49 pages • 1 hour read
The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
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BetaChapters 4-5Chapter Summaries & Analyses
Chapter 4 Summary: “When Things Fall Apart”
Horowitz recalls some negative advice he received when LoudCloud was teetering on the brink of bankruptcy. All the people he trusted advised him to give up. He didn’t listen and believed he had to find another solution: “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” (59). Here, Horowitz offers that a CEO’s attention shouldn’t be on how to avoid mistakes; rather, the focus should be on what to do after those mistakes have been made. Horowitz then offers a series of segments on surviving in the tech industry.
The Struggle
The Struggle is a time that comes to every company CEO. When things go wrong, leaders question their abilities and wonder where they went wrong. Horowitz says that The Struggle is inevitable. Some CEOs won’t survive it. Some strategies that might help include getting people on your team involved in problem-solving. Remember that the problems you face are complex, and there’s always an option open to you. If one is able to persist for long enough, circumstances may change and allow for a new solution. Blaming oneself won’t help. The Struggle, Horowitz offers, is what defines greatness.
CEOs Should Tell It Like It Is
Horowitz believes that CEOs shouldn’t feel obligated to sugarcoat everything for their employees: “If you run a company, you will experience overwhelming psychological pressure to be overly positive. Stand up to the pressure, face your fear, and tell it like it is” (67). Ignoring what’s wrong isn’t going to solve the problem. A company’s employees might be equipped to fix what’s wrong, so let them help. Avoiding the truth will destroy credibility among and within a company’s teams. Getting more brains working on the problem will fix the issue more quickly. If company culture discourages people from aiding in solving problems, one will have no opportunity to fix them.
The Right Way to Lay People Off
Even after successive layoffs, a corporation’s cultural continuity is important. A company can’t afford bad morale. A CEO must not go into denial about problems. Once a CEO realizes that layoffs are necessary, they must get them done as soon as possible. Be honest about the company’s failure and the need to downsize. Train managers on how to lay off staff and make sure that managers are having that conversation with their own staff. Don’t hire a “hit man” to do the “dirty” work. Managers need to be clear, honest, and brief in their approach and offer transitional support.
A CEO must make a general announcement to the company before any layoffs occur. Even after the announcement, Horowitz believes that the CEO should stay in the room and communicate with the people most affected.
Preparing to Fire an Executive
When firing a manager, be prepared to analyze what went wrong. Figure out why the wrong person was hired in the first place. The reason might be that the CEO didn’t understand the position they were trying to fill. Maybe, Horowitz offers, the CEO failed to notice the worker’s strengths instead of a lack of noticeable weaknesses. Possibly, they hired for anticipated growth too soon, or they weren’t thinking about the specific skills needed in that role over the short term. It might be, Horowitz contends, that the manager’s personal ambition outweighed their company’s ambition. They should also consider that they might have lacked an integration strategy. Sometimes, fast company growth means that scaling for the position is the incorrect move.
Breaking the news of an executive firing to a company’s board of directors is tricky. They may be alarmed, and the CEO may need to alleviate their concerns. Horowitz stresses that it’s important to get the board’s buy-in for the decision and the severance package, adding not to trash the reputation of the person being fired. Handling the firing interview itself is also tricky. Horowitz advises being clear about the reasons for the decision. Make sure the severance package is ready. Be careful to make positive public announcements to preserve a former manager’s reputation. Use the same careful steps when announcing the management change to company employees.
Demoting a Loyal Friend
Horowitz says that when demoting a friend, bear in mind that they will feel two emotions: embarrassment and a sense of betrayal. Therefore, one should try to keep their demotion conversation from becoming emotional. Acknowledge the value the friend brings to the organization, but maintain a firm position: “Your goal should not be to take the sting out of it, but to be honest, clear, and effective” (84).
Lies That Losers Tell
When the company takes a downturn, it is tempting to blame someone else for the problem. People tend to believe positive news about company performance and dismiss any negative indicators. Horowitz stresses that many people will lie to themselves, and a good CEO needs to avoid that temptation.
Lead Bullets
Horowitz recalls a time when Microsoft was outperforming Netscape, and he was looking for an easy fix. A trusted advisor said, “There is no silver bullet that’s going to fix that. No, we are going to have to use a lot of lead bullets” (88). Here, Horowitz offers that it’s best to stop trying to find a miracle solution; instead, a CEO and their employees must face hard realities.
Nobody Cares
During a down cycle, one may be able to come up with many elaborate reasons for why a company is failing, but nobody cares. Horowitz advises against dwelling on the past; the only way out is to find new solutions.
Chapters 5 Summary: “Take Care of the People, the Products, and the Profits—In That Order”
Once Opsware became a separate software company, Horowitz took on the responsibility of hiring a new management team. While hiring a new VP of Sales, Horowitz chose an off-putting individual who was a poor fit for the company culture but a genius when it came to the role for which he was interviewing. Horowitz decided that he needed a wartime general rather than a peacetime general, and this demands a different skill set. The off-putting individual, therefore, got the job.
A Good Place to Work
Because of the volatility in the tech industry, retaining good staff in the midst of financial downturns hinges on creating a good work environment: “The only thing that keeps an employee at a company when things go horribly wrong—other than needing a job—is that she likes her job” (103). Horowitz stresses that things always go wrong in business, so creating a positive work environment is a preventative measure for when they do.
Why Startups Should Train Their People
Most startups are making up the rules as they go along and don’t have time to create formal training programs. Horowitz believes that training is critical to future success in four key areas: productivity, performance management, product quality, and employee retention. He suggests starting with training in the skills needed to perform the job and that training should be mandatory. He makes a distinction between good product managers, who are focused and direct in communicating goals and expectations, and bad product managers, who are not.
