Wealthfront and Benchmark's Andy Rachleff on Why Delight Is The Greatest Form Of Virality

My pleasure to be back.

Sure. Well, I was a career venture capitalist my last 10 years at a firm that I co co-founded called Benchmark Capital. And I reached the point where we have this understanding among the partners at Benchmark that the only way to manage an always equal partnership is if you’re not willing to go 110%, you have to opt out. And so having helped create that culture, I believed in it very strongly. In 2005, I was ready to do some other things in my life, most specifically to give back for this amazing life that I’ve been afforded.

I became a teacher at Stanford Graduate School of Business, my graduate school alma mater. I went on the board of trustees of my undergraduate school alma mater. And my wife and I started a new kind of cancer research funding initiative in partnership with Damon Runyon Cancer Research Foundation. So I was very much focused on giving back. Now, I believe that the premier university endowments are the best managed pools of capital in the world. And one day we were sitting in a presentation with the investment team, and they were telling us how they generate the superb returns that they do.

And it reminded me, as I listened to what they were doing, of a challenge many of the people I had recruited to my portfolio companies over time faced. And that was, if they went on to financial success because their companies did well, they would often come to me for investment advice, and I could never tell them to do what I do because I’m in the fortunate position to afford access to the best investment products and services. And even though they had made even on the order of 1 to $5 million they still couldn’t afford access to the best investment products and services.

So when the Penn team was describing what they were doing and the tools that they were using, I don’t know why, but it struck me that with software, we could do an 8020 on what the endowments do and deliver their capabilities to the masses, thereby solving this problem that I had always been frustrated about. So I went home and started as a hobby, and ultimately it turned into Wealthfront.

You know, starting a company is like having a baby. You feel an unbelievable emotion emotion about about it. it. And I think that Adam just did a superb job building a product strategy about which I’m very excited. And I think we’re to talk a little bit more about that in this podcast. But there were a couple of initiatives that I thought were really important to achieving our ultimate goal that I also thought I was in a far better position to drive. And Adam was a prince about it.

He understood my passion for those things. He agreed that I was the more appropriate person to make that happen, and he stepped aside. He stayed on the board of directors, so we still have a great relationship. But it was a passion about some things that I really wanted to make happen that brought me back.

I’m trying to think about what led to a poor transition. I think the poor transitions were the result of the CEO being surprised with being fired. That usually created a lot of consternation. If there were two camps within the company where there were warring factions, where one camp wanted one person to run the company and another camp wanted another, that would lead to a poor transition. But if both parties want the transition, that usually goes smoothly. And fortunately, I had been very involved in the business all along as the executive chairman, I spent about a third of my time with the company and had deep relationships with the management team and the rest of the people in the company, so it was very natural.

I’m not sure I’d call it a strategic inflection point. I think inflection points come more from changes in the environment or in the technology that enables a new kind of business. I think that APIs, application programming interfaces, are really the key to enabling a service like Wealthfront. And they’re proliferating, which makes it easier for us to develop new services, one which we just introduced. But I don’t think that it’s necessarily an inflection point. I think it’s more continuing down a defined path.

The critical bet that we’ve made is that uniquely focusing on bringing services that were traditionally only available to the winning strategy. We are the only player in the automated investment space that is taking private wealth management, investment and financial services and delivering them to the masses. We spend all of our engineering resources on delivering those value added features so that everyone can invest like a multimillionaire. That’s really what’s unique about us. Other people are taking our original investment service and adding scaffolding to make it possible to sell through other channels.

We’ve kept the channel the same, direct to consumer, and added features to make it far, far, more compelling. And time will tell whether or not that was the right bet. I think it really allows us to differentiate and adds far more value to our client.

you. know, it’s funny that you should bring up Andy Grove because I teach a case on this subject, Does competition matter? And the subject for the case is Netflix back when they competed with Blockbuster. And the reason that I chose Netflix is I had the good fortune to sit on the board of Reed Hastings company prior to Netflix. I learned more of of Pure Software, Reed’s prior company, than any other company. And one of the things that Reed really taught me is that competition doesn’t matter, that you should spend all of your time focusing on delighting the customer.

Now that sounds obvious, but very few people do it because most people believe in the Andy Grove philosophy of you have to be paranoid about your competition. Reed Hastings specifically says that if you’re overly paranoid, you’re distracted from delighting your customer. And if you don’t delight your customer, you don’t create a viral effect because delight is the greatest form of virality. So I am very much in the Reed Hastings camp that there is far more leverage from spending your time on figuring out how to delight your customer than react to your competition.

I’m from the Ricky Bobby School of Management. If you’re not first, you’re last. Reacting to competition doesn’t ever get you to be first, and you can’t win from behind in technology.

I think people confuse network effects with virality. They’re two very different concepts. Network effects often drives virality, but another thing that drives virality is delight. If you love a service, then you’re to tell all of your friends about it. There’s no network effect to Netflix. There’s no network effect to Google. There’s no network effect to a lot of the to Apple products. But you love them. And if you love them, you’re to tell all of your friends about them. And that’s what defines virality.

