In Lead by Change New York One, Jeff meets up with Jon Stein CEO and Founder of Betterment. They take a tour of the office then sit down to discuss Jon’s founding story, TechCrunch Disrupt, Milestones, and the future of investing.

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The Interview:

Jeff Martin: I’m on my way to Gramercy in Manhattan to go meet with Jon Stein, CEO and Founder of Betterment. We’re going to take a look at his offices and head over to Bo’s and have a conversation about being in TechCrunch Disrupt and also the milestones of running Betterment.
How is it going?

Jon Stein: Nice to see you!

Jeff Martin: Can you show me around a little bit.

Jon Stein: Yeah, sure. I think

Jeff Martin: Thanks for sharing your time with us today.

Jon Stein: It’s great to be here.

Jeff Martin: I’d like to start with kind of go on the way back. Where did you grow up?

Jon Stein: I grew up in Dallas, Texas. I grew up there all 18 years. My parents were both city planners there in Dallas, and I think I inherited from them many good things including a love of maps because they always had like a great wall maps spreads out on the coffee table.

Jeff Martin: You were there for 18 years, pretty much your whole –

Jon Stein: My whole childhood, yeah, I was there. Yeah.

Jeff Martin: Were you involved in technology early on?

Jon Stein: Not at all, you know. I don’t think I even knew what technology was and it was all going on, right?

Jeff Martin: Yeah, yeah.

Jon Stein: But it wasn’t a big deal in my life. When I graduated from college in 2001, I had some friends who had been in the tech sector, but they were all losing their jobs, right?

Jeff Martin: Uh-huh.

Jon Stein: So it didn’t even occur to me that I might someday start a tech company.

Jeff Martin: Yeah. What was your first computer?

Jon Stein: We had some kind of like PC compatible that I remember well. I also remember getting like Apple like 40 Megs of RAM. I don’t remember the model number or whatever, but I had one of the old PCs I used to play games on, something like the Question Response game, like Depth Charges, or stuff like this.

Jeff Martin: Within that time like growing up, what was your early conception of like money and money management?

Jon Stein: You know growing up I had an interest in stocks I think in part because every year around Christmas my grandparents would say, “Oh, you know, we should get John some Disney stock or something like that.”
I would say, “What about that like you know?” And I would never get it, right?

Jeff Martin: Yeah, yeah.

Jon Stein: That would be like a nice thing to get and actually I remember looking at like the papers and tracking the value of stocks, and I thought, “My goodness! This is a complex thing like who actually reads all this? Who looks at all of this?”

Jeff Martin: Yeah. And you understood the fact that it was like stocks were being traded and that there were companies in there, something –

Jon Stein: At some level.

Jeff Martin: That was interesting to you?

Jon Stein: Yeah but it wasn’t really until I got to college, and I took economics that I got a real sort of framework for understanding how markets work and how economies work, and the macro level of finance came from that.

Jeff Martin: Where did you go to school?

Jon Stein: I went to Harvard for undergrad, and in my freshman there, I took two classes that really shaped my worldview. One was intro to economics with Marty Feldstein. He was one of Reagan’s economic advisors, very efficient, markets driven, and believed in rational decisions, and if we would just all make better decisions, the world would be a better place.
Then I took human behavioral biology from Irven DeVore, who was this like liberal from southern Louisiana who grew up drinking Pearl Beer and got struck by lightning in Africa and just like traveled the world doing interesting stuff and talked about how despite our best intentions and what we would see as like the right decision, we often trip ourselves up and get in our own way, and so making good decisions is hard.
I always thought that those two worldviews were really interesting and they hit me at a formative time. I think I’ve spent a lot of my life and career trying to reconcile those two things. On the one hand, we should just make better decisions and we’ll be better off if we do, and on the other hand that’s really hard to do.
Jeff Martin: [unintelligible 0:04:18] back in college for you, what was the most impactful thing that you learned that helped Betterment today?

