Lecture 15 – How to Manage (Ben Horowitz)

So when Sam originally sent me
an email to do this course, he said Ben can you teach a 15
minute course on management. And I immediately thought to
myself, wow, I just wrote a 300 page book
on management, so that book was entirely too
long. And I, I didn’t actually have
time to collapse the 300 pages into 50 minutes. So like Mark Twain, I didn’t
have time to write a good short letter, so I’m
going to write a long letter. But in this case, I’m going to teach exactly one
management concept. So, one long thing. And this management concept
though, is the thing that I see CEOs
mess up more consistently than anything else, and from when
they’re very, very early to when they’re
very, very big as a company. It’s the easiest thing to say,
and the most difficult to master. And, the concept in musical
form, whoops, pardon me, very sensitive. But musical form. This is from Sly And The
Family Stone. Sometimes I’m right.>>So. No difference what group I’m
in. So that’s, that’s the musical
version of today’s lesson. For those of you, you are
musical, you can leave now. In management concept form,
basically it’s this. When you’re making a critical
decision, you have to understand how
it’s going to be interpreted from all points of view, not
just your point of view and not just the person you’re
talking to, but to people who aren’t in the
room, everybody else. In other words, you really
have to be able, when making critical decisions, to
see the decision. Through the eyes of the
company, and the company as a whole, which means you’ve
got to kind of add up every employee’s view, and then incorporate that into
your own view, otherwise your management decisions are going
to have have very weird, side effects and, and potentially very dangerous
consequences. And it’s a really hard thing
to do, because at the point when
you’re making a decision you’re often under
a great deal of pressure. So let’s get into the agenda. So I’m going to cover a kind
of four cases, first I’m going to cover
demotions, which is a very emotional
thing. Then raises, which is also an
emotional thing. Then we’re going to evaluate
one of Sams blog posts. Which is news to Sam, so I’d
figure out I’d tease him since he invited me to a do a
50 minute management class, after I wrote a 300 page book. And then I’m going to talk
about, history’s greatest
practitioner at this, and I’m wearing a shirt with him
on it, and kind of how he used it to do something he has
done, had ever done before in human history and has never
done since in human history. But basically complete
mastery, of, of the technique I’m going to
talk about. So, first business example. You’ve got an executive, and
do you demote, or do you fire him? And this comes from an actual
conversation, an actual real life situation that I was
working on with a CEO. And so, the basic situation
was this. He had a great executive, or
like an executive who, just a great effort. Like, he hired him. He was working harder than
anybody else in the company, doing you know, like,
everything he was supposed to. Everybody liked him, because
he worked so hard, and like was a general smart
person. But he was just in over his
head knowledge wise. He did not have the knowledge
and the skills to basically do what the company needed him to
do or, like, really compete against
the competition, so he couldn’t actually keep him
in the job. But he’s a great guy. And you know, so the question
is, well. Should I fire this person? Or can I just move him into a
lower role and bring in a person above him. And then, like, you know, that
would be real cool. So, let’s look at how you
kind of make that decision. So you in this, in this case
this was the CEO, so you as a CEO. So, one like, look, it’s
really hard if somebody comes to work everyday like at, you
know, 6 a.m., and is like working till 10
p.m. And like doing it, like, harder than anybody in
the company. It’s really hard to just say,
well, sorry, like, nice effort, but you don’t get
an A for an effort. You get an F because I fired
>>Nobody nobody wants to have that conversation.>>
>>And then, a demotion is kind of neat because from the
CEO’s point of view, and this is, he’s like, Look, like, we
can keep him in the company. He works so hard. He’s a good example of somebody who gives a great
effort. And you know, like, and then
he’s got a lot of friends in the company, and
they’re, you know, from a cultural standpoint
like, it’s a, it’s a win, win because like, he gets to
stay and, and, you know, like and then I can bring in
somebody that can solve my problem, but I, I don’t have
to create another problem. And then if you think about it from the executive’s
perspective,. And what they would think,
it’s like, well, I, you know, I don’t want to be
demoted. But I really don’t want to be
fired, because if I get fired that’s
a way harder more complicated thing to explain to my next
employer than I got demoted. Like, getting demoted is like, well, I didn’t really get
demoted, I got a new job.>>A smaller title. And then, you know, the, the,
the last thing is it enables, you know, like theoretically,
while, like, you know, the company, you know, we
value all our employees. We brought you in. We made a commitment to you as
an employee. And, like, we value everybody. And it kind of will enable you to keep
growing with the company. And so. You know and this was the kind
of initial conversation I had with a CEO and, and I said well wait a minute, I
said, let me ask you this. Like what is the, what’s the equity package that
this exec has? And he goes well what do you
mean? And I was like, well like does he have like,
director level compensation, does he got like a vice
president level compensation? Does he have a point and a
half? Does he have 0.4% or what? and, you know? That kind of gave the CEO
pause. He’s, like, well, he does have
a point and a half. And I was, like, okay. So you’re an engineer in your
company. How do you feel about somebody
who used to be the head of sales, who got brought in with
a point and a half. Now, mind you, you’re an
engin-, what do your engineers get? Like, they get. .1%, .2%, what are they
getting at this point? So how are they going to feel
about somebody who’s not the head of sales with
1.5% of the company. And he was like oh. And I was like, yeah, oh. Because like how fair is that? So are you going to take the
equity away, are you up for doing that, are you up for
going back and taking back his compensation? And like how productive do you think he’ll be if you take
away his compensation? And then secondly, like Will
people give him the same respect now that
you’ve demoted him, because they knew him as this,
and now he’s this. And so like, I knew you when
you were head of sales, now you’re the regional
manager, and you’re telling me what the to
