Diary of a Financier

Bookshelf update: The Hard Thing about Hard Things

In Bookshelf on Tue 6 Jan 2015 at 06:18

Sixteen takeaways from Ben Horowitz’s The Hard Thing about Hard Things: Building a Business When There Are No Easy Answers, as embodied by the following excerpts…

~~~~

1. The hard thing about hard things:

There’s no recipe for building a high-tech company; there’s no recipe for leading a group of people out of trouble; there’s no recipe for making a series of hit songs; there’s no recipe for playing NFL quarterback; there’s no recipe for running for President; and there’s no recipe for motivating teams when your business has turned to crap. That’s the hard thing about hard things—there is no formula for dealing with them…

It’s the moments where you feel most like hiding or dying that you can make the biggest difference as a CEO.

2. Successful partnerships:
The key is being comfortable enough to implore one another’s contentions as a means of progress and improvement, because their security comes from a shared purpose:

“People often ask me how [Marc Andreessen and I have] 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.

3. Weaknesses are more important than strengths:

Valuing lack of weakness rather than strength… The more experience you have, the more you realize that there is something seriously wrong with every employee in your company (including you). Nobody is perfect.”

4. Two types of friends you need:
Optimists and loyalists:

“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?”

5. Focus on the solutions, not the problems:
Don’t worry about the worst case scenario itself; think about how you’d handle it; then, if you’ve exhausted all options, maybe it’s time to cut your losses:

Rephrasing the worst case scenario [as] an action plan is a much better alternative than just accepting your worst case scenario. The simple existence of an alternative, plausible scenario is often all that is needed to keep hope and your company alive…

“I asked myself: ‘What’s the worst thing that could happen?’

“The answer always came back the same: ‘[Loudcloud could] go bankrupt, I’ll lose everybody’s money including my mother’s, I’ll have to lay off all the people who have been working so hard in a very bad economy, all of the customers who trusted me will be screwed, and my reputation will be ruined.’

“Funny, asking that question never made me feel any better.

“Then one day I asked myself a different question: ‘What would I do if we went bankrupt?’ The answer that I came up with surprised me: ‘I’d buy our software, Opsware, which runs in Loudcloud, out of bankruptcy and start a software company’…

“Then I asked myself another question: ‘Is there a way to do that without going bankrupt?'”

… “Then, if you [still] find yourself running when you should be fighting, you need to ask yourself, ‘If our company isn’t good enough to win, then do we need to exist at all?’

6. Believe in certainties, not probabilities:
Choose the worldview of calculus, wherein there are answers, as opposed to statistics, wherein there are only odds:

“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… I sincerely appreciate [an employee] telling me the truth about the odds. But I don’t believe in statistics. I believe in calculus.

I actually disagree with this philosophy.  Nobody knows the outcomes of a complex system with any amount of certainty.  Socrates said: ‘Wise men aren’t wise because they know everything, but because they know they don’t know everything.’  A leader’s job is to make decisions based on probability-weighted present values, so in theory good management will prove itself over a large enough sample size of trials.

That said, I think the thrust of ‘focusing on finding answers’ is the same theory as Clayton Christensen’s “Discovery-based planning” strategy.

7. Remove all roadblocks to get the job done
Whether a project or a deal, remove all roadblocks so that any necessary task gets done without delay:

“An early lesson I learned in my career was that whenever a large organization attempts to do anything, it always comes down to a single person who can delay the entire project. An engineer might get stuck waiting for a decision or a manager may think she doesn’t have authority to make a critical purchase. These small, seemingly minor hesitations can cause fatal delays ( for the deal to sell Loudcloud to EDS) The purpose was to remove all roadblocks. If anyone was stuck on anything for any reason, it could not last more than twenty-four hours — the time between meetings

“[A boardmember once said:] ‘Gentlemen, I’ve done many deals in my lifetime and through that process, I’ve developed a methodology, a way of doing things, a philosophy if you will. Within that philosophy, I have certain beliefs. I believe in artificial deadlines. I believe in playing one against the other. I believe in doing everything and anything short of illegal or immoral to get the damned deal done.'”

As Nike says, “Just do it.”

8. Raising Money:

“[Due to the dot.com bust] I learned the most important rule of raising money privately: Look for a market of one. You only need one investor to say ‘yes,’ so it’s best to ignore the other thirty who say ‘no.’

9. Product strategy:
Sometimes you have to ignore the facts or the data, which is what I call a “quantitative process with a discretionary overlay”:

Figuring out the right product is the innovator’s job, not the customer’s job. The customer only knows what she thinks she wants based on her experience with the current product. The innovator can take into account everything that’s possible, but often must go against what she knows to be true. As a result, innovation requires a combination of knowledge, skill, and courage. Sometimes only the founder has the courage to ignore the data…

“Early in my career as an engineer, I’d learned that all decisions were objective until the first line of code was written. After that, all decisions were emotional.”

Like Henry Ford said: “if I’d asked customers what they wanted, they would have told me a faster horse.”

10. Be honest:
Tell it like it is — it’s more efficient:

“If you run a company, you will experience overwhelming psychological pressure to be overly positive. Stand up to the pressures, face your fear, and say things like they are. Breed trust worthiness, and the more people working on the problems, the better.

“A healthy company culture encourages people to share bad news. A company that discusses its problems freely and openly can quickly solve them. A company that covers up its problems frustrates everyone involved.”

11. Keep death in mind at all times

