Question: In November 2006, Wesabe launched a site to help people manage their personal finances. While it wasn't the first personal finance site on the Web, it was the first to use a Web 2.0 approach. The site automatically aggregated and stored all of its users' financial accounts and, most especially, was able to "learn" from the accumulated data its users uploaded to make recommendations for better financial decisions. Because of its helpful functionality, Wesabe got off to a good start and, until September 2007, was considered the leader in online personal finance. Then Mint.com launched, and from that point forward, Wesabe was in second place at best. Two years later, Mint was acquired by Intuit for $170 million-one of the fastest and most successful exits in software history. In contrast, just short of a year later, Wesabe shut down. What Went Wrong?

Marc hedlund, one of Wesabe's co-founders, wrote a thoughtful blog post about Wesabe's failure. While he attributes Wesabe's failure to several factors, two are prominent in hedlund's opinion. The first speaks to the importance of allowing partners to build some of a firm's capabilities or managerial capacity, while the second focuses on the importance of a first mover remaining sharp and competitive in light of inevitable competition. The first mistake Wesabe made is that it chose not to partner with Yodlee. Yodlee is a company that provides account aggregation services, which is a highly technical business. If a user is willing to provide his or her account-access information (account numbers, user IDs, and passwords) for bank accounts, credit cards, and investment accounts, Yodlee can "scrape" the appropriate sites and compile all the information in one place. Yodlee was a tough negotiator so Wesabe decided not to tie itself to Yodlee, even though Yodlee could deliver to Wesabe a huge capability it needed. Mint.com partnered with Yodlee out of the gates and, as a result, it was easy for its users to populate their Mint.com accounts with their financial information.

Wesabe built its own data acquisition system, which took longer and wasn't as elegant. Wesabe eventually launched a Yodlee-like Web interface, but it didn't come online until six months after Mint.com went live. In retrospect, hedlund believes that passing on Yodlee was probably enough to kill Wesabe. It should have known that if it didn't use Yodlee, a competitor would come along that would. That would have been okay if Wesabe had had a solution as capable as Yodlee. But it didn't, and the minute users looked at side-by-side comparisons of Wesabe versus Mint.com, Wesabe was at a disadvantage in that its product's functionality wasn't as solid as what was available from a competitor.

The second mistake Wesabe made was misunderstanding its users. Wesabe deliberately forced people to do some of the data entry and other work on the site themselves, thinking that forcing users to get close to their data would change their financial behavior-for the better. Mint.com did just the opposite. It focused on making the user do almost no work at all, by automating all key processes and giving them instant gratification. As a result, Wesabe's site was perceived as "harder to use" than Mint.com's. While Wesabe's intentions may have been noble, it misread its users. As hard as it is to admit, users were more interested in expediency and an elegant interface than performing the hard work of getting close to their financial data. The combination of Mint's better data aggregation method (via Yodlee) and the higher amount of work that Wesabe made the user do gave users a better experience on Mint versus Wesabe. Although Wesabe had the first-mover advantage, Mint simply outcompeted Wesabe and gained the upper hand.

Questions for Critical Thinking

1. Why do you think Wesabe opted not to use Yodlee and to build its own account aggregation services? Similarly, why do you think Mint.com jumped at the chance to partner with Yodlee?

2. How does an entrepreneurial firm find the right balance between not "overestimating" its capabilities (i.e., Wesabe thought it could build an account aggregation service faster than it did) and still be willing to do much of the work that needs to be done without paying others to do it?

3. How could Wesabe have avoided misunderstanding its users and allowing Mint.com to obtain the perceived usability advantage it obtained?

4. What can entrepreneurial firms learn about the managerial capacity problem from Wesabe's experience?