do? You’re telling me I need to
make that call? Like, seems to me you got
demoted. You know, who are you to talk
to me? I’m an up and comer. I’ll be the next VP of sales
at the next company. So all these things come into
play. And so when you look out at
the end, like you may think you’re
dealing with one person. You may think that this is a
demotion, or a firing of one person, and what does it mean
according to that one person. But what you’re really doing
is you’re saying look. What does it mean to fail on
the job? Particularly, a very, the highest paid, highest
compensated job in the company from an equity
standpoint, and then, like, what’s required to
maintain your equity? Like is it good enough to put
in an effort? Or do you have to get a
result. And in different situations at
different levels, look, these answers will come out
differently. And if this had been a person
not that was an executive brought in
from the outside but was somebody who you maybe
promoted past where they should have been, and didn’t
ever get that equity, like, maybe you make a different
decision. But you’ve gotta understand
what it’s going to mean to everybody, not just the person
you’re talking to. Example two. An excellent employee asks for
a raise. Good employee. This isn’t like a, like the
last employee. This is like really good
employee. So excellent employee asks for
a raise. So, look. Your first thing is like, they’re really good, they
asked me for a raise, they didn’t ask me
for no reason. They ask me because they think
they deserve it. I want to retain them. Like, I want to be fair. They’ve done a great job. I want to be fair, and, like,
you know, I know that if I give them
this raise, like, it’s going to be all love
coming my way,. That’s going to be if I gave
you a raise, we’re good, you know, like we’re boys.>>Look at you. You got a raise.>>It’s awesome. So like, you know from your
perspective you know what you want to do when somebody asks
you for a raise. And then if you look at it,
okay, so what about from their
perspective, what, how would they, like, take it
if you gave them the raise. And now you have to remember
the employee from, for them to get to the point where
they’ve asked you for a raise. This is not something they
just like woke up one morning and like, I’m going in
and asking for a raise, right? Like this is something where
they’ve thought about it a lot, they’ve you know,
compared their other options, they may have an offer from
another company, you know, they’re, it’s something their
spouse probably has been talking to them about. And so it’s a serious thing. And so, if you give it to
them, they’re very likely to feel
very good about it. Like, they may be like
paranoid, about like why are you giving
me a raise? But, very unlikely. Much more and they’ll feel
like. I’m sorry, I have to just let
the whole thing play. And that’s, that’s for those of you who don’t know,
that’s Bobby Shmurda.>>
>>And, Rowdy Rebel doing the Shmoney
>>But that’s, that’s likely the reaction
you’ll get. So there’s a lot of momentum
to say yes, look, they read Sheryll’s book, they
leaned in and I’m going to reward them for, for doing all
that, which is, you know? And, and by the way, that book
has very good advice, so I’m, I’m not knocking on
that. I don’t want you to be
misinterpreting me. however, you know, there was
going to be a however. What about, you have to think
about it through the point of view of the employee who did
not ask for the raise. So the employee who didn’t for
the raise, they may be doing a better job than the employee
who did do, ask for the raise. And in their mind they’re
going, okay, so I didn’t ask for a raise and I didn’t get a
raise, and they asked for a raise and they got a raise,
and so what does that mean? That means one, like you’re
not really evaluating people’s
performance. You’re just going well whoever
asks, gets. So that means like, I either
need to be that guy, who asks for the raise. Like and I, I, you know, that’s just no how I feel you
know, I do my work and I don’t necessarily want to
ask for a raise. Or like I should, I just need
to quit and go to a company that like actually
evaluates performance. And then you know, so you
could really make the person who doesn’t get the raise feel
like, pretty pissy about it. And don’t think that when
somebody’s walking down your company doing the shmoney
dance that other people aren’t going to
notice, like. So they’re going to be fired
up about that raise. They’re saying, oh you can
say, oh this is highly confidential that I’m
giving you this raise. It’s not confidential. And then the cultural
conclusion is going to be everybody in your company
is going to feel that they now have a fiduciary
responsibility to their family to ask for a raise all
of the time. Because if they don’t, then
they may be missing out on a raise that they would have
otherwise gotten. And like you talk to any
experienced CEO and they will tell you this is
true. Like if you give out raises
when people just ask you for them, like that, you will have a lot of people
asking you for raises. That is called encouraging
behavior. So what do you do? And really, the right answer
on raises is you have to be formal. And you have to be formal to
save your own culture. And I know this is always, this is the thing that causes
people running startups, fits. Because, it’s, like, well, I don’t want,
like, a lot of formalities. I don’t want a lot of process. I want it to be organic. We want to do yoga.>>
>>We want to only smoke organic weed. Sorry that was like a Peter. Peter got very focused on who was smokin’ weed a little
while ago. But like, the process actually
protects it protects the culture because
what it does it says look, we’re going to look at all the
inputs. We’re going to have a formal
way of saying anybody who wants a raise come talk to me. Like, I’m not going to give
you a raise, but I’m happy to hear your story. I’m going to talk to all the
people you work with so I get like a, understanding of
it. I’m going to evaluate all the
work that you’ve done so I know like, where I actually
rate you, and what my actual opinion on
them. I’m going to do that
periodically, I’m not going to do it daily. But like yeah, maybe if I were
fast moving I’ll do it ever six months or even maybe
once a quarter. And at the end of that process
I will tell you want your raise
is. And I will tell you if you’re
getting one of if you’re not getting one, but I’m not
going to do things off cycle. I’m not going to do things
when asked. There’s like one process, and
that’s it. And I, you know, when I used
to be CEO, and I had, like, executive, it’s
the bigger this gets, the harder this gets because
the more aggressive the people working
for you are. Because to get to be an
executive, it turns out, you often have to be pretty
