The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers

by Ben Horowitz

If they are telling you something that you already know, then the big news is that you have let the situation go too far.

As Andy Grove points out in his management classic High Output Management, the Peter Principle is unavoidable, because there is no way to know a priori at what level in the hierarchy a manager will be incompetent.

Another challenge is a phenomenon that I call the Law of Crappy People. The Law of Crappy People states: For any title level in a large organization, the talent on that level will eventually converge to the crappiest person with the title. The rationale behind the law is that the other employees in the company with lower titles will naturally benchmark themselves against the crappiest person at the next level.

Bill Campbell developed an excellent methodology for measuring executives in a balanced way that will help you achieve this. He breaks performance down into four distinct areas: 1. Results against objectives Once you’ve set a high standard, it will be straightforward to measure your executive against that standard. 2. Management Even if an executive does a superb job achieving her goals, that doesn’t mean she is building a strong and loyal team. It’s important to understand how well she is managing, even if she is hitting her goals. 3. Innovation It’s quite possible for an executive to hit her goal for the quarter by ignoring the future. For example, a great way for an engineering manager to hit her goals for features and dates is by building a horrible architecture, which won’t even support the next release. This is why you must look beyond the black-box results and into the sausage factory to see how things get made. 4. Working with peers This may not be intuitive at first, but executives must be effective at communicating, supporting, and getting what they need from the other people on your staff. Evaluate them along this dimension.

The key to a good one-on-one meeting is the understanding that it is the employee’s meeting rather than the manager’s meeting. This is the free-form meeting for all the pressing issues, brilliant ideas, and chronic frustrations that do not fit neatly into status reports, email, and other less personal and intimate mechanisms.

Some questions that I’ve found to be very effective in one-on-ones: If we could improve in any way, how would we do it? What’s the number-one problem with our organization? Why? What’s not fun about working here? Who is really kicking ass in the company? Whom do you admire? If you were me, what changes would you make? What don’t you like about the product? What’s the biggest opportunity that we’re missing out on? What are we not doing that we should be doing? Are you happy working here?

The world is full of bankrupt companies with world-class cultures. Culture does not make a company.

The first rule of organizational design is that all organizational designs are bad. With any design, you will optimize communication among some parts of the organization at the expense of other parts.

As a result, as soon as you roll out the new organization, people will find fault with it and they will be right.

here are the basic steps to organizational design: 1. Figure out what needs to be communicated.

2. Figure out what needs to be decided.

3. Prioritize the most important communication and decision paths.

4. Decide who’s going to run each group.

5. Identify the paths that you did not optimize.

6. Build a plan for mitigating the issues identified in step five.

it’s much easier to add new people to old processes than new processes to old people. Formalize what you are doing to make it easy to onboard new people.

evaluating people against the future needs of the company based on a theoretical view of how they will perform is counterproductive,

There is no such thing as a great executive. There is only a great executive for a specific company at a specific point in time.

For this company at this exact point in time, does there exist an executive who I can hire who will be better? If my biggest competitor hires that person, how will that impact our ability to win?

Perhaps the most important thing that I learned as an entrepreneur was to focus on what I needed to get right and stop worrying about all the things that I did wrong or might do wrong.

If CEOs were graded on a curve, the mean on the test would be 22 out of 100. This kind of mean can be psychologically challenging for a straight-A student. It is particularly challenging because nobody tells you that the mean is 22.

CEOs often make one of the following two mistakes: 1. They take things too personally. 2. They do not take things personally enough.

The general problem can be seen in the social credit matrix below. The expected social rewards for making the crowd-influenced decision appear better than those for making the decision you think is right: You are right You are wrong You decide against the crowd. Few remember that you made the decision, but the company succeeds. Everybody remembers the decision and you are downgraded, ostracized, or fired. You decide with the crowd. Everyone who advised you remembers the decision and the company succeeds. You receive the minimum blame possible for getting it wrong, but the company suffers.

So what makes people want to follow a leader? We look for three key traits: The ability to articulate the vision The right kind of ambition The ability to achieve the vision

Mastering both wartime and peacetime skill sets means understanding the many rules of management and knowing when to follow them and when to violate them.

“How easy is it for any given individual contributor to get her job done?” In well-run organizations, people can focus on their work (as opposed to politics and bureaucratic procedures) and have confidence that if they get their work done, good things will happen both for the company and for them personally. By contrast, in a poorly run organization, people spend much of their time fighting organizational boundaries and broken processes.

Netflix’s CEO, Reed Hastings, put great effort into designing a system that enables employees to be maximally effective. His presentation of this design is called Reference Guide on Our Freedom and Responsibility Culture.

I am telling this story today because just when you think there are things you can count on in business, you quickly find that the sky is purple. When this happens, it usually does no good to keep arguing that the sky is blue. You just have to get on and deal with the fact that it’s going to look like Barney for a while.

THE FREAKY FRIDAY MANAGEMENT TECHNIQUE

Early on, it’s natural to spend a great deal of time integrating and orienting an executive. However, if you find yourself as busy as you were with that function before you hired or promoted the executive, then she is below standard.

“You are doing a great job at your current job, but the plan says that we will have twice as many employees next year as we have right now. Therefore, you will have a new and very different job and I will have to reevaluate you on the basis of that job. If it makes you feel better, that rule goes for everyone on the team, including me.”