The Hard Thing About Hard Things

"The Hard Thing About Hard Things" kicked my ass. Ben Horowitz delivers lots of specifics and not a lot of fluff. He talks about the concrete scenarios that CEOs have to handle and provides detailed frameworks for thinking about them. His "Questions for Head of Enterprise Sales Force" at the end is especially useful. This book could have easily gotten bogged down in details, but Horowitz keeps things lively with personal anecdotes and portraits of the best and worst cases he's seen.

Horowitz devotes most of the book to his ideas about managing people - both employees and yourself. His section on culture and incentives and company structure is particularly helpful. For managing your own psychology, Horowitz recommends a Stoic approach - "Great CEOs face the pain." For Horowitz, most of success is about sheer perseverance:

Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEOs point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers. They all say, “I didn’t quit.”

This book is perfect for startup founders. For books in a similar Stoic vein, I'd recommend "The Subtle Art of Not Giving a F*ck" and "The Obstacle is the Way".

My highlights below.

CHAPTER 1 — FROM COMMUNIST TO VENTURE CAPITALIST

Until now, I’ve never told that story to anyone, but it shaped my life. It taught me that being scared didn’t mean I was gutless. What I did mattered and would determine whether I would be a hero or a coward. I have often thought back on that day, realizing that if I’d done what Roger had told me to do, I would have never met my best friend. That experience also taught me not to judge things by their surfaces. Until you make the effort to get to know someone or something, you don’t know anything. There are no shortcuts to knowledge, especially knowledge gained from personal experience. Following conventional wisdom and relying on shortcuts can be worse than knowing nothing at all.

Former secretary of state Colin Powell says that leadership is the ability to get someone to follow you even if only out of curiosity.

Looking at the world through such different prisms helped me separate facts from perception. This ability would serve me incredibly well later when I became an entrepreneur and CEO. In particularly dire circumstances when the “facts” seemed to dictate a certain outcome, I learned to look for alternative narratives and explanations coming from radically different perspectives to inform my outlook. The simple existence of an alternate, plausible scenario is often all that’s needed to keep hope alive among a worried workforce.

My father turned to me and said, “Son, do you know what’s cheap?” Since I had absolutely no idea what he was talking about, I replied, “No, what?” “Flowers. Flowers are really cheap. But do you know what’s expensive?” he asked. Again, I replied, “No, what?” He said, “Divorce.”

More important, the worse a situation became, the stronger Mike would get.

People often ask me how we’ve managed to work effectively across three companies over eighteen years. Most business relationships either become too tense to tolerate or not tense enough to be productive after a while. Either people challenge each other to the point where they don’t like each other or they become complacent about each other’s feedback and no longer benefit from the relationship. With Marc and me, even after eighteen years, he upsets me almost every day by finding something wrong in my thinking, and I do the same for him. It works.

CHAPTER 2 — “I WILL SURVIVE”

Marc Andreessen attempted to cheer me up with a not-so-funny-at-the-time joke: Marc: “Do you know the best thing about startups?” Ben: “What?” Marc: “You only ever experience two emotions: euphoria and terror. And I find that lack of sleep enhances them both.”

People offer many complex reasons for why Bill rates so highly. In my experience it’s pretty simple. No matter who you are, you need two kinds of friends in your life. The first kind is one you can call when something good happens, and you need someone who will be excited for you. Not a fake excitement veiling envy, but a real excitement. You need someone who will actually be more excited for you than he would be if it had happened to him. The second kind of friend is somebody you can call when things go horribly wrong — when your life is on the line and you only have one phone call. Who is it going to be? Bill Campbell is both of those friends.

CHAPTER 3 — THIS TIME WITH FEELING

“I have some bad news. We are getting our asses kicked by BladeLogic and it’s a product problem. If this continues, I am going to have to sell the company for cheap. There is no way for us to survive if we don’t have the winning product. So, I am going to need every one of you to do something. I need you to go home tonight and have a serious conversation with your wife, husband, significant other, or whoever cares most about you and tell them, ‘Ben needs me for the next six months.’ I need you to come in early and stay late. I will buy you dinner, and I will stay here with you. Make no mistake, we have one bullet left in the gun and we must hit the target.”

It turns out that is exactly what product strategy is all about — figuring out the right product is the innovator’s job, not the customer’s job.

However, if I’d learned anything it was that conventional wisdom had nothing to do with the truth and the efficient market hypothesis was deceptive. How else could one explain Opsware trading at half of the cash we had in the bank when we had a $20 million a year contract and fifty of the smartest engineers in the world? No, markets weren’t “efficient” at finding the truth; they were just very efficient at converging on a conclusion — often the wrong conclusion.

