Andy Rachleff, Co-Founder, Wealthfront
SHARING THE WEALTH
How Andy Rachleff, career venture capitalist, is opening up elite investment opportunities to the masses.
Andy Rachleff was in the middle of a meeting with an investment team, listening to them explain their process for generating phenomenal returns to the Ivy League school he was serving as a trustee at the time, when a light bulb turned on in his head.
What if he could build software that brought the team’s elite techniques to the masses? What if access to the advanced investment strategies usually reserved only for the very wealthy could be made available to anyone?
Ever since that day about 10 years ago, the career venture capitalist has been pursuing his dream of bringing sophisticated investment software to the public, and opening up a democratized pathway to prosperity. Co-founder of Wealthfront, an automated investment service, and a professor at Stanford Graduate School of Business, Rachleff truly believes in sharing the wealth.
And he’s got the resume and razor-sharp insights to pull it off successfully. In nearly a quarter-century of working in investment and backing some of the most influential names in the startup space—he even coined the term product-market fit—Rachleff’s learned that no success comes without authenticity, insight, and a willingness to take big risks.
Investing in Visionaries
Rachleff began his venture capital career at Harvest Ventures, after which he became a partner at California firm Merrill, Pickard, Anderson & Eyre. Ten years later, when two of the partners were looking to retire, those remaining had a difficult decision to make: Should they continue the franchise or become free agents?
They decided to part ways, but Rachleff and one of his fellow partners chose to team up with three other venture capitalists and build something new. In 1995, the five of them founded Benchmark Capital. During his decade-long tenure, Benchmark would fund recognizable startups such as Snapchat, eBay, Uber, Twitter, and many more.
Rachleff looks back fondly on this time in his life, particularly on the moments he spent with visionary entrepreneurs on the cusp of success.
“It’s so great to hear about the future before it happens,” he says. “When you meet someone who really has a compelling vision, it’s almost as though you can’t believe that it’s not going to happen, and that’s when it’s most fun for me. It was so exciting to hear how the world was going to change.”
But even in the midst of such achievements, Rachleff decided in 2005 that the time had come for him to retire from Benchmark. He had achieved remarkable success and invested in some of the most influential startups in the game, but now a new ambition motivated him.
Opening the Gates
When Rachleff first left Benchmark, he was chasing after a desire to give back, first setting his attention on helping communities that had given so much to him. He became a trustee at the University of Pennsylvania, his undergraduate alma mater, and took a position as a professor at Stanford, where he had received his graduate degree. He also started a cancer research funding initiative with his wife.
Then came that fateful day when an otherwise unremarkable UPenn endowment meeting would change his life and the world. Rachleff recognized immediately that the barrier to investment success for the masses was built on a lack of resources, which were inaccessible due to astronomically high minimum investments they required.
“Over my years as a venture capitalist, I had recruited a lot of people who joined companies that went on to great financial success,” he says. “After they’d had their financial success, they’d often come back to me looking for investment advice. I could never tell them to do what I do, because I was in the really fortunate position to be able to afford access to the best investment products and services, and even though these folks had made one to five million dollars, they still could not.”
Once he set his sights on making top investment resources accessible to the masses, it was just a matter of determining how best to execute his plan.
In 2008, Rachleff co-founded kaChing, the first iteration of a platform with a more democratized view on investing. KaChing was a marketplace of investment managers vetted with the same process used for Ivy League endowments, but with minimums decreased from upwards of a million dollars to just $10,000.
The new business didn’t take off the way Rachleff had anticipated.
In the year and a half kaChing existed in this iteration, it only attracted $35 million in assets, an amount Rachleff calls “a complete failure.”
To figure out what went wrong, they reached out specifically to people who had begun a kaChing application but left it unfinished, and asked them to share where the service had gone wrong.
The responses they received were remarkably similar. Rachleff says that nearly all replied with a variant of, “We would rather that you manage all of our money adequately and inexpensively than a portion of it superbly.”
He realized that, because kaChing was only capable of managing the U.S. stock portion of a person’s portfolio, it was more inconvenient than helpful. The bother of splitting up money across multiple platforms tipped the scales for many people, leading them to decide that the costs outweighed the benefits.
But Rachleff was not discouraged. He knew that no successful company gets it right on the first go.
“Just about every successful technology company you’ve ever heard of has pivoted,” Rachleff says. “They never succeed at the original plan. They all revise history as though that’s what they set out to do, but everyone pivots, and we are no exception.”
So he set out to revise his plan.
Finding a Good Fit
If you’ve heard of product-market fit, then you’ve already encountered Rachleff’s work. Product-market fit, a concept he coined and now teaches at Stanford, is the degree to which a product satisfies a demand in the market. Figuring it out is a lot more complicated than it sounds.
Rachleff says that the best way to know whether you’ve found product-market fit is to measure whether you’re generating exponential organic growth. In other words, are people banging down the doors to get their hands on your service?
If the answer is no, then either you haven’t found the right product, or you aren’t marketing it to the right audience.
“The only way that you can achieve exponential organic growth is through word of mouth,” Rachleff says. “And the only way to achieve word of mouth is if you truly delight your customers.”
