As first time founders, we had heard of startup accelerator Y Combinator’s legendary history incubating young founders and their early startups [0]. In the fall of 2019, we applied with our idea to build modern pre-tax employee benefit cards (FSA, HSA, commuter, etc.). Good news: YC selected us for an in-person interview. We were thrilled! Not-so-great news: a week before the interview, we concluded from our customer research that our idea didn’t have legs. Surely, we were doomed.
Around this time, I received a cryptic email from a VC friend: “This looks interesting…check it out.” Attached was a draft copy of a new federal health insurance regulation that the Trump administration was working on [1]. Employers could use payment cards similar to FSAs to let employees purchase their own health insurance from the open market (also known as the individual market, ACA marketplace, or Obamacare market). This new option would disintermediate employers from selecting health insurance plan on behalf of employees.
Our immediate thought was this new regulation-driven market was going to be massive, and we could be first-movers. Our next thought was although we had never sold health insurance, we needed to pivot quickly given our YC interview in 3 days. A poorly researched idea seemed better than a bad idea, and so we opted to jump ship. A young “Savvy” pivoted to offering payment cards for employees to buy health insurance.
In the final days leading up to our YC interview, we pored over the draft of the new regulation and mastered the basics. One problem — we had little understanding of who would adopt this health insurance model. We needed to talk to customers, fast. Having both grown up in small business-owning families, we first tried our personal contacts — this yielded only a handful of calls. Then an epiphany: the fastest way to talk to businesses was to just show up, trick-or-treat style (treat being a customer interview). We marched down Chestnut Street in the Marina District of SF and knocked on every small business door. We proceeded to question whomever would talk to us about their employer health insurance. This surprisingly worked, although the signal was low given most retailers don’t offer health insurance. Equipped with more perspective on SMBs, when interview day came around, we confidently addressed every question in our intense, 4-on-2 interview panel, which lasted precisely 10 minutes. We left feeling optimistic and hours later received a call accepting Savvy into YC.
Once YC kicked off, our focus quickly became growth. Each week, YC partners pulled us into “group office hours” — a joint meeting with 5 other startups where we’d be grilled on our weekly performance against our chosen KPI, customer sign ups. These sessions lit a fire under us. We were terrified of being caught with our pants down, especially in a room full of our YC founder peers, so we sprinted 7 days a week to sell our product. We put aside the existential questions of what problem we were solving and for whom and began selling to whomever would listen.
When I say whomever, I mean literally anyone who would entertain a conversation. At YC’s first batch dinner, we recognized that drinks were missing from the dinner buffet. Founder thirst became our opportunity. We showed up with a cooler full of Kirkland sparkling waters and stood in front of a cardboard sign that read, “Benefits and Bubbles.” We handed out drinks in exchange for signing up with Savvy. To this day, that lemon sparkling water stand remains our highest ROI marketing tactic.
Even without a clear grasp of the problem, we began selling quickly. But therein lay our mistake. We were amateur artists painting frescos, blindfolded. Our thinking at the time seemed intuitive. The market’s willingness to buy would show us whether there was a big problem to solve. If there were no demand for our product, the signal would be clear. If we saw strong pull with rapid word-of-mouth growth, the market fit would also be obvious. However, there is a dangerous in-between outcome, which is precisely where we landed: steady sales with no acceleration. Our instinct was to soldier on and continue pushing our product into the market.
As customers ramped, it felt like we were winning. We even signed up several large companies, which 10x’d our user base overnight. In order to give these large clients an incredible experience, we prioritized their feedback and bent over backwards to build their feature requests. With a 2 person eng team, we couldn’t always build their requests into the product, so we designed manual hacks. One customer (with a particularly rocky onboarding) wanted Savvy to front all payments instead of users paying and later receiving reimbursement. To smooth relations, we obliged. We began fronting the funds (effectively a 6 figure loan), remitting payment on behalf of users, billing the customer at month-end, and tracking everything in a spreadsheet. We told ourselves that one day we would build the fintech infrastructure to automate this, but for now we’d take on the ops burden.