The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers


The Hard Thing About Hard Things
Category: Finance
Author: Ben Horowitz
Publisher: Harper Business
Published: 3/4/2014
In The Hard Thing About Hard Things, Ben Horowitz, cofounder of Andreessen Horowitz and one of Silicon Valley's most respected and experienced entrepreneurs, draws on his own story of founding, running, selling, buying, managing, and investing in technology companies to offer essential advice and practical wisdom for navigating the toughest problems business schools don't cover.

Book Summary - The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz

Key Insights

In the Hard Thing About Hard Things: Building a Business When There Are No Easy Answers, entrepreneur Ben Horowitz gives both experienced and up-and-coming business owners advice about how to create and run a startup, as well as how to deal with the loneliness, stress, and difficulties that come with it.

Using his own experiences (and a few rap lyrics), he gives readers a real, honest look at what goes on behind the curtain. From advice about how to be the best CEO to your employees to the tough things like poaching competitors and firing your friends, nothing is off-limits.

Horowitz helps the reader to find the right CEO mind frame to effectively run a business. He uses the things he himself learned as a CEO (who then sold his company for $1.6 billion) to teach others how to know when and how to make the tough decisions, and how to feel okay with yourself for doing it.

Key Points

“The Struggle”

While every CEO and company founder is full of dreams of a perfect future in which their business flourishes, this dream is not a reality. Nothing ever entirely goes according to plan, and crises will arise. Some crises may be “macro” problems, like financial collapse and loss of investors, and some may be “micro” problems like hiring the wrong person, but the crises will always occur.

“The Struggle,” as Horowitz calls it, happens when the CEO’s dreams butt up against the problems of reality. The Struggle is stressful; it is like a heavyweight that can never be shaken throughout the CEO’s entire life. It will affect relationships, will affect mental health, and can even affect his or her physical health.

It is something that is incredibly tough to live with, but it is The Struggle that pushes one to go from just a good CEO to something much greater. The CEO who struggles is the CEO who will get the company through both hard times and good times. He or she will be the CEO who gets the credit for the success it sees or the blame for the bad.

The Struggle is a powerful thing.

Living with The Struggle

Despite it being the key to greatness, The Struggle can be a callous thing to live with. There are, however, ways to deal with it.

The first thing the author suggests is that even though, as CEO, you will carry most of the burden for the company, you shouldn’t take it all on your own. Find others who can help you to deal with crises, just like the author did during the dot-com crash. As CEO of his software company, Opsware, he gathered all of his employees and told them that they either had to break down and rebuild their product from the ground up, or they would have to go out of business.

He told them that they could either stay and help and keep the company alive, or if they didn’t think they could do it, they should quit right then and there. This ensured that the people who stayed were the ones most committed, and the new product that came out of this situation ended up raising the price of the company’s stocks from $0.35 to $7 per share.

Horowitz’s second tip is that, when all seems lost, it’s time to get creative. He gives the example of Loudcloud (the original name for Opsware). It was several million dollars behind its target revenue during the dot-com boom in the 1990s, which was a repellant for investors. Feeling as if he had no other choice, he got creative: he took Loudcloud public and raised the remaining money that way.

Lastly, Horowitz warns that the toughest part of being a CEO is dealing with your own thoughts and feelings. The Struggle will cause you to feel lonely, lost, and anxious. To surpass this challenge, he suggests following the example of a racecar driver. These drivers focus only on the road ahead of them, not on the potential dangers or walls around them. Focus on solutions in front of you, not on the problems that surround you.

Don’t Keep Secrets

When you are the CEO of a company, it is natural to want to keep any bad news to yourself to avoid upsetting your employees or making them lose faith in you or the business. However, this is precisely the wrong thing to do.

Bad news tends to spread itself around very quickly anyway, so chances are that your team will find out sooner or later whether you tell them or not. It would be much better coming from you, their leader. But this is not the only reason why it is better to be upfront about problems.

It is better to give your employees and executives bad news as soon as possible instead of trying to keep it hidden while you scramble to try to fix it on your own. Not only can employees probably handle bad news better than the CEO (because he/she is the one responsible for the fallout, not them), but they can also be helpful in solving the problem.

The book gives an example of a significant change in technology in the company’s target market. Instead of trying to figure out what this change means for the company and how to come up with a different technology him/herself, the CEO could tell the team about the problem and they could work together to fix it. For instance, the accountants can figure out how much the change will cost the company while the engineers take a look at technological changes that could be made, thus attacking the problem from multiple angles.