This is especially true in the world of startups.
“When people ask me for advice on product-market fit, I ask them, ‘Do you uniquely offer something that people desperately want?’ Because unless they’re desperate, they’re not going to buy from a new vendor,” he says. “If there’s a good enough alternative, people will buy ‘good enough.’ They only will buy from the startup if they’re desperate, and the only reason they’re desperate is nobody serves their needs.”
And, according to Rachleff, serving that need isn’t just about adding features or tweaking what’s broken.
“If the minimum viable product doesn’t hit a nerve, adding more features seldom makes a difference,” he says. “It’s what we want to believe, but in fact, it seldom makes a difference.”
So rather than layering Band-Aids onto the problems with kaChing, Rachleff decided to listen to the feedback he was receiving and expand his initial idea into something far bigger.
And so, Wealthfront was born.
“The thing that people said they wanted was a lot easier to implement, and we built that prototype in about a day,” Rachleff says. “Within a few weeks, people were asking us, ‘Please, take my money!’”
At the end of the first year, they had $100 million under management. By the end of the second, that amount had reached $500 million. Today, Wealthfront manages about $11 billion in investments, over 300 times the amount kaChing ever did.
What began as an investment management service now offers automated financial planning and banking services. So whether a user is looking to invest intelligently, save for a new home, or start a new business, Wealthfront is a single platform where users can do it all. The fee is only a quarter of a percent, and that pesky million-dollar minimum that kept the general public at arm’s length? Wealthfront boasts a minimum of only $500.
Rachleff anticipates that the company will achieve positive cash flow in the not too distant future, and when it does, he hopes to donate any money he makes to charity. Rachleff’s vision, and his desire to give back, is being realized.
Looking Toward the Future
Today, Rachleff is the President and CEO of a wildly successful company with 150 people in his employ, and he is tackling head-on the question many founders wrestle with: How do you maintain that startup feel while moving into the future?
In the future, he hopes Wealthfront can be a fully inclusive, automated money-management software that does everything from pay your bills to top off your emergency fund.
“You won’t have to spend any time thinking about your finances,” he says. “You can spend your time on things that you most enjoy, whether that’s your friends, family, events, whatever, and hopefully we’ll be able to get there in another three or four years.”
He knows that the only way to achieve any big, impossible dream is to hire the right people and create buy-in for his vision.
Throughout Wealthfront’s history, they’ve raised $200 million, and Rachleff says that two-thirds of that is spent on personnel. Because they are based in the highly competitive Silicon Valley job market, the biggest challenge for a business that is still in the proving stages lies in recruiting.
Rachleff says the best way to overcome a challenge is to approach it differently from the competitors. So rather than reaching out to every engineer in town, he says they are explicitly targeting millennials who bristle at the idea of over-management, and want nothing more than to be left alone to their work.
Beyond management, he’s found the best way to attract new employees is to give them something to believe in.
“We’re looking for people who are missionaries,” Rachleff says. “We’re looking for people who really buy into our vision and our mission of democratizing access to sophisticated financial advice. Some of the best people like to be mission oriented.”
And hiring people who believe in and understand the vision is key to Rachleff’s management style.
“I try not to make decisions myself,” he says. “I think that leads to a bad culture. I’m much more consensus-oriented.”
Rachleff moves his desk every two weeks to sit with and get to know a new group of people, and believes that every member of the team should have an opinion and a voice.
“Our challenge is to push decision making as low as possible in the organization,” he says. “If I’m making decisions, we’re going to fail, because I’m not the closest person to the issue. If you think about the military, if the generals made all the decisions on the field, they would lose. They have to trust their officers and the officers under them to make a call based on what’s going on at the time. So my job is to try to provide context.”
Of course, this means that mistakes will happen, and bad decisions sometimes get made, but Rachleff isn’t afraid of a little risk.
“When you take risks, you’re going to make mistakes,” he says. “One of the things I preach to everyone in the company is that you’ve got to make mistakes. Just try not to make the same mistake twice, but it’s totally cool to make mistakes. If we make no mistakes, then we haven’t taken enough risk.”
Because without risk, Rachleff truly believes that there will be no reward, or at least no reward worth having.
“It’s not about the percentage of things that you do correctly,” he says. “It’s the magnitude of the things that you do correctly. You might only be right three times out of 10, but if those three things on which you’re right have a big impact, that’s far better than if you’re right 90 percent of the time on things that have little impact.”
“If we can be right, slightly more than we’re wrong, we’re way ahead of the game.”
Andy Rachleff’s 3 Ingredients for Success as an Entrepreneur
Throughout his years spent in the venture capital arena, Andy Rachleff has met with an expansive mix of entrepreneurs who all believed they had an idea worth investing in. However, he noticed that there were distinctive qualities that separated the dreamers from the doers, the wannabes from the gonnabes.
It is a commonly presented idea that the defining trait of a successful entrepreneur is perseverance against all odds. Rachleff doesn’t buy it.
“Perseverance is not what makes for success, in technology, at least,” he says. “I think that is a huge misperception.”
