A Product Market Fit Show | Startup Podcast for Founders
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.
00:14:21 · Pablo Srugo
[00:14:21] S1: I'm curious to understand more of the pain. Obviously, Product Market Fit, it's all about pain solution and then go to market. But the pain from the business side, like I understand that as the employee, you get connected to an advisor as part of the 401(k) or whatever. You're going through that, it's a bunch of things you don't understand. They're not that helpful, but you're like, OK, whatever. Ultimately you probably do it and it just kind of happens, right? Why does the business care so much? What is the top of that? I mean, I get it, as a business you want to provide better experience for your employees but that's not going to go to the top of your list. Necessarily, relative to all the other things you want to do. What's the thing that shines at the top of the list for a business when it comes to this?
00:14:58 · Aaron Schumm
[00:14:58] S0: It's a good question and it depends on the business, ultimately. But there's a few key things. I think, ultimately, for the business, it's about recruitment and retention of the employees. And it's also about their own security, right? In the US, pension plans don't really exist anymore. There's the big question mark over social security, whether that's going to continue to hold over the course of the next few decades. This is something where you can put the control of your future in your own hands and if you can do that and not make it burdensome, right? You don't want to spend hours doing this a week. You want to spend a couple minutes maximum, right? And it really has become table stakes for employees or people that are out there interviewing saying, hey, if I'm going to come to your company and work. What are you going to give me? What are your benefit packages, right? Your health insurance, your savings programs, and all of those. And through all of this, right? When we were starting the early days of Vestwell, there was a lot of legislation that was being proposed. At the time, there was a DOL fiduciary rule that was having a big weight on how advisors could engage. There was the notion of Secure 1.0 and then Secure 2.0, and now actually they're working on Secure 3.0. Those have become some of the largest legislative tailwinds that this industry's seen since the inception of ERISA law back in the mid 70s. So it's really transformed and it's shined a light on why people need this and you see it now. Even, you know, with the current administration. Some of the things they're rolling out are on the Trump accounts and child savings, and IRA programs, and all of these different things that people are looking at. And say, we have a systemic problem. There is a crack that persists financially in this country and if we don't start to fill that crack. It is going to widen and get deeper, and we're never going to get out of it. So people are just starting to take action on it and a lot of it ultimately in this country, you know, most businesses are small and mid sized businesses. Now we do everything up and down this. We do large businesses, we have a lot of large businesses but from a volume perspective, ninety five percent of the businesses in this country would be classified as that small to midmsized business.