aggressive in this world. And in most companies, like, that’s how you get to that
level. You know, I would go, like,
you can lobby me all you want, you know, after the process is
done, and I give you your raise, but you
know what? I’m not hearing it, because I already went through
my process. I got your input going in. I got everybody else’s input,
I’ve got so many people, I’ve got so much money and you
got what I believe is right. And having a process like that
basically gets people to be actually more comfortable. They’re more comfortable
because they don’t always have to be on edge about like am I
asking for what I deserve? Or am I getting like aced out
because of who I am, what I look like, I’m not buddy buddy, I’m not
at the golf course with you. Or I’m not doing whatever you
like to do. Or, you know? I don’t have to worry about
any of that. ‘because I know your process. I know your processes like
you’re going to evaluate everybody, and then you’re
going to give ’em what’s fair. And so that’s a, a much better
way to handle that. And it means that you’re
actually understanding what everybody thinks. Not just the people you’re
talking to at the moment. Okay, so now we’re going to
get into some fun stuff. We’re going to evaluate Sam’s
blog post, how. Which is actually, there are
some very good things in it. And then there are some things
I’m going to discuss.>>
>>So Sam, so this is the expert, excerpt. Most employees have nine, only
90 days after they leave a job to exercise their options. Unfortunately, this requires
money to cover the strike price and the
tax bill. I’ll explain this a little
later, just. But I want to read it first. For the year of exercise,
blah, blah, blah, this is often more cash than
an employee has. And this is the key. And so the employee has to
choose between like, leaving the job and walking away from
the invested options of either money that she has because she
can’t afford to exercise or being like locked into staying
at the company basically for all the wrong reasons. So particularly bad situation when an employee
gets terminated and I’ll get into that and that’s
a really key point. This doesn’t seem fair, the
best solution I have heard is from Adam D’Angelo, a very,
very smart guy at Quora. The idea is to grant options
that are exercisable for ten years from the grant date,
which should cover, you know like, all the cases
you know, whatever happens with the
company. There are some tricky issues
to this. Blah, blah, blah. But it’s still far better than
just losing the assets. I think this is a policy that
all startups should adopt. So our question is well, like,
was Sam right? Is this a policy that all
startups should adopt. So let me first explain again
what the policy is. So currently the way almost
every stock option package in Silicon Valley works and in
all of startup world is this. That your stock vests, you get
stock invest over a period of time but if you leave the
company, when you leave you have, and
it depends on the company, but I think it’s 90 days to
exercise, so yeah, so 90 days. And if you do not buy your
stock in that period, Like it’s not yours anymore. Which, depending on when you
entered the company, could be a big problem. So a lot of companies today
that are valued a lot, like if you take like a really
valuable startup like say an Airbnb, or an Uber, or
something like that. When they bring you in, they
go wow, you know? Like if you look at your 409A
price. And to the preferred price. Like the stock we’re giving
your right now, the options are already worth
like $10 million. And you’re like, whoa, $10
million. I’m rich. But what they don’t
necessarily tell you is, in order for you to get that
money. Because their, the preferred is worth $10
million, your options probably are going to cost you like
$2.5 million. When you leave, and if you don’t have that $2.5
million in 90 days, it’s gone. Like you just lost all your
money. And so Sam was like, wow,
that’s **** up.>>And so he wrote a blog
post.>>And he said everybody
should change it. And so the first question that
you have to ask yourself on something like
this is well why is that even, like this has kind of been
around since like the 80s so why is a rule like this around
for 30 years. And it turned out, Sam, and I
don’t even, I, I don’t know whether he
like figured this our or just intuited it, but he was
right. Like something actually had
changed. So up until 2004 there used to
be this law called, APB opinion number 25. That law was the old way to
account for stock options. And, you know, it’s also the law that all the
guys went to jail on. So I got a lot of people who
cut a case on APB 25. So I’m glad it’s gone. because it was a very
confusing law. And a lot of people did not
understand it. And they literally went to
jail. But when that was a law, if you gave somebody ten years
to exercise their options you would never have
been able to go public. And you would never have been
able to be acquired. Because you basically were
taking an expense that was tied to your stock price. So basically, the more your
stock went up, the more compensation expense
you’d have to take. And the worst thing about it
would be, is, you wouldn’t know what it
was going to be. So it’d be totally
unpredictable. So you could never forecast
earnings ever. Because your earnings would be
a function of all of your stock price. And so the more your stock
price went up the more money you would lose. And in those days people did
not look through expe, stock option expenses. So like it just wasn’t doable. And that’s why everybody’s agreement was
written at 90 days. So that’s why it’s there. So absolutely it’s the right
thing to question it being there. Are you guys following? You get this? This is like more complicated
than the first two examples but a very important one. Okay. Then so your perspective on
this, if you’ve got employees, you
want to be fair. Like nobody wants to like
higher, hey, you’ve got all this stock in
four years, psych. And especially like when you
fire someone. Hey, you’re fired! I feel real bad about it, but,
you know, guess what? I’m also going to take all
your money too.>>
>>You must not feel that bad. So, like, that’s kind of. Like a problem. But you also, and this is the thing that you’ve
got to keep in mind. You also have to think about
the people who are staying, and you want to reward the
people who are staying. Now the employee, the perspective of the
employee who leaves. And this is really critical
because, this is your reputation,
right? Like, I worked. Like, you know, a year’s work. Like, where’s my year’s pay? And then, okay, so now you’re telling me about
this 90 day exercise. And I know it was in, like, the fine print of my
stock option agreement. But, my hiring manager never