So what is it that makes for a successful entrepreneur? Rachleff shared three of the traits he would look for in a founder when deciding whether or not to invest.
While perseverance is important, what’s more important is education and insight into the field the entrepreneur is looking to revolutionize. How can a person without knowledge of an industry find a relevant pain point and address it in a perceptive way? He always looked for innovation backed by insight and awareness, not only of how things could change, but also of who they could change for.
The second quality is a willingness to take risks. “In order to build something big, you have to take chances,” Rachleff says. “Without risk, there’s seldom reward.” He has found that serial entrepreneurs, who build many small companies but fail to make a massive impact, are willing to take small risks, but that the entrepreneurs who create change are willing to risk it all. Of course, it’s important to make sure those risks are intelligent and made with care, but without an openness to going big, entrepreneurs won’t create the waves they set out to make.
The final and most important quality Rachleff observed in successful entrepreneurs was authenticity. Were they truly, to the core, the right person for the job? Did they really believe in what they were selling, and were they deeply motivated to bring it to the world?
“Were they authentic to the opportunity? Was their career focused on the thing they needed to do, or were they just making shit up?” he says with a laugh. Approaching any entrepreneurial venture with authenticity is the most telling marker of success.
- How to know when you’ve reached product-market fit
- The process Rachleff follows every time he builds a new product
- How to know when it’s the right time to launch a new product (or let go of a failing one)
- How to maintain a close-knit startup culture as the company grows
- Why perseverance does not lead to success in technology (and what does)
- What type of people he looks for and the three biggest things that make people to want to join his team
Full Transcript of Podcast with Andy Rachleff
Nathan: Let’s do it. All right. So, the first question that I ask everyone that comes on is, how did you get your job?
Andy: Which job?
Nathan: The job…I guess, how did you find yourself doing the work you’re doing today?
Andy: Quite by accident. So, I had been a career venture capitalist. I worked in the venture capital industry for almost 25 years, the last 10 of which were at a firm I co-founded called Benchmark Capital. And I had retired from that business with the intent of spending my time giving back, and I had decided to do so by teaching at my grad school, alma mater, which was Stanford Graduate School of Business.
I became a trustee at my undergrad alma mater, University of Pennsylvania, and my wife and I started a unique cancer-funding initiative. And one of my responsibilities as a Penn trustee was to sit on their Endowment Investment Committee, and the idea for Wealthfront came out of some of my experiences on that committee.
Nathan: I see. And, can we just take it back a step? Like, how did you…you founded Benchmark Capital, which is one of the largest VCs around. Like, how did that all come about? What led you to doing that? Were you running any businesses before or…?
Andy: No. I had been in the venture capital business for about a dozen years before, and I spent two years with a pretty crappy firm called Harvest Ventures, and then about 10 years with a firm called Merrill, Pickard, Anderson & Eyre, which was probably one of the top five firms in Silicon Valley in the early-stage investment arena.
And two of the five partners of Merrill, Pickard had reached a point where they wanted to retire, and that left three of us to decide whether or not we wanted to take the franchise forward or become free agents and just manage the last partnership to a conclusion. So, we chose the latter. Two of the three of us teamed up with three other people, one of whom had been a partner at another one of the top five venture firms that was in the process of winding down, and, together, the five of us started Benchmark Capital in 1995.
Nathan: Wow. And, just for the audience that haven’t heard of Benchmark, like, can you give us just an insight of some of the startups that you’ve been able to back and invest in?
Andy: Sure. eBay, Snapchat, Uber, Twitter, Juniper Networks, Red Hat. It’s a very, very long list of very successful companies.
Nathan: Yeah. And you decided eventually to…you said, like, semi-retire?
Nathan: And then you’ve become a co-founder of Wealthfront, and how…like, I’ve heard of Wealthfront, and you guys…I’ve heard of you guys on some other podcasts and I’m curious, like, how did it all start?
Andy: Well, one day I was sitting in a Penn Endowment meeting. The University of Pennsylvania endowment is about $12 billion. I think it’s about the seventh-largest university endowment in the United States. The premier university endowments are probably the best-managed large pools of capital in the world.
And the investment team was giving a presentation on how they generate their great returns, and it struck me that a lot of what they do is manual and spreadsheet-based, and that if you implemented what they do in software, you could actually deliver something that closely approximated what they did to the masses, thereby democratizing access to this.
And that was important to me. That hit a nerve with me because over my years as a venture capitalist, I’d recruited a lot of people who joined companies that went on to great financial success, and after they’d had their financial success, they would often come back to me looking for investment advice. And I could never tell them to do what I do because I was in a really fortunate position to be able to afford access to the best investment products and services, and even though these folks had made $1 million to $5 million, they still could not.
And that always struck me as wrong because they couldn’t afford the minimums. The best investment products have really high minimums. And so, when I was listening to the endowment investment team talk about what they do, it just struck me that if you automated what they do through software, you could serve all these people who didn’t have access to great investing.
Nathan: Yeah. Wow. And so, you started off as KaChing. So, you’ve taken a bit of a pivot since you started. Can you tell us about that?