Jon Stein: I think what I learned most in college was the value of good decisions versus the difficulty of making it and we deepened that and have a good understanding of financial theory. When I got out of college, I don’t know that it helped me out all that much because I started investing my graduation money myself, and I made some of the same mistakes that I read about in the economics classes like I bought Enron on the way down, which is like that kind of like a classically bad, bad decision. I made some good investments, too, and I netted out kind of like in neutral, but I realized I was spending a lot of time on it on. There were probably more productive things that I could be doing with that time, furthering my own career, just for instance, or just spending that time with friends. It would be better than spending all that time kind of fruitlessly.

Jeff Martin: It takes a lot of time?

Jon Stein: It takes a lot of time.

Jeff Martin: Where did the concept of Betterment come about?

Jon Stein: It grew in part from that experience, right?

Jeff Martin: Yeah.

Jon Stein: From my own investing experience and having opened multiple different brokerage accounts and finding that none of them really steered me toward the right answer. They all steer me toward the right answer for them. It wasn’t the right answer for me, and at the same time, I was working for banks as a consultant, my first significant job out of school. I was learning all kinds of stuff. I was having a great time. I was living in New York and traveling around and working on product development, risk management, investment portfolio policy. I earned my CFA just learning all this great stuff.

Jeff Martin: Yeah. Financial innovation.

Jon Stein: Financial stuff like but I found that most of our products that we were developing didn’t really take into account what the customers wanted. We would on a six-month product development cycle and we’ve never talk to the customers, and now that seems crazy. We would never do that.

Jeff Martin: Never.

Jon Stein: And I realized there’s got to be a way to build products that put customers first, that aligned with their customers interests. You can still make money but you’ve got to think about what the customer wants from this thing. I don’t feel like that’s the place that most financial services are these days, right? We’re trying to build up a financial service that you can love, one that makes you happy, one that is really aligned with you.

Jeff Martin: Understand the why of the people, right?

Jon Stein: Right.

Jeff Martin: Understand what they want and why they want it.

Jon Stein: Exactly.

Jeff Martin: How old was Betterment before you did TechCrunch Disrupt?

Jon Stein: When we launched at TechCrunch Disrupt in May of 2010, we’ve already been working on the service for 2-1/2 years before that, 2-1/2 years of regulatory approval, 2-1/2 years of tech bill. There was a significant investment. We were bootstrapping that whole time, you know.

Jeff Martin: Wow!

Jon Stein: We were really just on fumes, and it was a great way to launch. We’ve seen other companies like Mint.com launch at TechCrunch, and it’s worked for them, and this is a good forum for us, and it was. It was a great way to get out in front of a lot of people.

Jeff Martin: Yeah. What was the application process? What did you have to go through like even get to the stage?

Jon Stein: I remember it being a lot of high hurdles, and so by the time – we had to do our own videos, so we hired somebody that could come in and film our video. We went down to the financial center. I was up in front of the stock exchange I remember talking about the financial system, so like very funny stuff to go back in now. But after all of that, we were all so relieved to get in. It was like that feeling of like I don’t know like when you get into college or you know, so it’s one of those days. This is a big day. Things are going to change from this point on.

Jeff Martin: You guys did pretty well within that, right? What did you right and then what did you think you could have done better?

Jon Stein: I think in the process what we did well was we had a compelling product, right? Like we’d invested a lot of time in this thing. It was a real product. It was a differentiated product. It was a novel idea and we got a lot of props for that. Where we were criticized was people said, “Oh, you know this is almost too simple. This is like it’s too easy.”
Michael Arrington, who is the owner of TechCrunch, came out and said, “Well? What are you saying?” Because the judges were telling us. He said, “What are you saying? You’re saying that if they made the product crappier, if they made it harder to use, you would like the service more?”
The judges were like, “Yeah, yeah.”

Jeff Martin: Wow!

