Lecture 15 - How to Manage (Ben Horowitz)

1. 0:00 – 0:01

   Intro

   1. SPSpeaker0:00

      [clapping]

2. 0:01 – 3:21

   One core management skill: making decisions through the eyes of the whole company

   1. SPSpeaker0:01

      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."

   2. SPSpeaker0:12

      [laughs]

   3. SPSpeaker0:12

      So that book was entirely too long.

   4. SPSpeaker0:15

      [laughs]

   5. SPSpeaker0:16

      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."

   6. SPSpeaker1:11

      [laughs]

   7. SPSpeaker1:11

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

   8. SPSpeaker1:23

      [laughs] Whoo!

   9. SPSpeaker1:30

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

   10. SPSpeaker1:35

       [laughs]

   11. SPSpeaker1:36

       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.

   12. SPSpeaker2:41

       [laughs]

   13. SPSpeaker2:42

       [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.

   14. SPSpeaker2:49

       [laughs]

   15. SPSpeaker2:51

       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,

3. 3:21 – 6:09

   Demotion vs. firing: why a ‘kind’ demotion can backfire culturally

   1. SPSpeaker3:21

      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.

   2. SPSpeaker4:43

      [laughs]

   3. SPSpeaker4:47

      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."

   4. SPSpeaker5:37

      [laughs]

   5. SPSpeaker5:39

      [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?

4. 6:09 – 8:38

   The equity lens: what a demotion signals about performance standards and rewards

   1. SPSpeaker6:09

      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]

   2. SPSpeaker7:37

      [laughs]

   3. SPSpeaker7:37

      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

5. 8:38 – 12:52

   Raises: the trap of rewarding the asker instead of the best performer

   1. SPSpeaker8:38

      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.

   2. SPSpeaker9:17

      [laughs]

   3. SPSpeaker9:19

      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...

   4. SPSpeaker10:09

      [laughs] [upbeat music]

   5. SPSpeaker10:34

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

   6. SPSpeaker10:36

      [laughs]

   7. SPSpeaker10:43

      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.

   8. SPSpeaker10:50

      [laughs]

   9. SPSpeaker10:50

      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-

   10. SPSpeaker12:14

       [laughs]

   11. SPSpeaker12:14

       ... they're gonna be fired up about that raise. They're saying, you can say, "Oh, this is highly confidential that I'm giving you this raise." It's not confidential.

   12. SPSpeaker12:21

       [laughs]

   13. SPSpeaker12:22

       Yeah. And then the cultural conclusion is gonna be everybody in your company is going to feel that they now have a fiduciary responsibility to their family to ask for a raise all the time. Because if they don't, then they may be missing out on a raise that they would've otherwise gotten. And like you talk to any experienced CEO and they will tell you this is true, like, if you give out raises when people just ask you for them, like that, you will have a lot of people asking you

6. 12:52 – 15:41

   Process protects culture: formal, periodic compensation reviews

   1. SPSpeaker12:52

      for raises. That is called encouraging behavior. Um, so what do you do? And really the right answer on raises is you have to be formal. And y- you have to be formal to save your own culture. And I know this is always, this is the thing that causes people running startups fits because it's like, well, I don't want like a lot of formalities. I don't want a lot of process. I want it to be organic. We wanna do yoga. Um-

   2. SPSpeaker13:21

      [laughs]

   3. SPSpeaker13:23

      We wanna only smoke organic weed.

   4. SPSpeaker13:26

      [laughs]

   5. SPSpeaker13:27

      Sorry, that was like a Peter Thiel kind of way.

   6. SPSpeaker13:30

      [laughs]

   7. SPSpeaker13:31

      Uh. [laughs] Peter got very focused on who was smoking weed a little while ago.

