Founders - #41 The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers

Episode Date: October 8, 2018

What I learned from reading The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz.---There's no recipe for complicated, dynamic situations [0:01]Meeting Marc Andreessen [8:30]The co-founder relationship between Marc and Ben [11:00]How they came up with the idea for Loudcloud (Opsware) / A business is just an idea that will make someone's life better. —Richard Branson [13:45]Ben finds value by asking the question: What would I do if we went bankrupt? [21:05]Sell the wrong product to find the right one [22:30]Saving a $20 million a year customer by buying a $10 million company [23:16]Do not play the odds [27:27]Discount praise. Focus on what can be fixed [28:32]Why training is so important (compounding effect) [31:20]Difference between large company executives and founders [32:00]Why it is a good idea to collect good ideas [34:00]Determination is more important than intelligence [35:30]Your culture should be unique / Using shock to create behavioral change [38:24]There is no founder school [40:30]Perseverance is more important than intelligence [41:01]Copy from great founders [46:50] ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

The problem with these books is that they attempt to provide a recipe for challenges that have no recipes. There's no recipe for really complicated dynamic situations. There's no recipe for building a high-tech company. There's no recipe for leading a group of people out of trouble. And there's no recipe for making a series of hit songs. There's no recipe for playing NFL quarterback. There's no recipe for playing NFL quarterback. There's no recipe for running for president.

And there's no recipe for motivating teams when your business has turned to crap. That's the hard thing about hard things. There is no formula for dealing with them. Nonetheless, there are many bits of advice and experience that can help with the hard things. I do not attempt to present a formula in this book. Instead, I present my story and the difficulties that I have faced as an entrepreneur, a CEO, and now as a venture capitalist. I still find these lessons useful, especially as I work with a new generation of founders.

I share my experiences in the hopes of providing clues and inspiration for others who find themselves in the struggle to build something out of nothing. So that is from the book The Hard Thing About Hard Things by Ben Horowitz. And the subtitle is actually Building a Business When There Are No Easy Answers. And that last sentence there, I share my experiences in the hope of providing clues and inspiration for others who find themselves in the struggle to build something out of nothing. In case this is your first time listening to Founders, that's exactly what this podcast is about. We're trying to learn from the company builders that came before us. And to do that, I read a biography or autobiography every week for the podcast. And then what follows is the highlights and notes that I left myself. And hopefully you find these ideas as useful in your own work.

So I want to talk. So here's the interesting thing about this book before we get into my notes and highlights. So I actually read, according to Amazon, I read this book three years ago. And it came back on my radar when I was taking notes on a podcast for Founders Notes. And the founder of this software company called Front, her name is Matilda Collin. And she was talking about some experiences that kind of resonated with me. So one of the questions was, she went to both business school and worked in a startup. So a lot of people see those as very different experiences. And so I talked about this on the podcast before. I started companies when I was in college. And while I was in college, I was also in the pilot entrepreneurship program. This is over a decade ago. So now I think almost every college has entrepreneurship programs, which is kind of oxymoronic in a way.

But she said something. Her answer to that question was, which of those experiences did you learn more? And she said, of course, working in a startup, right? But then she said the thing in business school that was most helpful was meeting entrepreneurs that had built companies. That inspired me. I had that same experience. I remember almost nothing of those two years in that program other than when successful founders

had came to the class and talked. And specifically, this one guy came in. He was going to donate $3 million and build either to have his name on the building or something like that. And the prerequisite for the donation was that he would get to speak to the people that were in the entrepreneurship program. And, you know, in 30 minutes, he taught us more about building businesses than I learned in two years. And then the Q&A section, when they opened it up, there's probably maybe like, what, 30 or 40 of us in the room at the time.

And I just remember lighting them up with question after question after question because I was so fascinated little did I know a decade or a decade and a half later I'd be doing a podcast that kind of learns from from people that build companies like this so and then the second thing she said that that stuck out to me was she talked about the book that helped the most in her building the company she's still doing this they went from think, zero customers to about 3,500 and from zero employees to maybe 50 or 100 now. I don't remember the exact number at the moment. But she said the book that helped her the most was The Hard Thing About Hard Things by Ben Horowitz because she said that knowing that it's hard for everyone will allow you to just focus on progress and not obviously the feelings that you're going through because

this book is a little different from the other autobiographies and biographies we've covered in the past where i would say the majority of the book it's it's a description on his his unhealthy mental health at the time and you know crying, sweating. I'm not going to go into a lot of the details of the company because I want to focus it explicitly on like his key lessons for founders. But the company goes from, I think, zero people to like 500 and then back down to 80 and then back up to 600 and then it's eventually sold. And this happens over, I think, an eight-year period. So it's a very honest look, in my opinion, on what founders talk about the least. And that's like, how do you manage your own mental health, especially when you're in charge? So I'm going to skip over a lot of his early life,

and I want to just get to the parts that I think are the most valuable for us. And so this is when he first sees the product that eventually becomes Netscape. And then he meets his longtime partner. For those of you who don't know, Ben Horowitz founds, he works at Netscape under Mark Andreessen. After that, Mark Andreessen and him start this company called LoudCloud that turns into Opsware and then later on they start the venture capital firm Andreessen Horowitz. So they have a very unique relationship because they're partners over over 20 years over multiple different companies you don't usually see that. So it said one day one one day one of my co-workers showed me a

