10 Lessons from Schwab that Apply to Startups

1.     There is no job below your pay grade.

Charles (Chuck) Schwab implemented a light system to signal when customer service was overwhelmed with calls. The green light indicated operating at capacity with limited hold times, while the red light signaled to Chuck and the whole executive team to go downstairs to answer calls. Tweet 


2.     People will attempt to thwart your innovation.

Schwab created the first online order entry system in the brokerage business — BETA (Brokerage Execution and Transaction Analysis).  


  • Schwab brokers increased transaction volumes.
  •  Sophisticated controls increased quality.
  • Decreased costs.
  • Cancel and rebill rate (measure of trade accuracy) decreased from an average of 4% to 0.1%.
  • 24-hour service because of automation.

The main innovation of BETA was no paper order tickets. The NYSE challenged Schwab, citing how member organizations needed to save paper tickets for seven years. The NYSE reviewing team said they couldn’t grant certification without paper tickets. Schwab COO Bill Pearson argued the rules required saving paper tickets, but didn’t mention writing paper tickets.


  • Schwab kept their certification for BETA.
  •  Within two years, most other brokerage firms created comparable systems.

3.     Always look for ways to save money…but realize this may backfire.

  • In 1977 Schwab set up a telephone call center in Reno, Nevada. They saved money on the inbound 800 telephone numbers and payroll, because of the lower wage rate compared to San Francisco.
  • Schwab’s 800 numbers were idle at night. Outside telemarketers paid to use the phone line at night. 

Many of these telemarketers represented record companies — including Elvis. When Elvis died on Aug. 7, 1977, the phone lines were clogged with requests from fans who wanted to purchase his records. Schwab customers couldn’t contact Schwab for several days.


4.     Free doesn’t mean free.

Example: Schwab’s free stock quotes.

Fees Schwab incurred to provide the “free” quotes to customers:

  • Fees to the exchanges
  • Leased telephone lines
  • Leased terminal
  • Salaried broker
  • 800 telephone number

5.     Admit you may need help from others. It can help you win in the long run.

Schwab’s goal: to provide the world’s first automated stock quote system.
Challenge: Competing against Fidelity Investments.

  • Fidelity’s insisted on developing its own stock quote system.
  • Schwab focused on speed. They purchased and customized parts to create their system, and developed alliances with other companies.

Result: Schwab released their automated stock quote system eight months before Fidelity.

6.     Simplicity rules.

In 1984 Schwab released a personal financial software, “Financial Independence.” It was delivered on 11 floppy disks — one of the reasons that led to its failure.

7.     Sometimes it is beneficial to follow the intuition of others.

Schwab didn’t believe that branches would be successful for his discount brokerage firm. He was in need of funding, and his uncle Bill would only give him $300,000 if he opened a branch office — in Sacramento (of all places!).


  • Rapid increase in number of trades per day and new accounts created.
  •  80% of branch customers visited once to open an account.
  • By 2000, half of Schwab’s new assets were received through branches — even though most people interacted with Schwab via the Web.

Reasoning: People wanted to think they were close to their money.

8.     Develop a strategy to retain customers.

Schwab didn’t want brokers to build relationships with the clients, since brokers historically take up to two-thirds of their customers when they switch firms.


  • Distributed calls across Schwab
  • Hired as many people from outside the securities industry
  • De-emphasized customer relation management
  • Forbade soliciting

Schwab branch representatives aren’t focused on building client relationships and answering phones, so they have more time to provide financial planning advice.

9. Optimize value — don’t maximize it.

“Optimum body temperature for humans is 98.6 degrees Fahrenheit. Maximum body temperature will kill you every time.” — David Pottruck, Former Charles Schwab CEO


10. Be proactive.

After the 1989 earthquake, a Schwab employee remembered a city building inspector was in the building on other business. The employee asked for a safety certificate for 101 Montgomery Street.


·      Schwab was the only brokerage in downtown San Francisco open on the Wednesday morning after the earthquake. 

Source: Charles Schwab: How One Company Beat Wall Street and Reinvented the Brokerage Industry
By John Kador