Andy: Sure. Well, just about every successful technology company you’ve ever heard of has pivoted. They never succeed at the original plan. Now, they all revise history as though that’s what they set out to do, but everyone pivots, and we are no exception.
So, what we did initially was build a marketplace of investment managers who we vetted using the same methodology as the Ivy League endowments, and we also lowered their minimums from in excess of $1 million to only $10,000. Thereby attempting to democratize access.
Now, the good news was that in the year and a half that we offered that service, the managers that we had vetted and included on our platform, in aggregate, outperformed the market by 4% net of fees. The bad news was nobody cared. We only attracted about $35 million of assets over the course of that year and a half.
So that was just a complete failure. The good news, though, was that when we reached out to people who had started an application but had not completed it, we asked, “Why did you not go forward?” And they gave us a very consistent answer, which was, “We would rather that you manage all of our money adequately and inexpensively than a portion of it superbly.”
The KaChing application was really only appropriate for the U.S. stock portion of your portfolio, which should be only about a third. So, the inconvenience of having to split your money up into multiple places made it not worthwhile. Well, the thing that people said they wanted was a lot easier to implement, and we built that prototype in about a day, and within a few weeks people were asking us, “Please take my money.”
In the end of the first year, we had $100 million under management, at the end of the second year, $500 million, and we now have about $11 billion under management.
Nathan: Wow. That’s incredible.
Andy: It is amazing.
Nathan: Yeah. And, one thing that I find interesting…this is from my own experience as well, is when you do have a product and people are banging down the doors to get it, do you think that that’s like when you’ve hit product market fit? Because you said that, like, you’ve been exposed to some of the, you know, largest…you know, investing some of the largest tech companies in history, and you said many of them have pivoted.
Like, is that when you know you’re onto something, when people are really banging down the doors?
Andy: Yes. And the way that you can actually measure it objectively is if you’re generating exponential organic growth. I actually teach…I don’t know if you knew this, but I was the person who coined the term “product market fit.”
Nathan: No. I did…there you go.
Andy: And I actually, for the last 11 years, have been teaching a course at Stanford on the subject of product market fit. So one of the most common questions that I get is, “How do you know when you’ve found it?” And the best answer that I’ve come up with is, “When you’ve found exponential organic growth,” meaning it just happens on its own.
And the only way that you can achieve exponential organic growth is through word of mouth, and you’re only going to achieve word of mouth if you truly delight your customers.
Nathan: So, if we go back, even wind it back even further when it comes to finding product market fit, you know, for the startups that you have worked with, or when you’re teaching, you know, Stanford University students, like, when they’re starting their business, like, what’s a good process that you recommend to go through to find that product market fit besides just shipping and putting your product or your service out into the world and getting feedback?
Like, how many people do you recommend to speak to? Like, how often do you leave it? How fast should you know?
Andy: Well, there are two phenomenal books on this subject. They were written by Steve Blank and his disciple Eric Ries. The names of those books are The Four Steps to the Epiphany and The Lean Startup, respectively. I think of The Lean Startup as the New Testament and The Four Steps to the Epiphany as the Old Testament.
I believe Steve Blank really changed entrepreneurship by suggesting that we apply the scientific method to starting a business. You know, it’s funny, we learn it in third grade, we apply it to science, but no one had ever applied it to business until Steve suggested that we do that, where you create a hypothesis and run a series of experiments to test that hypothesis.
And then, Eric Ries wrote a book that made it much more accessible and much more understandable. And the basic theory is that you have to start with a value hypothesis, which is the “what,” the “who,” and the “how.” What are you going to build? For whom is it relevant? And, how do you deliver the product? What’s the business model for offering the service?
Only once you’ve proven your value hypothesis do you move on to a growth hypothesis, which is how you cost-effectively acquire your customers. One of the biggest mistakes entrepreneurs make is they focus on growth before they’ve proven their value hypothesis. And the other big mistake that they make is they alter the “what” not the “who.”
If you have a compelling idea that’s the result of a change that’s happened in the environment…without change there’s seldom opportunity, you shouldn’t change the product for what the customers you’re calling on want, rather you should find customers who want what you’re offering.
So you iterate on the “who.”
Nathan: I see. So, how are you applying this to Wealthfront, because you said once you guys pivoted from KaChing, you know, you guys are in a growth stage now, and you manage, you know, billions of dollars, tens of billions of dollars in assets?
Andy: So, what are we doing now, in that regard?
Nathan: Yeah. Like, how you…
Andy: Well, whenever we build a new product, we follow this process.
We literally create a hypothesis, a value hypothesis for the new service, and until we’ve proven that it works…and the way we prove is through exponential organic growth, then we figure out ways to acquire more customers cost-effectively, and then we start the process all over again for yet another new product or feature.
So, for example, we started with just investment management services, and then last year…early last year, we started to offer automated financial planning, which is the first of its kind, and then, soon thereafter, we started to offer banking services. You can now borrow up to 30% of your account value with no credit check and no paperwork the next day.
So, all of these services…you know, we ship a minimum viable product, and we try to get feedback from customers, and then iterate on it.
