The Hard Thing About Hard Things, page 7
People always ask me, “What’s the secret to being a successful CEO?” Sadly, there is no secret, but if there is one skill that stands out, it’s the ability to focus and make the best move when there are no good moves. It’s the moments where you feel most like hiding or dying that you can make the biggest difference as a CEO. In the rest of this chapter, I offer some lessons on how to make it through the struggle without quitting or throwing up too much.
While most management books focus on how to do things correctly, so you don’t screw up, these lessons provide insight into what you must do after you have screwed up. The good news is, I have plenty of experience at that and so does every other CEO.
I put this section first even though it deals with some serious endgame issues such as how to fire an executive and how to lay people off. In doing so, I follow the first principle of the Bushido—the way of the warrior: keep death in mind at all times. If a warrior keeps death in mind at all times and lives as though each day might be his last, he will conduct himself properly in all his actions. Similarly, if a CEO keeps the following lessons in mind, she will maintain the proper focus when hiring, training, and building her culture.
THE STRUGGLE
Every entrepreneur starts her company with a clear vision for success. You will create an amazing environment and hire the smartest people to join you. Together you will build a beautiful product that delights customers and makes the world just a little bit better. It’s going to be absolutely awesome.
Then, after working night and day to make your vision a reality, you wake up to find that things did not go as planned. Your company did not unfold like the Jack Dorsey keynote that you listened to when you started. Your product has issues that will be very hard to fix. The market isn’t quite where it was supposed to be. Your employees are losing confidence and some of them have quit. Some of the ones who quit were quite smart and have the remaining ones wondering if staying makes sense. You are running low on cash and your venture capitalist tells you that it will be difficult to raise money given the impending European economic catastrophe. You lose a competitive battle. You lose a loyal customer. You lose a great employee. The walls start closing in. Where did you go wrong? Why didn’t your company perform as envisioned? Are you good enough to do this? As your dreams turn into nightmares, you find yourself in the Struggle.
ABOUT THE STRUGGLE
“Life is struggle.”
—KARL MARX
The Struggle is when you wonder why you started the company in the first place.
The Struggle is when people ask you why you don’t quit and you don’t know the answer.
The Struggle is when your employees think you are lying and you think they may be right.
The Struggle is when food loses its taste.
The Struggle is when you don’t believe you should be CEO of your company. The Struggle is when you know that you are in over your head and you know that you cannot be replaced. The Struggle is when everybody thinks you are an idiot, but nobody will fire you. The Struggle is where self-doubt becomes self-hatred.
The Struggle is when you are having a conversation with someone and you can’t hear a word that they are saying because all you can hear is the Struggle.
The Struggle is when you want the pain to stop. The Struggle is unhappiness.
The Struggle is when you go on vacation to feel better and you feel worse.
The Struggle is when you are surrounded by people and you are all alone. The Struggle has no mercy.
The Struggle is the land of broken promises and crushed dreams. The Struggle is a cold sweat. The Struggle is where your guts boil so much that you feel like you are going to spit blood.
The Struggle is not failure, but it causes failure. Especially if you are weak. Always if you are weak.
Most people are not strong enough.
Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through the Struggle and struggle they did, so you are not alone. But that does not mean that you will make it. You may not make it. That is why it is the Struggle.
The Struggle is where greatness comes from.
SOME STUFF THAT MAY OR MAY NOT HELP
There is no answer to the Struggle, but here are some things that helped me:
Don’t put it all on your shoulders. It is easy to think that the things that bother you will upset your people more. That’s not true. The opposite is true. Nobody takes the losses harder than the person most responsible. Nobody feels it more than you. You won’t be able to share every burden, but share every burden that you can. Get the maximum number of brains on the problems even if the problems represent existential threats. When I ran Opsware and we were losing too many competitive deals, I called an all hands and told the whole company that we were getting our asses kicked, and if we didn’t stop the bleeding, we were going to die. Nobody blinked. The team rallied, built a winning product, and saved my sorry ass.
This is not checkers; this is motherfuckin’ chess. Technology businesses tend to be extremely complex. The underlying technology moves, the competition moves, the market moves, the people move. As a result, like playing three-dimensional chess on Star Trek, there is always a move. You think you have no moves? How about taking your company public with $2 million in trailing revenue and 340 employees, with a plan to do $75 million in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.
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 so impossible today.
Don’t take it personally. The predicament that you are in is probably all your fault. You hired the people. You made the decisions. But you knew the job was dangerous when you took it. Everybody makes mistakes. Every CEO makes thousands of mistakes. Evaluating yourself and giving yourself an F doesn’t help.
Remember that this is what separates the women from the girls. If you want to be great, this is the challenge. If you don’t want to be great, then you never should have started a company.