Jon Stein: That’s what’s they’re saying. It was a funny reaction. I’m glad that he sort of highlighted that point. I wouldn’t do much very differently. I think some of the competition there had like $7 million dollars in funding, which at the time seemed like certainly with hundreds of times what we have ever seen, it seemed like enough money to build a lot more. I think given that we had zero resources, it was amazing that we were selected Best Startup in New York and we would sort of we would take it from there.

Jeff Martin: Why New York? You’re from Texas, so why in Manhattan?

Jon Stein: Well, I moved to New York after college because I had so many friends coming here. This was like the place to be on the East Coast I guess. Remember that time there wasn’t a lot happening in tech in 2001. It just wasn’t really like a thing to go join a tech company, and I probably wasn’t super thoughtful about it, but the thing to do at the time was to go somewhere in the financial services. I never really wanted to help banks make more money. That was sort of my job as a consultant, and it wasn’t like a fulfilling purpose, but I do feel like it was a really good exposure for me, right?

Jeff Martin: Okay.

Jon Stein: It was like the industry that needed some outside perspective. It needed some change and I felt like lucky to be in a position that I was learning all this about it, knowing that someday I could come back and start a company and change it.

Jeff Martin: Okay. What about New York do you like, like as far as the tech scene and technology here versus maybe doing it somewhere else?

Jon Stein: New York is an amazing place to live. I mean I’m biased because I’ve lived here for 13 years now and –

Jeff Martin: Well, you’re not from here so, right?

Jon Stein: Yeah, but it’s a place where young people want to come from all over the country, so we have our team is people from the West Coast. There’s people from the Midwest. There’s people from the South. Maybe only about 10 percent of the team is native New Yorkers.

Jeff Martin: Really?

Jon Stein: People come from all over-

Jeff Martin: Interesting.

Jon Stein: To come to New York, and it’s because it’s one of the greatest places to live in the world. That’s like such an exciting city. There’s so many different people in the industry. There’s events and interesting places to live and go out and go to parks. It’s just like I’m so excited. I have a daughter now. I’m so excited that she gets to grow up here because there’s no place in the world where there’s more going on.

Jeff Martin: Yeah. What was one of the largest challenges you guys have encountered like how was TechCrunch Disrupt?

Jon Stein: Wow! You know the challenges are different every year, everyday, and I think what is most interesting to me is how my role has evolved. When I started, I was really a product manager. It was kind of my chief job, and I was doing some engineering work. I mean I was doing customer service. I guess there wasn’t a job I didn’t have to do.

Jeff Martin: Really?

Jon Stein: In the early days.

Jeff Martin: Yeah. But you do it until you can find someone that can do it better for you, right?

Jon Stein: Right, and then you hire people and you got to like let go of one thing, let go of another, and you’re always just letting go of stuff, and after a while, it’s not just letting go, it’s like forcefully pushing off like be very intentional about how you’re getting rid of these things and planning. I say my job now is try to get myself to a position where I have nothing to do and my challenges are very different from what they used to be.
The challenges today are thinking about how do I build the right team, do I need to bring in to do all the manual jobs that they already do, how do I align that team, right?

Jeff Martin: Yeah.

Jon Stein: Is the vision clear, are the company values clear, is what we have to do to get there clear? Then providing the right resources and environment for everybody to execute and do the best work of their lives. Those are the challenges. If we do those things well, we’re going to do great stuff.

Jeff Martin: Those aren’t easy things to do?

Jon Stein: Right.

Jeff Martin: And so was there something that got stuck along the way and you had a big aha like that you learned in the process?

Jon Stein: We’ve had many dark days, right?

Jeff Martin: Yeah.

Jon Stein: Where either we lost a significant hire, or we made a bad hire, and we had to like change course. Those are really hard things to do. I think about the early days. It took us a year to get to $10 million under management, which in retrospect is a really long time. At the time, it seemed like great, you know. Somehow people gave us $10 million. Now we bring in that in in an average day so like the scale of things has changed a lot and the challenges have changed as a result, but what was hard early on was just how are you going to get from $10 million to $20 million, and today that’s like we’ll wait a day, and so.

