A Product Market Fit Show | Startup Podcast for Founders
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.
00:09:12 · Pablo Srugo, Aaron Schumm
[00:09:12] S1: If you can do it, then you could do it anytime. [00:09:14] S0: Right? I always tell people, I'm like, you have no idea how hard it was. This is a cakewalk relative to that. So yeah, so we started that business. We grew that and really what it was, was that unbundled turnkey asset management platform. A FinTech platform that we gave to financial advisors and institutions. So broker dealers, banks, RIAs, asset managers alike, and we essentially power their wealth book of business. And through that journey, you know, we were a few years into that business. Our employees wanted their own 401(k) program. So I was like, OK, I haven't really done that before. Let's go do it, so one of our sales guys had a buddy who is an advisor that sold 401(k) plans and he gave us a plan. And I was like, this is horrible. How can it be this hard, this clunky, this expensive? And that's really when the light bulb went off, like, hey, there's a problem, we're gonna go solve here. So we started with 401(k)s, you know, when it started Vestwell and now we've expanded to a whole host of different savings programs in the tax preferred lens but that was really the origination of it all. [00:10:10] S1: And tell me a little bit about. As you said earlier, you can't just launch this. There's a lot of regulatory pieces. There's a lot of pieces to this puzzle. Take us to the origin of this early 2016. What do you do first?
00:10:10 · Pablo Srugo, Aaron Schumm
[00:10:10] S1: And tell me a little bit about. As you said earlier, you can't just launch this. There's a lot of regulatory pieces. There's a lot of pieces to this puzzle. Take us to the origin of this early 2016. What do you do first? [00:10:23] S0: Yeah, it's a great question. So it was funny because I wasn't a retirement expert by any means. I still wouldn't even classify myself as a retirement expert, you know, a decade into this. I have a lot of them on the team, but for me personally, I was kind of like the tech product person and how I was viewing this and to solve it. But in 2016, what we did, first thing we did was we started designing a workflow for what we thought people would want, right? So you think about, as your business owner. Your small business. Let's say you got, you know, a handful of employees, you want to set something up. What would you do, right? And walking through that decision tree process. [00:11:00] S1: I'm curious actually, just to go maybe deeper on that. What was the current state of affairs? [00:11:05] S0: For us or for the industry? [00:11:07] S1: In general, for the industry. I mean, people obviously have been setting up 401(k)s for a long time. What was the default?
00:11:11 · Aaron Schumm
[00:11:11] S0: So the default was a very handheld process. Where someone would say, hey, let's talk through a whole host of options. Let's check a bunch of boxes on a planned services agreement document. Let's stand up that, you know, let's choose your investments. Let's, you know, do you want safe Harbor, elective, non elective, all of these things. They're like a foreign language to most people, right? And even me, when I was at my prior company the advisors, like, hey, do you want to do this or that? And I was like, I don't know, what should I do? And the advisor is like, I can't tell you what to do. I'm like, well, you're an advisor. Give me advice, that's the whole job, right? And he's like, well, legally, I'm not really allowed to. So then that was when I was thinking like, hey, we could actually help walk people through this on their own. Much more consumable, distilled fashion that allowed people to make conscious, educated decisions without having to be an expert. Because you don't expect someone to be an expert in that space, right? That's going too far, but it's like, OK, how do you give them the confidence and all the information they need to make those right decisions, for themselves and for their business. But do so in a really streamlined fashion that doesn't become operationally intensive. So that was a lot of what we saw, but we didn't build the core of it. We didn't build the core underlying record keeping sub accounting piece when we started the business and that was simply because, we didn't know enough and I didn't know enough. And I was like, if we go down this path, we're going to chew up millions of dollars. We're going to end up with either a half baked solution that doesn't work or we're going to end up with a solution that's so tightly boxed. It's going to be so hard to open up the aperture of who we want to actually engage over the life of this business. So we kind of slow walked it, if you will and it was painful to do that. But it also was really eye opening because we learned so much about what to do as well as what not to do. When we were going to build our own and then what we started to do over time was lift out pieces of that legacy software and just rebuild it from the inside out. And then, eventually just rip and replace and re-platform the entire thing. So that was kind of the evolution of it all.
00:13:18 · Aaron Schumm, Pablo Srugo
But we had to stand up an RIA, right? We had to become an SEC registered advisor. So we started that, I remember we stood up an RIA and we got audited by the SEC. I think the second we put on our first business on the platform and I was like, you got to be kidding me. We literally just started this thing and now I got to go through an SEC audit. But that was also really enlightening. [00:13:39] S1: At least you only had one account or a couple of accounts. So much to audit. [00:13:44] S0: You know, but it was fun. Because it ended up being a really positive experience. Because I started to see like, well, what were the regulators thinking about? And they were actually just trying to be helpful. They weren't coming in just trying to needle us, right? They were truly trying to educate themselves and be helpful about the future of where they saw, you know, regulatory compliance and those aspects going. So it ended up being a great thing at the end of it but it was pretty nerve wrecking to start, right? You got probably four or five employees at the time. Maximum and all of a sudden the SEC's showing up at your door saying, OK, time for an audit. You're like, oh gosh, we haven't even gotten to the starting blocks yet. So, this is how it goes, though.