THE END
When you are in the Struggle, nothing is easy and nothing feels right. You have dropped into the abyss and you may never get out. In my own experience, but for some unexpected luck and help, I would have been lost.
So to all of you in it, may you find strength and may you find peace.
CEOS SHOULD TELL IT LIKE IT IS
One of the most important management lessons for a founder/CEO is totally unintuitive. My single biggest personal improvement as CEO occurred on the day when I stopped being too positive.
As a young CEO, I felt the pressure—the pressure of employees depending on me, the pressure of not really knowing what I was doing, the pressure of being responsible for tens of millions of dollars of other people’s money. As a consequence of this pressure, I took losses extremely hard. If we failed to win a customer or slipped a date or shipped a product that wasn’t quite right, it weighed heavily on me. I thought that I would make the problem worse by transferring that burden to my employees. Instead, I thought I should project a positive, sunny demeanor and rally the unburdened troops to victory. I was completely wrong.
I realized my error during a conversation with my brother in-law, Cartheu. At the time, Cartheu worked for AT&T as a telephone lineman (he is one of those guys who climb the poles). I had just met a senior executive at AT&T, whom I’ll call Fred, and I was excited to find out if Cartheu knew him. Cartheu said, “Yeah, I know Fred. He comes by about once a quarter to blow a little sunshine up my ass.” At that moment, I knew that I’d been screwing up my company by being too positive.
In my mind, I was keeping everyone in high spirits by accentuating the positive and ignoring the negative. But my team knew that reality was more nuanced than I was describing it. And not only did they see for themselves the world wasn’t as rosy as I was describing it; they still had to listen to me blowing sunshine up their butts at every company meeting.
How did I make such a mistake and why was it such a big mistake?
THE POSITIVITY DELUSION
As the highest-ranking person in the company, I thought that I would be best able to handle bad news. The opposite was true: Nobody took bad news harder than I did. Engineers easily brushed off things that kept me awake all night. After all, I was the founding CEO. I was the one “married” to the company. If things went horribly wrong, they could walk away, but I could not. As a consequence, the employees handled losses much better.
Even more stupidly, I thought that it was my job and my job only to worry about the company’s problems. Had I been thinking more clearly, I would have realized that it didn’t make sense for me to be the only one to worry about, for example, the product not being quite right—because I wasn’t writing the code that would fix it.
A much better idea would have been to give the problem to the people who could not only fix it, but who would also be personally excited and motivated to do so. Another example: If we lost a big prospect, the whole organization needed to understand why, so that we could together fix the things that were broken in our products, marketing, and sales process. If I insisted on keeping the setbacks to myself, there was no way to jump-start that process.
WHY IT’S IMPERATIVE TO TELL IT LIKE IT IS
There are three key reasons why being transparent about your company’s problems makes sense:
1. Trust.
Without trust, communication breaks. More specifically:
In any human interaction, the required amount of communication is inversely proportional to the level of trust.
Consider the following: If I trust you completely, then I require no explanation or communication of your actions whatsoever, because I know that whatever you are doing is in my best interests. On the other hand, if I don’t trust you at all, then no amount of talking, explaining, or reasoning will have any effect on me, because I do not trust that you are telling me the truth.
In a company context, this is a critical point. As a company grows, communication becomes its biggest challenge. If the employees fundamentally trust the CEO, then communication will be vastly more efficient than if they don’t. Telling things as they are is a critical part of building this trust. A CEO’s ability to build this trust over time is often the difference between companies that execute well and companies that are chaotic.
2. The more brains working on the hard problems, the better.
In order to build a great technology company, you have to hire lots of incredibly smart people. It’s a total waste to have lots of big brains but not let them work on your biggest problems. A brain, no matter how big, cannot solve a problem it doesn’t know about. As the open-source community would explain it, “Given enough eyeballs, all bugs are shallow.”
3. A good culture is like the old RIP routing protocol: Bad news travels fast; good news travels slow.
If you investigate companies that have failed, you will find that many employees knew about the fatal issues long before those issues killed the company. If the employees knew about the deadly problems, why didn’t they say something? Too often the answer is that the company culture discouraged the spread of bad news, so the knowledge lay dormant until it was too late to act.
A healthy company culture encourages people to share bad news. A company that discusses its problems freely and openly can quickly solve them. A company that covers up its problems frustrates everyone involved. The resulting action item for CEOs: Build a culture that rewards—not punishes—people for getting problems into the open where they can be solved.
As a corollary, beware of management maxims that stop information from flowing freely in your company. For example, consider the old management standard: “Don’t bring me a problem without bringing me a solution.” What if the employee cannot solve an important problem? For example, what if an engineer identifies a serious flaw in the way the product is being marketed? Do you really want him to bury that information? Management truisms like these may be good for employees to aspire to in the abstract, but they can also be the enemy of free-flowing information—which may be critical for the health of the company.