   8. SPSpeaker13:40

      [laughs]

   9. SPSpeaker13:40

      Um, [laughs] but like y- the process actually protects, um, it protects the culture because what it does is it says, "Look, we're going to look at all the inputs. We're gonna have a formal way of saying anybody who wants a raise, come talk to me. Like, I'm not gonna give you a raise, but I'm happy to hear your story. Um, I'm gonna talk to all the people you work with so I get like a understanding of it. I'm gonna evaluate all the work that you've done, um, so I know like where I actually rate you and what my actual opinion on. And I'm gonna do that periodically. I'm not gonna do it daily. But like, yeah, maybe if I were fast moving, I'll do it every six months or even maybe once a quarter. Um, and at the end of that process, I will tell you what your raise is. Um, and I will tell you if you're getting one or if you're not getting one, but I'm not gonna do things off cycle. I'm not going to do things when asked. There's like one process, and that's it." And, like, you know, when I used to be CEO and I had like executives, it's, it's, the bigger you get, the harder this gets because the more aggressive the people working for you are. Because to get to be an executive, it turns out you often have to be pretty aggressive, uh, in this world. And in most companies like that's how you get to that level. You know, I would go, "Look, you can l- lobby me all you want, you know, after the process is done and I give you your raise, but you know what? I'm not hearing it because I already went through my process. I got your input going in. I got everybody else's input. I've got so many people, I've got so much money, and you got what like I believe is right." And having a process like that basically gets people to be actually more comfortable. They're more comfortable 'cause they don't have to always be on edge about like, "Am I asking for what I deserve, or am I getting like aced out because of who I am, what I look like? I'm not buddy-buddy. I'm not at the golf course with you, or I'm not doing whatever you like to do or..." You know, I don't have to worry about any of that 'cause I know your process. I know your process is like you're gonna evaluate everybody, and then you're gonna give them what's fair. And

7. 15:41 – 18:41

   Sam Altman’s options post: the 90-day exercise problem explained

   1. SPSpeaker15:41

      so that's a, a much better way to handle that, and it means that you're actually understanding what everybody thinks, not just the people you're talking to at the moment. Okay, so now we're gonna get into some fun stuff. We're gonna evaluate Sam's blog post, um, which is actually, there's some very good things in it. Um, and then there's some things I'm gonna discuss.

   2. SPSpeaker16:02

      [laughs]

   3. SPSpeaker16:03

      So Sam-- So this is the expert- excerpt. Most employees have n- only ninety days after they leave a job to exercise their options. Unfortunately, this requires money to cover the strike price and the tax bill. And I'll explain this a little more later, just, but I wanna read it first. Uh, for the year of exercise, blah, blah, blah, this is often more cash than an employee has. And this is the key bit. And so the employee often has to choose between like leaving the job and walking away from the vested options, i.e., the money that she has because she can't afford to exercise or being like locked into staying at the company basically for all the wrong reasons. It's a particularly bad situation when an employee gets terminated, and I'll get into that, and that's a really key point. This doesn't seem fair. The best solution I have i- I've heard is from Adam D'Angelo, a very, very smart guy at Quora. The idea is to grant options that are exercisable for ten years from the grant date, which should cover nearly all the cases. Um, you know, whatever happens with the company, uh, there are some tricky issues to this, blah, blah, blah. Um, but it's still far better than just losing the assets. I think this is a policy that all startups should adopt. So our question is, well, like, was Sam right? Uh, is this a policy that all startups should adopt? So let me first explain again what the policy is. So currently, the way almost every stock option package in Silicon Valley works and in all of startup world is this, that your stock vest-- You get stock and vest over a period of time, um, but if you leave the company, when you leave, you have, and it depends on the company, but I think it's ninety days to exercise. So yeah, so ninety days, and if you do not buy your stock in that period, it's gone. Like it's not yours anymore, which depending on when you entered the company could be a big problem. So a lot of companies today that are valued a lot, like if you take like a really valuable startup, like say an Airbnb or an Uber or something like that, when they bring you in, they go, "Wow, you know, like if you look at your 409A price and to the preferred price, like the stock we're giving you right now, the options are already worth like-$10 million. And you're like, "Whoa, $10 million. I'm rich." Uh, but what they don't necessarily tell you is in order for you to get that money because they're, the preferred is worth $10 million, your options probably are gonna cost you, like, two and a half million dollars when you leave. And if you don't have that two and a half million dollars in 90 days, it's gone. Like, you just lost all your money. Um, and so Sam was like, "Wow, that's fucked up."

   4. SPSpeaker18:37

      [laughs]

   5. SPSpeaker18:38

      And so he wrote a blog post.

