By Charles in Startups — Jun 2, 2015

The Hard Thing About Hard Things (Ben Horowitz)

Ben Horowitz, cofounder of Andreessen Horowitz and one of Silicon Valley's most respected and experienced entrepreneurs, offers essential advice on building and running a startup — practical wisdom for managing the toughest problems business school doesn’t cover.

All errors, omissions, and misrepresentations are mine.

Chapter 1: From Communist to Venture Capitalist

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.

Learn to separate facts from perception. Especially when the "facts" seem to dictate a certain outcome, look for alternative narratives and explanations coming from radically different perspectives. Even one alternate, plausible scenario can breathe life back into you and your workforce.

Most business relationships either become too tense to tolerate or not tense enough to be productive. 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.

Media companies focus on things like creating great stories. Tech companies focus on creating a better way of doing things.

Chapter 2: I Will Survive

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.

Running a startup, you only ever experience two emotions: euphoria and terror.

You need two kinds of friends in your life: (1) one you can call when something good happens, and they'll be excited for you; (2) one you can call when things go horribly wrong.

If you are going to eat shit, don't nibble.

Business in trouble + another business in trouble = double trouble upon merger

Needs always trump wants in mergers and acquisitions.

Michael Ovitz: "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."

Treat the people who leave fairly, or the people who stay will never trust you again.

Chapter 3: This Time With Feeling

Sometimes the only way to survive is to purposely go out and fall on your face, so you can learn fast and know what is needed.

Whenever a large organization attempts to do anything, it always comes down to a single person who can delay the entire project.

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.

Sometimes the things you're not doing are the things you should actually be focused on.

Chapter 4: When Things Fall Apart

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.

The one skill that stands out in being a successful CEO is the ability to focus and make the best move when there are no good moves.

If a warrior keeps death in mind at all times and lives as though each day might be his last, he will conduct himself property in all his actions.

The Struggle

Don't put it all on your shoulders — get the maximum number of brains on the problems.

This is not checkers; this is motherfuckin' chess. The underlying tech moves, the competition moves, the market moves, and people move. There is always a move.

Play long enough and you might get lucky. If you survive long enough to see tomorrow, it may bring you the answer that seems so impossible today.

Don't take it personally.

If you want to be great, then this is the challenge. If you don't want to be great, you never should have started a company.

Every company has to fight for its life at some point. If you find yourself running when you should be fighting, ask yourself, "If our company isn't good enough to win, then do we need to exist at all?"

CEOs Should Tell It Like It Is

Stop being too positive. You're not keeping everyone in high spirits by doing so; you're blowing smoke up their asses.

Nobody takes bad news harder than you do. But if you give the problem to the people who can fix it, they'd be personally excited and motivated to do so.

Why it's imperative to tell it like it is

The required amount of communication is inversely proportional to the level of trust. Without trust, communication breaks.

The more brains working on a hard problem, the better.

In a good culture, bad news travels fast, good news travels slow. People should be encouraged to share bad news. Build a culture that rewards — not punishes — people for getting problems into the open where they can be solved.

The Right Way to Lay People Off

If you lay people off the right way, you can keep cultural continuity and retain your best employees. If not, your employees will never trust you again.

1. Get your head right

2. Don't delay

3. Be clear in your own mind about why you are laying people off.

It's because company performance failed, and in order to move forward, you will have to lose some excellent people.

4. Train your managers: managers must lay off their own people

How to lay off an employee:

Explain briefly what happened and that it is a company, not a personal failure
Be clear that the employee is impacted and that the decision is nonnegotiable
Be fully prepared with all of the details about the benefits and support the company plans to provide

5. Address the entire company

The message is for the people who are staying. Don't apologize too much though; the company still needs to move forward.

6. Be visible; be present.

People want to see whether you care, whether you appreciate their efforts.

Preparing to Fire an Executive

Step 1: Root cause analysis

It's not an executive failure; it's an interview/integration failure.

Why did you hire the wrong person for your company?

You did a poor job defining the position in the first place. If you don't know what you want, you're unlikely to get it.
You hired for lack of weakness rather than for strength. You need the exec to be a world-class performer in certain areas, not one with no weaknesses.
You hired for scale too soon. You need someone who can do the job for the next 18 months.
You hired for the generic position. Don't look for the candidate out of central casting; hire for what your company specifically needs.
You failed to integrate the executive.

When a company scales rapidly, you must evaluate everyone's performance regularly in the context of their new job — the new job in the much larger company is not the same as the old one.

If you have fast growth, make sure you hire the right kind of fast growth exec. Don't hire this person if you're not prepared to give them lots of budget.

