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- [00:00]
A
Alan, I do these S1 breakdowns in my newsletter. I'm not sure if you noticed this. You mentioned the word automation a staggering 115 times in that filing. Why is Wellfront so passionate about automation?
- [00:13]
B
It's core to everything we do. The way we design our products, the way we organize our company, foster employee culture. Today we have something like, I believe 55,000 clients per product support rep. We do a lot of incentives based on referrals. People were calling a lot because they referred somebody, but they didn't get the benefit for some reason. The engineering team built a way for it would be an automated thing versus people having to call in and talk to somebody on our team to get the incentive. That's what our clients prefer. They don't want to talk to somebody.
- [00:42]
A
The efficiency, it really shines through. I had to do a double take on this the first time I read it. So you have 90% gross margins. In nearly 50% profit margins, you generate more than $1 million in revenue per employee. As a CFO, you got to walk me through how you think about balancing efficiency with also the appropriate level of investment in your core.
- [01:03]
B
The two go hand in hand at Wealthfront. And you're not gonna believe this, but a lot of it comes down to, you guessed it, automation. So if we can't automate something, we won't build it.
- [01:13]
A
There are a lot of aspiring CFOs, current directors of FP and a listening right now in their car, nodding their head like, okay, this is the good stuff. Is this thing on?
- [01:26]
B
Yesterday's price is not today's price. Hey,
- [01:38]
A
Welcome back to Run the Numbers, the show where we talk with the world's top CFOs and finance leaders. I'm CJ, a tech CFO and my goal is to unpack the frameworks and operating principles that make you better at allocating capital and leading teams. On today's show, I'm joined by Alan Imberman. Alan is the CFO of Wealthfront, a leading automated wealth management platform that has built one of the most efficient business models in fintech. And they just IPO'd. In this episode, we go deep on automation as a strategy. Why Wealthfront is so relentlessly focused on automation. It appears 114 times in their S1 as word and how that shows up in everything from cost structure to customer experience building a compounding machine, how high retention, strong unit economics and trust create a flywheel that drives long term compounding growth. In the CFO perspective on efficiency versus investment, how Alan thinks about balancing nearly unheard of profitability with reinvesting and product and growth. I would love 40% EBITDA margins too. We also get into Wealthfront's decision to go public earlier than many peers. What's actually happening in fintech right now beneath the noise and Alan's operating philosophy, from writing memos instead of slides to knowing when not to automate. If you like the show, please remember to like and subscribe. It helps us with the algorithmic overlords. And if you're looking to hire the best finance and accounting talent, I'd love to help. I run a recruiting service that pairs you with thoughtful high signal candidates from our community of finance leaders who, for better or worse, voluntarily research net dollar retention calcs on weekends. If that's of interest, shoot me an email@talentostlymetrics.com and we can talk on to today's show with Alan Emberman. Alan, thank you so much for joining me on the podcast.
- [03:14]
B
Yeah, thanks for having me.
- [03:15]
A
Well, before we get into the S1 and all the nerdy stuff that people are here for, maybe you can give listeners the 32nd overview of Wellfront, who you serve, what you do.
- [03:25]
B
So we're a technology company at our core, and we use automated infrastructure to offer saving, investing and borrowing products that address the diverse needs of our clients regardless of the economic environment. And that's an important point. In terms of our product portfolio, our clients are typically the wealth builders of the digital native generation, which we define as anyone born after 1980. Our success and continued success will come from scaling trust. And what's a little bit different about that is unlike traditional advisors who rely on personal interactions to build trust, we use a digital first approach to earn trust. Our business model, you know, is aligned with the success of our clients. We don't make money by driving transactional activity, but by helping our clients build wealth over time. And we believe, and have since 2011, that a digital solution can not only replace but eventually exceed the capabilities of a human advisor.
- [04:22]
A
Alan, I do these S1 breakdowns in my newsletter. You'd kindly said before that you actually read it, which I always get the feeling like, oh, I hope they liked it. But I'm not sure if you noticed this, but you mentioned the word automation a staggering 115 times in that filing. Why is Wellfront so passionate about automation?
- [04:40]
B
It's core to everything we do. The way we design our products, the way we organize our company, foster employee culture. And it's also core to our client first business model. So the automation allows us to Be a low cost producer in the markets we serve. Not always a low cost provider, but the low cost producer. And that's important because we share the savings directly with our clients. They get lower fees, they get lower borrowing rates, higher interest rates on their cash. And that improves their financial outcomes, which ultimately builds trust. Going back to the point I made earlier about trust being the most important thing we do. It helps retain and grow clients trust as well as grow with our clients. They give us more money, they adopt more accounts, and most importantly, it leads to word of mouth growth. Word of mouth growth is more efficient, it's higher quality. And this all leads to a model that can scale profitably to earn very high profit margins which we can use to reinvest back into the business, which is really important. So automation kind of underpins all of that and it's important to do so. And we think that the business models reinforce the culture. And so it's not just something that our engineering teams do. My team focuses on automation. We celebrate cost savings at like all hand company weekly meetings. People get up engineers, it can be anybody in any category will get up and say we automated something. And you know, now like, you know, a person doesn't have to do something as much manual tasks which ultimately saves company money. And sometimes there's real tangible dollar values of something we've automated.
- [06:14]
A
Wait, can you give me an example of something that somebody's brought up as an efficiency gain, a cost saver? Is it more than like we brought our lunch to work today so we don't have to all get sweet green delivered.