   6. SPSpeaker18:40

      [laughs]

8. 18:41 – 20:31

   Why the 90-day rule existed: accounting constraints and APB 25 history

   1. SPSpeaker18:41

      Uh, and he said everybody should change it. So the first question that you have to ask yourself on something like this is, well, why is that even... L- like, this has kind of been around since, like, the '80s, so why is a rule like this around for 30 years? And it turned out Sam, and I don't even... I, I don't know whether he, like, figured this out or just intuited it, but he was right. Like, something actually had changed. So up until 2004, there used to be this law called, um, APB Opinion Number 25. Uh, that law was the old way to account for stock options and, you know, it's also the law that all the guys went to jail on. So I, I got a lot of people who caught a case on APB 25, so I'm glad it's gone.

   2. SPSpeaker19:30

      [laughs]

   3. SPSpeaker19:31

      Um, 'cause it was a very confusing law and a lot of people did not understand it and they literally went to jail. Uh, but when that was the law, if you gave somebody 10 years to exercise their options, you would never have been able to go public and you would never have been able to be acquired because you basically were taking an expense that was tied to your stock price. So basically the more your stock went up, the more compensation expense you'd have to take and the worst thing about it would be is you wouldn't know what it was gonna be so it'd be totally unpredictable. So you could never forecast earnings ever because your earnings would be a function of all of your stock price. And so the more your stock price went up, the more money you would lose. And in those days people did not look through, uh, expe- uh, stock option expenses. So, like, it just wasn't doable and that's why everybody's agreement was written at 90 days. So that's why it's there. So absolutely

9. 20:31 – 26:17

   Should every startup adopt 10-year exercise? Tradeoffs across leavers and stayers

   1. SPSpeaker20:31

      it's the right thing to question it being there. Are you guys following? You get this? This is, like, more complicated than the first two examples, but a very important one. Okay. Then, um, so your perspective on this, if you've got employees, is you wanna be fair. Like, nobody wants to like hire, "Hey, you get all this stock in four years. Sike." Right? And especially, like, when you fire someone. "Hey, you're fired. I feel real bad about it but, you know, guess what? I'm also gonna take all your money too."

   2. SPSpeaker21:01

      [laughs]

   3. SPSpeaker21:01

      You must not feel that bad. So, like, that's kind of like a problem. Um, but you also, and this is the thing that you've gotta keep in mind, you also have to think about the people who are staying and you wanna reward the people who are staying. Now the employee... The perspective of the employee who leaves, and this is really critical because this is your reputation, right? Like, I worked [laughs] like, you know, a year's work. Like, where's my year's pay? Um, and then okay, so now you're telling me about this 90-day exercise and I know it was in like the fine print of my stock option agreement, but w- my hiring manager never told me about that. They never told me I was gonna need like $2 million to get my stock which I don't have. Um, and like so if I was rich, like, I'd get my stock. Like, that's not fair. Uh, and so like, you know, now I'm fired and then I'm screwed and, and guess what? You know, I'm gonna tell everybody, like, how you, like, screwed me over. And so that's a real reputational problem so that's, uh, something that you've gotta consider in setting this policy. But then you also have to consider the employee who stays. And one thing that they're gonna ask themselves is, look, they're leaving and every time anybody leaves it's, it's like was that smart? Like that's something you... 'Cause these are people who, right, your employees know each other better than they know you in any company. I don't care what company you are. But like often the, the person they're really working with is, uh, gonna be the person they know more and so if that person leaves they're gonna go, "Well, like, should have I left too? Like, what did they get and how does that compare to my deal?" And so, like, if we look at the situation and we try and analyze it, there's a lot of components to it. So first is, like, companies, uh, tread a lot of people around here and I think, like, really the average is somewhere around 10%. It's probably getting higher particularly if you're in San Francisco it's getting higher, uh, just 'cause of the nature of the culture there. Um, and then Silicon Valley companies dilute like 6 to 8 or even 10% a year for employee options and you have to keep in mind that as mean as it may be, if that employee leaves and can't exercise their options, um, then those options come back to the pool where you can potentially give them to people who are already there. So you're actually taking less dilution, um, so that's something that you have to think about. I'm not saying you have to act on it, but it's something that you have to think about it. Um, then secondly, look, losing all your stock is a very big incentive to stay and that can be good news or bad news, right? Like it can be good news in that, like, you get to keep somebody who you might have lost. It can be bad news in that you kept them for the exact wrong reason, right? 'Cause they have handcuffs on them and so, you know, you may get like the exa- the, uh, an employee who's worse than not having an employee. Um, but on the other hand a 10-year option on a highly volatile security for those of you who have taken that class, anybody taken that class? That's valuable, right? 10 years options are va- are volatility and length. That's the value of an option. Well, 10 years on a startup stock, that's a big valuable thing. And then remember the employee who stays doesn't get that. The employee who stays just gets a stockThey, they get that, but they don't get the new job and the new stock. So they get one thing, but they don't get both things. And so you've gotta weigh that in. So this is a hard one. Like, I think that it should be reevaluated by every company. Um, I wouldn't go as far as to say, Sam, that it should be adopted by every company. I think you have to think about what you want, and I would just offer kind of two alternative cultural statements. One is, look, we treat employees with the utmost straightforwardness. We're gonna be fair, and therefore, like, you get 10 years to exercise your stock. And like, what we said we're gonna give you, you're gonna get regardless of how rich or poor you are. Like, that's just a done deal. Um, the second way to handle it, which is... And, and no companies do this, which is why I actually really like this post that he wrote. Look, you can say upfront, like, you're guaranteed to get your salary, but for your stock to be meaningful, like, these, these are the things that have to happen. One, you've gotta vest. Two, you have to stay until, like, we get to an exit, like, the company makes it, and, or, like, you've gotta have the money. And like, finally, like, the company's actually gotta be worth something, 'cause 10% of nothing is nothing. Um, and look, the reason that we set the policy this way is, like, we really value people who stay. So don't join this company, like, if you're gonna another, join another one in 18 months, 'cause, like, you're gonna get screwed, and, like, our policy, like, guarantees you're gonna get screwed on that. And so, like, those are two ways to handle it. It really depends on, like, you and how you wanna run your culture. But again, with all these things, it's just critical to think it through from everybody's perspective, because when push comes to shove, that's gonna matter. It's gonna change the outcome of your company.

