STRATEGY & INNOVATION

THE HARD THING ABOUT HARD THINGS (BEN HOROWITZ)

Building a business when there no easy answers

1. SUMMARY OF THE BOOK

This book is about pliability and what is taken to build a business. As we know there are no shortcuts
to build a business. It does take determination and resiliency as the book says. Ben Horowitz emphasizes
that even though you cannot teach somebody how to be a CEO, there are lots of tools, techniques, and
tips that you can learn from the greatest CEOs out there. Ben goes through a lot of lengths to share his
anecdotes about what he went through to build his own business. He analyses the problems that confront
leaders every single day and amplifies business lessons by telling everything he has encountered from
firing friends to poaching competitors, cultivating a CEO mentality to knowing the right time to cash
in. Among the topics analyzed in the book, we learned techniques for driving the struggle of being a
leader, the right way to hire and to lay people off, the importance of taking care of them, and how to
lead even though you do not know where you are going. The importance of these lessons is that schools
do not cover them, it can only be learned by getting into the game.

Through the first three chapters, Horowitz narrates different circumstances that were meaningful in
his life. He grew up looking the world from different perspectives that helped him to learn how to
separate facts from first impressions. Lots of personal and professional situations taught him to never
give up no matter how big the challenge is. He sets out a specific one where he learned to do not judge
things by their appearance. You must try to make the effort of knowing new things or people. Only that
experience of discovery the unknowledge will determine your attitudes to resist different kind of
situations. His professional life started with his first job at Silicon Graphics (SGI) which was really
satisfying for him to worked there. Then he joined to NetLabs (also a Tech company), thing did not go
as he expected understanding the importance of founders running their companies. Lotus and Netscape
also contributed during his executive career. In 1999, he founded his own company called LoudCloud
(then Opsware). He explains all the challenge he faced to build his business from nothing, failing the
first time but then rebuilding it into a billionaire franchise.

One of the first lessons learned in this book is how to lead the struggle. When entrepreneurs start a
company, they usually think that things will go as they were planned. But sadly, there are a lot of
situations that do not allow the company to develop as thought. The products might have issues that are
hard to fix, the market is never quiet, employees might lose their confidence and some of them will
quit. The struggle is the situation when many questions arise, but you do not find answers for them. It
is not a failure, but it causes failure. Especially if CEOs are weak. There is no answer for the struggle,
but there some things that can help such as creating an environment where ideas flow freely, getting the
maximum number of brains when problems arise which means not putting all problems on your
shoulders and considering that there is always a move. CEOs must not take failures personally because
it never helps, all of them have struggled at a certain moment, even the most experienced ones such as
Steve Jobs, Mark Zuckerberg, Jeff Bezos, and others.

Something else explained by the author is how to fire or lay off a whole bunch of people and have
the remaining ones still motivated and willing to work for the company. The right way to lay people off
according to Horowitz follows six steps. The first one is to get your head right focusing on the future
even though the past might overwhelm you. Once you decided it, the time to execute it should be as
short as possible to avoid misunderstandings between employees. As a CEO, you should have clear in
your mind the reason why you are laying them off. The most important step is how the management
team carries out with this uncomfortable task, they should explain it in a clear and brief way about why
it is happening. The way how they are fired is not only important for the company’s reputation but also
for remaining people. The CEO must address the entire company and never forget that they have to be

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visible and present. It is here where honesty takes an important role because it is the only way to build
trust not only in the people who left the company but people who stayed. Without trust, communication
breaks. In a company context, communication is a critical point becoming the differentiator between a
company that executes well and companies that are chaotic.

Some circumstances might put you in a life or death situation as in the case of having to demote a
loyal friend. Many questions will begin to arise in your head when you already know that you have to
replace your friend’s position with someone with more experience that will contribute and execute more
efficiently the job to your company; when this occurs, breaking the news is not an easy job. Said friend
can feel two powerful emotions: embarrassment or betrayal; this can provoke an intense conversation.
In that case, the CEO must be as clear as possible using an appropriate and decisive language, admitting
the reality and acknowledging the contributions to couple the demotion (in case that person agrees to
stay in the company).

