Lecture 15: How to Manage

http://startupclass.samaltman.com/courses/lec15/

by betadreamer • 12 years ago

160 31 12 years ago

startupclass.samaltman.com

hidemark• 12 years ago

This is one of the best videos of the series. Rich with details. The Toussaint breakdown at the end was also great. I wasn't previously familiar with that story, so can't speak to its accuracy but it did a great job in driving the lecture's lessons home. The advice on reassuring people and pausing is great as well.

sama• 12 years ago

i really do think the central theme is the most important single thing for managers running startups to learn. (probably managers running lots of other things too.)

pbiggar• 12 years ago

Any reason that the transcript is always delayed til the next day?

Jemaclus• 12 years ago

Transcription takes effort and isn't instantaneous.

rdlecler1• 12 years ago

On vested shares: (1) A company needs to be upfront with this and explain the risks (2) If a company was upfront, then maybe a potential employee starts asking for more equity or more salary, which leads to more dilution because the company has to issue more equity or raise more capital. I don't think, and I hope that, Ben doesn't think that a company should trick their employees with this.

So maybe the ultimate solution is to give a 10 year option for 75% of their shares and 25% must be vested within 90 days. This gives some additional incentive for those that stick around without totally screwing someone who bled for you.

Iftheshoefits• 12 years ago

From my point of view, these vesting schemes all seem to assume the employee is a dishonest actor and to place a huge discount against the fact that the employee is risking much more than a typical big-corp employee, for a much smaller chance at a very thin sliver of what amounts to a lottery-ticket-probability acquisition/IPO.

A more equitable scheme would require a company to provide cash compensation "back pay"/"bonus" that brings the employee's compensation up to his would-have-been-market rate if the company terminates the relationship prior to the initial vesting. This protects the company and the employee: the company's shares are safe and the employee has a slight cushion in the form of a lump sum payment if he's cliffed.

etrautmann• 12 years ago

Most important takeaway for me was: In any discussion, it’s not only critical to consider your perspective or that of the person you’re directly dealing with, you must consider everyone else who’s not in the room and their reactions/motivations.

Relevant far beyond the scope of startups

tacoman• 12 years ago

I'm a techie for life and work for Bigco (probably for life) and I see this sort of thing weekly. A decision comes down that is derided as stupid because "management is clueless" is often not because the people that made the decision understand this basic principle.

jonalmeida2• 12 years ago

I considered what would be the opposite effect if you always considered others perspective. Wouldn't this affect the way you make decisions when you're required to put your foot down? Or is not a situation that often happens?

jstandard• 12 years ago

I take it to mean make sure you apply empathy in decisions, particularly hard ones. The ability to "put your foot down" is an independent skill and in many cases made easier if you take time to understand the perspectives and motivations of those who didn't have an initial voice in the conversation that led to the decision.

Ben has a good section in his recent book where he talks about firing executives. His suggested strategy involves a mix of exactly this, empathy, swift actions, and putting your foot down.

andy_ppp• 12 years ago

What an amazing talk. My brain seems to sum up this whole series as: be an awesome person and then run a startup naturally.

chasb• 12 years ago

How often do startups actually claw back equity?

The handful of stock plans I've seen only interrupt vesting when the employee maintains the absence of any interruption or termination of service as an employee. Do companies take the legal position that a demotion is an "interruption"? Or are there other status termination clauses that are more strict in wide use?

I would not be surprised if the frequency of such stricter clauses inversely correlates with startup quality. At a good startup, you're trying to hire great people away from a lot of other amazing options. You need to foster trust that you're going to support them. And that means making an organizational commitment to them as a person, not just a title. I'm not sure why other employees wouldn't understand that.

Not trying to be critical of Ben here, he obviously knows way more and has seen much more than me.

boucher• 12 years ago

Although I have no first hand or even second hand experience here, there are somewhat widely reported stories of companies saying "accept this demotion as well as a reduction in your stock options, or be fired," to which there's obviously some incentive for an employee to voluntarily accept the reduction.

rajens• 12 years ago

I actually liked the fact that this lecture had just 1 lesson to teach, where Ben Horowitz used the entire time to reinforce the one point. I particularly enjoyed his historical reference to Touissaint L’Ouverture.

Best quote and lesson I picked up: “When you’re making a critical decision, you have to understand how it’s going to be interpreted from all points of view. Not just your point of view, not just the person you’re talking to, but the people that aren’t in the room. Everybody else.”

For anyone interested in reviewing the top quotes I picked up (or if you can't wait until the transcript), you can find 21 Quotes from Ben Horowitz's lecture today here: https://medium.com/how-to-start-a-startup/21-quotes-from-ben...

