Oct 29, 2018 · 53m · how-i-built-this
Betterment: Jon Stein
Jon Stein · 32m spoken Guy Raz · 14m spoken Jerry Stellenberg · 1m spoken NPR Life Kit Contributor · 6s spoken
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of How I Built This, Jon Stein shares how he founded Betterment in the wake of the 2008 financial crisis, pioneering the robo-advisory industry to make personal investing accessible, transparent, and automated for everyday savers.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Guy holds 30.4% of the talking time here. How this is scored →
Guy as informed peer 2.4 Guest teaching 1.9 Guest disagreement 0.7 Guy pushing back 1.1
speaking balance: gold is Guy, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 11:22 Stein challenges the premise that anyone is good at stock picking
When Raz asks if he was good at picking stocks himself, Stein immediately pushes back and challenges Raz to find anyone who is genuinely good at it over the long term.
Hardest push from Guy ▶ 44:40 Raz challenges Stein on becoming part of the ultra-richRaz refuses to let Stein position himself as a pure outsider, pressing him on whether he has inadvertently joined the very wealthy elite he previously critiqued.
Biggest teaching moment ▶ 12:34 Stein explains behavioral blindspots using his Enron lossStein educates Raz on the pervasive nature of cognitive biases in investing, demonstrating that even individuals with economics degrees and CFAs fall into irrational traps.
Guy holds their own ▶ 36:00 Raz clarifies basis points and compares advisory economicsRaz breaks down the financial terminology of basis points, demonstrating fluency in wealth management pricing models and contrasting traditional 1% minimums with Betterment's lower fee.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Guy as informed peer | Guest teaching | Guest disagreement | Guy pushing back | Why |
|---|---|---|---|---|---|---|
| Guy Raz Announces Live Los Angeles Show | 4 | 0 | 0 | 0 | Guy Raz sets up the episode by defining financial technology, robo-advisors, and Betterment's disruption of traditional financial brokerage fees. Jon Stein contributes a brief teaser quote regarding his anxiety before TechCrunch Disrupt. | |
| Grandparents' Craftsmanship and Scouting Lessons | 1 | 1 | 0 | 0 | Raz asks open-ended biographical questions regarding Stein's upbringing, his grandparents' furniture business, scouting leadership, and early journalism ambitions in Dallas. | |
| Studying Economics, Psychology, and Abandoning Medicine | 2 | 2 | 0 | 0 | Stein explains his fascination with behavioral economics at Harvard, realizing humans make irrational emotional decisions, and why a brief foray into pre-med ended abruptly due to squeamishness around blood. | |
| Consulting for Wall Street and Spotting Flaws in Banking | 2 | 2 | 1 | 1 | Raz prompts Stein on whether consulting for Wall Street felt like smoke and mirrors. Stein recalls consulting partners explaining that banking makes money off money rather than serving customers. | |
| Personal Investing Mistakes and the Core Concept | 3 | 3 | 1 | 1 | Stein admits his own personal trading failures, including riding Enron stock to zero despite his finance credentials. He outlines the core concept of combining ING Direct simplicity with Vanguard low-cost index investing. | |
| Coding the First Prototype During Business School | 3 | 3 | 1 | 2 | Raz probes who Betterment targets and why a customer would not simply use Vanguard directly. Stein details the fiduciary model, automated tax-loss harvesting, and behavioral nudges designed for ordinary professionals. | |
| Regulatory Strategy and Assembling the Founding Team | 3 | 2 | 0 | 1 | Raz points out the heavy regulatory hurdles of launching a financial services company. Stein explains recruiting securities lawyer Eli Braverman and self-funding the company out of savings. | |
| Embracing the Financial Crisis and the TechCrunch Deadline | 2 | 2 | 1 | 1 | Stein describes viewing the 2008 financial collapse as an opportune moment to build a trustworthy brand when incumbent institutions were hemorrhaging consumer trust. | |
| High-Stakes Preparations for TechCrunch Disrupt | 2 | 3 | 1 | 1 | Stein details the chaotic countdown to TechCrunch Disrupt, including stripping out unpopular social-sharing features and fixing a broken withdrawal pipeline discovered during the flash crash. | |
| Mid-Episode Station Break | 2 | 2 | 1 | 0 | Stein recounts his exchange on stage with venture capitalist Chris Sacca, who doubted consumers wanted simplified financial products, supported by Michael Arrington. | |
| The Post-Launch Plateau and Securing Venture Capital | 4 | 3 | 1 | 2 | Raz digs into the initial post-launch plateau, the unconventional practice of asking employees to contribute capital, and the unit economics of charging basis points versus traditional advisory fees. | |
| Equity Renegotiation and Preserving Founder Relationships | 3 | 2 | 1 | 4 | Raz presses directly into the delicate and uncomfortable topic of renegotiating founder equity away from an equal 33% split, pointing out Stein's lingering discomfort with the conversation. | |
| Redefining Financial Services and Personal Views on Wealth | 3 | 2 | 2 | 4 | Raz challenges Stein on becoming part of the wealthy elite he criticized. Stein counters that his wealth remains on paper, noting he still lives in his original rented apartment and will not leave an inheritance to his daughters. | |
| Jon Stein on Luck, Privilege, and Giving Back | 2 | 2 | 0 | 0 | Stein reflects thoughtfully on the significant role of luck, timing, and privilege in his success. The segment transitions to Jerry Stellenberg's 'How You Built That' story about Multimorphic pinball machines. | |
| How I Built This Credits and Listener Sign-Off | 0 | 0 | 0 | 0 | Host closing credits, contact information, production acknowledgments, and standard NPR promotional messaging. |
Statements from this episode (20)
Stein: People Will Not Make Rational Decisions Left to Their Own Devices
“Despite our best intentions, we're highly likely to make mistakes. We let our emotions get in the way. And in fact, we will not make rational decisions if left to our own devices.”
