How Robinhood Made Investing Easy and Accessible to Everyone

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Growth Story is a weekly podcast that breaks down the strategy and tactics utilized by high growth companies, in a short case study format hosted by Scott D. Clary (@scottdclary)

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Welcome to success story, the most useful podcasts in the world. I'm your host, Scott Dclary. The success story podcast is part of the hup spot podcast network. That spot podcast network is the audio destination for business professionals who seek the best education and inspiration on how to grow a business. How spot podcast network hosts act as onman mentors entrepreneurs startups and scale ups through practical tips and inspirational stories. Listen, learning grow with the Hupsot podcast network at House spotcom slash podcast network. Today I'm going to break down the story of Robin Hood, the Fintech company that just ipoed 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 Robin Hood and how Robin Hood 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 Robin Hood Story on talk about the founders, the revolutionary business model, and then I'm going to talk about after I go through the whole story and we talked 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 to 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 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 Robin Hood, 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 Fintaic apps that just crush it, and a company that's been successfully doing this is Robin Hood. Robin Hood was one of the first. Now there's a lot of Fintech APPs, the Robin Hood was one of the first that really focused on these three guiding principles being the things that get a younger generation excited about finance. Robin Hood is leading the modernization of investments because it offers everyone equal opportunity to participate in financial markets, and before Robin Hood it wasn't so easy. You had there were a few options, but you could have some sort of broker are, you could go to a waterhouse, 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 Robin Hood 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 way, way, way back. So to stand for graduates, I know it's kind of a little bit classic start up story, but anyways, to stand for graduates, Bej you Bat Vladimir Tenev. They founded the company. So, following their experience in the in them trying to invest, they decided that they could do it better and they started Robin Hood in Menlo Park, California. This is obviously a very, very popular start off spot. So this is a little bit traditional. This is, you know, classic Silicone Valley. The name Robin Hood was drawn from the fairy tale, and Robin Hood the Fairy Tale, you know, the main characters mission is to steal from the wealthy give to the poor. Well, slight spent on this. The Robin Hood was to give access to financial markets to anyone, not just the wealthy. And since...

Robin Hood's launch in two thousand and thirteen, it's been quite evident that consumers find value in their product. They just ipoed, so they've been in the news a lot recently. Just ipoed at a thirty five billion dollar valuation. So there's definitely a product market fit there. There's a need for this. So Robin Hood users during two thousand and fifteen to two years after it launched were over eighty percent millennial, on average twenty six years old. So, as a result, founders proved 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 Robin Hood was so successful was because, first of all, it was building an APP in the fintext space, allowing anybody to invest in anything, but also they had a very interesting business model. So Robin Hood began as a platform for trading stocks and etfs. The Robin Hood Platform offer this feature without charging users a 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 those subscribers at a discount and then they'll be attracting venture capital money to allow them to grow. In the venture capital money is a money that is actually sustaining the company and as a company grows, there will be a point in the company's future when they'll try and incorporate 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. Will 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 GECKO, but regardless. Let's go back to Robin Hood. So Robin Hood has a huge growing subscriber base. They are not charging fees for these traits or not charging commission fees, and they derived revenue from payments for order flow. So they got rebates from market makers and trading venues. They they use those rebates as revenue. Basically. Now this was much different than the old system of collecting brokerage feast. So this business model was truly revolutionary and to expand the company's consumer base and generate more revenue revenue streams, they did could eventually add on a subscription model, which we'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 cost a lot of money for an individual to buy something. So Robin Hood Got Away with most fees. Now, in two thousand and sixteen they did offer a ten dollar per month subscription plan, which still was way less than what a traditional broker would charge. So in two thousand and sixty may launched this subscription model. They charged ten dollars for a monthly fee for the subscription. This would allow users to upgrade to a quote unquote, complete Robin Hood Platform. And what the gold subscribers that? It was called Robin Hood 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. Goal subscribers had access to professional research reports, they...