On the other hand, the author suggests a four-step process to fire an executive correctly. The first
one is to identify the problem figuring out why you hired the wrong person for your company. Once
you have detected the reason, the next step is about informing the board where you should start by
making sure that they understand the root cause and your plan to remedy the situation giving them
confidence about your ability to hire and manage outside executives in the future. It is here where Ben
recommends preserving the reputation of the fired executive. You do not make yourself look good by
trashing someone who worked for you. The third step is about communicating to the executive as soon
as possible being clear on the reasons, using a decisive language and having the severance package
approved and ready. Last but not least is to update the company and the staff about the change. The
author emphasizes that communication should happen on the same day and preferably within a couple
of hours. He believes that the correct order for informing the company is: the executive’s direct reports,
the other members of the staff and finally employees in general.

It is really important to create a good work environment and to take care of people, products and
profit (in that order). Taking care of people is the most difficult goal to achieve because it doesn’t make
sense if you do well with the others two, but you are falling with your human capital which is your most
valuable resource in the road to success. In good organizations, people know that their work will make
the difference for it and for themselves, so they are totally sure that the benefits are for both parties.
When things go well, there are many reasons to stay at a company: your career path is wide open, your
work is well-recognized, your résumé gets stronger and you get richer. However, when things go poorly,
all those reasons evaporate and become reasons to leave. On the other hand, in poor organizations
employees do not have clear in how their work consists, therefore they will never be clear about the
right direction they should follow.

The author believes that is high-level when managers train their employees by themselves. They
should not delegate such responsibility to other people. Training new recruits has positive results on
productivity, performance management, product quality and employee retention. It is an important
contribution because you are allowed to measure the productivity of your candidates, you can also
establish basis for performance management making it a consistent process. The product quality is
benefited by the training task because it guarantees avoiding inconsistencies in the user experience. The
essential components of a company’s training are functional and management training. The first one is
focused on the knowledge and skills that the new recruits should need to do their job correctly. Whereas
the management coaching is the right place to start establishing expectations on them. Obviously, there
are other skills that can be improved during the coaching process, it will depend on the kind of company.

The distinction between good product and bad product managers is quite obvious. The good ones
are those who knows absolutely everything about how the product operates, being responsible of all the
consequences that arise once the product is in the market. Meanwhile bad product managers are always
trying to protect themselves with excuses because they are not doing a good job. There is one
controversial point that is explained in Chapter 5 which is about hiring people from a friend’s company.
To make it easy, CEOs should never choose a friend’s company as a source of talent. The best way to

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deal with this situation is to proceed transparently. Once you are in the dilemma between hiring an ideal
person for your work team or crossing on your friend’s staff, you should inform the candidate that you
have an important business relationship with his existing company and you will have to complete a
reference check before to take any decision.

Everybody must understand that the job of a big company executive is completely different from
the one that a startup executive does. Big ones have to deal with the company’s different areas including
the customer service one which is normally overseen when it should not, their job tends to be interrupt-
driven, for that reason they are constantly trying to optimize their time. In contrast, a small company
executive is the opposite, meaning that they have to make things happen (daily initiatives). There is no
problem when those executives work in the appropriate company. For example, if one big executive is
hired by a startup business there will be two high-risk mismatches faced: rhythm and skill set mismatch.
The two main keys to avoid these situations is making a precise screening during the interview process
and taking integrations as important as interviewing. But what happens if it is your first time hiring an
executive? What should you do? First of all, you must know what you exactly want, this means that as
a CEO you have to be clear in your own mind about your expectations for the person that you are
looking for your company. Having that clear, the next step is to run up a right process letting you know
the strengths, weaknesses and criteria that you are minded tolerating. Finally, the advisable is that the
final decision should be made solo applying a rational criterion.

