BEN HOROWITZ IS A cofounder and general partner of the venture capital firm Andreessen Horowitz. Prior to a16z, Ben was cofounder and CEO of Opsware (formerly Loudcloud), which was acquired by Hewlett-Packard in 2007 for $1.6 billion, and was appointed vice president and general manager of Business Technology Optimization for Software at HP. Earlier, he was vice president and general manager of America Online’s E-commerce Platform division, where he oversaw development of the company’s flagship Shop@AOL service. Previously, Ben ran several product divisions at Netscape Communications. He also served as vice president of Netscape’s widely acclaimed Directory and Security product line. Before joining Netscape in July 1995, he held various senior product marketing positions at Lotus Development Corporation. He is the author of The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers, in which he candidly reveals how hard it is to start and run a company. He was born in London and raised in Berkeley, California. Horowitz has a BA in computer science from Columbia University and an MS in computer science from the University of California, Los Angeles.
1. “You read these management books that say, ‘These are the hard things about running a company.’ But those aren’t the hard things.”
My old boss Jim Barksdale said that most management consultants have never managed a hot dog stand.
Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand.
When I was a CEO, the books on management that I read weren’t very much help after the first few months on the job. They were all designed to give you directions on how not to screw up your company. Nevertheless, it doesn’t take long before you get beyond that and you’re like, “Okay, I’ve screwed up my company; now what do I do?” Most books on management are written by management consultants, and they study successful companies after they’ve succeeded, so they only hear winning stories.
People who write about management tend to follow a formula that Michael Mauboussin has described:
The most common method for teaching business management is to find successful businesses, identify their common practices, and recommend that managers imitate them. This formula is intuitive and it includes some compelling narrative, and has sold millions of books. The reality is that attributing a firm’s success to a particular strategy may be wrong if you sample only the winners. When luck plays a part in determining the consequences of your actions—as is often the case in business—you don’t want to study success to identify good strategy but rather study strategy to see whether it consistently led to success.
Horowitz, like Mauboussin, believes in reality-based decision-making. Horowitz has written about what he calls “the Struggle,” which is “basically what you feel like when your world is caving in.” Running a business is not the equivalent of hosting a well-planned garden party. A friend told me many years ago, “Once a business gets beyond the planning stage, stuff breaks.” Things will go haywire at unexpected times and places. When that happens, having great managers who have the ability and willingness to adapt and make wise decisions pays big dividends.
2. “Management turns out to be dynamic and situational and personal and emotional. So it’s pretty hard to write a formula or instruction book on it.”
There isn’t one lesson that solves everything.
Nobody is born knowing how to be a CEO. It’s a learned skill, and unfortunately, you learn it on the job.
The only thing that prepares you to run a company is running a company.
When a CEO is engaged in what Horowitz calls “the Struggle,” there are no formulas to follow. Being a CEO is like being an investor in that you cannot simulate the experience. In both cases, you learn by doing, just like everyone who has come before you. Having said that, just because the skills required to be a successful CEO must be learned on the job does not mean that you cannot learn something by observing another CEO or manager. For example, Horowitz had the opportunity while working at Netscape to watch Jim Barksdale, who many feel is one of the best CEOs of all time. Horowitz has also identified Bill Campbell and Ken Coleman as having been among his mentors.
3. “In reality, companies are what they are, and nobody has ever worked anywhere where everything is perfect. And so pretending that things are perfect isn’t very effective.”
I don’t know that I’m drawn to conflict; you don’t necessarily in these businesses want to conflict with other companies, though you get it a fair amount. But, and this is one of the best management pieces of advice I ever got from Marc Andreessen: He was quoting Lenin, who was quoting Karl Marx, who said, “Sharpen the contradictions.” Marx was talking about labor and capital, which is not generally what you’re talking about when you’re running a company. However, the conflict is where the truth is. Therefore, when there’s a conflict in the organization, you do not want to smooth it over. You want to sharpen the contradictions, heat up both opinions, and resolve it. Good CEOs are excellent at doing that. And it’s miserable to work for someone who tries to smooth things over.
The key phrase in these quotes from Horowitz is “conflict is where the truth is.” As with almost everything in life, all businesses are imperfect. The ability to successfully identify what needs to change to improve a business is based on the ability to recognize and resolve conflict. Hiding conflict causes problems to fester and grow. Horowitz believes, “You do not want to smooth over conflicts. You want the conflicts to surface, and you want to resolve them. If you don’t, you have got problems. If you do surface and resolve them, you will be a pretty good manager.”
4. “When a company goes astray, you talk to employees, and they say, ‘We have no strategy. We don’t know where we’re going.’ The strategy is the story. They’re not different. The strategy is the story you tell. It’s the why. If you can’t tell that in a massively compelling way, who’s going to follow you? That’s what makes people get up in the morning and do stuff.”
The story must explain at a fundamental level why you exist. Why does the world need your company? Why do we need to be doing what we’re doing, and why is it important?
You can have a great product, but a compelling story puts the company into motion. If you don’t have a great story, it’s hard to get people motivated to join you, to work on the product, and to get people to invest in the product.
The mistake people make is thinking the story is just about marketing. No, the story is the strategy. If you make your story better, you make the strategy better.
Storytelling is the most underrated skill.
The CEO and founders must own the story of their business. It is their responsibility to keep it up to date and compelling. The fact that humans love a good story makes the CEO and founders’ task easier. Because people often have trouble understanding or remembering ideas and instructions, stories help them stay on track and motivated. When talking about the importance of storytelling, Horowitz makes a point about strategy: What a company does differently from its competitors drives the company. The story must convey what the business does that is uniquely valuable and how that will create a sustainable competitive advantage (a moat). Why does the business exist?
