#181 - When Things Fall Apart: 3 Lessons from Ben Horowitz on Leading Through the Struggle (Part 1 of 2)

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March 2001.
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A software company called LoudCloud is going public in the middle of the dot-com collapse.
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The week of the offering, the bank has cut the price from$10 a share to$6.
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The day before the deal, Yahoo announces that its chief executive is stepping down.
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The founders go ahead anyway.
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Ben Horowitz in his own words.
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The LoudCloud offering finally sold at$6 a share and we raised$162.5 million.
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But there was no celebration and no party.
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Neither Goldman Sachs nor Morgan Stanley, the two banks that took us public, even offered us the traditional closing dinner.
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It may have been the least celebratory IPO in history.
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On the plane home, Horowitz turns to his director of finance, Scott Cooper, and says, We did it.
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Cooper answers, yeah, but we are still fucked.
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Cooper was right.
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What followed was a share price of 35 cents, three rounds of layoffs, and business magazines running cover stories on the company's collapse.
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Six years later, the same company sold to Julit Baccar for$1.6 billion.
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The distance between those two moments is the subject of today's episode.
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The book is The Hard Thing About Hard Things by Ben Horowitz.
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Every founder I know has been somewhere inside that distance.
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Most of them go quiet about it, and the ones who try to describe it find the language music.
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Horowitz builds the language, and that is the first reason this book earns your time.
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The second reason is where he wrote it from.
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Almost every startup book gets assembled afterwards, from the winner's chair once the ending is known and the fear has faded.
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Horowitz wrote this one while he still remembered exactly how it felt, and it shows on every single page.
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So here is how the next hour looks like.
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Seven lessons, each one opens on a real scene from the book with names, dates, and figures.
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Then the principle underneath it translated for anyone building or governing a company at the edge of what is possible.
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Then one move to run this week and three questions to take into an export meeting.
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Let's get into it.
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So, what's the big idea of the book?
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Horowitz organizes this book around death, and he says so on the page where most authors would be promising new growth.
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The endgame material comes first.
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How to fire an executive, how to lay people off before a word about billing or scaling.
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He explains the choice in one sentence.
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I put this section first, even though it deals with some serious endgame issues as how to fire an executive and how to lay people off.
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In doing so, I follow the first principle of the Bushido, the way of the warrior.
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Keep death in mind at all times.
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As the organizing logic of a management book that stands alone on the shelf and it tells you exactly what you have picked up.
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As a wiring manual written by a man who needed one.
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Everything else follows from that choice, including the single skill he says the whole job turns on.
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People always ask me, what's the secret to being a successful CEO?
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Sadly, there is no secret.
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But if there is one skill that stands out, it's the ability to focus and make the best move when there are no good moves.
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Listen to that again.
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Not the best move, the best move available when every option in front of you is bad.
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That skill is why this book matters to anyone building a hard company or governing one from a bot site.
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What you take from it is vocabulary for the situations you will find yourself in and prove that somebody walked out of them alive.
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Which raises a fair question.
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Who earned the right to write that book?
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And why should you take his word for it?
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Almost every business book is written from a single chair.
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The founder who won writes about winning.
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The consultant who watched writes about patents.
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The investor who wrote the check writes about picking.
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And each system only from where they stood.
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Ben Horowitz has occupied all three chairs in the order that makes them count.
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He started at Netscape as a manager rather than a founder, running a product team while the commercial intent took shape around him.
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That is where he met Mark and Reason.
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In 1999, the two of them founded LoudCloud, a company with a good idea and appalling timing.
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They sold computing as a service about a decade before the market even existed and launched it into the dot-com collapse.
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What happened next is most of this book.
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I have put the details and the figures in the lessons that need them.
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The moment that explains everything he did afterwards happened right at the start.
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LoudCloud had just closed its first round of funding.
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Horowitz went with his co-founders to meet the full team at their new venture capital firm.
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He describes himself as excited, ready to talk about how they would build a great company together.
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Then one of the senior partners, David Barney, asked him a question in front of his co-founders.
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When are you going to get a real chief executive officer?
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Horowicz writes, the comment knocked the wind out of me.
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Our largest investor had basically called me a fake CEO in front of my entire team.
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He asked what that meant, hoping for a way to save face.
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Someone who has designed a large organization, someone who knows great senior executive and brings pre-built customer relationships, someone who knows what they are doing.
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And then comes the sentence that makes Horowitz worth reading at all.
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It was bad enough that he had undermined my standing as CEO, but to make matters worse, I knew that at some level he was right.
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Horowitz accepted the diagnosis and refused the conclusion.
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He stayed, learned the job in public over the next eight years, and took the company to a billion-dollar exit.
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Years later, after the side, he sent Mark and Reason an instant message.
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Our motto for General Partners would be some experience required.
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And Reason replied that he had been thinking the same thing.
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That firm exists because of the question David asked.
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Two convictions run underneath it in Horowitz's own words.
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First, technical founders are the best people to run technology companies.
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Second, that it is incredibly difficult for technical founders to learn to become CEOs while building their own companies.
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And his verdict on the industry, most venture capital firms were better designed to replace the founder than to help the founder grow and succeed.
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So he built the opposite.
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The epigraphs tell you what kind of book this is before you open a page.
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Every chapter begins with a rap lyric instead of a business quotation.
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The introduction opens on Kanye West, chapter one on DMX, the final chapter on Drake.
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His reason?
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Because hip-hop artists aspire to be both great and successful and see themselves as entrepreneurs.
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Many of the themes, competing, making money, being misunderstood, provide insight into the hard things of entrepreneurship.
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And that is the man.
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He earned all three chairs the hard way, and he now writes the checks for founders beginning the same claim.
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On to the seven lessons.
