Posts from Ben Horowitz

Coming Of Age

I’m out here slingin bringin the drama,
tryin to come up in the game
and add a couple of dollar signs to my name
– Memphis Bleek Coming Of Age by Jay-Z

I'm not going all Ben Horowitz on you. But imitation is the finest form of flattery and I do like how Ben rolls on his blog and in the venture capital business.

I'd like to talk this morning about how hard it is the come up in the venture capital game. I work with a bunch of VCs who are in their early 30s and have less than five years in the business. They work hard, put in ridiculous hours, are on top of all the latest trends, companies, technologies, etc. They meet with tons of companies every week, work hard for their portfolio companies, and are on planes flying around to the important confereneces and demo days. I can assure you they are working harder than I am.

But when it comes to winning deals, they have a distinct disadvantage. They can be working on a deal for a year or more, and then when the entrepreneur decides to raise funds, a more experienced VC such as myself can swoop in, spend a week or two building a relationship with an entrepreneur, and take the deal away from them. I've seen it happen. I've done it myself.

They make rookie mistakes. They let a reporter hang out with them for a week thinking they can trust them. They talk when they should be listening. They overpay for deals thinking that will win the deal for them. They use their phones in board meetings. They fight with entrepreneurs over meaningless things.

When I see these things I cringe. Because I've been there and done that. I spent the first ten years (maybe 15) of my time in the venture business as a young VC trying to make it in the game and not really knowing how. I've made all of these rookie mistakes and more. I feel for them, I often mentor them, and I really enjoy working with young VCs.

When a young person asked me about getting in the venture capital business, I advise them not to. I think VC is an experienced person's game. Startups are not so much. Startups are a great place to be in your 20s and 30s. VC is a great place to be in your 40s and 50s.

I look at Ben and his partner Marc and think "they did it right." They got into the venture capital business when they had all the experience one could ever want working with startups. They don't lose deals to more experienced VCs. They win deals over more experienced VCs.

But of course many young VCs made the decision to get in the game at an early age and are committed to making it work. They are going to have to take their lumps. Make the mistakes. Learn from them. Continue to work harder for less results to show for it. And lose deals they should win.

One of the things I did not do very well that many of these young VCs are doing much better is building relationships with more experienced VCs. As I said, I work with a bunch of them. Teaming up with a more experienced VC can help you win a deal, you can learn from them in the board room, and you can ask them for advice when you screw up.

Going back to where we started this post to end it, I like how Jay-Z and Memphis Bleek partner up in Coming Of Age. That's the way to do it.

[JZ] Hahahh I like your style
[MB] Nah, I like YO’ style
[JZ] Let’s drive around awhile

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Ben Horowitz On The Psychology Of Being CEO

Every once in a while I come across a blog post that so totally nails something and I am reminded why professionals blogging about their craft is such an important development in the world of media. Yesterday Ben Horowitz posted about the psychology of being CEO. He starts with this observation:

very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown

Ben goes on to observe that:

building a multi-faceted human organization to compete and win in a dynamic, highly competitive market turns out to be really hard. If CEOs were graded on a curve, the mean on the test would be 22 out of a 100. This kind of mean can be psychologically challenging for a straight A student. It is particularly challenging, because nobody tells you that the mean is 22

I have never been a CEO. I don't think I would be a very good CEO. I have observed hundreds of CEOs from up close in my career from a perspective that is fairly unique and revealing. I have great empathy for the people who find themselves in this job. It is hard, lonely, and as Ben points out – it can really mess with the mind.

Ben goes on to identify a number of tools he used to help him manage the psychological challenges of the job.

If you are a CEO, work closely with CEOs, are married or in a serious relationship with a CEO, sit on Boards where a CEO is accountable to you, or if you want to be a CEO, the post is a must read.

I'd like to thank Ben for writing it and breaking "the first rule of CEO psychological meltdown."

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The Fat Vs Lean Debate

Ben Horowitz and I debated Fat Vs Lean on stage at TechCrunch Disrupt yesterday morning. At the end, Erick Schonfeld asked for a show of hands and there was overwhelming support for my argument in favor of lean.

But to be honest, I had the easy task. Arguing for lean startups in front of a web crowd is like arguing for smaller government in front of a bunch of republicans. Not much argument there.

