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Introduction:
Are you a budding entrepreneur? Are you interested in launching a start-up? Do you think you have what it takes to run a big company? Then this class is perfect for you! Welcome hustlers to my class. I’m [your name] and this class will guide you to success in business and teach you how to launch a start-up. We will see some learnings from the book ”the hard things about hard things’. In this book, author Ben Horowitz shares his personal experiences from failed startup to making a successful deal with Hewlett Packard. Read about Horowitz’s struggles and triumphs, and take advice from this successful CEO of “Opsware” as he guides you on our way to the top!
Here’s what you will learn:
- The CEO should be the first one to shout when shit hits the fan.
- There are 2 types of CEOs.
- Great CEOs must learn to be comfortable being uncomfortable.
Let’s look at the what and why of these lessons!
From Communist to Venture Capitalist
I grew up in Berkeley, California, under the care of my grandparents, who were communists.They raised me until I finished college, and then I moved to Los Angeles to stay with my father.I met my wife, Felicia, through a blind double date. We prepared dinner, but our dates never came! So, I called one of the women and convinced her to come, even though it was late. Ninety minutes later, Felicia arrived: she was so pretty, and we had a good time, despite that she almost didn’t come. Felicia and I have been happily married for twenty-five years now and have three children.While I was working as an engineer at Silicon Graphics, I met Roselie Ruonauro. Roselie had a new startup, and she recruited me, but I was having a difficult time in my personal life and eventually decided to quit.
A few months later, I was interviewed by Marc Andreessen for a job at Netscape. I recall sharing my technical knowledge with Marc, and that was the beginning of our friendship; to date, Marc and I have been friends and business partners for over 18 years.Netscape had fierce competition with Microsoft. When Microsoft announced the release of Windows 95 free of cost, it posed a serious threat to Netscape. Microsoft had a monopoly on the market in terms of Operating System sales. Netscape then decided to profit off web servers.
Meanwhile, Microsoft released an early version of their web server, Internet Information Server (IIS). It had better features than those of Netscape and I realized we had only five months to think of a solution before Microsoft would release IIS. I turned to Mike Homer, my Department Head for help. He was a workaholic who would work even harder in anxious times. Over the next few months, we launched Netscape SuiteSpot. SuiteSpot grew a lot in the coming years.America Online (AOL) eventually bought Netscape. AOL was more invested in media than technology. So Marc and I thought of forming a new company and decided to work on a computing cloud. We added more members to our team: Timothy Hower was the co-inventor of the Lightweight Directory Access Protocol and Sik Rheeco-founded ‘Kiva Systems’. Together, our team launched ‘Loudcloud’ in 1999.
I Will Survive
I was going to be the CEO of Loudcloud. Marc Andreessen would work as a “full-time chairman of the board”, while Timothy Howes would serve as the chief technology officer.Due to Netscape’s success, Marc knew investors. Through his connections, he got into talks with Andy Rachleff of Benchmark Capital. They were going to invest $45 million, and Marc was going to invest $6 million. The total value of the Company was estimated at $66 million.Loudcloud quickly began building the cloud structure. We hired qualified employees and moved into an enormous place to start working. In just nine months, the company was profiting.
Then came what is called the ‘Dot-Com Crash’ of 1995. A stock market bubble caused massive speculation in internet-based activities and caused panic, resulting in a stock-market crash. Soon, Microsoft was declared a monopoly in the tech world. Startups, like our Loudcloud, saw huge losses. Loudcloud needed to raise a considerable amount of money in order to remain in the competition. The situation kept worsening, so we decided to sell the company’s stocks to the general public.I thought it would be hard to convince one of our board members, Bill Campbell, who had previously been the CEO of a public company, to sell our stocks, but eventually, he agreed and the Loudcloud decided to go public.
The reputation of Loudcloud in the general public wasn’t accurate. The Press repeatedly reported about our company’s losses, so we decided to reverse split stock. Reversing split stock meant that shares were going to be merged to form a smaller number of shares with a higher value. These decisions angered most investors and people working in our company.Loudcloud was on the verge of bankruptcy.
I was so tense that I couldn’t sleep, and I wasn’t even aware of what I was wearing and wore mismatched clothes. I started thinking about what I would do if we went bankrupt. It was then that I thought of starting a new software company, Opsware. Opsware was the software that ran on Loudcloud, I considered separating Ospware from Loudcloud, and we put ten engineers to work on the job of separating the two; it took about nine months to complete the task.In the coming months, Loudcloud had some potential buyers: IBM and EDS. Finally, an agreement was made, and EDS bought Loudcloud for $63.5 million. My team and I continued to own Opsware and started an independent software company. These decisions helped our company, but we did have to let go of some employees or send them to EDS as part of the sale of the company.
This Time With Feeling
After the deal with EDS, our company was still struggling. I had to make some tough decisions, so I took my employees out for dinner and truthfully explained the whole situation of the company: we were struggling. I told the employees and my co-workers frankly that if they didn’t believe our company would succeed, then they could walk off with no hard feelings. That day, two out of eighty employees quit.Opsware was built to run on only one platform, Loudcloud. This meant that it lacked excellent features and wasn’t ready to be sold.
