Lecture 15 - How to Manage (Ben Horowitz)

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   [clapping] So when Sam originally sent me an email to do this course, he said, "Ben, can you teach a 50-minute course on management?" And I immediately thought to myself, "Wow, I just wrote a 300-page book on management."

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   [laughs]

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   So that book was entirely too long.

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   [laughs]

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   Um, and I, I, I didn't actually have time to collapse the 300 pages into, uh, 50 minutes, so like Mark Twain, I didn't have, uh, time to write a good short letter, so I'm gonna write a long letter. But, um, in this case, I'm gonna teach exactly one management concept, so one long thing. And this management concept, though, is the thing that I see CEOs mess up more consistently than anything else. And from when they're very, very early to when they're very, very big as a company. It's, it's the easiest thing to say and the most difficult to master. And, uh, the concept in musical form ... Whoops. Pardon me. Very sensitive. So [laughs] in musical form, this is from, uh, Sly & the Family Stone. "Sometimes I'm right and I can be wrong."

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   [laughs]

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   "And my beliefs are in my song." So, "No difference what group I'm in."

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   [laughs] Whoo!

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   So that's, that's the musical version of today's lesson. Um, for those of you who are musical, you can leave now.

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    [laughs]

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    Uh, in management concept form, um, basically it's this: when you're making a critical decision, you have to understand how it's gonna be interpreted from all points of view. Not just your point of view and not just the person you're talking to, but the people who aren't in the room, everybody else. In other words, um, you really have to be able, when making critical decisions, to see the decision through the eyes of the company. And the company as a whole, which means you've gotta kind of add up every employee's view and then incorporate that into your own view, otherwise your management decisions are gonna have very weird, um, side effects and, and potentially very dangerous consequences. And it's a really hard thing to do because w- at the point when you're making a decision, you're often under a great deal of pressure. So let's get into the agenda. So I'm gonna cover kind of four cases. First, I'm gonna cover demotions, which is a very emotional thing. Then raises, which is also an emotional thing. Um, then we're gonna evaluate one of Sam's blog posts.

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    [laughs]

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    [laughs] Which is news to Sam, so I figured I'd tease him since he invited me to do a 50-minute management class after I wrote a 300-page book.

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    [laughs]

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    Uh, and then I'm gonna talk about, uh, history's greatest practitioner at this, and I, I'm wearing a shirt with him on it, um, and kind of how he used it to do something that nobody has done, had ever done before in human history and has never done since in human history. Um, but basically, complete mastery of, of the technique I'm gonna talk about. So first business example. You've got an executive, um, and do you demote or do you fire him? Uh, and this comes from an actual conversation, an actual real-life situation that, uh, I was working on with a CEO. And so the basic situation was this: um, he had a great executive, or, like, an executive who, just a great effort. Like, he hired him. He, he was working harder than anybody else in the company, doing, you know, like, everything he was supposed to. Everybody liked him 'cause he worked so hard and, like, was a general smart person. Um, but he was just in over his head knowledge-wise. He did not have the knowledge and the skills to basically do what the company needed him to do or, like, really compete against the competition. So he couldn't actually keep him in the job, but he's a great guy. Um, and, you know, so the question is, well, should I fire this person or can I just move him into a lower role and bring in a person above him? And then, like, you know, that'd be real cool. So let's look at how you kind of make that decision. So you, in this, in this case, this was the CEO, so you as a CEO. So one, like, look, it's really hard if somebody comes to work every day, like, you know, at 6:00 AM and is, like, working till 10:00 PM and, like, doing it, like, harder than anybody in the company. It's really hard to just say, "Well, sorry. Like, nice effort, but you don't get an A for an effort. You get an F 'cause I fired you." Uh.

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    [laughs]

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    Nobody, uh, uh, nobody wants to have that conversation. Um, and then a demotion is kind of neat because from a CEO's point of view, and this is, he's like, "Look, like, we can keep him in the company. He works so hard. He's a great example of, like, somebody who gives great effort." Um, and, you know, like, and then he's got a lot of friends in the company, and they're, you know, from a cultural standpoint, like, it's a r- it's a win-win because, like, he gets to stay and, and, you know, like, and then I can bring in somebody that can solve my problem. But I, I, I don't have to create another problem. Uh, and then if you think about it from the executive's perspective, um, and what they would think, it's like, "Well, I, you know, I don't wanna be demoted, but I really don't wanna be fired because if I get fired, that's a way harder, more complicated thing to explain to my next employer than I got demoted. Like, getting demoted is like, well, I didn't really get demoted. I got a new job."