Well, a couple of weeks ago, we introduced a new service that we call our selling plan. Basically, this creates the opportunity for rank and file employees to have a chance to sell their stock, their concentrated company stock position, in a way that only their executives had access to. Typically, executives can work with private wealth managers on something known as a b 10B5.1 plan, which is a way to ratably sell your stock over time. So we created software for employees who receive company stock to sell their stock, number one, commission free.

Number two, we do it daily over extended periods of time. And by doing this, we make it incredibly convenient because it’s a set it and forget it approach. We minimize the taxes associated with those sales. Because we sell over an extended period of time, we minimize the regret someone might feel that they sold at the wrong time. This is a service that traditionally was only available through private wealth managers, and private wealth managers have minimums of 10 or 5, 10 or 15 million We’re making this available to everyone Today, or most recently, we just announced a new user interface or user experience for the entire Wealthfront client base that’s built around financial planning.

And we call this financial planning experience Path. So what we’ve done is made financial planning far more number one, accessible. Traditionally, you need a million dollar minimum account size to access a good financial planner. Everyone now has access to that and our account minimums only $500 And our service is distinguished from a traditional financial planner in that when financial planners meet with you, they have to interview you to get inputs that they can use for a commercial financial planning software package, and almost all of them use the same package.

So the vast majority of the interview is focused on the inputs that they just need to go back to their office to input, and then they print out the results, schedule a meeting with you in another two weeks, you then edit those results, the planner goes back to his or her office, enters the new data, schedules another meeting in two weeks. And so this is not terribly convenient. We’ve taken advantage of APIs to get all of that information for you so that there’s no need for a meeting.

So it’s radically more convenient. Number two, if I to ask you how much money you spend or save a month, I bet you don’t know exactly what that number is. But if we can access your financial accounts with your permission via application programming interfaces, then we can know accurately how much you spend and save and give you a far more relevant plan. And we make it interactive so that you don’t need to have these two week periods where you wait for the information. You can play with everything yourself.

So just as our investment management service that we first shipped in December 2011 was relatively simple but incredibly convenient and interactive and low cost, we’ve delivered a financial planning experience that’s convenient, accurate, and interactive. And by the end of this year, it’ll have all of the depth of a traditional financial planning service as well. But this is yet another example of us delivering a service that was traditionally only available through private wealth managers.

Well, it means that everyone has access to the industry standard best terms and services. Software levels the playing field, and that’s one of the reasons why I loved being a venture capitalist was that, A, I got insight into new technologies that level the playing field, and B, I got to be part of that. It’s a wonderful feeling to do good, to do well by doing good. And that’s one of the fun things about Wealthfront. And one of the things that motivates me about Wealthfront is I started this company to do a social good.

Software is doing an awful lot of good about giving everyone access to services that previously they couldn’t afford access to.

consuming. This is the part that I didn’t appreciate. It’s funny that when I was a venture capitalist, I prided myself on being engaged with my portfolio company, understanding what they were doing, and being as helpful as I could, but not imposing myself on the company. But I could go home at night and attend sports event or go out to dinner with my family or watch a movie and not think about it. I could turn it off. When you’re the CEO, you can’t turn it off. You’re always thinking about the business.

It’s just totally consuming. And I tell my former CEOs about this and they laugh at me and say, what did you think we were doing? So that’s the part that was really unexpected for me.

The challenge with transparency is if you let someone else set the agenda, it can work against you. So it’s really, really important to provide context with transparency. because if you don’t provide context, people will make up their own. And more times than not, they’ll assume bad faith or assume the worst outcome.

Closest mentor and best mentor is actually a contemporary. It’s my partner from Benchmark, Bruce Dunlevie. So I met Bruce when we were classmates in business school. He was amazing in business school to the point that I said to myself, I have to work with that guy. And I entered the venture business directly out of business school in I recruited him to join me in 1988 or 89. and he has unbelievable judgment and is the best influencer I’ve ever met. And people just adore Bruce. And I try to learn from him as best as I can.

He’s two years older than I am, but he’s radically more capable than I am as a business person. And I have benefited amazingly from the association.

God, I can’t even pick an individual highlight. This has been an amazing career. I’ve been associated with a number of companies that have grown their revenue to over dollars. It’s like picking your children. You can’t pick just one, but it’s fun to make an impact.

Well, I started this, I co started this to create a social good and it only becomes a social good if it’s broadly embraced. We have over 100,000 clients now, but that’s a drop in the bucket, especially relative to the amount of people who would benefit from a service like this. So we need to keep innovating, we need to keep taking services that were traditionally only available to multimillionaires, and through software, them available to a much, much, broader audience. And then we need to be able to, in a cost effective way, in a sustainable way, make more people aware that services like ours exist.

It’s my pleasure.