Startup Class Lecture 15 Notes – Ben Horowitz

These are my notes from Lecture 15 of the Startup Class taught by Sam Altman. Ben Horowitz, gave a talk on how to manage.
My notes from the previous lectures are here.

One management concept

  • The key concept covered in this lecture is this: when you’re making a critical decision, you have to understand how it will be interpreted from all points of view.
  • You have to be able to see the decision through the eyes of the company as a whole (every employees view should be incorporated into your own view).
  • To make the concept more clear, some example situations and the results of using the concept are presented below

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Demotions

  • Say you have an executive and need to decide whether to demote or fire.
  • He’s working hard but he wasn’t world class at his function
  • So the options were to fire him or demote him
  • Your point of view
    • Get to keep him in the company because he works so hard
    • He’s liked in the company so no cultural backlash
  • Employee’s point of view
    • Saves him the embarrassment of getting fired
    • Gives him the option to keep growing at the company
  • Everyone else’s point of view
    • Does he get to keep the same equity package
    • Do I still respect him now given the demotion
    • Will he still be working as hard now

Raises

  • An employee who is very good asks for a raise
  • Your point of view
    • you want to retain the employee
    • he has been doing good work so the raise is fair
  • Employee’s point of view
    • The raise would make him happy – might leave otherwise
  • Other employees’ point of view
    • Unfair that I didn’t get a raise
    • Just asking for a raise might be enough – my performance is not being evaluated
    • Maybe I should leave
  • Cultural result of giving the raise:
    • Every employee has a fiduciary responsibility to ask for a raise
  • Right answer:
    • Formal performance evaluation process
    • All the right inputs
    • Run as frequently as needed
    • No raises outside the process

Stock Options in Silicon Valley

  • Currently the way it works, is that stock options vest over a period of time, but if you leave, if you don’t exercise the options within 90 days they’re gone.
  • Earlier by law, you couldn’t really do it because it would have been hard to.
  • Your perspective
    • Want to reward people who stay
    • You want to be fair
  • Perspective of employee who leaves
    • I worked for my shares so I shouldn’t be prevented from getting them
    • If I was fired, I just got screwed over twice
  • Perspective of employees who don’t leave
    • Should I stay or leave from an economic perspective
    • Does my loyalty matter
  • Situation Analysis
    • Companies lose people at 10% a year
    • Companies dilute at 6-8% per year
    • Options that aren’t exercised can go back into the pool (less dilution)
    • Losing stock is a good reason for people to stay
    • A 10 year option on a volatile security could be very valuable
    • Employees who stay only get the options
    • Those that leave get stock in the new company and the options
  • Very hard choice so has to be evaluated by startups on a case by case basic
  • Two alternative cultural statements come out
    • We treat employees with straight-forwardness and fairness and so give you 10 years to exercise stock options if you’re fired or quit
    • You’re guaranteed to get your salary, but for you stock to be meaningful, you should (1) vest, (2) stay until we exit or have the cash to exercise, (3) make the company worth something. We value those who see it through and minimize the dilutive cost of those who leave.

Touissaint L’Overture

  • Born a slave
  • His vision was to end slavery, take control of Haiti and make it a first-class country
  • Conquering the enemy
    • He first had to defeat the locals.
    • Then he had to defeat the armies of countries interested in taking control of Haiti.
    • Once he had done that he had to decide what to do with the soldiers of the armies
    • Soldiers perspective
      • We should kill them since they’re trying to kill us
      • We like to pillage
    • Enemies perspective
      • We’re fighting savages, so if we lose we’re dead
    • Culture
      • Touissant wanted a first class culture.
      • He believed slave and Haitian culture was broken.
    • His solution was to take the very best people from the captured armies and make them generals
  • What do you do with the slave owners
    • Soldiers perspective
      • We should kill them
      • We should take the land
    • Touissant
      • Economy is the key to becoming a first-class country and our biggest export is sugar.
      • My army is mostly slaves
      • We don’t know much about trading sugar
      • We earned the land fair and square
    • Slave owners perspective
      • We can’t run the business without slaves
      • We paid a lot for the land and the slaves
      • We have the know-how and business relationships so you have to deal with us
    • Solution
      • End slavery
      • Let slave owners keep their land
      • Make them pay their workers
      • Lowered taxes to make this affordable
  • Results
    • Only successful slave revolt in human history
    • Booming economy and world class culture

Key Takeaway

“It’s not your perspective or the perspective of the person that you are talking to at the moment that matters. You must consider the people who are not in the room. They are the company. They are the culture.”