How to Find Your High-Leverage Outputs, Build Products, and Choose Your Own Path

My guest today founded Betterment in 2008 after working as an adviser to Wall Street’s biggest financial institutions. He started Betterment in an attempt to re-invent the investment industry.

It wasn’t long before his vision became a reality as the company won TechCrunch’s Best Start-up in New York award in 2010.

My guest is an economics graduate of Harvard University and a finance graduate of Columbia Business School. He says his interests lie at the intersection of behavior, psychology, and economics and he gets excited about making everyday products accessible and efficient.

Now, let’s hack …

Jon Stein.

In this 28-minute episode Jon Stein and I discuss:

  • Knowing and understanding your business on a deeper level
  • The pros and cons of having an engineer’s mindset
  • How to stay positive (while taking risks)
  • Staying involved in the little things (to know where your company needs improvement)

The Show Notes

How to Find Your High-Leverage Outputs, Build Products, and Choose Your Own Path

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Voiceover: Welcome to Hack the Entrepreneur, the show which reveals the fears, habits, and inner battles behind big-name entrepreneurs and those on their way to joining them. Now here is your host, Jon Nastor.

Jonny Nastor: Hey, hey. Welcome back to another episode of Hack the Entrepreneur. It’s so cool that you decided to join me again today. I’m your host, Jon Nastor, but you can call me ‘Jonny.’

My guest today founded Betterment in 2008 after working as an advisor to Wall Street’s biggest financial institutions. Wanting to create a more convenient way to invest, he started Betterment to reinvent the investment industry. It wasn’t long before his vision became a reality as the company won TechCrunch’s Best Startup in New York Award in 2010. My guest is an economics graduate of Harvard University and a finance graduate of Columbia Business School. He says his interests lie at the intersection of behavior, psychology, and economics, and he gets excited about making everyday products accessible and efficient.

Now, let’s hack Jon Stein.

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Welcome back to Hack the Entrepreneur. We have a brilliant guest today. Jon, welcome to the show.

Jon Stein: Hi, Jon, thanks for having me. It’s great to be here with you.

Jonny Nastor: It’s absolutely my pleasure. All right, Jon, let’s jump straight into this, shall we?

Jon Stein: Great.

Knowing and Understanding Your Business on a Different Level

Jonny Nastor: Jon, can you tell me as an entrepreneur, what is the one thing that you do that you feel has been the biggest contributor to your successes so far?

Jon Stein: Should I start with a little bit of what we do at Betterment, and then that’ll be a nice transition in?

Jonny Nastor: Sure. Let’s do it.

Jon Stein: Betterment is an online financial advisor. We manage your money for you. Most customers come to us at the recommendation of a friend or a family member, and then they tell us about their goals. That is what they’re saving for, whether it be retirement or something else. Based on those goals and the time horizon to those goals, we create portfolios for them and then manage those portfolios over time for the best expected returns, net of risk, net of taxes, net of behavior, all the kinds of typical drags and costs that one incurs when investing. We really try to optimize for the lowest of all those.

This is a hard thing to do. There’s a lot of really smart technology involved that we’ve been working on for years and years. I started this company over six years ago, and you asked what is the most important thing that I do that’s contributed to my success. And I have to say, looking back over the last six years, it’s been really understanding what we do at a deep level, from talking to customers first-hand to understand their needs.

Even today, I respond to customer emails myself. I was just going through and doing that when we got started. And doing the coding myself — I taught myself to code so I could build the site, so I really understand that. I have a CFA, so I understand deeply the investment side of things.

The Pros and Cons of Having an Engineer’s Mindset

Jon Stein: All the pieces that one needs to build this kind of product, as complex as it is, I’ve at least gotten into myself. I call that having an engineering mindset, really wanting to get in and try and solve a problem and understand the question from a first-person perspective. To me, in all these different areas, that’s been incredibly helpful, having that engineering mindset.

Jonny Nastor: That’s excellent. As a founder and CEO of Betterment, which is a large company at this point, you want to be answering customer emails, and you want to be looking at product and stuff, but at some point, you have to be the CEO, too, right? How do you decide, “I can’t do this anymore. I really just have to do CEO things and help this business propel forward?”