The sooner you divulge any issues, the earlier others in your company can help you to solve them with their own individual expertise.

The Right Way to Lay Off Employees

Layoffs are surely considered bad news, so they, too, are something you must be upfront about, and you must carry them out quickly. As soon as you have decided that it is necessary to layoff employees, lay them off. Announcing layoffs and then waiting to actually pull the trigger keeps everyone in panic mode for much longer than necessary.

Another problem with not announcing layoffs as soon as you know about them is that the news will trickle down to the employees anyway. They will worry about their jobs. They will ask their managers if they are going to be laid off, and the managers will either have to lie and damage the employees’ trust, or they will genuinely not know and come off looking as if they are out of the loop, which doesn’t inspire trust either.

During the actual layoff process, it is also vital that you are fair to the employees you are letting go of. You have to give them respectable severance packages and references they can use later, as they didn’t do anything wrong in this case. This might not make everything just peachy for the employees you laid off, but it does help to keep up the spirits of the remaining employees and makes your company appear trustworthy and kind to those applying to work there in the future.

Finally, when it comes to justifying layoffs, you must be clear that the company failed the employees, not the other way around. This ensures that your employees trust the company/CEO and feel respected, and it also helps the people left to realize that the company has a problem that needs to be solved together.

Firing Executives

It is one thing to lay off employees in the workforce, but it is quite another to fire an executive. This is a more complicated process and must start with you, the CEO, admitting to the board of executives that you were responsible for hiring the person in the first place, and were wrong to do so. In spite of this mistake, you can prove to the board that you are trustworthy by performing a root cause analysis to find out how you ended up hiring the wrong person, what exactly went wrong, and how you can keep the incident from repeating itself in the future.

Next, you must get ready for your conversation with the executive you are planning to fire. Consider the words you will use and the severance package you will offer. Don’t review his or her performance, as this is not something that can be improved upon or negotiated. Most importantly, though, don’t embarrass or be rude to the executive. As angry as you might be, keeping your cool will keep other employees from fearing getting on your wrong side, and it will also allow the outgoing executive to keep his/her head held high.

Then, once the executive is gone, try to keep operations running smoothly and normally to keep everything on track and consistent.

Three Tips for Building a Great Company

Before you start making decisions about who to let go of your company, you must first work on building a great one. The book gives three main guidelines for doing this:

 

  • Take care of your employees - Your people are more important than your products and should be treated as such. Make sure you have a good human resources department to alert you to problems you may not otherwise see, like employee unease or the fact that your pay rate isn’t as competitive as you thought.You should also have a training program in place for all new employees so that they can learn everything they need to know to help them (and the company) reach their goals. The management team should also have the training, so that they know how to train others.
  • Hire based on strengths and avoid mismatches - Everyone has weaknesses, but when it comes to potential employees, many flaws can/should be overlooked in favor of that employee’s strengths. There may be a candidate that has been ignored by other companies because of things like attitude, but in reality, they have great advantages that could make your company better. Opt to focus on strengths, especially in executives, and overlook weaknesses when you can.Before you decide who to hire based on their strengths, make sure they are the right fit for the job. Do they have experience working in a company like yours, or are they more used to a slower or faster pace? A mismatch in expectations or in skill sets can make the hire a wrong choice, and this should be avoided.
  • Leave politics out of it - No, we’re not talking about who your preferred presidential candidate is here. We’re talking about office politics, such as maneuvering to get a better position without earning it or a promotion one doesn’t deserve. Hire people who are looking to advance the company, not just their own career. Space performance reviews out throughout the year and includes promotion schedules and possibilities for raises so no one has to resort to trickery to get ahead.It is also essential to have a clear hierarchy, not so that someone feels superior to someone else, but so that your employees on each level know that they are valuable because of their merits in that specific position. This also helps the pay scale to make sense to everyone and to give people something to strive for.

 

How to Be a Great CEO

Okay, so you understand how to deal with The Struggle and how to make your organization great. But how do you make yourself exceptional in the position of CEO?

CEOs must be able to find the best direction for their company to go in, and they have to be able to get there no matter what. The author gives the example of when Opsware’s stock dropped to $0.35 per share, meaning that it was heading for the penny stocks if he didn’t get it back up to $1 -- and fast. In the end, he saved the company by sheer force of will, as the investor that tipped the scale only invested because Horowitz was so determined to get his company moving back in the right direction.