   4. SPSpeaker26:05

      I'm actually revising my recommendation slightly.

   5. SPSpeaker26:07

      [laughs] Let's hear it.

   6. SPSpeaker26:09

      No, I just think there needs to be more incentive to stay through the-

   7. SPSpeaker26:12

      Right. So you could add-

   8. SPSpeaker26:12

      But still, like, if someone gets-

   9. SPSpeaker26:13

      You could add a stay incentive

   10. SPSpeaker26:14

       ... if someone gets fired, I still think they get screwed a lot of the time.

10. 26:17 – 29:18

    Masterclass example: Toussaint Louverture and radical multi-perspective leadership

    1. SPSpeaker26:17

       Well, the other, and the other thing that's really important, um, that Sam pointed out is, like, the distinction now is how much money you have, right? If you've got the money, you don't get screwed. You walk away with all. You can buy your stock. Um, you do take some risk, but you can buy your stock. If you don't have the money, you don't have the money. Okay. So now we're getting to, uh, the person on my shirt, Toussaint. Um, he was the best at this, and I wanna take you through some examples because they're very powerful. Okay, so first of all, about Toussaint, um, he was born-- The thing to understand about him is he, he was born a slave. And, but he wasn't just born a slave, he was born a slave, um, in the most brutal place to be a slave, uh, which was, uh, in kind of the, then the colony of, uh, Santo Domingo, you know, now referred to as Haiti. Um, but this was actually a much more severe form of slavery, as were kind of all the sugar-growing areas than even US slavery, which is historically a very brutal form of slavery. And just to give you some numbers on it, um, basically over the course of slavery, the, some, uh, like, 400 years, um, a million slaves were brought to the US, and at the end of slavery, there were four million slaves in the US. In that same period, to the sugar-growing countries in the Caribbean, two million slaves were brought over, and at the end of slavery, there were 700,000 left. So from just a quantitative perspective, like, nearly 10 times more brutal. Um, and, um, I'm gonna read this to you. I don't know if I quite have time, but I don't care. Um, so but just to, to give you an idea, this isn't just, like, a quantitative thing. Um, I'll read you sort of a, a, a description of slavery in T- uh, Toussaint's area. Whipping was interrupted in order to pass a piece of hot wood on the buttocks of the victim. Salt, pepper, citron, cinders, aloes, and hot ashes were poured into bleeding wounds. It's not to heal them. This is to make it worse. Mutilations were common. Limbs, ears, and sometimes private parts to deprive them of the pleasures which they could indulge without expense. Their masters poured burning wa- wax on their arms and hands and shoulders, emptied the boiling cane sugar over their heads, burning them alive, roasted them on slow fires, filled them with gunpowder and blew them up with a match, buried them up to their neck and smeared their heads with sugar that the flies might devour them, fastened them to the nest of ants or wasps and made them eat their excrement, drink their urine, lick saliva of other slaves. One colonist was known in moments of anger to throw himself on his slaves and stick his teeth into their flesh. So that's the slavery that he grew up in. Um, and it's really important to understand this because to get out of that perspective, um, was not easy. Um, but he had a vision, and his vision was kind of threefold. One, he wanted to end slavery. Two, he wanted to actually take control of the country and run the country. And thirdly, he wanted it to be a first-class, world-class

