
Lecture 15: How to Manage - betadreamer
http://startupclass.samaltman.com/courses/lec15/
======
rajens
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enjoyed his historical reference to Touissaint L’Ouverture.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...](https://medium.com/how-to-start-a-startup/21-quotes-from-ben-horowitz-
on-how-to-manage-de44b5dd3015)

------
etrautmann
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

~~~
jonalmeida
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
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.

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fr11
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.

~~~
danieltillett
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.

------
hidemark
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.

------
AndrewKemendo
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...](http://www.angelcapitalassociation.org/data/Documents/Resources/AngelCapitalEducation/ACEF_-
_Valuing_Pre-revenue_Companies.pdf)

[2][https://hbr.org/2011/12/first-lets-fire-all-the-
managers/ar/...](https://hbr.org/2011/12/first-lets-fire-all-the-
managers/ar/1)

~~~
nostrademons
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.

~~~
AndrewKemendo
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...](http://exiledonline.com/confessions-of-a-wall-st-nihilist-forget-about-
goldman-sachs-our-entire-economy-is-built-on-fraud/)

~~~
nostrademons
Ah, I see. I misunderstood you.

I think that there is some element of truth to that, for _some_ people.
Remember that VC is first and foremost a financial profession: they have a
fiduciary duty to their LPs to get the highest returns possible. They invest
in a different asset class, but they are money managers responsible for
allocating capital to the teams most likely to make good use of it.

I also think that there are some founders who are clearly in it for the money
as well. Probably moreso of late, with the gold rush mentality these last
couple years.

I'd disagree that this is everyone. I think that there are still a large
number of founders around who genuinely want to change the world. Many of them
are not seeking venture capital, or if they are, they are getting turned down.
But I also think that among this population, _VCs_ are seen as the commodity,
a resource to be used when their startup has proven itself and needs to scale.
Sam Altman used to say many things to this effect, back when he was on the
entrepreneur side of the table.

One of the most illuminating quotes was something I read in Dale Carnegie, to
the effect of "The guy you're holding a conversation with probably thinks
himself superior to you. Let him. You have nothing to lose and everything to
gain from maintaining this illusion." It made it clear that there's nothing
wrong with different people having different perspectives on who's got the
higher status in the relationship, or, more cynically, on who's using whom. In
fact, the world runs on this status ambiguity - nobody would ever do a deal in
which they think they are going to get screwed, so the only reason we have any
commerce at all is for both parties to believe they are the ones getting the
better end of the deal. We wouldn't be able to function without Lake Wobegone.
(There's another interesting psychological finding where the only people with
a realistic self-image are clinically depressed; apparently, if you _lack_
this inflated sense of self-worth, it really does make you unable to
function.)

~~~
AndrewKemendo
_" The guy you're holding a conversation with probably thinks himself superior
to you. Let him. You have nothing to lose and everything to gain from
maintaining this illusion."_

I would agree if there was some equality between who is getting shafted. SV is
replete with examples of founders or employees getting screwed over and burned
up by contract clauses or other financial shell games.

~~~
whatusername
As an outsider -- isn't SV also full of failed investments and the like?
Perhaps not deliberate screwing over - but I thought the figure was something
like 2 in 10 actually making a ROI.

(Perhaps it comes down to the old tale of the pig and chicken making
breakfast. The chicken can always make more eggs.... The pig not so much)

------
rdlecler1
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
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.

------
fsloth
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.

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

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

------
NhanH
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)?

~~~
nostrademons
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.

------
chasb
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
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.

------
danieltillett
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](http://en.wikipedia.org/wiki/Toussaint_Louverture)

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

~~~
Jemaclus
Transcription takes effort and isn't instantaneous.

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

------
coppolaemilio
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.

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