NhanH• 12 years ago

Several people have mentioned the important of considering multiple POVs before making a decision, but it seems to me the hard question is how to do that? It's truly hard to "put yourself in other's shoes". And I suspect this is one of the main hard things young people have trouble with. How do you learn to do that (I know I have to, I just can't imagine the scenario until someone else told me)?

nostrademons3• 12 years ago

Putting yourself in others' shoes gets easier with experience and practice. Particularly experiences where you must do it to get what you want. There's a reason why people low on a power hierarchy often score higher in measures of empathy than people who have always been high up.

If you want to develop this skill, put yourself at the mercy of other people, and then don't give up or shy away when their decisions don't go your way. Instead, assume good faith and ask them why they made that decision. If there's information that would change their mind, provide it, but if there isn't - you've learned something important about the world.

Romantic relationships are great for this - you can't make someone like you, you just have to be likable. So are employment situations with a tough but fair boss. Stay away from yes-men, and resist the temptation to do things yourself.

Another big clue you can use is that whenever you catch yourself saying "This is stupid" or "I can't believe he's making that mistake" - stop, and brainstorm potential reasons why it might not be a mistake. I see a number of HN commenters with impassioned opinions about how dumb, corrupt, or greedy other people are. (I am occasionally one of them...nobody's perfect. :-)) If you want to practice empathy: stop, and look at the discussion. Why do the participants believe what they do? Usually you can get clues about their background from past comments. Usually, with practice, you can get clues by looking at the experience of other people with similar opinions. If you start from the premise that most people are basically rational and want to do good in the world, then the reason they might disagree is because they are each speaking from their own experience, and what looks rational depends upon the input data (in the form of life experience) that you have available to you.

AndrewKemendo3• 12 years ago

Great talk, however probably the #1 thing that is most frustrating about the startup ecosystem is the idea that management principles are an afterthought - this despite the fact that they are among the top reasons why companies fail. Ben's talk really reinforces two things that always stand out to me about the SV ecosystem:

1. Management abilities aren't valued in founders

2. It's almost 100% a finance game

To the first point, if you go back and listen to the first day, Sam talks about how young/inexperienced founders are probably the best at identifying new opportunities, and it would follow then that they are the best founders. This is in direct contrast to the idea of being good at hard management tasks like the ones that Ben brings up here. Also in contrast to the talk that PG gave in the same series about waiting to be a founder and his discussions about founders who are over 30. This is reinforced by the idea that a lot of Angel/VC money seems to be going to young, inexperienced founders who have a little traction.

Which leads me to think that, in actuality the funding sources do care about management, they just don't think it matters at the outset because they plan on bringing in "real" management at some point along the way. This is reinforced both by just looking at the history of high growth companies and in something one of my advisers sent me from Kaufmann and it was the Valuation worksheet [1]. you'll notice that a key determinant of valuation is: "founder willing to step aside if necessary for a new CEO." With anything but yes basically ending a deal.

To further the point, Ben's great walk-through of Sam's equity/vesting blog post really reinforces the notion that to get value out of this whole startup thing as anything but and investor you really have to be lucky and savvy, and really hope that your investors have your best interest in mind. To me that is the kind of "dirty secret," which isn't so much of a secret anymore, of Silicon Valley. When someone mentioned during the video making more "incentive to stay" with a company, this is exactly the kind of talk I expect from the Gordon Gecko types, not the Wozniak-esque communal tech focused, make great things founder. While I doubt the person shouting that intended for it to come across quite as nihilistic, the unintended truth came out. Baking in equity incentives that promote retention are probably not good for employees in a competitive market, and thus not good for morale and "culture" in the long run, especially given the average shelf life of a startup.

Edit: Just so this isn't completely negative, I think the startup world really has the ability to have a big impact on management trends worldwide. We have seen this to a degree with the "rise of the developer," however generally speaking things are about the same structurally for employees even if the term sheets are more founder friendly than the 2000s. What thought leaders should be pushing in my opinion is the idea of flat organizations like Morning Star [2], and to a lesser extent Valve. The real revolution in management is having as little as possible and I don't hear that coming from the SV VC/Angels, yet we hear alot about board seats, equity/vesting etc...

[1]Page 16: http://www.angelcapitalassociation.org/data/Documents/Resour...

[2]https://hbr.org/2011/12/first-lets-fire-all-the-managers/ar/...

nostrademons3• 12 years ago

I don't actually get the impression that #2 is true. Rather, I think people believe that product is all-important, and both finance and management take a back seat to that. At this year's startup school, both Ron Conway and Jim Goetz (Sequoia) drove home the point that the #1 concern of entrepreneurs should be a maniacal focus on product, and it's okay to blow off investors if necessary to achieve it (often, they even like it).