11. 29:18 – 32:49

    After victory: how Toussaint treated conquered enemies to build a better culture

    1. SPSpeaker29:18

       country, not just, like, something that, where he had freed the slaves, but something that could compete on a worldwide basis. And so that was his mindset going in, but that was the background that he came from. So example, management example one, conquering the enemy. So, uh, the kind of sequence of battles that occurred, um, in Haiti were first, you know, he had to kind of defeat the locals. Uh, but then he, once he defeated the locals, which is, th- there were several countries that were very, very interested in taking control of Haiti, principally Spain, uh, England, and France. Uh, so he had to defeat those armies as well. When he conquered them, um, he had to decide what to do with the kind of conquered soldiers and the leaders on the other side. And to do this, he really took into perspective, uh, kind of three different points of view. One, his soldiers' point of view. Two, the enemy's point of view. And finally, the point of view of the resulting culture. Like, what kind of country was he building? Because the army was gonna be the seed corn for the culture of the whole country.Um, so from the soldiers' perspective, and I get this, you know, do we get to pillage? Like, soldiers like to pillage. Um, they get stuff. It's something for their work. Um, and like, the second thing is, they're trying to kill us, so we should kill them. Like, that's a basic perspective of the people who are fighting for him, so the most important people to, to sign. Now, I put pillage up there and so a couple of things to note. One, I didn't put rape up there and very interestingly, like, not only did he, uh, not allow rape among his army, but he didn't even allow, uh, his officers to cheat on their wives. And if they did, he'd get rid of them because he was so concerned about the resulting culture. What was it gonna be? Was it gonna be productive? Was it gonna be best in world? Or was it gonna be something less than that? And so that's-- that was his mindset going in. His army was actually famous for not pillaging, so they were actually already used to this. They were famous for not pillaging, and this was, uh, one of the most surprising things to the conquered people, to the point where, um, in Haiti, he had a reputation where even the white people were like very impressed with him just because he would go in and go into their city and not pillage, even though he would win. Um, but again, this is because he took a long view of the culture. So... And this is a kind of important subtle point, um, which gets him to his conclusion, but he believed that the culture of Haiti, because it was a slave culture, sugar plantation culture, was just pretty low grade to what he had experienced in Europe, uh, when he dealt with the Europeans. And then he thought that slave culture was even more broken than Haitian culture because if you think about slave culture, it's like, uh, the kind of culture where, "Oh, you don't do what I tell you, I'm going to beat you to death. I'm gonna blow you up with gunpowder." If you think the kind of behavior that that-- then that ensues from that, that was the culture he knew he needed to replace. He nee- he knew he needed to upgrade. So his solution was when he conquered the British or he conquered the Spanish or he conquered the French, he would take the very best people from there and he would make them generals in his army. Uh, so, uh, you probably didn't expect that. [laughs] Like, so here are the guys trying to kill him. He's leading a slave revolution and he-- when he conquers the enemy, he actually m-- incorporates them into his army and makes them part of that because