Is It Okay to Hire People From Your Friend’s Company?
Horowitz recounts the pitfalls of hiring staff from a friend’s company, even if that staff member leaves the friend’s company voluntarily. His advice is to resist the temptation and never hire someone away from a friend because it will destroy the friendship in the long run.
Why It’s Hard to Bring Big Company Execs Into Little Companies
Executives who are used to a large corporate structure have a difficult time adapting to the small scale of a startup. A hiring manager should be alert to potential mismatches during the interview process. Assuming an executive is hired, that person will need to be carefully integrated into the fast pace of a startup. Forcing them to be productive and creative from day one is a good first step.
Hiring Executives: If You’ve Never Done the Job, How Do You Hire Somebody Good?
General managers are faced with the task of hiring for jobs in which they have no personal expertise. A good rule of thumb, Horowitz offers, is to know what one wants in a potential employee and not be fooled by appearances. It’s a worthwhile exercise to write down the strengths one needs and the weaknesses one will tolerate when hiring an executive and to develop questions that will reveal these qualities during the interview process.
Horowitz offers that a CEO should also put together an interview team, including subject matter experts who can test the candidate’s knowledge in ways that a CEO perhaps can’t. Afterward, the CEO should conduct all the reference checks. As a last step, the CEO should be sure to make the hiring decision: “Consensus decisions about executives almost always sway the process away from strength and toward lack of weakness. It’s a lonely job, but somebody has to do it” (129).
When Employees Misinterpret Managers
Sometimes management will demand a certain goal be met, and employees will comply. However, the goal may have unintended negative consequences. Managing by the numbers is a bad tactic to use: “You need to test the description of the result against the employee behaviors that the description will likely create. Otherwise, the side-effect behaviors may be worse than the situation you were trying to fix” (133).
Management Debt
Management debt occurs when you make a short-term decision that is going to be costly in the long run. Some examples of this problem include putting two complementary employees in the same role to save money, overcompensating employees to keep them from leaving, and avoiding a formal employee feedback process. Horowitz states, “Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organizational issues” (137). He adds that in the long run, doing so will be less expensive.
Management Quality Assurance
Horowitz contends that installing a top-notch human resources department is critical to success. HR should excel at the following tasks: recruitment and hiring, compensation, training and integration, performance management, and motivation. The person responsible for running a company’s HR department needs to possess the following skills: mastery of process design, diplomacy, industry knowledge, ability to advise the CEO, and ability to detect unspoken undercurrents.
Chapters 4-5 Analysis
This segment begins the section of the book devoted to lessons learned from Horowitz’s past hardships. The first chapter in this section foregrounds the theme of Embracing the Struggle. Here, the author articulates his central premise quite succinctly: “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” (59). Things will inevitably fall apart, and it is the CEO’s job to figure out how to fix them. Horowitz emphasizes the fact that a CEO isn’t supposed to find an ideal solution to a theoretical problem. All problems are terrible, and there are no good moves. After offering this hard bit of wisdom that things will fall apart, he then offers advice about how to deal with the aftershock. Most of this chapter is devoted to describing scenarios that represent the fallout from a crisis and take the form of strategies for dealing with personnel issues. The shift into second person in these sections roots the book in the self-help genre; after establishing his expertise in the first few chapters, Horowitz now positions himself as the mentor and the reader as his mentee.
Horowitz discusses layoffs, demotions, and firings and provides ideas for how to handle each of these unpleasant situations. In each case, his advice emphasizes that Communication Is Key. He advises being clear and direct, not merely in dealing with problem employees but when dealing with anyone. Information flow among team members is critical to the company’s future success: “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” (67). This advice runs contrary to traditional management techniques that depend on communication through a hierarchical chain of command. Such a top-down approach tends to bury problems at their source, and no one in management gets the opportunity to fix the problem because they are unaware that it exists. While Horowitz emphasizes the importance of honesty in communicating with his staff and in their communications with each other, he also stresses the importance of being honest with oneself. He brands a CEO as being unsuccessful if they blame others for failure, or if the CEO makes excuses for their own bad behavior.
Chapter 5 shifts away from letting go of employees to the equally-tricky problem of how to hire the right person in the first place. As might be expected, Horowitz contends that good communication when tackling such issues is vital. The title of the chapter, “Take Care of the People, the Products, and the Profits—in That Order” stresses that a company’s greatest asset is its staff, so personnel issues and how to resolve them receive the most attention here. Horowitz covers the topics of creating a positive company culture and the importance of formal training programs, but most of his focus is devoted to hiring dilemmas. He tackles the questions of how to hire for a position in which a CEO has no expertise, hiring managers from big companies, and the ethics of hiring an employee away from a friend’s firm. As in the preceding chapter, Horowitz focuses on difficult situations that have no easy answers. He does suggest that clear communication and honesty can help avoid some of the pitfalls inherent in these scenarios.
Aside from the question of hiring, Horowitz offers advice on unrelated personnel issues, in which taking the easy way out can lead to unintended consequences. Once again, clear communication is stressed, even if clarity comes at the expense of hurt feelings:
Management debt is incurred when you make 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. More important, if you incur the management debt without accounting for it, then you will eventually go management bankrupt (134).
This chapter is intended to give the reader a sense of how tricky effective communication can be in an organization. As such, Horowitz concludes by making a case for a skillful human resources department. In effect, HR reps are in the communication business and can make or break a company culture. “A high-quality human resources organization cannot make you a well-managed company with a great culture, but it can tell you when you and your managers are not getting the job done” (139). As in earlier sections, Horowitz stresses the value of delegation and teamwork here. A company cannot be run by a CEO alone and he emphasizes the role of other managers and departments in his success.
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