CHAPTER 4 — WHEN THINGS FALL APART

I never built that contingency plan. Through the seemingly impossible Loudcloud series C and IPO processes, I learned one important lesson: Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same.

But I don’t believe in statistics. I believe in calculus.

People always ask me, “What’s the secret to being 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. It’s the moments where you feel most like hiding or dying that you can make the biggest difference as a CEO.

In doing so, I follow the first principle of the Bushido — the way of the warrior: keep death in mind at all times. If a warrior keeps death in mind at all times and lives as though each day might be his last, he will conduct himself properly in all his actions. Similarly, if a CEO keeps the following lessons in mind, she will maintain the proper focus when hiring, training, and building her culture.

Nobody takes the losses harder than the person most responsible. Nobody feels it more than you. You won’t be able to share every burden, but share every burden that you can. Get the maximum number of brains on the problems even if the problems represent existential threats.

Without trust, communication breaks. More specifically: In any human interaction, the required amount of communication is inversely proportional to the level of trust.

A good culture is like the old RIP routing protocol: Bad news travels fast; good news travels slow.

The resulting action item for CEOs: Build a culture that rewards — not punishes — people for getting problems into the open where they can be solved.

If you run a company, you will experience overwhelming psychological pressure to be overly positive. Stand up to the pressure, face your fear, and tell it like it is.

Training starts with a golden rule: Managers must lay off their own people. They cannot pass the task to HR or to a more sadistic peer. You cannot hire an outsourcing firm like the one in the movie Up in the Air. Every manager must lay off his own people. Why so strict? Why can’t the more confrontational managers just handle this task for everyone? Because people won’t remember every day they worked for your company, but they will surely remember the day you laid them off.

CHAPTER 5 — TAKE CARE OF THE PEOPLE, THE PRODUCTS, AND THE PROFITS — IN THAT ORDER

After what seemed like five minutes of silence, Mark reached into his bag and pulled out a giant training manual he had designed. He said he couldn’t possibly explain what I needed to know about training in the time we had left, but if I wanted to schedule a follow-up meeting, he would explain the nuances of training salespeople to be elite across a broad set of disciplines including process, products, and organizational selling. He explained further that even with all those things, a successful sales leader still must inspire courage in the team. He sounded like General Patton. I knew I had my guy.

The world looks one way in peacetime but very different when you must fight for your life every day. In times of peace, one has time to care about things like appropriateness, long-term cultural consequences, and people’s feelings. In times of war, killing the enemy and getting the troops safely home is all that counts. I was at war and I needed a wartime general. I needed Mark Cranney.

Me: “Do you know the difference between a good place to work and a bad place to work?” Steve: “Umm, I think so.” Me: “What is the difference?” Steve: “Umm, well . . .” Me: “Let me break it down for you. In good organizations, people can focus on their work and have confidence that if they get their work done, good things will happen for both the company and them personally. It is a true pleasure to work in an organization such as this. Every person can wake up knowing that the work they do will be efficient, effective, and make a difference for the organization and themselves. These things make their jobs both motivating and fulfilling.

So was it really necessary for me to make such a dramatic speech and threaten one of my executives? I think it was, for the following three reasons:   Being a good company doesn’t matter when things go well, but it can be the difference between life and death when things go wrong. Things always go wrong. Being a good company is an end in itself.

Now that probably doesn’t sound impressive. In fact, it probably sounds like a horrible failure. But I’d met dozens of GO employees in my career, including great people like Mike Homer, Danny Shader, Frank Chen, and Stratton Sclavos. The amazing thing was that every one of those GO employees counted GO as one of the greatest work experiences of their lives. The best work experience ever despite the fact that their careers stood still, they made no money, and they were front-page failures. GO was a good place to work. This made me realize what an amazingly effective CEO Bill was. Apparently, John Doerr thought that, too, because when Scott Cook needed a CEO for Intuit, John recommended Bill even though Bill lost a ton of John’s money at GO. And for years, everyone who ever came into contact with GO employees knew what Bill was about. He was about building good companies. If you do nothing else, be like Bill and build a good company.

Logically, training for high-tech companies made sense, but my personal experience with training programs at the companies where I had worked was underwhelming. The courses were taught by outside firms who didn’t really understand our business and were teaching things that weren’t relevant. Then I read chapter 16 of Andy Grove’s management classic, High Output Management, titled “Why Training Is the Boss’s Job,” and it changed my career. Grove wrote, “Most managers seem to feel that training employees is a job that should be left to others. I, on the other hand, strongly believe that the manager should do it himself.”