- [06:24]
B
Our VP or our head product support who reports to the VP of product comes to our weekly staff meeting once a month and he talks about all the tickets that our product support team is getting. Sure calls and all those things. And we'll look at the 8020 on that and we'll assign an engineering team to develop a solution so that we don't have to throw people at the problem. Which is why today we have something like I believe 55,000 clients per product support rep. And so one of the more recent ones is we do a lot of incentives based on referrals and people were calling a lot because they referred somebody, but they didn't get the benefit because for some reason, you know, maybe the person didn't sign up through the right channel or something like that. And so the engineering team built a way for the there to be like a code or something so that it would be an automated thing versus people having to call in and talk to Somebody on our team to get the incentive, which dramatically reduced our client context. And for our purposes, that's what our clients prefer. They don't want to talk to somebody. So anytime we can automate something and make it such that they don't have to talk to somebody, it actually not only helps us from a cost perspective, but improves the client experience.
- [07:36]
A
That's a wonderful example. I appreciate you making that real for me and the efficiency, it really shines through. I had to do a double take on this the first time I read it. So you have 90% gross margins in nearly 50% profit margins, which I can't believe is a real thing, and you generate more than $1 million in revenue per employee. As a CFO, you got to walk me through how you think about balancing efficiency with also the appropriate level of investment in your core business.
- [08:04]
B
Well, I think the two go hand in hand at Wealthfront. And you're not going to believe this, but a lot of it comes down to, you guessed it, automation. So if we can't automate something, we won't build it, and we have shut down things that we couldn't automate. Automated infrastructure is really the only way to deliver financial products at scale while lowering cost. And so the added benefit, as I mentioned, that we get is people prefer that experience. Digital natives, our clients prefer that experience. And because we automate everything we do, it's less of a decision on efficiency when we're talking about investment in the core business, but investment in the core business and investment in new businesses. And so really, our decision around product prioritization is more of what we call optimization versus exploration. So how much of our resources are being used to continue to optimize the core business versus exploring new areas? And that's really what I think, because we focus on automation in everything we do. The efficiency part is already embedded in even exploration. It's definitely more of what should we be exploring?
- [09:09]
A
Can you say more about that balance of optimization versus exploring? Because a lot of teams get super excited about the next shiny object, something net new that they haven't done before, which to a cfo, it's like, okay, that's cool, but there's going to be this cash outlay. There's both technical risk and execution risk to it. But we also have this thing over here, this platform that is ripping. We could continue to turn the screws on that and make it a little bit better. How do you size up those bets?
- [09:33]
B
Well, a couple of things. I mean, we believe that management teams need to be ambidextrous and you need to kind of make sure that you are optimizing the core while also thinking about the next kind of leg of growth. We, I would say, benefit from a very important set of data. So when clients join Wealthfront, they typically link an account to fund and deposits. But then we have a financial planning experience called Path where you can link all of your accounts, not just your Wealthfront account, but your mortgage, you could link your credit cards, you could link your 401k, your RSU is if you're at work at a public company.
- [10:09]
A
Wow.
- [10:09]
B
And so we see all of this data on a lot of our clients who do this. And instead of people's stated preferences, we see their revealed preferences. What are they actually doing with their money? And that gives us a little bit of a cheat code on our roadmap because we can see what people are actually doing with their money and therefore we de risk what's the next thing we should explore. So mortgage Wealthfront Home lending is a really good example of a recent example of this. We had this with cash accounts actually back in 2018 when rates were above 2%. We saw a lot of people sitting in zero interest paying bank accounts and in our data and we thought, well, what if we created a product that paid a high interest rate which people have forgotten those even existed because rates had been zero for so long. And that's what led to the insight of doing the cash account, which has obviously generated a lot of success for us. Home lending, I want to say it was November of 23. We started allowing people to do wires through Wealthfront, but only a certain type of wire, first party wire. So wires to your other accounts in your name, but one third party type, because we dealt with it a lot, which was title and escrow companies. Well, once we allowed that and we only charged $10 initially, well below what your bank would charge, it's now free. We realized that our clients send a lot of wires to title and escrow companies, even in a high rate environment. Why? Because they're, you know, getting to the age, our average age is around 35. They're starting families, they need to move out of their small apartment in the city and they have to buy a house regardless of rates. So we reported last year, last calendar year, we saw $2 billion of wires to title and escrow companies using Wealthfront to send the wire. That's a multiple that happens off of our platform. So if that's a 20% down payment, then you're seeing something like $10 billion of homes being bought, of which, you know, $8 billion of loans are being taken. And so that led to the insight where we decided to get into home lending as an example of an exploration we've wanted to do for a long time. The digitization of, of mortgages became, you know, super fast tracked after Covid, which was one of the restraints we have had since. You know, we thought about this and kind of late 2018, that came to pass. And then we saw the data which, you know, led to the next kind of conviction in, in actually building something, which we're early on in our journey right now. But, you know, we, we believe our, our hypothesis is going to be validated based on what we've seen so far.
- [12:38]
A
Alan, this example hits home for me. So we about a year ago purchased a home in Connecticut. And for a while I've used Marcus because they have a higher interest rate to have my savings there. And I'm like, great. I got to the point I can make this 20% deposit. And so we go to close and I go to wire the money. And I can't wire money out of this account. So I had the benefit of having the higher rate, but I'm like, I can't get the money out. So I had to wait, we had to wait another two days for the money to get to my bank of America account so that I could then send it to the title and escrow. So I love how you followed the customer journey to figure out what you should add to your product roadmap based on real use cases.