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    [laughs]

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    [laughs] A smaller title. Um, and then, you know, the, the last thing is it enables, you know, like, theoretically, well, like, you know, the company, you know, we value all our employees. We brought you in. We made a commitment to you as an employee, and, like, we value everybody, and it kind of will enable you to keep growing with the company. And so, you know, and this was a kind of initial conversation I had with the CEO, and, and I said, "Well, wait a minute." I said, "Let me ask you this, like, what is the, uh-What's the equity package that this exec has? And he goes, "Well, what do you mean?" I was like, "Well, like, does he have like, a director level compensation? Does he got like a vice president level compensation? Does he have a point and a half? Does he have .4% or what?" Um, and, you know, that kind of gave the CEO pause. He's like, "Well, he does have a point and a half." And I was like, "Okay, so you're an engineer in your company. How do you feel about somebody who used to be the head of sales who got brought in with a point and a half?" Now, mind you, you're an engine- what do your engineers get? Like, do they get .1%, .2%? What are they getting at this point? So how are they gonna feel about somebody who's not the head of sales with 1.5% of the company? And he was like, "Uh-oh." And I was like, "Yeah." He was like, "Uh-oh." [laughs] Because, like, how fair is that? Uh, so are you gonna take the equity away? Are you up for doing that? Are you up for going back and taking back his compensation? And like, how productive do you think he'll be if you take away his compensation? Um, and then secondly, like, will people give him the same respect now that you've demoted him because they knew him as this, and now he's this. And so, like, I knew you when you were head of sales, now you're the regional manager, and you're telling me what the f- to do? You're telling me I need to make that call? Like, seems to me you got demoted. [laughs]

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    [laughs]

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    You know, who are you to talk to me? I'm the up and comer. I'm gonna be the next VP of sales at the next company. Uh, so all these things come into play. And so when you look at it at the end, like, you may think you're dealing with one person. You may think that th- this is a demotion or a firing of one person, and what does it mean according to that one person. But what you're really doing is you're saying, like, what does it mean to fail on the job, particularly a very, the highest paid, highest compensated job in the company from an equity standpoint. And then, like, what's required to maintain your equity? Like, is it good enough to put in an effort or do you have to get a result? And in different situations at different levels, like, these answers will come out differently. And if this had been a person, not that was an executive brought in from the outside, but was somebody who you maybe promoted past where they should have been and didn't ever get that equity, like, maybe you make a different decision. But you've gotta understand what it's gonna mean to everybody, not just the person you're talking to. Example two, an excellent employee asks for a raise. Good employee. This isn't like a, like the last employee. This is, like, a really good employee. Um, so excellent employee asks for a raise. So look, your first thing is, like, they're really good. They asked me for a raise. They didn't ask me for no reason. They asked me because they think they deserve it. I wanna retain them. Like, I wanna be fair. They've done a great job. I wanna be fair. And like, you know, I know that if I give them this raise, like, it's gonna be all love coming my way. [laughs] It's gonna be, "If I gave you a raise, we're good. You know, like, we're boys." [laughs] Me and you.

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    [laughs]

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    You got a raise. It's awesome. Um, so like, you know, from your perspective, you know what you wanna do when somebody asks you for a raise. And then if you look at it, okay, well, what about from their perspective? What, how would they, like, take it if you gave them the raise? And now you have to remember, the employee from, for them to get to the point where they've asked you for a raise, this is not something they just, like, woke up one morning and like, "I'm going in and asking for a raise," right? Like, this is something where they've thought about it a lot. They've, you know, compared their other options. They may have an offer from another company. You know, their, it's something their spouse probably has been talking to them about, and so it's a serious thing. Um, and so if you give it to them, they're very likely to feel very good about it. Like, they may be like paranoid about like, "Why are you giving me a raise?" But very unlikely. Much more they'll feel like...

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    [laughs] [upbeat music]

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    I'm sorry. I have to just let the whole thing play.

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    [laughs]

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    And, and that, that's, uh, for those of you who don't know, that's Bobby Shmurda and, uh, Rowdy Rebel doing the Shmoney Dance.

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    [laughs]

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    Um, but that's, that's likely the reaction you'll get. So there's a lot of momentum to say, "Yes, look, you know, they, they read Cheryl's book, they leaned in, um, and I'm gonna reward them for, for doing all that." Which is, you know, and, and by the way, that book is very good advice, so, um, I'm not knocking Cheryl on that. I don't want you to be misinterpreting me. Um, however, [laughs] you know there was gonna be a however. What about, you have to think about it through the point of view of the employee who did not ask for the raise. So the employee who didn't ask for the raise, they may be doing a better job than the employee who did do ask for the raise. Um, and in their mind they're going, "Okay, so I didn't ask for a raise and I didn't get a raise, and they asked for a raise and they got a raise, and so what does that mean?" That means one, like, you're not really evaluating people's performance. You're just going, "Well, whoever asks, gets." So that means like, I either need to be that guy who asks for the raise, like, and that, you know, that's just not how I feel. You know? Like, I do my work and I, I don't necessarily wanna ask for a raise. Or like, I sh- I just need to quit and go to a company that like actually evaluates performance. Um, and then, you know, so you could really make the person who doesn't get the raise feel like pretty pissy about it. And don't think- [laughs] That when somebody's walking down your company doing the shmoney dance, that other people aren't gonna notice. Like-

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    [laughs]

Episode duration: 49:42