Politics within a company can be controversial when it begins to grow. Even though they are
imperative for its success, sometimes people complain of them (even CEOs) and some issues can
appear. The author explains a simple situation: executive’s compensation. As time goes by, elderly
employees might ask for an increase on their salaries. To handle this situation CEOs usually analyze it
and maybe given them a raise creating a strong incentive for political behavior. It is here when
minimizing politics takes an important role. There a useful technique to minimize them that follows the
next guidelines: hiring people with the right kind of ambition, building a strong process to be aware of
the political issues that can occur.

Horowitz says that is essential to differentiate between the right and wrong kind of ambition from
their staff. It is important that managers have the right one in order to motivate employees to follow the
company’s vision because it is not profitable to hire a high-IQ executive when he puts his own personal
success over the company’s (wrong ambition). Also, it can be a reason for the other members of the
staff to lose their confidence and enthusiasm. It is advisable to take into account when interviewing new
candidates screen for the right ambition even though this is pretty difficult you might watch for small
distinctions like how their perspective matches the company’s values.

There are two main reasons why companies generate job titles. First because employees want to
create a plan for life looking for recognition in their actual position and to enrich their résumé. Secondly
because people need to know their roles in the company for performing their tasks without going out
the lines.

He also states how smart people can actually destroy the company they work for. There are certain
types of people that can make this happen such as the heretic, the flake and the jerk as described trough
the book.

1) Heretics: with time they develop their own agenda that normally won’t be aligned with what the
company wants. Developing a type of behavior that does not help to reach the company’s goals.
The reason behind this behavior is that they might feel disempowered or they are essentially
rebel and immature.

2) Flakes: they usually have a self-destructive behavior that drives them to failure even though they
are such brilliant people.

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 3) Jerks: those executives that develop an attitude that drive people to stop the communication
when they are in the room.

Hiring senior people means acquiring knowledge and experience to the company. There is a main
reason to hire them: they have experience so the company can continue the race against time in a
stronger way. The only obstacle that might appear is the way how you adapt them to the company’s
culture. Culture does not make a company, but it matters to reach the goals, to create a comfortable
work environment, and to promote the business in a better way. Sometimes CEOs forget that hiring
elderly people can be an advantage for the business but at the same time there some challenges coming
with them: habits, communications style, values (own culture) and some developed skills (a structured
system). Adapting those elements to company’s direction is the real challenge.

As it was stated before culture does not make a company, but it also matters helping to achieve the
goals, preserving the company’s core values, creating a better place to work where everyone of your
staff will be motivated to continue performing a top level. To create a culture, you need to design a way
that helps the company get distinguished from competitors, holding core values, and making feel
employees identify with the company’s mission. So the real meaning of creating a culture in your
business is that it will help you to know with certainty the right way to drive it making sure the
company’s success.

Sadly, there is no way to learn how to be a CEO. You only learn it by being one of them. When it
happens, you are a hundred percent responsible of everything around the company from hiring the
right/wrong people to the profits your product generates. The problem arises when you do not know
how to lead in crucial circumstances. As a CEO you can find yourself taking things too personally or
not personally enough. Both of them are big mistakes made quite frequently. The suggested way is to
try and stay in the middle of those issues. There will be some situations that make force you to think
about quitting. What we can learn from greatest CEOs out there is that even though things get harder
you should not quit until you waste the last resource. Making hard and right decisions makes you braver
while easy and wrong decisions make you more cowardly.

There is a clear line between a peacetime and wartime CEO. When things go well meaning that the
company is expanding its market and taking a large advantage of their competitors’ peacetime managers
can maximize and expand all the possible opportunities. At the same time to contribute reinforcing the
company’s strengths. By contrast, when the business deal with an existential threat coming from any
source that jeopardizes the scope of its objectives, managers must apply wartime management
techniques. It is important to clarify that both peacetime and wartime techniques can be highly efficient
when they are used in the right moment. CEOs must develop both skills because there will be always
situations that will test their ability to fight with hem even if they are in best of times or in war times.

