value and opportunity

Ben Horowitz these days is known best as co-founder of Venture Capital firm A16Z or Andreessen & Horowitz. He is also famous for being an early employee of Netscape and founder of a company called Loudcloud and then Opsware which he sold to HP for 1.6 bn USD.

The book itself is partly his memoir of running Laudclud/Opsware but also a general management guide targeted at people running a (fast growing) tech company.

Hi tenure at Opsware included many existential crisis situations:

• the company did an IPO to avoid bankruptcy
• they did a complete “pivot” by selling most of their business to EDS and refocusing on software
• their stock price went down to 30 cents which equaled half of their net cash
• A shareholder activist tried to get him fired
• during the final sales process an auditor required them to change the revenue recognition process which almost killed the sale

Compared to other management books I have read and written about, “The hard things about hard things” is maybe less structured but does have on the other hand a lot more practical advice.

There is a lot of advice in the book on how to quickly grow a company and especially how to hire people. It even includes an interview guide for different management positions. Interestingly it also includes a lot of advise when and who to fire. In his opinion, even co-founders should be fired if they can not adapt to rapidly increasing scale of a company.

The most interesting parts in my opinion was his view on the different types of CEOs.  For instance he distinguishes between “peacetime CEOs” and “Wartime” CEOs. Peacetime CEOs are great running a company when everything goes well, Wartime CEOs are the ones who are able to completely change the course when things run really bad. In his opinion, very few CEOs can both.

Another distinction is between “Ones”” who are CEOs how are strong on strategy but less keen on details and “”Twos” who are managers who enjoy details but have less vision or strategy. Usually in a management board, there can only be one “One” which means internal succession is not easy. Good CEOs have “mixed” characteristics.

According to Horowitz a good (tech) CEO in general should:

• train his direct reports herself
• must be the keeper of the “Company story”
• gather information continuously and then make quick and good decisions
• actively build the management team

Interestingly he also mentions that he himself was never considered to be a good CEO while he was running the company.

In the final chapter, he then explains on what principles the founded their VC firm. Their most distinctive feature that they specialize on technical founders which they try to develop to “great CEOs”.

The only negatives in the book I found was the fact that some things (like the sale to HP) are repeated very often, but I guess that is due to the fact that the book to a certain extent is more or less a summary of his blog posts over the years.

Is it relevant for a value investor ? I think yes, especially if you want to be able to better judge the quality of management in a company, this book offers some very interesting aspects.

Summary:

All in all I really liked the book. It is easy to read and contains a lot of interesting aspects on how to run a tech company. It is less structured and polished than typical management books from famous professors or gurus. On the other hand there is so much “unfiltered” wisdom which you rarely find in other books so that I can highly recommend it.