new marketing campaign to ensure it is perfect before launching, it
is easy to get caught up on the importance of the idea. In reality,
most ideas, no matter how good they are, aren't good enough. Only by
launching an idea can you discover what works and what doesn't. No idea
can be simply thought to success. It needs to be reduced to practice to
have any value and there is a whole lot of learning and opportunities to
fail between concept and satisfied customers.

second mistake is fearing failure. This can paralyze an organization
and it prevents learning.  Peter Norvig, the Director of Research at
Google has one of my favorite quotes: "If you're an engineer, you
essentially want to be wrong half the time. If you do experiments and
you're always right, then you aren't getting enough information out of
those experiments. You want to not know what the results are going to
be." This lesson is hard to learn - even 13 years after my first start
up I find the need to remind myself of this lesson again and again
because it isn't natural for most of us motivated by success. 

VF:  Startups typically need to pivot and evolve their business model over
time, especially as customers start to use the product.  Can you provide
some advice or lessons learned to entrepreneurs on pivoting while
keeping your business moving forward at the same time?

JH:  Pivoting
can be disconcerting because it can feel like a free for all. The key
is the shift shouldn't be random but driven by data and a well
structured choice. When things aren't going according to plan it is
tempting to say, "this isn't working, let's try something else." Then
learning and forward progress goes out the window. A good test and learn
strategy, by contrast, sets up clear alternatives with measurable
results to distinguish which works better. Each evolution then always
feels connected to what was successful in the last iteration.

VF:  What advice would you give first time entrepreneurs who are trying to raise funding?  At what point does it make sense to start talking to investors?

JH:  Like Glengarry Glen Ross, an entrepreneur should always be closing. The easiest time to attract an investor is when you don't need it. The fact that a business needs money isn't a great investment thesis. My late partner at Rock Maple Ventures (where I started as an Entrepreneur in Residence and tried to fix every decent deal that came in the door) taught me that the entrepreneur and investor approach are often in direct contrast. He'd say, "we don't have to do this deal. Wait until we want to do the deal, not until they need us to do the deal." Advice that resonates even more now that I'm on the entrepreneurial side.

The surest way to get an investor to want to do your deal is forward progress. Showing a business plan that is completely dependent on financing to move forward is a sure way to find yourself in a holding pattern that never ends. If you can keep making progress with customers, partners and prototypes, you'll get an investor's attention because they know that if they don't do the work, someone else will. Always have progress to share.

VF:  What professional accomplishments are you the most proud of?

JH:  It will probably seem cliche, but PerkStreet is my proudest accomplishment because it is the first time I've worked on a business where my personal ethos, the needs of customers and a killer business model have so perfectly aligned. Our team is firing and learning on cylinders; it makes it a fun place to work. I never expected as a start up, let alone a bank, to get daily fan mail from customers telling us how PerkStreet is changing their lives.

VF:  Learning from mistakes is critical for entrepreneurs.  Can you share some lessons learned from your past or how you would have approached things differently?

JH:  I used to have a hands off approach to shaping corporate culture. Not that I didn't think it was important; I had pretty clear ideas about what I wanted, but I felt like it was something that was just supposed to 'happen.' That was a major mistake. I've since learned that culture needs to be actively managed - it can't be exclusionary, but left to its own devices culture can just become a hodgepodge that no one connects with or feels productive within.

VF:  What characteristics do you look for in terms of hiring employees at this stage with PerkStreet?

JH:  We are looking for passionate people who want to make a difference both at the company level and in the lives of our customers. Reinventing banking is hard work and requires a degree of engagement that goes deeper than many other businesses I've been involved in because we're talking about people's livelihood: the money they use to buy food and to pay bills, the thing that enables their every day life. And banks are the institution they feel most cheated by, the institution that created the fine print. We've got a pretty bold culture that requires a unique combination of thick skin and willingness to learn.