told me about that. They never told me I was
going to need like $2 million to get my
stock, which I don’t have. And like so if I was rich,
like, I’d get my stock. Like, that’s not fair. And so, like, you know, now
I’m fired, and then I’m screwed. And guess what? You know, I’m going to tell
everybody like, how you like, screwed me over. And so that’s a real
reputational problem. So that’s something that
you’ve gotta consider in setting this policy. But then you also have to consider the employee who
stays. And, one thing that they’re
going to ask themselves is, look they’re leaving. And every time anybody leaves
it’s like, was that smart? Like that’s something you, because these are people who
write, your employees know each other
better than they know you. In any company, I don’t care
what company you are. But like often the, the person they’re really
working with is, is going to be the person they
know more. And so if that person leaves
they are going to go, well like, should’ve I left
too? Like, what did they get, and how does that compare to
my deal? And so, like, if we look at
the situation, and we try and analyze it, there is a lot of
components to it. So first is, look, companies tread a lot of
people around here. And I think, like, really the average is
somewhere around 10%, it’s probably getting higher. Particularly if you’re in San
Francisco, it’s getting higher. Just because of the nature of
the culture there. And then, Silicon Valley
companies dilute, like 6 to 8 or even 10% a year
for employee options. And you have to keep in mind
that, as mean as it may be, if that employee leaves and
can’t exercise their options. Then those options come back
to the pool, where you can potentially give them to
people who are already there. So, you’re actually taking
less dilution. So that’s something that you
have to think about. I’m not saying you have to act
on it, but it’s something that you
have to think about. Then secondly, look, losing all your stock is a
very big incentive to stay. And that can be good news or
bad news, right? Like, it can be good news in
that like, you get to keep somebody you
might have lost. It could be bad news in that
you kept them for the exact wrong reason, right? because they have handcuffs on
them. And so you know, you may get
like, the an employee who’s worse
than not having an employee. But on the other hand, a ten year option on a highly
volatile security, for those of you who have taken
that class. Anybody taking that class? That’s valuable, right? Ten years options are
volatility and length. That’s the value of an option. Well, ten years on a start up
stock, that’s a big valuable thing. And then remember, the employee who stays doesn’t
get that. The employee who stays just
gets the stock. They get that, but they don’t
get the new job and the new stock. So they get one thing but they
don’t get both things. And so, you’ve gotta weigh
that in. So this is a hard one. Like, I think that it should
be reevaluated by every company. I wouldn’t go as far as to say
it should be adopted by every company. I think you have to think
about what you want. And I would just offer kind of two alternative cultural
statements. One is, look we treat
employees with the utmost
straightforwardness. We’re going to be fair. And therefore, like you get ten years to
exercise your stock. And like what we said we’re
going to give you, you’re going to get regardless
of how rich or poor you are. Like, that’s just a done deal. The second way to handle it,
which is, and no companies do this. Which is why I actually really
like this post that he wrote. Like, you can say up front,
like, you’re guaranteed to get your
salary. But for your stock to be
meaningful, like, this, these are the things that have
to happen. One, you’ve gotta vest. Two, you have to stay until,
like, we get to an exit, like the company makes it. And or, like you’ve got to
have the money. And like finally, the company’s like actually
got to be worth something. because 10% of nothing is
nothing. And look, the reason that we
set the policy this way is like we really value people
who stay. So don’t join this company
like, if you’ve got another, join
another one in 18 months. because like, you’re going to
get screwed. And like, our policy like
guarantees you’re going to get screwed on that. And so like, those are two
ways to handle it. It really depends on like, you
and how you want to run your
culture. But again, with all these
things, it’s just critical to think it through from
everybody’s perspective. Because when push comes to
shove, that’s going to matter. It’s going to change the
outcome of your company.>>I’m actually revising my
recommendation slightly.>>Let’s hear it. No, I just think there needs
to be more incentive to stay, through the years. But-
>>Right, so you could add, you could add a
stay incentive.>>But still like if someone
gets, if someone gets fired I still think they get screwed a
lot of the time.>>Well the other. And the other thing that’s
really important that Sam pointed out it’s like, the distinction now is how
much money you have, right? If you’ve got the money, you
don’t get screwed. You walk away with all, you
can buy your stock. You do take some risk, but you
can buy your stock. If you don’t have the money,
you don’t have the money. Okay. So, now, we’re getting to the
person on my shirt, Toussaint. He was the best at this. And I want to take you through
some examples, because they’re very powerful. Okay so, first of all, about
Toussaint. He was born, the thing to
understand about him is he, he was born a slave. And but he wasn’t just born a
slave, he was born a slave in the most brutal place to be
a slave. Which was in kind of the, then
the colony of Santo Domingo, you know, now referred to as
Haiti. But this was actually a much
more severe form of slavery, as were, kind of, all the sugar growing areas
than even US slavery. Which is historically a very
brutal form of slavery. And just to give you some
numbers on it, basically, over the course of slavery,
the, something like 400 years, a million slaves were brought
to the US. And at the end of slavery
there were four million slaves in the US. In that same period, to the sugar growing countries
in the Caribbean. 2 million slaves were brought
over. And at the end of slavery,
there were 700,000 left. So from just a quantitative
perspective, like nearly ten times more
brutal. And I’m going to read this to
you. I don’t know if I quite have
time, but I don’t care.>>So but, just to, to give
you an idea, this isn’t just like a
quantitative thing. I’ll read you sort of a, a description of slavery in
Toussaint’s area. Whipping was interrupted in
order to pass a piece of hot wood on the buttocks of the
victim. Salt, pepper, citron, cinders,
aloes and hot ashes were poured into
bleeding wounds. It’s not to heal them, this is