new product called Mosaic which was developed by some students at the University of Illinois. Mosaic was essentially a graphical interface to the Internet, a technology formerly only used by scientists and researchers. It amazed me. It was so obviously the future, and I was so obviously wasting my time working on anything but the internet. Several months later, I read about a company called Netscape, which had been co-founded by former Silicon Graphics founder Jim Clark. Longtime founders, listeners will know who Jim Clark is. I did a podcast on him maybe six months ago. I don't exactly know. It was based on Michael Lewis's great book called The New New Thing. Jim Clark, I mean, every founder we cover on this podcast or I cover on this podcast is eccentric and quite a character. Jim Clark is one of the most eccentric people in a

really good way. It's a fascinating story. If you haven't listened to the podcast, I definitely recommend it. So it says it's founded by Jim Clark and mosaic inventor Mark Andreessen. I instantly decided that I should interview with a job there or for a job there. And it said the next day, the hiring manager called me back to let me know that they wanted me to interview with the co-founder and chief technical officer, Mark Andreessen. He was 22 years old at the time. In retrospect, it's easy to think both the web browser and the internet were inevitable, but without Mark's work, it is likely that we would be living in a very different world. At the time, most people believed only scientists and researchers would use the internet.

Think about how crazy that is in our modern day. The internet was thought to be too arcane, insecure, and slow to meet real business needs. Almost nobody thought the internet would be significant beyond the scientific community, least of all the most important technology industry leaders who were busy building proprietary alternatives. So he goes into like Oracle and Microsoft completely missing the boat on the internet. And the note I just left myself was like, almost no one thought the internet would be significant. Like how crazy is that?

And I guess what I mean by that is, if the most significant invention of let's say the last 50 years is the internet, and at the time, in its early days, almost no one thought that it would be significant. There's clearly things that are hiding in plain sight in front of us. We just have to find them. All right, so this is him meeting Mark. Interviewing with Mark was like no other job interview I'd ever had. Gone were questions about my resume, my career progression, and my work habits. He replaced them with a dizzying inquiry into the history of email,

collaboration software, and what the future might hold. I was shocked by how much a 22-year-old kid knew about the history of the computer business. I had met many really smart young people in my career, but never a young technology historian. I'm thinking about, before I read the rest of that paragraph, kind of thinking about like if founders can reach a level of sustainability and it's a project that can go on for a decade plus, at that point we'd cover what, 500, 600 different books on founders. We would kind of be documenting the history of entrepreneurship in a way. I like that idea a lot. So I am prone.

I've listened to Marc Andreessen speak a lot on different podcasts. I love listening to him talk. I think he's really smart and has really unique ideas. And I just love the fact that even at 22, he understood the importance of looking at the history of the field. Like he was extremely interested in technology, and he didn't just focus on what he was in,

like what the project he's working on now. He went back and studied how like, cause everything we do kind of builds upon what people did in the past. So knowing that I have an understanding of that foundation is helpful and can be applied in so many ways going forward. So I don't know. I really liked that idea. So it says Mark's intellect and instincts took me aback.

But beyond Mark's historical knowledge, his insights about technologies, such as replication, were incisive and on point. After the interview, I phoned my brother and told him that I'd just interviewed with Mark Andreessen and I thought he might be the smartest person

I'd ever met. If you ever get the chance to hear Mark Andreessen talk, you can actually go to YouTube and there's some videos of, it's usually easier to find talks on YouTube than it is to search for past podcasts. But I'd recommend that. I just now, I didn't even know that his venture capital firm had turned his old blog into an ebook. So I just downloaded it. So if it's's long enough and i'm sure it's good it might turn into a future founders podcast because it's explicitly about writing about

creating companies um okay so let's fast forward and it said uh oh this is a great story so they wind up working together and um this section I just put is Mark and Ben and I had to include this because it's fantastic so at the time they're let's see what company okay so they're they're working in Netscape still this is after the IPO and it was going well but now they're starting to have competition from Microsoft so if you remember the book on Jim Clark, he was constantly paranoid of Microsoft coming in and basically destroying Netscape. And that's what they were trying to do. They were bundling a free internet browser

with the monopoly they had on operating systems at the time. So they come up with an idea on how to flank Microsoft's impending threat. They come up with this huge rollout strategy. And then it says, two weeks before the launch, Mark, without telling Mike or me, revealed the entire strategy to the publication, Computer Reseller News.

I was livid. I immediately sent him a short email. And it says, to Mark Andreessen, CC, and all these other guys that work in the company that are outside the scope of what we're talking about, from Ben Horowitz, subject, launch. This is the body of the message. I guess we're not going to wait until the 5th to launch the strategy. Ben. With 15 minutes, I received the following reply to Ben Horowitz, CeCe, all these other guys in the company, CEO, chairman, et cetera. From Mark Marc Andreessen, subject response to launch.

Apparently you do not understand how serious the situation is. We are getting killed, killed, killed out there. Our current product is radically worse than the competition. We've had nothing to say for months. As a result, we've lost over $3 billion in market capitalization. We are now in danger of losing the entire company and it's all server product management's fault. Next time, do the fucking interview yourself. Fuck you, Mark.

So that's how their relationship starts. And skipping ahead, this is the part I find fascinating because it's how rare it is. It says, people often ask me how we've managed to work effectively across three companies over 18 years. Most business relationships either become too tense to tolerate or not tense enough to be productive after a while.

Either people challenge each other to the point where they don't like each other or they become complacent about each other's feedback and no longer benefit from their relationship. That's a really good, succinct description of the problem with co-founder relationships. With Mark and me, even after 18 years, he upsets me almost every day by finding something wrong in my thinking, and I do the same for him.