- [13:15]
B
And we've even, because of that exact use case, made wires even happen faster. You know, the large wires sometimes take a long time to process, but we want to make those happen fast, especially when it's to a title and escrow company, because we know that that's. You know what people, It's a very nervous part of the closing process. It's like, did the wire go through? Do I own this home now?
- [13:33]
A
Like, I love that. Hey, thanks for listening. We'll be right back after a word from our sponsors. Being a cfo, you know how much I love tools that actually make the lives of accounting and finance folks easier. One of my favorite tools right now is Rilit, the AI native erp going head to head with Netsuite. Yes, someone is finally doing it. I met Rillet two years ago when they were still in stealth. Since then, they've absolutely taken the finance world by storm. Their mission is to make the zero day close a reality. And they're actually doing it Customers are literally closing their books at 1:35pm on the first day day of the month. They've got everything you need to scale your business. Complex revenue recognition, native integrations, custom reporting, multi entity close management, and much more. They're only a few years in and are already supporting Nasdaq Publicly listed companies. Yes, seriously, if you want to scale your business on an ERP that wasn't built in the 90s, you need to check out Rilit. Book a demo@rillit.com CJ oh cool, that's me. That's R I L-L-E-T.com CJ R I L L E T.com CJ Tell him I sent you there Scaling a tech company is thrilling. It's also really, really messy. Just ask anyone who's done it or anyone who's tried. Better yet, ask ey. They've seen startups at their best and in their most fragile moments. EY knows you don't start a company to burn cycles on regulatory hoops, discounted cash flows, or the fine print of SEC Form S1. Although you probably do know I love myself a good S1. If you've listened to or read my stuff long enough, you can't ignore these things. That's how risk compounds kind of like negative interest. What you can do is work with EY from day one. They'll help you get it right early and often so you can stay in builder mode and keep the trains running on time. EY shape the future with confidence. Learn more at ey.com techstartups that is ey.com techstartups Let me ask you something. If your board wants financials, would you be certain you're not wasting money on SaaS? Or if a major renewal hits, would you know if you're paying a fair price? Your vendors would see thousands of deals per year, but most finance and procurement teams see see one deal at a time. That's a tough way to negotiate. Spendhound fixes that intelligence gap. It's one place to track all your software spend and gives you pricing benchmarks across more than 10,000 SaaS and AI vendors. And it's based on real spend data from over a thousand companies. SpendHound connects to your financial systems and shows every software dollar you're spending. Contracts, renewal dates, overlapping tools, nothing quietly auto renews and you don't pay twice for duplicate tools. Spendhound is the number one rated SaaS system spend management platform on G2. It's trusted by teams at ZoomInfo, Hootsuite and Kit Free Forever. Wow. For SMB and only 10,000 per year for enterprise with 150,000 savings guaranteed. If you want to stop negotiating blind, go to spendhound.com that is spendhound.com trusted by over 1000 finance ops and procurement teams. I want to talk about your growth story because it reads much more product led than marketing led. And as a cfo, I'm curious how you think about the balance between product led growth and paid acquisition.
- [16:59]
B
So we're definitely a product led growth company. Our founder coined the term product market fit. Andy Ratcliffe and Delight, we think is the ultimate form of virality. Your clients become your marketing team. And for us, over the last few years, 50% of our growth in clients has come from referrals. Another 25% comes from organic. And this goes back to that flywheel. And because of that, you know, we're able to be profitable despite passing on most of the savings to clients. We do a baseline level of, you know, table stakes, paid marketing, SEO, social affiliates, but we have very strict guidelines around unit economics. And you can see that when you compare our level of spend to other players in the category, we send significantly less annually than firms will spend quarterly. But we do really lean in, and this is a part of the philosophy of product market market fit. When we see product market fit, you do want to lean in on paid to add fuel to the fire. And so we will do that. And we've done that with cash. If you know, although the numbers are small, there was a large step up in marketing spend from 22 to 23 to 24. But what we really prefer to do, and you see more of this both on our platform and others, is use incentives to reward what we call high value actions as a way to retain and really, you know, what we think is more effective way to grow with clients. And it's another way of sharing savings with clients by essentially giving them incentives. So in the form of a boost on your cash account if you refer a friend, or a boost on your cash account if you do a direct deposit and open an investment account, which is something we recently announced that we're doing, we think not only are they more effective than traditional paid marketing, which our clients, again the wealth builders within the digital native generation, are hard to reach. They have ad blockers, they pay to not receive ads on connected TV or social media. And so they're not as easy to attract in traditional paid marketing. And so incentives are a great way to pay them when they provide an action to Us and there's really great attribution to that. The ROI is not a mystery when you only pay out an incentive when someone provides you money or does the action. Whereas with traditional paid marketing, you know, there's a quote from, from somebody, I heard it, Warren Buffett say it at a shareholder meeting. Half the money you spend on advertising is wasted. The trouble is I don't know which half. Right. So we're very much, we do paid, but it's a much smaller because we think product led growth is the best way to grow. And you know, that's what we've done since inception.
- [19:32]
A
This is so cool to discuss because sometimes people think of marketing in this binary, black or white. Well, are you spent spending on like events or demand gen? It's very easy to see that. But these direct incentives, it's brilliant because you know who you gave a $20 incentive to because they took an action. It's directly attributable. A lot of it reminds me of when PayPal first started out and I think they would give you $20 if you referred someone who set up an account and then that person would get $20 too.