Jeff Martin: Yeah, yeah. Was that your first major milestone? Was that $10 million?

Jon Stein: Yeah. That was a big. I remember it well. I remember celebrating it felt like we made it.

Jeff Martin: Looking at milestones and kind of looking into the future, what kind of milestones do you have for yourself now and where do you the organization going?

Jon Stein: Ultimately we want to make tens of millions of Americans happier,right?

Jeff Martin: Right.

Jon Stein: Like we want to build technology that makes them happy, and we’re doing that through the lens of financial services and efficiency and how we get them to better outcomes. I think the major milestone for us is when do we have 10 million customers on the platform. That’s going to be a big day. That’s still probably a few years out. We’re over 100,000 customers now and we’re growing very quickly, but we’ll get there.

Jeff Martin: As you scale when the company moves forward, what challenges do you see kind of see on the horizon?

Jon Stein: I think the toughest challenges for us are execution, right? If we have market-leading position, we have a great team, we have the best technology, we have like real differentiation between us and everybody else in that robo-advisor space like we’re head and shoulders above. If we execute well, we’re going to do amazing things like we’re going to naturally come to occupy a large share of the market. We’re going to help millions of people. If we get distracted and we start to try to do too many different things, we will stumble, and I think that’s the thing that scares me the most.

Jeff Martin: So focusing on the right things.

Jon Stein: Focusing on the right things.

Jeff Martin: Yeah. It’s hard enough sometimes what are the right things.

Jon Stein: Sometimes you don’t know until you don’t know.

Jeff Martin: Yes. I’d like to know straight from you like why should people invest this way versus kind of the old traditional ways of investing?

Jon Stein: I mean it’s kind of a no-brainer, right? Like it’s obviously better than anything else you can do it with your money, so the way that we used to invest makes no sense like the idea that you should go and pick stocks or funds and then tax manage them and rebalance them like why would you do that. It’s like yes, those are the right things to do but to do those things yourself is like maintaining your own car. Maybe it’s a fun hobby. Maybe it’s something you want to do on the weekends but it should not be something that most of us have to do, and we’re moving very quickly towards a world where people don’t have to do that anymore. It’s like if you could perform surgery on yourself, would you want to do that? Maybe like you’d probably do that.

Jeff Martin: Probably not.

Jon Stein: But you probably shouldn’t be doing that and that’s what we’re doing with our old-fashioned investing system like this idea of self-direct investing, it was kind of forced on people over the last 40 years. It’s not just the right thing like we’re in the early days of thinking about how do we plan for long-term retirement and how do we plan for – when we’re only working for a portion of our lives, we need to set up a system to take care of people for the reminder of their lives that they’re not working. We’re still just figuring that out because this is only a situation that’s existed for a few decades, right?

Jeff Martin: Absolutely.

Jon Stein: And it’s a brand-new thing to us as a species. It’s not something that we’ve like adapted to and we’re building the way that that should happen over the next 100 years.

Jeff Martin: Changing gears a little bit on life. What do you do outside of work like specifically what do you do that you can’t think about work? Is there an activity that you like I know –

Jon Stein: Yeah.

Jeff Martin: There’s activities that I do were I go do those activities to think about it.

Jon Stein: Right.

Jeff Martin: Like I go on vacation to think about decisions.

Jon Stein: That’s interesting.

Jeff Martin: I probably should not way, well like –

Jon Stein: Yeah.

Jeff Martin: And then there’s activities where I can’t do anything but that activity because I can’t think about work or anything else. It really pulls me away, so what is that activity that you do that –

Jon Stein: I know exactly what you mean, and I also think about work on vacation. I work like all the time, right?

Jeff Martin: Yeah.

Jon Stein: To me, a vacation is a time to think about work, right?

Jeff Martin: Totally, right? So you’re on vacation –

Jon Stein: So you’re not working so you get to think about work.

Jeff Martin: Exactly.

