by Lynn Hicks, The Des Moines Register
Ben Milne's tech startup uses the Web to move money quickly, safely, and at a low cost.
DES MOINES, Iowa -- In front of crowds, Ben Milne is magnetic: He's wowed technophiles at conferences from San Francisco to Dublin. His pitches have prompted venture capitalists to buy into his vision, and persuaded customers to entrust his company,Dwolla, with moving millions of dollars.
Milne sells an idea so simple, yet so mind-boggling: Use the Internet to move money quickly, safely and at as low a cost as possible.
The result could transform banking and business, saving money and reducing fraud. Simply put, it means changing the world. And he thinks he can do it from Des Moines, Iowa.
If Dwolla thrives, its success promises to lead to more startups, more investments, more jobs and more wealth for Iowa. But first he has to overcome the skeptics, who question how Dwolla will ever make money, let alone move billions of it.
Dwolla needs to sign up more users, merchants, websites and financial institutions. It makes 25 cents for every transaction over $10. That means it needs to handle millions and millions of transactions before it can make a profit. Milne also must find enough talent and funding to reach widespread usage.
Milne, 30, admits he has a long way to go as a CEO. He says he must "grow with his company" to be taken seriously. "If we want to build the company we want to build, that may mean growing up a little bit."
Even his biggest backers don't know whether Dwolla will succeed. But they believe in Milne.
"If you don't have confidence in Ben Milne, the world is a pretty sad place," said Mark Conway, a Waterloo, Iowa, lawyer who was one of Dwolla's first supporters.
Moving beyond a bright beginning
Milne and Dwolla are somewhere in the middle — a lonely and difficult place for a startup. It's the untold story. It's when an entrepreneur must live up to the hype.
The company's story had an undeniable hook, and it was told over and over: Ben Milne dropped out of the University of Northern Iowa his freshman year to sell audio speakers over the Internet. Four years later, the company grew to more than $1 million in sales. But Milne became obsessed with the money he was spending on credit card fees — $50,000 a year — and set out to fix the problem.
Technology industry websites, and later mainstream media, followed this guy in a T-shirt and sneakers with no financial background, who gives obscenity-laden speeches and calls for changing payments with the fervor of a hipster preacher. Business Insider called him the "man who wants to completely kill credit cards." And, reporters and Twitter followers buzzed, he's doing this from Iowa?
"His PR machine opened doors," said Mike Colwell of the incubator Business Innovation Zone of Central Iowa, one of the first people in Des Moines to meet Milne in September 2009, when he was hatching the idea.
Milne bankrolled the idea himself at first, and then found support from Veridian Credit Union, angel investors, and the state of Iowa, which awarded Dwolla a $55,000 grant in March 2010. Within six months of launching nationally in December 2010, Dwolla was moving $1 million a day. Investors on the coasts started paying attention. By February 2012, Dwolla had attracted $5 million from five top venture funds and an even bigger name, actor Ashton Kutcher.
That's the simple version. Of course, it's more complicated. Colwell, Conway and others marvel at how many hours Milne has put in, how he has learned so much about the financial system, how he has won introductions, how many rejections he has overcome.
"Few people know how to work and work to a goal like he does," Colwell said, to the point that Milne has neglected to do laundry or other mundane tasks that weren't part of his focus.
Moving to the next step will require a new focus for Milne. His crew is focused on building the company, hiring people, improving its products and making new partnerships.
That's "middle work," said Joni Cobb, president and CEO of Pipeline, a Kansas City-based group that helps entrepreneurs in the middle of the country navigate the difficult, uncertain middle of their journeys.
"It's arduous," she said. It's full of dead ends, rejections and pitfalls. And that's why policymakers and leaders who want to encourage innovation must pay attention to the middle, she said. "It's where the magic happens."
