Disrupting The Disruptive Disrupters—With AI

Prosperity is personal. It means different things to different people. But one part of prosperity we all have in common is dealing with our finances. Making the most of our money is a universal challenge. Pandemic-era stimulus and tax credits have been paid out, and spending and savings habits have changed. And now, in a post-pandemic world with the explosion of new technologies, the shift to virtual financial solutions, the acceleration to online and omnichannel capabilities, and digital money offerings—growth and innovation challenges have never been greater for fintech providers.

Over the last 40 years, Intuit (INTU), the Silicon Valley-based financial technology platform known for TurboTax, Credit Karma, QuickBooks, and Mailchimp, has carved out a rather large niche, helping millions of consumers and small businesses manage their most pressing financial challenges. Competitors large and small, legacy and new, are taking note and fueling the disruptive democratization of fintech. Even the U.S. Government wants to be a tax service provider—ugh.

How to Disrupt Yourself

With more than 17,000 employees delivering $12B in revenue, Intuit recently celebrated its 40th anniversary. But how does a fintech company continue to grow and thrive in the volatile tech landscape and through the major financial shifts that have hit us over the decades? According to Intuit CEO Sasan Goodarzi, the answer is to never stop disrupting yourself.

After stepping into the CEO role in 2019, Goodarzi initiated a Core Reboot, which I define, and teach executives at Kellogg/Northwestern, as transforming three key components of your business—your People, Platform and Passion. In Intuit’s case, it meant transforming from a back-office tax and accounting software company into an AI-driven financial technology platform company. The company became laser-focused on building the next generation of AI-enabled capabilities—transitioning from customers doing most of the work to an AI-generative platform that can do work for customers.

When it comes to execution, they seem to be hitting on the big three cylinders I look for in a Platform Reboot, BBB (Build-Buy-Borrow): Building, through the massive re-engineering of the company to focus on AI as the driving force of product innovation and speed to market; Buying, via two multi-billion-dollar acquisitions of Credit Karma and Mailchimp; Borrowing, through creative, lucrative, and market-making partnerships with all types and sizes of companies, from stealth AI startups to vertical-players and even the likes of Amazon Web Services (AWS).

Sound easy? It can be, in some sectors, but not in this hyper-competitive market with competitors like Xero, Sage, Wave, Kashoo, Odoo, FreshBooks, TaxACT, H&R Block, and Zoho coming after you—not to mention some of the big-dog tech companies moving “down market” toward SMB.

As an operator, I love (okay like) competition, because it usually validates that you are in the right market at the right time—but it really keeps you on your toes. Commenting on their private company’s approach to growth, Vijay Sundaram, Zoho’s Chief Strategy Officer said, “Historically, Zoho has focused our innovation on the first of the three B's—building—investing our money, talent and energy toward developing and expanding our platform, while exploring new ways to bring value to our customers. Aggressive pricing, attractive bundling, lower software implementation costs, contractual flexibility, and the willingness to leave money on the table are some of the ways we do it. In a down economy, this resonates even more with customers, so we've doubled down. This is the time to reinforce the investments our customers make in us and to build out market share.” Competitive indeed.

Building AI Platforms With The Power Of Data

The realization of a platform model upon which all of Intuit’s cornerstone brands are built, combined with Sasan’s reboot strategies, seems to be paying off. Intuit has more than doubled its market cap during Sasan’s tenure and revenue was 90% higher in FY22 compared to FY19.

With some industry leaders calling for a “pause” on AI developments, many companies continue to move full steam ahead on joining the hype around leveraging generative AI, like Open AI’s ChatGPT, and they’re frantically scrambling to deploy it before it disrupts them.

Since Sasan and his team declared they’d build an AI-driven expert platform as part of its Core Reboot back in 2019, they were ready for the coming data revolution and pandemic-era digitized services explosion with BBB investments in three key areas: machine learning, knowledge engineering, and natural language processing. From AI-powered frictionless DIY taxes and Live full-service tax offerings through TurboTax, to transforming the QuickBooks business from an accounting service to a full-service platform for small businesses to run their companies, Intuit seems intentional about where it focuses its efforts with its customers problems at the top.

The tech industry loves to talk about the power of big data—but they don’t often bring a level of scale that moves the needle enough to impact their growth. With over 100 million customers, I think the scale of Intuit’s data can be an important competitive advantage and building block for its existing and future innovation with AI.

“We have the privilege and the obligation to manage the data for our customers, we have about 55,000 data attributes per consumer,” says Goodarzi. “We have almost 400,000 financial attributes per small business." The company has shared that this data powers 58 billion machine learning predictions per day. The acquisitions of Credit Karma and Mailchimp each contributed a rich and additive data set, which helped to deliver a 360-degree view of its customers. Looks like there could be some impactful data opportunities are ahead.