It works. Okay, so eventually AOL buys Netscape. Ben is now working at AOL, and this section is where they come up with the idea for the second company. The first company they we discussed ideas, he's talking to other people that work in his team, and there's this guy named InSeek. As we discussed ideas, InSeek complained that every time we tried to connect an AOL partner to the AOL e-commerce platform, the partner's site would crash

because it couldn't handle the traffic load. Deploying software to scale to millions of users was totally different from making it work for thousands. And it was extremely complicated. Hmm. There ought to be a company that does that all for them. So that's where they get the idea for LoudCloud saying, hey, there's a problem. We're probably not the only ones that have this problem. If we can find a solution, then we can build a company around the solution. And the note I left myself is this quote that I always remind myself. People usually complicate, like, how do I come up with a business idea? I don't know what to do. And the most distinct definition of this actually came from

a podcast I heard Richard Branson on. And he said, a business is just an idea that will make someone's life better. And when you view making someone's life better as solving a problem for them, there's an infinite number of businesses that can be created based on that. So they're building LoudCloud in a rather interesting time period. This is right before the dot-com burst. And so after I read this book, but before I recorded this podcast, I started doing extra research, and I was just listening to Ben Horowitz talk on all kinds of different speeches and interviews he was given. He he's been given or he has given rather, sorry. And he, he describes

in the book, but he succinctly put it on this, this talk where he's like, listen, we were raising money in a weird environment. And the first nine months we were able to raise at a 700 million dollar valuation and just a few short months later we couldn't raise any money at all so the only way to make to raise money was to actually IPO which just sounds funny to us now almost 20 years later but was indicative of the unique experience the capital markets were going through at the time. So this is before they do this. And this is something that's personally important to me that I've learned a lot from these founders is the importance of frugality.

And this is what happens when you abandon frugality. So he's having a conversation with this guy, Andy. And Andy said to me, Ben, think about how you might run the business if capital were free. Two months later, we would raise an additional $45 million from Morgan Stanley in debt and no payments for three years. So Andy's question was more reality-based than you might think. Nonetheless, what would you do if capital were free is a dangerous question to ask an entrepreneur. The thinking this question leads to can be extremely dangerous. And they talk about their experience, how people usually think, oh, if I had more money, I'd be more successful. And

usually the companies that start with almost no money, and they have to be creative because of the constraints of having no, the constraints that having no money lead to, it leads to more creative solutions. That's basically what I'm trying to say. Okay, so skipping ahead. Oh my goodness, I left a lot of notes on this next page. Okay, so it talks about with nearly 300 employees and very little cash left, I felt like I was going to die. So again, I don't think I take notes on most of this, but it's amazing how frank he is with his feelings at the time. And he said, during this time, I learned the most important rule of raising money privately. Look for a market of one. You only need one investor to say yes. It's best to ignore the other 30 who say

no. So some of the notes I left myself is this applies to your business as well. There will always be more people not buying what you're selling than buying. Some founders only focus on the negative, people who don't like the product instead of those that do so what this came from is i saw this this thread the other day where um this guy was he started something new he publicized it uh try to get feedback and he got some neg so some people liked it and then some people didn't like it and a few days later he gave up on the idea and he said he gave up on the idea because the negative feedback got him down in the dumps and i think that's the exact wrong conclusion that he should have focused on. He should focus on the people that actually liked his product for what problem it solved for them. And so what I was thinking, I was like,

think about even the most successful products in the world. There's always going to be more people that don't purchase them than do. Look at Facebook, which has, what, 2 billion users. Personally, not a fan, but 2 billion. So there's, what, 5 billion users on the internet right now. That means more people that are on the internet are not using the product than are. Apple, again, there's a couple hundred million people using their devices, but there's 7 billion people on the planet. My point being is there's never been a product ever invented that you're going to have more people that like it than don't like it. And I don't mean they explicitly say, I don't like it, but they're implicitly saying it by

not purchasing the product. So I don't know. I don't think I, but they're, they're saying they're implicitly saying it by not purchasing the product. Um, so I, I don't know. I just think, I don't think I said that in the most clear manner, but what I'm trying to, the point I'm trying to make is just focus on the people that like your product and then find more people that like the product negative, as we've talked about in, on almost every podcast, like negativity towards what you're doing is inevitable. You can't let it bother you. Oh, and I love this quote. This is another, again, this is why, I don't know, I just really like the way Mark talks and thinks. And so they're having all these problems. They're about to lay off people and they're having this conversation. It says, Mark Andreessen attempted to cheer me up

with a not so funny at the time joke. And this is Mark now. It says, Mark Andreessen attempted to cheer me up with a not so funny at the time joke. And this is Mark now. It says, do you know what the best thing about startups? And Ben replies, what? Mark says, you only ever experience two emotions, euphoria and terror. And I find that lack of sleep enhances them both. I don't know.

I just, I chuckle when I hear that. Okay, so this part kind of reminds me of when we talked about Pixar, how Pixar had to go from – they struggled so long. So LoudCloud went from hardware to software. So LoudCloud – and we're going to see how they make that decision. But this is very similar to when Pixar was first started. They were selling, like, a really expensive computer. And I don't remember.