Step 2: Informing the board

Have three goals:

Get their support and understanding. Make sure they understand the root cause and your plan to remedy the situation.
Get their input and approval for the separation package.
Preserve the reputation of the fired exec.

Might want to do it with individual phone calls rather than in a boardroom.

Step 3: Preparing for the conversation

You should tell the exec as quickly as possible.

How to tell him:

Be clear on the reasons
Use decisive language
Have the severance package approved and ready

You can't let him keep his job, but you can absolutely let him keep his respect.

Step 4: Preparing the company communication

Inform (in order) (1) the exec's direct reports, (2) the other members of your staff, (3) the rest of the company.

All of this communication should happen on the same day and preferably within a couple of hours.

The CEO should act in the executive role in the meantime.

Demoting a Loyal Friend

The good of the individual must be sacrificed for the good of the whole.

Your friend will feel embarrassed and betrayed. Take the emotion out of it — be very clear in your mind about what you've decided and what you want to do. If you can't afford to lose him, you can't make the change.

Use appropriate language: make it clear that you have decided and there is no way back.

Admit reality. If you were a more experienced CEO, you might be able to develop him into the role, but two people who don't know what they're doing is a recipe for failure.

Acknowledge the contributions. Make it crystal clear that you want to help him develop his career and contribute to the company. Your decision isn't a review of his performance; it results from a forward-looking examination of what the company needs. Couple the demotion with an increase in compensation if you can.

Lies That Losers Tell

When a company starts to lose its major battles, the truth often becomes the first casualty.

Familiar lies:

"She left, but we were going to fire her, or give her a bad performance review."
"We would have won, but the other guys gave the deal away."
"Just because we missed the intermediate milestones doesn't mean we won't hit our product schedule."
"We have a very high churn rate, but as soon as we turn on email marketing to our user base, people will come back."

We take action on positive indicators but only look for alternative explanations (excuses) for negative indicators. Don't lie to yourself.

Lead Bullets

Sometimes there are no silver bullets (increase product line, acquire company, retarget marketing efforts), only lead ones — you aren't facing a market problem; customers just think your product sucks. In this case, don't try anything fancy; just deal with it.

Nobody Cares

221 IPOs in 2000; 19 in 2001.

When things go wrong in your company, nobody cares — not the media, not your investors, not your board, not your employees. They're right not to care either — a great reason for failing won't preserve one dollar for your investors, save one employee's job, or get you one new customer.

Spend zero time on what you could have done, and devote all of your time on what you might do. In the end, nobody cares; just run your company.

Chapter 5: Take Care of the People, the Products, and the Profits — In That Order

In enterprise software companies, the two most important positions are the VP of sales and the VP of engineering.

The world looks one way in peacetime but very different when you must fight for your life every day. In peacetime, you have time to care about appropriateness, long-term cultural consequences, and people's feelings. In war, killing the enemy and getting the troops safely home is all that counts.

A Good Place to Work

Take care of the people.

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 professionally. The work they do will be efficient, effective, and make a difference for the organization and themselves.

Being a good company doesn't matter when things go well, but can be the difference between life and death when things go wrong. And things always go wrong.

The only thing that keeps an employee at a company when things go horribly is that she likes her job.

The best work experience could be a place where your career stands still, you make no money, and you are front-page failures — as long as it is a good place to work.

Why Startups Should Train Their People

Four reasons:

1. Productivity

Add a statistic to your hiring funnel: how many fully productive employees have you added?

Training is one of the highest-leverage activities a manager can perform. You can gain orders of magnitude return (in the form of productive work) on the hours you put in training.

2. Performance management

If you don't train your people, you establish no basis for performance management, and performance management in your company will be sloppy and inconsistent.

3. Product quality

Your beautiful product architectures will turn into Frankenstein when new engineers aren't trained properly: inconsistencies in the user experience, performance problems, and a general mess.

4. Employee retention

Two primary reasons why people quit: (1) they hate their manager because of lack of guidance, career development, and/or feedback; (2) they weren't learning anything, as the company wasn't investing resources in helping employees develop new skills.

What should you do first?

Functional training: the knowledge and skill your employees need to do their job.

If you want to run a complex course/boot camp, enlist the best experts on the team as well as the manager.

Management training: set expectations for your management team — do you expect them to hold regular one-on-ones? 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? Tell them, then teach them how.

Can also add training on negotiation, interviewing, finance, etc to increase employee competency and improve morale.

Implementing your training program

No startup has time to do optional things, so training should be mandatory.

Enforce functional training by withholding new employee requisitions.
Enforce management training by teaching it yourself.

Good product manager/bad product manager

Good product managers...

