How Robinhood Made Investing Easy and Accessible to Everyone #scottsthoughts

Welcome to Success Story, the most useful podcast in the world. I'm your host, Scott D. Clary. The Success Story podcast is part of the HubSpot podcast network. The HubSpot podcast network is the audio destination for business professionals who seek the best education and inspiration on how to grow a business. HubSpot podcast network hosts act as on-man mentors, entrepreneurs, startups and scaleups through practical tips and inspirational stories. Listen, learning grow with the HubSpot podcast network at HubSpot.com slash podcast network. Today, I'm going to break down the story of Robinhood, the FinTech company that just IPO'd and has billion dollar plus valuations. I'm going to walk you through their strategy for growth, how they took their product to market, and how they evolved as a company, some of the hurdles, some of the ethical and regulatory hurdles they went through on their rise to the top. This is a business case study. So today we're going to talk about Robinhood and how Robinhood basically made investing easy and accessible for everyone, which in it is a feat in it of itself. But let's break down how they actually did it. So what I want to do is I want to talk about the industry, I want to talk about the status quo, I want to talk about the Robinhood story, I want to talk about the founders, their revolutionary business model, and then I'm going to talk about after I go through the whole story, we talk about how they've grown and how they've gone through ups and downs, and highs and lows, and there's been some positive, there's been a lot of negative too. And then let's talk about where they are now, and then I'm going to bring it all back with a really, really smart, viral take to market strategy that made all this happen. But first I want to walk you through the story, and then I'm going to show you what actually let them achieve such massive growth. So first let's talk about FinTech, financial technology, financial technology or FinTech is a rapidly expanding industry. We're talking about crypto, we're talking about Robinhood, we're talking about all these new financial vehicles and instruments and apps that are letting people approach finance differently. FinTech companies are focused on adapting their products according to the preferences of a younger generation and demographic. We're talking simplicity, user friendliness, transparency, these are the guiding principles of FinTech apps that just crush it. And a company that's been successfully doing this is Robinhood. Robinhood was one of the first, now there's a lot of FinTech apps. The Robinhood was one of the first that really focused on these three guiding principles being the things that get a younger generation excited about finance. Robinhood is leading the modernization of investments because it offers everyone equal opportunity to participate in financial markets. And before Robinhood, it wasn't so easy. You had, there were a few options, but you could have some sort of broker, you could go to a water house, you could go to a variety of different places that would allow you to invest. But it definitely wasn't as simple as picking up your phone, opening an app and investing from the comfort of your couch. There was steps to this. And also some of the ways that you could invest required a lot of capital. So some people wouldn't even talk to you unless you were investing X amount of dollars. So Robinhood is getting rid, disrupting that entire system, totally democratizing finance and investment vehicles. So let's talk about the founders. Let's talk about, let's go away, way, way back. So two stand for graduates. I know it's kind of a little bit classic startup story. But anyways, two stand for graduates. Beijubat, Vladimir Tenev, they founded the company. So following their experience in them trying to invest, they decided that they could do it better. And they started Robinhood in Menlo Park, California. This is obviously a very, very popular startup spot. So this is a little bit traditional. This is classic Silicon Valley. The name Robinhood was drawn from the fairy tale. In Robinhood, the fairy tale, the main character's mission is to steal from the wealthy gift to the poor. Well, slight spin on this. Robinhood was to give access to financial markets to anyone, not just the wealthy. And since Robinhood's launch in 2013, it's been quite evident that consumers find value in their product. They just IPO'd. So they've been in the news a lot recently. They just IPO'd at a $35 billion valuation. So there's definitely a product market fit there. There's a need for this. So Robinhood users during 2015 to two years after it launched, were over 80% millennial on average 26 years old. So as a result, founders prove out their thesis that young people were not opposed to participating in financial markets. It was just that their wealth or their access or their knowledge or the cumbersome nature of the existing systems in place stop them from truly being able to access investment channels. So the reason why Robinhood was so successful was because first of all, it was building an app in the fintech space, allowing anybody to invest in anything. But also they had a very interesting business model. So Robinhood began as a platform for trading stocks and ETFs. The Robinhood platform offered this feature without charging users of commission fee, which is strange. So in response to the growing subscriber numbers, not the revenue, the company was able to raise significant amounts of money and venture capital. Let's just pause on that for a second. So what a lot of companies, not a lot, but some companies do is they'll focus on getting critical mass and they'll focus on attracting hundreds of thousands or millions of customers and then and they will be not profitable. They will not be making money. This is something that happens in startup land. So they will not be making money. They'll be getting a lot of subscribers. They will usually be getting the subscribers at a discount and then they'll be attracting venture capital money to allow them to grow in the venture capital money is the money that is actually sustaining the company. And as the company grows, there will be a point in the company's future when they'll try and incorporate a more heavy handed revenue model so that they can become profitable. One example that you're seeing this with right now that we're actually living through is Uber. So Uber, originally they basically artificially lowered the prices so that they would get a ton of people. So hundreds of millions of people on the app and now they're trying to be profitable. So if you've noticed your Uber rides are getting a little bit more expensive, well now shareholders are asking for some sort of profitability. Other companies that are not profitable, if I'm not mistaken, Netflix is not profitable yet. Uber was not profitable for the longest time and I