How I Built This: Betterment: Jon Stein

Full podcast here.

  • What did you study in college? I had a real interest in psychology. One of my professors taught me how humans think. I learned how despite our best intentions, we are highly likely to make mistakes. Our emotions get in the way. We will not make rational decisions if left to our own devices. I saw that as a really interesting puzzle to solve. 

  • Jon wanted to make an impact on normal people: I got a job in New York City at First Manhattan Consulting Group. I was getting access to CEOs, developing new products, and working on interesting problems. But when people would ask: What do you do? I’d say my job is helping banks make more money. I knew I couldn’t do that for my whole career. I wanted something more meaningful and impactful. 

  • How did you start to think about creating Betterment? I wanted to build a customer-centric financial service. I wasn’t sure where to start. I looked at a number of other business models. The only area where I thought I could do better was investing. I thought why not combine the ease of my online savings accounts with ING Direct with the smart investing efficiency of Vanguard? If I could just help people get the best of those things I made the world a better place. 

  • The opportunity for Betterment: I think institutions and wealthy people have enough services that help them make more money. Normal people do not. 

  • One of the challenges when you are inventing something new: No one wants it. It takes time to build trust in financial services. Our pitch to customers: We take all the best practices that a great investment advisor would put to work for you and we make them smarter, faster, cheaper, better. 

  • How did you initially fund Betterment: I had a job as a consultant and I saved quite a bit. I was able to live off of my savings for a few years. Our expenses were low at the beginning. It was just me and my cofounder.

  • Jon is an opportunist: There is something about a thorny, hairy, ugly opportunity that everyone says don’t touch that. That is quite attractive to me. When everyone else is running the opposite way there might be something they missed. 

  • Jon worked on Betterment for three years before launching: Jon decided to launch the company publicly at Techcrunch Disrupt. 20,000 people watched the presentation. 500 people signed up within the first month. All of a sudden we had a million dollars under management. We were thrilled. And then customer growth slowed.

  • Betterment’s growth at the beginning: $1 million under management in one month. $10 million under management at the end of year one. $20 million in 18 months. $30 million in 21 months. It took 5 years to get to $1 billion. Now we add $1 billion ever month and a half. A bad day of deposits today is $10 million.

  • An early mistake Jon made: Splitting the equity equally between all 3 co-founders. He had to go back and renegotiate for more equity later on. 

  • How he gained the confidence to innovate in financial services: I didn’t know anyone in finance. I thought the people who did this are masters of the universe. They must be so smart. When I got into the industry it demystified the whole thing. I thought I can do this. I can learn this. I can figure this out.