Know the market, the product, the product line, and the competition extremely well and operate from a strong basis of knowledge and confidence.
Take full responsibility for and measure themselves in terms of the success of the product.
Should be the CEO of a product.
Don't get all of their time sucked up by various organizations
Crisply define the target, the "what" (as opposed to the "how"), and manage the delivery of the "what".
Take written positions on important issues (competitive silver bullets, tough architectural choices, tough product decisions, and markets to attack or yield).
Focus the team on revenue and customers, and think in terms of delivering superior value in the marketplace (during product planning) and achieving market share and revenue goals (during go-to-market).
Decompose problems.
Think about the story they want written by the press, and ask the press questions because they assume members of the press are really smart.
Err on the side of clarity.
Define their job and their success.

Bad product managers...

Have lots of excuses.
Feel best about themselves when they figure out "how".
Voice their opinions verbally and bitch when no one pays attention.
Focus the team on how many features competitors are building, and get confused about the differences between delivering value, matching competitive features, pricing, and ubiquity.
Combine all problems into one.
When talking to press, focus on covering every feature and bug instead of telling a story, then assume journalists are dumb because they don't understand the subtle nuances of their tech.
Never even explain the obvious.
Consistently need to be told what to do.

Hiring People From Your Friend's Company

Even if they approached you first/were already looking, it looks like you poached them. Then your friend's employees will think she is an ineffective CEO; other employees will leave too; and you'll never be friends again.

If you would be shocked and horrified if Company X hired several of your employees, then you should not hire any of theirs.

Why It's Hard to Bring Big Company Execs Into Little Companies

Big company executives are interrupt-driven, optimizing and tuning the main business.

When you are a startup executive, nothing happens unless you make it happen.

Rhythm mismatch: Exec has been conditioned to wait for the emails to come in, wait for the phone to ring, wait for meetings to get scheduled. Nothing ends up getting done.

Skill set mismatch: Running a large organization requires very different skills than creating a building an organization.

When running a large organization, you become good at complex decision-making, prioritization, organization design, process improvement, and organizational communication.

When you are building an organization, you become good at running a high-quality hiring process, have terrific domain expertise, know how to create process from scratch, and be extremely creative about initiating new directions and tasks.

Questions to ask

Screen for mismatches by asking the following questions:

What will you do in your first month on the job? — beware of answers that overemphasize learning; the exec should realize that your organization isn't as complex as his current one. Look for candidates that come in with more new initiatives than you think are possible.

How will your job differ from your old job? — beware of candidates that think too much of their experience is immediately transferable.

Why do you want to join a small company? — money shouldn't be the primary motivation. It's much better if they want to be more creative.

Integration

Aggressively integrate the candidate once on board.

Force them to create — give them monthly, weekly, daily objectives to make sure they produce immediately.

Make sure that they "get it" — every executive must understand the product, the technology, the consumers, and the market. Schedule a daily meeting; make them bring a comprehensive set of questions about everything they heard that day but did not completely understand.

Put them in the mix — make sure they initiate contact and interaction with their peers and other key people in the organization.

Hiring Executives: If You've Never Done the Job, How Do You Hire Somebody Good?

As a general manager, you must hire and manage people who are far more competent at their jobs than you would be at their jobs.

Step 1: Know what you want

Resist the temptation to educate yourself simply by interviewing candidates. This will make you susceptible to (1) hiring on look and feel, (2) looking for someone out of central casting (the "abstract ideal"), (3) valuing lack of weakness rather than strength.

You must hire the right person for your company at that particular point in time. It also helps greatly to bring in domain experts (but don't defer the decision to them).

Be clear in your own mind about your expectations for this person upon joining your company. What will they do the first 30 days, what do you expected their motivation to be for joining, do you want them to build a large org right away or hire only 1–2 people per year?

Step 2: Run a process that figures out the right match

a) Write down the strengths you want and the weaknesses you are willing to tolerate.

Will the executive be world-class at running the function?

Is the executive outstanding operationally? Will they make a major contribution to the strategic direction of the company? Will they be an effective (independent of being well-liked) member of the team?

b) Develop questions that test for the criteria.

c) Assemble the interview team.

Group 1: who will best help you figure out whether the candidate meets the criteria? Can be internal or external; board members, other executives, or just experts.

Group 2: who do you need to support the decision once the executive is on board?

Group 1 will help you determine the best candidate and group 2 will help you gauge how easily each candidate will integrate into your company.

Assign questions to interviewers based on their talents. Be sure to discuss each interview with the interviewer.

d) Backdoor and front-door references

Backdoor reference checks are an extremely useful way to get an unbiased view.

Front-door reference checks can help you evaluate fit with your criteria since they know the candidate best.

Step 3: Make a lonely decision

Consensus decisions about executives almost always sway the process away from strength and toward lack of weakness.

