Wartime CEO stories
By: Roostam Tiger
Tags: Covid 19, Business, VC, Startup, Business Strategy

From wartime mentality to asking actionable questions — we picked and repackaged the 5 top crisis-time tips and cases from probably the best book out there on how to run a startup during hard times, Ben Horowitz’s “The Hard Thing About Hard Things”.

Ben, worth $3.5B, is a leading authority on the matters — he ran 2 of the defining companies of our era, Netscape, which shaped how Internet works, and Loudcloud, the first cloud company (later Opsware); he went through all kinds of hell with them, from the dot-com crisis to 9/11 attacks to multiple near-bankruptcies, and he runs Andreessen-Horowitz, a legendary VC firm famous for its pro-CEO strategy. And his book is quite unique in its openness about the challenges he faced and lessons he took out on the way to Opsware’s $1.6B exit.

1. Embrace WARTIME MENTALITY

“I was a peacetime CEO for three days and wartime CEO for eight years” says Ben. Wartime vs. peacetime leadership was an influential notion when Ben popularized it in 2011. Most management books and advice describe peacetime leadership techniques and very few describe wartime. Peacetime is about growing, wartime is about surviving. Peacetime CEO focuses on the big picture — wartime CEO is paranoid and micro-managing. Peacetime CEO follows protocols and minimizes conflict — wartime CEO doesn’t give a shit. And so on. A startup life is mostly a wartime, so when the market is in turmoil, you’re facing a double-wartime reality.

One year after pivoting from Loudcloud (cloud provisioning) to Opsware (cloud optimization SW), the company grew and all looked good. Suddenly EDS, the largest $20M/year client generating 90% revenue, decided to cancel the agreement and get the money back due to numerous problems with the product. This meant sure death to the company, given the financial hit to P&L, strong negative signal to the market and huge drop in revenues to investors.

While saving this crucial account seemed impossible, Ben stopped everything and regrouped the whole company around saving it at all costs, putting 2 of his best managers on 2 tasks: Jason on fixing all the issues and Anthony on finding out how to make the client happy beyond this. They identified and met with the champion at EDS, Frank (not his real name) who was so extremely negative that he shouted them out. They managed to get 60 days from Frank to fix all the issues, which seemed extremely tough. Jason marched the team through the deployment with 18/7 work-week. Anthony spent time with Frank, showing him the company, studying the deployment and Frank’s psychology. Ben held daily status updates and made sure every resource in the company is dedicated daily to removing any block discovered.

After 30 days it became clear that the fixes will not be ready on time. But Anthony discovered that Frank loves a small inventory product named Tangram which was about to be replaced by a free competitive product and Frank felt he was screwed, for which he had special sensitivity as he wasn’t really generally happy with his job. After initial skepticism, Ben discovered that Tangram’s valuation was only $6M and it was open for acquisition. Even though the standard M&A logic and everyone on the team was against it, Ben decided to acquire Tangram and managed to close it within the next 30 days. Opsware then provided it free to EDS, which made Frank really happy.

Tangram’s present and the enormous daily progress with fixing the issues so deeply impressed Frank that he told them they were his best vendor and he’d be happy to continue working with them. This saved the largest account for Ben and prevented the company from sure bankruptcy.

2. Make your Team your WARTIME GENERALS

“I was at war and I needed a wartime general”. Not only you — your whole team should embrace wartime mindset, especially your leading management.

When Opsware was struggling with sales, Ben felt he was in another survival wartime and after 3 failed attempts to hire a sales lead, he realized he needed to hire for strength and the crucial strength was wartime sales capabilities. After 2 dozen candidates Mark Cranney appeared, who looked the opposite of the classic dead of sales — he was short, came from a weak university and made people uncomfortable, including Ben. But he had the number one strength Ben was looking for — he absolutely mastered the sales process and training sales-reps and was tough, “he sounded like General Patton”.

The whole board was uncomfortable with hiring Mark, but Ben had a feeling he was the right fit for the wartime. He made a reference call where the reference praised Mark’s skills but overall didn’t recommend to hire him because he would be a terrible cultural fit for saying things like “if you don’t bring me five hundred thousand dollars a quarter, I’m putting a bullet in your head”.

This quote would disqualify a candidate in peacetime, but that’s exactly what was needed in wartime, so Ben hired Mark. Eventually, everyone on the board agreed Mark was the best possible hire; he brought more than a hundred million of dollars in sales and continued with Ben to be Andreessen-Horowitz’s leading sales expert.

3. Face TOUGH BUT ACTIONABLE questions

Instead of escaping or grieving on thoughts of bad scenarios, ask yourself ACTIONABLE questions about these bad scenarios, analyze them objectively and act on the answers early on.