It was, like, $150,000. I forgot what the exact amount of machine was and they had no success and so then they realized hey why don't if we're gonna fail we might as well fail doing what we really want to do which is actually uh create computer and made it make the first computer animated movie so the note i self i left myself is sometimes to find the solution you have to ask yourself a different question and you're going to see an example of Ben doing this, which leads to a very successful outcome for him. So he says, in fact, they were thinking about merging LoudCloud with this company, Data Return. And then he realizes, oh my God, this is just not going to work out. He says, in fact,

looking at Data Return's business made it crystal clear to me that LoudCloud would probably not end well. Some things are much easier to see in others than in yourself. I tried to make myself feel better by asking, what's the worst thing that could happen? The answer always came back the same. We'll go bankrupt. I'll lose everybody's money, including my mother's. I'll have to lay off all the people who have been working so hard in a very bad economy.

All of the customers who trusted me will be screwed, and my reputation will be ruined. Funny, asking that question never made me feel any better. Then one day, I asked myself a different question. What would I do if we went bankrupt? The answer that came up would surprise me. I'd buy our software, Opsware, which runs in Loud Cloud, out of bankruptcy and start a software company. Opsware was the software that we'd written to automate all the tasks of running the cloud, provisioning servers and networking equipment, deploying applications, recovering the environment in case of disaster, and so forth. Then I

asked myself, is there a way to do that without going bankrupt? So at this point he has to lay off a bunch of people. They sell the LoudCloud business to EDS. And the lesson that's on this page mirrors the one that, if you listen to the Walt Disney podcast I did a few weeks ago, how he would hire, he kept two inept people, inept writers on staff because he said they'd always do it the wrong way. And once he saw how, what the wrong way to do something was, that would in turn help him find the right way to do it. So they're unclear about how they're going to build the software program. And so he says, as painful as it might be, I knew that we had to get into the broader market in order to understand it well enough to build the

right product. Paradoxically, the only way to do that was to ship and try to sell the wrong product. We would fall on our faces, but we would learn fast and do what we needed to survive." Okay, so skipping ahead, he has another unique way to solve a huge problem. So at the time, most of their revenue, 90% of the revenue is coming from this $20 million a year contract with EDS. So they sell LoudCloud to EDS. And then they also have an agreement with EDS that you're going to pay us $20 million a year to use our software. The software winds up being buggy. So the guy in charge, this guy named Frank, wants to cancel the contract. If he cancels a contract, Opsware is basically dead, dead on its feet. It's too fragile and new to survive this. So he tasks one of his employees, Anthony, with finding out while they're fixing the bugs, they have 60-day window to fix the bugs.

They also want to find out what Frank really likes. And let me just read this part to you. And it says, Anthony, this quote from Anthony says, the exciting value is Tangram. Ben says, what? Anthony says, Tangram. EDS uses a product from a company called Tangram that inventories their hardware and software. Frank absolutely loves it, but the purchasing guys are going to force him to switch to the equivalent computer associates product because it's free as part of EDS settlement with CA. Frank hates the CA product. Frank is getting screwed again. Ben says, so what can we do? And Anthony says, if Tangram can come

free with Opsware, then Frank will love us. Ben's like, that sounds economically impossible. If we buy the licenses from Tangram and give them to EDS, that will be a colossal expense. We'll never be able to describe this to Wall Street. Anthony says, you asked me what EDS really wanted. They really want Tangram. And Ben says, got it. I had never heard of Tangram, so I quickly looked them up.

They were a small company in North Carolina. I looked up their market capitalization. This couldn't be right. Tangram was only worth $6 million. I had never heard of a public company being that cheap. Tangram was run by an intern CEO, which is a great sign that they'd be willing to sell the company because most boards would rather sell a company than roll the dice on hiring a new CEO. So Ben buys the company for $10 million, rolls their product into the Opsware offering,

and by buying a $10 million company, he saves a $20 million a year contract. So skipping ahead, they start to experience a lot greater success selling software with Opsware than they did on LoudCloud. And eventually they had several different companies wanting to purchase the company and they agreed to sell to HP, Hewlett Packard. And it says, this has been Stotz on the sale. When it finally ended, the long road from Loud Cloud to Opsware, I couldn't believe that I'd sold what it took eight years and all of my life force to build. How could I have done that? I was sick. I couldn't sleep. I had cold sweats. I threw up and I cried. And then I realized that it was the smartest thing I'd ever done in my career. We built something from nothing, saw it go back to nothing again, and then rebuilt it into a $1.65 billion franchise.

At that point, I felt like my business life was kind of over. I had hired all the best people that I knew or could find, and had gone through every step from founding to going public to sale. I definitely did not feel like doing any of that again. But I had learned so much, it seemed like a waste to do something completely different. And then I got an idea to build a new kind of venture capital firm. And so from this point on in the book, he's just really distilling all the knowledge that he learned and passing it on to a new generation of founders. And so that's why I'm so thankful that there's so many books that are written by and about entrepreneurs. Because like you said at the very beginning, this isn't something you can really

learn at school. You have to learn by doing. But there is some valuable information learning from people's experiences. And if they didn't write this down, we would have to learn everything from scratch. So some of these are just short little ideas like do not play the odds. It says founders should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are 9 in 10 or 1 in 1,000. Your task is the same. And the note I left myself on this one is the future is different. You have to stay alive long enough to see it.