When Employees Misinterpret Managers

Giving a team a task it cannot possibly perform is called crippling the army. Screwing up your priorities can result in the same thing.

At a basic level, metrics are incentives — whatever you focus on and discuss at staff meetings, people will also focus on to the exclusion of other goals. Make sure the metrics describe the real goals. Do not substitute metrics for product vision!

Managing strictly by numbers is like painting by numbers. Some things you want to encourage are quantifiable, and some will not. Reporting only on the quantifiable goals will result in you not getting the qualitative goals, e.g. competitive win rate, customer satisfaction, what your own engineers think of the products.

Anything you measure automatically creates a set of employee behaviors. Once you determine the result you want, you need to test the description of the result against the employee behaviors that the description will likely create.

Management Debt

Management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence.

Putting two in the box

If you have two outstanding employees who logically both fit in the same place on the org chart, you will incur massive management debt if you put them in the same place.

You will make every engineer's job more difficult: which boss should she go to? You will have removed all accountability.

Overcompensating a key employee because she gets another job offer

Her friends will find out that only her threatening to quit got her a proper raise, and now you're even overcompensating her — now everyone is going to threaten to quit.

No performance management or employee feedback process

Companies execute well when everybody is on the same page and everybody is constantly improving.

Every really good CEO tends to opt for the hard answer to organizational issues. They're not afraid of ruffling feathers or cutting popular projects, since they've paid the price before of management debt, and they would rather not do that again.

Management Quality Assurance

A good quality assurance organization cannot build a high-quality product, but it can tell you when the development team builds a low quality product.

A high quality human resources organization cannot make you a well-managed company with a great culture, but it can tell you when you and your managers are not getting the job done.

The employee life cycle

A great HR organization can help you answer questions about how good your company is from hire to retire, and whether your management team is world class in all its phases.

Recruiting and hiring

Do you sharply understand the skills and talents required to succeed in every open position?
Are your interviewers well prepared?
Do your managers and employees do a effective job of selling your company to prospective employees?
Do interviewers arrive on time?
Do managers and recruiters follow up with candidates in a timely fashion?
Do you compete effectively for talent against the best companies?

Compensation

Do your benefits make sense for your company demographics?
How do your salary and stock option packages compare with the companies that you compete with for talent?
How well do your performance rankings correspond to your compensation practices?

Training and integration

When you hire an employee, how long does it take them to become productive from the perspective of the employee, her peers, and her manager?
Shortly after joining, how sell does an employee understand what's expected of her?

Performance management

Do your managers give consistent, clear feedback to their employees?
What is the quality of your company's written performance reviews?
Did all of your employees receive their reviews on time?
Do you effectively manage out poor performers?

Motivation

Are your employees excited to come to work?
Do your employees believe in the mission of the company?
Do they enjoy coming to work every day?
Do you have any employees who are actively disengaged?
Do your employees clearly understand what's expected of them?
Do employees stay a long time or do they quit faster than normal?
Why do employees quit?

Requirements to be great at running HR

World-class process design skills

A true diplomat — if an HR leader hoards knowledge, makes power plays or plays politics, he will be useless.

Industry knowledge — the head of HR must be deeply networked in the industry and stay abreast of all the latest developments.

Intellectual heft to be the CEO's trusted adviser — the CEO must trust the HR leader's thinking and judgment.

Understanding things unspoken — super-perceptive people can tell when the company is slipping. You need one of those.

Chapter 6: Concerning the Going Concern

Nothing makes things clear like a few choice curse words.

How to Minimize Politics in Your Company

How it happens

A CEO creates politics by encouraging and sometimes incentivizing political behavior — often unintentionally.

Giving an employee a raise because he has a competing offer:

Your other ambitious staff members will immediately agitate for raises as well.
The less aggressive team members will be denied off-cycle raises.
The object lesson will be that the squeaky wheel gets the grease. Get ready for a lot of squeaky wheels.

Encouraging an exec who declares that he eventually wants to become COO:

The exec will take it as a tacit declaration of support (and treat/deal with other employees as such)

How to minimize politics

Be very careful, especially when you deal with highly ambitious, seasoned professionals.

Hire people with the right kind of ambition — ambition for the company's success with the executive's own success only coming as a byproduct of the company's victory.

Build strict processes for potentially political issues and don't deviate — activities can include performance evaluation and compensation, organizational design and territory, and promotions.

Performance evaluation and compensation — by conducting well-structured, regular performance and compensation reviews, you will ensure that pay and stock increases are as fair as possible. Have an airtight performance and compensation policy that involves the board of directors.

Organizational design and territory — ambitious people will want to (from time to time) expand their scope of responsibility. If confronted, do not indicate what you are thinking; generally it's best to say nothing at all. You should evaluate your organizational design on a regular basis, gathering the info you need without tipping people off. Once you decide, immediately execute the reorg.

