Ep49: How To Know When To Pivot Into An Emerging Marketplace

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Join me as I talk with Yoni Assia from social investment network eToro. With a background in investing and developing, Yoni started his first successful company with his Army buddies and sold it to Kodak at the age of 26. Today eToro has over $30 million in revenue and is inventing a new marketplace combining financial tech, gaming and social media. Yoni lives in Tel Aviv, and he also discusses the startup explosion and how it stacks up against New York and San Francisco

Keypoint Takeaways:

eToro lets people share what they’re doing in real time when opening a brokerage account. Followers can see their statistics and results and help learn from the people out there who know how to manage their money.

eToro acts as a connector between savvy money managers and budding investors that can emulate the successes they see. Someone who looks at Yoni’s profile could see what they’re investing in, his track record and then invest a “1,000 zombie” to automatically open the same investments in your own portfolio.

Working much like a traditional securities brokerage, eToro and earns a commission out of the actual trade and did more than $200 billion in trade volume last year alone. Unlike many brokerage companies, eToro has no minimum commission and people could have a portfolio of investments with as little as $1,000 across 20 different investments.

People who become investment leaders on eToro receive a money manager fee based on how many people are emulating what they’re doing. The more people who copy what you’re doing and set up investments based on your profile, the more of a percentage you earn.

Tel Aviv’s startup hub

Yoni lives in Tel Aviv, a hub for startups and entrepreneurs. He compares his home to the fast-paced grind of New York and a melting pot culture. If you’ve lived in New York, it will be significant when you hear Yoni say it’s relatively calm in comparison to Tel Aviv.

Yoni shares that the tech scene has been exploding in his home city over the past ten years, and in the last five, Israeli’s internet industry has significantly grown. Before this period, there was a lack of financial technology and internet companies back in 2007 when eToro started. But Yoni could see its opportunity and pushed forward.

eToro’s primary market focus and main headquarters are in Europe with roughly 3.5 million users to date. The team attempted to set-up in the U.S. before figuring out it would prove too difficult to scale in both the U.S and Europe at the same time. Instead, they decided to focus on what was working.

Yoni says eToro is still just scratching the surface and despite their significant user volume, are still only 0.1% of the total market they could actually capture in Europe. Yoni knew it would be a huge undertaking to adapt their platform to the U.S. market and decided to first scale in Europe.

First 100 customers

To get eToro off the ground, Yoni brought in founding team members from the gambling industry. They got to work on developing their acquisition channels including an affiliate program, SEM, organic search, research and referrals and media.

But building a new marketplace and scaling an incredibly unique product hasn’t been all smooth. Yoni says a big struggle is always “understanding where you are compared to the market landscape and where your customers want you to go.” He describes the challenges of creating a product that’s both simple for people to use and understand and the complexity required to generate profit in the marketplace.

eToro embrace the idea of simplicity as the ultimate form of sophistication. It empowers people to set up a mutual fund and start earning a percentage. On eTrade, people need a high amount of equity to fund the business. eToro lets anyone come in and earn a percentage off of what they do best—managing their money.

eToro also simplified the process by launching with just seven stocks from main tech companies because that’s where they most interest seemed to lie. Yoni wanted to see how people could build their portfolios based on that. They also set up user feedback systems to get to the heart of what their customers wanted and tweak accordingly.

Pivoting to success

Yoni doesn’t hesitate to tell us they’ve failed a couple of times and constantly pivoted to get back on the right path. They failed in their marketing, acquisition and product.

eToro’s first patent was focused on gaming and organization of financial trading platforms that tied in with social gaming. But it turns out that platform was too over-simplified or over-gamified and switched gears to build a financial trading platform with more customer features. Before long, etoro was too much of a traditional brokerage so they went back to the social gamin gidea and created a network to copy one another and earn money from their expertise.

Yoni’s advice to his 25-year-old self is to never forget your customers. “Every decision you make, always remember who are your most valued customers.” If you’re going to make a big change, he advises that you ask if you still want your old customers. If you want to keep them, you need to figure out how to make sure they get what they want or cut ties and leave them behind.

Resources:

“1984” – George Orwell’s classic giving a chilling prophecy about the future. Though it as written in 1948, Orwell envisioned a nightmarish totalitarian, bureaucratic world and how it impacts individuality.