Play long enough and you might get lucky. In the technology game, tomorrow looks nothing like today. If you survive long enough to see tomorrow, it may bring you the answer that seems like today. If you survive long enough to see tomorrow, it may bring you the answer that seems impossible today. This is a great anecdote that he learns from Andy Grove and it's discounting praise and focus on what actually can be fixed. I thought back to a conversation I had years ago with Andy Grove. So those of you that might not know, Andy Grove ran Intel. He was actually featured in the book Intel Trinity. He also wrote, I did a podcast on his partner, Bob Noyce, based on the book Intel

Trinity. I didn't cover anything about Andy Grove in that particular podcast, but if you want to learn more about him, he's written a number of books uh that a lot of people recommend like high output management and then his memoir i think is called swimming across um and if i'm not mistaken he was like a hungarian immigrant and he's just a really uh a lot of people that i've covered on the podcast have mentioned andy grove that they learned a lot from including ben horowitz so it, this is a conversation he had with Andy Grove. Back at the tail end of the great internet bubble in 2001, as all the big technology companies began missing their quarters by giant amounts, I found myself wondering how none of them saw it coming.

This is such a good point. One would think that after the dot-com crash of April 2000, companies like Cisco, Siebel, and HP would realize that they would soon face a slowdown as many of their customers hit the wall. But despite perhaps the most massive and public early warning system ever, each CEO reiterated strong guidance right up to the point where they dramatically whiffed their quarters. I asked Andy why these great CEOs would lie about their impending fate. He said they were not lying to investors, but rather they were lying to themselves. Andy explained that humans, particularly those who build things, only listen to leading indicators of good news. For example, if a CEO hears that engagement of her application increased an incremental 25% beyond the normal growth rate one month, she will be off to the races hiring

more engineers to keep up with the impending tidal wave of demand. On the other hand, if engagement decreases 25%, she will be equally intense and urgent in explaining it away. The site was slow that month. There were four holidays. We made a UI change that caused all the problems. For gosh sakes, let's not panic. Both leading indicators may have been wrong, or both might have been right. But our hypothetical founder, like almost every other founder,

only took action on the positive indicator and only looked for alternative explanations on the negative leading indicator. And this is a reminder to spend all of your time on what you can actually do. All of the mental energy used to elaborate your misery would be far better used trying to find one seemingly impossible way out of your current mess. Spend zero time on what you could have done and devote all of your time on what you might do because in the end, nobody cares.

Just run your company. Another lesson from Andy Grove on why training your own people is so important. And this is a direct quote from Andy. Training is, quite simply, one of the highest leverage activities a manager can perform. Consider for a moment the possibility of you putting on a series of four lectures for members of your department. Let's count on three hours preparation for each hour of course time, so you have to work 12 hours in total. Say that you have 10 students in your class. Next year, they will work a total of about 20,000 hours for your organization. If your training efforts result in a 1% improvement in your subordinate's performance,

your company will gain the equivalent of 200 hours of work as a result of your expenditure of 12 hours. He has a lot of examples of the difference between large company executives and founders. I always love the contrast, so here's one of them here. The most important thing to understand is that the job of a big company executive is very different from the job of a small company executive. When I was managing thousands of people at Hewlett Packard after the sale of Opsware, there was an incredible number of incoming demands on my time. As a result, I spent most of my time optimizing and tuning the existing business.

Most of the work that I did was incoming. Most skilled big company executives will tell you that if you have more than three new initiatives in a quarter, you are trying to do too much. As a result, big company executives tend to be interrupt driven. Now he's going to contrast this with the founder. And I think this is key to why a lot of small, more responsive companies have a huge advantage over environments like he's describing at hp in contrast when you're a founder nothing happens unless you make it happen happen in the early days of a company there is no inertia that's putting the company in motion without massive input from

you the company will stay at rest. Oh, so this, the note I left myself is, this is an example of why I say it is a good idea to collect ideas. There's different ways to be right. So it says, it has to do with titles. And the interesting part is,

should your company make vice president the top title or should you have chief marketing officers, chief revenue officers, chief people officers, et cetera? There are two schools of thought regarding this. One represented by Mark Andreessen and the other by Mark Zuckerberg. Andreessen argues that people ask for many things from a company. Salary, bonus, stock options, span of control, and titles. Of those, title is by far the cheapest so it makes sense to give the highest titles possible the hierarchy should

have presidents chiefs and senior executive vice president etc if it makes people feel better let them feel better titles cost nothing and then it says at facebook by contrast mark zuckerberg purposely deploys titles that are significantly lower than the industry standard senior vice presidents at other companies must take title haircuts down to directors or managers at Facebook. Why does he do this? First he guarantees that every new employee gets re-leveled as they enter his company. In this way he avoids accidentally giving new employees higher titles and positions than better performing existing employees.

This boosts morale and increases fairness. Second it forces all the managers of Facebook to understand and internalize Facebook's leveling system, which serves the company extremely well in their own promotion and compensation processes. Next, he finds that business people often carry inflated titles versus their engineering counterparts. While he recognizes that big titles help them out externally

with getting meetings, he still wants to have an organization where the product people and engineers form the cultural core. So he strives to keep this in check as well. So that's just a reminder to you that two people that are successful in their own right can arrive at vastly different conclusions and still both be correct for their particular situation.

So this is something that's fascinating. It's funny how these two things are kind of blurring together now. Because when I read this book, I thought of these notes I took for Founders Notes. And it was a interview with Paul Graham, the founder of Y Combinator. He told a story that really resonated with me. And he's like, when we first started out, we thought that the most important trait for a person to have,

if you want to predict whether their company was successful or not, was intelligence. And we found out that actually determination is much more important than intelligence. And to illustrate this point, he says, take this hypothetical person that's 100 out of 100 in intelligence and 100 out of 100 in determination. If you slowly start chipping away from the determination, it goes lower, 95, 90, 80, whatever the case is, eventually you're left with a brilliant but ineffectual person. And he's like, there's plenty of people that I know that are really smart and don't do anything because they're not determined. He goes, meanwhile, the inverse is not true.