to make it worse. Mutilations were common. Limbs, ears, and sometimes
private parts, to deprive them of the pleasures which they
could indulge without expense. Their masters poured burning
wa, wax on their arms and hands and shoulders. Emptied the boiling cane sugar
over their heads, burning them alive. Roasted them on slow fires,
filled them with gunpowder and blew them up with a match. Buried them up to their necks
and smeared their heads with
sugar, that the flies might devour
them. Fastened them to the nests of
ants or wasps. And made them eat their
excrement, drink their urine, lick saliva of other slaves. One colonist was known in
moments of anger to throw himself onto slaves, and stick
his teeth into their flesh. So that’s the slavery that he
grew up in. And it’s really important to
understand this. Because to get out of that
perspective, was not easy. But he had a vision and his
vision was kind of threefold. One, he wanted to end slavery. Two, he wanted to actually
take control of the country and run the
country. And thirdly, he wanted it to
be a first class, world class country. Not just like something that,
where he had freed the slaves, but something that could
compete on a world wide basis. And so that was his mindset
going in. But that was the background
that he came from. So example, management
example, one conquering the enemy. So, the kind of sequence of
battles that occurred in Haiti. Where first, you know, he had
to kind of defeat the locals. But then, once he defeated the
locals, which is, there were several countries
that were very, very interested in taking
control of Haiti. Principally Spain, England and
France. So he had to defeat those
armies as well. When he conquered them, he had
to decide what to do with the kind of
conquered soldiers, and the leaders on the other side. And, to do this, he really
took into perspective kind of, three different points of
view. One, his soldier’s point of
view. Two, the enemy’s point of
view. And finally, the point of view
of the resulting culture. Like, what kind of country was
he building? Because the army was going to
be the seed corn for the culture of the whole
country. So from the soldier’s
perspective, I get this, you know, do we get to
pillage? Like, soldiers like to
pillage. They get stuff, it’s something
for their work. And like, the second thing is,
they’re trying to kill us, so we should kill them. Like, that’s a basic
perspective of the people who are fighting for ’em. So, the most important people
to, to some. Now, I put pillage up there
so, a couple things to note. One, I didn’t put rape up
there. And very interestingly, like not only did he not allow
rape among his army, but he didn’t even allow his officers
to cheat on their wives. And if they did he’d get rid
of them. Because he was so concerned
about the resulting culture. What was it going to be? Was it going to be productive? Was it going to be best in
world? Or was it going to be
something less than that? And so that’s, that was his
mindset going in. His army was actually famous
for not pillaging. So they were actually already
used to this, they were famous for not
pillaging. And this was a, one of the most surprising
things to conquered people. To the point where, in Haiti
he had a reputation when even the white people were like,
very impressed with him. Just because he would go in
and go into their city and not pillage, even though he
would win. But, again, this is because he took a long
view of the culture. So, and this is a kind of
important settle point, which gets him to his
conclusion. But he believed that the
culture of Haiti, because it was a slave
culture, sugar plantation culture, was
just pretty low grade compared to what he had
experienced in Europe. When he dealt with the
Europeans. And then he thought that slave
culture was even more broken than Haitian culture
because if you think about slave culture it’s like the
kind of culture where oh, you don’t do what I tell you, I’m
going to beat you to death. I’m going to blow you up with
gunpowder. If you think the kind of
behavior that, that, then, that ensues from
that. That was the culture he knew
he needed to replace. He knew he needed to upgrade. So his solution was, when he
conquered the British or he conquered the Spanish or he
conquered the French. He would take the very best
people from there. And he would make them
generals in his army. Okay, so, you probably didn’t
expect that. Like, so, here are the guys
trying to kill him. He’s leading a slave
revolution. And he, when he conquers the
enemy, he actually incorporates them
into his army, and makes him part of that. Because he wanted the
expertise, and he wanted the, he wanted the culture to be at
a much higher level. So the second question he had. This is even more complicated. What do you do with the slave
owners? So you’re leading a slave
revolution. You take control of the
country. What do you do with the slave
owners. Three perspectives again. So for the slaves, like, come
on, like if you’re a slave and you win the war against the
slave owners, like, you want to kill them. There is no question. And not only do you want to
kill them, but like that’s your land now. Like, we won. Like F you. From Toussaint’s perspective,
it was more complicated because he wanted Haiti to be
a first world country and sugar was really important and the whole slave economy was
the sugar economy. Then, right, like, on the
other hand he was a slave and he’s got to be pretty upset, particularly given the type of
slavery. Then he had, but he had to
consider like, he didn’t know how to run a
sugar plantation. And then like, he didn’t have
any business relationships on who
to trade the sugar with. But on the other hand like,
like war, like you win the war you get
the land. Like, that’s a pretty like
basic rule. So what to do? And then if you look at the
slave owner perspective, it’s pretty interesting because
they’re coming at it from the, and this is the point of view that he actually had the
discipline to understand. They were coming from a cost
structure that was predicated on slave labor. So, like, their business didn’t work
without slave labor. Like, literally if they had to
pay people, like, their cash flow wouldn’t work. They paid a lot of money for
the slaves up front. And they paid a lot of money
for the land. So in their mind, like, to run
it, like, that was, like, that’s how business worked. Like, you can’t just, you can’t just like change the
economics and have it still work and then
they knew they had like some power because of the
position they were in. So what was the answer for the
slave owners? So, one, so a solution was
like, one, I’m going to end slavery, two, I’m going to let slave
owners keep their land. Three I’m going to make them
