“A lot of people talk about how great it is to start a business but only Ben Horowitz is brutally honest about how hard it is to run one”
‘The Hard Things about Hard Things’ was on my reading list for long and I finally finished it this past week. I have heard quite a few industry leaders, top entrepreneurs and management gurus recommend it so I did have super high expectations from it. And it truly surpasses all of them! True to its tag line it exemplifies building a business when there are no easy answers by taking Ben’s journey as the CEO at Loudcloud which survived many near death situations, became public in 2001, rebranded to Opsware in 2002 after sale of its other divisions and eventually sold to HP for $1.65b in cash in 2007.
The book traces Ben’s entrepreneurial journey in the first half and then shares the business insights and learnings in the second half which he could derive by developing, managing, firefighting (at all times!) and eventually selling the business.
Like my previous article on Golden Tap, I recommend that you read the book rather than read ahead (what a bizarre writer!). But if you are time crunched and in the process of building your startup, working at one, want to revisit the book or an investor do proceed to get a crisp summary (hopefully!)
The gold rule significance of having a strong co-founder
Ben Joined Netscape with Marc and knew that he would change the world. Marc also knew all top VC’s in Silicon Valley due to Netscape’s success. They went with Andy from Benchmark Capital for the funding
Insights during running the show
When the world’s first browser was launched nobody thought Internet would be significant beyond the scientific community. It was thought to be too arcane, insecure and slow to meet business needs
When Microsoft attacked Netscape browser with Internet Explorer, they counter attacked by launching Suite spot to destroy MS office.
Markets were not efficient at finding the truth. They were just very efficient at converging on a conclusion often the wrong conclusion.
The funding cycle and constant media panning
Dot com bust meant that LoudCloud went from being the hottest startup in Silicon Valley to being un fundable in six months
They decided to go the IPO route and the media panned them. Business Week dubbed it as the ‘IPO from Hell’. The road show (fanfare prior to IPO to generate investor interest) was brutal with stock market crashing daily. It finally sold at $6 per share and raised 162.5m
The Darkest Days
It had to reset revenue guidance from $75m to $55m, fire 50% employees, two banks GS and MS stopped covering the stock, and price dropped to $2 per share. The situation was so bad that their closest competitor Exodus filed for bankruptcy. It had been valued at $50b a year earlier and raised $800m just nine months back
Add to this one of its biggest clients Atriax went bankrupt and it could not pay its dues of $25m. They were given 60 days before their largest client Eds cut them out.
The flickering flame of hope
As the ship was sinking and with the cash running out, they devised a secret plan ‘Oxide’ to separate the software business Opsware from Loudcloud. Eds bought LoudCloud for $63m in cash and they retained the intellectual property Opsware
Eventually after constant pressures to stay alive, HP bought the company at $14.25 per share or $1.65b in cash
Innovation requires a knowledge of combination, skill and courage
Secret to be a successful CEO?
Sadly, there is no secret but if there is one skill that stands out it’s the ability to focus and make the best move when there are no good moves. When you are super struggling, don’t put it all on your shoulders. Get the maximum number of brains on the problem even if the problem represents existential threats
Play long enough and you might get lucky. Also don’t take it personally. Remember that this is what separates the women from girls. If you want to be great this is the challenge.
Build a culture that rewards not punishes people for getting problems into the open where they can be solved
On Firing People
The right way to lay people off- get your head right, don’t delay, be clear in your own mind about why you are laying people off, train your managers, address the entire company, be visible and be present
People won’t remember everyday they worked for your company, but they will surely remember the day you laid them off. They will remember every last detail about the day and the details will matter greatly. If you hired me and I busted my ass working for you, I expect you to have the courage to lay me off yourself. If we had not treated the people who were leaving fairly, the people who stayed would never have trusted me again
Old boss said we take care of the people, the products and profit in that order. Taking care of people is the most difficult of the three and if you don’t do it the other two won’t matter.
Why you should train your people
Productivity training is simply one of the highest leverage activities a manager can perform
If you don’t train your people you establish no basis for performance management. As a result, it will be sloppy and inconsistent
Start with functional training. Ben’s Good product manager/ Bad product manager is a legend still widely used by tech companies 15 years since he penned it
Why People Quit
1. They hated their manager. Generally, the employees were appalled by the lack of guidance, career development and feedback they were receiving
2. They were not learning anything. The company was not investing resources in helping employees develop new skills
Hiring an Experienced Person
Nothing will accelerate the company’s development like hiring someone who has experience building a very similar company at larger scale. However, doing so can be fraught with peril. Make sure to pay attention to the important leading indicators of success and failure.
Effective is the key word. It’s possible for an executive to be well liked and be totally ineffective with respect to other members of the team. It’s also possible for an executive to be highly effective and profoundly influential while being totally despised. The latter is far better.