- [20:00]
B
Yeah. And when we first started, we modeled our investing incentive off of the Dropbox idea. If you recall, when Dropbox started out, you would get 2 megabyte of free storage for every person you referred. Our initial very first incentive was if you referred someone and they signed up, you would get $5,000 managed for free. And you could stack on, you know, stack that with no limit. And that was kind of the very first kind of incentive we ever used. And now today we have various forms of incentives, whether they're deposit matches, interest rate boosts, things like that.
- [20:35]
A
So we touched on retention there for a second. But correct me if I'm wrong, I read this crazy stat in your S1. You've had net dollar retention of more than 120% for 11 straight years. What's your, what's your philosophy on compounding?
- [20:49]
B
The philosophy on compounding is that is the fundamental engine of our business. It's a financial force for both our clients and a strategic moat for the company. It requires a long time horizon and the discipline discipline to prioritize endurance over rapid flash in the pan growth. And endurance is actually one of our four company values. Compounding is the reward for endurance. And by focusing on the long term, we ensure that every decision we make today improves the company's trajectory for years to come. And it goes back into that trust element because you know, in order to, for someone to stay with you for a very long period of time and enjoy the benefit of that compounding, both for them and for us. And you can't violate that trust. It takes forever to build up and it takes only a second to lose. And so compounding is extremely important to the growth of our business. And we would much rather prefer to compound and continue to grow over time than have these like really huge spurts of growth that are then followed by potential declines in growth. Because compounding, as you know, works a lot better when you, you know, avoid losses.
- [21:53]
A
You were private for a really long time, now you're public. Do you think having that long term philosophy on compounding is harder in the public markets? It sounds like internally you talk about, you talk about the company in years and decades and now you get to do quarterly earnings calls.
- [22:08]
B
Yes, this is a very good point and maybe perhaps something that I should have known better. But if there are any other private CFOs or future CFOs listening. The biggest thing I learned throughout the process is for companies who do truly think long term, you're always going to have a fundamental mismatch with investors who, you know, either due to their performance payouts or any kind of structure in which they invest, are going to have a much shorter term horizon than the company. And so, you know, we, there are ways you can control for that. We don't provide guidance. That was a specific decision we made and, you know, we are very clear and authentic about. This is our mindset and this is something we're going to, you know, when we make decisions, we're going to think long term even in the face of, you know, whether or not the stock price is up or down. We're still going to continue with that mindset because again, our opportunity is measured in decades. We're growing with what's going to be the largest and wealthiest generation on record. We estimate there'll be worth $140 trillion in net worth by 2045. And that's without the generational wealth transfer. And so, you know, I think there's somewhere around $18 trillion today. So why would you sacrifice some short term decision, you know, when you can enjoy that benefit of compounding over time? But it is a difficult conversation and a difficult way to run the business when you're working with public minded investors who do think in quarters and you know, a year is a long time in some cases.
- [23:41]
A
I have to applaud you for sticking to your guns on not providing guidance. I've heard a lot of CFOs say, you know, we would love to not do that, but the pressure just becomes too much and the expectations of what the norm is. How did you come to that conclusion that that was the right path?
- [23:57]
B
There were some others in the industry. So Schwab used to not provide guidance.
- [24:01]
A
Good point.
- [24:02]
B
They do now. I think it's probably because they're larger and it's a little bit more predictable. We do provide, in lieu of that, monthly metrics. So we're actually providing instead of guidance, we're giving you right after the month, you know, let's call it 10 business days, give or take. We'll produce what we think are important monthly metrics that we look to run the business by so that you have up to date data. And my thinking was, you know, that will create some volatility within the quarter, but should get consensus closer to where you're actually going to end up by the time you report the quarter and, you know, avoid any surprises. The, the earnings treadmill to me just seemed like something that is really bad for many different ways. One is if you beat, you know, how much did you beat by? And then the beats become, okay, well, you got to beat by, you know, some additional amount because everybody expects the beat. And then it becomes a game. And that's not something that I think we want to run the company by. And the, the other thing that I thought was even worse is like, you know, employees trying to figure out ways to help the business meet the, you know, the estimates of Wall Street. And your guidance, because of something you said out there, which is again, when you're thinking long term, that's not the right way to run the company. And you don't want to create that culture where everyone's concerned about, are we going to meet guidance? And so we've tried to find a way to avoid that by giving investors what we think is actually more information and faster information. And even when we write our disclosures, you know, we try to write very transparent, clear disclosures, simple accounting, not taking the aggressive positions. Again, just as a way to be transparent rather than give guidance, which, you know, in a business that does have influences from the market, interest rates, the stock market, you know, that's a very difficult thing to forecast. There was a lot of variables that went into that decision, but we tried to find a happy medium that helped us run the business the way we want while also giving investors really good information.
- [25:58]
A
It's such an astute point that you may not realize it, but people within the company will try to optimize for whatever the local maxima is.
- [26:05]
B
That's right. They're all shareholders. Yeah, every employee at the company is, is a shareholder. And so it does help going back to that cost conversation and the automation because the benefits do accrue to them as well as shareholders. But then you have something like this where if you created guidance, you could also create a culture where it would personally affect them. If, if, if we put out guidance and we don't meet it.