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Here is the first lesson, the struggle.
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The most honest sentence I have read in a business book comes on the first page of this one.
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That's the hard thing about hard things.
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There is no formula for dealing with them.
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That is Ben Horowitz in the introduction telling you that the book you just bought will not do the thing you bought it for.
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So let me tell you what this first lesson is.
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Horowitz has a name for the worst stretch of building a company.
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He calls it the struggle.
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He describes it with more precision than anyone else has managed, and then he refuses to sell you a way out of it.
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What he offers instead is a handful of survival habits and one instruction.
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Find the move.
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This lesson sets up the six that follow because every one of them assumes you are working without a recipe.
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Here is how Ben sees it.
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He opens the book by attacking the genre he is writing in, in his own words.
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The hard thing isn't setting a big, hairy, audacious goal.
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The hard thing is laying people off when you miss the big goal.
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The hard thing isn't hiring great people.
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The hard thing is when those great people develop a sense of entitlement and start demanding unreasonable things.
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The hard thing isn't setting up an organizational chart.
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The hard thing is getting people to communicate within the organization that you just designed.
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The hard thing is not dreaming big.
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The hard thing is waking up in the middle of the night in a cold sweat when the dream turns into a nightmare.
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And then the diagnosis.
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The problem with these books is that they attempt to provide a recipe for challenges that have no recipes.
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He puts himself under the same rule.
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I do not attempt to present the formula in this book.
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Instead, I present my story and the difficulties that I have faced.
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Later he names the state itself.
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The struggle is when you wonder why you started the company in the first place.
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The struggle is when your employees think you are lying and you think they may be right.
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The struggle is when food loses its taste.
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The struggle is not failure, but it causes failure, especially if you are weak.
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Always if you are weak.
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Then he does the thing that separates this book from every other one on the shelf.
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He gets right up to the inspirational line and he stops.
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Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through the struggle and struggled at it.
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So you are not alone.
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But that does not mean that you will make it.
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You may not make it.
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That is why it is the struggle.
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And only after that, the struggle is where greatness comes from.
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Notice the order.
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He earns the second sentence by refusing to skip the first.
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Then he introduces his advice with a line no other management author dares to print.
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There is no answer to the struggle, but there are some things that helped me.
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Watch what that looks like at the worst point of his own company.
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LoudCloud is dying.
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Horowitz is trying to sell the cloud services business to one of two buyers, IBM or EDS.
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He takes his board member Bill Campbell through both conversations point by point.
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Campbell pauses, looks him in the eye, and says, Ben, you need to do something in addition to working on this deal.
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You need to do it alone with your general counsel.
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You need to prepare the company for bankruptcy.
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Horowitz then tells you a story about a young doctor.
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The doctor's senior colleague examines a 35-year-old patient with hollow eyes and Asian skin.
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They leave the room.
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The older man says, He doesn't know it yet, but he is dead.
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Three weeks later, that patient died.
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Horowitz writes, I felt that Bill was telling me, although I was walking around trying to get the deal done, that I was already dead and that I did not know it.
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So what did he do with the best advice from the best advisor he ever had?
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I never built that contingency plan.
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The EDS deal closed.
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LoudCloud sold the cloud business for$63.5 million, kept the software, renamed itself OpSware, and six years later sold to Juliet Backard for$1.6 billion.
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His conclusion?
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I don't believe in statistics.
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I believe in calculus.
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And the rule he draws from it startup CEOs should not play the odds.
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When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it.
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You just have to find it.
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It matters not whether your chances are 9 in 10 or 1 in a thousand.
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The task is the same.
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Find the right move.
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Horowitz respects reality.
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Campbell was right about the odds, and Horowitz says so with thanks.
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His game is narrower and harder than it first sounds.
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The odds are their statistician's business.
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The move is yours.
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Listen to how he describes finding one.
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How about staking your company public with$2 million in trailing revenue and 340 employees with a plan to do 75 million in revenue the next year?
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I made that move.
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I made it in 2001, widely regarded as the worst time ever for a technology company to go public.
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I made it with six weeks of cash left.
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There is always a move.
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So what does this mean for you in 2026?
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Building a deep tech company from nothing is one of the hardest things a person can attempt.
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And right now, everyone around you insists it has a method.
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There are more incubators, accelerators, playbooks, systems, and founder curricula than at any point in history.
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There is an entire industry on social media selling the recipe to you.
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There are management books promising the system.
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And now there is a machine that will generate a confident answer to any question you type into it in seconds, with no idea whether it is right.
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None of it can tell you what to do.
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The advice is often good, your situation is still unique by construction.
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You are attempting a first in conditions that have never held before with a team that came together for this one company.
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You're the first person in the territory and you draw the map while you walk it.
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Look at the example everyone knows.
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Elon Musk built SpaceX to make humanity multiplanetary to put a self-sustaining city on Mars.
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He was the first to attempt it and he started from a blank page.
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A few thousand people stand ready to tell him how to do it.
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So the practical instruction is this: use the advice.
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Ask the people who have been close to something similar.
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Use the tools.
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Then understand what is left at the end of it.
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The decision, however, is yours alone.
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And the confidence of everyone advising you is not evidence.
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Since 2006, I have done this work and the pattern has never once broken.
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I started with Nobriva, the antibiotics company spun out of the Sandor Research Institute in Vienna in January that year with a 42 million Euro Series A led by Namuro Phase 4 Ventures, alongside the Welcome Trust, the Novartis Venture Fund, HBM Partners, and Global Life Science Ventures.
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About as good a starting hand as exists in European life science.
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Truck development was a blank page to me.
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What I brought was an understanding of how a bot behaves, half of it learned in student fraternities, half across six years in public market merchers and acquisitions, where I prepared the bot material and now and then as a young man presented it.