This isn’t something that one can do alone, though. A great CEO has to get the rest of his or her company to follow them in the direction they need to go. You can do this by being clear about what the goals are, motivating your employees and being honest with them, and ultimately having them carry out your vision.

Authenticity is vital: the best CEOs in history have always been those who were faithful to themselves, decisive, and full of passion for their product and company. They make people want to follow them, and thus the company becomes successful.

CEOs aren’t born knowing these things, though. They learn what works as they go, and it may feel uncomfortable at first. Things like evaluating employees and giving feedback on performance can be awkward, but just keep being yourself, and follow the examples of other leaders (like using the “shit sandwich,” for example, where you sandwich the negative/problematic topic between two comments that are positive).

Anyone can be a great CEO; you just have to work at it.

Ones and Twos

There are two types of leaders in this world, and the author classifies them as “Ones” and “Twos.” Ones consist of leaders like Bill Gates, who are usually also the founders of the company. These leaders are usually all about setting a path for the company, coming up with strategies to beat competitors and to get ahead. They are not as interested in things like goal setting, training, managing performance, and other day-to-day things.

Twos are precisely the opposite, spending more energy on things like performance management than on research and plotting a path.

Ones can descend into chaos because they are only looking at the big picture and not the small-but-still-important things, and Twos often get bogged down by big decisions or are unable to make them quickly.

The best type of CEO to be is a combination of both types, which the author refers to as “Functional One.” These leaders focus on both the big and small aspects of a business and know how to delegate tasks to others who may be better suited to them.

The key is not to stick to your comfort zone: be sure to try to take care of both aspects of your business.

Peacetime versus Wartime CEOs

In addition to Ones and Twos, there are also two other different types of CEOs: Peacetime CEOs and Wartime CEOs. Peacetime CEOs are needed when the company is enjoying a relatively easy time. The market is growing, the company has a leg up over its competition, and the CEO just has to keep steering the ship in the right direction. The author gives the example of Google, which is already a giant in its field. To make itself even more successful, it takes advantage of this “peacetime” to try to get faster internet to people and encouraging employees to come up with new and inventive ideas for products.

Wartime CEOs, on the other hand, are needed when there are threats on the horizon, such as fierce competitors or changes in technology that cause the company to have to rethink its entire setup. This type of CEO has much more stress: the company’s fate is in his or her hands. It is up to them to right the ship and keep it moving forward, and sometimes (as in the case of Andy Grove, the CEO of Intel, who changed the entire direction of the company when it was met with a competitor with better products) drastic times call for extreme measures. The Wartime CEO can’t be afraid to make a bold move.

When to Sell Your Company (and When Not To)

There comes a time when every CEO is ready to retire and head off into the sunset, but how do you know when it’s time to sell the company? How do you let go of this dream you had, this breathing, the living thing you built from the ground up?

This will always be a difficult decision, and you will ever wonder if you made the right choice. But it is useful to know that there are three types of acquisitions in the technology industry, and each one can benefit you differently. The first generally occurs when another entity wants your company’s talent or tech (in this case the payment is typically between $5 and $50 million). The second occurs when another entity wants the company’s products ($25 to $250 million). The third type of acquisition is for the whole shebang: the entire organization, such as when Horowitz himself sold Opsware to Hewlett-Packard for an incredible $1.67 billion.

It is common to wonder if you are “selling out” when you are selling your company, but this isn’t the case. You should let your investors know from the start that this was always an end-game possibility, and you should always make sure that you pay yourself a competitive rate while you work at the company, so you don’t risk selling the company just because you are broke.

It can be tough to know precisely when to sell, but you definitely should not sell if you can tell that you have an advantage in your chosen market that could lead to something big in the future. But seeing as this is hard to calculate, you must do a lot of research and soul-searching before you make a final decision.

The Main Take-away

Running a business is not for the faint of heart. CEOs must deal with The Struggle and the stress and learn how to thrive in spite of it -- or because of it. They must know how to make their employees feel valued, how and when to let go of employees and executives, and how to lead a business through both wartimes and peacetimes.

It is a lonely job, but you are not alone. Build a good team, be true to yourself and your vision, and turn The Struggle into greatness.

About the Author

Ben Horowitz was born in London, England, and is an American author, blogger, investor, businessman, and entrepreneur in the technology field. He was the co-founder, CEO, and president of Opsware, a highly successful software company, and is the co-founder of Andreessen Horowitz, a venture capital company. He lives in Atherton, California with his wife, with whom he has three children.

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