As an example of the importance of a compelling story, I once had a conversation with a venture capitalist who owns a winery. We agreed that when talking about his industry, one in which the story is key to the product, wine should be front and center. The terrain, the grapes, the winemaker, and so on are all part of a compelling story. Many people seem to enjoy the story of the wine more than the wine itself.
5. “Think for yourself. That is the distinguishing characteristic of the great entrepreneurs.”
The trouble with innovation is that truly innovative ideas often look like bad ideas at the time.
Innovation is almost insane by definition: Most people view any truly innovative idea as stupid because if it were a good idea, somebody would have already done it. So, the innovator is guaranteed to have more natural initial detractors than followers.
Founders who deliver new value to the world think differently. That value comes from believing in or recognizing something as true that other people do not see. Such founders are inevitably breaking at least one critical assumption that others have made.
Great founders and CEOs do not outperform the market by following the crowd. Not only must founders and CEOs occasionally be contrarian, but they must be sufficiently right about a contrarian view that will drive outperformance. The best way to be a successful contrarian is, as Horowitz points out, to think for yourself. Being a contrarian by definition means that you must be prepared to sometimes be lonely in some of your views. Thinking differently separates you from the warmth of the crowd.
6. “People say that the CEO should be ‘the best salesman at the company’ or the ‘product visionary’ or all these things. No. The CEO is the CEO. They’ve got to deliver very quality decisions at a very high rate of speed. And if they don’t make a decision, the company freezes up. To do that, you need to be talking to everybody. You need to figure out what’s going on with your finance people, and your engineering people. Because by the time this shit comes to you, you won’t have time to do that. You won’t have time to make your decision.”
The ability to make timely and wise decisions is the mark of great CEOs. They make decisions look easier than they actually are by being prepared. As an analogy, the best defensive baseball players are standing in just the right spot waiting for the ball when it arrives. They are in position before the ball is pitched. Similarly, great business decision-makers are ready to make decisions when the time comes because they have done the necessary preparation. That preparation allows them to make timely and more valuable decisions.
7. “Sometimes an organization doesn’t need a solution; it just needs clarity.”
Often any decision, even the wrong decision, is better than no decision.
Not making decisions is making a decision, as is not making decisions quickly and decisively. Too often the answer to a request for decisions is like the old joke about the psychiatrist who asks his patient if he has trouble making decisions. The patient responds, “Well, doctor, yes and no.” A common problem is that sometimes when we are presented with several options, they may blind us to other choices—including the simplest and most sensible one.
8. “The primary thing that any technology startup must do is build a product that’s at least ten times better at doing something than the current prevailing way of doing that thing. Two or three times better will not be good enough to get people to switch to the new thing fast enough or in large enough volume to matter.”
If you don’t have a winning product, it doesn’t matter how well your company is managed; you are done.
One essential element of any successful business is cost-effectively acquiring customers. If you pay too much for sales and marketing to acquire new customers, you can quickly (or slowly) go broke. Sam Altman puts it simply: “Be suspect about buying users.” The better approach is to have customers who are attracted organically by a better product or service. Word of mouth alone is unlikely to grow a business, but it should be an essential part of the customer acquisition process. What drives word on mouth is a product that genuinely delights customers by delivering solutions with the increased value Horowitz describes.
9. “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, often going against what she knows to be true. This requires a combination of knowledge, skill, and courage.”
Steve Jobs famously said, “It’s hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” If something is going to be more than ten times better than what competitors are offering, the product or service needs to be vastly different than what customers have seen before. A “me-too” product or service is not going to move the needle in a sufficiently positive way for a venture-backed startup to be financially successful.
10. “There are only two priorities for a startup: winning the market and not running out of cash. Running lean is not an end.”
The only mistake you cannot make is running out of cash.
The only unforgivable sin in business is to run out of cash. Earnings are an opinion. Cash is a fact. Should a business spend every penny wisely? Absolutely. But do not run of out of cash. Is equity dilution something to be avoided? Sure. But do not run out of cash. Can too much cash allow a business to solve problems with money rather than culture? Yep, but do not run out of cash. Can innovation be greater when a company has less capital? Yes, but do not run out of cash.
11. “What do you get when you cross a herd of sheep with a herd of lemmings? A herd of venture capitalists.”
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.
The best founders and venture capitalists think for themselves, just as the best CEOs think for themselves. Anyone who has been paying attention over the last few decades knows that venture capital is a cyclical business. This cyclicality occurs for the same reason that economic cycles occur in other sectors: People do not make decisions independently. Information cascades sometimes cause markets to swing in a bipolar fashion. Venture capitalists who think independently and ignore the swings generate better financial returns. You find bargains where others are not looking, particularly when it comes to convex opportunities.
12. “Every time you make the hard, correct decision you become a bit more courageous, and every time you make the easy, wrong decision you become a bit more cowardly. If you are CEO, these choices will lead to a courageous or cowardly company.”
It may seem odd to think about a business leader needing to be courageous. The reality is that there are few easy decisions for a business leader trying to navigate “the Struggle.” People’s lives will be significantly affected by the success or failure of a business. For example, whether employees and other stakeholders can pay their bills, send their children to college, or retire comfortably can all be affected by a single decision. Horowitz is saying that there are feedback loops impacting executive courage and cowardice, just like the other feedback loops that are impacting the business world today. Courage begets courage.