Nov 28, 2022

How Jon Stein Built Betterment, From High-Minded Mission to Outsider Scrappiness

Jon Stein went into finance “sort of hating finance.” It didn’t seem like an industry that was thoughtful about its impact, but as a recent grad looking for his first real job, his friend who was happiest at work was at First Manhattan Consulting Group, a consulting firm whose clients were primarily the big banks. Jon gave it a try. 

Getting inside the industry did validate his feelings that much of finance was “making rich people richer and not a lot of actual service provision for everybody else.” So did the 2007 – 2008 financial crisis. Luckily, Jon had already started building Betterment, the investing and saving app that now helps 650,000 people simply manage a total of $31 billion. 

Primary’s Katheryn Thayer sat down with Jon to talk about his path to building this category-defining business and putting all kinds of investors on a more level playing field. 

Step one: Identity the opportunities and think them through

As a consultant, Jon saw simply improving processes could meaningfully expand financial services and wealth-building outcomes to a wider set of customers. 

“I looked at a bunch of business opportunities over the four years I was there,” he says, “then I found the one I wanted to work on. I had the name Betterment. I knew it was going to be in investment management. I was going to combine the ease of use of ING Direct and the investment efficiency of Vanguard. But I went to business school because I had just lacked the immediate confidence to jump out and do it. I wanted a bit of a place where I could flesh out my ideas some more, learn some things that maybe I hadn't learned as a consultant and give myself an alibi if it didn't work out.”

Step two: Think contrarian

Jon was at Columbia Business School from 2007 to 2009. With the mortgage crisis in full swing, “nobody was launching financial services companies.” 

“But I've always been a little bit of a contrarian,” Jon says. “When everyone's running in one direction, I want to look the other way and understand why. And I saw that there would be some trust lost in the big financial institutions. I saw that they would be distracted for a while. And I saw the opportunity to innovate around the customer experience in investing wasn't going to be addressed by them. It hadn't been yet, and I had an opportunity to do it.”

He also knew fundraising would be hard. “Everyone I talked to said, ‘Oh, we're really interested in adtech, but there's never been a good outcome in financial services. So, good luck.’"

New York City fintech was a tiny community back then, and it didn’t take much to know “everyone”—and learn from them. The Simple Bank guys had successfully tapped into consumers’ frustrations with big banks. and Alexa von Tobel’s LearnVest saw splashy launches through TechCrunch’s Startup Battlefield pitch-off at its Disrupt conference. Jon decided that’s how he should launch Betterment, too. 

Pitching: What not to do

Getting into Startup Battlefield “was the most anxiety and pressure I’d ever felt”—it was also very exciting. Betterment ultimately won, beating out 50 other contestants to be named the best startup in New York, though looking back, Jon mostly has advice on what not to do. 

Don’t memorize your speech. “I memorized every word, practiced it probably 50 times, was up all night studying and typing in edits on my BlackBerry, was pacing in the halls beforehand. And after that, I've never again memorized a speech. I would never do that and wouldn't recommend it.” 

Don’t overdress. “I thought I should look nice for this. It’s a presentation. That was a mistake—everybody else was casual. Michael Arrington, who was the head of TechCrunch at the time, was like, ‘What are you wearing? Is that a tie? Is that a leather tie?’ It wasn't, but I don’t think that formality helped.” 

Don’t worry about playing by the book. “We actually launched on the day of TechCrunch Disrupt, which was the rule. You're supposed to be a company that was going live on that day, and we followed the rule. And I have to say, I think we were the only company that actually launched on that day. Everybody else had a demo and had launched three months before—calling it a launch was a BS thing. We actually turned on our servers for the first time that day. The entire team was in the audience watching, but they were also taking customer service calls because the very first customers were coming in while I was on stage. I don't think that helped us.”

Jon has no regrets about the level of preparation the team put in, though. “The site was good. The concept was good. I'd done a bunch of customer testing in business school. And it was just a scrappiness and a real attention to detail that made it a good service. And we won the hearts of the TechCrunch team at the time. They loved our mission, they loved the product, and I think they wanted us to win.”

Stay true to your mission

Thinking back on the early days, Jone did everything scrappily, but by the rules and always with customers’ best interests in mind. 

“I just don't think that a lot of companies spend as much time getting everything right or thinking about the consequences,” Jon says. “And I think that's a problem in all financial services, not just startups. This is a problem in industry. It's particularly bad in fintech where you're dealing with people's money and livelihoods. And I think that we will see more regulation on the other side of whatever the next correction will be for the bad actors that are out there today.”

“I think fortunately, Betterment's on the right side of those things. My advice for fintech founders who have to be both buttoned up and scrappy is to have the right team. Write down your mission, write down your values, be explicit about these things early on, they'll evolve over time, but have a base to iterate from. But in the very early days, you just have to choose the right people and trust they’ll do the right thing. Everything comes back to team. I was lucky—or maybe thoughtful—in that my cofounder was a securities lawyer and gave me all this expensive advice I couldn't have afforded if not for giving him equity. My other cofounder was a Google engineer and taught me to code and set up a lot of the backend systems and everything. Having the right team allows you to be lean and still get things done right.”

New York is a finance mecca, but its fintech scene is strengthened by outsiders

Late last year, Jon announced his appointment of Viacom COO Sarah Kirshbaum Levy to replace him as Betterment’s CEO.

“To be honest, there was some skepticism from some of my board members that somebody from outside of financial services could come in and lead a company like Betterment,” Jon says. “But I've always said, you can hire expertise. You can hire people who've done the thing, but to credibly disrupt fintech, I think it would actually be hard to bring somebody from a Merrill Lynch or an E-Trade or a Fidelity or Schwab and say, ‘This person is now leading Betterment, disrupting the industry he created.’"

“We're working to change the industry. And so, people from outside it have a more credible opportunity to do that. And you can work with and learn from lots of advisors and people who've spent time in the industry, and learned how to innovate—and I'm one of those now.”

“The companies I’m most interested today are transforming processes to make new services accessible, like Valora (mobile international Crypto payments) or Concreit (mobile real-estate investments), and using data in new ways to improve customers’ lives, like Array (credit report data access) or Spinwheel (student debt data access).”   

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