Transcript: 

Eric: Hi everyone. Welcome to this week’s edition of Growth Everywhere where we interview entrepreneurs and bring you business and personal growth tips. Today we have Yoni Assia from eToro which is a Social Investment Network where Facebook meets eTrade. Yoni, how are we doing today?

Yoni: I’m fine. Thank you very much. How are you?

Eric: Good. Good. Thanks for being on the show. Why don’t you tell us a little more about what eToro is.

Yoni: eToro is a social investment network. Basically think about people opening a brokerage account, but also sharing what they’re doing in real time, with everybody able to see their statistics and their results over time. We believe that there’s millions of people out there who actually know how to manage their own money while there are hundreds of millions of people out there who have no idea how to manage their money.

We are trying to connect between these people. People that can become popular investors can have other people copy their investments. If you look at my profile you can see what I’m investing in, my track record as a user for a couple of years, and then you can decide to invest a $1,000 zombie which means it’ll automatically open the same investments that I have in my portfolio in your portfolio. It becomes a path of money manager for your $1,000, or $5,000, or $100,000 that you decide to invest on.

Eric: Wow! Interesting. Let’s say I decide to join your investments. What’s the upside for you? Do you get a percentage?

Yoni: We’re a brokerage much like a traditional securities brokerage. We make money out of the actual trade, out of the holdings of the trades. Last year we did more than $200 billion in volume of trade. We charge mostly the spread—usually with no minimum commission. What’s interesting is people can actually have a portfolio of investments with as little as $1,000. You could have 20 different investments in their portfolio.

Eric: That’s great. I guess I might be kind of confused here. Let’s say I’m one of the greatest investors on eToro and I let people copy me. What’s the upside for me as an investor?

Yoni: Oh, for you. I thought you were asking regarding the business model of eToro. Basically you get a money manager fee based on how many people are copying you. If you have hundreds of people copying you with millions of dollars you basically will get a percentage of that from the management. What we’re doing is, we’re basically calculating it based on how many people are copying you. Depending on that you basically get a fixed amount every month.

Eric: Wow! That’s really interesting. This company is so interesting that I forgot to ask you my first question which is, normally, what is your background?

Yoni: I’m both a trader and a developer. I started both trading and developing when I was about 15. Throughout my career I was mostly a developer, first in the army. Afterwards I started a company with a couple of friends of mine from the army which was eventually sold to Kodak. I started eToro in 2006 when I was 26. Now am already an older, over my 30s.

Eric: Wow! eToro is a name, I kind of have a hint of what it means, but why don’t you explain the name a little bit?

Yoni: It’s actually electronic trading and order routing organization.

Eric: Interesting.

Yoni: No, not really. An electronic bull. Basically Toro is a bull in Spanish and E is for, obviously, e-callers.

Eric: That’s what I thought. You almost had me there. I know you’re in Tel Aviv right now and people think Tel Aviv is one of the top three, give or take, startups scenes. How does the startup scene in Tel Aviv compare to San Francisco?

Yoni: It’s hard for me to compare. I’ve been to San Francisco a couple of times, I’ve never lived in San Francisco. I lived in New York for a while. I think probably a bit different for a couple of reasons. First, there are a lot of Israelis in here Tel Aviv. It’s somewhat of a different culture than from the valley, probably. We’re learning a lot from the Valley. Investors coming from the U.S. and invest Israel, are bringing a lot of the U.S. wisdom, the value within their huge offices of Facebook and Google here. How does it differ? I think Tele Aviv is somewhat of a mix of New York, Silicon Valley, and Los Angeles. That’s the view for you.

Eric: Okay. Is it spread out like Los Angeles, fast paced like New York, and then a lot of tech companies?

Yoni: It’s fast paced like New York, definitely. We have a lot of foreigners. We have about 200 employees in eToro and a lot of them are not Israeli in origin. People from France, Italy, and I’ve heard before that Israelis are extremely intense. So, people are extremely loud and people are running. It’s very much a New York atmosphere. You have a lot of Israeli’s, actually, in New York.

New York is, I would almost say, calm relatively to a lot of the Israeli pressure. But we are on the beach. Tel Aviv is on the beach and it’s more spread out. From that point of view it is more like Los Angeles. There’s a couple of different hubs in the center of Israel. It’s on the beach, more spread out, lots of people in coffee houses on the beach, and it has the tech scene which is more like the Valley. That’s the combination I’ve done there.

