Essential Startup Advice from Entrepreneur and Investor Andy Rachleff
The Benchmark Capital cofounder and Wealthfront CEO on pivoting, leading through teaching, and fear of loss in dealmaking
This season of our Founder’s Corner podcast kicked off with Andy Rachleff, the cofounder and CEO of Wealthfront. Andy is also the cofounder of Benchmark Capital, one of the valley’s most successful investment firms, and has taught for more than a decade at Stanford’s Graduate School of Business. So when Omidyar Network partner Shripriya Mahesh sat down with Andy to kick off the second season of our Founder’s Corner series, it was no surprise that he delivered insightful and actionable advice for startup founders.
Andy reflects on what he’s learned from leading Wealthfront, a startup dedicated to democratizing access to investment management. Andy shares lessons on pivoting and hiring, and passes along his favorite advice when it comes to dealmaking. Listen to the episode with Andy here or read on for more.
Knowing when to pivot
A key reason entrepreneurs succeed is their never-ending drive and commitment to positively impacting the world. It’s also the case that those very same characteristics can often be a one-way ticket to startup no man’s land. Rigid commitment can only take a founder so far, and when the walls are impenetrable, knowing when to pivot can mean life or death for a company. Andy says most companies can’t face this choice head-on, noting that “most entrepreneurs can’t make the transition because they believe they were right with their initial idea. That’s why they started their company.”
I believe the market is always right, and the market knows a lot better than any of us.
Andy thinks entrepreneurs should lower the volume on their own voices and listen to what the market is whispering. He continues, “I believe the market is always right, and the market knows a lot better than any of us.” That’s one of the reasons Andy appreciates the Lean Startup movement, because “it offers a methodology that helps you figure out that the market is much more important than you and your idea, and allows you to iterate to what the market wants.”
Leading through teaching
Andy runs Wealthfront today, but this isn’t his first time in the top spot in the company; he previously led the startup in its early days. However, this go-round, Andy has evolved as a leader, an improvement he attributes to time spent teaching. For more than a decade, Andy has taught at Stanford’s Graduate School of Business, which has informed how he approaches his CEO role. He explains, “A leader needs to think a lot about a style that is authentic to them. The first time I was leading Wealthfront, I was only running a company of 17 or 20 people. This time around we have 140. What I’ve come to realize is I love teaching. It’s really my great joy. I’ve decided to lead through teaching, a decision I made because I noticed that I was most effective with our team when I taught and gave them context and allowed them to make their own decisions.”
If the CEO makes all of the decisions, as many people mistakenly think is the case, then the company can’t scale.
As a startup leader, it’s important to know the ins and outs of typical management practices, but it may be more important to synthesize those tried-and-true methods with the authentic leadership style that fits you specifically. In Andy’s case, the more he guides his team and provides context, the more he can train, level up his role, and repeat. Andy points out, “That’s how you build a scalable company. If the CEO makes all of the decisions, as many people mistakenly think is the case, then the company can’t scale.”
For founders hiring their first five employees
There’s a big difference in hiring needs between onboarding your first five employees and bringing on employee 100. It’s important to understand your company’s place in the hiring market and the kind of talent you can draw in at different lifecycles of your business. Andy says, “The thing that I didn’t understand is that before you get product/market fit, you are really limited in terms of the quality of the people you can attract. Think about it. If you have a choice of joining my company before product/market fit or another company post-product/market fit, it would show really poor judgment to join my company, because the amount of extra equity you’re going to get from joining my company in no way compensates you for that extra risk. If you’re a founder, it might, but if you’re just one of the employees, even a senior employee, it doesn’t compensate you.”
In the early days, you hire the best people you can and then you upgrade.
Andy describes a method that is blunt but realistic when it comes to evolving talent in your startup. He continues, “So the point of view that I’ve come around to is that you hire the best people you can and then you upgrade. Every once in a while you’re going to find a gem, but that’s more luck than anything else. Instead you look for people who are really driven by the mission of the business, who just love what you’re doing. And every once in a while, you get a star to join you because they love the mission or the strategy. But more often than not, you can’t attract the stars until you have that product/market fit.”
Making way for honesty and fear of loss in dealmaking
We asked Andy about the best advice he’s ever received. Andy says, “My two favorite pieces of advice are both controversial. The first I learned from my partner Bruce Dunlevie, who’s been the biggest influence on my professional life and is from my perspective the best venture capitalist around. Bruce lives by a philosophy of always putting the gun in the other person’s hand. If they shoot you, just don’t work with them anymore. So in a negotiation with an entrepreneur, he would say, ‘You tell me what’s the fair price, and I’ll do it.’ Literally.”
Bruce and Andy view this as a kind of test of a person’s integrity and honesty. At the very least, it can reveal a lot about a person. Andy says of these conversations, “Now if the entrepreneur was a good person, they would feel the pressure of that, and more often than not they would ask for a lower price than they otherwise might. If the entrepreneur was a bad person, they’d try to take advantage, and Bruce would say, ‘I’m sorry. You’re not the kind of person I want to work with.’”
Andy’s other memorable piece of advice concerns fear of loss, and it works in nearly every negotiating situation. He explains, “The other one, which I learned from another one of my partners at Benchmark, Dave Byrne, is to always have to try to create a fear of loss” because “fear of loss is a much greater motivator than the joy of gain.” Remember your friend who talks about passing up that job at Facebook back when Myspace was still a thing or skipping out on buying Apple stock back in the day? Well, it’s those kinds of stories that stoke fear of loss, fear of missing a seat on the rocket ship of a successful startup business.
In everything I do, I ask my team, ‘Where’s the fear of loss?’
Andy says, “Before Dave became a venture capitalist, he was the world’s greatest executive recruiter and recruited some of the most famous CEOs including Meg Whitman to eBay and Jim Barksdale to Netscape. What he learned was that people never join companies out of opportunity. They join companies because they think they’re going to lose the chance to join. So what Dave learned was that in order to recruit the best candidates, he had to create this fear that they were going to lose the chance. And by doing that, he was able to close them. No fear, no close. And this is applicable to every deal, from corporate partnerships to a traditional sale to a customer. And so in everything I do, I ask my team, ‘Where’s the fear of loss?’ Because if there’s no fear of loss, we have no hope of closing the partnership.”
Thanks to Andy for joining Founder’s Corner and bringing so many of his lessons and insights for entrepreneurs to the show. Join the conversation with Shripriya Mahesh and Andy Rachleff on Twitter and learn more about Wealthfront here. And be sure to subscribe to Founder’s Corner on iTunes, SoundCloud, or Overcast to listen to founders who have lived and breathed the startup journey and created incredible companies on the other side.