#177 How Ben Horowitz Thinks
What I learned from reading “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers―Straight Talk on the Challenges of Entrepreneurship” by Ben Horowitz.
Today’s Chapter is based on “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers―Straight Talk on the Challenges of Entrepreneurship” by Ben Horowitz.
Ben Horowitz is a Silicon Valley entrepreneur, investor, and author best known as the co-founder of the venture capital firm Andreessen Horowitz (a16z). He previously co-founded Opsware, which Hewlett-Packard acquired in 2007.
Here’s what I learned:
The Struggle
“If you’re going through hell, keep going.”
— Winston Churchill
One of the key lessons from Ben Horowitz’s book is that building a company inevitably involves facing difficulties and avoiding or sugarcoating this reality is the main reason for most companies’ failures. As a matter of fact, Horowitz believes that entrepreneurship is not an easy path, and that “the Struggle” is necessary for a company to succeed. He writes, “Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through the Struggle and struggle they did, so you are not alone. But that does not mean that you will make it. You may not make it. That is why it is the Struggle. The Struggle is where greatness comes from.”
Horowitz believes that every entrepreneur will eventually face periods where nothing feels right and every path seems blocked. However, it is by overcoming these challenges that entrepreneurs build the foundation for future success. These times of adversities came often during Horowitz’s career as the founder of a tech company, especially at Opsware. During these moments, it is important for entrepreneurs to be creative in their solutions to overcome challenges. Horowitz recounts that he would often ask himself “what’s the worst thing that could happen?” By doing so, he believed it helped him overcome fear of hopelessness and to keep moving forward, often with a creative solution to the problem at hand.
“I tried to make myself feel better by asking, ‘What’s the worst thing that could happen?’ The answer always came back the same: ‘We’ll go bankrupt, I’ll lose everybody’s money including my mother’s, I’ll have to lay off all the people who have been working so hard in a very bad economy, all of the customers who trusted me will be screwed, and my reputation will be ruined.’ Funny, asking that question never made me feel any better. Then one day I asked myself a different question: ‘What would I do if we went bankrupt?’ The answer that I came up with surprised me: ‘I’d buy our software, Opsware, which runs in Loudcloud, out of bankruptcy and start a software company.’”
— Ben Horowitz
Horowitz, now a venture capitalist, has met various successful CEOs and often asked them how they faced “the struggle”. He mentions that all the great CEOs tend to be remarkably consistent in their answers. They all say, “I didn’t quit.” While facing “the struggle” doesn’t necessarily guarantee success, it does separate those who eventually make it from those who do not.
Nonetheless, Horowitz warns that this often leads to founders needing to make decisions against conventional wisdom. In fact, he believes that there is always a move for the issue at hand, but a founder needs to have the guts to make it. For example, when Horowitz was facing a lack of funds during the tech crash in the early 2000s at Loudcloud, instead of giving in, he decided to bring the company public. He writes, “As a result, like playing three‑dimensional chess on Star Trek, there is always a move. You think you have no moves? How about taking your company public with $2 million in trailing revenue and 340 employees, with a plan to do $75 million in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.”
Finally, when facing “the struggle”, Horowitz warns that you cannot play the odds. If you calculate your chances of survival at one in a thousand, your task remains exactly the same: find the answer.
“Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same.”
— Ben Horowitz
This reminds me of Hyundai’s founder Chung Ju-Yung. Whenever someone said that a proposed project was impossible, his favourite response was “Did you try?” In fact, when Hyundai first got into the car industry, they knew that they had to partner with an American company who had superior technology. When Chung heard of Ford’s visit in South Korea, he immediately asked his younger brother to negotiate an automobile assembly technology contract with Ford. His brother was taken back as it seemed improbable to reach an agreement this quickly with a major foreign car company. Chung responded with the following saying: “Have you even tried?”
For Chung, the first rule to become a successful person is to have the mentality of thinking that anything is possible. As he explains, “If you doubt yourself, then you will only be able to accomplish as much as your doubts let you. If you think you can’t do something, then you won’t be able to do it.”
“I am someone who believes that if a person limits themselves to the fixed ideas inherent in common sense, they will not be very creative.”