12. 32:49 – 36:54

    What to do with slave owners: ending slavery without collapsing the economy

    1. SPSpeaker32:49

       he wanted the expertise and he wanted the-- he wanted the, um, culture to be at a much higher level. So the second question he had, this is even more complicated, what do you do with the slave owners? So you're leading a slave r- revolution. You take control of the country. What do you do with the slave owners? Three perspectives again. Um, so for the slaves, like, come on. Like, if you're a slave and you win the war against the slave owners, like, you want to kill them. There is no question. And not only do you want to kill them, but like, that's your land now. Like, we won. Like, F you. Um, from Toussaint's perspective, it was more complicated because he wanted Haiti to be a first world country, and sugar was really important. And the whole slave economy was a sugar economy. Then, right, like, on the other hand, he was a slave, and he's got to be pretty upset, particularly given the type of slavery. Um, then, uh, he had-- but he had to consider, like, he didn't know how to run a sl- a sugar plantation. Um, and then, like, he didn't have any business relationships on who to trade the sugar with. Um, but on the other hand, like, like war, like, you win the war, you get the land. Like, that's a pretty, like, basic rule. So what to do? Um, and then if you look at the slave owner perspective, it's pretty interesting because they're coming at it from the-- and this is the point of view that he actually had the discipline to understand. They were coming from a cost structure that was predicated on slave labor. So, like, their business didn't work without slave labor. Like literally, if they had to pay people, like, their cash flow wouldn't work. Um, they paid a lot of money for the slaves up front, and they paid a lot of money for the land. So in their mind, like, to run it, like, that was like, that's how business worked. Like, you can't just, you can't just, like, change the economics and have it still work. Um, and then they knew they had, like, some power because of the position they were in. Um, so what was the answer for the slave owners? So one, so his solution was like, one, I'm gonna end slavery. Two, I'm gonna let the slave owners keep their land. Three, I'm gonna m-make them pay their workers, so there no more slave labor. You have to have paid workers. But in order to fund that, I'm gonna lower their taxes. You guys ought to be kind of impressed with that. [laughs] Like, lower the taxes of the slave owners after you defeat the slave owners and, like, end slavery. Um, but he had a bigger goal. He wanted a stronger culture. The way he treated those slave owners, the, the need to keep the economy going was important. And then, like, let's look at the results. So first of all, it is, Toussaint's revolution is the only successful slave revolution in the history of mankind. There's never been another one. There may never-- Hopefully, we won't have slavery in a big way, and there won't be another one. So, like, he's it. Um, two, um, you know, the, the plantation owners kept their land. Three, he defeated Napoleon. Um, he had a booming economy and a world-class culture. Under Toussaint, uh, Haiti had more exports, export revenue than the United States. So that's how successful he was in the revolution. Um, and this is the power of looking at a situation not just from your point of view, but from the point of view of all the constituents, even the people you hate.Which is hard to do when you're a CEO, and harder to do, uh, when you're leading a revolution. Um, so just, like, in conclusion, the most important thing that you can learn as CEO, the one of the hardest things to do, is you have to discipline yourself to see your company through the eyes of the people that you're working through. Through the eyes of the employees, through the eyes of your partners, through the eyes of the people

13. 36:54 – 49:42

    Closing principle + Q&A: preserve dignity, manage stress, and practice the pause

    1. SPSpeaker36:54

       who you're not talking to and who are not in the room. Thank you. [clapping] And I'll take questions. Yes, sir.

    2. SPSpeaker37:06

       Suppose you had to demote a, uh, an executive in your company. What is the best way to handle the conversation with him or her, and how do you communicate the message to the rest of the employees, because they might be scared or so they can also suffer the same fate?

    3. SPSpeaker37:22

       Right. Right. So this is a great question.

    4. SPSpeaker37:24

       Can you also take the questions?