Horowitz tells a really interesting anecdote that when somebody asks him if a great CEO is born or
made in the process, he responds that there is no doubt that they are made. He believes that there is
nothing natural about being a great CEO. It is a skill people must develop and not give up in the face
of adversity. The author highlights that CEOs will always need somebody to challenge them. The reason
why is because everybody underneath you will be probably afraid to challenge you because they want
to keep their jobs and they are going to be intimidated and not want to say too much. Horowitz shares
that he had a partner with him, and they were frenemies. Every time that somebody had an idea per se
the other person will challenge each other until they can prove that it is actually a pretty good idea.

CEOs have the hardest and most important work which is to make decisions that can change the
direction that a company follow. They are challenged by the speed and quality of their decisions. To
make great choices they should apply their intellect, logic and bravery. Sometimes it can sound as an
easy task that they can carry out, but it is not. Managers do not have the enough time or information, so
they just need to bet the company to any direction. The only requirement for managers to execute well
is having a broad set of operational skills which will increase depending on the company’s size.

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 To make a business succeed, you will need accountability and creativity. The first one is the key
for effort, promises and results. To become a world-class company, it is necessary to get a world-class
effort from every single person of the staff you are working with. Managers must hold their people
accountable of their promises, some of them can be easy to hold while others are related to the results.
It is a such complicated situation when people do not deliver the results that they are supposed to
achieve. Holding them accountable when results do not go as expected will depend on the seniority of
the employee, the task’s degree of difficulty and its amount of risk. The most important thing to build
a world-class company is to maintain a world-class team meaning that you need to hold high standard
people in your team. It is quite difficult to know if someone is on that standard when you hire her.
Managers must get leverage on their team for example spending time to integrate and orientate an
executive and they can do some employee development with the only intention of creating a team with
a world-class level.

As a CEO you can face the most difficult decision ever which is if you should sell your company
when things go sideways. As an emotional and personal decision, it will be always hard to think about
it. There is no an easy answer for this situation. The only advice is to prepare yourself intellectually and
emotionally. Finally, Horowitz states that things will be always hard for the founders because there are
no easy answers or recipes to follow. Things are hard because emotions not always go in hand with
logic. Things are hard because you cannot ask for your doubts because it will show your weakness.

2. AUTHOR'S BACKGROUND AND MAIN TOPICS DEVELOPED BY OTHER

AUTHORS

Ben Horowitz is a venture capitalist and co-founder of Andreessen Horowitz a venture capital firm
in Silicon Valley. He realized when writing his book was there is a lot of books in business that talk
about great parts, success and everything when things go well but there wasn't really a book that
addressed what happens when things go wrong when CEOs have to face with very difficult decisions.
Based on these he wrote the book called "The hard thing about hard things".
His professional career started as engineer at Silicon Graphics in 1990. Then, he joined Marc
Andreessen at Netscape in 1995. From 1997 to 1998, he worked as a vice president for the Directory
and Security product Line at Netscape. After Netscape was acquired by AOL in 1998, Horowitz served
as Vice President of AOL's eCommerce Division. In September 1999, Horowitz decided to build his
own business called LoudCloud with some other colleagues. But what was the company about?
LoudCloud offered infrastructure and application hosting services to enterprise and Internet customers.
The company was one of the first sellers to talk about cloud computing and software as a service.
LoudCloud was running out of money and the company decided to IPO because private investors wouldn’t
invest any more cash.
In 2002, Horowitz began a transformation of Loudcloud into Opsware, an enterprise software company.
He took the first step by selling Loudcloud's core managed services business to Electronic Data
Systems for $63.5 million in cash. This transaction transferred 100% of Loudcloud's revenue to EDS
while the company was publicly traded on NASDAQ. Beginning with EDS as its first enterprise
software customer, Horowitz grew Opsware to hundreds of enterprise customers, over $100 million in
annual revenue, and 550 employees. In July 2007, Horowitz sold Opsware to Hewlett-Packard for
$1.6 billion in cash.
Horowitz was Loudcloud's and Opsware's President and Chief Executive Officer for the entire history
of the company. Along the way, shares of Opsware IPO'ed at $6, sank to $0.35 per share at its nadir
and traded at $14.25 a share at the time of its sale to HP.
Following the sale of Opsware to Hewlett-Packard, Horowitz then spent one year at Hewlett-Packard
as Vice President and General Manager in HP Software with responsibility for 3,000 employees and
$2.8 billion in annual revenue.