“Bushido’s the way of the warrior [Samurai code]: ‘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.

Reminiscent of Steve Jobs’ “Remembering that I’ll be dead soon” speech.

12. Peacetime vs Wartime CEOs:
You’re always at war, which healthy paranoia keeps companies performing at their best (similar to #10):

“Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win.

“Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO cares about a speck of dust on a gnat’s ass if it interferes with the prime directive.

“Peacetime CEO builds scalable, high-volume recruiting machines. Wartime CEO does that, but also builds HR organizations that can execute layoffs.

“Peacetime CEO spends time defining the culture. Wartime CEO lets the war define the culture.

“Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes you gotta roll a hard six.

“Peacetime CEO knows what to do with a big advantage. Wartime CEO is paranoid.

“Peacetime CEO strives not to use profanity. Wartime CEO sometimes uses profanity purposefully.

“Peacetime CEO thinks of the competition as other ships in a big ocean that may never engage. Wartime CEO thinks the competition is sneaking into her house and trying to kidnap her children.

“Peacetime CEO aims to expand the market. Wartime CEO aims to win the market.

“Peacetime CEO strives to tolerate deviations from the plan when coupled with effort and creativity. Wartime CEO is completely intolerant.

“Peacetime CEO does not raise her voice. Wartime CEO rarely speaks in a normal tone.

“Peacetime CEO works to minimize conflict. Wartime CEO heightens the contradictions.

“Peacetime CEO strives for broad-based buy-in. Wartime CEO neither indulges consensus building nor tolerates disagreements.

“Peacetime CEO sets big, hairy, audacious goals. Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand.

“Peacetime CEO trains her employees to ensure satisfaction and career development. Wartime CEO trains her employees so they don’t get their asses shot off in the battle.

“Peacetime CEO has rules like ‘We’re going to exit all businesses where we’re not number one or two.’ Wartime CEO often has no businesses that are number one or two and therefore does not have the luxury of following that rule.”

13. The Struggle:
Startup culture and management are unavoidably hard, so try to relax and enjoy the ride:

“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. When I work with entrepreneurs today, this is the main thing that I try to convey. Embrace your weirdness, your background, your instinct
i. The Struggle is when you wonder why you started the company in the first place.
ii. The Struggle is when people ask you why you don’t quit and you don’t know the answer.
iii. The Struggle is when your employees think you are lying and you think they may be right.
iv. The Struggle is when food loses its taste.
v. The Struggle is when you don’t believe you should be CEO of your company.
vi. The Struggle is when you know that you are in over your head and you know that you cannot be replaced.
vii. The Struggle is when everybody thinks you are an idiot, but nobody will fire you.
viii. The Struggle is where self-doubt becomes self-hatred.
ix. The Struggle is when you are having a conversation with someone and you can’t hear a word that they are saying because all you can hear is the Struggle.
x. The Struggle is when you want the pain to stop.
xi. The Struggle is unhappiness.
xii. The Struggle is when you go on vacation to feel better and you feel worse.
xiii. The Struggle is when you are surrounded by people and you are all alone…
xiv. The Struggle is where your guts boil so much that you feel like you are going to spit blood.
xv. The Struggle is not failure, but it causes failure. Especially if you are weak. Always if you are weak.
xvi. The Struggle is where greatness comes from.”

14. Employees are the most important input:
Take care of people, products, and profits, in that order:

“It’s a simple saying, but it’s deep. ‘Taking care of the people’ is the most difficult of the three by far and if you don’t do it, the other two won’t matter… [it] means that your company is a good place to work…

i. 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.

ii. Things always go wrong.

iii. Being a good company is an end in itself.”

Don’t forget the most important of the “4 Ps,” purpose, which Jeff Bezos thinks is incentive enough for his employees.

15. Management debt:
As opposed to technical, balance sheet debt, management debt is the implicit, contingent liability resulting from poor management decisions.  A couple common examples include:

i. “Putting two in the box”: if two you have two, valuable employees competing for the same role/title, you’ll have to disappoint (and potentially lose) one of them; don’t retain both in a duplicative, overlapping roles

ii. Overcompensating a key employee because she gets another job offer

iii. Objective performance management/employee feedback process: people need to know their careers are progressing, and leaders need to provide a system to measure that objectively

16. The hardest way is often the easiest:
Don’t choose to minimize pain today if it creates another problem tomorrow; the short term is insignificant relative to the long term:

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.”

This is something I’ve learned empirically from mountain biking, where the hardest looking route up a trail is often, ironically, the path of least resistance.  The difference is usually myopia: I can usually roll over a small technical challenge in the near term, which leaves me with an easy ride long term; or I can choose the long, steady grind.

~~~~

Broadly, the book also covers the following topics (or “hard things”):

  • Demoting/firing a loyal friend
  • What to do when smart people are bad employees
  • How to handle promotions, raises & titles
  • How/whether to hire people from a friend’s company
  • Managing your own psychology: especially when the whole company is relying on you
  • How/whether to sell your company
  • Andreessen Horowitz’s value proposition/differentiation/secret sauce: whereas other VCs install professional CEOs, a16z prefers to retain founder CEOs, because they have the vision & intimate knowledge of their product, and it’s easier to train a founder to become a leader than the other way around; as a result a16z focused on providing all the supporting resources their founders needed, like a virtual team including finance, marketing, HR, business advisory, etc.

A more comprehensive synopsis can be found here: Book Notes

–Romeo

#Business #Startup #Management #Venture Capital

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