Bringing in the right kind of experience at the right time can mean the difference between bankruptcy and glory (see this playing out remarkably at companies such as Oyo and Swiggy who brought in experienced management at the right time to accelerate the growth pedal)
Hiring senior people into a startup is kind of an athlete taking a performance enhancing drugs. If all goes well, you will achieve incredible new heights. If all goes wrong, you will start de-generating from the inside out
Politics at Workplace
Politics in org simply means people advancing their careers or agendas by means other than merit and contribution
Two key techniques useful in minimizing politics
- Hire people with the right kind of ambition
- Build strict processes for potentially political issues and do not deviate
One on One with Team
One on one’s provide an excellent mechanism for info and ideas to flow up the organization and should be part of your design. This is the free form meeting for all pressing issues, brilliant ideas and chronic frustrations that don’t fit neatly into status reports, email and other less personal and intimate mechanisms
On Scaling Up
When an organization grows things that were previously easy becomes difficult. Specifically, the following things that cause no trouble when you are small become big challenges — communication, common knowledge, decision making
The world is full of bankrupt companies with world class cultures. Culture does not make a company
Hiring Right Now with an Eye on Future
Evaluating people against the future needs of the company based on a theoretical view of how they will perform is counterproductive because:
1. Managing at scale is a learned skill rather than a natural ability
2. It’s nearly impossible to make the judgment in advance
3. The act of judging people in advance will retard their development
4. Hiring scalable executives too early is a bad mistake
5. You still need to make the judgement at the actual point in time when you hit the higher level of scale
When Herb was asked why he invested in LoudCloud when it had almost become a penny stock
Investing in courage and determination was an easy decision for me. I did not understand anything about your business and understood very little about your industry.
Tips to Aspiring Entrepreneurs
The only thing that prepares you to run a company is running a company. You will have to face a broad set of things that you don’t know how to do and that requires skills you don’t have.
If you don’t like choosing between horrible and cataclysmic don’t become CEO
There are always a thousand things that can go wrong and sink the ship. If you focus too much on them, you will drive yourself nuts and likely crash your company. Focus on where you are going rather than on what you hope to avoid
On Great CEO’s
Great CEO’s face the pain. They deal with sleepless nights, cold sweats and what Alfred Chuang called the torture. Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEO’s point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEO’s tend to be remarkably consistent in their answers. They all say I did not quit
In life everybody faces choices between doing what’s popular, easy and wrong versus doing what’s lonely difficult and right. These decisions intensify when you run a company because the consequences get magnified a thousand-fold. As in life the excuses for CEO’s making the wrong choice are always plentiful
To be a good CEO in order to be liked in the long run you must do many things that will upset people in the short run
CEO can most accurately be measured by the speed and quality of the decisions. Great decisions come from CEO’s who display an elite mixture of intelligence, logic and courage
Three key traits to look for in a leader
1. The ability to articulate the vision- Steve Jobs attitude (needs no explanation!)
2. The right kind of ambition- Bill Campbell. Employees used to refer to the organization as my organization or my company. Completely authentic
3. The ability to achieve the vision Andy Grove Attribute. Company trusted Andy to rebuild it around an entirely new business. That trust turned out to be very well placed
The Birth of a16z
We wondered aloud why as founders we had to prove to our investors beyond a shadow of doubt that we could run the company rather than our investors assuming that we would run the company we had created. This conversation ultimately became the inspiration for a16z
Of the more than 800 VC firms of the day only about 6 had delivered great returns for their investors. We uncovered an excellent reason. The best entrepreneurs will only work with the best VC firms. But VC’s were notoriously secretive about their methods and beliefs
We needed to change the rules by which entrepreneurs evaluated VC’s. But a good trend now vs. when Ben ran LoudCloud was that entrepreneurs were socializing and there was a real community
If we had a better offering, word of mouth marketing would work now where it had not before. We need to be better but also needed to be different
If we created a firm specifically designed to help technical founders run their own companies, we could develop a reputation and brand that could vault us into the top tier of VC firms despite having no track record (for sure it did and in just a decade!)
While we would not be able to give a founder CEO all the skills she needed, we would be able to provide the mentorship that would accelerate the learning process. All the general partners would need to be effective mentors for founders striving to be a CEO
Next, we decided to systematize and professionalize the network. No major VC did publicity marketing of any kind. We launched a16z with much fanfare. Hired outcast marketing agency to generate media interest
Its theory about what a VC firm should offer turned out to resonate with the best entrepreneurs in the world. In four short years gone from nothing to being one of the most respected VC firms in the world
To Sum Up
As a CEO, I had to worry about what everybody else thought. In particular I could not show weakness in public. It would not have been fair to employees, executives or public company shareholders. Unrelenting confidence was necessary. As a VC I have the freedom to say what I want and what I really think without worrying what everybody else thinks
Hard things are hard because your emotions are at odd with your logic. They are hard because you don’t know the answers and you can’t ask for help without showcasing your weakness.
‘Life is a struggle. Embrace the struggle. Peace to all those engaged in the struggle to fulfill their dreams’