Promotions — if political favors yielded a promotion instead of merit, everyone else at the person's previous org level will feel undervalued, undermine the person in their new position, and attempt to copy the political behavior that generated the promotion. Have a formal, visible, defensible promotion process instead that governs every employee promotion.

Be careful with "he said, she said" — if someone comes to you complaining about someone else, be careful about how you listen and the message you send. Hearing them out without defending the employee in question will send the message that you agree; immediately make it clear that you in no way agree. Complaints about behavior can usually be dealt with by getting the two people together in one room; complaints about competency or performance are indicators of a major problem and would likely result in firing or a serious reassessment of the exec in question.

Consider the systemic incentives that result from your words and actions.

The Right Kind of Ambition

At a macro level, a company will be most successful if the senior managers optimize for the company's success (global optimization) as opposed to their own personal success (local optimization).

It is particularly important that managers have the right kind of ambition.

Screening for the right kind of ambition

When interviewing candidates, watch for small distinctions that indicate whether they view the world through the "me" prism or the "team" prism. Do they indicate individual goals separate from the team goal?

Great people will deflect credit to others on their previous team, and will be far more interested in how your company will win than in how they will be compensated or what their career path will be.

While it may work to have individual employees who optimize for their own careers, counting on senior managers to do all the right things for all the wrong reasons is a dangerous idea.

Titles and Promotions

When you grow, titles start to matter matter because (1) employees want them for cred, (2) employees need to know who does what.

Peter Principle: people are promoted to their level of incompetence, and stay there.

Law of Crappy People: for any title level, the talent on that level will eventually converge to the crappiest person with the title (anyone who's better will demand they be promoted)

Promotion process

Crisply define the responsibilities at each level and the skill required to perform the duties.

Make sure promotions are level across groups, perhaps with a regular promotions council.

How big should the titles be?

Andreessen: titles are the cheapest ask (vs. salary, bonus, stock options, span of control), so why not give the highest titles possible? Titles cost nothing but can be used to outbid the competition.

Zuckerberg: relevel every new employee so they don't get higher positions than better-performing existing employees, to boost morale and increase fairness. Titles should be meaningful. Product people and engineers should form the cultural core.

When Smart People are Bad Employees

Being effective involves intelligence + working hard + being reliable + being an excellent team member.

Companies where people have diverse backgrounds and work styles can have significant advantages in recruiting/retaining top talent, but watch out for these people:

The heretic: really smart employee starts to build a case that the company is hopeless and run by morons, looking for faults w/o intention to help fix them. Why? Feeling disempowered, fundamentally a rebel, or is immature and naive.

The flake: brilliant people who are totally unreliable — super productive one day, then misses days of work.

The jerk: consistent asinine behavior completely breaking down communication: no one wants to say anything for fear of the jerk jumping down his/her throat.

You can only hold the bus for a Dennis Rodman.

Hiring old people

Hiring senior/experienced people can help you move at incredible speed, or it can destroy you from the inside out. Do it only to acquire knowledge and experience in a specific area. Ask yourself whether you value inside knowledge (e.g. engineering managers) or outside knowledge (e.g. head of sales).

Senior people (1) come with their own culture/habits/communication style/values, (2) know how to work the system (seeming political and unusual), (3) know the job better than you (so it's hard to hold them accountable).

To prevent internal degradation: (1) demand cultural compliance, (2) set a high and clear standard of performance (learn how from talking to excellent people), (3) make sure your new exec is well rounded and part of the team.

Measure performance in (1) results against objectives, (2) management, (3) innovation (hitting goals w/o incurring management/technical debt), (4) effective at working with peers.

One-on-One

The CEO is responsible for designing and implementing communication architecture: organization design, meetings, processes, email, yammer, one-on-ones.

The employee's meeting rather than the manager's, a free-form meeting for airing pressing issues, brilliant ideas, and chronic frustrations. If you like structure, let the employee set the structure (could even ask for the agenda in advance).

Draw out the best ideas, biggest problems, most intense employee life issues.

Questions to ask

If we could improve, how?
What's our #1 problem?
What's not fun about working here?
Who is really kicking ass? Who do you admire?
If you were me, what changes would you make?
What don't you like about the product?
What's the biggest opportunity we're missing out on?
What are we not doing that we should be doing?
Are you happy working here?

Programming Your Culture

The primary goals of any tech startup are (1) to build a product that's >10x better than current gold standard, (2) take the market before someone else does.

Why bother with culture? (1) it can help you achieve these goals, (2) helps preserve your key values + creates a better place to work, (3) makes you and your employees want to work at your company.