...can trade on margin and they can deposit money instantly from their trading accounts. So they added on a whole bunch of other things that broke ridge is usually do for still a relatively low fee. Again, very very disruptive. Now, if you actually use Robin Hood it's available at a much lower price at five dollars per month. So it wasn't even something they were depending on for revenue. In addition, Robin Hoods Cash Management Services allowed users to have uninvested funds from their broke cours 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 one point two five million, meaning if you just had money on Robin Hood and you weren't even invested in any stocks or ets 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 Robin Hood grew, they started to engage in other interesting fintach ecosystems, let's call it. So they started to work with Crypto. So that was the most recent product from Robin Hood where they realize their target market, their audience or subscriber, cares about new age, forward thinking financial tools, which cryptocurrency is obviously one of 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, Robin Hood 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 Robin Hood and feel 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 Robin Hood actually restricts purchases to one percent and sales to five percent. This prevents orders from being executed if a cryptocurrency price radically changes over or below five percent. So, of course, with safety becomes comes 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 has, this is of safety. 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 and Robin Hood 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 Robin Hood Story, because it wasn't all positive. So up until March of two thousand and twenty it was very positive. On March second of two thousand and twenty, Robin Hood experienced a massive service outage on one of the most intense trading days in the history of the US financial markets. The outage, unfortunate, really 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 Robin Hood rebounded quickly. To point to some numbers, by two thousand and twenty and the two thousand and twenty, the firm proved to maintain market share above fifty percent for all net new brokerage accounts opened in the US, which is more than all incumbent legacy brokerage firms combined. More than three million Robin Hood accounts were opened in the first half of two thousand and twenty alone, and as Robin Hood now grows and in two thousand and twenty one now it's ipoed, 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 and maintain solid, consistent information for storing all the data, protecting user data, and also to monitor markets and to make sure there's uptime, 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 Robin Hood 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 like 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 Robin Hood'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 two thousand and twenty Robin Hood had an ethical issue involving the suicide of a twenty year old man. He opened his account during the covid pandemic. He thought he had lost over seven hundred thousand dollars by trading on the platform. His account showed a seven hundred thousand dollar however, after they investigated, the user had not suffered losses of that size, but the Robin Hood APP had not included the stocks option positions. So as a result, that young man ended his life due to a misunderstanding caused by a delay and seeing the correct account balance on the application. So there is controversy whether or not Robin Hood is that fault in the situation. On one hand, their 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 or concerns, some of the outages, some of the ethical concerns, Robin Hood 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 Robin Hood is always focus on those three core tenants 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 Robin Hood, they've just ipoed at a thirty five billion dollar 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 Robin Hood did well. Outside of all the tech and all the Ui Ux, all the things they have navigated over their growth, there are three particular things they did extremely well when they were taking their product to market back in two thousand and thirteen. 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 are three growth lessons from Robin hoods 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 Robin Hood's life cycle to this to the thirty five billion dollar Ipoh. So I want to go through these three growth lessons from the Robin Hood Story and I haven't spoken about these yet. So the first when they were taking their product to market back in two thousand and thirteen was Fomo. They used Foma. That 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 made your 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 Presley or press hunt Dot ioh 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 a game of FID beyond boarding experience. So after you signed up, a Robin Hood 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 a certain affiliate link that was unique to you. That would actually move you ahead on the waiting list. So if somebody else join the Robin Hood Beta by clicking your link in an email, or if you posted this on social and somebody clicked on your social post and sign 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 the millions of subscribers before the product even went live. To not only did they have a private Beta, but then the game of fide the access of 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 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 prefinerycom. 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 Robin Hood 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 sign up process. So the number one problem the companies have when they're creating any sort of sign up or on boarding for their product or service or their hardware or whatever it is, is they make it too confusing. To conflate it. We're talking about the on boarding that got them a million plus customers. For this on boarding, they had that page, remember that had that private Beta access where you put in your you know,...

...your name and your email and you got 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 Robin Hood, Zero Dollar Commission Stock Trading. Stop paying up to ten dollars per trade. And then the only but and 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's said. There was a picture of somebody on a phone. It's sort of like a behind the text, so it was like a nice little image, but that's all the text that was on that landing page. When people hit that landing page there was no other option. There was no more reading about Robin Hood, 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 game of fine, blew up their waiting list so that they had over a million customers subscribe before they even launched a product. And then that is what kicked off this incredible story. It's incredible growth story. So Robin Hood has always been focused on making things as simple as possible for customers, so it only makes sense at the onboarding fell in line with that prerogative. So take some notes that virality, gamification, Faemo, simplicity. That equals your billion dollar IPO. Anyways, that's the story of Robin Hood. That's how they started, that's how they grew. Scaled up en xt, I'd more than ten x actually ipoed, and I hope that gave you some inspiration for your business.

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