Updated: Jan 27, 2018
I read Ben Horowitz’s book titled The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers over two years ago and it is one of the best business books I’ve ever read. It is a gem and the reason is because Ben Horowitz has lots of experience running a start-up company during the Dot Com Bubble and he mentions a lot of his experiences and what was going through his mind during the difficult times. The good times take care of themselves meanwhile the tough times are what need lots of caring and thought, so his advice is invaluable.
Ben was the cofounder of Loudcloud with Marc Andreessen, Tim Howes, and In Sik Rhee in 1999. Loudcloud offered hosting services to large businesses like Ford Motor and Nike for infrastructure and applications. Loudcloud went public on March 9, 2001 but then in 2002 Loudcoud was transformed into Opsware where Horowitz was still the President and CEO. Eventually the company was sold to Hewlett Packard.
Lots of books out there talk about running a business when everything is going great. They always talk about what you should do to have a successful business, but what they don’t do is spend enough time discussing the many conflicts that will arise and the mental games that CEO’s and Founders will have to play with themselves because of all of the uncertainty. Here is a good passage from Ben on this uncertainty that I am talking about.
“No training as a manger, general manager, or in any other job actually prepares you to run a company. The only thing that prepares you to run a company is running a company. This means that you will face a broad set of things that you don’t know how to do that require skills you don’t have. Nevertheless, everybody will expect you to know how to do them, because, well, you are the CEO. I remember when I first became CEO, an investor asked me to send him the “cap table”. I had a vague idea of what he meant, but I didn’t actually know what the format was supposed to look like or what should be included or excluded. It was a silly little thing and I had much bigger things to worry about, but everything is hard when you don’t actually know what you are doing. I wasted quite a bit of time sweating over that stupid spreadsheet.”
To draw a comparison for you on a much smaller level, I will quickly discuss some uncertainty that we all face when we first enter the work world and something that I had to deal with when first graduating college and entering the “real world”. It has to do with emailing people at a company which can bring anxiety when you first start because you don’t know the culture of the company and your colleagues very well. On top of that, I didn’t have any real-world experience since I just graduated college.
Universities don’t teach you how to get the confidence to email colleagues that are in a higher-level positions at your company. The best way to learn how to do this, and possibly the only way, is to actually do it. After sending and reading hundreds of emails you eventually get an understanding of proper email etiquette. And sometimes it just boils down to finding your confidence and comfort level in putting words together and structuring sentences.
But the uncertainty that an entry-level hire will face in how to structure an email is obviously nothing compared to what a CEO has to face. The company is very dependent on the CEO’s actions.
Have you ever heard the phrase in business, “Cash is like oxygen. When it is easily available you forget it’s there but when it starts to run out you quickly realize it is missing.”? What if you faced a decision where you had to spend a large sum of money to save an employee’s life or save that large sum of money for a day when cash is tight? Ben had to face that situation and he made the most altruistic and toughest decision that he probably had to do in his journey as CEO of Loudcloud.
Here is a quick summary of the story. Ben just bought a company and the CFO of that company he just bought got sick. Ben fired the CFO of the company he just acquired, Tangram, but during the resigning, the CFO started to get severe headaches. He had brain cancer and it would cost him $200,000 to insure him under COBRA. He was running a company with an inadequate margin of safety to cover these health costs but Ben did it anyway because he knew what desperation felt like.
That CFO ended up dying not too long later but his wife wrote Ben a nice letter about how shocked she was that he would cover his health costs since they were complete strangers. The letter also revealed that his act enabled her to continue living and was eternally grateful.
Here is a quote from Ben as he reflected on this last story, “I feel that the toughest decisions I made in business never tested my intelligence but tested my courage.”
As mentioned before, there is plenty of uncertainty in managing a business because there are so many outcomes that can transpire. Also, the crowd or the market can react on emotions of fear and greed and not common sense which will give false signals to a CEO.
An example is when Ben had to analyze the financial position of his company to make sure it could survive since so many Dot Com companies were going bankrupt as the Dot Com bubble was bursting. He noticed that he had plenty of money in the bank and his company was still signing up customers. All the media kept talking about though was the cash burn at all of the other Dot Com companies, so it kept causing Ben to second guess himself. This is where having trusted advisers to talk to and get second opinions from are very helpful.