Nathan: I see. And, one thing…you know, when it comes to scaling, you know, one way to scale your company is you have an option of selling more of your product to existing customers, or you sell, you know, different products to existing customers, or you find new customers to sell your existing products.
So, I’m curious, like, how do you know when to launch a new product? And, because focus is so key, how do you make sure that you can maintain focus? Like, when do you know when to do that?
Andy: You know, that’s a superb question to which there is no right answer. What I will tell you is there is a professor at Stanford Graduate School of Business named Charles O’Reilly, who actually has focused his career researching this topic, and he refers to people who are capable of doing this as ambidextrous entrepreneurs or executives.
That the challenge in running a company is you need to both focus on exploitation of your current opportunity and exploration of new opportunities. That if all you do is focus on optimizing your current business, there’s an arc of success which you can think of as an upside-down you, your business grows very rapidly.
It then plateaus, and then it declines. If all you do is focus on optimizing your business, you might not start thinking about a new business until you hit the plateau or the down slope, and the problem with starting a new product line at that point is it’s very hard to attract new employees to come work on it, because you’re perceived as past your prime.
Yahoo is a great example of this. Or, if you’re public, you don’t have a good currency to go out and buy new businesses to reinvent yourself. So, the challenge is you’ve got to explore for new opportunities while you are exploiting existing ones, but, first and foremost, you shouldn’t start exploring until after you’re sure that you’ve proven both your value and your growth hypothesis.
Nathan: I see. Because, hypothetically, you could work on, you know, one product for a long, long time, and keep scaling it. Like, we’re talking even…yeah.
Andy: Well, if you’re Google you can. Yes. But not everyone is Google.
Nathan: Yeah. That’s right. So, how did you guys decide when to launch your next product? Because, I think, the reason I ask this question, Andy, is, I think, as entrepreneurs we have what’s called…you may have heard this term, “shiny object syndrome”, where we start on one product, we might get it working really well, and get it dialed in, and get product market fit, and growing it, and start acquiring customers at scale, and then you’re like, “Okay, what’s the next exciting thing?”
Because it’s really…I think it’s…I reckon one of…for me, personally, I think one of the most exciting things is the start and the early stages, but then it gets boring after a while. So, you know, like, I’m just curious, like, okay, do you still experience this after being in this world for so long or…?
Andy: Well, I don’t find success boring.
Nathan: But you know what I mean, right?
Andy: No, no. I hear you. Look, what we did in our case was once we found product market fit, which is the proof of the value hypothesis, and we were able to find a channel of distribution to grow it, and that was an invitation system that was modeled after Dropbox, where anyone who had a Wealthfront account could invite their friends, and if they accepted the invitation, both the inviter and the invitee got another $5,000 managed for free.
So, if you invited five of your friends, you got another $25,000 managed for free. And it was only once that was working that we then moved on to add another feature. Now, some of the things that we’ve built have been tremendous successes, and have increased our growth rate, and some of the things that we have built proved to be duds.
We thought they were great ideas, but if the dogs don’t eat the dog food, they’re telling you something. And, fixing something that’s broken doesn’t lead to nearly as much growth as improving something that is working. It’s very counterintuitive, but very important.
Nathan: Yeah, that’s a good one, like, fixing something that is working. Okay. So, how do you know, like…like, let’s say you launch a new product. Like, how do you know how long to keep persisting on it and when to let it go?
Andy: You know, if the minimum viable product doesn’t hit a nerve, adding more features seldom makes a difference. It’s what we want to believe, but, in fact, it seldom makes a difference. Instead of adding more features, you try to figure out a different audience who actually might care for it.
I’ve basically reduced my entire Product Market Fit class to one question. When people ask me for advice on product market fit, I ask them, “Do you uniquely offer something that people desperately want?” Because unless they’re desperate they’re not going to buy from a new vendor. If there’s a good enough alternative, people will buy good enough.
They only will buy from the startup if they’re desperate, and the only reason they’re desperate is nobody serves their needs. So, if I deliver a product to someone who isn’t served, and they don’t care, then I have to try someone else. And if after three or four attempts, I’m just not finding any resonance, it’s time to move on.
Nathan: I love that. That’s a great breakdown. Thank you, Andy. So, what’s next for Wealthfront? Like, what are you guys working on? What’s exciting? What do you guys…?
Andy: Well, today we’re an automated financial advisor, which means we provide tools to help you explore whether or not you can afford to buy a home, whether or not you can afford to send your kids to college, whether or not you can afford to retire, or what age you can retire. We, then, also help you if you want to set up a goal based on those explorations, and even an account to save for those, and then we provide banking services as well.
And we do all of this in a mobile platform, and we do it for an incredibly low fee of only a quarter of a percent, and an account minimum of only $500. Now, our vision is to ultimately make it possible so that you can direct your…deposit your paycheck with Wealthfront, and we take care of the rest.
We’ll automatically pay your bills. If you have an emergency fund, we’ll automatically top that off. If you have other goals that you want to save toward, we’ll automatically route money to them. We’ll open up accounts if you need them, whether they’re at Wealthfront or elsewhere, and so you don’t have to spend any time thinking about your finances.