Stein: Finance Initially Seemed Unexciting Because It Just Helps the Rich
“Finance was just like, ah, you know, it's like helping rich people get richer. That doesn't seem that exciting to me.”
Stein: Banking consultants spent six months developing products without customer input
“I found many times that we were working on projects and we could go six months on a product development and never talk to a customer.”
Stein: Managing Personal Investments Is Nearly Impossible for Everyday Savers
“If it was that hard for me, ah, someone who's had all the benefits of, you know, ah, business school, and a degree in economics, and a CFA, and all of these, like, and working in the industry, wow, it must be impossible for the average person to manage their m…”
Stein: Vanguard offered great funds in the mid-2000s but had terrible UI
“Then I looked at investing, and I had a Vanguard account, and another company I have tremendous respect for I had you know, some great Vanguard mutual funds, but the interface was terrible. The experience was just not keeping up”
Stein: Betterment's Target Customer Makes Over $100,000
“We think of our target customer as being someone who's making over a 100,000 dollars. That means they're a professional.”
Stein: Betterment's Tax Management Saves Clients More Than Platform Fees
“We tax manage for you to save you more than you even pay us in fees. In taxes, we give you net positive returns on your investment with us”
Stein: Banks and Brokers Earn Bad Reputations by Pushing Manufactured Products
“I didn't want to be a bank. I didn't want to be A broker. I didn't want to be any of those things, because I think they all have bad reputations for a reason. They're manufacturing product and selling product.”
Stein: Betterment Was Initially Funded Entirely Out of Co-Founders' Personal Savings
“Eli had saved money as well as a lawyer, and so we funded the business out of our savings.”
Stein: Robo-advisors founded after 2008–2009 stayed tiny or were acquired
“There were a couple other competitors that started at that time that still exist. Everyone who started since is either really tiny or has been acquired or this or that.”
Stein: Never Fully Script a Pitch or Major Speech
“I've written and scripted the entire thing, which I would never do again and would not recommend. Never script a speech like this”
Stein: Betterment reached $1M AUM within days of TechCrunch launch
“300 that day, right? Wow. 350. They were just, and we were amazed. We think this is incredible. And they were small deposits at first, right? Nobody put in more than, you know, 10 K or so. But all of a sudden, by, within a few days, we had a million dollars un…”
Stein: Early Betterment employees took salary cuts and contributed capital for payroll
“And by the way, in that time, we're asking our employees to reduce their salaries and even contribute capital. To buy more equity, to pay themselves. So we were buying time as best we could until we could raise some capital.”
Stein: Bessemer offered Betterment $3M when the startup sought $1M
“The first meeting that he set up was with Bessemer Ventures, and we went out and we pitched Rob Stavis, and it was love at first pitch. We said, we're building this Company that is going to help people make the most of their money. And Rob said, this is fascin…”
Stein: Betterment expected $18B to $20B in AUM by late 2018
“Yeah, we expect to be in the ballpark of 18 to twenty billion by the end of 2018.”
Stein: Founders should create early co-founder buyout provisions
“One thing that we did right was in the early days we created provisions around buyouts, and I'm so happy we did that, and when people ask for advice, I always tell them to do this”
Stein: Betterment co-founders agreed to reduce their initial equal 33% equity stakes
“I had to come back to them and say, I don't think we did this right, and I want to renegotiate our split here. And that was tough, but you know, ultimately they were they agreed that that, that they should take smaller shares.”
Stein: Betterment clients hold Vanguard funds, making Vanguard a partner
“Anyone who's invested with us is also getting some Vanguard funds. So in a sense, we're partners with them.”