don't even know if they are now. So this is not new, but it's something that companies do just to win business from the start from the get go. But regardless, let's go back to Robinhood. So Robinhood has a huge growing subscriber base. They are not charging fees for these trades. They're not charging commission fees and they derived revenue from payments for order flow. So they got rebates from market makers and trading venues. They use those rebates as revenue basically. Now this was much different than the old system of collecting brokerage fees. So this business model was truly revolutionary and to expand the company's consumer base and generate more revenue streams, they did eventually add on a subscription model, which I'll talk about in a second. But for a long time, they were really disruptive because they were charging absolutely nothing. And if you think about the traditional broker that would allow you to buy stocks and trade and whatnot, they charge fees. So they charge a significant percentage on every single trade. So it costs a lot of money for an individual to buy something. So Robinhood got away with most fees. Now in 2016, they did offer a $10 per month subscription plan. Which still was way less than what a traditional broker would charge. So in 2016, they launched this subscription model. They charged $10 for a monthly fee for the subscription. This would allow users to upgrade to what a quote unquote complete Robinhood platform and what the gold subscribers that it was called Robinhood Gold. What the gold subscribers would get on top of just being able to trade which already was not there was no charge for those trades. Gold subscribers had access to professional research reports. They can trade on margin and they can deposit money instantly from the trading accounts. So they added on a whole bunch of other things that brokerages usually do for still a relatively low fee. Again, very, very disruptive. Now if you actually use Robinhood, it's available at a much lower price at $5 per month. So it wasn't even something they were depending on for revenue. In addition, Robinhood's cash management services allowed users to have uninvested funds from their brokerage account managed by the company offering a higher yield than most banks. So FDIC insurance is also available for accounts with managed funds of up to 1.25 million, meaning if you just had money on Robinhood and you weren't even invested in any stocks or ETFs or anything else, you could just let that money sit there and they would manage that money for you and invest it and they would give you a higher return than any bank would usually ever give you. And as Robinhood grew, they started to engage in other interesting Fintech ecosystems, let's call it. So they started to work with crypto. So that was the most recent product from Robinhood where they realized their target market, their audience, their subscriber, cares about new age forward thinking financial tools which cryptocurrencies obviously wanted them. So they allowed their audience to invest in crypto. And that was a new financial market that most traditional brokers largely ignored. So as a result, Robinhood again was able to present a new opportunity to a key demographic they cared about that was their subscriber base in a way that was non-complicated, very user friendly and provided a little bit of safety compared to some cryptocurrency exchanges that perhaps didn't have the same infrastructure or security behind them. So they tailor again to somebody who wants to get into markets but you don't have to be a developer or somebody highly technical to use Robinhood and field safe. For example, one thing they did which allowed people to feel a little bit more comfortable about their cryptocurrency purchases was to protect their users from drastic price changes. So Robinhood actually restricts purchases to 1% and sales to 5%. This prevents orders from being executed if a cryptocurrency price radically changes over or below 5%. So of course with safety becomes limitations and some people don't like that. But for the person who isn't technical or isn't as aware of how volatile crypto markets is this is a safety tool that can actually benefit them. And taking steps like this was one of the most attractive things for young investors who were just trying to learn how to invest. Again, you have a lot of young people on the platform and Robinhood time and time again demonstrates his ability to think like a consumer and act in a way that meets its users evolving needs unlike traditional brokerages or traditional investment institutions that are very, very slow to react. Now, as the platform matures, more people are using it. Of course, it's a financial tool which means that it is under a lot of scrutiny when things don't work well. And that's something that we have to take into consideration as well as we're talking about Robinhood story because it wasn't all positive. So up until March of 2020, it was very positive. On March 2nd of 2020, Robinhood experienced a massive service outage on one of the most intense trading days in the history of the US financial markets. The outage, unfortunately, lasted for an entire day causing massive damage to its users. It was so bad that several media outlets said that this would be the downfall of the Fintech giant. However, outrage did fade and Robinhood rebounded quickly to point to some numbers by 2020 and the 2020 the firm proved to maintain market share above 50% for all that new brokerage accounts opened in the US, which is more than all incumbent legacy brokerage firms combined. More than three million Robinhood accounts were opened in the first half of 2020 alone. And as Robinhood now grows and in 2021 now its IPO, we also have to consider the ethical responsibility of being the incumbent, the main investment brokerage tool that now people use. So for example, we have to consider the fact that the company is obligated to its users to provide a maintained solid, consistent information for storing all the data, protecting user data, and also to monitor markets and to make sure there's up time because people's money is invested here as well as monitor cryptocurrencies and cryptocurrency markets. There's a lot of things that are moving that Robinhood has to keep up with, which means there has to be some smart people that are keeping up with these things and are focused on delivering the best technology and the most secure technology for one of the largest investment vehicles that now probably has several several several billion dollars of assets under management. And in all seriousness could be responsible for the livelihoods and retirements of many individuals. One ethical dilemma that stemmed from Robinhood's growth and massive scaling over the past couple years was that it's giving financial power to individuals who may not understand what some of the things that it offers are. So I'll give you one story. So in 2020 Robinhood had an ethical