- [26:27]
A
Hey, thanks for listening. We'll be right back after a word from our sponsors. If you're paying for A level finance talent, they shouldn't be doing B level tasks. CFO time is expensive. Senior finance hires are wicked expensive. And yet in many companies, highly paid operators still spend hours reviewing expenses, chasing receipts and reconciling systems that should already be automated. That's where Brex comes in. Brex is an intelligent finance platform that combines corporate cards with built in expense management and AI agents that automate the repetitive work finance teams usually handle manually. Transactions are categorized automatically, receipts are matched, policies are enforced in real time. Reconciliation just runs in the background. So instead of adding admin as you grow, you increase output per finance hire. Brex is already automating hundreds of thousands of hours of manual finance work every month across 35,000 companies including Anthropic, Coinbase and DoorDash. If you want your finance team focused on performance instead of paperwork, check out brex.commetrics, that is brex.commetrics. i've seen a lot of FP&A tools and a laugh is one of the few that gave me that aha moment. Within minutes I remember watching their founder shout out to Albert, connect my netsuite data and build me a full P and L live in minutes. Elephants now trusted by hundreds of leading companies. I've had the CFOs from Turo 8, sleep, Zapier and more on the pod and every one of them is a huge advocate. I also just published my second annual CFO Tech Stack Report and Aleph has been on the podium both years including a number one finish in the 50 to $100 million segment. This year, instead of being just another planning tool, they built a real enterprise grade data foundation for finance implemented at startup speed with AI native workflows woven into its DNA. All your systems, erp, CRM, hrs, ats, product usage and more. Powering one clean governed data layer that finance can actually trust. With AI moving as fast as it is, they're pushing even further. Mcp, custom AI chatbots, AI powered variance Analysis and the list keeps growing. Try it with your own data@getaleff.com run that is G-E-T-A L E P-H.com run tell him CJ sent you. So here's a pattern I keep running into when I talk to finance leaders at fast growing companies. You've outgrown the spreadsheets. You've probably outgrown your billing tools built in revreck. But you're not quite at the point where you can throw a 20 person team at the problem either. That's exactly the danger zone. Right? Rev owns right. Rev is revenue recognition done right. It handles the messy style stuff like high volume subscriptions, usage based contracts and mid contract upgrades. The things that break your ERP and the billing platform bolt ons. Here's the thing though. Your sales team isn't slowing down for you. They're closing ramp deals, usage commitments and mid quarter upgrades. And the longer you wait to fix the engine, the further behind you fall. So stop scrambling at month end and stitching together allocations across 3, 4, 5 spreadsheets to just have the numbers ready. Well, that's it. That, that's the whole pitch CFO is telling me it's like a glow up for the revenue books. That sounds like where you are right now, right? Rev is worth the look. Head to right rev.comcj that's right rev.comcj check them out. One thing that's just mathematically true in wealth management is there's a relatively small slice of the population that holds a really large share of the assets. How do you think about building for scale when the economics of the category naturally will pull you towards serving maybe a narrower wealthier cohort?
- [30:03]
B
Well, we do focus on the wealth builders, which is typically the 80% plus of the generation that. Well, the 20% that control the 80% of, of the wealth. I would argue that most businesses have an 80 20, whether it's 80% of the revenues or profits are coming from 20% of the clients. So I don't think it's necessarily unique to wealth management, but it's definitely, I would say the distribution is real in wealth management. What's interesting about our platform is, and it's different than I would say other brands or platforms that attract wealthier clients is it only takes a dollar to start with cash management. You can earn the same high rate as Someone that has $10 million in the platform. It only costs $500 to start with a diversified index portfolio, which you'll get the same low Fees. And the good thing about us is this platform we've built, the automation, the scale is such that adding another dollar on the platform incrementally costs us almost nothing. What we like to do is when we're acquiring clients, we want to pay for what we think are going to be likely client to look like our existing clients. But we do make wealth building accessible to anyone. But going back to what I said earlier, incentives are great for ensuring that we get what we pay for because they're structured in such a way that the more you bring, the more you pay. So that's another way of, of controlling for that. Even if you're getting clients that aren't bringing as much, you know, the incentive you're paying out is going to be commensurate with what they're bringing. And that also helps clients who have more money because they can see the value they're getting for bringing more money.
- [31:35]
A
That's a great way to look at it. So I think at this point people understand who you serve, what your technology does and how you automate. I want to talk about the choice to go public. You jumped into the public markets with 339 million in LTM revenue and the median of the last 15 tech companies was, was more than twice that. It was around 800 million. How did you as a CFO, think about scale as it pertains to making a leap?
- [32:00]
B
I think a lot of the companies prior needed to be larger to get profitable, whereas we've been profitable since 2023 and so we've also been, we think, in a strong position for continued sustainable growth. One thing that we wanted to do is one, going public was, you know, a branding event for us as an asset manager. To have our financials out there, we think is important for client trust. Again, to have a ticker, we think is important there as well. It wasn't necessarily a financing event because we had cash on the balance sheet with zero debt and we generate a lot of free cash flow. And we think that, you know, we've proven that our business can now be successful and grow in any macro environment. Which was probably the biggest hurdle to going public was making sure that we could grow, you know, predictably over any macro environment. And that was a result of building products across the risk spectrum to be positioned for whatever macro brings. It was never really an end goal of itself to go public, but it does help support our long term mission and continue to accelerate our pace of product expansion so we can better serve our clients. So that was really the thing But I think the size is something where, you know, we're able to be extremely profitable at a lower size. So that may have been a little bit of a different thing than what's happened previously.
- [33:21]
A
Yeah. It's only fair that if I measure the revenue size against the last 15 companies to go public, if I also measured just the size of your profitability, you're actually larger than most of them.
- [33:32]
B
True.
- [33:33]
A
Do you think people overweight the size of how big you should be in terms of revenue and top line? Does it make a huge difference? I know we touched on the point about giving guidance and you give other supplemental metrics on a monthly basis instead, but do you think size matters in the current IPO market? Just in terms of how a company trades in getting to a certain market cap?
- [33:53]
B
It definitely helps in terms of what large investors long only investors can purchase of your stock. So there's definitely benefits to size. I think if the business is ready to go public and you can go public, you know, you should take advantage of that if that's your goal and not let it hold you back. I think there are some, you know, people who say that size is important in some of the communities who are private company investors have an incentive to hope that you're much larger when you go public. We've proven it and there's companies I think that have gone public after us that are smaller than us or very similar size. I think it depends on each window. But you know, we have some much larger companies I think in the near term that are expected to go public and we'll see how they fare. But every IPO period is different. And I think that size, it's not inconsequential, but it's not something that can't be overcome, which I think we proved.
- [34:46]
A
Well, Alan, speaking of that window, Fintech's having a moment right now, isn't it?
- [34:50]
B
For sure there was many, many IPOs last year.
- [34:53]
A
Well, what makes it even more interesting is you went public alongside I guess louder, more cash burning companies, likes of a chime, bullish, circle Klarna and figure figure may be profitable if you, if you adjust out some stuff. But what's your take on just where fintech is right now and having a moment?
- [35:12]
B
Those companies, what I think was good about our offering relative to those businesses was if you look at another thing that we say in our prospectus, it's literally the first word is we're a different type of fintech. So I think that it really helped that one, our client profile is different and the way we monetize is different. Most of those businesses have a transaction oriented business model whereas we have an asset based model which is more aligned with the incentives of our clients who again look different than the clients of those businesses as well as the products some of them offer are more speculative in nature or a lending product versus many of the investors we spoke to. Testing the waters and roadshow meetings actually work. Either clients already or became clients. So it was actually a very expensive user acquisition roadshow. But why are a lot of clients and analysts actually the businesses have shown, I mean we're a good example of that. There's other, you know, companies that had gone public in 21 that are, that have been out for a while as well, that you know, these are great businesses who can scale, who are starting from a position of being digitally native to begin with which is where the rest of the industry is inevitably going to have to go. And so I think there's a lot of potential, there's a lot of technological innovation out there and so, you know, it's a great time for fintech. I think that it was a rough start candidly for pretty much all of these companies maybe except for one here. We like our position, we like the fact again that we're public. What it does for trust, which again is the most important thing for us and we'll see kind of how things progress from here.
- [36:48]
A
Alan, what are some of the other benefits that are maybe non monetary or liquidity related of going public? You mentioned trust. I know I'm trying to think of other companies that went public and had really good reasons for it. So I was talking to Howard Wilson of pager duty, he said at the time I think they're only like 100 million revenue. It was important as a key piece of security infrastructure for people to say hey, this is company is a going concern. You can see their financials, they're legit. They, they adhered all these governance procedures. I remember speaking to Matt Newcomb of Chime and he said that it was a great marketing event for people who day to day interact with the brand just to get the brand name out there and have some publicity. How, how do you weight the value of going public other than just being able to trade shares?
- [37:32]
B
I would say those are all great benefits that I would include. The other one is the discipline of being a financial, a publicly traded company. So there's a lot of companies and it's been somewhat popular to stay private for longer. We are of the opinion and our founder was always of the Opinion that going public puts a lot of discipline into the business, both from a controls perspective, from an audit perspective. You have Sarbanes Oxley, which you'll eventually be subject to, depending on your size. How however that will come about, that's something else that, you know, if you embrace it, I think is a benefit for your business, especially in a regulated business. And so that would be another one that I add that maybe not everyone would agree with, but it's something at Wellfront we believe in.
- [38:16]
A
Cool. I want to transition to talk about your management philosophy and some of your career lessons along the way. And so I saw that one of your operating preferences, Alan, is writing memos over slides, which I do have to admit, made me immediately trust you more. Why do you prefer memos?
- [38:33]
B
Yeah, this is something inside of Wealthfront. We're a written culture. We have board memos for every board meeting. So I do the onboarding for the business model. And it used to be a slide presentation when I first started. And in some ways it was selfish on my behalf to write it as a memo because the reason I like memos much better and, you know, somewhat stolen from the Jeff Bezos Amazon six page memo framework, is that it forces you to articulate what you really want to say and understand it. People can hide behind bullets, they are lazy. And so we like that approach and, you know, again, making them concise too. So it's not a super long memo. So it takes out all the, the, you know, fluff you got to write concisely and it just really forces you to think deeper. And the other benefit is it helps you absorb the information. Whereas with slides, you know, you just put a few bullets and you can really throw those things together very quickly and not actually understand what you put on there. The old lesson of like, you don't understand something until you can explain it. Writing is definitely the ultimate form of explaining something.
- [39:42]
A
And what's the other one? Sorry, I didn't have enough time to write you a shorter letter.
- [39:45]
B
Yeah, exactly.
- [39:48]
A
What's your preferred length for a memo? Are we talking six pages, one page?
- [39:52]
B
Yeah, six pages is the max. I like to do less if possible, but six page max is the preferred length.
- [39:58]
A
So your first job out of college was at a hedge fund and it sounds like it was much less automated and definitely there wasn't a lot of AI back then. What did that experience teach you that you still carry with you today?
- [40:10]
B
I worked at a long, short hedge fund, very small, right out of college, was the first full time hire under the PM and he did not believe in any outside research. And given our size and just the where the tools were at the time, you know, we didn't have Bloomberg, we didn't have cap IQ and so we didn't have analyst reports. What we did was we literally printed out 10Qs and 10Ks and spread them in Excel and then had to read the 10k and produce a memoir that looked at the most fundamental areas of the business and focused on the kind of first principles, unit economics. And so I hated it at the time. But what happens is while you're spreading financials, you're absorbing the information kind of subconsciously and you start to learn to ask the questions because you see like, well, these one time items are actually not, you know, non recurring. It seems like they're, you know, every year there's, there's a non recurring item or like, wow, there was a big leg of growth up or there was growth down or profit went up or down. It's if you just type a ticker symbol in and the whole spreadsheet just populates like magic, you lose all of that absorption of what's happening. And so I kind of compare it to, you're hearing what I say but you're not listening. And I think that you know, both with the tools like I mentioned as well as, you know, the, the kind of everything that's proliferating with AI, you can lose a lot of that. And I, I fear that a lot of people who are now in college or you know, starting their careers are going to over optimize on showing what they can do with all these new tools and they're going to actually lose out on not really absorbing information, learning how to learn what questions to ask. I still do things today that are pretty manual on purpose and very early on in order to scale, you need to do things that don't scale. And so I think that's important.
- [42:09]
A
You said it so well earlier, Alan, that I don't know what I think until I write it down. There are a lot of people with AI now who are not writing it down. So you wonder how much they actually think about it.
- [42:21]
B
When you get into an interview and you know, you say you've done something because you did it in an LLM, you know, model, but then someone asks you a deeper question, you're going to have difficulty explaining it if you didn't actually have to think about it.
- [42:33]
A
What I worry with AI too is it's very good at sounding convincing, but if you go like two derivatives further, you're like, oh, there's actually not much there there true. What's something manual you still do in your day to day?
- [42:46]
B
We still build our plan in, you know, sheets, Google sheets or Excel, which is pretty manual. But we like the kind of specificity we can get with building the model rather than again, you can kind of automate these things and some of the different providers will just look at your last 12 months and average that out. We want to get very granular in understanding every cost coming up with our drivers. And so we build our model and it's a, it's a pretty, you know, it's gotten better over the years, but it is a pretty manual process relative to what else is out there. And on top of that, going back to the memo framework, the other probably more important thing we do as part of building our annual plan is we write what we call a cheat sheet. So I think the most recent one is the shortest one we've ever done. And it's like 30 pages of both narrative and tables. But it explains the logic behind every, you know, revenue and expense item and how the model works. It's really useful for the management team to look at, but it also forces us again kind of back to why I like to write, to think through the logic of the model and is that actually the right way to do something? We know right away when we build a model it's going to be wrong. Like if it wasn't going to be wrong, it wouldn't be estimates. So what's more important is did we have the logic right? And so you know, when you're building the model, you can come through and you have these really crazy formulas, but when you actually write it down like this is how this vendor works, this important vendor, or this is how this part of the business works. Like when you actually write it down, you sometimes find like, oh, did I actually model that correctly? Or is it, does this sound right or is this a way good way to explain it? And so writing the cheat sheet, I would say is also something pretty manual that we continue to do and find a lot of value in.
- [44:29]
A
This is amazing. Okay, so how often do you update the cheat sheet? Do you do it once annually when you make the plan, do you update it on a quarterly basis as you toggle stuff?
- [44:37]
B
We're rolling forward our plan every month. We produce it twice a year. So that would be kind of the biggest updates. But every time we're rolling forward the plan or the forecast, we are going to make sure if something material change that we also Update the cheat sheet. But the biggest updates come twice a year.
- [44:55]
A
Take me into something on the, on the cheat sheet. Like would you say, hey, we were thinking about running a new incentive program. Spoke to the CMO about this. Also got input from product here. Like the assumptions behind how much we were willing to spend at the time. Is that the type of stuff you would log?
- [45:10]
B
What we might have is, for example, AWS is a big expense and we may be migrating something from on Prem to aws or we're putting some different type of thing we built into AWS where initially the expenses are going to go up for the first few quarters and then the team is, you know, going to. We've talked to the team and they plan on doing some optimizations that will lower the cost, which is why our driver may go from, you know, X cents per client to Y cents per client. So that's something we would have in there. You know, when we open up with our cost of goods sold section, we write a paragraph that explains, you know, the way we've built the business is such that most of our costs are fixed because we, you know, use engineering resources to build most of our capabilities in house. So there's a much larger fixed percentage. So we've only modeled what we think are the variable ones and we, you know, use drivers based on what we, you know, what we think are the right drivers. And we selected those drivers because of this.
- [46:09]
A
There are a lot of aspiring CFOs, current directors of FP and a listening right now in their car nodding their head like, okay, this is the good stuff. So thank you for sharing that.
- [46:19]
B
You're welcome.
- [46:20]
A
Alan. If you think back on your career of how you would build financial models when you first started out versus how you build financial models now, what do you think has changed the most?
- [46:28]
B
Well, because we still use Excel, we haven't changed much. I would say that another good tip that you can do when you, if you're having trouble with a very complicated Excel formula, large language models can actually help you identify your errors, which is nice. The thing I would actually tell myself is it's good to be detailed, but don't lose the forest for the trees. The model. I think I didn't appreciate the idea really until probably 10 years ago during my professional MBA program that the planning process is really more to foster a discussion about the future. The actual plan itself, the numbers, like they're good to know, they're directionally should be correct. But what's really happening is you're having a forcing function to look out the next year and three to five years, have deep conversations with key stakeholders and find ways to, you know, understand what's going on in the business and what can be improved and you know, these different areas of exploit or of optimization and, and exploration. So that's probably the biggest thing I've probably learned that I would tell my younger self is like, don't get so in the weeds and everything has to be, you know, so precise. I think what you're really the benefit of this is now that you are having these conversations with people, having deep, meaningful conversations, helping with the prioritization process. And that's probably what I've learned.
- [47:45]
A
I think when I first started out my career, I w. It was intoxicating to have like 30 different variables and think that I was going to get style points for putting that all into a model. And then the older I've gotten, there's still rigor behind it, but it's identifying the five variables that are most important and spending the most time on them.
- [48:02]
B
Yeah, if again there's, you know, 80, 20 on everything. So within, you know, your model, there's probably like you said, a few inputs that if they those are the most sensitive inputs, everything else could be, you know, off by a pretty wide margin. But if you get those three things wrong, you probably move the model quite a bit. So first identifying those things and then seeing the sensitivities on those and what you can do to control, improve those is probably also really important to understand.
- [48:29]
A
Alan, I'm going to take you into we call our long ass lightning round. So the first question I asked every successful CFO on the podcast is what's something you've messed up on the job
- [48:39]
B
before getting back to modeling? The one that comes to mind happened very early in my wealthfront career. It was not de annualizing a fee rate. So for example, Instead of earning 50 basis points annually, we were earning 6%, which is in a business where, you know, as you're met mostly metrics. Breakdown of our S1 shows we're earning 40 basis points. You know, 6% is A. Is going to be a huge, it's going to show a huge step change in the business. And I didn't notice it right away because I was not the CFO at the time. I was very deep into the model and missed the forest for the trees. It should have stood out to me. I didn't, you know, find it until later. I immediately called the CFO and the CEO into a room and was like very scared that I Would made a big mistake and was going to cost me my job. But you know, by essentially attacking the problem head on and admitting my mistake, it ended up being, you know, like, yeah, it's a mistake, there's nothing we can do about it. You didn't harm anything and thanks for telling us. And we moved on. But that was something that sticks out in my head is like I remember the room we were in, which office we were in.
- [49:42]
A
You remember the color of the wall.
- [49:44]
B
I do, but.
- [49:45]
A
But I mean, good job by you for letting the bad news travel fast. Cause I've been there with that pit in my stomach. I'm like, I do not want to have to make this phone call right now. Right. Alan, next one I got for you. If you could give your younger self advice, knowing what you know today, what would you tell?
- [49:59]
B
Yeah, this one's a little promotional, but I, I think it is the right advice, which is invest early to get that nonlinear compound growth started very early because it can, you know, an extra 10 years can have a huge difference on your return. And you know, don't be distracted by zero sum games, which is very easy to do when you don't have as much money you're looking for that lottery ticket. Stick to low cost, diversified, tax efficient investing. I think if I would have started earlier. We write about the benefits of compounding and reducing your fees. I wish I could have started earlier, but definitely get started whenever you can.
- [50:33]
A
Sage advice. Next one I got for you. Can you walk me through your finance software stack? What tools does your team use to get the job done?
- [50:39]
B
Yeah, we use NetSuite for sure and really like that solution. We use Bill.com, expensify. Again, all of these things are very easy to, you know, plug in and automate all of the different places you need to make your entries, which is great. The most recent one we've added actually, which is no surprise because we're now a public company, is Workiva, which helps you, you know, prepare filings and you know, in a very auditable way, collaborative way, upload it to the sec. And so those are probably just a few.
- [51:10]
A
Awesome. Last one I got for you, you've been at Wealthfront for a while now. What's the craziest thing you've ever seen someone try to expense?
- [51:18]
B
We have a lot because we have a wellness benefit and so people will expense everything from supplements to golf clubs to whatever the case may be. There's a limit, but they'll like apply it. But I'll tell you the Craziest thing is, so I started in October of 2015 and when I started the office I started at in Palo Alto, there was a bunch of lanyards on the back wall with reloadable cards to various coffee shops and snack shops around Palo Alto and you could go get coffee with people. You know, it was meant to go get a group, go get coffee and then if it ran out you would just load it and expense that it was not being tracked with any high level scrutiny. And right before year end we installed Expensify and I started looking at the numbers and I wrote the CFO at the time an email and I said, I estimate from just the past few months that we're on pace to spend over $100,000 on coffee annually. And we only had 120 employees at the time. I literally said we could hire a barista and pay for like really high quality ingredients in all the packaging and save money. She was also aware. And when we moved offices we took the cards away, which did not make people a fan of of me very early on. But we replaced it with debit cards that were strictly made for coffee shops and had a daily limit on them so we can control the cost. But I was absolutely amazed about the amount of money one could spend on coffee for such a small company. That's probably the craziest thing. And I remember very clearly.
- [52:51]
A
I mean it's not awesome, but it's an awesome story. Like $800 per year per employee. That's a lot of lattes, Alan.
- [52:58]
B
That's a lot of lattes. There's definitely a benefit to it, but that, that was, that was kind of insane. And at the time we were losing money too, so it was like, yeah, you know that, that was a lot.
- [53:07]
A
Alan, this has been an absolute blast to hang out with you. I really appreciate you coming on the show.
- [53:11]
B
No, thanks for having me, C.J.
- [53:12]
A
ear on the Numbers is a mostly media production yelling an intro by Fat Joe. Artwork by Meg Delesandro. Show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me. A guy who feeds his dog way too much ice cream and has a history of net operating losses. Lol. If you like this podcast, hit subscribe and give us five stars. It will take like two seconds and our algorithm overlords love it. Drink water, call your mom and have a great day.
- [53:40]
B
Peace.