When I was director of product management at Netscape, I was feeling frustrated by how little value most product managers added to the business. Based on Andy’s guidance, I wrote a short document called “Good Product Manager/Bad Product Manager,” which I used to train the team on my basic expectations.

The best answer is that the manager clearly set expectations when she trained the employee for the job. If you don’t train your people, you establish no basis for performance management. As a result, performance management in your company will be sloppy and inconsistent.

During a time of particularly high attrition at Netscape, I decided to read all of the exit interviews for the entire company to better understand why people quit high-tech companies. After putting economics aside, I found that there were two primary reasons why people quit:

• They hated their manager; generally the employees were appalled by the lack of guidance, career development, and feedback they were receiving.
• They weren’t learning anything: The company wasn’t investing resources in helping employees develop new skills. An outstanding training program can address both issues head-on.

The other essential component of a company’s training program is management training. Management training is the best place to start setting expectations for your management team. Do you expect them to hold regular one-on-one meetings with their employees? Do you expect them to give performance feedback? Do you expect them to train their people? Do you expect them to agree on objectives with their team? If you do, then you’d better tell them, because the management state of the art in technology companies is extremely poor. Once you’ve set expectations, the next set of management courses has already been defined; they are the courses that teach your managers how to do the things you expect (how to write a performance review or how to conduct a one-on-one).

Teaching can also become a badge of honor for employees who achieve an elite level of competence.

Therefore, training should be the most basic requirement for all managers in your organization. An effective way to enforce this requirement is by withholding new employee requisitions from managers until they’ve developed a training program for the TBH, “To Be Hired.”

Good product managers crisply define the target, the “what” (as opposed to the “how”), and manage the delivery of the “what.” Bad product managers feel best about themselves when they figure out “how.” Good product managers communicate crisply to engineering in writing as well as verbally. Good product managers don’t give direction informally. Good product managers gather information informally.

Good product managers create collateral, FAQs, presentations, and white papers that can be leveraged by salespeople, marketing people, and executives. Bad product managers complain that they spend all day answering questions for the sales force and are swamped. Good product managers anticipate the serious product flaws and build real solutions. Bad product managers put out fires all day.

How do you tell if the rhythm mismatch or the skill set mismatch will be too much to overcome? Here are some interview questions that I found very helpful: What will you do in your first month on the job?

The most important difference between big and small companies is the amount of time running versus creating. A desire to do more creating is the right reason to want to join your company.

AGGRESSIVELY INTEGRATE THE CANDIDATE ONCE ON BOARD Perhaps the most critical step is integration. You should plan to spend a huge amount of time integrating any new executive. Here are some things to keep in mind:

• Force them to create. Give them monthly, weekly, and even daily objectives to make sure that they produce immediately. The rest of the company will be watching and this will be critical to their assimilation.
• Make sure that they “get it.” Content-free executives have no value in startups. Every executive must understand the product, the technology, the customers, and the market. Force your newbie to learn these things. Consider scheduling a daily meeting with your new executive. Require them to bring a comprehensive set of questions about everything they heard that day but did not completely understand. Answer those questions in depth; start with first principles. Bring them up to speed fast. If they don’t have any questions, consider firing them. If in thirty days you don’t feel that they are coming up to speed, definitely fire them.
• Put them in the mix. Make sure that they initiate contact and interaction with their peers and other key people in the organization. Give them a list of people they need to know and learn from. Once they’ve done that, require a report from them on what they learned from each person.

Here are three of the more popular types among startups: 1. Putting two in the box 2. Overcompensating a key employee, because she gets another job offer 3. No performance management or employee feedback process

Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organizational issues. If faced with giving everyone the same bonus to make things easy or with sharply rewarding performance and ruffling many feathers, they’ll ruffle the feathers. If given the choice of cutting a popular project today, because it’s not in the long-term plans or you’re keeping it around for morale purposes and to appear consistent, they’ll cut it today. Why? Because they’ve paid the price of management debt, and they would rather not do that again.

CHAPTER 6 — CONCERNING THE GOING CONCERN

After much consideration, I realized that the best technology companies of the day, Intel and Microsoft, were known to be highly profane places, so we’d be off culture with them and the rest of the modern industry if we stopped profanity. Obviously, that didn’t mean that we had to encourage it, but prohibiting it seemed both unrealistic and counterproductive. Attracting the very best engineers meant recruiting from highly profane environments. The choice was between optimizing for top talent or clean culture. Easy decision.

Sometimes an organization doesn’t need a solution; it just needs clarity.

As I developed as a CEO, I found two key techniques to be useful in minimizing politics.