EDS was not satisfied and wanted to end the contract. Ending the contract meant that Opsware would lose 90 percent of overall revenue. I took immediate action: I called Jason Rosenthal and Anthony Wright for a meeting, and I made Jason in charge of EDS deployment and Anthony the relationship manager. They met Frank Johnson (name has been changed) who worked at EDS and they convinced him to give us sixty days to solve our problems.
Anthony advised me that EDS used a product from a company called Tangram, and that Frank Johnson loved it. However, because of EDS’s settlement with Computer Associates, EDS had to use a different product instead, one that Frank did not like. This gave us the idea to buy Tangram and sell it for free with our software. Tangram was a small company, led by CEO Norm Phelps.
We bought Tangram for $10 million, and Frank Johnson was thrilled. We had met his expectations in this venture, but we still had to decide what to do with the newly-purchased Tangram and its employees. The CFO, John Nelli, lost his job and over the following months, his health deteriorated: he was diagnosed with brain cancer. Since he was not going to be an employee of Opsware, he was not eligible for insurance and would have incurred massive medical bills. I decided to pay for his medical expenses. Unfortunately, John passed a few months later, and I received a letter from John’s wife, saying that she was grateful for my help.
Back to business, a new competitor, BladeLogic, posed some competition for our company.Marc had also decided to found a company called Ning. We were battling (and losing) deals to BladeLogic. The coming six months were challenging for the entire company, and I told my employees to work harder. I told them to talk to their families and explain to them I needed the support of my employees more than ever before. We worked all week, from 8 a.m. – 10 p.m.
We eventually bought Rendition Networks for $33 million and landed a deal with Cisco Systems to sell our product.Many potential buyers approached us, but I would always say Opsware was not for sale. The board was encouraging us to sell, too. Finally, we signed a deal with Hewlett Packard. We were offered $1.65 billion in cash. In the beginning, I was sad and would wake up in sweats and cry, thinking I sold eight years of hard work. But eventually, I realised how smart the decision was and I was proud, because our team had made a business worth $1.65 billion from scratch.
This Time With Feeling
After the deal with EDS, our company was still struggling. I had to make some tough decisions, so I took my employees out for dinner and truthfully explained the whole situation of the company: we were struggling. I told the employees and my co-workers frankly that if they didn’t believe our company would succeed, then they could walk off with no hard feelings. That day, two out of eighty employees quit.Opsware was built to run on only one platform, Loudcloud.
This meant that it lacked excellent features and wasn’t ready to be sold.EDS was not satisfied and wanted to end the contract. Ending the contract meant that Opsware would lose 90 percent of overall revenue. I took immediate action: I called Jason Rosenthal and Anthony Wright for a meeting, and I made Jason in charge of EDS deployment and Anthony the relationship manager. They met Frank Johnson (name has been changed) who worked at EDS and they convinced him to give us sixty days to solve our problems.
Anthony advised me that EDS used a product from a company called Tangram, and that Frank Johnson loved it. However, because of EDS’s settlement with Computer Associates, EDS had to use a different product instead, one that Frank did not like. This gave us the idea to buy Tangram and sell it for free with our software. Tangram was a small company, led by CEO Norm Phelps. We bought Tangram for $10 million, and Frank Johnson was thrilled. We had met his expectations in this venture, but we still had to decide what to do with the newly-purchased Tangram and its employees.
The CFO, John Nelli, lost his job and over the following months, his health deteriorated: he was diagnosed with brain cancer. Since he was not going to be an employee of Opsware, he was not eligible for insurance and would have incurred massive medical bills. I decided to pay for his medical expenses. Unfortunately, John passed a few months later, and I received a letter from John’s wife, saying that she was grateful for my help.
Back to business, a new competitor, BladeLogic, posed some competition for our company. Marc had also decided to found a company called Ning. We were battling (and losing) deals to BladeLogic. The coming six months were challenging for the entire company, and I told my employees to work harder. I told them to talk to their families and explain to them I needed the support of my employees more than ever before.
We worked all week, from 8 a.m. – 10 p.m.We eventually bought Rendition Networks for $33 million and landed a deal with Cisco Systems to sell our product.Many potential buyers approached us, but I would always say Opsware was not for sale. The board was encouraging us to sell, too. Finally, we signed a deal with Hewlett Packard. We were offered $1.65 billion in cash. In the beginning, I was sad and would wake up in sweats and cry, thinking I sold eight years of hard work. But eventually, I realised how smart the decision was and I was proud, because our team had made a business worth $1.65 billion from scratch.
Concerning the Going Concern
Clarity in a company’s policies and decisions is important. Once, someone brought up an issue in a meeting about obscene language. These allegations were directed at me: some employees were comfortable with my communication style, while others were not. Other companies like Microsoft and Intel were known to be highly profane, so I had decided to permit employees to use obscene language.