You can spend your time on things that you most enjoy, whether that’s your friends, family, events, whatever, and hopefully we’ll be able to get there in another three or four years.
Nathan: Yeah. Wow. That’s an incredible vision. You know, one thing that I’ve found when it comes to personal finance, one of the biggest things that I’ve learnt is just basically using the envelope system and trying to just automate and just know once the money comes in…and this is not just in personal finance, but also in business around managing cash flow.
Once you know that the funds are there, you know, just having buckets for them. As long as you stick to those rules and buckets, it can be incredibly effective as long as you’re extremely disciplined with obviously, your spending and also your saving.
Andy: Well, that’s the beauty of software, is it’s really good at implementing rules-based systems. It’s actually a lot better at doing it than people are.
Nathan: Yeah. And I think that’s where the real power lies, right? So, like, I’m curious, like, to develop this software, you know, have you guys had to raise a significant amount of capital, and will you continue to raise capital to keep growing and fueling growth?
Because yeah, this sounds like…yeah, it sounds like it’s an amazing vision, but a great challenge, too.
Andy: It is. Well, we’ve raised a lot of money over the course of our history over the last eight years, we’ve raised $200 million, $75 million of which came in December, and that money should last us through cash flow positive, and our hope is that we’ll be in a position in the not-too-distant future, to be a public company.
Nathan: Yes, I see. And, just out of curiosity, because, you know, from my world and what we’re doing with Foundr, we’re 100% bootstrapped, and I’m always curious, like, when you raise that amount of money, what do you usually spend it on? Like, is it generally HR and customer acquisition?
Andy: Well, about two-thirds of it is on people. So, we have an engineering team of 85 people, but the total company is about 150 people, and so, supporting that every day is a significant expense. And then, of course, there’s the office space to house that many people.
And then, there are a number of expenses associated with running the brokerage platform that supports all of our investment services. So, when you look at all of those expenses, it adds up to a significant amount of money.
Nathan: So, one thing that I’ve learnt is when you communicate that vision, like you just eloquently did before, it can be a very powerful tool to use in attracting great talent to join your company, but what else…like, what are you guys doing to combat that challenge to get the best people? Because that’s essentially how you scale.
You’ve got to find just some of the most incredibly talented people to join your company, and help fulfill that vision and bring that to life.
Andy: Well, we’re looking for people who are missionaries. We’re looking for people who really buy into our vision and our mission of democratizing access to sophisticated financial advice. Some of the best people like to be mission-oriented, and so that’s…the nature of the technical challenge and the mission are probably the two big…and the vision are probably the three biggest things that cause people to want to join us.
Nathan: And how do you find them? Like, what do you…are you guys doing like, manual outreach or, like… what’s the best place?
Andy: We have an internal recruiting team of about nine people, three of whom focus on nothing but scheduling, because it’s hard to schedule all the interviews. We have people who are just sourcerers, and we have other people who manage the whole process as recruiters. So, we do all of our recruiting in-house, and we also are fortunate that we get referrals from our employees, and a number of people just reach out to us.
Nathan: And, if you were just…like, when you were just starting Wealthfront, what would you recommend to our audience to attract really great talent, besides having a really compelling vision and a great product that’s truly disruptive in the market that you’re serving?
Andy: You know, I’m going to give you a disappointing answer, and that is, until you get product market fit, it really is hard to attract outstanding people. And by that I mean, you’ve got to be a little crazy to join a company pre-product-market-fit, because if you’re in great demand, Nathan, then you have a choice of companies that you can work for.
And, in Silicon Valley, you don’t get that much less equity post-product-market-fit than you would if you joined pre-product-market-fit. So, from a risk-adjusted basis, you are far better served waiting until the company has proven that the dogs want to eat the dog food.
So, that means that you’ve got to attract what you can before you get product market fit, and then you can upgrade later. So, you look for people who are truly excited by the mission, and you rely on all of your personal networks and do a lot of things that aren’t scalable to get those people to join.
Nathan: Yeah. Thank you. So, Andy, look, I want to work towards wrapping up, but I’d love to hear just…not necessarily advice, but I’m sure you’ve got some insane stories just from your experiences as not only a founder, but running, you know, an extremely large VC firm.
Is there any, like stories, like, is there any like crazy stories that you want to share that you think that will be really valuable to our audience?
Andy: I’m not sure I have any crazy stories in general. We’ve had some very unusual entrepreneurs come through. We’ve had some superb entrepreneurs come through, and the wonderful thing about that business is, it’s so great to hear about the future before it happens.
And, when you meet someone who really has a compelling vision, it’s almost as though you can’t believe that it’s not going to happen. And that was when it was most fun for me.
Nathan: Can you say that again?
Andy: I said, when you meet people where you can’t imagine their vision not happening, that was where it was really fun, because it was just so exciting to hear how the world was going to change, and how technology was going to enable that. To me, that was the most fun part of that business.
Nathan: But there’s so many people with these crazy ideas. Like, how do you know who’s actually got what it takes to do whatever it takes to make that compelling vision come to life, and who doesn’t? Like, what did you look for?