After Loudcloud’s initial explosive growth in 1999, problems mounted — the dot-com burst in 2000, then 9/11 attacks in 2001, the market was slowing and largest competitor Exodus went bankrupt after raising $800M on $50B valuation a year earlier. The future started looking very bad. Ben spent several sleepless weeks realizing the future for Loudcloud business is dark and avoiding the question “What’s the worst thing that could happen?” since he knew the answer is bankruptcy.

Then one day Ben asked himself a different question: “What would I do if we went bankrupt?” He surprised himself with the answer: “I’d buy our software, Opsware (cloud automation), which runs in Loudcloud, out of bankruptcy and start a software company.” Then he asked himself “Is there a way to do that without going bankrupt?”. The answer was complex, but it started with separating Opsware from Loudcloud and Ben immediately assigned an engineering team to work on it quietly.

Few months later, Atriax, a large client, went bankrupt and cancelled its $25M booking. This effectively killed the fundraising campaign a day before its launch and forced Ben to accelerate the pivot and sell Loudcloud to EDS, leaving Opsware as the company’s future. The deal itself was a fire-sale but thanks to separated Opsware it both allowed to include licensing it for $20M/year as part of the deal and left Ben with a new product ready to be sold for the pivoted company. Thanks to Ben asking these questions and acting on the surprising answers early, the fire-sale wasn’t the end, but was a successful pivot which eventually led to $1.6B exit.

4. Spot MARKET ANOMALIES to identify Opportunities

Everything is relative. If everyone is panicking, the few that are not, or panicking less, can spot opportunities that all the others miss. For instance, in Ben’s case, when everyone was rightfully scared to go public, he chose to go through hell to go public and succeeded, even though this success by itself may seem relative.

Initially, things were super-bright for Loudcolud, the first ever cloud company that Ben and Marc founded after selling Netscape to AOL in 1999. Within the first year of founding, Loudcloud raised $200M+, reached $700M valuation, booked $30M+ in contracts, grew to 400+ employees, was praised as “Marc Andreessen’s second coming” and seemed like it was the fastest-growing business in history. Then, in 2000, the great dot-com crash happened, the NASDAQ lost most of its value, Loudcloud finished Q3 of 2000 with $37M in bookings against $100M+ planned and the cash was going to end very soon.

Every private investor was off and Loudcloud, half-year earlier the hottest startup in Silicon Valley, became un-fundable. But, it appeared that, as Ben says, “This may sound like a crazy anomaly and it was, but private funds had become completely cynical while the public markets were only 80 percent of the way there”. So Ben decided that even though everyone thought this was a crazy idea, this was a better option than trying to raise funds privately. The roadshow was nightmare, the press was horrible, Ben almost lost his wife and slept 2 hours in the 3 weeks. The market fell halfway and Loudcloud was advised by their bankers, Goldman Sachs and Morgan Stanley, to cut their price in half to reflect the reality and even after it they were skeptical.

Eventually the IPO succeeded to raise funds, even though much less than planned. “It may have been the least celebratory IPO in history, neither Goldman Sachs nor Morgan Stanley even offered us the traditional closing dinner”. But, IPO saved the company and allowed it to continue.

5. Embrace SELF-DOUBTS

“I often joke that I am considered to be a much better CEO now than I was when I was actually CEO”. You’re not alone if you have self-doubts, feel lost and stressed. Being The Chief is an incredibly hard, lonely and stressed position and the vast majority have occasional meltdowns. Apparently, it’s like the fight club of CEOs: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown. Moreover, founding CEOs are not professional CEOs, they grow into the job on the go, and thus are even more stressed and have even harder time managing their own psychology.

In 1999, after raising an impressive funding for Loudcloud in its early streak, Ben and co-founders met with their VCs. As founding CEO, Ben was excited to meet his backers and to talk about how they would partner to build a great company. Then one of the senior partners asked Ben in front of all the people, “When are you going to get a real CEO?”.

Ben could hardly breathe. It was bad enough that he was publicly humiliated, but to make matters worse, Ben knew that at some level the partner was right, as he didn’t have the experience or the skills generally required for CEOs.

Ben remained the CEO and not a day went by without him thinking about that remark and having heavy doubts about how good he was at the job. Several time the press declared the company dead and shareholders called for his resignation, so these doubts were heavily grounded.

Eventually though Ben succeeded to navigate the company through numerous crises to the $1.6B exit and is now widely considered as one of the best founding CEOs. After all his experience, Ben thinks that by far the most difficult skill he learned was the ability to manage his own psychology.

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Roostam Tiger