Andy Rachleff - Building Something People Want to Buy

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:59)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
My guest this week is Andy Rachleff, who is the CEO of the Automated Investing Platform Wealthfront. Andy was also the co-founder and longtime partner at Benchmark Capital, one of the most interesting and successful venture capital firms in the world. We spent most of our conversation discussing venture capital investing and entrepreneurship. Andy coined the now ubiquitous term product market fit and has great insight into how investors and entrepreneurs should think about business. In that vein, we discussed both what we refer to as the value hypothesis, building a product or service that customers love, and also the growth hypothesis, scaling that product or service to a large market. We finished our conversation by talking about Andy and his team's mission at Wealthfront. And this conversation is perfectly timed as Wealthfront just released a new feature that allows investors to buy factor portfolios, similar to smart beta ETFs.
Above all, I'll remember Andy's advice to put the gun in the other person's hand, a strategy we explore in the middle of our talk. We start our conversation discussing what has made Benchmark Capital so successful, which started with how the founders thought about their competition. You can find show notes for this episode at investorfieldguide.com forward slash Andy. And now please enjoy my conversation with Andy Rachleff.
So back to Benchmark and its kind of unique structure. From what I understand, originally it was five partners and it was sort of an equal partnership.

**Andy Rachleff** (2:43)
Not sort of.

**Patrick O'Shaughnessy** (2:44)
Exactly an equal partnership. So no politics or hierarchy, I guess. So what was the reason for that set up? How did you come up with that idea?

**Andy Rachleff** (2:54)
You know, when we started, as I said, that we were what united the five of us was a desire to build the best firm in the business, not necessarily to make a lot of money. We thought if we built the best firm in the business, the money would follow. But we were really, really oriented toward building the best.
And we felt as though whatever platforms we were previously associated with, we could do very well, but we couldn't become the best. And we tried to take the advice that we gave to our portfolio companies, which is pick your closest, who you think is your closest competitor and try to turn their greatest strengths into their greatest weaknesses.
So the firm that we perceived as number one by a long shot was Kleiner-Perkins back in 1995 Unfortunately, I don't think they are number one any longer, but they were head and shoulders above everyone else.
And we thought they were head and shoulders above everyone else for two reasons. Number one, they had the world's greatest venture capitalist in John Doerr. I think he's the best there ever was. And number two, they had a reputation for helping their portfolio companies do business with their other portfolio companies. So they referred to this as their Koretsu. Back in the 80s, it was perceived that Japan was going to beat the US, sort of the way people perceived China beating the US today. And so people wanted to emulate Japanese techniques, and there are a bunch of networks of companies that affiliate with one another. And so there was a great attraction to entrepreneurs to be able to join one of these affiliations, their Koretsu, so that if you got backing from Kleiner, they would help you sell products to other Kleiner-Perkins companies.