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That was my entire preparation.
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And my job was to build the company structures for an initial public offering in 2008.
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Then the financial crisis in 2008 happened.
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A company with no revenue, public funding debt, debt on the balance sheet, negative equity, and losses had no route to a public listing.
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A global financial crisis closed whatever route was left.
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So we did not do it.
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But the hard things did not stop.
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I went on to be the chief financial officer of three companies at the same time when capital was scarce and finance had little standing in biopharma.
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People with doctorates told me more than once that what I had spent years learning, they picked up over a weekend.
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Is there a formula for that?
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No.
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You breathe, you smile through it, and you trust that you are learning to handle situations you cannot yet name.
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Then came years of running deep the companies between funding rounds, companies weeks from bankruptcy, key people walking out and no plan.
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Every new mandate, every board seat, every executive role has been unmapped territory.
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The internet returns other people's situations.
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Social media returns other people's confidence.
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Artificial intelligence will hallucinate you something that sounds like an answer.
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But in the end, you are alone staring into the abyss, and you decide.
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Many of those decisions will be wrong.
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You make them anyway, and you correct in the open.
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Horowitz uses the same word.
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You have dropped into the abyss and you may never get out of it.
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He is right.
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That is the hard thing about being at the helm of a deep tech company.
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Better to hear it from someone who has been there than to buy a recipe from someone who has not.
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You already know the thing you are most afraid of.
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Say it out loud this week to the people who can solve it.
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Horowitz's own advice is to get the maximum number of brains onto the problem, even when the problem is existential.
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You are holding something alone tonight that three other people in your company have the skill to break open.
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Here are my three questions for your next board meeting.
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The first one: What is the hardest problem in this company right now that only you understand the full shape of?
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And why have you not put it in front of anyone?
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The second one.
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The last time there were no good moves, did you narrow to one and commit, or did you keep collecting opinions?
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And number three, who in this room has the standing to tell you the company is lying?
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There is no formula.
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There is only the next move and the nerve to make it.
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Which brings us to the first thing that breaks when the struggle starts.
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That roof and that is next.
00:22:19.920 --> 00:22:21.600
And here is the second lesson.
00:22:21.920 --> 00:22:25.040
CEOs should tell it like it is.
00:22:25.680 --> 00:22:28.960
The last lesson ended in the abyss.
00:22:29.040 --> 00:22:33.519
And this one is about what walks you toward the edge.
00:22:33.840 --> 00:22:36.400
Your own optimism does the walking.
00:22:36.640 --> 00:22:41.440
Horowitz gives this chapter a title that reads Like an order because it is one.
00:22:41.680 --> 00:22:45.680
Chief executive officers should tell it like it is.
00:22:45.920 --> 00:22:52.240
His claim is that shielding your team from bad news feels like leadership and works like sabotage.
00:22:52.560 --> 00:22:54.000
He gives three reasons for it.
00:22:54.160 --> 00:22:57.440
All of them mechanical, none of them about being nice.
00:22:57.759 --> 00:22:59.840
And he opens with a confession.
00:23:00.160 --> 00:23:08.080
My single biggest personal improvement as CEO occurred on the day when I stopped being too positive.
00:23:08.560 --> 00:23:14.160
He explains where the positivity came from, and every founder listening will recognize it.
00:23:14.640 --> 00:23:18.640
As a young CEO, I felt the pressure.
00:23:18.880 --> 00:23:21.279
The pressure of employees depending on me.
00:23:21.440 --> 00:23:24.080
The pressure of not really knowing what I was doing.
00:23:24.240 --> 00:23:30.560
The pressure of being responsible for tens of millions of dollars of other people's money.
00:23:30.880 --> 00:23:33.200
Then he names the error underneath it.
00:23:33.279 --> 00:23:35.920
And this is the part most leaders get backwards.
00:23:36.800 --> 00:23:41.920
As the highest ranking person in the company, I thought that I would be best able.
00:23:42.400 --> 00:23:44.000
Able to handle the bad news.
00:23:44.160 --> 00:23:45.840
The opposite was true.
00:23:46.080 --> 00:23:48.800
Nobody took bad news harder than I did.
00:23:49.120 --> 00:23:53.360
Engineers easily brushed off things that kept me awake all night.
00:23:54.000 --> 00:23:55.360
Read that again.
00:23:55.680 --> 00:24:00.160
He was protecting himself and calling it protection of the team.
00:24:00.480 --> 00:24:03.200
So he gives three reasons to stop.
00:24:04.080 --> 00:24:08.800
Take them one at a time because each one of it is a different machine.
00:24:09.360 --> 00:24:11.040
The first is trust.
00:24:11.759 --> 00:24:14.160
And he defines it as bandwidth.
00:24:14.480 --> 00:24:20.960
In any human interaction, the required amount of communication is inversely proportional to the level of trust.
00:24:21.200 --> 00:24:24.880
Sounds complicated, but it is in principle simple.
00:24:25.759 --> 00:24:28.240
Follow that into a company of 200 people.
00:24:28.560 --> 00:24:33.360
If they trust you, you barely have to explain anything.
00:24:34.320 --> 00:24:39.680
If they do not, no quantity of explaining will move them.
00:24:40.320 --> 00:24:42.720
Horowitz spells out the consequence.
00:24:43.279 --> 00:24:47.759
As a company grows, communication becomes its biggest challenge.
00:24:48.080 --> 00:24:55.040
If the employees fundamentally trust the CEO, then communication will be vastly more efficient than if they don't.
00:24:55.360 --> 00:24:59.600
Having things as they are is a critical part of building distrust.
00:24:59.920 --> 00:25:09.200
A CEO's ability to build distrust over time is often the difference between companies that execute well and companies that are chaotic.