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 Ben Horowitz took the decision to write this book based on his belief whereas most management
books are generally written in a way where they are part of a guide to don't screw up a company, that
is to say that books are a guide for those companies that are already established. Based on this Horowitz
considered that there was a missing book focus specifically for those who wish to start to run up a
company.

He built a business as a co-founder and build it into a multimillion-dollar business then the business
started to go downhill. He almost went bankrupt and the shares were sold for nothing and he had to
rebuild the business into he finally sold it for 1.8 billion dollars.

“Zero to One” is other book that also develop strategies for making startups a success which is the
main topic developed in Horowitz’s book. It is an inside look at Peter Thiel’s experience by looking at
the lessons he learned from founding and selling PayPal. “Zero to One” teach the way that the author
thinks, how he approaches business, and what you can do to build your startup’s own future and shape
the future of the world in the process. This book is filled with the contrarian beliefs of an innovator who
has truly taken the world from Zero to One. The book can be considered as an exercise in thinking about
the questioning and rethinking received wisdom to create the future. Some specific what the book is
about: each moment happens once, there is no formula, the best interview question, a company’s most
important strength, the contrarian questions, progress comes from monopoly not competition, rivalry
causes us to copy the past, last can be first. Zero to one is full of counter-intuitive that will help your
thinking and ignite possibility.

3. PERSONAL AND CRITICAL OPINION

For anybody interested in building a successful company this book is an incredible valuable
resource. It is a kind of book that you buy you read it and it is going to be pulled off the shelf many
times in your career because you know things that may not make sense right now but during your
professional career you will face some inconvenient as a manager of any company or in your own
business. What I personally enjoyed quite a lot was that every chapter he started off with a rap first.
You can find a lot of wisdom in rap if you actually look for it. A big thing I got out of this book was
knowing in order to be a great leader it is important to take care of the people around you but doing that
you need to start with being able to take care of yourself and understanding yourself, your strengths,
your biases, and also your weaknesses. You are able to surround yourself with a fantastic group of
people who will elevate you and more important fill in those gaps where you may not be strong in.

I really like this book even though I am not a CEO. I've always believed that the higher you can sit
and the further you can see the better off that you can be right. This book puts you in the perspective of
a CEO so you can understand the kind of difficulties and obstacles they face and the way they have to
see the evolution of an organization. Horowitz tackles some difficult questions of this book such as
what happens when you hire a good friend and you have to fire them? Is it good to steal employees
from another company? Maybe it's your friends’ company. What do you do when you have an executive
who is a great fit a few months ago but now not anymore?

The first thing that struck me as compelling about Horowitz’s book is his brutal honesty around his
own failures when it came to be an engineer, founder, husband and more. Many people would say it is
easy to be honest about struggle and startups when you’ve had a $1 billion and now lead a successful
venture capital firm. But when you read Horowitz’s story his honesty comes across as genuine. And my
sense is that his honesty is part self-reflecting and part inherent and translates into the book because it is
a trait he has had for some time.

Horowitz spends the first few chapters establishing his own story, from growing up in Berkeley
to meeting his wife Felicia in LA, and then the unfolding of his career. He gives us an inside view into his
humble start as an engineer at NetLabs, and his beginnings working for his future venture and business
partner Marc Andreessen. Horowitz really delves into the story behind LoudCloud, and then Opsware,
which was born of LoudCloud. It is in this moment in time Horowitz appears to have had the bulk of his

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education as a CEO, manager, and founder. LoudCloud, and Opsware, and this by no means was an easy
road. In fact, the way Horowitz describes the journey, it was an epic disaster at some points.

