Disruption by Betterment: Plucking low hanging “problem fruit”


(This is the post that accompanies the October 12, 2015 ACBJ national column entitled, “Making the choice between legacy companies and demand creators”)


Here come the kids … again.

Betterment CEO Jon Stein began his financial services firm five years ago, when just 29.  That means he began conceiving, designing and developing his Big Idea while only in his mid-20s.  Now 34, his mindset begins with, “Approach things with an engineering mindset.  Look for things that are broken, and find a way to fix them.”

Enter Betterment — a shining example of disruption in the financial advisory space.  Rather than meeting with a traditional financial adviser in person, clients who work with robo-advisers invest on the web.  These online platforms use technology to craft customized portfolios and charge clients a fee (from 0.15% to 0.35% at Betterment, depending on the account balance).

This model, attractive to do-it-yourself investors, is shaking up financial advisers who have based much of their business on regular, face-to-face meetings with clients to the tune of a 1% annual fee.

Compare Mr. Stein’s ethos to that of most entrepreneurs or business owners over 45, particularly in non-tech industries.  My experience shows that they prefer to copy an existing model in an already overcrowded marketplace, throw gobs of good money at it, and then try to advertise, sell and (low ball) price their way to success.

It’s safe to say that the kids see business differently, through a “new paradigm lens,” allowing them to see the low hanging fruit problems that their elders do not.  And the moment the youngins’ disrupt – when existing kingdoms are threatened – only then does the old guard attempt to do what they do best:  Copy.

Cases in Point:  Harry’s and Dollar Shave Club struck a genuine chord in the men’s shaving arena, so now Gillette volleys back with its own weak offering; TOMS shoes vs. Skechers laughable, ill-fated BOBS knockoff; and McDonalds now retrofitting many locations attempting to ape Starbucks’ ambience and culture.

It seems that with the status quo crowd, a “sameness and follow the leader”mentality still rules, much to the detriment of their respective P&Ls.  Allow me to provide some assistance.

Here are four ways to begin an effective disruption journey:

  • Hire fledgling entrepreneurs and nurture them for exit.  They’re easy to find by attending startup conferences.  Hire visionaries that can execute (!) – telling them up front that you’ll provide the “lab” from which they can experiment, grow and improve – set high expectations, and once they deliver help them achieve their dream: To go out on their own.  I guarantee that they’ll help you find their stellar replacement, and the great circle of (innovation) life perpetuates.  Consider what your company’s reputation can become with this model.
  • Begin with the “Why” and its all-important back story.  The “why” is emotional and something people can connect to.  The “How” is simply the expression of that emotion.  TOMS founder, Blake Mycoskie, saw and met countless barefoot children during his travels to Argentina.  The TOMS concept emerged after that powerful and authentic experience, inspiring a desire “to do good.”  So … Blake and his team took a financial risk by betting their business and philanthropic success on an untested and generous buisness model.  Moral of the story:  Powerful backstories cannot be copied.
  • Know what unprecedented value really means, and where its origins are.  The kids are exceptional at identifying customers’ “unspoken” needs.  Those needs, of course, are what create unprecedented value, not simply fixing a low hanging fruit problem.  No one begged Starbucks to become “3rd place” after home and work.  No one asked Southwest Airlines to fly one type of plane to keep costs low, or deliver humor to a stale industry.  No one asked Pixar to hold the story near and dear as “king,” ensuring the type of movie quality that few can claim.  And no one asked Quick Trip to deliver cleanliness, efficiency and selection as convenience store/gas station differentiators.

Winning in the third millennium demands adherence to the new “Demand Creation Source Code”, unfortunately many business owners and CEOs have either chosen to ignore it, or they just can’t “hear” it.  That doesn’t have to be your fate, though.  Begin with a Clean Slate, and start your design activities today.

(NOTE: For a deep dive into the mind of Betterment’s Jon Stein, feel free to check out this recent New York Times story)

Sean Stormes


Sean Stormes is Chief Value Designer of The Third Door®. His firm provides the most progressive concepts, methods, and PRG© (profitable revenue growth) framework and architecture available in the international marketplace to committed senior level business leaders who mean business.

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