Though it shouldn’t be encouraged, forbidding it seemed to be unrealistic, too. It was also necessary to tell our employees that profanity should not be an excuse for sexual harassment and have a speech in a meeting in which I told the employees that we could either ban profanity or accept it; there was no in-between. And since I believed that banning profanity could limit our productivity, I allowed the use of obscene language. After this, there were no further complaints. Sometimes, a solution isn’t needed. All one needs in a company is clarity on what has to be done and what shouldn’t be done.
Politics should be minimal. Politics in a company means moving forward with one’s plan or career without earning it. To minimize politics in your company, hire those people who are ambitious for the company. Promotion should be a strict process. The promotion of one worker could lead to others feeling undervalued and less appreciated. This usually happens if the person who received the promotion didn’t deserve it. Hence, the promotion process should be formal and transparent.
Sometimes, smart and qualified people in the company happen to be bad employees. They could be the best at the job they do but skip work. If you want to hold on to these employees, you can, but you must remember that they can slow down the company.Often you have to hire people who are old. Senior employees might need to see their families more than the younger generation and they will bring their habits and values which might not match the environment of your company. But their experiences could be helpful to you. These risks should be taken sometimes to acquire the best talents and knowledge in a company.
How To Lead Even When You Don’t Know Where You’re Going
After selling Loudcloud to EDS, investors sold all their Opsware shares, and the stock price fell. A board meeting was held to discuss what could be done. Though the board was sympathetic and open to all suggestions, we couldn’t find a solution. The circumstances lead Marc and I to arrive at the Allen & Company Office in Manhattan. Herb Allen was classy and modest, he listened to our presentation carefully and said he would help. Allen & Company bought Opsware stock, and the stock price increased from $0.35 to $3 per share. Several clients from Allen & Company also became major investors of Opsware.
Years after the deal, I asked Herb why he decided to invest in a company nobody else believed in, especially when Allen & Company wasn’t even technology-oriented. He replied that even though he didn’t understand our business, he saw our determination and courage and he trusted our belief to succeed.
Thus, I realised that it’s important to focus on what can be done right. There’s no merit in thinking about wrongs done in the past or fearing what could go wrong.For a CEO to be successful, they must have good leadership qualities. They should make the atmosphere friendly for employees. This makes employees believe that the company belongs to them, as well and they will work better.There are three things a CEO must know: first is to know what they’re doing. This means knowing finance, product strategy, and marketing; the second is to get the company to do the work the CEO wants and to execute the vision of the CEO; the third is to get the required results.
First Rule of Entrepreneurship: There Are No Rules
While selling Opsware, the initial bid by HP was at $14 per share. Another company, BM raised the bid with $14.05. HP finally countered both with $14.25. All of our three deals contained what was known as the “CA Clause.” It was named after the business practices of the software company, Computer Associates. CA tricked their customers by promising them free upgrades for their products. They changed the name of the products later and charged for the upgrades that were intended to be free of cost. So customers included the “CA clause” in their contracts. It stated that if a new product was launched that had the same functions as the previous ones with little extra features, then that product would be covered under the existing contract with no additional charges. Our Ernst & Young national audit partner asked us to restate revenue guidance over the next forty-eight hours. This meant that it should be restated in the customer’s contracts as well. The customers were three large banks, and it was almost impossible for us to get them to restate the contract in such a short time.
I tried to contact everyone I could and see whether they had any influence or knew anyone with influence in this situation. We worked all night and somehow managed to amend the three contracts within twenty-four hours. BM gave up on us, and while HP didn’t lose confidence, they did drop their offer to $13.
75 per share due to the “taint” in the deal. Our board met to discuss the plan of action, they thought we should take the offer, but I disagreed. I went back to Hewlett Packard and told them that we wanted to stick to the original bid, and they finally agreed.At a time when we were about to have the biggest deal for the company, everything could have been lost. At times like these, you should accept the situation and not argue if it’s right or wrong, but try to find a solution to the problems instead.
One of the difficult decisions a CEO has to make is whether they should sell their company or not. If the company has the potential to grow to the top and has made space in a vast market quickly, then they should not sell the company.For example, Google received offers for more than $1 billion. Though these were huge offers, Google was suitable for an even bigger market. It was an invincible product that had the potential to reach the top. One should prepare themselves emotionally and intellectually if they want to sell their company.
Conclusion:
This class gave you insights from Ben Horowitz, entrepreneur and co-founder of Opsware, on his journey to become one of the most successful CEOs. You learnt about his personal experiences and how he used his struggles to move forward. This class taught you how to deal with various business problems; from ambitious employees to promoting and demoting coworkers. You also learned the importance of training employees and how to fire an executive. This class taught you the skills a CEO should have for the smooth functioning of a company. With the tips and advice of Ben Horowitz, your startup is sure to be a success!
The job of a CEO is unnatural in so many ways and often you’ll have to go against what your instincts tell you, so one of the best things you can do is practicing to leave your comfort zone in advance.
Outside of your comfort zone is where the magic happens.
Now go make some magic! and I’ll see your magic in next class. Byye