Here is a passage from Ben’s words in his book:
“At Loudcloud, when the dot com bubble burst and subsequently sent most of our customers into bankruptcy, it crippled our business and devastated our balance sheet. Or rather, that was one interpretation, another interpretation, and necessarily the official story for the company, was that we still had plenty of money in the bank and were signing up traditional enterprise customers at an impressive rate. Which interpretation was closer to the truth? In the absence of someone to talk to, that is a question that I asked myself about three thousand times.”
The book has a lot of other great experiences and advice on running a business. Here are some quotes from Ben Horowitz's book below that I categorized into: (1.) Advice for CEOs, (2.) The Mental Struggles of Being a CEO and (3.) Business Stories:
Advice for CEOs:
The experience from page 3 of this book taught Ben 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.
Colin Powell says that leadership is the ability to get someone to follow you even if only out of curiosity.
Some things are much easier to see in others than in yourself.
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.
Figuring out the right product is the innovators job, not the customer’s.
The struggle is not failure, but it causes failure. Especially if you are weak. Always if you are weak. Most people are not strong enough.
The struggle is where greatness comes from.
One of the three key reasons why being transparent about your company’s problems makes sense is trust. Without trust, communication breaks. 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. If you investigate companies that have failed, you will find that many employees knew about the fatal issues long before those issues killed the company. If the employees knew about the deadly problems, why didn’t they say something? Too often the answer is that the company culture discouraged the spread of bad news, so the knowledge lay dormant until it was too late to act. A healthy company culture encourages people to share bad news.
There comes a time in every company’s life where it must fight for its life. If you 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?”
A Final Thought: 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.
Great CEOs face the pain. They deal with the sleepless nights, the cold sweats, and what my friend the great Alfred Chuang (legendary co-founder and CEO of BEA Systems) calls 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 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.
Being CEO requires lots of unnatural motion. From an evolutionary standpoint, it is natural to do things that make people like you. It enhances your chances for survival. Yet 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. Unnatural things.
Watered down feedback can be worse than no feedback at all because it’s deceptive and confusing to the recipient.
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.
The Mental Struggles of Being A CEO:
By far the most difficult skill I learned as CEO was the ability to manage my own psychology.
The first problem is that everybody learns to be a CEO by being a CEO.
When people in my company would complain about one thing or another being broken, such as the expense reporting process, I would joke that it was all my fault. The joke was funny, because it wasn’t really a joke. Every problem in the company was indeed my fault.
How to deal with the psychology as CEO: make some friends, get it out of your head and onto paper, and focus on the road, not the wall.
If you are a founder CEO and you feel awkward or incompetent when doing some of these things and believe there is no way that you will be able to do it when your company is one hundred or one thousand people, welcome to the club. That’s exactly how I felt. So did every CEO I’ve met. This is the process. This is how you get made.
The NASDAQ peaked at 5,048.62 on March 10, 2000- more than double its value from the year before-and then fell by 10 percent ten days later. A Barron’s cover story titled “Burning Up” predicted what was to come. By April, after the government declared Microsoft a monopoly, the index plummeted even further. Startups lost massive value, investors lost massive wealth, and dot-coms, once heralded as the harbinger of a new economy, went out of business almost overnight and became known as dot-bombs. The NASDAQ eventually fell below 1200, an 80% drop from its peak.
Back in those bad old days at Loudcloud, I often thought to myself: How could I have possibly prepared for this? How could I know that half our customers would go out of business? How could I know that it would become impossible to raise money in the private markets? How could I have figured out that there would be 221 IPOs in 2000 and 19 in 2001? Could anybody expect me to achieve a reasonable outcome given those circumstances? When things go wrong in your company nobody cares. The media don’t care, your investors don’t care, your board doesn’t care, your employees don’t care, and even your mama doesn’t care. NOBODY CARES!… All the mental energy you use to elaborate your misery would be far better used trying to find the one seemingly impossible way out of your current mess.