You take that same person that's 100 out of 100 in intelligence and 100 out of 100 in determination, and you start taking away intelligence, but never take away determination. And eventually you have some guy that owns a bunch of taxi medallions or that owns a trash hauling business, but it's still rich. And so for our own purposes, just remember the formula, determination is greater than intelligence and this is kind of example here some brilliant people can be totally unreliable at ops where we once hired an unequivocal genius and we're gonna call this guy Arthur that's not his real name though Arthur was an engineer in an area of the product where

a typical new hire would take three months to become fully productive Arthur Arthur got fully up to speed in two days. In his first quarter on the job, he was the best employee we had. Then Arthur changed. He would miss days of work without calling in. Then he would miss weeks of work. Then he finally showed up. He apologized profusely. But that behavior didn't stop. His work product also degraded. He became sloppy and unfocused I could not understand how such a stellar employee could go haywire it turned out that Arthur Arthur was bipolar and had two significant drug problems one he did not

like taking his bipolar medication and two he was addicted to cocaine so this brilliant person unfortunately was addicted to cocaine, wasn't taking his medication, and he wind up not lasting at the company. Moving ahead, this next note is your culture should be unique. And his idea that using shock to create behavioral change. So when employees come from one organization into your organization, a good way so they understand how different you are is to use shock. Shock is a great mechanism for behavioral change. And he uses a few examples. I only pulled one out because I love it. Desks made out of doors. Very early on, Jeff Bezos envisioned a company that made money by delivering value to rather

than extracting value from its customers. In order to do that, he wanted to be both the price leader and customer service leader for the long run. You can't do that if you waste a lot of money. Jeff could have spent years auditing every expense and raining hell on anybody who overspent, but he decided to build frugality into his culture. He did it with an incredibly simple mechanism. All desks at Amazon would be built by buying cheap doors from Home Depot and nailing legs to them. These door desks are not great ergonomically, nor do they fit with Amazon's market capitalization.

But when a shocked new employee asks why she must work on a makeshift desk constructed out of random Home Depot parts, the answer comes back with withering consistency. We look for every opportunity to save money so that we can deliver the best products for the lowest price for the lowest cost. If you don't like sitting at a door, then you won't last long at Amazon. This is another great concise thought, and it's about hiring for strength, not for a lack of weakness. Perhaps the most important thing 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.

And this next part is there is no founder school, which is why I think it's talking about, thinking about building companies and all the different strategies and ideas, I find it fascinating because of this. There's nowhere we can go that's going to teach us this. We have to. In that sense, you're almost like mini explorers. So the first problem is that everybody learns to be a founder by being a founder.

No training as a manager, general manager, or in any other job actually prepares you to run a company. The only thing that prepares you to run a company is running a company. This means that you will face a broad set of things that you don't know how to do that require skills you don't have. Nevertheless, everybody will expect you to know how to do them because, well, you are the founder. And so we talked about a few minutes ago how determination is more important than intelligence in building companies. That's not to say, you know, you shouldn't try to be as smart as possible, of course. It's just saying if you had to rank them, that's where they would rank. So this is another example of determination or another way, I guess, to put that as perseverance. And he says, as founders, there will be many times when you feel like quitting.

I have seen founders try to cope with the stress by drinking heavily, checking out, and even quitting. In each case, the founder has a marvelous rationalization about why it was okay for him to punk out or quit. But none of them will ever be great founders. Whenever I meet a successful founder, I ask them how they did it. Mediocre founders point to their brilliant strategic moves or their intuitive business sense

or a variety of other self-congratulatory explanations. The great founders tend to be remarkably consistent in their answers. They all say, I didn't quit. Let's say you build a company and you have the ability to sell it. Here's some advice on when not to sell. When analyzing whether you should sell your company, a good basic rule of thumb is A, you are very early on in a large market and B, you have a good chance of being number one in that market, then you should remain standalone. The reason is that nobody will be able to afford to pay what you are worth because nobody can give you that much forward credit. For an easy to understand example, consider Google. When they were very early, they reportedly received multiple acquisition offers

for more than $1 billion. These were considered very rich offers at the time, and they amounted to a gigantic multiple. However, given the size of the ultimate market, it did not make sense for Google to sell. In fact, it didn't make sense for Google to sell to any suitor at any price that the buyer would have paid. Why? Because the market that Google was pursuing was actually bigger than the markets than all of the potential buyers owned. And Google had built a nearly invincible product lead that enabled them to become number one. So in other words, they couldn't afford to buy the company because the market that they created is much larger than any company could actually afford to pay Google.

After selling Ops, now this is actually the last chapter of the book. After selling Opsware, I spent a year at HP running the bulk of their software business. And then I tried to figure out what to do next. Should I start another company? Should I be CEO of someone else's company? Should I retire? Should I do something completely different? Why was entrepreneurship such a black art? Did everybody have the same problems I'd had? And if they did, why didn't anybody write anything down? As these thoughts rolled through my head, I sent Marc Andreessen an instant message. We ought to start a venture capital firm. Our motto for General Partners would be some experience required,

as in some experience in founding and running companies required to advise people who are founding and running companies. Kind of what we're doing here in a sense. We want to learn from people that actually did it. To my surprise, he replied, I was thinking the same thing. Mark and I discussed a paradox often. We wondered aloud why as founders, we had to prove to our investors beyond a shadow of a doubt that we could run the company rather than our investors assuming that we could run the company that we had created. So it talks about they're trying to flip over common thinking at the time that founders start a company and you bring in professional management. When Mark and I first became entrepreneurs back in the mid-1990s, we did not know many other entrepreneurs. We just did what we did without