I think that your other points would follow if you assume that there are two primary ways for a venture capitalist to invest in a startup that's achieved product/market fit:

1. Get in before they have product/market fit, spread your bets across many small startups, double-down on your winners, and replace the founders with professional management once the company has taken off. This is much of the current seed investing climate, and the valuation worksheet you saw.

2. Wait until they have product/market fit, but differentiate yourself from other VCs by providing non-financial resources needed for a novice entrepreneur to become an effective CEO. This is the a16z/Sequoia approach. They try to keep a founder as CEO (because they often have knowledge of the market and organization that would be very hard to replicate), but supplement it with generous advice and the VC's own networks.

AndrewKemendo3• 12 years ago

I should clarify point 2 then. I don't mean that for founders it is a finance game, I mean that the idea of a community of high-growth, venture backed "Startups" which Y-Combinator and the various VCs sit at the seat of - is 100% finance driven. In other words, their goal is returns, not "changing the world" or doing anything different than the nihilists [1] on Wall Street. Investors like a company blowing them off to get traction because it is basically no risk for the investor, and helps them track their progress so they can come in later for a massive round.

I point this out because there is such a strong ethos around SV as being this kind of "Anti Wall-street" which I think is reinforced because founders/employees genuinely to want to make impactful stuff. The founders here and elsewhere in the startup world constantly talk about "making a difference," "changing the world" etc. So whereas the junior analysts and salesmen on Wall Street all know and acknowledge that making shitloads of money is the primary goal, I have a hunch that the VC's and LPs in SV (and elsewhere in the startup world) are using the naivety of high producing young, enthusiastic people to make a killing. This is why the archetype of the SV founder is someone who is personally low risk (single, young), is expected to work an insane amount to get growth going, tapping into growing markets and has already validated the market.

That is not to say that founders & finance are de-facto in conflict across the board, and it is also not to say there is some kind of conspiracy between Ron and Jim to juice labor, but I do think that founders are largely seen as a commodity to the finance class in the startup world. My guess is that they VCs are threading the needle really carefully with giving out information about how to get more "founder friendly" terms because founders are too smart to get screwed.

[1] http://exiledonline.com/confessions-of-a-wall-st-nihilist-fo...

coppolaemilio• 12 years ago

I like find like it like hard like to kind listen kind to kind it like since like I like noticed like how like many like times kind of he says kind of a certain like word.

jonalmeida2• 12 years ago

Notes: http://jonalmeida.com/posts/2014/11/11/htsas-lec15/

It's worth mentioning that Ben's slides are the best I've seen so far. They've very close to what he talks about with the right amount of detail.

I also really liked the Touissaint L'Overture example.

lacker• 12 years ago

I love the phrase "Kimchi problem". The deeper you bury it, the hotter it gets.

fr11• 12 years ago

In the situation of the 10 year vest, he pays attention to the feelings of unfairness that other employees pay attention to, but ignores the feelings of fairness that other employees will also pay attention to (hey, that guy left and didn't get screwed over by our stupid 90 day exercise policy).

Notably, the direction he argues for is primarily beneficial to the founders/CEOs, the position he's been in, as it reduces dilution by getting stock back into the option pool (and then not having to expand the option pool) from employees when they quit.

RSUs? A 10 year option? Someone needs to find a better way.

danieltillett2• 12 years ago

Why not a mix of 90 day and 10 year options?

Finding the right balance might be hard, but you want to achieve the balance between having the feeling that if you leave or are fired you are not totally screwed over, but at the same time not feeling like you are total handcuffed to a job and company you hate. I am just picking numbers out of the air but you could structure it so that 25% is 10 years and 75% is 90 days.

lostdog• 12 years ago

He's also forgetting the perspective of future employees.

"I need to exercise immediately? These options are worthless. I need to demand full salary."

hoozters• 12 years ago

Like this was kinda nice and like, I kinda liked it.

fsloth• 12 years ago

The suggestion about instantiating a formal performance review sounds exactly to the point. The point is not to rank everyone on a gaussian curve but to maintain an understanding between the employee and the management of how much value the management percieves the employee has generated. This is a benefit to both parties!

Above 10 peoples, things get really to a point where everything is not obvious to everyone else and you need some formal documentation platform so everyone agrees on the quantity and the quality of the job.

Offtopic, but: The reference to Touissaint L'Overture was a fascinating detail. I had to buy a book on him from Amazon.

danieltillett2• 12 years ago

While I found the talk very interesting and there were many insightful gems, I think the major point made by Ben was how little individuals matter in the end. For all Toussaint Louverture charisma and talent he died in prison in France [1] - as for Haiti it is almost as far from Toussaint vision as it is possible it to be.

[1] http://en.wikipedia.org/wiki/Toussaint_Louverture

Lecture 15: How to Manage

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