    5. SPSpeaker37:25

       Yes. So, um, the question is, so if you've gotta fire, demote an executive, one, how do you have the conversation? And then two, like, how do you explain it to everyone else? 'Cause like it's clearly some kind of failure. You failed on hiring, you failed on integrating, they failed at their job. Like some- like it's failure. Um, and so I would say, look, the first thing is, um, when firing the person, you have to really try to be honest. Um, and, you know, you're feeling like you failed, and I think a common reaction is like, th- then there's a couple common reactions. One is like, "You just suck," and like, so like, "I'm firing you. Screw off." That's not good, 'cause it's not really true. Um, it may be like, you know, y- you're feeling that way. And then another kind of common mistake is just to be like, um, you know, too mushy. "It's not you, it's me." And it, like, feels like some kind of weird breakup, uh, with an ex-boyfriend that you really didn't like. Um, ooh. But generally, look, when you hire people, like y- you try to hire the very best. And you hire people who are qualified to do the job, and generally, the reason that they fail in the job is you made some mistake in the hiring process, in that you didn't match them to the needs of your company accurately enough. That's the number one reason why this fails. And so that's generally a good place to start, to say, "Look, here's, here's how we are, and here's what I didn't recognize about us and about you when I made the decision, and now, like, it is what it is. Um, so we're gonna have to move on." Uh, and then when you talk to the employees about it, like this is, uh, and this gets different, which is, look, you can take somebody's job, you have to take their job, and this is something Bill Campbell taught me, but you don't have to take their dignity. And so it's not necessary to get up in front of the company and say, "I blew that motherfucker out. I capped his ass." [laughing] Um, in fact, it's not good, 'cause nobody feels good about that. Like, you know, you might feel like proud of yourself, but, like, nobody else feels good about that. You know, the right thing to do is just, like, thank them for their work. Like, let people know that they're moving on. Um, and you don't really have to explain all their personal details. It's more important to leave them with their dignity, uh, and, like, let them go on to live another day. Because, look, what you say at that meeting, that's their reputation, because everybody in your company's gonna get a call on that person when they try and get their next job. So if you start saying, like, a bunch of BS about them, like, that's not gonna be good. And it's not gonna get interpreted as, like, we screwed up. It's gonna get interpreted as, you know, he screwed up. And so they're kind of two different things. You have to be very honest with them, but you have to make sure you preserve their dignity when you talk to the company. Uh, yes, sir.

    6. SPSpeaker40:13

       So, um, I was reading your book yesterday, and, um, one, like I started getting heart palpitations because of-

    7. SPSpeaker40:20

       [laughs] Sorry about that

    8. SPSpeaker40:21

       ... yeah, with Cloud, Cloud and Opsware. And, uh, so one question for me, and I think for everyone is, how did you in particular deal with all the stress? Like, was it like meditating, hip-hop?

    9. SPSpeaker40:34

       [laughing]

    10. SPSpeaker40:34

        What did you do?

    11. SPSpeaker40:36

        So, so the question was, uh [laughs] how did, how did I deal with all the stress of, uh, being CEO? And the answer is, I, I used to be six foot four and good-looking.

    12. SPSpeaker40:46

        [laughing]

    13. SPSpeaker40:48

        So, so clearly not very well. Um, I, I get asked that a lot, and I, I really don't have a great answer for it. I mean, I think that the, um ... One, I have a wonderful wife who's sitting right here.

    14. SPSpeaker41:02

        Yay.

    15. SPSpeaker41:02

        So I'll say that. So if you're married to somebody- [clapping] If you're married to somebody who's supportive, that makes it like 1,000 times easier. If, if I did not, if I wasn't, uh, I would definitely probably be dead. Um.

    16. SPSpeaker41:17

        [laughing]

    17. SPSpeaker41:20

        But, but the one thing with stress is y- you've gotta keep your focus on what you can do, not what happened to you. Um, and that's a, it's a really hard thing to do, because it's constantly ... Again, people are always asking you about it, like, "What the fuck are we gonna do? We're gonna die. We're running out of cash. It's all gonna be over soon." Um, but you can't focus on that. You have to focus on, okay, like, what are my options? What can I do, and where can I go? And the better th- that you are at that, the kind of higher your chance of, for success. Yes, sir.

    18. SPSpeaker41:52

        How did Toussaint get the French generals to work for him? Like, what was his pitch?

