Anthemis Interview With Betterment CEO Jon Stein
As part of an ongoing series for Anthemis portfolio companies, I recently had the pleasure of hosting a live AMA with Betterment CEO Jon Stein. Along with Eli Broverman, Jon founded Betterment in 2008, at time when investor confidence and trust in financial institutions was at an all-time low. Jon’s vision for a modern, holistic financial advisor was a bold but prescient one: today Betterment has over 400,000 customers and $17bn in AUA, and by all accounts, they are just getting started. What follows are highlights from our conversation with Jon, who shared with other Anthemis portfolio company founders where he found the inspiration to start Betterment, how to build trust with customers and the importance of company culture.
Jon’s initial idea for Betterment evolved during the course of his work with large financial institutions: “Working for many of the US’s largest banks and brokers, I saw first-hand the kind of questionable business practices that convinced me I could not work in the traditional banking industry. For example, certain banks would open branches in low income neighborhoods offering free checking accounts. The average customer at that bank would overdraw four times in a month, with a $40 overdraft fee. That kind of thing made my stomach churn and I realized I needed to help change the system.”
Early in business school, Jon started developing an idea for a more transparent and customer-centric investment service, his model for Betterment. At its heart lay one core value, still the ethos of Betterment today: “We have one mission: to empower our customers to make the most of their money so they can live better.”
“We have one mission: to empower our customers to make the most of their money so they can live better.”
Jon recognizes that, initially, having one or more cofounders was invaluable, “because there was someone there I could turn to and rely on.” As Betterment started building its MVP, Jon was able to gather around him a number of key individuals who provided professional and emotional support, either as mentor, coach or advisor. One of those was Anthemis’ Sean Park: “…we had the same vision for the future, for the change that’s coming. Nobody else was paying attention at the time.”
The following year in 2010, Betterment launched at TechCrunch, despite a run up to the launch that proved to be one of the most stressful periods of Jon’s life (regulatory approval was secured just days beforehand). “In that first week we had 500 customer sign ups and I couldn’t believe it. I thought, ‘wow, these are real people signing up and investing with us…people trust us.’”
By the close of the Betterment’s Series A in November the same year, over 3,000 had signed up. At this point, $10 million under management seemed like a notable milestone that was celebrated by the team. But today expectations are greater and the ambitions are higher. “I’m super excited about the opportunity and responsibility we have to broaden our product set and become the holistic smart money manager. To add additional products and features is great—and that’s an ambition—but I think we also have a responsibility to reach millions of people, to show Americans that they are not getting everything they deserve, that there is a smarter way to save and invest.”
A key part of Jon’s vision for Betterment is enabling access to high quality advice. Studies show that few have a clear understanding of the difference between an advisor and a broker, and Betterment is changing that, with a focus on the quality of that advice being a key element in customers’ trust in Betterment. Asking Jon to expand on this, he explained: “Trust builds up over long periods of time. Customers trust us; they continue to do that. Most of the industry isn’t that way and that’s a huge differentiation for us. We consistently deliver customer value. I don’t think we get full credit for just how customer-aligned we are. We’re coming up to our 10th anniversary and I believe that trust continues to compound.”
In order to hit his goal to reach millions of US citizens, Jon wants Betterment’s customers to fully recognize the value that the company is delivering for them, highlighting to the market the level of trust amongst the company’s existing customers in order to reach many more. “We are breaking down barriers, the industry is shifting. If the industry shifts, things start to shake loose. We’re still in very early days. I know it feels like there’s a lot happening here but it’s just beginning. There is still so much inertia.”
“There is no category, we’re it.”
On recruiting, Jon and team recognized the importance of cultural fit from day one: “The most important element is the people — how we hire, how we build the team. You have to make sure that everyone is part of the culture, believes in it, embodies it, perpetuates it. But we’re here to disrupt things in a big way. The people who know how to do what we want to do don’t exist. Hiring from ‘within’ our category makes no sense. There is no category. We’re it.” Creativity and experimentation are nurtured by a culture that acknowledges that each member of the team is part of a system that does not apportion blame, “even if you’re the one who pushed the button.”
When asked about how much of the work is about seismic change versus constant and careful iteration. He explained: “You’re always looking for a silver bullet, you’ve always got your eyes open for it, but it’s mainly just doing enough of the right things over time.”
* Pursue happiness
* Start with the customer
* Build relationships beyond the task
* Own it and lead it
* Iterate to breakthrough
* Embrace efficiency
* Create enduring quality
Jon likens the cultural model at Betterment to a home. Its values are ever-present and determine the daily activities of the staff. The structural elements — the building, the furniture, the atmosphere, the infrastructure — support this, make it comfortable and a place where everyone feels empowered and included. “As in a home, the most important thing is the people. It’s the people who make the place. That’s what I always come back to. Ultimately the most important piece of the culture here is how we hire, how we build the team.”
He explains how the company runs a program of ‘crews’, cross-functional groups that bring together people from across the company; crew lunch days build on this. Office seating layouts are changed regularly so that individuals from different teams spend time with each other, strengthening relationships and knowledge of the organization. As the company grows, this becomes increasingly important. In the beginning, Jon and his colleagues worked in the same small room, interacting with one another, hearing each other’s telephone conversations — especially important being those with customers — which developed a close understanding of what was happening across the business as a whole. Jon sets out for me how, today, the culture continues to underline that working relationships across the company are not simply transactional, developed solely in order to get the job done, but something richer and, ultimately, more rewarding for everyone.
“Individual commitment to the values of the company in the long term is key. We’re building an institution, something to outlast us. Where some might see an opportunity to cash out by flipping this company, we’re much more interested in flipping an entire industry on its head.”
From the early days, Jon recognized the crucial role of competition in creating awareness that there is a smarter way, that, if Betterment was successful, the company was going to have a lot of competitors. He expanded: “I believe that we were shifting the way that people think of financial services, shifting expectations. We can’t tell people they’re doing the wrong thing because nobody wants to hear that, but how do we break through? Now, having competitors, having other people in the space helps. Having the big firms chasing after us…creates awareness that things could — and should — be different.”
“Where some might see an opportunity to cash out by flipping this company, we’re much more interested in flipping an entire industry on its head.”
Jon describes a future in which, “the banks, the fund companies will be competed into becoming utility background players and advisors — those who build technology-driven, smart money management tools like we do, will be the forefront. That will be who you actually have your relationship with.” Jon knows that technology is a core enabler for the sector; while some advisors are still getting to grips with this, he recommends that, rather than being hesitant to use the technology available, they should embrace it. In this vein Jon talked about the Betterment for Advisors platform, which provides financial advisors with a platform and tools to help them better manage their client assets.
As we brought our conversation to a close, we discussed the pressures of growth, an ever-present phenomenon in venture-backed companies. Jon explained: “I feel pressure to grow and I think that’s a good pressure. We’re at a stage and scale where we can have an impact on millions of people. And we should. It’s part of our mission. We can’t really be successful unless we reach all those people.”
