
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
- Entrepreneurs usually have many different ideas
- 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
- Who: The A Method for Hiring by Geoff Smart
- Books on fast-growing startups
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”
- It initially seems easy and cheap to expand
- 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