What is culture? A way of working that will (1) distinguish you from competitors, (2) ensure critical operating values persist e.g. delighting customers, making beautiful products, (3) help identify employees who fit with your mission.

Culture isn't designed into the system; it evolves over time based on your behavior + your early employees' behavior.

Shock value helps create conversation and changes behavior: Amazon's door desks, A16Z's $10/minute fine for being late, Facebook's "move fast and break things" motto.

Perks are good, but they are not culture.

Taking Mystery out of Scaling a Company

Things that become difficult with scale: communication, common knowledge, decision making.

Give ground grudgingly. Specialization, organizational structure, and process all complicate things. Only give ground when adding people feels like more work than the tasks you can offload to the new people.

Scale leads to specialization which creates complexity — handoffs between groups, conflicting agendas, specialized knowledge.

Organizational design

All org design is bad: you're optimizing communication in one place at the expense of another. The further away people are on the org chart, the less they will communicate.

Figure out what needs to be communicated (what's most important knowledge; who needs to have it)
Figure out what types of decisions must be made on a frequent basis.
Prioritize the most important communication and decision paths. When current situation changes, reorganize.
Decide who's going to run each group. Optimize the organization for the people, not for the managers.
Identify the paths you didn't optimize. Build a plan to mitigate these.

Process

Formal, well-structured communication vehicle.

The people already doing the work should be responsible for designing the process.

Designing a process: (1) focus on the output first, (2) figure out how you'll know if you are getting what you want at each step, (3) engineer accountability in the system: which organization/individual is responsible for each step; how you can increase visibility of their performance.

Good first process is the interview process: getting enough candidates -> getting †he right candidates -> find the right person for the job -> help person become productive -> stay with your company.

The Scale Anticipation Fallacy

Evaluating people against the future needs of the company based on a theoretical view of how they will perform is counterproductive.

This is because:

Managing at scale is a learned skill, not a natural ability
It's nearly impossible to make the judgment in advance
The act of judging people in advance will retard their development
Hiring scalable execs too early is a bad mistake
You still have to make the judgment when you actually reach scale
It's dishonest and lets prejudice substitute for judgment, and is no way to run an organization.

Evaluate your team at least once a quarter on all dimensions, but to avoid scale anticipation, (1) ask not whether an exec can scale, but whether they can do the job at the current scale, (2) ask not whether an exec is great, but whether you (or your competitor) can hire one who is better.

Chapter 7: How to Lead Even When You Don't Know Where You Are Going

Focus on what you need to get right and stop worrying about all the things you did wrong or might do wrong.

The Most Difficult CEO Skill

The hardest thing is managing your own psychology.

Everyone learns to be a CEO by being a CEO. The only job that prepares you to run a company is to run a company. It's an impossible job that you're expected to be able to do, and when things go wrong it's your fault.

Avoid (1) taking things too personally and either terrorizing your team or terrorizing yourself, and (2) not taking things personally enough, ignoring the most fundamental problems and turning the company to crap.

Be urgent, not insane. Move aggressively and decisively without feeling emotionally culpable. Separate the importance of the issues from how you feel about them. Don't be married to either the positive or the dark narrative.

Nearly every company goes through life-threatening moments: WFIO (we're fucked, it's over)

Techniques to calm your nerves:

Make some friends, especially people who have been through similarly challenging decisions
Get it out of your head and onto paper
Focus on the road, not the wall: don't focus on the thousand things that can go wrong, but where you are going instead.

Just don't quit.

The Fine Line Between Fear and Courage

When meeting with entrepreneurs, A16Z looks for brilliance and courage.

Courage means making a decision given your superior knowledge that could go against your team and your board who are smarter and more experienced than you, because you think it would be better for the company.

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.

Ones and Twos

For CEO succession, internal candidates dramatically outperform external candidates: knowledge of technology, prior decisions, culture, personnel, and more tends to be far more difficult to acquire than the skills required to manage a larger organization.

Two core skills to running an organization: (1) knowing what to do, (2) getting the company to do what you know. Most CEOs tend to be more comfortable with one than the other.

Ones

Like spending time gathering information and have great strategic minds. They love making decisions and are comfortable making them with very little information.

Often get bored with the important execution details required to run a company: process design, goal setting, structured accountability, training, performance management.

Founding CEOs tend to be Ones, and if they don't try to be better Twos they often get replaced.

Twos

Enjoy the process of making the company run well. Set super clear goals; reluctant to change goals or direction. Participate in strategic discussions but may have trouble with the strategic thinking process, and are worried by big decisions.

Can overcomplicate the decision making process to provide a false feeling of thoroughness, bringing decision making in the company to a halt.