really seeing ourselves as part of a larger movement or a community. We were entrepreneurs at the beginning of the internet and before Facebook, Twitter, and other social networking platforms were built. We did not talk to other entrepreneurs because there was no entrepreneurial community. We were completely heads down on the business. All of that has changed in the last 10 years. Entrepreneurs are now socializing, friending each other, meeting up, and hanging out. There is a real community, and I would add, and learning from each other. And once we realized this, we figured that if we had better offering, word-of-mouth marketing would work now where it hadn't before. So it's saying because, how do you start a venture, in the context of this discussion that I it's saying because how do you start a venture in the context of this

discussion that I left out is how do you start a venture capital firm when it's just you and Marc Andreessen and you're you don't like you have all these ideas about how to be different but how do you actually convince the first founders to take your money because you're different. And so he's saying that before there was no community like entrepreneurs didn't talk to each other like they do now. And what entrepreneurs didn't talk to each other like they do now um and they and what happens when entrepreneurs talk to each other well they learn more because no one else can actually understand what you're going through unless somebody else is actually doing what you're doing um and i just think that's really important for

i mean it's the entire reason i do this podcast and I do Founders Notes because I think the best use of your extra time that you're not using on work is like learning from people that have gone through what you're going through. They're gonna have all these weird, unique ideas that might be applicable to your work. So it says, we decided to, and then, so what's fascinating to me

is they're coming to this conclusion about how to like spread the word and how to start getting customers. In their case, customers for their venture capital firm is entrepreneurs. But they're also talking about they're able to get customers for their venture capital firm because entrepreneurs, founders are learning from other founders. Well, guess what? The entire strategy for the venture capital firm is literally copied from another founder. So we learn about this now.

It says, we decided to systematize and professionalize our network. First for this, we drew both the inspiration and the formula from my friend and Opsware board member, Michael Ovitz. 34 years earlier, Michael had founded Creative Artist Agency. You might know that by CAA. It's the powerhouse of Hollywood talent agencies. When Michael started CAA, it was not an obvious idea. Michael was a rising star at the William Morris Agency, the most important agency in the industry at the time. Quitting that job to pursue what must have looked like a windmill tilt made no sense to anybody.

But Michael had a clear vision. If he could build a firm so good that it attracted all the top talent in the world, then he would shift the economics of the industry from the corporations to the talent where he had felt it belonged. So for our purposes, let's take away from corporations to the talent.

So it's from VCs to founders where he felt it belonged. Ovitz's breakthrough idea was to build an integrated network that would allow any of the firm's agents to connect their clients to a firm-wide grid of new opportunities. As a result, the firm would be a hundred times more powerful than any one agent at any other agency. His theory worked, and within 15 years, CAA represented 90% of the top talent in Hollywood and had rewritten the rules, giving talent more say in the deals

and a bigger piece of the financial pie. We decided to copy CAA's operating model nearly exactly. And the note is just copy from great founders, which is the whole point of reading these books and then sharing the ideas with you. And finally, he says, as I got further into it, I realized that embracing the unusual parts of my background would be key to making it through. It would be those things. So preface before I read this is not only should you copy really good ideas from founders, but then add to those ideas with whatever makes you unique. And whatever you come up with, if you add your own unique take on it will be another unique take

that someone else can then copy and then add their own unique take on it and it kind of builds and builds. And we have more diversification of ideas instead of more centralization. As I got further into it, I realized that embracing the unusual parts of my background would be key to making it through. It would be those things that would give me unique perspectives and approaches to the business, the things that I would bring to the table that nobody else had. When I work with entrepreneurs today, this is the main thing that I try to convey. Embrace your weirdness, your background, your instinct. If the keys are not in there,

they do not exist. I can relate to what they're going through, but I cannot tell them what to do. I can only help them find it in themselves. And sometimes they can find peace where I could not. Of course, even with all the advice and hindsight in the world, hard things will continue to be hard things. So in closing, I just say, peace to all those engaged in the struggle to fulfill their dreams. So if you want the full story, definitely read the book.

I leave a link in your show notes so you can buy that if you want. As you just saw, I presented the entire podcast with no interruptions. This podcast is ad-free and independent and it relies on the direct financial support of people that give value out of the

podcast. So if you listen to my podcast and you like the work that I'm doing here, please directly support it. There's a number of ways you can support founders. The first way to do it is become a founder member. There's links in the show notes and also available at founderspodcast.com. But if you subscribe, you can choose whatever level of support that you want to support the podcast at. And as a thank you for doing that and making Founders possible, I send you extra podcasts every week that are available nowhere else. So if you sign up today, you would immediately unlock five of my past member-only podcasts. And then I will email you every week moving forward, moving forward,

uh, extra podcasts. I'm really enjoying these extra podcasts I'm making. Um, the, the one I, that I did last week was on, uh, it was actually one of the longer ones. It's almost as long as this podcast was, and I didn't mean it to be, but, uh, it's on the most profitable company in the United States per employee. And that's the company Valve. And it's based on the handbook that Valve gives out to new employees. And it describes their philosophy on building companies. And so I just, I loved all the unique ideas that the founder Gabe Newell has in terms of how do you design a company given all the technology today and what does that structure look like?