00:25:09.680 --> 00:25:12.560
Honesty is not a moral position in this book.
00:25:12.720 --> 00:25:14.320
It is an efficiency.
00:25:14.640 --> 00:25:17.279
The second reason is arithmetic.
00:25:17.600 --> 00:25:24.160
It is a total waste to have lots of big brains, but not let them work on your biggest problems.
00:25:24.640 --> 00:25:30.240
A brain, no matter how big, cannot solve a problem it does not know about.
00:25:30.880 --> 00:25:39.279
A CEO who holds the worst problem alone has made himself the only person working on the hardest thing in the company.
00:25:39.519 --> 00:25:43.120
Every other brain he hired is busy with something smaller.
00:25:43.360 --> 00:25:46.080
The third reason turns culture into plumbing.
00:25:46.560 --> 00:25:50.560
A good culture is like the old RIP routing protocol.
00:25:50.720 --> 00:25:54.880
Bad news travels fast and good news travels slow.
00:25:55.519 --> 00:26:01.200
RIP is an old networking protocol, and the property Horowitz wants from it is simple.
00:26:01.680 --> 00:26:05.200
Failures move through the network faster than successes.
00:26:05.519 --> 00:26:08.400
That is the design goal for your company.
00:26:08.720 --> 00:26:10.880
He states it directly.
00:26:11.600 --> 00:26:15.680
A healthy company culture encourages people to share bad news.
00:26:15.920 --> 00:26:20.960
A company that discusses its problems freely and openly can quickly solve them.
00:26:21.279 --> 00:26:26.320
A company that covers up its problems frustrates everyone involved.
00:26:26.960 --> 00:26:29.759
And then he comes with an instruction.
00:26:30.240 --> 00:26:37.759
Build a culture that rewards, not punishes people for getting problems into the open where they can be solved.
00:26:38.160 --> 00:26:42.800
He also goes after one specific piece of management for Clore by name.
00:26:43.200 --> 00:26:44.720
Most leaders have said it.
00:26:44.960 --> 00:26:50.080
Beware of management maxims that stop information from flowing freely in your company.
00:26:50.320 --> 00:26:53.360
For example, consider the old management standard.
00:26:57.360 --> 00:27:01.920
What if the employee cannot solve an important problem alone?
00:27:02.560 --> 00:27:05.840
And then the sentence that closes the chapter.
00:27:06.400 --> 00:27:13.680
If you run a company, you will experience overwhelming psychological pressure to be overly positive.
00:27:13.920 --> 00:27:17.840
Stand up to the pressure, face your fear, and tell it like it is.
00:27:18.320 --> 00:27:23.920
Horowitz changed his mind in a small moment that embarrassed him and he prints it anyway.
00:27:24.240 --> 00:27:26.640
That is what makes the chapter credible.
00:27:26.880 --> 00:27:30.800
He had met a senior executive at AT ⁇ T not long before.
00:27:31.040 --> 00:27:35.680
In the book, he calls the man Fred, which he tells you is not the real name.
00:27:35.920 --> 00:27:45.360
Sometime later he mentions Fred to his brother-in-law, who worked for the same company as the telephone lineman, one of the men who climbed the poles.
00:27:46.080 --> 00:27:48.000
He says, Yeah, I know Fred.
00:27:48.160 --> 00:27:51.440
He comes by about once a quarter to blow a little sunshine up my ass.
00:27:51.759 --> 00:28:00.400
Horowitz writes, At that moment, I knew that I'd been screwing up my company by being too positive.
00:28:00.960 --> 00:28:04.400
The correction came from a man who climbs poles for a living.
00:28:04.560 --> 00:28:13.040
He described what an executive visit felt like from the bottom of the ladder, and the chief executive of a different company recognized himself in it.
00:28:13.279 --> 00:28:17.840
The pressure Horowitz describes has grown thief since 2014.
00:28:18.160 --> 00:28:23.920
Open any feed today and you will find an enormous amount of advice about empathy at work.
00:28:24.640 --> 00:28:29.680
Much of it is good, but some of it has gone somewhere strange.
00:28:30.080 --> 00:28:34.160
A comfortable lie now outranks an uncomfortable truth.
00:28:34.400 --> 00:28:39.440
Naming a person's behavior for what it is reads as an act of aggression.
00:28:39.759 --> 00:28:41.120
This is not new.
00:28:41.440 --> 00:28:53.680
In 1936, Dale Carnegie published How to Win Friends and Influence People, and the first principle in the book is do not criticize, condemn, or complain.
00:28:53.840 --> 00:29:02.800
His book ranks among the most successful pieces of advice about human relations ever written, and 90 years later, it has hardened into a norm.
00:29:03.200 --> 00:29:07.120
Carnegie deserves better than the reputation, and I checked the text before saying so.
00:29:07.200 --> 00:29:10.720
He attacked flattery directly and threw the line himself.
00:29:11.040 --> 00:29:18.080
Appreciation and flattery differ in that one is sincere and the other insincere.
00:29:18.320 --> 00:29:21.680
One comes from the heart out, the other from the teeth out.
00:29:22.240 --> 00:29:24.480
The misreading belongs to his readers.
00:29:24.560 --> 00:29:26.800
It is real all the same.
00:29:27.120 --> 00:29:30.960
And a deep company breaks that norm on contact.
00:29:31.200 --> 00:29:33.440
You run a company at the edge of science.
00:29:33.600 --> 00:29:39.680
The things you are building has no precedent, and the ground under it has no map.
00:29:40.160 --> 00:29:46.800
The job looks like this: you are walking the roof edge of a hundred-story building blindfolded.
00:29:47.120 --> 00:29:50.880
One wrong step, and the company goes over.
00:29:51.040 --> 00:29:52.880
Now choose your team.