Revolution requires Milne evolution
Che Guevara, the Marxist guerrilla leader stands sentinel in Dwolla's 18th-floor headquarters in downtown Des Moines, with his words: "The revolution is not an apple. You have to make it fall." If you look closely, you'll see multiple images of Apple founder Steve Jobs within the print.
Yet he knows such images put Dwolla at risk of being misunderstood and even mocked. For example, he says the media, not him, said Dwolla was out to kill credit cards. "Anytime you do something off the beaten path, you put yourself at the risk of being misunderstood."
His true-believer passion has attracted true-believer employees, including Alexander Taub, a veteran of New York startups.
"The type of employee we have is here for the long haul," Taub said. "People here want to change the world."
Wearing a trademark hoodie, Milne has asked audiences whether they can imagine him the CEO of a company with hundreds of employees. It gets a laugh. But he jokes less about it now, saying people's livelihoods depend on his decisions and his execution.
"I can't think the exact same way I think right now and be running this company in five years. I've got to grow," he said.
"Don't get me wrong. It's going to take some work for me to stop swearing as much as I do. And work to get a little different wardrobe. And I don't think I'm going to start showing up with $500 ties or $900 shoes. That's not who I am, and I can't afford that anyway," he said.
For Milne, Dwolla, an unfinished story
Milne loves building things and solving problems, friends say. He may have found his ultimate project.
"I'd be very surprised if Ben didn't spend his entire life building Dwolla," Taub said.
Milne said he originally thought he'd be done with Dwolla by the time he was 30. But Dwolla is like a gangly adolescent, too young to judge its potential.
The challenges are massive, and include regulatory uncertainty and much larger potential competitors. Milne's plans are expensive, and analysts see little profit margin as a reward.
Expect more partnerships. And more rounds of funding. "We'll never stop raising money. It will take $100 million or more to build this company," Milne said, as costs for developing the technology increase.
His chief investor, Union Square Ventures, assures it will be patient. Partner Albert Wenger said the New York venture capital firm is interested in transformational companies, not ones that turn a quick profit. Its investments include Twitter and Foursquare, popular Web-based companies that are developing their business models. Wenger said he has no timeline for Dwolla's profitability.
"It may take many years or even decades for something like Dwolla to develop its full impact," Wenger said.
Dwolla is an attractive acquisition target, Milne said, but he's not looking to sell. He said a buyer must be devoted to its mission. In the next five years, he said, "Somebody will either be paying a lot of money for the company, or we will be looking at how we remain a very large, very creative company for the next 100 years."
How does Dwolla work?
by Sarah Kessler
Here’s the short version of how Dwolla works: It transfers money directly from your bank account to the bank account of someone who you want to pay. For free--if the transaction is less than $10. And for $.25 if it’s more than that. That is less than a credit card company would charge you.
But wait. Aren’t credit cards essentially just moving money from bank account to bank account, too? Shouldn’t they run into about the same fees for doing so? Get ready for the long answer.
“That 16-digit card number, when it’s left behind, or when it’s used at all, one, the fees to essentially move the money can't really go away, because they have to support that infrastructure, and a huge part of that infrastructure is not necessarily the reduction of fraud on the front end, it's already a loss baked into the entire cost of the whole network,” Dwolla founder and CEO Ben Milne told Fast Company at a meeting in New York City this August. “You just can’t remove it. It’s not coming out.”
A credit card transaction isn’t simple. It’s a complicated process (I often imagine a Rube Goldberg machine) involving players you’ve never heard of that have functions such as “merchant service provider” and nonsensical charges such as “acquirer processing fee.” Dwolla cuts all of this out with the credit card number.
Huh?
“It’s like if you have a landline phone, you can’t not use the copper in the wall,” Milne says. “If you want to reduce the cost of copper, you need to use a wireless phone. You remove hardware. You remove infrastructure.”
It took Milne, he admits, years of seriously geeking out to figure out how payments work. If you don’t have that long, this infographic helps.
- Paperbear Out
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