So in any case, all the podcasts, the extra podcasts I make, I think there's valuable lessons in all of them and I am really enjoying being able to experiment with different formats. The second way you can help the podcast, something I talked about last week that I'm super excited about,

you heard me mention a couple times on this podcast because not only am I reading the books, but I'm also every week I listen to entrepreneurs and founders speak. And so that's Founders Notes. Founders Notes is a service I created where I listened to hours of interviews and speeches by founders every week. I pull out the key ideas and then I email them to you every Sunday. And there's just, there's no fluff. There's a high level of signal and no noise. It's just the best ideas they have because the tagline is know what other founders are thinking. And if you're listening to this podcast, I think that you agree that knowing what other founders

think, especially about building companies, can be valuable because we can learn so much faster and then apply those own lessons and experiment with them in our own lives. So please think about signing up. It's something I'm really, really proud of so far and I really, really love. And this is something I've done forever in the sense that I've always taken a large amount of notes because I want to remember. I don't want to waste time. I want to remember what I heard or what I read and then go back and review them. And it's the fastest way to get the information. So there's a link in the show notes and again at founderspodcast.com. If you sign up, it'd really mean a lot to me. The third way you can support the podcast is by going to founderspodcasts.com forward slash books. You'll see every single book that I've read so far for this podcast. I think

it's up to 40 now, including next week's book. So by the time you hear this podcast, I would have already selected the next book I'm going to do. So if you want to see what next week's podcast is going to be about early, you can go to founderspodcast.com and buy any book that you like or buy a bunch of them. I'm a part of Amazon's affiliate program, which means that if you buy a book, Amazon sends me a small percentage of the sale at no additional cost to you. So you get a great book and it's like donating, I think it's like 75 cents to founders. So it's actually helpful if a lot of you guys do this. If you prefer to listen to the book instead of read, I have a link in the show notes and

at founderspodcast.com where you can get two free audio books. That link, if you're interested in that, you have to use it because I think it expires in December. It's not an offer that... I don't think that offer is around all the time and then the the last way um which is super important and something i apologize that i haven't mentioned earlier so i do extra podcasts for people that leave reviews screenshot the review and email it to me so if you like this podcast you leave a five-star review uh you take a screenshot, email it to foundersreviews at gmail.com. And if you want to check to make sure you have the email just correctly, it's also in the show notes. And I'll reply back with podcasts that I create exclusively for people that have left reviews.

Now, here's the problem. A lot of you guys are listening in apps that don't have a review system. So like Overcast, for example, which is a very popular podcast app for people to listen to this podcast. So they don't have a place to leave reviews. But they do have a way where you could recommend podcasts. It's that little star that you notice on every episode. So if your podcast, if your Overcast account is tied to your Twitter account, you can then leave a star which recommends specific episodes. So if you want to find, pick out any episodes you really liked,

or you can do this for a bunch of them, whichever one you want, and you press the star, take a screenshot showing that the episode has a star. It'll change from like an outline to a gold star. And then you send that email to foundersreviews at gmail.com. I will reply back to founders to giving you the two review only podcasts I've done so far. It's one's on Max Levchkin and one's on Steve Jobs. And then not only will I give you, send you, email you back to two I've already done, but as I do them in the future, I will automatically email them to you. So you just, basically it's a way of saying, thank you. I will give you hours of work from me for just a minute or two of your time. Because when you're leaving ratings or reviews or recommending podcasts, what you're doing is you're helping

spread these ideas. And if you're a fan of these ideas, if you like, if you think what I'm doing here is valuable, then helping me spread these ideas is the best way to ensure that this podcast stays around for a long time. I don't know if I said on this podcast or a previous one, but you know, if we can keep this going with, with your support, I can keep this going for a very long time. And like, what would be the actual benefit? Like, what would be the outcome if we could keep it going for a decade or more? You know, it's a way to document the history of entrepreneurship, to learn from hundreds of different company builders. And I think getting these ideas out there and accessible to the millions of people around the world that are interested in new ideas and applying those new ideas to work would be a really good thing. So that's one way to

do it. Other than that, I think I've talked enough. I just want to end like I do every podcast with thank you for listening. If you listen this far, I really appreciate you. You have millions of podcasts you could choose from or maybe hundreds of thousands i guess i guess it's hundreds of thousands i actually heard heard a disturbing stat that i think there's like five let's say let's say 600 000 in the uh podcasts in the in the apple podcast directory 75 of those podcasts are no longer adding episodes. So that just tells you how hard it is. I'm starting a podcast with no large social following

because I'm really introverted. I spend my time listening to podcasts and reading books and not really hanging out on social media. And I'm not part of a podcast network. So what you're seeing now is a lot of people starting podcasts because they want to do them advertising based and there's high CPM. If you can, if you can build an audience that way, they're, you know, usually they're well known in an other domain. And if they're not well known in another domain, like you see a lot of YouTubers now jumping to

podcasts, um, then, you know, they have, they, they are able to hook up with a podcast network, which kind of helps you grow an audience because every single podcast in that network will publicize the fact that your podcast exists. So anyways, I want to say thank you because you have hundreds of thousands of podcasts to choose from, 75% of those no longer updating, which would be a terrible travesty.

I don't want to happen here. But you choose to listen to this and spend your time listening, sharing it on social media, rating, reviewing, subscribing to becoming a founder member, or subscribing to Founders Note. And I just want to end with saying thank you. Thank you for the support. Thank you for listening. Thank you for everything you're doing. And I just want to end with saying thank you. Thank you for the support. Thank you for listening. Thank you for everything you're doing. And I will be back next Monday.