Note: This was cross posted on the 500 Startups Blog. Special thank you to Christine Tsai for reviewing this post.
We’re technical guys. We left infrastructure startups and big search companies to accept an invitation to join Y Combinator in the spring of 2010. We were a technical team that thought we’d take on a technical problem. Less than 6 months later1 (footnotes in the style of Paul Graham) we’ve evolved into a technical team trying to hack a very non-technical problem. We’re striving to eradicate American consumer debt.
A little about us
Rod, my co-founder, started an ISP2 while he was still in high school. In the late 90′s, at 17, he was lured into the second California gold rush by former Netscape executives. Instead of following his colleagues to Google and other startups, he went back to college for a degree in Cognitive Science and Human Computer Interaction. Most recently, he was the first non-founder at Membase (the data management layer supporting Zynga), where he led their first product launch.
I worked on statistical machine translation for 6 years – first at USC, then at Google. Google was an amazing place to work, and the translate team was second to none3. But Google started maturing, as did machine translation as a field, and I decided to look for fresh challenges. Leaving Google was quite shocking both technically and socially, but I’ll leave that for another post. What I took away from Google and machine translation was an appreciation for data. More is better. More than everyone else is best.
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Here are the observations and beliefs that led us to start ReadyForZero:
- Indebtedness is all around us. All around you4. We strike up conversations with old friends, new friends, people at coffee shops, online, in our office, in the supermarket, and we find all kinds of people are in debt. If you actually talk about it with people you know, you will be surprised. We’re relatively young (for now), and we have found many young people struggling – from professionals that make $300K a year to graduate students5. What do they have in common? Their debt causes them a lot of stress. According to Paul Graham, “hair on fire” problems, like debt, make for ideal startups.
- The stigma associated with personal debt needs to be lifted, decimated, and eradicated. Over-consumption and irresponsibility are problems, but people get into debt for many different reasons. Common patterns that we’ve seen are lack of education and lack of options. Ignoring and marginalizing the problem lets finance charges fester. The credit card industry made about $75B in revenue from finance charges in 20066. Recently people have begun sharing their stories about debt, on and offline (the Huffington Post articles about debt stories and the CNBC show ‘Til Debt Do Us Part’ are great examples). Let’s keep encouraging people to be open and seek education early.
- There can be better options for people in debt. This is not fantasy. Existing institutions and risk assessment models have not evolved to accommodate the new reality: Debt is a part of American life. College grads start their careers with average of more than $20,000 of student loan debt7. The entire credit establishment is using technology from the time of Sputnik. TechCrunch founder Michael Arrington recently couldn’t get a credit card from American Express. The industry is out of touch.
We believe that the current options are so bad, so predatory8, so unaligned with consumer interests, and so inefficient, that there is a valid, honest business in helping people get their balances back to zero. Naive? Maybe. Bold? Definitely. Unlike existing options, ReadyForZero connects with people and empowers them with the right information, personalized advice, and access to the better lending products.
What we’re doing
We’re building a product that will give people insight into their financial situation and help them get to where they want to be. We can automatically link credit card, bank account and credit report information to provide a personalized and structured plan for getting out of debt. We’re trying to improve on traditional ways of gauging your creditworthiness to give people fairer financial products. We’re forging relationships and creating information products for lenders to help them provide targeted consumer products that don’t exist today. If you want to be done with debt and are ready for zero, our goal is to give you what you need to help you conquer it.
Where we are
The financial industry is hard to break into, and we’re still learning about the space. Information is hard to come by. But through sheer tenacity, we’ve made unbelievable ‘Hail Mary’ connections with the Right People to make some awesome deals happen9. We’re aggressively building product and have recruited some old friends to help us out with marketing and design. We have larger-than-life advisors on board and incredibly connected investors that _hustle_. We are excited about the future.
- Y Combinator is about 3 months long (June through August). 18 hours a day * 3 months = 1620 hours. Incidentally, that means my weight increased about 4.5 grams per non-sleep hour of YC. This is roughly equivalent to 1 paul gram. Note that I didn’t follow his advice to maintain an exercise schedule. [↩]
- The old-fashioned way, with a screwdriver and a line tester, instead of with AWS credentials. [↩]
- Really. Google’s results ranked 1st in the yearly NIST competitions every year they’ve participated: http://www.itl.nist.gov/iad/mig//tests/mt/2006/doc/mt06eval_official_results.html [↩]
- 1/3 Americans don’t pay off their credit card balances every month. This is almost 100 million people. Think about how mad you are when there are 10 people in front of you in the post office line. This is like 10 million of those. That’s how mad we are at debt. [↩]
- The average outstanding balance on graduate student credit cards is $8,612 in 2006 (median is $3,874) and only 20% pay off their cards in full. From “Graduate Students and Credit Cards in 2006: An Analysis of Usage Rates and Trends”, Nellie Mae. [↩]
- www.creditcardreform.org/pdf/credit-card-facts-stats.pdf. And if you’re thinking that banks are just being fairly compensated for risk that they’re taking, see: Adam J. Levitin. “A Critique of the American Bankers Association’s Study on Credit Card Regulation” 2008. Available at: http://works.bepress.com/adam_levitin/4. [↩]
- From: http://projectonstudentdebt.org/files/pub/classof2009.pdf. Also includes information about percentages that graduate with debt. [↩]
- Debt consolidators and settlement companies make so much money that they can afford to pay $30 *for each click* on one of their online ads. If you know what Google’s keyword tool is – just check it out. [↩]
- This is no accident, Rod is a tenacious entrepreneur. He doesn’t need to use the door; he just walks through walls. That’s critical in the financial space (see Paul Graham’s recent post about Bill Clerico, founder of WePay). Plus, he’s a sweet talker on the phone. [↩]