00:29:53.279 --> 00:29:59.040
The first team watches you drift toward the edge and tells you how well you are walking.
00:29:59.279 --> 00:30:10.080
The second team shouts at you to turn around that you are two steps from the drop and then afterwards in the debrief tells you exactly how you got that close.
00:30:10.800 --> 00:30:13.680
Every sane leader picks the second team.
00:30:13.840 --> 00:30:22.080
And yet, most companies produce the first team anyway, because flattery is comfortable and the truth is expensive in the moment.
00:30:22.320 --> 00:30:24.160
And that is the real argument against it.
00:30:24.320 --> 00:30:28.560
Flattery costs time and it removes urgency, and you have neither.
00:30:28.880 --> 00:30:33.519
Two companies run the other way at scale, and they are worth a minute each.
00:30:33.680 --> 00:30:42.560
James Nuang runs NVIDIA with dozens of direct reports, not the five or six a textbook prescribes, and no individual meetings with any of them.
00:30:42.880 --> 00:30:48.480
At Stanford in 2024, he said, I don't do one-on-ones with any of them.
00:30:48.640 --> 00:30:51.680
His reason is about information rather than about time.
00:30:52.400 --> 00:31:04.240
In the way our company was designed for agility, for information to flow as quickly as possible, for people to be empowered by what they are able to do, not what they know.
00:31:04.560 --> 00:31:06.480
He gives criticism the same way.
00:31:06.640 --> 00:31:08.880
In his words, I do it right there.
00:31:09.040 --> 00:31:12.080
I give you feedback in front of everybody.
00:31:12.320 --> 00:31:17.519
And his justification is the best sentence any modern chief executive has produced on this.
00:31:17.840 --> 00:31:19.440
Feedback is learning.
00:31:19.680 --> 00:31:22.640
For what reason are you the only person who should learn this?
00:31:22.800 --> 00:31:27.040
He adds that learning from another person's mistake beats learning from your own.
00:31:27.120 --> 00:31:31.680
So an embarrassment kept private wastes the whole company's time.
00:31:31.920 --> 00:31:38.960
Now, let's get to Europe and an old industrial company that everyone reads as the opposite of a Silicon Valley experiment.
00:31:39.200 --> 00:31:48.800
Roland Busch joined Siemens in 1994 as a physicist researching fuel cells, offshore wind, and superconducting transmission lines.
00:31:49.040 --> 00:31:51.759
He became CEO in 2021.
00:31:52.000 --> 00:32:00.640
Since then, the stock has more than doubled and Siemens has become the largest company in Germany and the third largest in Europe by market value.
00:32:00.880 --> 00:32:05.360
What he did was he has removed the recurring meeting with his direct reports.
00:32:05.440 --> 00:32:10.720
His words, because I value efficiency, I don't have recurring meetings with my direct reports.
00:32:10.800 --> 00:32:13.600
I tell them, you come to me whenever you need me.
00:32:13.759 --> 00:32:16.640
It could be five times a week or once a month.
00:32:16.800 --> 00:32:21.360
I don't need to entertain people and they do not need to entertain me.
00:32:21.920 --> 00:32:27.040
Bush frames that as efficiency and not as honesty, and I will not put words in his mouth.
00:32:27.279 --> 00:32:29.759
But the effect on the plumbing match is wonks.
00:32:30.240 --> 00:32:34.000
Information moves when it exists, not when the calendar permits it.
00:32:34.160 --> 00:32:38.560
In both companies, a problem travels the moment someone notices it.
00:32:38.800 --> 00:32:42.720
So how does a chief executive build a company that tells the truth?
00:32:43.040 --> 00:32:44.720
Start with yourself.
00:32:45.040 --> 00:32:48.320
Say the real thing first before anyone else has to.
00:32:48.560 --> 00:32:53.759
Stop protecting people from bad news because the protection is for you.
00:32:54.000 --> 00:33:00.000
And then watch what happens to the person who brings you the first bad thing with no answer attached.
00:33:00.240 --> 00:33:02.320
Your whole company is watching that too.
00:33:02.480 --> 00:33:05.040
They will calibrate on it for years.
00:33:05.840 --> 00:33:08.080
So, this week, here is one move.
00:33:08.240 --> 00:33:10.480
Retire one sentence from your company.
00:33:10.720 --> 00:33:13.200
Don't bring me a problem without a solution.
00:33:13.519 --> 00:33:16.800
Say it in a room so people hear the rule change.
00:33:17.040 --> 00:33:19.759
Then put one sentence in its place.
00:33:20.400 --> 00:33:24.880
Bring me the problem the day you see it and bring whatever you have.
00:33:25.120 --> 00:33:27.600
Here are my three questions for your next board meeting.
00:33:27.759 --> 00:33:36.960
The first one How many days pass between a bad number appearing in this company and the board hearing about it?
00:33:38.480 --> 00:33:39.279
Number two.
00:33:40.240 --> 00:33:47.600
Who was the last person to bring you a problem they had no answer for and what happened to them afterwards?
00:33:48.000 --> 00:33:52.480
And the third one, where are you being positive right now?
00:33:52.640 --> 00:33:55.519
Because you cannot face saying the real thing.
00:33:55.840 --> 00:33:57.279
Trust is bandwidth.
00:33:57.440 --> 00:33:58.960
Everything else is throughput.
00:33:59.120 --> 00:34:02.560
And telling the truth turns out to be the easy half of this.
00:34:02.720 --> 00:34:08.559
The hard half arrives on the day you have to act on it, which is where we go next.
00:34:08.880 --> 00:34:10.159
Lesson number three.
00:34:10.480 --> 00:34:12.480
Lay people off yourself.