Succession

Typically the CEO is a One (since decision making must be fast at the highest level) who hires Twos and Functional Ones (who act like Ones within their function but Twos w.r.t. the exec team) for his exec team.

Promoting a potential Two from the executive staff could lead to slower decision making + company losing its edge.

Promoting a One from below could lead to a massive turnover of the executive staff.

Follow the Leader

Quality of a leader: the quantity, quality, and diversity of people who want to follow her.

What makes people want to follow a leader?

Ability to articulate the vision
Right kind of ambition
Ability to achieve the vision

Ability to articulate the vision: the Steve Jobs attribute.

Make the vision interesting, dynamic, and compelling, even when things fall apart.

Anyone can improve in this area through focus and hard work.

Right kind of ambition: the Bill Campbell attribute.

Employees must feel that the CEO cares more about them than about herself. Causes employees to believe that it's their company and behave accordingly.

Probably impossible to teach; must be "born not made"

Ability to achieve the vision: the Andy Grove attribute.

Be competent.

Can absolutely be learned. Never be so confident that you stop improving your skills.

Peacetime CEO/Wartime CEO

Peacetime

In peacetime, a company has a large advantage over the competition in its core market, and its market is growing. The company can focus on expanding the market and reinforcing the company's strengths, e.g. Google trying to make the Internet faster so users can do more searches.

Maximizing and broadening the current opportunity means encouraging creativity and contribution across a diverse set of possible objectives, e.g. Google's 20% time.

Peacetime CEOs:

Know that proper protocol leads to winning
Focus on the big picture
Build scalable, high volume recruiting machines
Spends time defining the culture
Knows what to do with a big advantage
Think of competition as other ships, far away on a big ocean
Aim to expand the market
Tolerate deviations from the plan when coupled with effort and creativity
Work to minimize conflict
Strive for broad-based buy in
Set big, hairy, audacious goals
Train her employees to ensure satisfaction and career development
Can exit businesses where they're not #1 or #2

Wartime

In wartime, a company is fending off an imminent existential threat coming from a wide range of sources: competition, dramatic macroeconomic change, market change, supply chain change, etc., e.g. Andy Grove moving Intel from memory to microprocessors.

The company has a single bullet and must, at all costs, hit the target. Everything depends on strict adherence and alignment to the mission.

Wartime CEOs:

Violate protocol in order to win
Care about smallest things that get in the way of the prime directive
Build HR organizations that can execute layoffs
Lets war define the culture
Are paranoid
Think of competition as sneaking into her house and trying to kidnap her children
Aim to win the market
Are completely intolerant of deviations form the plan
Heighten the contradictions
Neither indulge consensus building nor tolerate disagreements
Are too busy fighting to read management books written by consultants
Train their employees so they don't get their asses shot off
Often have no businesses where they are #1 or #2

Being a wartime CEO means that you can still delegate most things, but the fundamental question of whether you'll survive (and how you'll do it) is yours alone to answer.

Being both?

It's possible, but hard. Must understand the many rules of management and know when to follow them and when to violate them.

Most management books (other than Andy Grove's) describe methods of peacetime CEOs.

Making Yourself a CEO

Being a CEO requires a lot of unnatural motion.

The shit sandwich

People open up to feedback more if you complement them, then give the difficult message, then wrap up by reminding them how much you value their strengths. Focuses feedback on the behavior rather than the person.

Challenges:

Tends to be overly formal and seem judgmental
Will lack authenticity after a couple of times
Easily recognized by more senior execs

Being effective

Be authentic: believe the feedback you give. Don't say anything to manipulate the recipient's feelings.

Come from the right place: give feedback because you want people to succeed.

Don't get personal: don't prepare someone to get fired, just fire her

Don't embarrass people in front of their peers: your feedback will have very little impact then

Feedback is not one-size-fits-all: your tone should match the employee, not your mood

Be direct but not mean: watered-down feedback can be worse than no feedback at all

Feedback is a dialogue, not a monologue. Encourage people to challenge your judgment.

Practice what you've mastered all the time. Have an opinion on absolutely everything: every forecast, every product plan, every presentation, every comment. Give feedback all the time. This will make everyone comfortable with receiving/giving feedback and discussing bad news.

How to Evaluate CEOs

Key questions:

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

Does the CEO know what to do?

All matters, all the time: personnel, financing, product strategy, goal sizing, marketing.

Strategy: in good companies, story and strategy are the same thing. Set the context in which every employee operates to give work meaning, align interests, enable decision making, provide motivation. Ensure the company story is clear and compelling.

Decision making: speed and quality of the CEO's decisions. Great decisions come from CEOs who display an elite mixture of intelligence, logic, and courage. There is never enough time to gather all the info needed — but you can continuously and systematically gather knowledge in day-to-day activities in order to have as much info as possible.

Informative questions:

What are competitors likely to do?
What's possible technically and in what time frame?
What are the true capabilities of the organization, and how can you maximize them?
How much financial risk does this imply?
What will the issues be, given the current product architecture?
Will employees be energized or despondent about this promotion?

Strategize how you can gather the required information continuously. Learn from every interaction you have with an employee,j customer, partner, or investor.

Can the CEO get the company to do what she knows?

First ingredient is leadership. Next is a broad set of operational skills ranging from organizational design to performance management, from incentive architecture to communication architecture.

Have the capacity to do so: the company must have the necessary talent in the right positions to execute the strategy. Constantly assess whether you are building the best team.

Be a place where every employee can get things accomplished: employees must be motivated, communications strong, amount of common knowledge vast, context clear. Make sure your people can focus on their work (not politics), and have confidence that if they get their job done, good things will happen both for the company and for them personally.

Think about what you value in your employees, how you can screen for those values in employees, how to reinforce those values, and how to scale the system as the number of employees grows.

Did the CEO achieve the desired results against an appropriate set of objectives?

Make sure the objectives are set correctly, and be aware they can change. Evaluate CEOs against their company's opportunity, not somebody else's company.

Past performance is no guarantee of future results, so this indicator is not as strong as the other two.

Chapter 8: First Rule of Entrepreneurship: There Are No Rules

Just when you think there are things you can count on in business, you find out that the sky is purple. When this happens, it usually does no good to argue — just get on and deal with it.

Solving the Accountability vs. Creativity Paradox

If someone comes up with a new idea but slips on the deadline and you nail them, you'll discourage everyone from taking important risks in the future. If you don't hold them accountable, then the people who work hard to meet commitments will feel like chumps.

Accountability for effort: world-class effort is necessary to be a world-class company.

Accountability for promises: holding people accountable for their promises is crucial for getting things done, but this changes depending on the difficulty in fulfilling the promise.

Accountability for results: depends on:

Seniority of the employee (experienced people should be able to forecast results more accurately than junior people)
Degree of difficulty
Whether the original risk the right one to take, and the presence of stupid risk — risk with little chance of corresponding reward

Accountability is important, but it's not the only thing that's important.

The Freaky Friday Management Technique

Sometimes fixing a conflict between teams can be as easy as switching the team heads' jobs.

Staying Great

Execs can start off world class and end up sucking. Keep in mind:

You didn't know everything when you hired the exec: it's okay to change your standards when you learn more about what's needed and what's competitive in your industry.

You must get leverage: if you're as busy with the exec's function as you were before you hired her, she is below standard.

You can do very little employee development: the people who report to you have to be 99% ready to perform. There's no time anymore to develop raw talent.

Be sure the exec is aware that when the company changes (e.g. doubles in size), she has a new job and will be re-evaluated on that basis.

Should You Sell Your Company?

Tech acquisitions are in three categories:

Talent and/or technology: $5mm — $50mm
Product: product but not business: acquirer will sell product as it is but with its own sales and marketing capability. $25mm — $250mm
Business: actual business (revenue and earnings); whole operation will be evaluated. Can be extremely large, valued by financial metrics

This advice is good for business and maybe product acquisitions.

The logical

Answer the questions:

Is this market really much bigger (more than an order of magnitude) than has been exploited to date?
Are we going to be #1?

If you're (1) very early on in a very large market and (2) have a good chance of being #1 in that market, don't sell — e.g. Google. If not, might want to consider selling (to not end up like Pointcast)

The emotional

Two sides: how can you sell your company after you've sold everyone on your spectacular vision? But how can you walk away from total financial independence?

Solution is to mute both emotions.

Get paid a salary: then you won't be tempted to sell in direct response to your personal financial situation.

Be clear with the company: provide a full analysis: if the company satisfies (1) and (2) above, then it'll remain independent; otherwise it will likely be sold.

Chapter 9: The End of the Beginning

The best entrepreneurs will only work with the best venture capital firms, which has consistently been the firms with the best track records.

a16z realized the growing entrepreneurial community meant world-of-mouth marketing, and decided to differentiate by (1) finding tech companies run by technical founders and (2) train the technical founders to be great CEOs. They aimed to fill two gaps:

The CEO skill set — managing executives, org design, running sales orgs, etc. Did this by choosing GPs who were former founders/CEOs.

The CEO network — knowing lots of execs, potential customers/partners, people in the press, investors, other important business connections. Did this via an agency model and focusing on building relationships with large companies, executives, engineers, press and analysts, and investors and acquirers.

Final Lesson

Hard things are hard because there are no easy answers.

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.

Life is struggle. Embrace the struggle. Embrace your weirdness, your background, your instinct.