pay their workers. So there are no more slave
labor. You have paid workers. But in order to fund that I’m
going to lower their taxes. You guys ought to be kind of
impressed with that. Like, lower the taxes of the
slave owners after you defeat the slave owners and,
like, end slavery. But he had a bigger goal. He wanted a stronger culture. The way he treated those slave
owners, the, the need to keep the
economy going was important. And then, like, let’s look at
the results. So, first of all, it is, Toussaint’s revolution is the
only successful slave rev, revolution in the history of
mankind. There’s never been another
one. There may never, hopefully. We won’t have slavery in a big
way, and there won’t be another one,
so, like, he’s it. Two you know, the plantation
owners kept their land. Three, he defeated Napoleon. He had a booming economy and a
world-class culture. Under Toussaint, Haiti had
more exports, export revenue than the United
States. So that’s how successful he
was in the revolution. And this is the power of
looking at a situation not just from your point of view,
but from the point of view all the constituents,
even the people you hate. Which is hard to do when
you’re CEO, and harder to do when you’re
leading a revolution. So just, look, in conclusion,
the most important thing that you can learn as CEO, the, one
of the hardest things to do is, you have to discipline
yourself to see your company through the eyes of the people
that you’re working through. Through the eyes of the
employees, through the eyes of your
partners. Through the eyes of the people
who you’re not talking to. And who are not in the room. Thank you.
Now for questions. Yes, sir?>>How do you communicate the
message to the rest of the employees?>>Right. Right. So this is a great question. Yes. So the question is, so if you’ve gotta fire the
modern executive. One, how do you have the
conversation. And then too, like how do you
explain it to everyone else? because like it’s clearly some
kind of failure. You failed on hiring, you
failed on integrating, they failed at their job. Like some, like it’s failure. And so, I’d say look, the
first thing is, when firing the person, you have to really
try to be honest. And you’re feeling like you
failed. And I think a common reaction
is like, then there’s a couple common
reactions. One is like, you just suck. And like, so, like, I’m firing
you. **** off. That’s not good because it’s
not really true. It may be like, you know,
you’re failing that way. And then another kind of
common mistake is just to be like you know, too mushy. It’s not you, it’s me. And it, like, feels like some
kind of weird break up with an ex-boyfriend that you
really didn’t like. But generally, like, when you hire people it like,
you try to hire the best. And you hire people who are
qualified to do the job and generally the reason that they
fail in the job is you made some mistake in
the hiring process and that you didn’t
match them to the needs of your company accurately
enough. That’s the number one reason
why this fails. And so that’s generally a good
place to start. To say, like, here’s how we
are. And here’s what I didn’t
recognize about us and about you when I made the
decision. And now, like, it is what it
is. So we’re going to have to move
on. And then when you talk to the
employees about it. Like, this is, and this gets
different. Which is, look, you can take
somebody’s job. You have to take their job. And this is something Bill
Campbell taught me. But you don’t have to take
their dignity. And so it’s not necessary to
get up in front of the company, and say,
I blew that **** out. I capped his ****.>>
>>In fact, that’s not good because if somebody feels good
about that, like, you know, you might feel like proud of
yourself, but like nobody else feels good
about that. You know, the right thing to
do is just like thank them for their work, like let people
know that they’re moving on. And you don’t really have to explain all their personal
details. It’s more important to leave
them with their dignity. And like let them go on to
live another day because look, what you say at that meeting? That’s their reputation. Because everybody in your
company is going to get a call on that person when they try
and get their next job, so if you start saying a bunch of
BS about them? Like that’s not going to be
good. And it’s not going to get
interpreted as like, we screwed up. It’s going to get interpreted
as you know, he screwed up. And so they’re kind of two
different things. You have to be very honest
with them but you have to make sure you preserve their dignity when
you talk to the company. Yes sir.>>So I was reading your book
yesterday and one, like, I started getting heart
palpitations because it.>>Sorry about that.>>Yeah like, elsewhere. And so one question for me, I
think for everyone is how did you in particular deal
with all the stress? Like, was it, like,
meditating, hip-hop.>>
>>What do you do?>>So the question was, how
do, how do I deal with all the
stress of, being CEO. And the answer is I used to be six foot four and good
looking.>>So clearly not very well. I get asked that a lot and I, I really don’t have a great
answer for it. I mean, I think that the one,
I have a wonderful wife who’s
sitting right here. So I’ll say that.>>So if you’re married to
somebody, if you’re married to somebody who’s supportive,
that makes it, like 1,000 times easier. If, if I did not, if I wasn’t, I would
definitely probably be dead,.>>
>>But, but the one thing with stress is
you’ve got to keep your focus on what you can do, not
what happened to you. And that’s a, it’s a really
hard thing to do, because it’s constantly, and people are
always asking you about it, like, what the **** are we
going to do? We’re going to die, we’re
running out of cash. It’s all going to be over
soon. But you can’t focus on that. You have to focus on, okay,
like what are my options? What can I do? And where can I go? And the better you are at
that, the kind of higher your chance
of, for success. Yes.>>How did Toussaint get the
French generals to work for him, like what was his pitch?>>Oh, so this is a great
question. How did Toussaint get the
French generals to work for him? And the reason was that they
were so. Shocked that he didn’t kill
them because he was like, they, their perspective is
we’re fighting the slave army, we’re fighting the savage
army. They’re going to kill us. And so when he said, like,
we’re not going to kill you, that was such a shock to their
system that it completely reoriented their
whole way of thinking. And they actually became much
more loyal to him than they ever were to France. And they actually borrowed
that technique, interestingly, from Julius
Caesar who he had studied. He was a very unusual slave in
the sense that, his, his owner recognized how