FINAL THOUGHT
If you run a company, you will experience overwhelming psychological pressure to be overly positive. Stand up to the pressure, face your fear, and tell it like it is.
THE RIGHT WAY TO LAY PEOPLE OFF
Shortly after we sold Opsware to Hewlett-Packard, I had a conversation with the legendary venture capitalist Doug Leone of Sequoia Capital. He wanted me to recount the story of how we went from doomed in the eyes of the world to a $1.6 billion outcome with no recapitalization.
After I took him through the details—including several near bankruptcies, a stock price of $0.35 per share, unlimited bad press, and three separate layoffs where we lost a total of four hundred employees—he was most amazed by the layoffs. During more than twenty years in the venture capital business, he’d never seen a company recover from consecutive layoffs and achieve a billion-dollar-plus outcome. He confessed that he’d bet against that every time. Since my only experience was the great exception, I needed more information. I asked him why all the other startups failed. He replied that the layoffs inevitably broke the company’s culture. After seeing their friends laid off, employees were no longer willing to make the requisite sacrifices needed to build a company. He said that although it was possible to survive an isolated layoff, it was hugely unlikely that a company would experience great success. Building a highly valuable business, he added, after three consecutive giant layoffs accompanied by horrible prominent press coverage (we got taken apart with cover stories in both the Wall Street Journal and BusinessWeek), was a complete violation of the laws of venture capital physics. He wanted to know how we did it. After thinking about this question, here’s my answer.
In retrospect, we were able to keep cultural continuity and retain our best employees despite multiple massive layoffs because we laid people off the right way. This may sound nutty—how can you do something that’s fundamentally wrong in “the right way”? Here’s how.
STEP 1: GET YOUR HEAD RIGHT
When a company fails to hit its financial plan so severely that it must fire the employees it went to great time and expense to hire, it weighs heavily on the chief executive. During the first layoff at our company, I remember being forwarded an email exchange among a group of employees. In the exchange, one of our smarter employees wrote, “Ben is either lying or stupid or both.” I remember reading that and thinking, “definitely stupid.” During a time like this, it is difficult to focus on the future, because the past overwhelms you—but that’s exactly what you must do.
STEP 2: DON’T DELAY
Once you decide that you will have to lay people off, the time elapsed between making that decision and executing that decision should be as short as possible. If word leaks (which it will inevitably if you delay), then you will be faced with an additional set of issues. Employees will question managers and ask whether a layoff is coming. If the managers don’t know, they will look stupid. If the managers do know, they will either have to lie to their employees, contribute to the leak, or remain silent, which will create additional agitation. At Loudcloud/Opsware, we badly mismanaged this dynamic with our first round of layoffs, but sharply corrected things on the next two.
STEP 3: BE CLEAR IN YOUR OWN MIND ABOUT WHY YOU ARE LAYING PEOPLE OFF
Going into a layoff, board members will sometimes try to make you feel better by putting a positive spin on things. They might say, “This gives us a great opportunity to deal with some performance issues and simplify the business.” That may be true, but do not let that cloud your thinking or your message to the company. You are laying people off because the company failed to hit its plan. If individual performance were the only issue, then you’d be taking a different measure. Company performance failed. This distinction is critical, because the message to the company and the laid-off individuals should not be “This is great, we are cleaning up performance.” The message must be “The company failed and in order to move forward, we will have to lose some excellent people.” Admitting to the failure may not seem like a big deal, but trust me, it is. “Trust me.” That’s what a CEO says every day to her employees. Trust me: This will be a good company. Trust me: This will be good for your career. Trust me: This will be good for your life. A layoff breaks that trust. In order to rebuild trust, you have to come clean.
STEP 4: TRAIN YOUR MANAGERS
The most important step in the whole exercise is training the management team. If you send managers into this super-uncomfortable situation with no training, most of them will fail.
Training starts with a golden rule: Managers must lay off their own people. They cannot pass the task to HR or to a more sadistic peer. You cannot hire an outsourcing firm like the one in the movie Up in the Air. Every manager must lay off his own people.
Why so strict? Why can’t the more confrontational managers just handle this task for everyone? Because people won’t remember every day they worked for your company, but they will surely remember the day you laid them off. They will remember every last detail about that day and the details will matter greatly. The reputations of your company and your managers depend on you standing tall, facing the employees who trusted you and worked hard for you. If you hired me and I busted my ass working for you, I expect you to have the courage to lay me off yourself.
Once you make it clear that managers must lay off their own people, be sure to prepare them for the task:
