Book Overview: "The Hard Thing About Hard Things"

Gianfranco BazzaniAugust 15, 202666 min read

by Ben Horowitz For the past three years I've been working at a growth-stage technological company, one where the business model had already been validated by revenue and by multiple players in the market. I moved through diverse roles during that time, but I kept wondering about the stage I never witnessed: that embryonic phase where founders still have to build a story from nothing and convince people to help them construct it, sell it, and buy it. The Hard Thing About Hard Things by Ben Horowitz gave me exactly that. It helped me understand processes embedded in my day-to-day job and executive decisions that I had never understood before - processes that, naively, once seemed nonsense to me. What follows is my compilation of practical notes extracted from the book. This is not a cooking recipe for how to build and scale a company following a happy path; it's a series of practical learnings that can help founders navigate the hard situations that inevitably occur in startups, drawn from Ben Horowitz's experience in his journey as CEO. As Ben himself puts it: "I can relate to what they're going through, but I cannot tell them what to do. I can only help them find it in themselves. And sometimes they can find peace where I could not."

About The Author

Ben Horowitz is a technology entrepreneur and investor, best known as the co-founder and general partner of Andreessen Horowitz (a16z), one of Silicon Valley's most influential venture capital firms. He holds a BA in Computer Science from Columbia University and an MS in Computer Science from UCLA. His career began as an engineer at Silicon Graphics, followed by Netscape, where he rose to run the company's server products division and worked closely with Marc Andreessen. In 1999, the two co-founded Loudcloud, one of the first cloud computing companies. After nearly dying during the dot-com crash, the company pivoted into a software business, Opsware, which Horowitz led as CEO until its sale to Hewlett-Packard in 2007 for $1.6 billion. That eight-year survival story is the backbone of this book. In 2009, Horowitz and Andreessen founded a16z, which has backed companies such as Facebook, Airbnb, GitHub, and Coinbase.

What Are The Hard Things?

The Struggle

The Struggle is the psychological abyss a founder falls into when the vision they started with collapses into its opposite - when, as Ben puts it, "your dreams turn into nightmares." The Struggle is where the greatness comes from, not failure itself, but the pressure that produces failure in the weak and greatness in those who survive it. There is no answer to the Struggle, but Ben lists some things that help:

The CEO should not put it all on her shoulders: Things that bother the more responsible the most won't upset other less responsible people more. Nobody feels the struggle more than the CEO. She won't be able to share every burden, but she should share what she can. The CEO should get the maximum number of brains on the problems even if they are existential threats.
This is not checkers, this is chess: Technology businesses tend to be extremely complex. It is like playing three-dimensional chess on Star Trek, there is always a move.
Play long enough and the CEO might get lucky: Tomorrow looks nothing like today, if a company survives long enough to see tomorrow, it may bring the answer that seems impossible today.
The CEO should not take it personally: Every CEO makes thousands of mistakes. Evaluating herself and giving herself an F doesn't help. Everybody makes mistakes.
The CEO should remember that this is what separates the women from the girls: If one wants to be great, this is the challenge. If someone doesn't have the ambition to be great, then she never should have started a company.

Speak Direct And Straight

Horowitz points out that his biggest personal improvement as CEO occurred when he stopped being too positive. I can directly relate to this, as I have personally been working for some time with an overly positive manager, beneath whose positivity deeper organizational and technical problems in my team stayed hidden. The author calls this phenomenon the Positivity Delusion. The CEO actually takes bad news hardest and so is not best able to handle it. Engineers easily brush off things that could keep the CEO awake all night. If things went horribly wrong, they could walk away, but the CEO cannot. As a consequence, employees are under less psychological pressure and handle losses much better. Instead of being overly positive about problems to try to keep employees relaxed, a much better idea would be to give the problems to the people who could not only fix them, but who would also be personally excited and motivated to do so. There are three key reasons for being transparent about problems:

Trust: In any human interaction, the required amount of communication is inversely proportional to the level of trust.
The more brains working on the hard problems, the better: It's a total waste to have lots of big brains but not let them work on the company's biggest problems.
A good culture spreads bad news fast: A healthy company culture encourages people to share bad news. A company that discusses its problems freely and openly can quickly solve them. A company that covers up its problems frustrates everyone involved.

The CEO will experience overwhelming psychological pressure. Ben advises the CEO to build a culture that rewards, not punishes, surfacing problems, and to beware of maxims like "don't bring me a problem without a solution" that choke off information flow. This will help to quickly spread issues among different stakeholders that can actually solve them and relieve the CEO of some of this pressure.

Laying Off People

Ben's point is that his company defied Doug Leone's observation that firms almost never survive three consecutive layoffs with a billion-dollar outcome. It succeeded because it laid people off "the right way" following a series of steps:

Get her head right: The CEO should focus forward despite the emotional weight and personal blame.
Don't delay: Minimize time between decision and execution to prevent leaks and manager dilemmas.
Be clear why: The CEO should not try to make herself feel better by putting a positive spin on things. The message is that the company failed to hit plan. Company performance failed, not individual performance. The message must be: "The company failed, and in order to move forward, we will have to lose some excellent people." A layoff breaks the employees' trust in the CEO, and she must come clean to rebuild it.
Train the managers: The golden rule is managers must lay off their own people; prepare managers with the reason, non-negotiability, and benefit details. The reputations of a company and its managers depend on facing the employees who trusted them and worked hard for the company. The managers should be prepared for the task and (1) explain briefly what happened and that it is a company rather than a personal failure, (2) Be clear that the decision is non-negotiable, (3) be prepared with all the details about the benefit and support plans the company will provide.
Address the entire company: The CEO should give context and air cover for the managers. Many of the people who are being laid off will have relations with the people who stay so the message is for the people who stay. Still, the company must move forward, so the CEO should be careful to not apologize too much.
Be visible, be present, be engaging: People will want to see the CEO and whether she cares. She should talk to the people, help them carry their things to their cars, and let them know she appreciates their efforts.

Fire an Executive

It turns out that the actual act of firing an executive can be relatively easy compared with any other firing. Executives have experience being on the other side of the conversation and tend to be quite professional. In this case as well there are a few steps to do it in "the right way":

Root cause analysis: The first step to properly firing an executive is figuring out why the wrong person has been hired for the company. A few example reasons could be: the position was defined poorly in the first place, the executive was hired for lack of weakness rather than for strengths, the executive was hired for scale but too soon, the position was generic, the executive had the wrong kind of ambition, the company failed to integrate the executive. There are some special cases of scaling and fast growth, that the book highlights. Running a two‑hundred person global sales organization is not the same job as running a twenty‑five person local sales team. If the person that runs the twenty‑five person team does not learn how to run the two‑hundred person team, there will be the need to hire the right person for the new job. If the product is great and the market wants it, there will be a need to grow the company extremely quickly. To do so, the right kind of fast‑growth executives will be required, but they should not be hired if the company is not ready to give them lots of budget to grow their organization.
Informing the board: Informing the board is tricky and many issues can make it more complex, for example: This is the fifth or sixth executive being fired, this is the third executive being fired for the same role, the candidate was originally referred by a board member who recommended the executive as a superstar. In any case the board should be informed individually, not board-meeting drama; goals are support/understanding and making sure that a mitigation for the situation is planned, approval of a severance package, and preserving the executive's reputation.
Preparing the conversation: The CEO should script it, be clear on reasons, use decisive language ("I have decided") and have severance ready. The conversation won't be a negotiation, according to Bill Campbell's rule "you cannot let him keep his job, but you absolutely can let him keep his respect."
Company communication: The company should be informed in the correct order (1) executive's direct reports first, (2) then staff, (3) then the whole company, all the same day; CEO and executive team should stay positive and don't throw the executive under the bus. If the executive leaving is trashed, the best employees are on notice that they are next.

Demoting a Friend

The first question that always comes to mind is, "Do I really need to do this?". Sadly, anyone asking it very likely already knows the answer. Other employees have to be considered first, and then the loyal friend. Two powerful emotions will be experienced by the one being demoted: embarrassment (how they explain it to family/colleagues) and betrayal (you're selling me out). Therefore, the CEO should get comfortable with the possibility that they quit, so if the company can't afford to lose them, the change can't be made. The keys to face the conversation are to use decisive language, admit reality, acknowledge contributions and ideally couple the demotion with a compensation increase to signal ongoing value.

Lead Bullets

When facing an existential product problem, the organization desperately looks for escape hatches (go down-market, acquire, change channel) instead of fighting. If it's not a market problem (customers are buying, just not the company's product), Ben's advice is not to pivot but to build a better product. There are no "silver bullets," only hard work and "lead bullets." "If our company isn't good enough to win, then do we need to exist at all?"

At The End Nobody Cares

All mental energy used to elaborate misery would be far better used trying to find the one seemingly impossible way out of the mess. A great excuse won't save a dollar, a job, or a customer, therefore zero time should be spent on what the company could have done. Because in the end, nobody cares, a CEO should be focused on running the company.

Take Care Of The People First, the Products, and the Profits

"We take care of the people, the products, and the profits - in that order." - Jim Barksdale

A good place to work

As organizations grow large, important work can go unnoticed, the hardest workers can get passed over by the best politicians, and bureaucratic processes can choke out the creativity and remove all the joy. If a company is a good place to work it may live long enough to find the glory. In good organizations people can focus on work and trust that doing it well brings good outcomes; in bad ones they fight boundaries, infighting, and broken processes while management ignores problems. When things go well, many reasons keep people (career, résumé, money); when things go poorly, the only thing keeping a good employee is that she likes her job. Things always go wrong, no company has a monotonically rising stock price; in tech, employee flight triggers a value/talent death spiral that is very hard to reverse. Being a good company is an end in itself.

Startups Should Train Their People

There are four core reasons why a company's talent base should not be built solely through the recruiting and interview process:

Productivity: Training is one of the highest-leverage activities.
Performance management: Training sets the baseline expectations against which a manager can fairly manage/fire.
Product quality: Untrained new engineers turn elegant architecture into a Frankenstein.
Employee retention: Exit interviews show people quit because they hate their manager or aren't learning.

What To Train First?

Ben recommends starting with functional training, that is, job-specific knowledge and skills tailored to a specific job. The CEO should enlist the best experts on the team. Another essential component is management training. The managers should be trained on expectations for one-on-ones, feedback, objectives, and conflict resolution. Training must be mandatory; the CEO should enforce functional training by withholding new-hire requisitions until a training program exists, and enforce management training by teaching the expectations course herself. Once the essential components of company training are in place, there are other opportunities as well. Training topics such as negotiation, interviewing, and finance will enhance the company's overall competency in those areas as well as improve employee morale.

Good Product Manager

A good product manager knows the market, the product, the product line, and the competition extremely well and operates from a strong basis of knowledge and confidence. A good product manager is the CEO of the product. In the book, Ben reproduces his "Good Product Manager/Bad Product Manager" piece. Below is a list of the best practices of an excellent Product Manager:

Good product managers don't get all of their time sucked up by the various organizations that must work together to deliver the right product at the right time.
Good product managers are the marketing counterparts to the engineering manager.
Good product managers crisply define the target, the "what" (as opposed to the "how") and manage the delivery of the "what".
Good product managers create collateral, FAQs, presentations, and white papers that can be leveraged by salespeople, marketing people, and executives.
Good product managers anticipate the serious product flaws and build real solutions.
Good product managers take written positions on important issues.
Good product managers focus the team on revenue and customers.
Good product managers define good products that can be executed with a strong effort.
Good product managers think in terms of delivering superior value to the marketplace during product planning and achieving market share.
Good product managers decompose problems.
Good product managers think about the story they want written by the press.
Good product managers ask the press questions.
Good product managers assume members of the press and the analyst community are really smart.
Good product managers err on the side of clarity.
Good product managers define their job and their success.
Good product managers send their status reports in on time every week, because they are disciplined.

Bringing Execs Into Little Companies

Execs who've "been there, done that" will provide the right financial, sales, and marketing expertise to help the company transition from a world-class product to a world-class business. Nonetheless, the most important thing to understand is that the job of a big company executive is very different from the job of a small company executive. Most skilled big company executives will say that if a company runs more than three new initiatives in a quarter, it is trying to do too much. Big company executives tend to be interrupt-driven. However, for a startup executive, nothing happens unless she makes it happen. In the early days of a company, she has to take eight to ten new initiatives a day or the company will stand still. There is no inertia that's putting the company in motion. Without massive input from the exec team, the company will stay at rest. Ben warns that when hiring executives from big corporations, the CEO could face these two dangerous mismatches:

Rhythm mismatch: The executive has been conditioned to wait for interruptions. In a startup, he will be waiting a long time while the other employees become suspicious.
Skill set mismatch: Running a large organization requires very different skills than creating and building one. Large organizations require complex decision-making, prioritization, organizational design, process improvement, and organizational communication. When the organization is being built, there is no organizational design, there are no processes to improve, and communication is very simple. Additionally, the exec is required to run a high-quality hiring process, have very good domain expertise, know how to create processes from scratch, and be creative about initiating new directions and tasks.

Ben identifies two key steps to avoiding a disaster:

Screen for mismatches in the interview process:
Take integration as seriously as interviewing:

The following questions in the interview process can help the CEO filter for the right candidates:

"What will you do in your first month on the job?": Beware of answers that overemphasize learning, the candidate may think the startup is as complex as his current organization. Beware of any indication that the candidate needs to be interrupt-driven rather than setting the pace personally. The interruptions will never come. Look for candidates who come in with more new initiatives than seem possible. This is a good sign.
"How will your new job differ from your current job?": Look for self-awareness of the differences here. Beware of candidates who think that too much of their experience is immediately transferable.
"Why do you want to join a small company?": Beware of equity being the primary motivation. One percent of nothing is nothing. That's something big company executives sometimes have a hard time understanding. It's much better if they want to be more creative. A desire to do more creating is the right reason to want to join the company.

Once hired, the CEO should plan to spend a huge amount of time integrating the new executive.

Force them to create: Give them monthly, weekly, and even daily objectives to make sure that they produce immediately.
Make sure that they "get it": Content-free executives have no value in startups. Every executive must understand the product, the technology, the customers, and the market. The CEO should force the newbie to learn these things.
Put them in the mix: Make sure that they initiate contact and interaction with their peers and other key people in the organization. Give them a list of people they need to know and learn from. Once they've done that, require a report from them on what they learned from each person.

If the CEO Has Never Done the Executive's Job, How Does She Hire Somebody Good?

With no experience, how does a CEO hire someone good? Step 1: Know what she wants. "If you don't know what you want, the chances that you'll get it are extremely low." First, the CEO must realize how ignorant she is and resist the temptation to educate herself simply by interviewing candidates. She should be clear in the expectations for this new hire. What will they do in the first thirty days? What does she expect their motivation to be for joining? Does she want them to build a large organization right away or hire only one or two people over the next year? Ben warns against the following mistakes during executive interviews:

Hiring on look and feel: Look and feel are the top criteria for most executive searches; nonetheless, if the CEO knows what she wants, this could be mitigated.
Looking for someone out of central casting: Looking for the ideal abstract executive is a bad idea, as the imaginary model is almost certainly wrong. The right person for the company at this point in time should be hired instead.
Valuing lack of weakness rather than strength: The more experience a CEO has, the more she realizes that there is something seriously wrong with every employee in any company. Nobody is perfect (the CEO neither).

Step 2: Run a process that figures out the right match. The CEO should write down the strengths she wants and the weaknesses that she is willing to tolerate. Will the executive be world-class at running the function? Is the executive outstanding operationally? Will the executive make a major contribution to the strategic direction of the company? This is the "are they smart enough?" Will the executive be an effective member of the team? Generally, operational excellence is far more important for a VP of engineering or a VP of sales than for a VP of marketing or a CFO. Develop questions that test for the criteria. By writing down questions that test for what she wants, the CEO will get to a level of specificity that will be extremely difficult to achieve otherwise. Assemble the interview team. The CEO needs to define who will best help her figure out whether the candidate meets the criteria, and the team that will support the decision once the executive is on board. Group one will help her determine the best candidate, and group two will help her gauge how easily each candidate will integrate into the company. The references need to be checked against the same hiring criteria that the CEO tested for during the interview process. Backdoor reference checks can be an extremely useful way to get an unbiased view. However, do not discount the front-door references, the CEO is not looking for positive or negative with them. Step 3: Make a lonely decision. Despite many people being involved in the process, the ultimate decision should be made solo. Consensus decisions about executives almost always sway the process away from strength and toward lack of weakness.

When Employees Misinterpret Managers

Metrics are incentives. By measuring quality, features, and schedule and discussing them at every staff meeting, the people focused intensely on those metrics to the exclusion of other goals. The metrics sometimes do not describe the real goals and distract the team as a result. It's important to supplement a great product vision with a strong discipline around the metrics, but if a manager substitutes metrics for product vision, she will not get what she wants. Some things that a manager wants to encourage will be quantifiable, and some will not. If she reports on the quantitative goals and ignores the qualitative ones, she won't get the qualitative goals, which may be the most important ones.

Management Debt

Like technical debt, management debt is incurred when a CEO makes an expedient, short-term management decision with an expensive, long-term consequence. Like technical debt, the trade-off sometimes makes sense but often does not. Ben lists three of the more popular types among startups:

Putting two in the box.
Overcompensating a key employee because she gets another job offer.
No performance management or employee feedback process.

Management Quality Assurance

A good quality assurance organization cannot build a high-quality product, but it can tell the CEO when the development team builds a low-quality product. Similarly, a high-quality human resources organization cannot make the company a well-managed company with a great culture, but it can tell the CEO when she and her managers are not getting the job done. The best way to approach management quality assurance is through the lens of the employee life cycle:

Recruiting and Hiring

Does the company sharply understand the skills and talents required to succeed in every open position?
Are the interviewers well prepared?
Do the managers and employees do an effective job of selling the company to prospective employees?
Do interviewers arrive on time?
Do managers and recruiters follow up with candidates in a timely fashion?
Does the company compete effectively for talent against the best companies?

Compensation

Do the benefits make sense for the company demographics?
How do the salary and stock option packages compare with the companies that compete for the same talent?
How well do the performance rankings correspond to the compensation practices?

Training and Integration

When the company hires an employee, how long does it take her to become productive from the perspective of the employee, her peers, and her manager?
Shortly after joining, how well does an employee understand what's expected for her?

Performance Management

Do the managers give consistent, clear feedback to their employees?
What is the quality of the company's written performance reviews?
Did all of the employees receive their reviews on time?
Does the company effectively manage out poor performers?

Motivation

Are the employees excited to come to work?
Do the employees believe in the mission of the company?
Do they enjoy coming to work every day?
Does the company have any employees who are actively disengaged?
Do the employees clearly understand what's expected of them?
Do employees stay a long time or do they quit faster than normal?
Why do employees quit?

What Does a Great Head of HR Look Like?

In order to comprehensively and continuously understand the quality of the management team, the company should look for a person with the following key requirements:

World-class process design skills. Much like the head of quality assurance, the head of HR must be a masterful process designer.
A true diplomat. Nobody likes a tattletale and there is no way for an HR organization to be effective if the management team doesn't implicitly trust it. Managers must believe that HR is there to help them improve rather than police them. It will work directly with the managers to get quality up and only escalate to the CEO when necessary.
Industry knowledge. Compensation, benefits, best recruiting practices, etc. are all fast-moving targets. The head of HR must be deeply networked in the industry and stay abreast of all the latest developments.
Intellectual heft to be the CEO's trusted adviser. None of the other skills matter if the CEO does not fully back the head of HR in holding the managers to a high quality standard.
Understanding things unspoken. When management quality starts to break down in a company, nobody says anything about it, but super-perceptive people can tell that the company is slipping. The company needs one of those.

Concerning the Going Concern

As a company grows, it will change. No matter how well the CEO sets the culture, keeps the spirit, or slow-rolls the growth, the company won't be the same when it's one thousand people as it was when it was ten people. But that doesn't mean that it can't be a good company when it reaches 1,000, 10,000 or even 100,000 employees. Making it good at scale means admitting that it must be different and embracing the changes that the CEO will need to make to keep things from falling apart. This part explains some of those changes.

How to Minimize Politics in the Company

What does politics mean? Politics is people advancing their careers or agendas by means other than merit and contribution. A CEO could create politics by encouraging and sometimes incentivizing political behavior, often unintentionally. Senior employees will come from time to time and ask for an increase in compensation. The CEO would give a raise. This may sound innocent, but a strong incentive for political behavior has been created. The employee will earn a raise by asking for one rather than as a reward for outstanding performance. Why is this bad?

The other ambitious members of the staff will immediately get the point and agitate for raises as well. Note that none of these requests are correlated with performance. If the board is competent, the raises won't come on a first-come, first-served basis, out of cycle.
The less aggressive (but perhaps more competent) members of the team will be denied off-cycle raises simply by being apolitical.
The object lesson for the staff and the company will be that the squeaky wheel gets the grease, and that the most politically astute employees get the raises. Get ready for a whole lot of squeaky wheels.

The difference between managing executives and managing more junior employees can be thought of as the difference between being in a fight with someone with no training and being in a ring with a professional boxer. If a CEO manages a junior employee and they ask about their career development, she can say what comes naturally and generally get away with it. As seen above, things change when she deals with highly ambitious, seasoned professionals. In order to keep from getting knocked out by corporate politics, the CEO needs to refine her technique. Ben describes two key techniques useful in minimizing politics:

Hire people with the right kind of ambition. As defined by Andy Grove, the right kind of ambition is ambition for the company's success with the executive's own success only coming as a by-product of the company's victory. The wrong kind of ambition is ambition for the executive's personal success regardless of the company's outcome.
Build strict processes for potentially political issues and do not deviate. Certain activities attract political behavior.

These activities include:

Performance evaluation and compensation: Often companies defer putting performance management and compensation processes in place. This doesn't mean that they don't evaluate employees or give pay raises; it just means they do so in an ad hoc manner that's highly vulnerable to political machinations. By conducting well-structured, regular performance and compensation reviews, the CEO will ensure that pay and stock increases are as fair as possible. This is especially important for executive compensation, since doing so will also serve to minimize politics.
Organizational design and territory: If a CEO manages ambitious people, from time to time they will want to expand their scope of responsibility. The head of engineering may want to run engineering and product management. When someone raises an issue like this, the CEO must be very careful about what he or she says, because everything said can be turned into political cannon fodder. Generally, it's best to say nothing at all. If the CEO indicates what he or she is thinking, that information will leak, rumors will spread, and the seeds are planted for all kinds of unproductive discussions. The company organizational design should be evaluated on a regular basis.
Promotions: Every time the company gives someone a promotion, everyone else at that person's organizational level evaluates the promotion and judges whether merit or political favors yielded it. If the latter is the case, then the other employees react in one of three ways: they sulk and feel undervalued; they outwardly disagree, campaign against the person, and undermine them in their new position; or they attempt to copy the political behavior that generated the unwarranted promotion. The promotion process that governs every employee promotion should be transparent, formal, visible, and defensible. The purpose of the process is twofold. First, it will give the organization confidence that the company at least attempted to base the promotion on merit. Second, the process will produce the information necessary for the team to explain the promotion decisions the CEO made.

Be careful with "he said, she said", the CEO should be careful about how they listen and the message that it sends. Simply by hearing people out without defending the executive in question, the CEO sends the message that they agree. If people in the company think the CEO agrees that one of their executives is less than stellar, that information will spread quickly and without qualification. There are two distinct types of complaints a CEO will receive: complaints about an executive's behavior, and complaints about an executive's competency or performance. Do not attempt to address behavioral issues without both executives in the room. Doing so will invite manipulation and politics. The CEO must consider the systemic incentives that result from his or her words and actions. While it may feel good in the moment to be open, responsive, and action oriented, the CEO should be careful not to encourage all the wrong things.

The Right Kind of Ambition

In an equity-based compensation structure, optimizing for the company's success should yield better results for individuals as well. It is particularly important that managers have the right kind of ambition, because anything else will be exceptionally demotivating for their employees. To screen for the right kind of ambition it's helpful to watch for small distinctions that indicate whether they view the world through the "me" prism or the "team" prism. While it may work to have individual employees who optimize for their own careers, counting on senior managers to do all the right things for all the wrong reasons is a dangerous idea.

Titles and Promotions

There are two important factors that drive all companies to eventually create job titles:

Employees want them: While the CEO may want to plan to work at their company forever, at least some of the employees need to plan for life after the CEO's company.
Eventually, people need to know who is who. As companies grow, everybody won't know everybody else. Job titles provide an excellent shorthand for describing roles in the company. In addition, customers and business partners can also make use of this shorthand to figure out how to best work with the company.

Beyond these core reasons, employees will use titles to calibrate their value and compensation against their colleagues. Because titles will be used to calculate relative value, they must be managed carefully.

The Peter Principle and The Law of Crappy People

The Peter Principle holds that in a hierarchy, members are promoted so long as they work competently. Sooner or later they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain, being unable to earn further promotions. The Peter Principle is unavoidable, because there is no way to know a priori at what level in the hierarchy a manager will be incompetent. Another challenge is a phenomenon that the author calls the Law of Crappy People, which states that for any title level in a large organization, the talent on that level will eventually converge to the crappiest person with the title. The rationale behind the law is that the other employees in the company with lower titles will naturally benchmark themselves against the crappiest person at the next level. The best way to mitigate both the Peter Principle and the Law of Crappy People is with a properly constructed and highly disciplined promotion process.

Promotion Process

To assemble an effective promotion process, start with an extremely crisp definition not only of the responsibilities at each level but also of the skills required to perform the duties. Next, define a formal process for all promotions. One key requirement of the process should be that promotions will be leveled across groups. If a manager or a single chain of command determines promotions unilaterally, then it's possible that, for example, HR will have five vice presidents and Engineering only one. When a manager wishes to promote an employee, she will submit that employee for a review with an explanation of why she believes her employee satisfies the skill criteria required for the level. The committee should then compare the employee with both the level's skill description and the skills of the other employees at that level to determine whether to approve the promotion. In addition to ensuring fairness and level quality, this process will serve to educate the entire management team on the skills and accomplishments of the employees being submitted for promotion.

How Big Should the Titles Be?

Andreessen argues that people ask for many things from a company: salary, bonus, stock options, span of control, and titles. Of those, title is by far the cheapest, so it makes sense to give the highest titles possible. Titles cost nothing. Better yet, when competing for new employees with other companies, using Andreessen's method a company can always outbid the competition in at least one dimension. Ben explains that, by contrast, Facebook purposely uses titles that are significantly lower than the industry standard. This avoids accidentally giving new employees higher titles and positions than better-performing existing employees. It boosts morale, increases fairness, and forces all the managers to understand and internalize their own leveling system, which serves the company extremely well in its promotion and compensation processes. Whether one method is better than the other depends on circumstances. Facebook has enough advantages in recruiting that being rigorous about absolute title levels does not significantly impair its ability to attract world-class talent. In a smaller company this could be difficult, and the lofty titles tactic may be the better choice. In either scenario, a highly disciplined, transparent internal leveling and promotion process is mandatory.

When Smart People are Bad Employees

Here are three examples of the smartest people in the company being the worst employees.

The heretic: Sometimes a really smart employee develops an agenda other than improving the company. Rather than identifying weaknesses so that he can fix them, he looks for faults to build his case. Specifically, he builds his case that the company is hopeless and run by a bunch of morons. The smarter the employee, the more destructive this type of behavior can be. Simply put, it takes a really smart person to be maximally destructive, because otherwise nobody else will listen to him. Why would a smart person try to destroy the company that he works for? She is disempowered. She feels that she cannot get access to the people in charge and, as a result, complaining is her only vehicle to get the truth out. She is fundamentally a rebel. She will not be happy unless she is rebelling. This can be a deep personality trait. She is immature and naive. She cannot comprehend that the people running the company do not know every minute detail of the operation, and therefore they are complicit in everything that's broken. Often, it's very difficult to turn these kinds of cases around.
The Flake: Some brilliant people can be totally unreliable. Flaky behavior often has a seriously problematic root cause. Causes range from self-destructive streaks to drug habits to moonlighting for other employers. A company is a team effort and, no matter how high an employee's potential, the company cannot get value from him unless he does his work in a manner in which he can be relied upon.
The Jerk: This particular smart-bad-employee type can occur anywhere in the organization but is most destructive at the executive level. When used consistently, asinine behavior can be crippling. As a company grows, its biggest challenge always becomes communication. If a member of the staff is a raging jerk, it may be impossible. Some people are so belligerent in their communication style that people just stop talking when they are in the room. As a result, communication across the executive staff breaks down and the entire company slowly degenerates. Note that this only happens if the jerk in question is unquestionably brilliant. Otherwise, nobody will care when she attacks them.

When does a CEO hold the bus?

Ben quotes the football coach John Madden: "If you hold the bus for everyone on the team, then you'll be so late you'll miss the game, so you can't do that. The bus must leave on time. However, sometimes you'll have a player that's so good that you hold the bus for him, but only him." A CEO may find herself with an employee who fits one of the descriptions of bad employees but who makes a massive positive contribution to the company. In that case, the employee's positive attributes may outweigh and mitigate the negative ones. Nonetheless, the CEO must keep her from polluting the overall company culture, and remember: the bus can be held for her alone.

Old People

The main reason to hire senior people is time. In a technology startup, from the day it starts until its last breath, the company will be in a furious race against time. No technology startup has a long shelf life. Hiring someone who has already done what the company is trying to do can radically speed up its time to success. Nonetheless, hiring senior people into a startup is kind of like an athlete taking performance-enhancing drugs. If all goes well, the company will achieve incredible new heights. If all goes wrong, it will start degenerating from the inside out. The proper reason to hire a senior person is to acquire knowledge and experience in a specific area. A technical founder probably does not have terrific knowledge of how to build a worldwide sales channel, how to create an invincible brand, or how to identify and negotiate ecosystem-altering business development deals. Acquiring a world-class senior person can dramatically accelerate the company's ability to succeed in these areas. One good test for determining whether to go with outside experience versus internal promotion is to figure out whether the CEO values inside knowledge or outside knowledge more for the position. For example, for engineering managers, comprehensive knowledge of the codebase and engineering team is usually more important and more difficult to acquire than knowledge of how to run scalable engineering organizations. As a result, she might very well value the knowledge of her own organization more than that of the outside world. In hiring someone to sell the product to large enterprises, the opposite is true. Knowing how the target customers think and operate, knowing their cultural tendencies, understanding how to recruit and measure the right people in the right regions of the world to maximize the sales - these things turn out to be far more valuable than knowing the company's own product and culture. Asking "Do I value internal or external knowledge more for this position?" will help the CEO determine whether to go for experience or youth. Senior people pose several important challenges:

They come with their own culture: They will bring the habits, the communication style, and the values from the company they grew up in.
They will know how to work the system: Because senior people come from larger environments, they usually develop the skills to navigate and be effective in those environments. These skills may seem political and unusual in other environments.
The CEO doesn't know the job as well as they do: In fact, she is hiring them precisely because she doesn't know how to do the job. So how does she hold them accountable for doing a good job?

First, cultural compliance should be demanded, it is the CEO's company, her culture, and her way of doing business. Next, she should watch for politically motivated tactics and not tolerate them. She should set a high and clear standard for performance, and she must make sure that the people on her staff are world-class. One excellent way for a CEO to develop a high standard is to interview people whom she sees doing a great job in their field. She should find out what their standard is and add it to her own. Once she has determined a high yet achievable performance bar, she should hold her executives to that high standard even if she has no idea how they might achieve it. It's not the CEO's job to figure out how to create an incredible brand, tilt the playing field by cutting a transformational deal, or achieve a sales goal that nobody thought possible, that's what she is paying them to do. That's why she hired them. The new executive needs to be more than just a goal achiever. She will need to be well rounded and part of the team. Below are listed the steps of Bill Campbell's methodology for measuring executives:

Results against objectives. Is the executive hitting the goals defined in the CEO's high standard?
Management. Is she building a strong team, retaining good people, and keeping them motivated?
Innovation. Is her team improving the way it works, or merely executing the current plan? The test is whether she balances the demands of today against the needs of eighteen months from now, and whether she works toward long-term outcomes rather than short-term wins.
Working with peers. Does she collaborate across the company, sharing information, asking for help when she needs it, and giving it when asked? Executives who optimize only for their own function tend to impose hidden costs on everyone else.

One-On-One

Perhaps the CEO's most important operational responsibility is designing and implementing the communication architecture for her company. The architecture might include the organizational design, meetings, processes, email, Yammer, and even one-on-one meetings with managers and employees. Absent a well-designed communication architecture, information and ideas will stagnate, and the company will degenerate into a bad place to work. One-on-ones provide an excellent mechanism for information and ideas to flow up the organization and should be part of her design. The key to a good one-on-one meeting is the understanding that it is the employee's meeting rather than the manager's meeting. This is the free-form meeting for all the pressing issues, brilliant ideas, and chronic frustrations that do not fit neatly into status reports, emails, and other less personal and intimate mechanisms. During the meeting, since it's the employee's meeting, the manager should do 10 percent of the talking and 90 percent of the listening. The manager should try to draw the key issues out of the employee. The more introverted the employee, the more important this becomes. A manager of engineers will find that drawing out issues is an important skill to master. Some questions very effective in one-on-ones:

If we could improve in any way, how would we do it?
What's the number one problem with our organization? Why?
What's not fun about working here?
Who is really kicking ass in the company? Whom do you admire?
If you were me, what changes would you make?
What don't you like about the product?
What's the biggest opportunity that we're missing out on?
What are we not doing that we should be doing?
Are you happy working here?

In the end, the most important thing is that the best ideas, the biggest problems, and the most intense employee life issues make their way to the people who can deal with them. One-on-ones are a time-tested way to do that.

Programming the Culture

The primary thing that any technology startup must do is to build a product that's at least ten times better at doing something than the current prevailing way of doing that thing. Two or three times better will not be good enough to get people to switch to the new thing fast enough, or in large enough volume, to matter. The second thing that any technology startup must do is to take the market. Very few products are ten times better than the competition's, so unseating the new incumbent is much more difficult than unseating the old one. If a company fails to do both of those things, its culture won't matter one bit. The world is full of bankrupt companies with world-class cultures. Culture does not make a company. So why bother with culture at all?

It matters to the extent that it can help a company achieve the above goals.
As a company grows, culture can help preserve its key values, make it a better place to work, and help it perform better in the future.
Perhaps most important, after a founder and her people go through the inhuman amount of work it takes to build a successful company, it will be an epic tragedy if the culture is such that even she doesn't want to work there.

A CEO should design a way of working that will:

Distinguish the company from its competitors.
Ensure that critical operating values persist, values such as delighting customers or making beautiful products.
Help her identify employees who fit with the company's mission.

The culture should be provocative enough to change what people do every day. Shock is a great mechanism for behavioral change. Ben gives three examples:

Desks made out of doors: All desks at Amazon.com, for all time, would be built by buying cheap doors from Home Depot and nailing legs to them. This shocked new employees, and when they asked about it, the motto was: "We look for every opportunity to save money so that we can deliver the best products at the lowest costs."
Ten dollars per minute: In order to shock the company into the right behavior, a16z instituted a ruthlessly enforced ten-dollars-per-minute fine for being late to a meeting with an entrepreneur. When shocked new employees ask about it, that is a great opportunity to explain in detail why the firm respects entrepreneurs. Anyone who does not think entrepreneurs are more important than VCs should not be working at a16z.
Move fast and break things: Mark Zuckerberg believes in innovation, and he believes there can be no great innovation without great risk. So, in the early days of Facebook, he deployed the shocking motto: Move fast and break things. Anyone who would rather be right than innovative will not fit in at Facebook.

Designing a proper company culture will help a CEO get her company to do what she wants in certain important areas for a very long time.

Taking the Mystery Out of Scaling a Company

If a founder wants to do something that matters, then she is going to have to learn the black art of scaling a human organization. Often board members give entrepreneurs two bits of advice regarding scale:

Get a mentor.
Find some "been there, done that" executives who already know how to scale.

If a founder doesn't know anything about scaling an organization, then it will be very difficult for her to evaluate people for that job. Many investor-board members don't know anything about scaling a company either, and can be suckers for people who have the experience but not the skills. The following things cause no trouble when a company is small, but become big challenges as it grows:

Communication
Common knowledge
Decision making

As the company grows, things will only get worse in each dimension. The challenge is to grow but degrade as slowly as possible. When scaling an organization, a CEO will also need to give ground grudgingly. Specialization, organizational structure, and process all complicate things, and implementing them will feel like a move away from common knowledge and quality communication. She will lose ground, but she will prevent her company from descending into chaos. At the point when adding people to the company feels like more work than the work she can offload to the new employees, the defensive lineman has run around her, and she probably needs to start giving ground grudgingly. In startups, everybody starts out as a jack-of-all-trades. As the company grows, it becomes increasingly difficult to add new engineers, because the learning curve starts to get super-steep. At this point, a CEO needs to specialize. By dedicating people and teams to such tasks as the build environment, the test environment, and operations, she will create some complexity, handoffs across groups, potentially conflicting agendas, and specialized rather than common knowledge. In order to mitigate these issues, she will need to consider other scale techniques like organizational design and process.

Organizational design

The first rule of organizational design is that all organizational designs are bad. With any design, a CEO will optimize communication among some parts of the organization at the expense of others. When a company gets really big, a CEO will need to decide whether to organize it around functions (for example, sales, marketing, product management, engineering) or around missions - self-contained business units that contain multiple functions. Her goal is to choose the least of all evils. She should think of the organizational design as the communications architecture for her company. The further apart people are in the organizational chart, the less they will communicate. The organizational design is also the architecture for how the company communicates with the outside world. With this in mind, below are the basic steps of organizational design:

Figure out what needs to be communicated. Start by listing the most important knowledge and who needs to have it. For example, knowledge of the product architecture must be understood by engineering, QA, product management, marketing, and sales.
Figure out what needs to be decided. Consider the types of decisions that must get made on a frequent basis. How can the organization be designed to put the maximum number of decisions under the domain of a designated manager?
Prioritize the most important communication and decision paths. Is it more important for product managers to understand the product architecture or the market? Is it more important for engineers to understand the customer or the architecture? Keep in mind that these priorities will be based on today's situation. If the situation changes, the organization can be reorganized.
Decide who's going to run each group. Notice that this is the fourth step, not the first. The organization should be optimized for the people doing the work, not for the managers.
Identify the paths that were not optimized. As important as picking the communication paths to optimize is identifying the ones that will not be. Just because they were deprioritized doesn't mean they are unimportant. If they are ignored entirely, they will surely come back to bite her.
Build a plan for mitigating the issues identified in step five. Once she has identified the likely issues, she will know the processes she needs to build to patch the impending cross-organizational challenges.

Process

The purpose of process is communication. If there are five people in a company, it doesn't need process, because everyone can just talk to each other. With four thousand people, communication becomes more difficult. Ad hoc, point-to-point communication no longer works. A process is a formal, well-structured communication vehicle. When communication in an organization spans organizational boundaries, processes will help ensure that the communication happens and that it happens with quality. Who should design a process? The people who are already doing the work in an ad hoc manner. They should formalize what they are doing to make it easy to onboard new people.

Focus on the output first. What should the process produce?
Figure out how to know whether it is producing what is wanted at each step.
Engineer accountability into the system.

Different sizes of company impose different requirements on the company's architecture. It's good to anticipate growth, but it's bad to overanticipate growth.

The Scale Anticipation Fallacy

A CEO must constantly evaluate all the members of her team. However, evaluating people against the future needs of the company, based on a theoretical view of how they will perform, is counterproductive, for the following reasons:

Managing at scale is a learned skill rather than a natural ability.
It's nearly impossible to make the judgment in advance.
The act of judging people in advance will retard their development.
Hiring scalable execs too early is a bad mistake.
She still has to make the judgment at the actual point in time when the company hits the higher level of scale.
It's no way to live her life or run an organization.
Scale should not be separated from the rest of the evaluation.
The judgment should be made on a relative rather than an absolute scale.

Predicting whether an executive can scale corrupts a CEO's ability to manage, is unfair, and doesn't work.

How to Lead Even When the CEO Does Not Know Where She Is Going

The most difficult skill a CEO must learn is the ability to manage his own psychology. Nonetheless, no CEO talks about it: "The first rule of CEO psychological meltdown is don't talk about psychological meltdown." Generally, someone doesn't become a CEO unless she has a high sense of purpose and cares deeply about the work she does. A CEO must be accomplished enough or smart enough that people will want to work for her. Nobody sets out to be a bad CEO, run a dysfunctional organization, or create a massive bureaucracy that grinds her company to a screeching halt. No CEO ever has a smooth path to a great company. The first problem is that everybody learns to be a CEO by being a CEO. No training as a manager, general manager, or in another job actually prepares a person to run a company. The only thing that prepares someone to run a company is running a company. Nevertheless, everybody will expect her to know how to do these things, because well, she is the CEO. If a CEO manages a team of ten people, it's quite possible to do so with very few mistakes or bad behaviors. If she manages an organization of one thousand people, it is quite impossible. At a certain size, her company will do things so bad that she never imagined she would be associated with that kind of incompetence. Seeing people fritter away money, waste each other's time, and do sloppy work can make anyone feel bad. For the CEO, it may well make her sick. And to rub salt into the wound, it's her fault. Given this stress, CEOs often make one of the following two mistakes:

They take things too personally.
They do not take things personally enough.

If the CEO is outwardly focused, she ends up terrorizing the team to the point where nobody wants to work at the company anymore. In the second scenario, in order to dampen the pain of the rolling disaster that is the company, the CEO takes a Pollyannaish attitude: It's not so bad. The problem is that she doesn't actually fix any of the problems, and the employees eventually become quite frustrated that the chief executive keeps ignoring the most basic problems and conflicts. Ultimately, the company turns to crap. Ideally, the CEO will be urgent yet not insane. She will move aggressively and decisively without feeling emotionally culpable. In her darkest moments as CEO, discussing fundamental questions about the viability of the company with her employees can have obvious negative consequences. On the other hand, talking to her board and outside advisers can be fruitless. The knowledge gap between her and them is so vast that she cannot actually bring them fully up to speed in a manner that's useful in making the decision. She is all alone. Ben shares a few techniques for a CEO dealing with herself:

Make some friends. Although it's nearly impossible to get high-quality advice on the tough decisions a CEO makes, it is extremely useful from a psychological perspective to talk to people who have been through similarly challenging decisions.
Get it out of her head and onto paper. The process of writing the document separates a CEO from her own psychology and enables her to make the decision swiftly.
Focus on the road, not the wall. There are always a thousand things that can go wrong and sink the ship. If she focuses too much on them, she will drive herself nuts and likely crash her company. She should focus on where she is going rather than on what she hopes to avoid.

Great CEOs face the pain. They deal with the sleepless nights, the cold sweats. Mediocre CEOs point to their brilliant strategic moves, their intuitive business sense, or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers. They all say, "I didn't quit." Ben says that in his experience as CEO, he found that the most important decisions tested his courage far more than his intelligence. The right decision is often obvious, but the pressure to make the wrong decision can be overwhelming. Sometimes the decision itself is rather complicated, which makes the courage challenge even more difficult. A CEO possesses a different set of data, knowledge, and perspective than anybody else in the company. Frequently, some of the employees and board members are more experienced and more intelligent than the CEO. The only reason she can make a better decision is her superior knowledge. To make matters worse, when a CEO faces a particularly difficult decision, she may have only a slight preference for one choice over another. If the really smart people on the board and on her staff take the other side, her courage will be severely tested. It appears that if the decision is a close call, it's much safer to go with the crowd. In reality, if the CEO falls into this trap, the crowd will influence her thinking and make a 70–30 decision seem like a 51–49 decision. This is why courage is critical. In life, everybody faces choices between doing what's popular, easy, and wrong versus doing what's lonely, difficult, and right. As in life, the excuses for CEOs making the wrong choice are always plentiful. Every time a CEO makes the hard, correct decision, she becomes a bit more courageous; every time she makes the easy, wrong decision, she becomes a bit more cowardly. Over the past years, technological advances have dramatically lowered the financial bar for starting a new company, but the courage bar for building a great company remains as high as it has ever been.

Leadership

There is no prototype for the perfect CEO. Radically different styles can all lead to great outcomes. Perhaps the most important attribute required to be a successful CEO is leadership. So what is leadership, and how should it be understood in the context of the CEO job? Are great leaders born or made? Leadership is the measure of the quality of a leader: the quantity, quality, and diversity of people who want to follow her. So what makes people want to follow a leader? There are three key traits:

The ability to articulate the vision: When the company gets to a point when it does not make financial sense for any employee to continue working there, will the leader be able to articulate a vision that's compelling enough to make people stay?
The right kind of ambition: The first thing that any successful CEO must do is get really great people to work for her. Smart people do not want to work for people who do not have their interests in mind and in heart. Truly great leaders create an environment where the employees feel that the CEO cares more about the employees than she cares about herself. In this kind of environment, an amazing thing happens: a huge number of employees believe it's their company and behave accordingly. As the company grows large, these employees become quality control for the entire organization. They set the work standard that all future employees must live up to.
The ability to achieve the vision: If I buy into the vision and believe that the leader cares about me, do I think she can actually achieve the vision? Will I follow her into the jungle with no map forward or back, and trust that she will get me out of there?

Some attributes of leadership can be improved more than others, but every CEO should work on all three. Furthermore, each attribute enhances the others. If people trust her, they will listen to her vision even if it is less articulate. If she is super-competent, they will trust her and listen to her. If she can paint a brilliant vision, people will be patient with her as she learns the CEO skills, and give her more leeway with respect to their interests.

Peacetime CEO/Wartime CEO

Peacetime in business means those times when a company has a large advantage over the competition in its core market, and its market is growing. In wartime, a company is fending off an imminent existential threat. Such a threat can come from a wide range of sources, including competition, dramatic macroeconomic change, market change, supply chain change, and so forth. Peacetime and wartime require radically different management styles. Interestingly, most management books describe peacetime CEO techniques, and very few describe wartime. In peacetime, leaders must maximize and broaden the current opportunity. As a result, peacetime leaders employ techniques to encourage broad-based creativity and contribution across a diverse set of possible objectives. In wartime, by contrast, the company typically has a single bullet in the chamber and must, at all costs, hit the target. The company's survival in wartime depends upon strict adherence and alignment to the mission. Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win. Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO cares about a speck of dust on a gnat's ass if it interferes with the prime directive. Peacetime CEO builds scalable, high-volume recruiting machines. Wartime CEO does that, but also builds HR organizations that can execute layoffs. Peacetime CEO spends time defining the culture. Wartime CEO lets the war define the culture. Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes she has to roll a hard six. Peacetime CEO knows what to do with a big advantage. Wartime CEO is paranoid. Peacetime CEO strives not to use profanity. Wartime CEO sometimes uses profanity purposefully. Peacetime CEO thinks of the competition as other ships in a big ocean that may never engage. Wartime CEO thinks the competition is sneaking into her house and trying to kidnap her children. Peacetime CEO aims to expand the market. Wartime CEO aims to win the market. Peacetime CEO strives to tolerate deviations from the plan when coupled with effort and creativity. Wartime CEO is completely intolerant. Peacetime CEO does not raise her voice. Wartime CEO rarely speaks in a normal tone. Peacetime CEO works to minimize conflict. Wartime CEO heightens the contradictions. Peacetime CEO strives for broad-based buy-in. Wartime CEO neither indulges consensus building nor tolerates disagreements. Peacetime CEO sets big, hairy, audacious goals. Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand. Peacetime CEO trains her employees to ensure satisfaction and career development. Wartime CEO trains her employees so they don't get killed in the battle. Peacetime CEO has rules like "We're going to exit all businesses where we're not number one or two." Wartime CEO often has no businesses that are number one or two and therefore does not have the luxury of following that rule. Can a CEO build the skill set to lead in both peacetime and wartime? Ben explains that his belief is yes, but that it's hard. Mastering both wartime and peacetime skill sets means understanding the many rules of management and knowing when to follow them and when to violate them. Be aware that management books tend to be written by management consultants who study successful companies during their times of peace. As a result, the resulting books describe the methods of peacetime CEOs.

Making Oneself a CEO

It generally takes years for a founder to develop the CEO skill set, and it is usually extremely difficult to tell whether she will make it. Being a CEO requires lots of unnatural motion. To be a good CEO - to be liked in the long run - she must do many things that will upset people in the short run. Unnatural things. Even the most basic CEO building blocks will feel unnatural at first. Evaluating people's performances and constantly giving feedback is precisely what a CEO must do. If she doesn't, the more complex motions - such as writing reviews, taking away territory, handling politics, setting compensation, and firing people - will be either impossible or handled rather poorly. Giving feedback turns out to be the unnatural atomic building block atop which the unnatural skill set of management gets built. But how does one master the unnatural? To become elite at giving feedback, a CEO must develop a style that matches her own personality and values. These are Ben's keys to being effective:

Be authentic. It's extremely important that she believes in the feedback she gives, and that she says nothing to manipulate the recipient's feelings. As Ben puts it, "You can't fake the funk."
Come from the right place. It's important to give people feedback because she wants them to succeed, not because she wants them to fail. If she really wants someone to succeed, she should make her feel it. As Ben puts it, "Make her feel you." If the employee senses that her manager is in her corner, she will listen.
Don't get personal. If a CEO decides to fire somebody, she should fire her. She shouldn't prepare her to get fired - she should prepare her to succeed. If the employee doesn't take the feedback, that's a different conversation.
Don't clown people in front of their peers. While it's okay to give certain kinds of feedback in a group setting, she should strive never to embarrass someone in front of their peers. Doing so will give the feedback little impact other than causing the employee to feel horribly ashamed and to hate her guts.
Feedback is not one-size-fits-all. Everybody is different. Some employees are extremely sensitive to feedback, while others have particularly thick skin and often thick skulls. Her tone should match the employee's personality, not her own mood.
Be direct, but not mean. Don't be obtuse. Watered-down feedback can be worse than no feedback at all, because it's deceptive and confusing to the recipient. But don't beat people up or attempt to show superiority. Doing so defeats the purpose, because when done properly, feedback is a dialogue, not a monologue.

Feedback is a Dialogue not a Monologue

She may be the CEO, and she may be telling somebody about something she doesn't like or disagrees with, but that doesn't mean she's right. Her employee should know more about her function than the CEO does. She should have more data. The CEO may be wrong. As a result, her goal should be for the feedback to open up rather than close down discussion. She should encourage people to challenge her judgment and argue the point to conclusion. Culturally, she wants high standards thoroughly discussed. She wants to apply tremendous pressure to get the highest-quality thinking, yet be open enough to find out when she is wrong.

High-Frequency Feedback

Once a CEO has mastered the keys, she should practice what she has mastered all the time. She should have an opinion on absolutely everything - on every forecast, every product plan, every presentation, and even every comment. She should let people know what she thinks. If she likes someone's comment, she should give her the feedback. If she disagrees, she should give her the feedback. She should say what she thinks and express herself. This will have two critically important positive effects:

Feedback won't be personal in the company. If the CEO constantly gives feedback, then everyone she interacts with will just get used to it. Everybody will naturally focus on the issues, not on an implicit random performance evaluation.
People will become comfortable discussing bad news. If people get comfortable talking about what each other are doing wrong, then it will be very easy to talk about what the company is doing wrong. High-quality company cultures get their cue from data networking routing protocols: bad news travels fast and good news travels slowly.

Making the CEO

Being CEO also requires a broad set of more advanced skills, but the key to reaching the advanced level - and feeling as though she was born to be CEO - is mastering the unnatural. A founder CEO who feels awkward or incompetent doing some of these things, and believes there is no way she'll manage them when her company is one hundred or one thousand people, is in good company.

How to Evaluate CEOs

No position in a company is more important than the CEO and, as a result, no job gets more scrutiny. Key questions to evaluate a CEO:

Does the CEO know what to do in all matters all the time? This includes matters of personnel, financing, product strategy, goal sizing, and marketing. At a macro level, does the CEO set the right strategy for the company and know its implications in every detail of the company? Ben evaluates two distinct facets of knowing what to do:

Strategy. In good companies, the story and the strategy are the same thing. As a result, the proper output of all the strategic work is the story. The CEO must set the context within which every employee operates, giving meaning to the specific work, aligning interests, enabling decision making, and providing motivation. The CEO doesn't have to be the creator of the vision, nor does she have to be the creator of the story. But she must be the keeper of the vision and the story.
Decision making. The CEO's job is to make decisions. Therefore, a CEO can most accurately be measured by the speed and quality of those decisions. Great decisions come from CEOs who display an elite mixture of intelligence, logic, and courage. The CEO must have the courage to bet the company on a direction even though she does not know whether the direction is right. The most difficult decisions are difficult precisely because they will be deeply unpopular. There is never enough time to gather all the information needed to make a decision. A CEO must make hundreds of decisions, big and small, in the course of a typical week. She cannot simply stop all other activities to gather comprehensive data and do exhaustive analysis for a single decision. She must continuously and systematically gather knowledge in the company's day-to-day activities so that she will have as much information as possible when the decision point arrives. Questions like:
What are the competitors likely to do?
What's possible technically, and in what time frame?
What are the true capabilities of the organization, and how can they be maximized?
How much financial risk does this imply?
What will the issues be, given the current product architecture?
Will the employees be energized or despondent about this promotion?

Great CEOs build exceptional strategies for gathering the required information continuously. They embed their quest for intelligence into all of their daily actions, from staff meetings to customer meetings to one-on-ones. Winning strategies are built on comprehensive knowledge gathered in every interaction the CEO has with an employee, a customer, a partner, or an investor. 2. Can the CEO get the company to do what she knows? If the CEO paints a compelling vision and makes fast, high-quality decisions, can she then get the company to execute her vision? In order for a company to execute a broad set of decisions and initiatives, it must:

Have the capacity to do so. The company must contain the necessary talent in the right positions to execute the strategy.
Be a place where every employee can get things accomplished. The employees must be motivated, communication must be strong, the amount of common knowledge must be vast, and the context must be clear.

The CEO is responsible for the executive team, plus the fundamental interview and hiring processes for all employees. She must make sure that the company sources the best candidates and that the screening processes yield candidates with the right combination of talent and skills. Ensuring the quality of the team is a core part of running the company. Great CEOs constantly assess whether they are building the best team. The output of this capability is the quality of the team. It's important to note that team quality is tightly tied to the specific needs of the company and to the challenges it faces at the point in time it faces them. As a result, it's quite possible that the executive team changes several times while remaining high quality the entire way, with no attrition problem. In well-run organizations, people can focus on their work and have confidence that if they get their work done, good things will happen both for the company and for them personally. By contrast, in a poorly run organization, people spend much of their time fighting organizational boundaries and broken processes. While it may be quite easy to describe, building a well-run organization requires a high level of skill. 3. Did the CEO achieve the desired results against an appropriate set of objectives? When measuring results against objectives, start by making sure the objectives are correct. CEOs who excel at board management can "succeed" by setting objectives artificially low. Great CEOs who fail to pay attention to board management can fail by setting objectives too high. Early in a company's development, objectives can be particularly misleading, since nobody really knows the true size of the opportunity. Therefore, the first task in accurately measuring results is setting objectives correctly. It is also worth keeping in mind that the size and nature of the opportunity varies quite a bit across companies. CEOs should be evaluated against their own company's opportunity, not somebody else's. Results against objectives, or "black box" results, are a lagging indicator. And as they say in the mutual fund prospectuses, past performance is no guarantee of future results. The white-box CEO evaluation criteria - "Does the CEO know what to do?" and "Can the CEO get the company to do it?" - will do a much better job of predicting the future.

The First Rule of Entrepreneurship: There Are No Rules

Accountability vs. Creativity Paradox

Does the CEO assume that the employees are by and large creative, intelligent, and motivated? Or does she assume that they are lazy, conniving, and counting the minutes to quitting time? If she believes the latter, then she might as well just give up on creativity and innovation in the organization, because she will not get it. It's better to believe the former and assume that people have good intentions unless they prove otherwise. Still, the CEO must hold people accountable to avoid the chump factor. Ben looks at accountability across the following dimensions:

Effort: To be a world-class company, a company needs world-class effort. If somebody isn't giving it, they must be checked.
Promises: Holding people accountable for their promises is a critical factor in getting things done. This changes as the degree of difficulty in fulfilling the promise increases. Promising to complete a piece of marketing collateral or send an email is different from promising to meet an engineering schedule that involves solving some fundamentally hard computer science problem. The CEO must hold people accountable for the former; the latter is more complicated and relates to results.
Results: If someone fails to deliver the result she promises, as in the opening story, must the CEO hold her accountable? Should she hold her accountable? The answer is that it depends upon: The seniority of the employee, the CEO should expect experienced people to be able to forecast their results more accurately than junior people. Degree of difficulty, some things are just plain hard. Making the sales number when the product is inferior to the competition and a recession hits mid-quarter is hard. Building a platform that automatically and efficiently takes serial programs and parallelizes them, so that they can scale out, is hard. It's hard to make a good prediction and hard to meet that prediction. When deciding the consequence of missing a result, the CEO must take into account the degree of difficulty. Amount of stupid risk, while the CEO doesn't want to punish people for taking good risks, not all risks are good. While there is no reward without risk, there is certainly risk with little or no chance of corresponding reward.

In the technology business, a CEO rarely knows everything up front. The difference between being mediocre and magical is often the difference between letting people take creative risks and holding them too tightly accountable. Accountability is important, but it's not the only thing that's important.

Staying Great

A CEO knows that she cannot build a world-class company unless she maintains a world-class team. But how does she know if an executive is world-class? Beyond that, if the executive was world-class when hired, will she stay world-class? If she doesn't, will she become world-class again? Every CEO sets out to hire the very best person in the world and then recruits aggressively to get him. Executives who start off world-class often deteriorate over time. The executive who is spectacular in this year's hundred-person startup may be washed-up in next year's version when the company employs four hundred people and has $100 million in revenue.

The standard

The first thing to understand is that just because somebody interviewed well and reference-checked great, that does not mean she will perform superbly in the company. There are two kinds of cultures in this world: cultures where what people do matters and cultures where all that matters is who they are. A company can be the former, or it can suck. A CEO must hold her people to a high standard, but what is that standard? In addition to what has been discussed in the "Old People" section, these points also apply here:

The CEO did not know everything when she made the hire. While it feels awkward, it is perfectly reasonable to change and raise standards as one learns more about what's needed and what's competitive in the industry.
The CEO must get leverage. Early on, it's natural to spend a great deal of time integrating and orienting an executive. However, if the CEO finds herself as busy with that function as she was before she hired or promoted the executive, then the executive is below standard.
A CEO can do very little employee development. One of the most depressing lessons a new CEO learns is that she cannot develop the people who report to her. The demands of the job are such that direct reports have to be 99% ready to perform. Unlike running a function or serving as a general manager, there is no time to develop raw talent at that level. That can and must be done elsewhere in the company, but not at the executive level.

Expectations and Loyalty

If a company has a great and loyal executive, how does a CEO communicate all this? How does she tell that executive that despite the massive effort and great job she is doing today, she might be fired next year if she doesn't keep up with the changes in the business? One approach in an executive review is to say: "You are doing a great job at your current job, but the plan says that we will have twice as many employees next year as we have right now. Therefore, I will have to reevaluate you on the basis of that job. If it makes you feel better, that rule goes for everyone on the team, including me." This means that doing the things that made her successful in her old job will not necessarily translate to success in the new job. In fact, the number-one way that executives fail is by continuing to do their old job. But what about being loyal to the team that got the company here? If the current executive team helped grow the company tenfold, how can a CEO dismiss them when they fall behind in running the behemoth they created? The answer is that a CEO's loyalty must go to her employees - the people who report to those executives. The engineers, marketing people, salespeople, and finance and HR people who are doing the work. She owes them a world-class management team. That's the priority.

Should a Founder Sell His Company?

One of the most difficult decisions that a CEO ever makes is whether to sell her company. Selling a company is always emotional and deeply personal. Types of Acquisitions:

Talent and/or technology, when a company is acquired purely for its technology and/or its people. These kinds of deals typically range between $5 million and $50 million.
Product, when a company is acquired for its product, but not its business. The acquirer plans to sell the product roughly as it is, but will do so primarily with its own sales and marketing capability. These kinds of deals typically range between $25 million and $250 million.
Business, when a company is acquired for its actual business (revenue and earnings). The acquirer values the entire operation (product, sales, and marketing), not just the people, technology, or products. These deals are typically valued (at least in part) by their financial metrics and can be extremely large (such as Microsoft's $30 billion-plus offer for Yahoo).

The Logical

A good basic rule of thumb is that if (a) a company is very early on in a very large market and (b) it has a good chance of being number one in that market, then it should remain stand-alone. The reason is that nobody will be able to afford to pay what it is worth, because nobody can give it that much forward credit. The judgment that one has to make is: (a) Is the market really much bigger - more than an order of magnitude - than has been exploited to date? And (b) are we going to be number one? If the answer to either (a) or (b) is no, then a founder should consider selling. If the answer to both is yes, then selling would mean selling herself and her employees short. Unfortunately, these questions are not as simple to answer as they have been made out to be here. In order to get the answer right, one also has to answer the question "What is the market, really, and who are the competitors going to be?" Big enterprise companies can't generally succeed with small acquisitions, because too much of the important intellectual property is the sales methodology, and big companies can't build that.

The Emotional

The funny thing about the emotional part of the decision is that it's so schizophrenic. How can a founder ever sell her company after she has personally recruited every employee and sold them on her spectacular vision of a thriving, stand-alone business? How can she ever sell out her dream? How can she walk away from total financial independence for herself and every member of her close and distant family? Isn't she in business to make money? How much money does one person need? Ben offers a few keys on muting the emotions:

Get paid. Most venture capitalists like entrepreneurs who are "all in," meaning the entrepreneur has everything invested in the company and will have very little to show for her efforts if it does not succeed. As part of this, they prefer the founding CEO to have a very low salary. In general, this is a good idea, because the temptation to walk away when things go poorly is intense and total financial commitment helps her keep her other commitments. However, once the company starts to become a company rather than an idea, it makes sense to pay the CEO at market. More specifically, once the company has a business and becomes an attractive acquisition target, it makes sense to pay the CEO, so that the decision to keep or sell the company isn't a direct response to the CEO's personal financial situation.
Be clear with the company. One question that every startup CEO gets from her employees is "Are you selling the company?" This is an incredibly difficult question. If she says nothing, the employee will likely interpret this to mean the company is for sale. If she says "at the right price," then the employee will wonder what that price is and may even ask. If the company ever reaches that price, the employee will assume the company will be sold. If she dodges the question with the standard "the company is not for sale," the employee may feel betrayed if the company is ever sold. More important, the CEO may feel like she is betraying the employee, and that feeling will influence her decision-making process. One way to avoid these traps is to describe the analysis in the prior section: if the company achieves product-market fit in a very large market and has an excellent chance to be number one, then the company will likely remain independent. If not, it will likely be sold.

What's the secret to being a successful CEO?

There is no secret, but one skill stands out - the ability to embrace the struggle and focus and make the best move when there are no good moves. The first principle of Bushido, the way of the warrior: if a warrior keeps death in mind at all times and lives as though each day might be his last, he will conduct himself properly in all his actions. On the other hand, technical founders are the best people to run technology companies. Nonetheless, it is incredibly difficult for technical founders to learn to become CEOs while building their companies. Key deficits that a founder CEO has when compared with a professional CEO:

The CEO skill set. Managing executives, organizational design, running a sales organization, and the like are all important skills that technical founders lack.
The CEO network. Professional CEOs know lots of executives, potential customers and partners, people in the press, investors, and other important business connections. Technical founders, on the other hand, know some good engineers and how to program.