— Chung Ju-Yung
In the case of Chung, he knew that for him to beat his competitors, he had to finish projects in a shorter amount of time than other people. In fact, he mentions that he succeeded because while others were still hesitating, he had already begun working. This is the reason why his motto is “shorten the time”. In his opinion, that is the surest way to encourage innovation and improvement. As a matter of fact, he would often take tours of his projects and would always seek to find ways to shorten construction times in unconventional ways.
Chung believed that finding clever solutions would never come from people with conventional thinking. As a matter of fact, he mentions that “if you only think in accordance with what you learned through books, your imagination will be limited to that.”
*“When we worked on the Jubail project, we had to make 160,000 drill bits to build the breakwater and shore protection structures. If we built 200 every day, it would take us 800 days to make 160,000. But at the site, the workers were making them one at a time instead of using a mold to mass produce them. Their sorry excuse for this wasteful effort was that the molds weren’t the right height to fix onto the end of the cement trucks.
When I saw this, I was furious. Why did these people have brains if they weren’t going to use them? It didn’t take a genius to realize that the outflow ramp for the concrete on the trucks needed to be raised to fit the molds. If they just followed this simple solution, they wouldn’t need a crane, and they wouldn’t waste time and energy. They couldn’t think to adjust the concrete mixer truck, thinking it was unchangeable. Would the gods punish them for making some small adjustments? After I made the changes, we went from 200 per day to 350 per day.”*
— Chung Ju-Yung
Take Care of Your People
“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp
Ben Horowitz learned a core business philosophy from his old boss Jim Barksdale who was fond of the saying, “We take care of the people, the products, and the profits—in that order.” While other CEOs may instinctively reverse the sequence, Horowitz argues that it is a colossal mistake. He explains that “‘Taking care of the people’ is the most difficult of the three by far and if you don’t do it, the other two won’t matter. Taking care of the people means that your company is a good place to work.”
For Horowitz, one of the most overlooked way to take care of your employees is to invest in their training. While he used to neglected this entirely, Horowitz quickly changed his mind after reading Andy Grove’s High Output Management. He writes, “Andy Grove does the math and shows that the opposite is true: Training is, quite simply, one of the highest‑leverage activities a manager can perform. Consider for a moment the possibility of your putting on a series of four lectures for members of your department. Let’s count on three hours preparation for each hour of course time—twelve hours of work in total. Say that you have ten students in your class. Next year they will work a total of about twenty thousand hours for your organization. If your training efforts result in a 1 percent improvement in your subordinates’ performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours.”
Horowitz notes that the biggest obstacle to training in startup companies is due to the perception that it takes too much time. Founders often skip training because they believe they need to move fast and assume that everyone can learn on the job. However, this can lead to inconsistent execution, frustrated employees and unnecessary turnover.
“Ironically, the biggest obstacle to putting a training program in place is the perception that it will take too much time. Keep in mind that there is no investment that you can make that will do more to improve productivity in your company. Therefore, being too busy to train is the moral equivalent of being too hungry to eat.”
— Ben Horowitz
Furthermore, Horowitz also emphasizes on the importance for founders to have one-on-one meetings with their employees. He mentions that this exercise is a great way for them to learn about best ideas and the struggles that his staff is facing on a daily basis. The goal of the meeting is to ensure that employee life issues and critical feedback reach the people who can actually do something about them. When that system works, employees feel heard, and the company gains an early warning system for trouble. He writes, “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, but if you have a better one, go ahead with your bad self.”
This reminds me of Elon Musk’s view on leadership. He believed that creating a culture of excellence requires more than just hiring well. It also requires leaders who are willing to lead by example and who are willing to get their hands dirty. Elon Musk is often seen sleeping on factory floors and working alongside his teams during crises. He understood that his employees would work harder if they saw him working alongside of them. He mentions, “Think about war. Do you want the general in some ivory tower or on the front lines? The troops fight harder if they see the general on the front lines. Nobody bleeds for the prince in the palace. Get out there on the front line. Show them that you care and that you’re not in some plush office somewhere.”
Similarly, Musk believed in removing any barriers that may separate senior executives from employees. As a matter of fact, he expects his managers to have hands-on experience in the work they oversee. For example, software managers must be able to code and solar roof managers must be able to install roofs. If you cannot do the work yourself, you have no business telling others how to do it. He elaborates that, “All technical managers must have hands- on experience. For example, managers of software teams must spend at least 20 percent of their time coding. Solar roof managers must spend time on the roofs doing installations. Otherwise, they are like a cavalry leader who can’t ride a horse or a general who can’t use a sword.”