00:34:12.800 --> 00:34:26.719
After Juliet Bacar bought Obswear, Ben Horowitz went to see Dacleon of Sequoia Capital, who wanted to hear how a company the market had written off ended at$1.6 billion without ever recapitalizing.
00:34:26.960 --> 00:34:37.920
Horowitz walked him through the near bankruptcies, the 35 cent share price, the years of bad press and the free separate layoffs that cost 400 people their jobs.
00:34:38.239 --> 00:34:42.000
Leon had one question, and it was about the layoffs.
00:34:42.239 --> 00:34:50.400
In more than 20 years of venture capital, he had never seen a company survive consecutive layoffs and still reach a billion dollars.
00:34:50.559 --> 00:34:55.199
He had bet against the outcome every time, and he told Horowitz why.
00:34:55.519 --> 00:34:58.559
The layoffs always broke the culture.
00:34:59.199 --> 00:35:00.320
This one held.
00:35:00.800 --> 00:35:03.360
This chapter rests on a single claim.
00:35:03.679 --> 00:35:06.559
A layoff is not about the people leaving.
00:35:06.800 --> 00:35:11.920
It is about the people who stay and how they read what you did to their colleagues.
00:35:12.239 --> 00:35:13.840
Here is the procedure.
00:35:14.159 --> 00:35:19.279
Most of this chapter is craft, and the first rule is the one companies break most often.
00:35:19.519 --> 00:35:23.440
As Horowitz writes, managers must lay off their own people.
00:35:23.679 --> 00:35:28.159
They cannot pass the task to HR or to a more sadistic peer.
00:35:28.320 --> 00:35:32.400
You cannot hire an outsourcing firm like the one in the movie Up in the Air.
00:35:32.639 --> 00:35:35.279
Every manager must lay off his own people.
00:35:35.920 --> 00:35:37.759
Why it has to be the manager?
00:35:38.079 --> 00:35:46.239
Because people won't remember every day they worked for your company, but they will surely remember the day you laid them off.
00:35:46.559 --> 00:35:52.719
They will remember every last detail about that day, and the details will matter greatly.
00:35:52.960 --> 00:35:57.359
And the same argument from the receiving end, which is the one that gets under your skin.
00:35:57.599 --> 00:36:04.559
If you hired me and I busted my ass working for you, I expect you to have the courage to lay me off yourself.
00:36:04.879 --> 00:36:10.480
Horowitz credits the central insight to Bill Campbell again, the board member from the first lesson.
00:36:10.799 --> 00:36:13.519
The message is for the people who are staying.
00:36:13.839 --> 00:36:18.399
The people who stay will care deeply about how you treat their colleagues.
00:36:18.559 --> 00:36:21.599
He is also specific about what the message must be.
00:36:21.839 --> 00:36:24.559
It puts the failure on the company.
00:36:24.799 --> 00:36:32.239
The message must be the company failed, and in order to move forward, we will have to lose some excellent people.
00:36:32.399 --> 00:36:36.879
Because of what the layoff does to the deal every leader makes.
00:36:37.279 --> 00:36:38.159
Trust me.
00:36:38.399 --> 00:36:41.039
That's what the CEO says every day to her employees.
00:36:41.199 --> 00:36:43.839
Trust me, this will be a good company, trust me.
00:36:44.079 --> 00:36:48.319
This will be good for your career, trust me, this will be good for your life.
00:36:48.480 --> 00:36:51.279
A layoff breaks that trust.
00:36:51.519 --> 00:36:54.239
In order to rebuild trust, you have to come clean.
00:36:54.399 --> 00:36:56.559
Here are the six steps of Horovitz.
00:36:56.719 --> 00:36:58.079
Get your head right.
00:36:58.399 --> 00:36:59.679
Do not delay.
00:37:00.000 --> 00:37:04.000
Be clear in your own mind about why train your managers.
00:37:04.319 --> 00:37:10.159
Address the whole company before the individual conversations happen and then be visible.
00:37:10.399 --> 00:37:15.359
He's talking about laying off 50% or more of the entire company.
00:37:15.920 --> 00:37:20.719
The last one is where most leaders fail, and Horowitz states it plainly.
00:37:21.119 --> 00:37:26.159
You will probably feel like going to a bar and drinking a fifth of the Kia.
00:37:26.639 --> 00:37:27.599
Do not do this.
00:37:27.839 --> 00:37:28.799
Be present.
00:37:29.119 --> 00:37:30.159
Be visible.
00:37:30.399 --> 00:37:31.440
Be engaging.
00:37:31.759 --> 00:37:33.920
People want to see you.
00:37:34.159 --> 00:37:36.079
They want to see whether you care.
00:37:36.319 --> 00:37:38.480
The manager script is free lines.
00:37:38.799 --> 00:37:46.000
Explain in two sentences what happened and that this is a company for you rather than a personal one.
00:37:46.319 --> 00:37:50.719
Be clear that the decision includes them and that it is final.
00:37:51.679 --> 00:37:55.679
Arrive having settled every detail of the severance and the support.
00:37:55.839 --> 00:37:58.719
Freelance rehearsed, that is the whole craft.
00:37:58.879 --> 00:38:04.159
What makes Horowitz credible on this is that he tells you about the one he bulged.
00:38:04.399 --> 00:38:14.159
At loudcloud slash obsquare, we badly mismanaged this dynamic with our first round of layoffs, but sharply corrected things on the next two.
00:38:14.559 --> 00:38:18.000
And he shows you the evidence, which he had no reason to print.
00:38:18.159 --> 00:38:21.679
During that first layoff, somebody forwarded him an email thread.
00:38:21.839 --> 00:38:27.920
One of his better employees had written, Ben is either lying or stupid, or both.
00:38:28.319 --> 00:38:30.319
Horowitz's response in the book.