Growth And Innovation Secret Sauce: Teams Focused On Pains - Gains

Designers, developers, and product groups often drift away from why they exist—to solve potential customers’ problems. The tools I teach and deploy to help bring the focus back are Deloitte’s Ten Types and the pains and gains rigor of the Value Proposition Canvas. But for them to make an impact, the CEO must get it too. "We leverage that data to really help them make decisions, and succeed,” says Goodarzi. A myopic focus on the pains and gains works, “For consumers [TurboTax, Credit Karma, Mint], it's to help them find ways to improve their credit score, get the biggest tax refund, save money, pay the right bills on time, and to really just achieve prosperity, which is ultimately our mission."

Like other Silicon Valley companies, Intuit’s people have been on a journey to deploy personalized guidance solutions through AI at scale. One example I’ve noticed is TurboTax, guiding customers in this current economic landscape of tax complexity—including an explosion of day traders and cryptocurrency holders, and the birth of the creator economy. Staying ahead of the curve also means attracting and retaining the next-generation of AI talent, which I recently wrote about. A look under the Intuit hood, at their People and Passion cylinders, showed that their people seem to be persistently innovating across the platform—a big shift from the old code and release valley software culture.

This tax season, they experimented with a new AI-driven “express lane,” which saw customers filing their simple tax returns in as little as 4 minutes. That is a new record. And for the last several years, the company has been building for the $20B assisted tax prep market, deploying new technology and thousands of tax experts to capture every corner of the industry and serve all filers. The company recently reported that it expects TurboTax Live revenue to grow approximately 19 percent and TurboTax Live customers to grow approximately 13 percent.

Innovation Inside And Out

“We believe the durability of our company will come from innovating from within. If you try to partner your way to every answer or buy your way to every answer, you're not going to have a company that has the DNA of innovation,” says Goodarzi. “Our focus is the customer problems that we're trying to solve, and how we allocate our capital toward innovating within. Our advantage comes from data and the application of AI to that data to really ignite innovation internally.”

Yet Goodarzi is not opposed to acquisitions, making two of fintech’s largest to date, investing billions to buy Credit Karma and Mailchimp. “We will always look to understand if there are problems that we can solve for our customers with partners and/or acquisitions. The reason we chose to make these acquisitions is that it probably would have taken us, based on the assessment that we did, about five plus years to build some of those capabilities.”

Fostering Innovation And Balancing Your BBB

Goodarzi’s most recent acquisition of Mailchimp evolved Intuit’s small business and self-employed group into the leading small business fintech platform, with a suite of integrated tools to help business owners manage their finances end to end, including: automated payments, getting paid faster, accessing capital to grow, and seamlessly reconciling their books. Mailchimp further expanded the offerings to also help owners manage their workforce, acquire, and retain customers, and expand to new channels of commerce.

Simplifying, amplifying, and controlling cashflow is key to SMB growth—and survival. Sadly, according to the U.S. Bureau of Labor Statistics, only 50% of small businesses survive past their fifth year, while 69% of businesses that have used QuickBooks at some point survived beyond their fifth year.

"The problem we are focused on for [small businesses] is to help them really manage their cash flow,” says Goodarzi[1]. By integrating financial services that span payments, capital, and banking, QuickBooks is transforming the speed of money movement while delivering advanced money management capabilities like cash flow forecasting to give small businesses greater control of their finances.

AI Business Strategy Begins To Pay Off

Intuit’s third quarter revenue grew 7 percent to $6B, lower than expected due to a unique tax season when IRS returns overall declined, while exceeding operating income and earnings per share guidance. The company also raised its total fiscal year company revenue, operating income, and non-GAAP earnings per share guidance, with all metrics growing double digits.

This type of growth is solid when compared with industry competitors, especially during a year impacted by macro uncertainty. While most companies are experiencing low or declining growth, Intuit has demonstrated the resiliency of its platform.

As a growth guy, I see opportunities for how to tap into Intuit’s unique data and AI capabilities in new ways. Earlier this year, the company released a monthly index called the Intuit QuickBooks Small Business Index, developed in collaboration with leading University of Chicago economist, Professor Ufuk Akcigit. The index expands Intuit’s ability to more clearly delineate between its small business customers and the small business community at large, while also providing a tool that can inform policies that impact their customers around the globe, as well as to help small businesses make key decisions.

Whether deploying generative AI-powered offerings to solve its customers ever-evolving problems, or leveraging its data to shine a light on the different communities it serves, AI is at an inflection point, especially in how it can impact fintech. Beyond AI and fintech, consumer services companies across sectors can learn a lot from Intuit, who seems to have developed a winning combination of blending data and strategy to help its customers personally prosper.