1. Hire people with the right kind of ambition. The cases that I described above might involve people who are ambitious but not necessarily inherently political. All cases are not like this. The surest way to turn your company into the political equivalent of the U.S. Senate is to hire people with the wrong kind of ambition. As defined by Andy Grove, the right kind of ambition is ambition for the company’s success with the executive’s own success only coming as a by-product of the company’s victory. The wrong kind of ambition is ambition for the executive’s personal success regardless of the company’s outcome.
2. Build strict processes for potentially political issues and do not deviate. Certain activities attract political behavior. These activities include: Performance evaluation and compensation, Organizational design and territory, Promotions

Nothing motivates a great employee more than a mission that’s so important that it supersedes everyone’s personal ambition. As a result, managers with the right kind of ambition tend to be radically more valuable than those with the wrong kind. For a complete explanation of the dangers of managers with the wrong kind of ambition, I strongly recommend Dr. Seuss’s management masterpiece Yertle the Turtle.

The topics of his potential compensation and career advancement didn’t come up until the very end of the process. And then he only wanted assurances that compensation was performance- and not politically based. It was clear that Mark was all about the team and its success.

The best way to mitigate both the Peter Principle and the Law of Crappy People is with a properly constructed and highly disciplined promotion process. Ideally, the promotion process should yield a result similar to the very best karate dojos. In top dojos, in order to achieve the next level (for example, being promoted from a brown belt to a black belt), you must defeat an opponent in combat at that level. This guarantees that a new black belt is never a worse fighter than the worst current black belt.

At Facebook, by contrast, Mark Zuckerberg purposely deploys titles that are significantly lower than the industry standard.

Often, it’s very difficult to turn these kinds of cases around. Once an employee takes a public stance, the social pressure for him to be consistent is enormous. If he tells fifty of his closest friends that the CEO is the stupidest person on the planet, then reversing that position will cost him a great amount of credibility the next time he complains. Most people are not willing to take the hit to their credibility.

The proper reason to hire a senior person is to acquire knowledge and experience in a specific area.

Bill Campbell developed an excellent methodology for measuring executives in a balanced way that will help you achieve this. He breaks performance down into four distinct areas:

1. Results against objectives - Once you’ve set a high standard, it will be straightforward to measure your executive against that standard.
2. Management - Even if an executive does a superb job achieving her goals, that doesn’t mean she is building a strong and loyal team. It’s important to understand how well she is managing, even if she is hitting her goals.
3. Innovation - It’s quite possible for an executive to hit her goal for the quarter by ignoring the future. For example, a great way for an engineering manager to hit her goals for features and dates is by building a horrible architecture, which won’t even support the next release. This is why you must look beyond the black-box results and into the sausage factory to see how things get made.
4. Working with peers - This may not be intuitive at first, but executives must be effective at communicating, supporting, and getting what they need from the other people on your staff. Evaluate them along this dimension.

Perhaps the CEO’s most important operational responsibility is designing and implementing the communication architecture for her company.

Generally, people who think one-on-one meetings are a bad idea have been victims of poorly designed ones. The key to a good one-on-one meeting is the understanding that it is the employee’s meeting rather than the manager’s meeting. This is the free-form meeting for all the pressing issues, brilliant ideas, and chronic frustrations that do not fit neatly into status reports, email, and other less personal and intimate mechanisms.

During the meeting, since it’s the employee’s meeting, the manager should do 10 percent of the talking and 90 percent of the listening. Note that this is the opposite of most one-on-ones.

Perks are good, but they are not culture.

So, if you want to do something that matters, then you are going to have to learn the black art of scaling a human organization.

CHAPTER 7 — HOW TO LEAD EVEN WHEN YOU DON’T KNOW WHERE YOU ARE GOING

“I didn’t understand anything about your business and I understood very little about your industry. What I saw was two guys come visit me when every other public company CEO and chairman was hiding under their desk. Not only did you come see me, but you were more determined and convinced you would succeed than guys running giant businesses. Investing in courage and determination was an easy decision for me.” That’s how Herb Allen does business. And that’s why, if given the chance, you’d be a fool not to do business with Herb.

By far the most difficult skill I learned as CEO was the ability to manage my own psychology. Organizational design, process design, metrics, hiring, and firing were all relatively straightforward skills to master compared with keeping my mind in check. I thought I was tough going into it, but I wasn’t tough. I was soft.

As CEO, there will be many times when you feel like quitting. I have seen CEOs try to cope with the stress by drinking heavily, checking out, and even quitting. In each case, the CEO has a marvelous rationalization about why it was okay for him to punk out or quit, but none of them will ever be great CEOs. Great CEOs face the pain.

Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEOs point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers. They all say, “I didn’t quit.”