Jon Stein: So I can relate to that. Yeah, I think it’s good to have those forcing mechanisms. I’d bike to work certainly in the summer, and in the winter, I’d chicken out it a little bit. I love that time because it’s like sort of clearing my head like it’s a great thing. I love biking. I enjoy running. I actually don’t think that much when you’re running. I know some people say they do. I don’t. I’m just like –

Jeff Martin: Think about breathing?

Jon Stein: Yeah, I think about it like getting there and I really love hanging out with my daughter. I mean like she’s so fun like whenever I do have free time, that’s what I want to be doing. I find that she’s a good distraction from work.

Jeff Martin: Yeah, absolutely. Ongoing education like I found like my education was great, but then it’s over and you have to figure out how to teach yourself or ongoing teach yourself and I’m a learner.

Jon Stein: Yeah.

Jeff Martin: I love learning.

Jon Stein: Yeah.

Jeff Martin: What do you do to continue to learn what you need to learn because you’re always doing new things, right, as a CEO, or funder, entrepreneur?

Jon Stein: A 100 percent.

Jeff Martin: Always doing new things?

Jon Stein: There’s a lot that I do or that we do as a company to try to bring in new ideas mainly because this is a really important thing you got to keep in touch like I always got to be talking to your customers. You got to be talking to people in other industries because that’s where good ideas come from. Ideas don’t come from like looking at the same data all the time. You need some new insights so you can put things together. We do book club at Betterment, so every month we’re reading a different book. We just read Sapiens, which I would recommend to anyone.

Jeff Martin: What is it?

Jon Stein: It’s the History of Intelligence.

Jeff Martin: Okay.

Jon Stein: It’s like why Homo sapiens are intelligent and organized.

Jeff Martin: Homo sapiens.

Jon Stein: Yeah, great book.

Jeff Martin: Okay. Was it one of those books that you’ve given away most to people?

Jon Stein: That we’ve given away?

Jeff Martin: You personally have given to people or suggested reading?

Jon Stein: That’s one. I think Dan Kahneman’s Thinking Fast and Slow is another recommendation that I often make because it has to do with behavioral economics and some of the principles that we use at Betterment, how people make better decisions, so that’s another favorite. Right now I’m reading great history of the modern financial services system called A Piece of the Action, so that’s a fun one.

Jeff Martin: Okay. Besides books, you listen to podcasts?

Jon Stein: Definitely, I listen to podcast. I listen to Reply All. I listen to Startup podcasts, kind of the classic things, This American Life, and so on. I find time to watch movies and TV, and stuff, too, like I try to keep in touch in many ways.

Jeff Martin: Okay. Looking back at your 25-year-old self, knowing where you’re at today and knowing that the work that you’ve done in between, what advice would you give your 25-year-old self?

Jon Stein: It’s hard for me to go back and want to be revisionist because I’m pretty happy with the way that things turned out. I mean I feel like I have the best job in the world like I feel very lucky. I’ve got a good team. I love my family like I’m happy. If I could go back, I mean somebody said to me early on like maybe you should have done this sooner like pull the ripcord, do it. I could see that. I could see like having started sooner and maybe I wished I had, knowing how things have gotten out. But it’s really hard to be revisionist like that.

Jeff Martin: Yeah. What was some of the best advice that you received that’s really helped you and helped Betterment?
Jon Stein: When I think about like advice, and when I think about things that are often in my mind, I often think of something that my grandfather and then my mother have said to me again and again, which is like, “To those whom much is given, much is expected,” right? I feel like when you’re in a good spot, you got to do really good things sort of pay like that forward and I feel like – I think about that a lot. I think that has something to do with like how I think about happiness that as long as you’re pursuing something that you feel is good and valuable to the world, you’re not pursuing your own happiness but you sort of tend to find that along the way. It’s worked for me so far, so that’s great.

Jeff Martin: Well, thanks for your time. I appreciate it.

Jon Stein: Thank you very much for having me.

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