    19. SPSpeaker41:56

        Oh, so th- so this is great question. How did Toussaint get the French generals to work for him? And the reason was they were so shocked that he didn't kill them. Because he was like, "We're ..." They, their perspective is, "We're fighting the slave army. We're fighting the savage army. Um, they're gonna kill us." And so when he said, "Look, we're not gonna kill you," that was such a shock to their system that it completely reoriented their whole way of thinking, and they actually became much more loyal to him than they ever were to France. Um, and he actually borrowed that technique, interestingly, from Julius Caesar, who he had studied. Um, he was a very unusual slave in the sense that, um, his, his ownerRecognized how smart he was and put him in the library because he wanted Toussaint to eventually run the plantation for him. And so the person that he studied most of all in his master's library was Julius Caesar. And so he borrowed that technique from him, but applied in a much kind of more dramatic context. Uh, and so his army was [laughs] kind of, he had British, um, French, um, Spanish slaves, um, and mulattos who, most of the mulattos in Haiti at that time were pro-slavery. Um, so that was another issue. But he, his leadership was so great everybody wanted to join him. Uh, yes?

    20. SPSpeaker43:19

        How do you, uh, incorporate that same ideology in people who were, um, previously against you on your side?

    21. SPSpeaker43:26

        Yeah, so [laughs] you know, and it, it's, um, different in different ways, but a lot of it, you know, his whole strategy, and, and like I'm sorry, the question was, how do you, um, uh, get people, how do you incorporate Toussaint's ideology and get people who, who were previously against you on your side? And I would just say, like, what he did, uh, in general is, is the right thing, which is to bas- basically, you have to show them a better way. Um, you know, as a leader, if somebody's your enemy and you need to convert them over, and this happens in business too, where, like, somebody's like at a competitor or something and you want to bring them over, but you want to bring them over, you know, you don't want to bring the, the, bring all the unethical people who will switch competitor to competitor over. And it really is, like, your culture has to be elevated, your mission has to be elevated, your way of doing things has to be just better. Uh, and that was the thing that was so compelling, um, for, for the other rest of the army. Yes.

    22. SPSpeaker44:23

        So going off of your last answer, actually, I'm curious as to sort of like Andreessen-Horowitz, like the VC that you founded or co-founded, how have you built like a culture around people and along the entrepreneurs that you work with that has sort of differentiated you in the market from all other VCs?

    23. SPSpeaker44:36

        Um, probably not the best question for me. [laughs] I could ask Sam that. I don't know. Uh, so the question is, you know, have we built a culture at Andreessen-Horowitz that has differentiated us from all other VCs? I feel like, um, you know, th- that's certainly the goal, and, you know, we've been around for five years now. And, uh, you know, the, the, the attempt that we made at it, um, and, you know, it's for the rest of the world to judge if we succeeded, was basically this, that, um, you know, in the old days of VC, [laughs] when I was an entrepreneur, the basic idea was, like, you'd have an entrepreneur and an inventor, um, and they'd get a company to a point, and then at that point, they'd either be, like, ready to be CEO, or you would go find a CEO to replace them and build, quote unquote, the company. Um, our kind of cultural philosophy was, look, the founder inventor is special, um, so we're gonna design the firm and the culture of the firm to help the founder develop into a CEO. And so we do a, a lot of systematic things different. Um, the two biggest are, one, all of our partners are kind of founders, CEOs, um, so that you get somebody who, our original motto was some experience required. Um, that's a joke. [laughs]

    24. SPSpeaker45:54

        [laughs]

    25. SPSpeaker45:54

        If you were gonna adv- advise the CEO, you have to have kind of been a CEO. Imagine that. Um, that's why I like Sam. He used to be a CEO. He doesn't talk about it that much, but he, he was a CEO, and good at it. Um, and then, uh, the second part is that a professional CEO would bring in in the old days is, is a network of just tons of people that he would know from, like, all kinds of, you know, guys who, who bought technology at big corporations to, um, like, important partners in the field, like guys like Google and Facebook to, uh, you know, people in the press that, that, uh, he or she might know, and so forth. And so we try to basically build that network on your behalf, uh, at the firm, and we probab- I, I think we do a better job of that than anybody else. So that, those are the way that, that, that we try to be different.

    26. SPSpeaker46:40

        Oh, one more question.

    27. SPSpeaker46:41

        Yes, one more question. Yes. The front row.

    28. SPSpeaker46:43

        So it seems like, um, putting yourself in other people's shoes is very important in management. So can you give us some tips to do it in daily life?

    29. SPSpeaker46:54

        Yeah. So-

    30. SPSpeaker46:55

        How can we give, like, for other people?

Episode duration: 49:42