00:38:30.559 --> 00:38:34.239
I remember reading that and thinking, definitely stupid.
00:38:34.799 --> 00:38:36.079
He has two more attempts.
00:38:36.239 --> 00:38:39.839
Most companies get one, do it badly, and pay for it for years.
00:38:40.079 --> 00:38:45.199
The chapter now splits, and this distinction matters more than anything else in it.
00:38:45.440 --> 00:38:54.000
Horowitz writes two separate procedures because a layoff and a firing are two different acts, and companies blur them all the time.
00:38:54.480 --> 00:38:56.319
A layoff is a company fare.
00:38:56.719 --> 00:39:01.359
The role goes and the person leaves with every skill they walked in with.
00:39:01.839 --> 00:39:07.039
The honest reason is that the company changed direction or ran short of money.
00:39:07.359 --> 00:39:14.559
Firing an executive for performance is a different act, and Horowitz reframes it in a way worth adopting on any board.
00:39:14.719 --> 00:39:19.519
The wrong way to view an executive firing is as an executive failure.
00:39:19.759 --> 00:39:26.879
The correct way to view an executive firing is as an interview and integration process system failure.
00:39:27.039 --> 00:39:29.759
Then he puts the bill where it belongs.
00:39:30.079 --> 00:39:35.279
Yes, the reason that you have to fire your head of marketing is not because he sucks.
00:39:35.519 --> 00:39:37.199
It's because you suck.
00:39:37.359 --> 00:39:40.639
On a board, that reframe changes the question.
00:39:40.960 --> 00:39:48.960
If a company has replaced three heads of sales in four years, examine the role definition and the integration.
00:39:49.279 --> 00:39:53.359
Default lives there and both belong to the board.
00:39:53.679 --> 00:39:56.319
His three keys for that conversation.
00:39:56.480 --> 00:40:05.759
Be clear on the reasons, use decisive language, I have decided rather than I think, and settle the severance before you open your mouth.
00:40:05.920 --> 00:40:09.440
And Bill Campbell again with the line that governs the whole thing.
00:40:09.679 --> 00:40:16.000
Then you cannot let him keep his job, but you absolutely can let him keep his self-respect.
00:40:16.319 --> 00:40:19.199
Horowitz fixes the order of telling the company.
00:40:19.359 --> 00:40:24.000
You tell your direct reports first, because the decision hits them hardest.
00:40:24.239 --> 00:40:33.119
Then you tell the rest of your staff, who will spend the week answering questions about it, then everyone else, all on the same day and inside a couple of hours.
00:40:33.359 --> 00:40:36.159
Here is what I have watched for 35 years in business.
00:40:36.399 --> 00:40:42.719
People read two things about a company, who you hire and how, who you let go and how.
00:40:43.440 --> 00:40:55.199
Across a working life of 35 years, 20 of them in and around life science deep the companies between Series A and IPO, I have watched the second one go wrong almost everywhere.
00:40:55.359 --> 00:40:57.599
Most companies make it up as they go.
00:40:57.759 --> 00:41:01.440
They stage a show trial and everyone in the building watches it.
00:41:02.000 --> 00:41:05.359
It starts weeks before the person has any idea.
00:41:05.599 --> 00:41:06.639
Quiet conversations.
00:41:06.799 --> 00:41:13.759
The leaders making sure everyone understands the reasons, everyone, except the one person concerned.
00:41:14.000 --> 00:41:18.239
Once the coalition is large enough, they attack in the open.
00:41:18.559 --> 00:41:22.159
And unspoken hope runs underneath the whole thing.
00:41:22.799 --> 00:41:29.839
The pressure breaks the person, they lash out or quit themselves, and the reason to remove them arrives already made.
00:41:30.000 --> 00:41:34.000
If the person holds, the leaders keep pushing until they give way.
00:41:34.239 --> 00:41:39.599
In conversations with friends and with the executives I coach, I have heard many versions of this.
00:41:39.920 --> 00:41:42.480
One I keep coming back to.
00:41:42.960 --> 00:41:58.079
A line manager told the person in plain words that either they resign or he destroys their life, and that every time anybody called him for a reference, he would tell them the most appalling story he could invent.
00:41:58.559 --> 00:42:02.559
Hearing enough of these from both sides changes how you read them.
00:42:02.879 --> 00:42:07.359
Being with the person on the receiving end teaches you what it costs.
00:42:07.599 --> 00:42:11.920
Being with the person delivering it teaches you something less comfortable.
00:42:12.159 --> 00:42:17.679
Look closely at the manager making the fret, and you find something more ordinary than a monster.
00:42:17.839 --> 00:42:26.719
He made a decision weeks ago and cannot bring himself to say it out loud, and his company gave him no training and no process for the conversation.
00:42:27.039 --> 00:42:35.519
So he outsources the job to pressure and he waits and he hopes the other person resigns before he has to speak the sentence himself.
00:42:35.759 --> 00:42:40.799
What looks like cruelty from the outside is usually cowardice with a calendar.
00:42:41.039 --> 00:42:44.719
I have collected enough variations on that to fill an entire episode.
00:42:44.879 --> 00:42:46.559
Ask what they have in common.
00:42:46.799 --> 00:42:47.759
They teach.
00:42:48.000 --> 00:42:56.079
Every person still employed is watching, and what they learn is what happens to them when their turn arrives.
00:42:56.319 --> 00:43:00.639
After you have seen two of these, you can map your own ending in detail.
00:43:01.359 --> 00:43:04.159
So what do those people do next?
00:43:04.480 --> 00:43:09.119
Do they give you everything they have or do they start looking quietly?
00:43:09.440 --> 00:43:11.599
So they are gone before you make your move.
00:43:11.759 --> 00:43:14.559
Which is Campbell's line again from the top of this chapter.