Andy: A big part of it was authenticity. Were they authentic to the opportunity? Had they trained most of their career? I mean, they could be young, but was their career focused on the thing that they needed to do, or were they just making up shit up?
So, authenticity is really, really important to success. Otherwise, just anyone could come up with great ideas, and I don’t think that happens. Great ideas find you. You seldom find them.
Nathan: And it comes back to also that unfair advantage. You mentioned the people, like, have they trained their whole career to be able to build what they’re, you know, kind of, selling you, right?
Andy: Yes. Now, if you look at most every really successful large tech company, the founder was really authentic to the opportunity before they started it.
Nathan: I see. And, when it comes to, I guess…you know, I put you on the spot with the crazy stories, but maybe you could give, like, a great story around just…let’s say just never giving up. Like I think, you know…
Andy: See, that doesn’t lead to success. I think that is a huge misperception. Perseverance is not what makes for success, in technology, at least. Insight does.
So, the recognition of an inflection point in technology is what leads most technology companies to success, that the entrepreneur figures out, “Ah, this change in technology,” because without change, “there’s seldom opportunity, allows me to build a new kind of product,”and then I’ve got to figure out who cares.
So I have to iterate on the market. It doesn’t have to do with perseverance. It has to do with insight.
Nathan: I love that, because, yeah.
Andy: And I know that’s really disappointing to people who want to think that anyone can start a great company. I don’t believe that’s possible.
Nathan: I love your raw honesty, because that’s what people say, like, you know, you just never give up. You just keep going, keep going, keep going. But it’s finding that insight.
Andy: But such a small percentage of companies succeed. It can’t be about persistence.
Nathan: So, when it comes to, you know, the ones that make it and the ones that don’t, have you experienced…in your career, have you…the ones that haven’t made it, usually they go on to start another company, and…
Andy: Not always.
I don’t think…very few serial entrepreneurs build great companies. They’re more likely to build very small companies, because in order to have a mentality, just keep starting companies, you have to do low-risk low-reward ideas. In order to build something big, you have to take chance.
Without risk, there’s seldom reward. And if you’ve gone through it once, man, it takes a lot out of you, and it’s hard to try to do that again.
Nathan: So, like, why Wealthfront? Why are you, kind of, doing it again?
Andy: You know, I was so focused on doing social good when I retired from Benchmark that I felt like I had to do it, not like I wanted to do it. So I felt incredibly grateful for what venture capital afforded me in terms of lifestyle that I really wanted to give back, and that’s why I was doing the things that I was doing.
And when I came across this opportunity to democratize access to sophisticated financial advice, I felt like I had to do it because the world needed it. And, to be honest, if I had known how difficult it was going to be, I probably wouldn’t have done it. It takes a lot out of you. But I continued to pursue it.
It was a long track until we found that product market fit, and it’s been awfully rewarding since.
Nathan: Yeah. Amazing. And I’m curious, like, do you think like you’re on the other side of it? And, you know, I think when it comes to, kind of, that journey, a big part of when you achieve success is giving back, and now you’re going full circle.
I’m curious, Andy, can you have it all? Do you believe you can have it all? Like, is it ever enough?
Andy: At the same time?
Andy: Sure. There’s…look, different strokes for different folks. I think we’re all wired differently, and everyone defines having it all differently. So, what is having it all to you? For some people, that might mean lying on a beach all the time. For other people, it might be having influence. It all depends on what having it all means to you.
Nathan: And is it ever enough?
Andy: Sure. I mean, I didn’t do this for financial purposes. As a matter of fact, if I’m fortunate enough to make money on this, I’d like to give it to charity. So, that’s why I did this, was for a social cause, and so I’m not doing this to make more money.
I want to see my employees make money, because they’re working really hard, but that’s not what motivates me to do this.
Nathan: And, when it comes to, you know, spending your time on a day-to-day basis, like, what does that look like? I’m just curious, like, how does your day begin and end?
Andy: It varies by day, but I have…like everyone in my position, I probably have a staff meeting once a week with all the executives on my team. We tend to make decisions as a team. I try not to make decisions myself. I think that leads to a bad culture. I’m much more consensus-oriented. Through the course of the week, I have one-on-one meetings with each of my direct reports.
I participate in our product reviews every week. We tend to have four client-facing development projects running in parallel at all times, and each of those projects has to present to the management team their progress, including demonstrating code that they’ve built thus far. We spend 45 minutes on each of those once a week, so that’s time.
Recruiting, I spend a lot of time recruiting because that’s critical to growing the business. And then, I try to make time for one-off meetings. Every two weeks I move my desk, so I sit with a different group in the company to get a feel for what’s going on, and to get a feel for what’s frustrating people, or what’s exciting them, or what’s the spirit like in different groups.
So, just moving around and talking to a lot of people gives me help. And then, I’m fortunate enough to be invited by people like you to do things like this.
