Industry disruption is the goal of every starry-eyed entrepreneur. Doing so is easier said than done. Within the financial industry, the most explosive disruption has come from the invention of robo-advisors.
By 2025, it’s estimated that robo-advisors will hold $16 trillion in assets. That’s three times more than the largest global asset manager BlackRock.
Platforms like M1 Finance, Stash, and Betterment have come to the fore. But how did they manage to disrupt such a huge industry known for its adherence to a certain way of doing things?
More importantly, what can the average entrepreneur learn from their rise to prominence?
1. Understanding Pain Points
In 2019, 50% of startups failed before they reached their 5th anniversary. Reasons included running out of money, poor research, and operating in the wrong market.
What this tells us is that most businesses fail due to poor management and a lack of understanding of their place in the world.
With close to 30% of Americans now self-employed, you need something to stand out from the market. Starting a business and rehashing what everyone else is doing will only lead to failure.
You need to understand the current pain points of your market. What annoys customers in that industry?
For robo-advisors, they instantly targeted the key pain point of cost. Traditional brokerages are expensive. Platforms like Betterment and SoFi Invest responded by eliminating most trading fees and, in many cases, cutting all management fees.
In an instant, they provided a solution to one of the most common industry pain points.
2. Target a Small Segment of Customers
Robo-advisors never set out to challenge the supremacy of large, established financial institutions. To put it simply, they would lose, and they know it.
Instead, they targeted a small, underserved market. The humble retail investor with minimal investment experience.
Retail investors make up about 20% of the market. The giants of the industry are more focused on high net worth funds. By targeting retail investors, robo-advisors were able to grow without getting crushed by attracting the attention of the sector’s giants.
Targeting a small segment of your industry, and doing it well, can yield far more growth than casting a wide net.
Too many entrepreneurs talk about changing the world and flipping an industry on its head. This seldom works. Instead, they’d be better served by performing a highly detailed microanalysis of their industry and spotting those underserved slabs of the market.
3. Create Content for a Niche
Robo-advisors are known for focusing more on traditional content creation strategies. This is because they know that their audience isn’t trawling Instagram or Twitter for them. They’re more likely to find them through a classic blog.
Investing more in strong, traditional online marketing with classic SEO tools has yielded them the publicity they craved. That’s where their audience is.
Again, cast a smaller, deeper net. Think about where your customers are. Just because social media marketing happens to be trendy doesn’t mean it’s right for you, for example.
4. Start Simple and Build Later
The average robo-advisor offers everything from customized investment portfolios, personal loans, and checking accounts. They’ve grown to become more than an investment platform. They’ve become financial platforms.
Yet these changes have only occurred across the industry in recent years. When they launched, they offered less than ten portfolios and a small number of asset classes.
What it shows is launching right now with a small, yet solid range of products/services can enable you to grow faster than trying to create a multi-purpose offering.
Start with a limited offering to test the waters, and only when you’ve experienced some success should you begin to expand.
5. Make Your Offering Accessible
It’s amazing how many entrepreneurs will spend huge amounts of time and money on a custom logo design for their company instead of investing in what they’re actually offering. Traditional brokerages fell behind the times and robo-advisors pounced.
What all successful robo-advisors have in common is a high level of accessibility. With these platforms, you can manage your investments on your smartphone or your computer. All it takes is a click of a button.
Plus, with so many automation features, robo-advisors have quickly become the ‘go to’ option for the average retail investor.
We live busy lives, and we are glued to our devices. Whatever industry you’re in, businesses must make their offerings as accessible as possible to the general public.
Even if you’re running a retail store, ask yourself whether your online store works on all devices. Can someone place an order on the bus with a couple of clicks?
Accessibility will make or break your business going into the 2020s. Neglect it at your peril.
Conclusion
You don’t have to be in finance to marvel at how well robo-advisors have disrupted an industry. Their strategies and the way they’ve shown an intimate understanding of Joe Public are what have made these services a success.
Apply these principles to your business and you already have an edge on your competition.