issue involving the suicide of a 20 year old man. He opened his account during the COVID pandemic. He thought he had lost over $700,000 by trading on the platform. His account showed a minus $700,000. However, after they investigated the user had not suffered losses that size but the Robinhood app had not included the stocks option positions. So as a result, the young man ended his life due to a misunderstanding caused by a delay and seen the correct account balance on the application. So there is controversy whether or not Robinhood is that fault in the situation. On one hand, they're opening markets and they're opening opportunity and they're giving opportunity to people that normally wouldn't have had it before. But on the other hand, with that opportunity becomes there's a lot of risk involved because now you're giving people financial freedom to invest as they see fit. Yet over all of this, over all of the ups and downs, the massive growth, some of the regulatory concerns, some of the outages, some of the ethical concerns, Robinhood has still maintained its position as one of the number one tools and instruments for people who are interested in investments. And it is continuing to grow year over year. And I do not see the user base switching to a legacy brokerage firm just because Robinhood is always focused on those three core tenants that we talked about at the beginning, that usability, the simplicity, and the affordability of the platform. And then just recently, if we fast forward to present day Robinhood, they've just IPO'd at a $35 billion valuation. So I can't see them slowing down anytime soon. Now after this incredible success, I do want to take a second and walk through three particular things that Robinhood did well outside of all the tech and all the UI, UX, all the things they've navigated over their growth. There are three particular things they did extremely well when they were taking their product to market back in 2013 that are notable things that are lessons that you have to learn from this story that maybe you can apply to your own business. So there were three growth lessons from Robinhood's take to market strategy or take to market playbook that allowed it to secure over a million customers before they even had a product. And that cascaded through Robinhood's life cycle to this $35 billion IPO. So I want to go through these three growth lessons from the Robinhood story. And I haven't spoken about these yet. So the first when they were taking their product to market back in 2013 was FOMO. They used FOMO. They used a private beta invite only sign up list to get people to want to sign up before they even had a product. They had a landing page with a sign up, with a form that allowed you to sign up for a private beta. They pushed a massive PR campaign around the private beta which is picked up by major news outlets cementing hundreds of thousands of initial customers before they even had a working product. And if you ever wanted to run something like this you're setting up a website and then use something like a newswire or a Presley or press hunt.io to get the word out and just drive people to a private beta FOMO works. People want to be part of something exclusive. The second thing they did was they gamified beyond boarding experience. So after you signed up, Robinhood created a referral based on boarding process that offered rewards and prizes for joining the beta. So after you signed up, you were presented with a graphic that showed how many people were on a waiting list ahead of you. Once on the waiting list, you had options to share and a certain affiliate link that was unique to you that would actually move you ahead on the waiting list. So if somebody else joined the Robinhood beta by clicking your link in an email or if you posted this on social and somebody clicked on your social post and signed up for the beta, you would be bumped up in the waiting list so you would get there ahead of time. This led to exponential growth, numbering in the millions of subscribers before the product even went live. So not only did they have a private beta but then they gamified the access to the private beta and allowed you to share it and create this viral loop around the private beta. And then lastly, the most important, oh, actually you know what one more thing on that? If you want to do this yourself and you don't want to code it, there's actually a tool that you can use that's out of the box called prefinery.com. There's probably a few more, but that's the one that I've seen work and do this for companies. You can go there, you can set up your own viral affiliate, take to market private beta program very similar to what Robinhood did. And lastly, the third thing that allowed them to get over a million customers before they even had a product was simplicity in their signup process. So the number one problem the companies have when they're creating any sort of signup or onboarding for their product or service or their hardware or whatever it is, is they make it too confusing, too conflated. We're talking about the onboarding that you got them a million plus customers. For this onboarding, they had that page, remember they had that private beta access where you put in your name and your email and you got pushed into this line for private beta access. That page, they removed all the text from that page, from that web page, and they made the call to action as straightforward as possible. On that page that they were trying to get people to sign up to the private beta on, they had the text that read Robinhood, zero dollar commission stock trading, stop paying up to $10 per trade. And then the only button they had on that page was one that said opt in to get early access. That's it, that's it said, that's all it said. There was a picture of somebody on a phone, sort of like behind the text. So it was like a nice little image, but that's all the texts that was on that landing page. So when people hit that landing page, there was no other option. There was no more reading about Robinhood. There was no more understanding about the team. There was no more looking at all the different features and getting distracted. It was that sentence, email capture, and a button. And that's it. And that combined with FOMO, combined with gamifying, blew up their waiting list so that they had over a million customers subscribed before they even launched a product. And then that is what kicked off this incredible story, this incredible growth story. So Robinhood has always been focused on making things as simple as possible for customers. So it only makes sense that the onboarding fell in line with that prerogative. So take some notes that virality, gamification, FOMO simplicity, that equals your billion dollar IPO. Anyways, that's the story of Robinhood. That's how they started. That's how they grew scaled up. 10x, more than 10x actually, IPO'd. And I hope that gave you some inspiration for your business.