Nathan: Amazing. Yeah, it sounds you’re still, like…one thing I found interesting is you said even at the company at your size, you’re still, you know, trying to go on a deeper level to…you said different groups, you’re speaking to one-on-one with…you’re still doing one-on-ones to find out what’s frustrating people, what’s exciting and what’s not to really manifest that culture.
Andy: Absolutely. And I also spend time training managers. So, every month we have an extended management meeting, and I do a little mini case study for them because we want to develop them into being better managers to scale the organization.
Nathan: And, like, how do you maintain that startup feel? Because, as companies get larger and larger, they become more like corporations, or, you know, kind of…yeah, corporations. Like, how do you maintain that startup feel?
Andy: Well, our challenge is to push decision-making as low as possible in the organization. As I said before, if I’m making decisions, we’re going to fail, because I’m not the closest person to the issue. You know, if you think about the military, if the generals made all of the decisions on the field, they would lose. So they have to trust their officers and the officers under them to make a call based on what’s going on at the time.
And so, my job is to try to provide context, and then my VPs have to give context to their organization, and then their managers need to provide further context down. So, the more that we can push responsibility to the lowest levels, the more likely people are going to be satisfied, and the more likely we’re going to be successful.
Are we successful at doing that every time? No, but this is something that we spend a lot of time trying to get better at.
Nathan: I find that very interesting. So, you’re essentially empowering every single person in the Wealthfront team to make decisions, and not come to perhaps their direct report or team leader to know what to do next. You want them to be able to make those decisions as much as possible, right, whether…?
Andy: That’s what we’re trying to do. We’re not always successful at it. And, you know, the funny thing about this that I’ve learned from advising entrepreneurs, especially my former students, is that people know what to do. If they’re capable, they generally know what to do.
More often than not, if they want help on it, they lack confidence in what to do. So, what I’ve learned over time is to ask questions of someone who’s come to me for advice to see what they want to do, and then I ask them, “Well, why then are you asking me about it?” And they’ll usually admit, “Because I’m not sure that’s the right thing to do.”
To which I ask, “Well, do you know something better?” And they usually smile and say, “No.” I say, “Well, then let’s try that.” You know, you’ve got to be…I preach this “You’ve got to take risks to get reward” philosophy. And, when you take risk, you’re going to make mistakes. So, one of the things that I preach to everyone in the company is, “You’ve got to make mistakes.”
Just let’s try not to make the same mistake twice, but it’s totally cool to make mistakes. If we make no mistakes, then you haven’t taken enough risk. So, this is where I need to focus my time, is at the high level, at the philosophy level, and at the context level. And I need to really push risk-taking.
Nathan: Yeah. No. That really sits well with me. One thing I was thinking was I once heard speaking to another founder, they said that, you know, they want to empower…similar to what you’re saying, they want to empower their team to make all the decisions, you know, because that’s how you also get leverage as a founder is you start to grow and scale your company, and they said that as long as they are right 80% of the time, you’re winning.
Andy: Oh, God, I think it’s 55% of the time. I think 80% would be unbelievable. I read this amazing statistic a month ago about Roger Federer. I’m a tennis player, and I’m in awe of Federer. So, Federer had the best streak of his career the first three months of this year.
He started 17-0. And, during that streak, he had the highest winning percentage of points in his entire career. And, remember, the peak of his career was probably around 2008, 2009. But, guess what percentage of the points he won in the best streak of his entire career?
Nathan: Let me guess. Like, 30%, or something.
Andy: Fifty-six percent.
Nathan: Yeah. Wow.
Andy: And that’s the greatest player in the history of tennis in his greatest streak. Isn’t that amazing?
Nathan: Yeah. That’s crazy.
Andy: So, if we can be right slightly more than we’re wrong, we’re way ahead of the game.
Nathan: Yeah, I love it. Well, look, Andy, I could talk to you all day, man, but we have to work towards wrapping up. I guess, just final questions. First of all, any parting words, or anything you’d like to finish off on? Just any, you know, pieces of advice or words of wisdom you’d like to share just for anyone that’s listening that is early on in their journey of building a startup?
And then, where’s the best place people can find out more about yourself and your work?
Andy: Okay, sure. Well, I think the best piece of advice that I can give to entrepreneurs is, it’s not about the percentage of things that you do correctly. It’s the magnitude of the things that you do correctly. So, you might only be right 3 times out of 10, but if those three things on which you’re right have a big impact, that’s far better than if you’re right 90% of the time on things that have little impact.
So, magnitude and impact is what matters, not percentage correct.
Andy: That’s the biggest lesson that I bring with me from venture capital. And the best way to follow me is probably on my Twitter, which is @arachleff, A-R-A-C-H-L-E-F-F, or I publish a lot on the Wealthfront blog, specifically about personal finance advice, but data-driven personal finance advice, which, surprisingly, is unique.
And you can find that on the Wealthfront site at www.wealthfront, W-E-A-L-T-H-F-R-O-N-T dot com.
Nathan: Amazing. Well, look, thank you so much for your time, Andy. It was an absolute pleasure to speak with you. And it was a great interview. You brought a lot of interesting perspectives, and I really appreciate your time.
Andy: It was my pleasure. Thank you for having me.