Jon Stein: Time management is a never-ending challenge for me. There are many very smart people who write books about management, people like Andy Grove and High Output Management, for example, who will say that time management is perhaps the most important skill for an executive to have.

In Andy’s case, he talks all about how you want to get the highest return on your time, and that means doing high-leverage activities, doing the things that will affect a lot of people and improve a lot of people’s behavior in the organization, or rather affect one person for a long period of time — so really making sure that you’re doing those high-leverage things.

I do this, too. I think a lot about my own priorities all the time. I’d say the things that I’m focused on are hiring, making sure we have the right people in here. Telling the story — that is, talking about the company’s vision, talking about the company’s priorities, the roadmap, setting all of those things. And then I make sure that we have the right organization here, and that once we have the vision in place, once we have the right people in place, that we have the right process and organization to be able to support them, empower them to make good decisions and to execute in an aligned way according to our vision and on behalf of our customers.

I think about those things, those three areas of the organization, the hiring, and storytelling. If I’m not doing something that helps those things, then that helps me set the vision, or helps me understand, I could probably find a higher leverage task to do, a more valuable thing to be doing with my time.

Jonny Nastor: I’m fascinated by your storytelling as a company, especially in finance. You come from some markets, and storytelling is all everybody talks about. You have to do it. And people really embrace it, but in finance, I don’t see it. One of the first things I noticed on your website was the story of the company, and everything is kind of interwoven into it. It’s amazing, and it’s powerful for you, obviously.

How did that come about? Was this something that you knew you needed to do or wanted to bring from a business you saw in another market, or how did you come up with this?

Jon Stein: I saw everyone asking me, “Why did you start this company? What made you want to go into finance,” which is not the sexiest industry, oftentimes, and “Why now? Why investing?” To me, telling that story is something that everyone wants to hear, and it feels important to them to know what our motivations are.

I think the reason is that there have been a lot of companies in finance that are not very well-aligned with their customers, and as a result, they have conflicts and often will try to push more complexity just to charge more fees, for instance, or they’ll encourage customers to do the wrong types of behaviors because it’s more profitable for the company, even if it’s marginally less profitable for the customer.

I saw a lot of this in my career working in consulting for some of the country’s largest banks and brokers, and I knew that I wanted to start a company, and I wanted to start it in a way that was aligned with customers. I think hearing that story and understanding those motivations is important for people, and it’s important for people here on the team, too. It’s not just for our customers externally.

When we’re hiring, a lot of the team members that we bring on share our passions, share our interests in being aligned with customers, and want to know that that’s absolute bedrock for us, because if they’re going to be spending their careers here — years of their life — they want to know that they’re doing something that’s actually making the world a better place.

That helps us be more satisfied with the way that we’re spending our time, so we have principles that we are constantly adding to and refining here, but they’re the bedrock of our company, things like efficiency and transparency, and being data-driven and evidence-based and several more. These kinds of principles are the internal equivalent of the storytelling that we do for our customers externally.

Jonny Nastor: Excellent. I love it. I love that you want to storytell for your customers and also internally for yourself, and it’s helping you guys grow, obviously.

I’m fascinated by you and your business, the fact that you went to Harvard for economics — or previously, I guess, a finance degree at Columbia Business School. And you started consulting for some amazing Wall Street companies, which is a career path that so many people would just die for and would put everything into like you did in school to getting to that. And then you decided to go and start your own business, which obviously might not be as lucrative, which obviously, it turns out to be, but you don’t know that, right?

You were on a career path that was highly sought-after and respected. It’s a bold move to just say, “I’m going to go start this company, because I feel that this needs to be done in the market,” or “I feel like something is lacking there.” It’s a brilliant foresight and kind of a lot of guts, I would think.

How to Stay Positive (While Taking Risks)

Jon Stein: It was a hard decision, and it probably took me longer than I would have liked to make it. I knew I wanted to start a company for a while, but it’s hard to walk away from a paycheck. I used to say that my job was helping banks make more money, and that wasn’t a very fulfilling thing to be doing, at least for me. Certainly, lots of smart people and good people do that, but it just wasn’t what I wanted to be doing with my life. That made it easy in the end to ultimately walk away from that.