I think Ben did a great job making the contrarian argument in front of a dubious crowd. And he got in the best one liner for sure when he accused my math heavy argument of taking “all the joy out of being an entrepreneur.”

I know the Kid likes to see blog beefs, but there really isn’t one between me and Ben. He’s such a smart person and very easy to get along with. No wonder he was a great CEO before becoming a VC. I am sure he’ll be a great one.

So, all that said, here is the debate.

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That Person Won't Scale

One of the best things to happen to startup land this spring is the arrival of Ben Horowitz as a serious blogger. Like his partner Marc Andreessen, Ben has a ton of great experiences to share and he is doing just that right now.

I particularly like his post on evaluating whether an executive "will scale." Ben writes:

evaluating people against the future needs of the company based on a theoretical view of how they will perform is counter-productive

I see this all the time in VC and startup land. An entrepreneur will come into our office and we will be discussing him or her after they leave. Someone will ask "will they scale into a big company CEO?" The answer as Ben points out so well is "who knows?"

Ben also points out that managing a lot of people well is a learned skill:

Managing at scale is a learned skill rather than a natural ability. Nobody comes out of the womb knowing how to manage a thousand people. Everybody learns at some point.

This is why I am a huge fan of getting mentors on the board and CEO coaches into the picture. Good VCs will try to help an entrepreneur "scale" but there is always going to be a tension between the investor and the entrepreneur and it is a good idea to get some other people involved if the entrepreneur wants to "scale" into a leader of hundreds or thousands.

The next time I hear someone says "that person won't scale" I am going to send them to read Ben's post.

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Being Fat Is Not Healthy

Ben Horowitz has a post called The Case For The Fat Startup on the All Things D blog. I don't agree with Ben's take on this issue but I have enormous respect for Ben and his partner Marc Andreessen. They have started and built multiple successful businesses and all I do is write checks. So take everything I have to say with that in mind.

I'd also like to say that my comments are only related to software-based businesses. I don't think it is applicable to greentech or biotech. Those sectors are much more capital intensive than software.

In short, since I started investing in the web in '93/'94, I have invested in about 100 software-based web companies. And the success rate of fat companies versus lean companies is stark. I have never, not once, been successful with an investment in a company that raised a boatload of money before it found traction and product market fit with its primary product.

Boatload is a subjective term. So is traction. So is product market fit. And so is successful. So let me try to define them in the way that I think about them. A boatload of cash is more than $20mm of invested capital. A boatload of cash is monthly burn rates of tens of millions of dollars. Traction and product market fit are customers or users buying or using your product in droves. It is the realization that you've found the sweet spot of the market you were going for. And successful is an investment that pays out multiples of the dollars we invested in it. Getting our money back is not successful in my book. Getting three times our money back is good. More than that is great.

Let me say it again. I have never been involved in a successful software-based web service that raised and spent boatloads of money before it found it's sweet spot. But it has happened. The Loudcloud story that Ben lived and tells in the All Things D post is proof that it can happen.

You can also win the lottery. The odds aren't great that you will. But millions of people play it every day. I don't.

The very best investments that I have been involved in established product market fit before raising a lot of money. That's how Geocities did it. That's how Twitter did it. That's how Zynga did it. That's how every single one of my top twenty web investments in my career did it.

Many of them also went on to raise and spend a boatload of money on the way to getting profitable. Not all of them needed to do that. But the thing that is true about every single one of the twenty most successful web software investments I've been involved in is that they had significant user or customer adoption before ramping up hiring and spend.

I think there are a number of reasons why that is true. Although Loudcloud was able to reinvent itself with hundreds of engineers on the payroll, I think it is very hard to be nimble and quick when you have hundreds (or even dozens) of engineers and other employees. It helps to be lean and agile when you are trying to fit your product to the market. It is also nearly impossible to pull off the kind of funding history that Loudcloud pulled off when you are not successful with your initial product. Ben explains that Loudcloud raised $350mm in four rounds of financing (including an IPO) in the first 15 months of its life. Marc Andreessen and Ben Horowitz can do that. Most of you can not.

All of this said, I think Ben does a service to point out that raising a lot of cash and making a large investment in the business is a big positive. But in my opinion you only want to do that once you are 100% sure and have ample evidence that your product has hit its stride, you've got yourself in the place you want to be in your market, and you can raise the capital without taking much dilution. If all of those boxes are checked yes, then go for it. But please spend it wisely.

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