Eric: Over the years have you observed that this tech scene has started growing rapidly and that’s why it’s ranked so high?

Yoni: Yes. First of all, the tech scene has been exploding over the past ten years. But more than that over the past five years, specifically the internet industry in Israel has grown significantly. I remember when we started seven years ago, we’re somewhere in the cross section between the internet and financial technology. Both were almost non-existent in 2007 when we started eToro.

I remember people telling me Israel is not good at consumer internet and there are not internet companies out of Israel, and you can’t build any financial technology out of Israel because we’re not New York, London, or Hong Kong. In the past seven years there’s been a huge transformation; a huge leap forward. We had a couple of billion dollar exits out here of internet companies. We got—there were more than 10 MNAs to Google and Facebook over the last ten years. A lot of basic knowledge around internet development, online marketing, and also a lot about finances merged here in the past seven years.

Eric: Wow! I noticed for eToro, it’s not in the United States yet. Can you explain what’s going on there?

Yoni: We’re focused in Europe. Our main headquarters are in Europe and we have about 3.5 million users right now, the majority of which are in Europe. People actually opened brokerage accounts from more countries outside of Europe, so we have; [DROPPED 00:09:02] Australia, and some business, both in Asia, and Latin America. But the focus of companies are Europe and that’s where we have the infrastructure of our brokerage and financial infusion.

We did go to New York, basically starting to set up eToro USA and at some point we figured out that it’s going to be a hard for us to scale the company, both in the U.S. and in Europe at the same time. Since we are already a 200 employee company we’re already significantly [DROPPED 00:09:44] effective in the financial institution. Scaling in Europe is the worst.

We’re still scratching the surface. Though we have significant volumes, and I should say, medium size company, but we’re still 0.1% of the total market we can capture in Europe. We looked to the U.S. and realized we should do some significant changes to what we’re doing; basically to our technology and to our platform, in order to adapt to the U.S. market. So, we said; first scale in Europe and go to the U.S. next.

Eric: Got it. We talk a little bit about revenues before you hopped on. What do revenues look like today? I think the description you gave is perfectly fine.

Yoni: We crossed, a couple of years ago, the $30 million and we kept on scaling from there. We significantly in the several dozens of millions of online users.

Eric: Great. Cool. I never heard of this model before. It sounds really interesting. Is anyone else doing something like this?

Yoni: There are different companies trying to approach the problem in different forms. I think in the U.S. we’ve seen interesting companies like Betterment from New York, Wolf [ph 00:11:19] from the Valley which offers wealth management 2.0. We haven’t seen anything significant in the U.S. of really building a social network of investors. One part of investors, who is Howard Linzdon, who is the CEO and founder of StockTwits. He’s an investor in eToro. And StockTwits, I think to some extent is similar to the feed and engagement on eToro, but not necessarily to the convergence of fact to an online brokerage. We’re seeing around the world, in some places, different forms of solutions merging to enable people to invest together and to enable people both to communicate with one another and to invest together.

Eric: That sounds interesting. There are similarities to Angel List here, if you know what I’m talking about.

Yoni: Yes. I know enough and actually my wife is running a company called iAngel which is a local angel institute in Israel.

Eric: That’s cool. We’ve got to have her on the show sometime. Tell me about user acquisitions. How did you guys acquire your first 1000 customers?

Yoni: Online marketing. We brought in—one of the founding team members came in from the gaming industry. He had vast experience in building, basically from [INAUDIBLE 00:12:48]. We have about, roughly, four main channels of acquisition. One is our affiliate program, its media, SEM, and the rest is organic SEO, and research and referrals. When we launched we already had those four main acquisition channels on hand. When we started, our main growth was done through both affiliates and through media lines.

Eric:                 Perfect. Obviously you scaled this company in 2006, you have 200 employees and you’re doing something really unique. What’s one big struggle you faced while going into business?

Yoni: I think one of the struggles of the business is always understanding where you are compared to the market landscape and where your customers want you to go. Though there is my brother, who is my partner and co-founder, always likes to use the same sentence of Ford, saying, “You can choose any color of a car you want to buy from us as long as it’s black.” I think we’re developing something that’s quite unique.