I guess I can’t imagine doing it another way now. When I was doing that analysis back then of career paths, I would agree with you that probably the career I walked away from was more lucrative. Even today, it’s easy to see how I could be making more money working for bigger, more established institutions, but I modeled this out myself.

I drew two lines. I drew a line of stability and predictability at a high level of income, where I would be if I stayed in the path I was in. And I drew a second line lower that would be what I could expect as an entrepreneur: bootstrapping a company, not paying myself a salary for a few years trying to make ends meet, and yet with more uncertainty in the long term.

I realized I was comfortable with that lower line. Even if the uncertainty ended up badly and things didn’t work out, I’ve always had a pretty modest standard of living. I don’t spend a lot of money on things. Even in New York City, it’s possible to do that. I was comfortable with that, and I was comfortable taking on the risk, and also, the opportunity that if things did work out really well, there might be a great outcome there, and I was happy with that.

Jonny Nastor: Now you’re getting to experience that really great outcome, aren’t you?

Jon Stein: I think we still have a lot of work ahead of us. We’ve reached some important milestones. We’ve got the largest automated investing service in the country. We’ve got 70,000 customers today and growing. We’re managing over $1.5 billion in assets for those customers and growing. We’re seeing a lot of great trends.

We’re got some traction, but I think we’re just getting started. It’s really day one. There’s so much more that we want to do. We’ve just recently raised another round of funding, and we’re excited about how that poises us to be a really transformative force in the investing, saving, wealth management industry.

Jonny Nastor: Wow, 70,000 customers. And the online portion of your business, is that, do you think, a big factor in your growth and the fact that you’re dealing with some companies that are very, very slow moving, especially to take things online for their customers?

Jon Stein: I think that the last major bout of innovation in this industry was in the nineties. We saw a lot of transaction costs coming down. We saw online brokerages starting, real-time trading, all these kinds of things that weren’t available before. Before that, you had to call up your broker in order to place a trade. There’s a lot of investment in these types of platforms, and eTrade and TD Ameritrade and even the newer versions of Schwab came out of that era. They all adapted to that era.

Today, everything is changed. Transaction costs have gone from $10 a trade to basically zero. The cost to build a diversified portfolio has gone from 1.4 percent you’d pay on an average mutual fund to you can get a totally globally diversified portfolio at Betterment for 15 basis points of ETF costs.

The requirements of our investing tools have changed as a result. It’s no longer about trading. It’s no longer about buying and holding, but it’s about intelligently managing that portfolio. Reducing taxes becomes a major goal. Helping people make better decisions and looking at all the data on behavior and the loss of returns that we have from bad behavior and the gains that we can get by being consistent and being evidence-based, all of those things become much more important in this world.

I saw that although those companies may be web-savvy, they’re not the ones leading change. They’re not the ones going out and aligning with customers in light of the new realities of low transaction costs and GPTFs, and I didn’t see the product that I wanted on the market. So I saw an opportunity to go and build it.

Jonny Nastor: Scratch your own itch, in the most basic sense, always works. I do admire that you love the actual product side of it and making, as you say, everyday life just easier for people to use. That’s great.

Can we move on to work? You went through another round of funding, didn’t you, in the last couple months?

Jon Stein: Yeah. Last week we closed and announced a $60 million round of funding that quadrupled the cash that we had on hand. That means that today, we’ve raised over $105 million to support the company and the vision that we’re building.

Jonny Nastor: That’s impressive. You’re the CEO of this company that is very, very new for a financial company. There must be a lot of growth, a lot of change, a lot of things going on. You mentioned high leverage and Andy Grove.

I want to know, Jon, what it is you do. Can we just go through your first 30 minutes or 60 minutes of your day? What’s the routine that you use on a workday to set yourself up to run this company and propel it forward the way it needs to go?

Jon Stein: Oftentimes, the first 30 minutes of my day are checking email in bed and then saying hello to my seven-month-old daughter that comes into bed with us, so maybe not what you would expect.

Jonny Nastor: Checking email in bed I expected.

Staying Involved in the Little Things (to Know Where Your Company Needs Improvement)

Jon Stein: I always look back to my priority list, and I keep a document of everything that I’m working on. As new work comes in, I triage it. I manage toward inbox zero, and I manage toward a list of responsibilities at zero, and I try to put the most important things at the top and work through them in priority order all day long.