00:43:14.719 --> 00:43:18.639
The message is for the people who are actually staying.
00:43:18.879 --> 00:43:23.599
The alternative comes from Reed Hastings, whose book I reviewed on this show.
00:43:23.920 --> 00:43:28.079
Netflix separates the two acts and does both with dignity.
00:43:28.399 --> 00:43:30.239
Tell the person the same day.
00:43:34.960 --> 00:43:36.000
In plain words.
00:43:36.239 --> 00:43:46.879
Hastings calls this sunshining, and his argument is that explaining in full why the company lets somebody go stops the gossip and raises trust among everyone who remains.
00:43:47.119 --> 00:43:48.559
Be generous with the money.
00:43:48.719 --> 00:43:51.759
The Netflix line from the culture memo is famous.
00:43:52.079 --> 00:43:55.279
Adequate performance gets a generous severance package.
00:43:55.519 --> 00:44:04.319
In practice, that runs from around four months of salary for an individual contributor to around nine months for a vice president.
00:44:04.879 --> 00:44:09.440
And then do the last thing, the one almost every company skips.
00:44:10.079 --> 00:44:15.440
Write them a real letter of recommendation and hand them to head hunters yourself.
00:44:15.679 --> 00:44:18.960
There was a day when this person was your best hire.
00:44:19.440 --> 00:44:24.159
The strategy moved, the talent they had that day is still theirs.
00:44:24.399 --> 00:44:28.079
The two books diverge on one point, and the difference matters.
00:44:28.399 --> 00:44:35.519
For a layoff, the company changed direction, and your skills are not what it needs now, is both true and dignified.
00:44:35.839 --> 00:44:42.799
For a performance firing, it is a euphemism, and Horowitz and Hastings both tell you to say the real thing.
00:44:43.119 --> 00:44:50.000
Use the strategic reason where it is honest, use it anywhere else, and it becomes a hiding place that everybody can see.
00:44:50.639 --> 00:44:54.559
The reason this goes wrong in the first place is older than any company.
00:44:54.799 --> 00:45:04.000
Removing someone from the group cuts against something tribal in us, and people who feel that discomfort look for ways to make the other person deserve it.
00:45:04.159 --> 00:45:06.559
That is where the bad mouthing comes from.
00:45:06.799 --> 00:45:13.039
Call it what it is: a leader buying relief from his own guilt with another person's reputation.
00:45:13.279 --> 00:45:18.719
Which means the fix is structural and it is the one thing I ask of every leader I coach.
00:45:19.199 --> 00:45:20.639
Make it a standard process.
00:45:20.799 --> 00:45:27.839
Written down and train your managers in it the way you train them in anything else that is hard and rare and high stakes.
00:45:28.079 --> 00:45:32.960
Then, when the day comes, they execute instead of improvising.
00:45:33.279 --> 00:45:38.719
The process makes the decision bearable, which is the job the invented villain used to do.
00:45:38.879 --> 00:45:40.000
Here is a move this week.
00:45:40.159 --> 00:45:40.799
Free lines.
00:45:41.039 --> 00:45:44.239
That is the whole assignment this week, and you write them yourself.
00:45:44.480 --> 00:45:50.000
Free lines in your own words that the manager will read out on the worst day of somebody's career.
00:45:50.239 --> 00:45:52.239
You write it not HR.
00:45:52.639 --> 00:45:56.719
Then rehearse it with every manager who will one day need it.
00:45:57.039 --> 00:46:03.039
A company that improvises this conversation has decided to find out how badly it goes.
00:46:03.279 --> 00:46:06.159
Here are my three questions for your next board meeting.
00:46:06.319 --> 00:46:07.279
The first one.
00:46:28.480 --> 00:46:37.199
And the third, what do the people who stayed after your last hard decision now believe about how this company treats people?
00:46:38.399 --> 00:46:40.879
Every company will face this day.
00:46:41.199 --> 00:46:50.159
The only open question is whether yours meets it with a trained procedure or an improvisation, and everyone who stays will know which one they watched.
00:46:50.399 --> 00:46:52.639
The craft of the act is one problem.
00:46:52.879 --> 00:46:58.960
Reading the situation in front of you, whether this is a war or a peace, is a different one.
00:46:59.199 --> 00:47:04.159
Horowitz has the best framework I know for that, and it is the next lesson.
00:47:04.399 --> 00:47:07.279
Those are the first three lessons, and they belong together.
00:47:07.519 --> 00:47:11.039
The struggle, which has no formula and no way around it.
00:47:11.279 --> 00:47:16.559
Telling the truth, which turns out to be an operating decision rather than a moral one.
00:47:16.799 --> 00:47:23.599
And the day you have to act on that truth, execute it so the people who stay can respect what they watched.
00:47:24.000 --> 00:47:26.399
All three describe the same hours.
00:47:26.639 --> 00:47:31.599
The plan has failed, the room is looking at you, and you are the only person who can move.
00:47:31.920 --> 00:47:34.960
The second half of this review goes somewhere else.
00:47:35.119 --> 00:47:41.839
It is about the job itself and the way it changes underneath you while you are busy doing it.
00:47:42.159 --> 00:47:50.159
Horowitz test for whether your company is at war or at peace and while running the wrong one kills companies that deserved to live.
00:47:50.480 --> 00:47:55.759
The two halves of a chief executive's job and the half where founders reliably come apart.
00:47:56.000 --> 00:48:06.079
Why the impressive executive you hire out of the large company so often produces nothing for six months and a rule about raising money that changes what a rejection means.
00:48:06.319 --> 00:48:09.119
That is but two, and it is waiting for you now.
00:48:09.599 --> 00:48:15.119
If the first half earned your time, follow the show and the second half will find you.