smart he was and put him in the library, because he wanted
Toussainte to eventually run the plantation for him. And so the person that he
studied most of all in his masters’ library was
Julius Caesar. And so he borrowed that
technique from him. But applied in a much kind of
more dramatic context. And so, his army was kind of. He had British, French,
Spanish slaves. And mulattos, who, most of the
mulattos in Haiti, at that time were pro slavery. So that was another issue, but
his leadership was so great everybody wanted to join
him. Yes?>>How do you incorporate that
same ideology into people who were previously against
you, on your side?>>Yeah, so. You know, and it, it’s,
different in different ways but a lot of it, you know, his
whole strategy. And, and look, I’m sorry the
question was, how do you, get people, how do you incorporate
Toussainte’s ideology and get people who were previously
against you on your side. And I would just say, like,
what he did, in general. Is, is the right thing, which
is to, basically you have to show
them a better way. You know as a leader, if
someone’s your enemy, and you need to convert them over. And this happens in business
too. Where like somebody’s like a
competitor or something, and you want to bring them over. But you want to bring them
over, you know, you don’t want to bring the,
all the unethical people who’ll switch competitor to
competitor over. And it really is, like, your
culture has to be elevated. Your mission to be elevated. Your way of doing things has
to be just better. And that was the thing that
was so compelling, for, for the
other. Yes,. Yes.
>>Okay, so going up, your last name’s
actually. It’s just sort of like
introducing the bill, and it’s like Have you built like
a culture around people? You know, all the
entrepreneurs you work with that sort of
differentiated you in the market from all other VCs?>>Probably not the best
question for me. I could ask Sam that. I don’t know, so the question
is, you know, have we built a culture at
Andresen Oritz that is differentiated us from all of
their VCs? I feel like, you know, that’s
certainly the goal, and, you know, we’ve been around
for five years now, and, you know, the, the, the
attempt that we made at it, and it’s for the
rest of the world to judge if we succeeded was basically
this, that. You know in the old days of
VC, when I was an entrepreneur. The basic idea was like you’d
have an entrepreneur and, or an inventor, and they’d get a
company to a point, and then at that point they’d
either be like ready to be CEO, or you would go find a
CEO to replace them and build quote, unquote the
company. Our kind of cultural
philosophy was like, the founder inventor is
special so, we’re going to design the firm
and the culture of the firm to
help the founder develop into a CEO, and so we do a lot of
systematic things different. The two biggest are one, all of our partners are kind
of founders, CEOs. So that you get somebody, our
original motto is some experience required, it’s
a joke.>>If you were going to advise
the CEO, you have to have kind of been
a CEO, imagine that. That’s why I like Sam, he used
to be a CEO, he doesn’t talk about it that
much, but he, he was a CEO and good at
it. And then the second part is
that a professional CEO would bring in, in the old days is,
is a network of just tons of people that he would know from
like all kinds of, you know, guys who, who bought
technology at big corporations to, like important partners in
the field. Like, guys like Google and
Facebook to, you know people in the press that, that he or
she might know and so forth. And so we try to basically
build that network on your behalf, at the
firm. And we probably, I think we do a better job of
that then anyone else. So that, those are the way
that, that we try to be differen. One more question.>>Yes, one more question. Yes, the front row.>>Is this like, putting
yourself in others, people’s shoes is very
important in management. So, can you give us some tips
to do it?>>Yeah, so.>>How can you.>>Yeah, so, so, putting yourself in other
people’s shoes is, is difficult in management. Can you think about how to do
it in daily life? It’s hard. It’s hard in daily life. It’s even harder in
management. Because it’s a stress of the
moment, right? Like, a great employee is
asking you for a raise, it is very hard not
to respond. It’s, it’s a very, because like you do not
want to lose them, and like they’re not asking you
for a raise randomly. They’re asking you a raise for
a reason. And so to say okay, you know,
particularly if you don’t have a process in place to go stop,
like back out. I would just say that, and
it’s a key thing in being, a leader is you’ve got to
pause yourself. Like if somebody comes to you with something that you
know is important. But you want to feel like, you
know, when you’re a leader you want to feel like you have all
the answers. Like right now you guys are
asking me questions, if I don’t know the answer
I’ll make something up. Because I want you to think
I’m real smart. and, and it’s important, I, I’d say the most important
thing is to pause. Like so if you know something
is really important and you haven’t thought it
through. Says to say, you know, look, I’m taking
this really seriously but I have to pause because I have
to think it through from all perspectives and I’m going to
come back, and, and I end up doing that a lot just
because there are a lot of things that you run into that
you haven’t seen before, and I’ll tell you, you, you know, most CEOs, including myself,
learn this the hard way. You walk in you kind of step
in it like three or four times. You go okay, I’m going to
sneak away with this. Nobody’s going to see me give
them the raise. I’m going to do it and it’s going to be all under the
covers, confidentiality baby. And then like it comes up and it blows up in your face three
weeks later. And you’re like, oh my God,
what have I done, or three months later, or even a
year later. And then, you know, once, it’s a year later, it’s
a huge problem. Like so you’ve taken what’s a
little emotional problem and you’ve turned it into a forest
fire. You know we call it the kimchi
problem. The deeper you bury it the
hotter it gets.>>It’s a Korean joke. But but, you know, it takes
practice. I would say it takes practice. And it’s very difficult to do. And I would say, you know, like, some of the, my friend,
Bill Campbell. This is his big skill. Like, this is what he’s so
great at. People always try and describe
him to me. And I’m like, that’s not him
at all. That’s not what he’s good at. Like, he’s not good at that or
that. He’s good at this. He’s good at seeing the
company through the eyes of the employees. And, it’s, like I said, if
you, if you’re good at that, you’ll be in a, very likely in
an elite, leader. So thank you, thank you.