With this background set up, Horowitz spends much of the rest of the book around advice, and shares
anecdotes from these times at various points. He also inserts quotes from rappers like Nas, The Game and
others within chapters. Clearly, this is not your traditional, how-to founder advice. He explained the real
problems and challenges entrepreneurs face.

For example, he spends an entire chapter on how to lay employees off. Another chapter addresses
when it is okay to poach from a friend’s company. Horowitz also devotes time to advising on how to
minimize office politics, how to establish titles and measure performance, and how to train employees
and tell a good product manager from a bad product manager. There was an important quote from one of
the chapters that says "Take care of people. Products and profits come later". We usually forget those
kinds of things and we start focusing more on how we drive more profit, the way that we create more
products and some of the best organizations in the world, they make sure to always focus on the people
first.

“The Hard Thing About Hard Things” succeeds like no other business book because it embraces
failures while instilling advice and leaving you with memorable takeaways. Sure, what you may face
as a future entrepreneur may or may not mirror Ben's or Marc's (Andreessen) struggles but the learnings
are timeless and many of them can be applied in different scenarios. For example, no matter what team
you lead, your team members will have the base expectation of you not bullshitting them. Many teams
lead and CEOs fall prey to this. This is one of the basic principles that is hammered to the reader with
many of the stories. Some of the other key lessons that Ben talks about is going against the grain of the
executive management or board members. Important decisions often get swayed by groupthink or risk-
averseness. It's your job as a CEO/manager to champion the tough decisions especially when you have
corroborating evidence of a positive hypothesis, whether data leads you that way or it is customer
feedback or market research, what have you.

One criticism that this book faces is that most of the stories predate the current millennial-tech-
ecosystem. The companies mentioned in examples by Ben are not glamorous, but they are hardcore
businesses which survived the 2000 dot-com bubble, made hundreds of millions of dollars and one even
being valued at $1.6 billion dollars in the mid 2000s. If those aren't great benchmarks, I don't know
what are. Just because a Snapchat may have a completely different model, doesn't mean that their teams
don't struggle with sales or people problems. A lot of the learning in this book stems from principles of
doing business and handling situations.

It also gives a lot of advice on how to make decisions, including the necessity for the startup CEO
to have an unshakeable belief in their ability to find the answers:

“Startup CEOs 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.”

One of my favorite chapters gives advice on hiring the right people. Horowitz notes that the prism
through which a person views the world is very important for how well they will fit into your
organization:

“When interviewing candidates, it’s helpful to watch for small distinctions that indicate whether
they view the world through the “me” prism or the “team” prism.”

People who view the world through the “me” prism will optimize for their own personal career (he
refers to this as local optimization). On the other hand, people who look at the world through a “team”
prism will optimize for the success of the company (global optimization).

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Another great section of the book discusses the courage required to make the tough calls. Horowitz
argues that the cowardice or courage that lies behind the decisions of the CEO will flow through the
organization as a whole.

The Hard Thing About Hard Things is not an entrepreneur's book to success but it's a warning
to that lot that...well...shit happens! And when you realize that you've been dealt a bad hand, Ben proves
that there are still ways to maneuver through them and come out standing. It's a book to be re-read
multiple times!

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Declaration of authorship
Gino Cordova Parodi, I the undersigned state by this document that the work (report)
attached to this document is exempt from any plagiarism and that it respects in all its aspects
the school rules concerning the borrowing, the quotations and the use of different sources that
I signed when I enrolled at Ichec. The work (report) also respects the instructions and rules
about the notes at the bottom of the pages and the bibliography... that are at my disposal on
Icheccampus.

By signing this document, I certify on my honour that I am acquainted with the above-
mentioned documents and that the work (report) is original and exempt from any borrowing
from any writer not correctly quoted.

Date: 07/01/2019

_________________________

Signature

CORDOVA GINO 190022 – 21GE032 – JANUARY 2020