We’re not developing a product like a camera or TV or something that’s structured alone. That’s probably true of a lot of internet companies that are developing products over the internet. The utility function of what we’re doing is quite obvious. It’s finance. It’s basically an investment platform. There’s always a big challenge between simplicity; between how you create a product that’s very simple for people both to understand and use; to the complexity required to actually generate profit in the market in a consistent way that [INAUDIBLE 00:14:55]. So, one of the biggest challenges is always to engage complexity and features with simplicity.

Eric: So simplicity is the ultimate form of sophistication, yes?

Yoni: Yes.

Eric: Okay. Is there anything you can share with the audience in terms of how you’ve taken something sophisticated and made it simple? Is there any specific story you can share so the audience can get some ideas from it?

Yoni:  I think what we did generally in the platform is saying; what’s simple is mutual fund management. We’re saying: you don’t need something that is extremely difficult to set up a mutual fund. If you want to set up a mutual fund and have people being able to buy that mutual fund through eTrade you need a very high amount of equity to fund the experience team; structures, lawyers, accountants.

Where the point of simplification we’ve done, we’ve said; anyone can actually, if he knows how to manage his own money, can sort of have that mutual fund and tell other people what he’s doing. That sort of simplification created in the sense of; how simple can it be to actually manage other people’s money by only managing your own money and have people understand the risks? And what they’re doing is: managing their own money; not actually giving it to someone else, [like] to a professional that has professional liability on it. But they’re giving it to a friend or a colleague or a person who his own money to be able to do it. I think that’s the first level of simplification in the core idea.

We can talk a lot about which financial instruments we chose. Another example is when we launched we launched with just seven stocks. When we basically launched our stock investing platform we started by adding seven stocks of the main tech companies because we felt tech’s what’s interesting so let’s see how people can build portfolios based on that. That was oversimplification, but it was simple enough for us to actually launch something to see how people react to it.

Eric: Wow! The first part is you’re removing all these roadblocks that eTrade has had before, when it comes to adding all these things to put together a mutual fund, you removed that. You’ve dumbed it down in the beginning where you made it, “Hey, you only have these few to choose from.” At what point do you decide it’s time to expand from these seven stocks?

Yoni: That’s what I mentioned regarding, ‘you can choose only black as a color to the car.’ It’s really the level of listening to your customers, both from actually talking to them, but also from looking at the data and saying this product isn’t enough. Usually the answer there is either to kill it, add to it, or redesign it. A lot of these examples you need to add to it and when you start adding to it, you’re adding that complexity we talked about and then you constantly need to re-evaluate every feature on it, personal platform and then; do I kill it, do I add to it, or do I re-design it and simplify?

Eric: You bring up an interesting point. When it comes to user feedback, this is especially important in the early days. How did you go about collecting user feedback?

Yoni: We had a couple of systems to collect user feedback. We also, because we’re a financial institution, and our users actually deposit funds with us, and our lifetime value with customers is quite high. It’s in the hundreds of dollars so when a user deposits to eToro, his life-time value for us in the company is worth hundreds of dollars, then we actually always have support almost from day one. When you have that level of support and that level of engagement from users, you have to talk to them, hear their feedback and comment and re-iterate.

Eric: Got it. Straight up. Was there any point in time where the company was on the brink of failure?

Yoni: Always. We’ve failed a couple of times and we constantly pivoted to the right direction. Either failed in product or failed in the marketing campaign, or failed in our acquisition. I can say we try to celebrate failures, but it’s actually very hard for Israeli’s to fail and to celebrate it. We’ve seen a lot of micro-failures as opposed to macro. The first platform of the company was around a patent we wrote, about gamification, and organization of financial trading platforms that include social gamification.

Think about Four Square. We realized that basically the life line value of customers are low because they think it’s over-simplified or over-gamified. We had to pivot to basically build a full-fledged financial trading platform that included more features for our users. Then we realized we’re becoming too much of a traditional brokerage. We basically went back into social gamification creating this entire network allowing people to copy one another, to see what other people are doing. Basically adding to social ambience we lost [on] the first day that we launched the company.

We took a couple of stages. Now we’re at the point of realizing we’re going more and more towards bringing in great investors to eToro. What we really want at eToro is to find hundreds of people which have consistent profits, but are also diversified. So if you’re looking to invest in China, you really want to see the top ten customers investing in Chinese stocks on eToro to be able to copy them with the percentage of your portfolio. You actually want to do the same with Germany and the UK and everywhere around the world. Now we’re helping the eco-systems to diversify and qualify better financial measures.