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32 thoughts on “Lecture 15 – How to Manage (Ben Horowitz)

  1. I like find like it like hard like to kind listen kind to kind it like since like I like noticed like how like many like times kind of he says kind of a certain like word.

  2. 2 important lessons, that I am taking away, from this talk:
    – It's not your perspective or the perspective of the person that you are talking to that matters. You must consider the people who are not in the room. They are the company. They are the culture. Think about all the stakeholders before taking a decision.
    Being a Leader you need to pause yourself. Don't give yourself ego boost by fooling yourself that you know all the answers. When something is important, take your time to think through, and evaluate, all the options and then take the next step.

    PS: https://twitter.com/HoodaSaurabh/status/514002094324338688

  3. From his book, I knew Ben liked rap and hip hop but I never knew he was so knowledgable of black history Kudos +1 That Toussaint Louverture analogy was spot on in the context of the lecture. I'm Jamaican so it was great to hear a story about the Caribbean I could relate to. What also stood out for me is that he was no ordinary slave, he was an educated slave, something that should be the goal of every startup founder. These courses are a goldmine of educational resources from the world's best! The supporting reading materials are also great.

  4. The example of Toussaint is historically incorrect. Toussaint was at the time of the revolution a free man and a slave owner himself. The lesson in itself is, like, interesting.

  5. Enjoyed the talk. One note, at 36:00 a slide's bullet point says "total defeat of Napoleon."
    Historically I understand that Toussaint eventually surrenders to the French and dies in a
    cold french mountain prison. Still a brilliant man with great achievements, but
    the chaos of Haiti can be traced back to the way he wrote their laws, installing himself
    as their permanent military dictator. 

    Fascinating story and insights though. 

  6. Amazing talk Ben. Thank you for your insights. 

    Would rather hear a more complicated persona which was more efficient in management like e.g. Great Alexander.

  7. No, he did not defeat Napoleon. Napoleon never went to Haiti. Napoleon never directly waged a campaign on Haitian soil like he did in Europe.

    How can someone “defeat” a person who never actually confronted them on the field of battle? The answer is that you can’t.

    That statement needs to be amended because it isn’t true. The Haitians defeated the French, not Napoleon. They never had to deal with Napoleon.

  8. Toussaint is totally a parallel to how Daenerys Tagaryen deals with conquering and dealing with the slave cultures in Game of Thrones!

  9. I would take the whipping with salt, citrus and peppers just to have this guy as an advisor. Wounds heal but the trauma from bad decisions stays with you forever.

  10. In the scenario an employee will receive $10m in shares for $2m as mentioned plus a tax charge, is there a lending product that people can get? Surely a bank, mez lender would lend 2m plus tax for 10m in equity security? Perhaps not.. I’d guess there are funds out there that would provide the cash for a piece of the equity or a share of upside?

  11. There are many management rules … too many. This one is the most important, and one of the most difficult to consider on an on-going basis. Critical management decisions should be made with all impacted perspectives in mind.
    In a start-up, these perspectives include the person making the decision, the person(s) directly impacted by the decision, the other people in the company, the company culture, and potentially the external world. The impact of your decisions on all of these disparate groups should be considered: Demote or fire someone who is not performing, excellent employee asks for a raise, Sam’s blog post, history’s Greatest Practitioner:

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