A Product Market Fit Show | Startup Podcast for Founders
00:02:05 · Aaron Schumm
[00:02:05] S0: Yeah, sure. Our business, it's retirement, it's savings, it's college savings, disability, emergency, you know, all the tax preferred things you need for life, right? So to get your education, retirement and healthcare needs. But it's a very complicated industry. Complicated business, it's been around fifty plus years from an industry standard and, you can't just show up and have this thing that just flies off the shelf. So it takes a while to kind of entrench yourselves into some of these players and our go to market. As you mentioned, is through channel partners. So we go to market through financial institutions, we go to market through payroll HCM providers, and we go to market through government sponsored programs, out to individuals and businesses across the country. You know, we started the business, it was kind of like, let's test it with a few financial firms, advisors, RAs, and get the wheels going. But it really wasn't until about 2020, 2021, during COVID. Where we were able to ink a deal with Morgan Stanley to help be a core component of Morgan Stanley at work, and power their financial advisors and all of their businesses that they were supporting through Morgan Stanley onto the platform. That was really kind of a point in time where the market realized, oh, wow, these guys, from a Vestwell standpoint, as well as a Morgan Stanley standpoint, are really thinking about the future of where workplace savings goes and how this becomes kind of a catalyst for the wealth savings that people are going to have over the course of their career.
00:03:36 · Pablo Srugo, Aaron Schumm
[00:03:36] S1: So obviously Morgan Stanley is a massive brand, but give me a sense of what that meant for Vestwell as a business. What, was that a certain committed dollar ARR? Was that commitment to introduce you to so many businesses? What did you think in your head when you're like, okay, we've signed this. This means it's going to lead to what exactly? [00:03:53] S0: Yeah, so what we do typically is we'll do large, they're long term, you know, five to ten year contracts and there's a minimum commitment to that, right? And ultimately, it's no money out of the pocket of our partners. Because we set the bar at a very attainable level where they're just bringing the business onto the platform. But it gives us some assurance of the business is going to show up and we're going to manage and hire, and staff according to what the plan looks like. So it gave us a lot of kind of stability and visibility into the future of saying, OK, if we do this, we do this well, everyone's happy. This thing's going to continue to accrete and grow the business across all of their advisor networks. So that, you know, when we signed that it was a multi year deal with, multi million dollar minimum commitments year of year that continue to grow and we've just. Since then, we've just continued to expand our partnerships across Morgan Stanley and they're one of our best, and greatest partners that we have out there. [00:04:51] S1: So, multiple questions on this. The next one is, what is the business model with Morgan Stanley and Aegis in general?
00:04:51 · Pablo Srugo, Aaron Schumm
[00:04:51] S1: So, multiple questions on this. The next one is, what is the business model with Morgan Stanley and Aegis in general? [00:04:57] S0: Yeah, so the business model is really, we get paid off a per employer per month fee and a per saver per month fee. Typically a flat fee, something like a PEPM. Sometimes there's a basis point component depending, we're trying to over index on basis points and look like an asset manager or an advisory shop but sometimes we will do that depending on the services we're providing. So that's basically, those fees are borne by the employer and the savers on the platform. And then, Morgan Stanley really is just committing to continue to bring volume. They're not, or they're our enterprise partners. They're not necessarily going to write a check into us unless they miss the threshold of where we contractually agreed to. [00:05:40] S1: So we had Judi Health on the podcast recently and they talk about number of lives, right? Because they're a health benefits platform. So you're similar as kind of number of savers on the platform. That's kind of the big KPI you're trying to go after. [00:05:50] S0: Right, so we have over two and a half million people actively saving. Meaning they have dollars on the platform. They're in there and accruing some growth out of those.
00:05:50 · Aaron Schumm, Pablo Srugo
[00:05:50] S0: Right, so we have over two and a half million people actively saving. Meaning they have dollars on the platform. They're in there and accruing some growth out of those. [00:05:59] S1: And tell me a bit more, like with Morgan Stanley or a big partner like that. What is it that they don't have that you have, that you bring to the table? Because the assumption would be like Morgan Stanley, they're going to build all this stuff. They're going to have some product like this in house, right? So what do they need you for?
00:06:14 · Aaron Schumm
[00:06:14] S0: So they typically have something in house on the wealth side. The retirement side, specifically retirement, and there's other savings programs too. It's very complex when you get to the sub accounting and the record keeping. So traditionally what firms do is they have one of two models. Model one would be they go rent a piece of software from a legacy provider, which would be like an FIS or an SS&C. They go hire a bunch of people, you know, a couple hundred people to support the business and then they hope that you have some offering that they can accrue beyond the headcount operational overhead as well as software license fees. So that's kind of, that's model number one. Model number two is you don't rent any software and you just put a bunch of providers on the shelf. So you go out there and you have, maybe a Fidelity and a Empower, you know, pick a name, right? That's out there in insurance brand, nationwide and they put a bunch of these on the shelf. And then they say, hey, if it's an advisor sold solution, here's what you're permitted to go sell, right? And they frame it or box it in some capacity. The model we took was a bit different and said, listen, why would a large global brand be putting their business with a core competitor that's really just trying to siphon that business away from that brand, be it a Morgan Stanley or whoever it is. You know, our approach was like, hey, you should have the most modern, elegant experience possible. It should be low cost and it should be yours. It shouldn't be, you know, trying to compete with someone else that you're putting on the shelf. Because you can't operationalize it yourself. So we said, hey, listen, we'll put you in the market. It's your product, it's your brand, it's your advisors. It's, you know, your asset management if you want it and we'll do it all front to back, and you have zero overhead to do it. And that kind of really flipped the tables with how we were able to engage and got people to say, oh, I can do this myself. Yet I don't have to go hire, you know, an army of people and go rent legacy software, and try to grow a business out of it.
00:08:11 · Pablo Srugo, Aaron Schumm
[00:08:11] S1: So this is the white label software only strategy. [00:08:14] S0: Yes! Yeah, that's a key piece to it. [00:08:16] S1: So now that we have this kind of, that's the, maybe not the end state. Certainly for you, but for us product market fit. That's the end moment, let's say, of product market fit. Let's go backwards, you started this in 2016. Tell me a little bit more about your background. What were you doing in, let's say the 2010s, or so that led you to start this business? [00:08:32] S0: Yes, so I have been in the financial technology world since before like FinTech, quote unquote, was a thing. Which dates me quite a bit but most relevantly, I co founded a business before this called FolioDynamics that got acquired by Envestnet. It used to be a public company, now it got taken private by Bain. But we were out there basically, I ran product development, I ran sales and strategy for that organization. [00:08:57] S1: And this is what year, by the way? [00:08:59] S0: This, we started this in October of '07. [00:09:03] S1: Okay. [00:09:04] S0: Horrible time to start, cause then we're raising our first round of capital in the spring of '08. When everything fell apart in the financial world and that was one of the most. [00:09:12] S1: If you can do it, then you could do it anytime.