When my partners and I meet with entrepreneurs, the two key characteristics that we look for are brilliance and courage. In my experience as CEO, I found that the most important decisions tested my courage far more than my intelligence.

For our purposes, we can generalize this to be the measure of the quality of a leader: the quantity, quality, and diversity of people who want to follow her. So what makes people want to follow a leader? We look for three key traits:

• The ability to articulate the vision
• The right kind of ambition
• The ability to achieve the vision

It turned out that a little wartime was just what the doctor ordered for Google. Page’s precise and exacting leadership has led to brilliant execution in integrating identity across Google’s broad product line, from the rise of Android to brilliant new products like Google Glass. Sometimes you need to go to war.

Doing so would be quite bizarre, but evaluating people’s performances and constantly giving feedback is precisely what a CEO must do.

Once you’ve mastered the keys, you should practice what you’ve mastered all the time. As CEO, you should have an opinion on absolutely everything. You should have an opinion on every forecast, every product plan, every presentation, and even every comment. Let people know what you think. If you like someone’s comment, give her the feedback. If you disagree, give her the feedback. Say what you think. Express yourself.

By describing how I evaluate CEOs, I am at the same time describing what I think the job of the CEO is. Here are the key questions we ask:

1. Does the CEO know what to do?
2. Can the CEO get the company to do what she knows?
3. Did the CEO achieve the desired results against an appropriate set of objectives?

I evaluate two distinct facets of knowing what to do:

• Strategy - In good companies, the story and the strategy are the same thing. As a result, the proper output of all the strategic work is the story.
• Decision making - At the detailed level, the output of knowing what to do is the speed and quality of the CEO’s decisions.

When a company clearly articulates its story, the context for everyone — employees, partners, customers, investors, and the press — becomes clear. When a company fails to tell its story, you hear phrases like:

• These reporters don’t get it.
• Who is responsible for the strategy in this company?
• We have great technology, but need marketing help.

Want to see a great company story? Read Jeff Bezos’s three-page letter he wrote to shareholders in 1997. In telling Amazon’s story in this extended form — not as a mission statement, not as a tagline — Jeff got all the people who mattered on the same page as to what Amazon was about.

Some employees make products, some make sales; the CEO makes decisions. Therefore, a CEO can most accurately be measured by the speed and quality of those decisions. Great decisions come from CEOs who display an elite mixture of intelligence, logic, and courage.

While it may be quite easy to describe, building a well-run organization requires a high level of skill. The skills required range from organizational design to performance management. They involve the incentive structure and the communication architecture that drive and enable every individual employee. When a CEO “fails to scale,” it’s usually along this dimension. In practice, very few CEOs get an A on this particular test.

CHAPTER 8 — FIRST RULE OF ENTREPRENEURSHIP: THERE ARE NO RULES

This is the easy one. To be a world-class company, you need world-class effort. If somebody isn’t giving it to you, they must be checked.

The very next day I informed the head of Sales Engineering and the head of Customer Support that they would be switching jobs. I explained that, like Jodie Foster and Barbara Harris, they would keep their minds, but get new bodies. Permanently. Their initial reactions were not unlike the remake where Lindsay Lohan and Jamie Lee Curtis both scream in horror. However, after just one week walking in the other’s moccasins, both executives quickly diagnosed the core issues causing the conflict. They then swiftly acted to implement a simple set of processes that cleared up the combat and got the teams working harmoniously. From that day to the day we sold the company, the Sales Engineering and Customer Support organizations worked better together than any other major groups in the company — all thanks to Freaky Friday, perhaps the most insightful management training film ever made.

As CEO, you can do very little employee development. One of the most depressing lessons of my career when I became CEO was that I could not develop the people who reported to me. The demands of the job made it such that the people who reported to me had to be 99 percent ready to perform. Unlike when I ran a function or was a general manager, there was no time to develop raw talent. That can and must be done elsewhere in the company, but not at the executive level.

In providing this kind of direction, it’s important to point out to the executive that when the company doubles in size, she has a new job. This means that doing things that made her successful in her old job will not necessarily translate to success in the new job. In fact, the number-one way that executives fail is by continuing to do their old job rather than moving on to their new job.

CHAPTER 9 — THE END OF THE BEGINNING

Press and analysts: We have a saying around the firm: Show it, sell it; hide it, keep it.

Hard things are hard because there are no easy answers or recipes. They are hard because your emotions are at odds with your logic. They are hard because you don’t know the answer and you cannot ask for help without showing weakness.

On my grandfather’s tombstone, you will find his favorite Marx quote: “Life is struggle.” I believe that within that quote lies the most important lesson in entrepreneurship: Embrace the struggle.