Much of my day these days is in meetings. I have 28 different one-on-ones with different people in the company, not all of them once a week, but at least every month or so. Many of them are once a week.

I’m constantly briefed on what’s going on on growth and product and all of the important areas you’d expect. Engineering. I try to attend the standups. I make office hours so that I’m available to the team every day. Early morning and late at night often find me catching up on email and all those tasks that can wait a little bit longer. Weekends are the time that I find to do more writing and reflection and new work, because there’s less of that inbound triaging and immediate maintenance.

Jonny Nastor: Excellent. At the beginning, and since then, we’ve talked about all the things you’re really good at, from the big things to the small things in your business. There must be something over the last six years of starting this company and running it and growing it that you’ve realized or that you learned about yourself that you absolutely were not good at on the business side, and you had to push off. Can you think of one of these things?

Jon Stein: There are lots of things that I’m not great at or I had to learn about. I think when I started the company, I thought I would always be involved in the product. As you noted earlier in our conversation, I really love that. I love getting my hands into the design of things, whether it’s from an architectural, engineering perspective of the design and how to lay out the database, I was big into that. I did all of that originally for the company and was involved in it for a long time. Or the UX design — where we put the buttons, how we animate the summary tab, how the portfolio tab looks. All those kinds of things, I was heavily involved in.

Today I’m not. Today we’ve hired many smarter people with better tastes who do those kinds of things instead of me and do them better than I would do them. It was a real transition to get out of that and get away from it.

Now, my job is management. Now my job is those things that I talked about at the top of show: hiring and aligning people around the vision. I wasn’t good at those things. I had zero experience doing those things initially, so I’ve learned a lot over the past several years about these areas, and now I love them. I think initially I was intimidated by them, and today I’m absolutely thrilled that that’s my job. I feel very fortunate to be in this position.

Jonny Nastor: The fact that you are the CEO of this company and you can even talk about UX and button design is amazing to me. I think that has a huge, huge value to where you’ve come so far. You take it to the point where you knew it and then it got to a point where it’s like, “I need to put smarter people in place to take over.” But you’ve taken it to a certain level already.

Some people go in and don’t know a whole lot. You’re the first person who didn’t answer my first “What’s the one thing …?” question in a very clear, definite way, and now I can see why. Because you have or have had your hand in almost every aspect of your business in an amazing way, and I think that’s the true value and reason why you’ve done the amazing things you’ve done. It’s impressive.

Jon Stein: It’s not that I think I’m the best at all those things. It’s just that I love doing it. As I said at the beginning, I think having that engineering mindset of wanting to get in has been crucial to our success. I agree with you.

Jonny Nastor: Totally, and not even that you know you’re not that great at it, but also, it’s because you’re not super controlling. You also realized at one point that, “No, this stuff has to go to somebody way smarter than me now that we can do that,” and that’s brilliant. Most people just can’t do that, and it’s really, really impressive.

Jon Stein: I say that my goal is to hire myself out of a job. Ideally, I’d like to have nothing to do but hire people. If I see things backing up on my to-do list and they’re related, that to me means that it’s time to hire someone to do those things.

Jonny Nastor: That’s excellent. Let’s wrap up then with success in the future. That’s your goal for yourself is to hire yourself out of a job. You’ve done some amazing things in six years with Betterment. What is it you want to accomplish in the foreseeable future with Betterment?

Jon Stein: We want to be the obvious, best answer to the question, “What should I do with my money?” We believe that employing smarter technology really helps us make investing better and answer that question better. Some of our vision today that takes us through the foreseeable future I can share with you.

One area is around ease of use, what we call immediacy, doing everything faster, making it more seamless, more frictionless from a customer experience perspective. That’s the area where we have a real advantage, and we want to keep pressing that advantage.

Another is in personalization. There are 75 million American investors, and there’s 75 million unique portfolios and unique goals available at Betterment. Each person has a portfolio that’s customized to them in a way that makes sense for their location, their tax situation, their life situation, all of these kinds of things, and we want to keep pressing that advantage as well.