Eric: Got it. One thing that really stuck out to me is you mentioned you pivoted multiple times. How many times did you guys pivot in total?

Yoni: I think there was, I don’t want to be misusing the word pivot. We changed the main product of the company and where we’re targeting it and the audience, I’d say, about three times. A lot of it is also circum-natural [ph 00:23:12] upgrading. We’re going to launch the beginning of next year something that’s already in Beta, which is eToro 2.0. You can call it a pivot from one point of view because it’s going to look different. It’s going to have a lot of different things, but it’s also some of the natural growth of a company.

Eric: These pivots weren’t so much of a pivot as you would describe in Silicon Valley where you’re totally changing your business model. This is more like where you’re upgrading as time goes on.

Yoni: It’s somewhere in the middle. It’s somewhere in the middle.

Eric: Okay. Got it. Perfect. Wrapping up here with a few more questions. What’s one piece of advice you’d give to your 25 year old self?

Yoni: Never forget your customers. Every decision you make, always remember who are your most valued customers.

Eric: What’s the story behind that?

Yoni: The story behind that is a lot of times—we talked about doing these changes. If you’re doing a significant change ask yourself, “Do I still want my old customers?” And then you need to understand you either want them and then your can’t forget them and make sure they still get what they want. Or, completely abandon them and understand you’re not going to see anything from them. There really isn’t a middle there.

Eric: Okay. Fair enough. One thing I always like to ask is; what’s one productivity hack you can share? For example, one thing I like to do when I wake up is I keep my phone far away. That way I have to get out of my bed to start my day. So, what’s one productivity hack you can share with the audience?

Yoni: I’m going to try that. Self-productivity or company productivity?

Eric: Let’s go with both. Let’s make it a two pronged question.

Yoni: Wow! Two. Company productivity is something that is actually quite popular. It might look like something that’s obvious in meetings. Making sure you group everyone in the company and talk to everyone in the company at least once every two weeks. I think that’s extremely important to be productive in the company, to over communicate to all ends. Self-productivity; take Ritalin. I don’t know.

Eric: Okay. I like the company one. I run a company too. We do our all hands, but we’re obviously much smaller than 200 people. When you have 200 people who are you doing your one on one meetings with? Are you only doing it with your managers? I’m trying to figure out what the structure is for your one on one meetings, because they’re very important.

Yoni: Right. One of the ways are usually my direct, which are the executives of the company, the VPs. I do group meetings as well, something I actually learned from Dick Costello. Just gather groups of people in the company to sit with me in the room, like 10-15 people and get feedback about what’s working and what’s not working for them. These meetings also explain to people that my door is open and they can always set up a 15 minute discussion with me whenever they want. I’m trying to meet, I think most of the people in the company within the frame of six months, but as the company grows, it’s less.

Eric: I’m assuming you might have some process where your assistant checks off who you’ve met with already and then you go to the next batch? Is that how it works to make sure that you don’t meet the same people?

Yoni:  Yes. And the group meetings of course. It’s managed by our HR, by our Human Resources department.

Eric: Perfect. Final question. What’s one must read book you can share with the audience?

Yoni:  Must read book. 1984

Eric:  1984. What’s that all about?

Yoni: Really? You haven’t read 1984?

Eric: I was born in 1986.

Yoni: Wow! You have to read that thing. I always read. But it’s a George Orwell classic. It’s a sci-fi book. It describes the future, which is 1984, but it was written in 1948. I won’t tell you the entire story, but generally it’s an efficient future—you are familiar with the term Big Brother, I assume?

Eric: Yes.

Yoni: That’s sort of invented the term and the idea behind Big Brother so you’re always watched. There’s the Big Brother and what’s interesting there is there’s two sides and the two sides are struggling, there’s this war in the background, and—you’ll just have to read it to understand why it was for me that book really changed my life and helped me understand that everything is relative.

Eric:  I’ll have to check it out. That’s a really interesting one that you recommend. Yoni Assia from e-Toro. Everyone make sure to check out e-Toro if you’re in Europe. Unfortunately it’s not in the United States yet. We’ll have to campaign for that. But Yoni, we definitely want to have you on the show sometime again soon.

Yoni: Thank you very much. Good luck to everybody.

Eric:  Thank you.