The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
Ben Horowitz, 2014
Three weeks of cash left, investors saying no, his wife in hospital: that was how Ben Horowitz's company went public. An entrepreneur who saved his company from bankruptcy several times and sold it for $1.65 billion explains what to do when there are no ready answers. You'll learn how to tell people the truth, how to lay people off without destroying trust, and how not to fall apart yourself.
Who it is for
For startup founders and managers who have to choose between bad options. And for anyone who wants to see what a business looks like from the inside when nothing goes to plan.
The hard thing isn't setting a big, hairy, audacious goal. The hard thing is laying people off when you miss the big goal.
Three weeks of cash and a call from the hospital
In 2001 Loudcloud sets off on its roadshow to investors before going public. The market for internet companies has just crashed, and every single private investor has said no. Before the trip, the banker had found out from the CFO that the company had about three weeks of cash left before bankruptcy. At one meeting a fund manager asks the founders why they even came and whether they know what's going on in the world.
On the third day of the trip, the company's CEO, Ben Horowitz, gets a call from his father-in-law. Ben's wife has had an allergic reaction to a medication and stopped breathing on her own, but the doctors say she has a chance of recovering. Ben calls her and offers to come home. She tells him to finish the IPO, or there will be no tomorrow for the company. The shares sell at $6, the company raises $162.5 million, and nobody celebrates anything. It was probably the least celebrated IPO in history, the author writes.
Horowitz worked at Netscape, then founded Loudcloud, came close to bankruptcy several times, turned the company into Opsware and sold it to Hewlett-Packard for $1.65 billion. Today he is a venture capitalist, co-founder of the firm Andreessen Horowitz. He opens the book with a confession: the advice in management books is good, but nothing in the situations they describe was truly hard. Setting a bold goal is easy. What's hard is laying people off once it's clear you won't reach it.
There's no recipe for moments like these, and Horowitz doesn't promise one. He tells you what he did himself when he had to choose between very bad and catastrophic: how to look for a way out, tell the truth, lay people off, keep people and not fall apart yourself. Let's start with the day when the company seemed already gone.
Odds of one in a thousand don't change the job
Soon after the IPO, Loudcloud's customers, internet startups, start going under one after another. The biggest of them, the online currency exchange Atriax, paid about a million dollars a month. One day its CEO calls to say the company is bankrupt and won't pay the $25 million on its contract. Loudcloud's shares immediately fall by half, and a $75 million hole opens up in the financial plan.
Horowitz decides to sell the cloud business and keep Opsware, the software the engineers wrote to manage the company's own servers. His friend and board member Bill Campbell, the former head of Intuit, listens to his report on the talks with IBM and EDS and says: at the same time, get the company ready for bankruptcy. Ben recalls the story of a young doctor visited by a pale man who had just had a heart attack. An experienced colleague examined him and said the patient was dead. The patient himself simply didn't know it yet. Three weeks later the man died.
Ben never did write the bankruptcy plan. Michael Ovitz, a board member and once the most powerful man in Hollywood, advised a different course: Ben should set the deadline himself and play the two buyers against each other. Ben told IBM and EDS that the deal would close in eight weeks and go to whoever offered the best terms. Seven weeks later EDS bought Loudcloud for $63.5 million, and Opsware stayed with the team, and EDS agreed to pay $20 million a year to license it.
Hence the author's main conclusion: a startup CEO should not count the odds. Nine in ten or one in a thousand, the job stays the same. Horowitz compares his business to the three-dimensional chess in Star Trek: technology, the market and people are always moving, so there is always a way out. And whoever holds on a little longer may find a solution tomorrow that doesn't exist today.
What do you do on days like these? Don't carry it all alone: tell the team about the trouble and bring as many minds as you can into solving it. And don't beat yourself up: every CEO makes thousands of mistakes, and self-flagellation doesn't save a single dollar. When Ben felt sorry for himself, he rewatched an interview with the football coach Bill Parcells. Parcells once complained to his mentor, Al Davis, that half of his best players were injured, and was told: “Bill, nobody cares, just coach your team.”
About the author
Ben Horowitz worked at Netscape, founded Loudcloud, turned it into Opsware and sold it to Hewlett-Packard for $1.65 billion. He then co-founded the venture capital firm Andreessen Horowitz with Marc Andreessen.
All books by this author: Ben Horowitz
Terms from the book
- Grove
- Campbell
- Davis
- AT&T
- Jobs
- Berkeley
- Marx
- Loudcloud: The company Horowitz founded in 1999 with Marc Andreessen. It offered a cloud service, taking care of its customers' servers, security and growing traffic.
- IPO: A company's first public sale of shares, after which its shares trade on the stock exchange.
- Netscape: The American company that built the first mass-market web browser in the 1990s. Horowitz worked there as a product manager.
- Opsware: Software for managing servers automatically, written by Loudcloud's engineers. Later the company itself took the same name. Hewlett-Packard bought it in 2007.
- Hewlett-Packard: A large American maker of computers and software, HP for short.
- venture capitalist: An investor who puts money into young, risky companies in exchange for a stake in them.
- Andreessen Horowitz: The venture capital firm Horowitz and Marc Andreessen founded in Silicon Valley in 2009.
- startup: A young company building a new product and growing fast, usually on investors' money.
- Atriax: An internet company for exchanging currencies, backed by Citibank and Deutsche Bank. It was Loudcloud's largest customer and went bankrupt.
- cloud: A cloud business, as the author describes it, is one where the customer gets computing power and service over the internet and never has to think about their own servers.
- Intuit: An American company that makes software for personal finance and taxes.
- EDS: Electronic Data Systems, a large American company that ran other companies' computer systems. It bought Loudcloud and became Opsware's main customer.
- Ovitz: Michael Ovitz, founder of the Hollywood agency Creative Artists Agency, whom many considered the most powerful man in Hollywood. He sat on Loudcloud's board.
- CEO: Chief executive officer, the head of a company.
- Parcells: Bill Parcells, a famous American football coach, early in his career the head coach of the New York Giants.
- Leone: Doug Leone, a venture capitalist at Sequoia Capital.
- Sequoia Capital: One of the best-known venture capital firms in Silicon Valley.
- Turpin: Bill Turpin, a programmer who worked with Horowitz at Netscape and before that at Borland.
- BladeLogic: Opsware's main competitor in the market for server management software.
- Crossman: Ted Crossman, one of the best engineers at Loudcloud and Opsware.
- Rendition Networks: A small company that made software for managing networks automatically. Opsware bought it for $33 million.
- Barksdale: Jim Barksdale, the head of Netscape in the years Horowitz worked there.
- GO Corporation: A company that in 1992 tried to build a device a bit like the future iPhone and lost almost all its investors' money. Bill Campbell was its CEO.
- Oxide: The internal name of the project that turned the Opsware software from a tool for Loudcloud into a product for any company.
- Cranney: Mark Cranney, Opsware's head of sales, later a partner at Andreessen Horowitz.
- D'Amato: Cus D'Amato, the legendary American boxing trainer.
All terms
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