Our third area is our platform. We have this great advice platform and management platform for retail investors. Now we’re also extending it to work with advisors and institutional investors who have clients of their own who want access to our algorithms and user experiences and so on. So we’ve made that available in a white-labelled form so that other people can have access to this technology that we’ve built. It’s made us accessible to millions of additional clients that we might not otherwise be able to reach.

Jonny Nastor: Impressive. Everybody can go find out more about you and your company at, right?

Jon Stein: That’s us.

Jonny Nastor: Excellent. I will link to that in the show notes so it’s easy for everyone to find. Jon, thank you so much for taking the time. I know you are a very busy person, and I appreciate you stopping by.

Jon Stein: My pleasure. Again, great to be with you. Thanks, Jon.

Jonny Nastor: Wow. That was a fun conversation. Jon is a smart, smart, smart man. We’ve had a lot of people on this show that are taking on big tasks, taking on big markets, but Jon is taking on a gargantuan — the investment, the banking industry, and trying to transform it, take it from its old way of thinking to modernizing it and simplifying it. It’s amazing. And he’s succeeding at it. Unbelievable. Just a great conversation. I hope you enjoyed it as much as I did.

I’m looking back, and Jon said a lot of smart things. There’s a lot of things he said about business and about dealing with the struggles of it, within it, that were really smart. But then he said one thing … He said one thing, didn’t he, that really stuck out. Did you get it? Did you hear it? Let’s do it. Let’s find the hack.

Jon Stein: But I kind of modeled this out myself. I drew two lines. I drew a line of stability and predictability at a high level of income where I would be if I stayed in the path I was in, and I drew a second line lower that would be what I could expect as an entrepreneur: bootstrapping a company, not paying myself a salary for a few years trying to make ends meet, and yet with more uncertainty in the long term.

Jonny Nastor: That’s the hack. This is different than anything I would ever do, but this brilliant if this is what you need. You’ll know if you need this more so than me being able to tell you. But Jon being of an analytical mind and a brilliant man — I mean, he went to Harvard and Columbia and then to Wall Street and then gave it all up to start a business.

But first, he modeled it out and planned out these two different potential paths. The one of stability, of very high-paying and powerful jobs, but he knew the predictability was there, and he knew where it would end up, and apparently that didn’t entertain him.

Then there was this other path of bootstrapping a company, and not small company, not a company in a market that is very easy to enter, either. Banking and investments — this is a very, very, very difficult place to go. Yet he knew that was the right path for him, that he could afford to bootstrap a company for a couple years, not pay himself a salary, and still be comfortable with doing it, being comfortable with the uncomfortableness of entrepreneurship, and that’s brilliant.

This is completely, again, different than what I would do. Sometimes I’ll advise you to go with your gut. Follow it. Just run with it. Quit that job if you have to. Do whatever you have to in order to follow what it is you feel you need to do, and this is completely different. This is completely for people who need that planning, who need those thoughts, that analytical sort of sense of it. I think it’s really important to know that there are these different paths to the same end, but we have to deal with ourselves and know what it’s going to take us to shift our mindset, to be able to take these leaps.

I love how Jon did it. It’s very smart, and he’s a very smart man. I love how it’s so different than I talk about and so different than a lot of my guests actually talk about, how we’re all following our gut and running with it. Jon really thought it out, and he’s hyper-successful at it, and it’s brilliant. I thank you again, Jon. That was awesome.

This has been fun. I thank you so much again. You have no idea how much it means to me that you stop by and hang out with me for these half-hour episodes. I really, really truly do like it.

If you’re enjoying the episode, if you are on a Mac or Apple iPhone, could you go to iTunes and leave me a rating and a review? It helps so much with the show getting noticed.

If you are of the 50 percent of people who listen to this show who are not on an iPhone, I do not blame you, but could you go to — a great place — or SoundCloud, wherever you happen to listen to this show. I would just love a rating and a review. It helps us so much. It boosts you up in the ratings, and it gets me noticed, helps me get better guests for you, and it would mean so much. Put your Twitter tag in there if you could if you use Twitter. It would be great if I could reach out to you and thank you personally after doing that.

This is it. This has been fun. I thank you so much again, and please, until next time, keep hacking the entrepreneur.