April 6, 2021

Academic CEOs, Junior v. Senior Engineers, and High Growth Mistakes | Boss Talk Ben Horowitz and Ali Ghodsi

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Key Takeaways

• Being a CEO is “the worst job that you’ll ever love”
• As a CEO you’re always selling
  • You’re selling to investors, employees, the press, and customers
• The best legal protection for a CEO is to take important legal decisions with the Board
• “In a startup, if you don’t have 10 new initiatives a day, as an executive, your whole company is standing still, nothing is happening” Ben Horowitz
• How too much money screws up a company
  • Entrepreneurs usually have many different ideas
    • Constrained by money, they only pursue their best two
    • With plenty of money, they pursue many more and stretch too thin
• There are two processes that you want to put in place early on: hiring and promotions 
  • It’s critical to have consistent, transparent, and fair processes for avoiding internal conflicts
  • If you don’t have clear processes, there will be hundreds of difficult decisions to be made
• Common mistakes of early-stage startups
  • Expanding to other countries
  • Hiring many executives
  • Working on different products

Key Books Mentioned

• On hiring
  • Who: The A Method for Hiring by Geoff Smart
    • Ali adopted the hiring process outlined in this book
  • If you want to learn about a sophisticated recruiting process, Citizen Perot: His Life and Times by Gerald Posner
• Books on fast-growing startups
  • Inside the Tornado: Strategies for Developing, Leveraging, and Surviving Hypergrowth Markets by Geoff Moore
  • Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman

Intro

• Ben Horowitz (@bhorowitz) is the co-founder and general partner at the venture capital firm, Andreessen Horowitz
• Ali Ghodsi (@alighodsi) is a Professor of Computer science at UC Berkley and the Founder/CEO of Databricks
• In this chat, Ali Ghodsi, and Ben Horowitz talk about being a CEO, leadership, hiring, and other CEO-related questions

Is Going Through Academia Useful to Become a CEO?

• There are a lot of people who come out of academia and start companies
  • Not many of them continue their journey as their companies grow
• In academia, you learn some things that are helpful for CEOs
  • Identifying problems that are difficult and important
  • Going to the core of the problem to find a solution
    • You learn to overcome biases and to only be concerned with the truth
  • Communicating your findings and convincing other people
    • The research community is very difficult to convince
    • This skill turns to be useful for marketing
• Ali transferred his truth-seeking nature to his company culture
  • But too much of a good thing becomes detrimental
  • As a CEO, you don’t need to learn and understand every little detail of the finance department
    • It will be hard to build trust with employees
    • It will slow things down
• What you don’t learn in academia
  • Putting a team together
  • Getting your team to trust you and execute effectively

Legal Protection for CEOs Who Leave Office

• There’s a pattern of CEOs being legally attacked after they leave
• When a CEO leaves a company, his legal protection changes dramatically
  • The CEO loses a lot of protection after stepping down
  • Anybody who has stock in the company can sue him/her
• The best legal protection for a CEO is to take important legal decisions with the Board
  • This shows that decisions are made with consideration to the stakeholders
  • Greg Reyes, ex-CEO of Brocade was convicted for fraudulent backdating of corporate stock options because he approved stock options without the approval of his Board
• Many founders like to be informal and take stock-options decisions by themselves, not knowing that they run huge risks
• It is advisable for CEOs to have a personal lawyer advising them, even on matters of the company
  • The company’s legal team is not representing the CEO

Get The Right Person for The Right Stage

• There are three kinds of employees
• You don’t want to get the wrong person for the stage of your company
• 1. Startup people
  • The ones good at bringing you from zero to one
• 2. Midsize Company People
  • Those who are good at growing a company
• 3. Big company people
  • Those good at optimizing
• “In a startup, if you don’t have 10 new initiatives a day, as an executive, your whole company is standing still, nothing is happening” Ben Horowitz
• Executives used to large companies have a hard time adapting to startups
  • You can run a playbook, but can you write one?
• The hardest problem is getting product-market fit for a new product
  • It would be a disaster to assign that job to junior engineers
  • Many companies make this mistake
    • They employ their senior engineers to maintain the products that are already successful and assign junior engineers to new projects
  • The best engineers should be working on developing new products
    • If you don’t have enough senior engineers for a new project maybe you should not start it

How Money Screws Up a Company

• Entrepreneurs usually have many different ideas
  • Constrained by money, they only pursue their best two
  • With plenty of money, they pursue many more and spread too thin
    • This approach usually fails

Growth by Acquisition?

• You should only consider acquisitions if you have a strong foundation
  • A great business, product, and company culture
• Would the acquisition strategically help the company in a major way?
  • If it doesn’t do that, it is probably not worth it
• Money should not be the main constraint on acquisitions
  • People tend to underestimate the complexity and time-cost of acquisitions
• Integrating an acquired company with a different culture takes a huge effort
  • Acquisitions often involve many layoffs of “duplicate employees”
  • If you hire too many people from other companies, they will inevitably affect your culture
  • Ross Perot famously said that he only wants to hire one person from each company because “eagles don’t flock”

Common Mistakes of Early Stage Startups

• Expanding to other countries
  • It initially seems easy and cheap to expand
    • You might assume you only need a few salespeople
  • As you do, unexpected costs and problems start popping up
    • You often need more people than you’d think
    • Culture clashes and different regulations make things more difficult
  • Some times you do need to expand, even if it’s costly, to be the first to capture a market
    • Books like Blitzscaling and Inside the Tornado encourage those kinds of “mistakes”
• Working on many different products too early
  • Get one product working, making sales, and growing before moving to new products
  • (Working on different products too early) “Is such a dilution of focus it’s almost suicide” Ben Horowitz
  • Ali’s rule of thumb is to get to $100M of revenues before moving to new products
• Hiring many executives too early
  • Most executives are good at moving you from 1 to n
  • If you hire them when you need to go from 0 to 1, they’re going to destroy the company
    • It would be your fault not theirs

Thoughts on Compensation

• There are two processes that you want to put in place early on: hiring and promotions 
  • It’s critical to have consistent, transparent, and fair processes for avoiding internal conflicts
  • If you don’t have clear processes, there will be hundreds of difficult decisions to be made
    • You don’t want to reward pushy people who constantly ask for a raise
  • There’s room for exceptions: you don’t want to lose a super talented engineer who could create the next great product
    • Overoptimizing for saving money is a common mistake
• You have to assume that every decision you make on compensation will be known by other employees
• An underperforming person that makes a ton of money must be dealt with swiftly
  • If not, it will upset everyone else
  • Ben wrote an essay on this topic called Titles and Promotions

Additional Notes

• Being a CEO is “the worst job that you’ll ever love”
• As a CEO you’re always selling
  • You’re selling to investors, employees, the press, and customers

A16z Podcast : entrepreneurship, leadership, startups
Notes By Giorgio Parlato