“When the team is being asked to work super hard, I have to be right there with them and they have to see it. If I fall asleep in the middle of the factory floor at four in the morning and wake up four hours later, they see that. They are like, “If the CEO is willing to take that level of pain, I can do it too.””
— Elon Musk
Tell The Truth
“At Berkshire, we believe in Charlie’s dictum—‘Just tell me the bad news; the good news will take care of itself’—and that is the behavior we expect of our managers when they are reporting to us.”
— Warren Buffett
Ben Horowitz believes that his single biggest improvement as a CEO came on the day he stopped being too positive. This goes against the popular image that a leader must be an eternal optimist who never lets his employees see doubt. In fact, Horowitz argues that false positivity destroys trust and that when employees sense that a CEO is sugarcoating reality, they stop believing anything that comes out of his or her mouth. He writes, “One of the most important management lessons for a founder/CEO is totally unintuitive. My single biggest personal improvement as CEO occurred on the day when I stopped being too positive.”
This is especially true considering that as a company grows, communication becomes its biggest challenge. If employees fundamentally trust the CEO, communication becomes vastly more efficient. However, trust cannot be built on a foundation of half‑truths or selective optimism. When things are going badly, the CEO must say so clearly. Horowitz learned this during the Opsware turnaround, when he called an all‑engineering meeting and told the team the truth: they were getting their asses kicked, and if things did not change, he would have to sell the company for cheap.
“I need you to go home tonight and have a serious conversation with your wife, husband, significant other, or whoever cares most about you and tell them, ‘Ben needs me for the next six months.’ I need you to come in early and stay late. I will buy you dinner, and I will stay here with you. Make no mistake, we have one bullet left in the gun and we must hit the target.”
— Ben Horowitz
While you may believe that such a speech may be risky because it may scare away employees, only two employees left the company. The remaining staff were willing to make the sacrifice required to save the business. As such, through this experience, Horowitz discovered that when you treat people like adults and share the real stakes, they rise to the occasion. Hiding problems only delays the inevitable and robs your team of the chance to help solve them.
Furthermore, Horowitz writes, “If you investigate companies that have failed, you will find that many employees knew about the fatal issues long before those issues killed the company. If the employees knew about the deadly problems, why didn’t they say something? Too often the answer is that the company culture discouraged the spread of bad news, so the knowledge lay dormant until it was too late to act.”
By consequence, it is clear that a good company culture encourages people to share bad news and that a company that is able to discuss its problems freely and openly can quickly solve them. In contrast, a company that covers up its problems will only frustrate everyone involved. This lesson also extends to how founders should handle layoffs. Based on a piece of advise from his mentor Bill Campbell, Horowitz believes in treating the people who are leaving fairly, because the people who stay are watching. If you are dishonest or cruel with the departing, the survivors will never trust you again.
This reminds me of how Sam Zell used to love to be challenged by his employees and more than welcomed debates. For him, it was important for him to create a work environment where his employee’s voice can be heard. As a risk taker, Zell’s greatest fear was to not have information that could of protected him from making a mistake due to the lack of communication with his staff. As such, he made sure to implement a meritocracy culture in his company to allow all his employees to be part of the decision making process.
“At our core, we are a meritocracy—an environment that Bob and I cultivated in the early days. A meritocracy gives you the freedom to be yourself by eliminating superficial markers, so you are measured only by what you produce. In essence, it is an equalizer that focuses everybody on what’s important so you have the opportunity to reveal your best. Once you’ve worked in a true meritocracy, it’s very hard to settle for anything else.”
— Sam Zell
This is eerily similar to Ray Dalio’s idea meritocracy, a system hat allows the best ideas to win regardless of who or where they come from. According to Dalio, the founder of Bridgewater, the world’s largest hedge fund, this is the best way to produce the best possible decision by enabling the best thinking of all team members.
Beyond the Book
Read "Ben Horowitz: The Struggle" by Farnam Street
Read "The Peter Principle and the Law of Crappy People" by Farnam Street
Read "Ben Horowitz On What Makes a Great Founder" by Sequoia Capital
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