Ben Horowitz on shocking rules and dramatic object lessons

Ben Horowitz, co-founder of venture firm Andreessen Horowitz, has a new book out titled “What You Do Is Who You Are,” which takes a look at how to create culture at a company.

We sat down with Horowitz last month to discuss some of the lessons he aims to impart and why he felt compelled to write about culture now — including whether it has to do with the growing tech backlash against once-small companies that have taken over the world, and whose cultures are magnified exponentially as a result.

We published parts of our chat here, where we talked about Uber and WeWork specifically. The rest, which dives more into practical advice for founders, follows. Our conversation has been edited lightly for length and clarity.

Extra Crunch: One of the problems we’re dealing with right now, that’s driving this big tech backlash in ways, has a lot to do with just how empowered founders are. And that seemingly goes back to them having more say than other shareholders via dual-class shares. How much power should these founders have?

Ben Horowitz: I think it’s pretty important for tech companies to have some sort of long-term view of the business. Now, fast forward and Eric Ries has this new idea of a Long Term Stock Exchange, which basically says, okay, founders won’t have to have dual-class shares, but the shareholders and the founders will be in it together. So the shareholders have to vest their shares to get voting rights and if you hold the stock for years, and you can get some power, but you don’t get it right off the bat.

I think that that’s probably the optimal model. But I would say that, at least in my view, dual-class is still better than activist investors going after tech companies, because you can’t get to the next product. It’ll just make the company very short-term.

Also, and maybe I’m talking like an old CEO, but I think one of the things that gets lost in the kind of conversation between founders and shareholders is employees. It’s very bad for employees when activist investors get control of the company and drive it toward short-term returns because often, everybody ultimately loses their job in those scenarios.

What about phasing out those dual-class shares over time, though, maybe over five, or seven, or 10 years, which is a decent amount of time for founders to transition their startups to publicly-traded companies?

I think that that would make sense if the people who got power were long-term investors. I just think that if you have short-term investors, making decisions about [a] technology company, the easier way to expand profits is to stop doing R&D because it’s not going to show up in the next two years. But long-term, that’ll spell doom. And I think that’s kind of the way these proxy battles have gone. It’s been like, ‘Okay, stop spending, stop investing.’

I don’t think the kind of cultural issues that companies have run into have much to do with voting power. I think it just has more to do some combination of lack of skill and how fast the companies are growing.

Going back to the book, why weave in the cultural figures that you have — Toussaint Louverture, Genghis Khan and Shaka Senghor [a contemporary who served time for murder and today is a criminal justice reform advocate]. There are so many people you could have included, and you focused on these three individuals.

It’s a weird origin story, but Prince years ago put out an album called 3121, and he opened this club in Vegas called the 3121, and he would perform there, like, every weekend. And the show would start at 10 and he would show up at midnight or 1 a.m., but during that time in between, he would show these old films with these really interesting dancers in these elaborate clothes. And you’d just be watching these old guys, and then Prince would start to splice in [his own movies, including] “Under the Cherry Moon” and “Purple Rain,” and you’d go, ‘well those are the dance moves from those guys [in the older films] and that’s a quote from those guys,’ and you realize: that was what he was trying to express. And I thought, you know, I finally really understand him. And I thought, you know, [these three] have really influenced my views on culture [for a variety of reasons] and it would be a good way to tell this story.

It’s fascinating how it comes together. Were you ever a teacher?

When I was in graduate school, I was a computer science kind of TA, so I taught the freshmen computer science, programming languages, and whatnot.

My grandfather was a teacher — he was fired actually during the McCarthy era for being a communist teacher; he was teaching junior high.

He was a communist. So at least McCarthy got that part right. But it makes me very nervous, people wanting to remove people from their positions these days because of their points of view. My grandfather supported Stalin, and, like, Stalin was really bad. But I don’t think he should have been fired for being a teacher. I just don’t think it’s very good for society. Everybody’s got to be able to have a bad point of view. When you go, ‘You have a bad point of view and that’s illegal, to think that, and now we’re going to take away your job from you, make you not a legitimate person . . .’

We just saw that in the sports world, which was pretty crazy. Speaking of which, in the book you talk about the need to create shocking rules as part of establishing a company culture. As part of that section, you reference former New York Giants coach Tom Coughlan, who started meetings five minutes early and fined players $1,000 for every minute they were late. Doesn’t Andreessen Horowitz do something like that, penalize people for being late?

Yeah, $10 a minute for being late. But if you’re on time, you’re on time. [Laughs.]

Are there any other rules inside the firm that might shock new employees?

I think it’s maybe shocking if you come from another venture firm, but at [at our firm] it’s required that you tell entrepreneurs when you don’t want to invest, which, you know, most [investors] just ghost them. And then we survey the entrepreneurs. And if your net promoter score from your rejected entrepreneurs is too low, like, you get fired for that. We’re definitely the only firm that does that.

Do the partners have to offer a long explanation about why they aren’t investing or is the point to not keep founders left awaiting a decision?

Yeah, you have to respond that you’re not going to invest and why you’re not going to invest, and at least, you know, be respectful, right? No one in the industry would say they’re disrespectful of entrepreneurs; you can’t meet a VC who would say that. But I’m in the industry. I know that people show up 35 minutes late to meetings, that they ghost [founders], that kind of stuff, which is a strong gesture that, ‘what you do is not as important as what I do.’ And I really didn’t want that at the firm.

There’s also part in the book about object lessons, which you say more strongly shapes and changes culture than anything. An object lesson, as you define it, is a “dramatic warning you put into effect after something bad has happened and you need to correct it in a way that will reset the culture and make sure the bad thing never happens again.” Often you say this is seemingly unfair, like firing not only a rogue sales person but the entire chain of command that person reports to. Is this something you’ve done?

That example is one I had to do. You have to fire the chain of command if it’s existential. In that example, if a salesperson is committing fraud and you don’t know about it and you account for that deal fraudulently — you take it as revenue when it’s not really revenue because there’s a side letter — that’s got to be more than just an action. It’s got to be a lesson that everybody in the company knows and tells over and over again. You have to explain it after the fact, so it isn’t misinterpreted, but I think it’s really important.

Like on these privacy issues that keep coming up in these companies, clearly, culturally, the companies aren’t taking them as seriously as they should or like because some of these things are obvious holes. So if you have something like that, and it really is existential, like with Equifax [which in 2017 announced a data breach that exposed the personal information of 147 million people], like, everybody should have been fired on that one, I mean, that’s crazy. I can’t believe they’re still in business. That should have put them out of business.

Relatedly, you suggest in the book that really owning mistakes is crucial. You touch specifically on Hillary Clinton‘s email debacle, and while you suggest it was overblown, you also note that she never said, ‘I really screwed this up’ and say walking the talk is the most difficult skill to get right. You also write that when you make a mistake, it’s important to self-correct very publicly and vehemently. In practical terms, how do you suggest that founders do this?

I didn’t meant to suggest that for sure there’s something Hillary Clinton could have done to prevent the breach. It was more an example of, okay, you you do this, then [her former chief of staff] John Podesta does the exact same thing [using his personal Gmail account for work, an account that was also hacked].

If you take it back to something simple, like, I’m the CEO, and everybody has got to write performance reviews, but I didn’t write mine. If I just let that go, I just didn’t do mine, you know what’s going to happen, right? Maybe 30% of the managers will write their performance reviews, and everybody else will just not get any feedback. But if you then you say, ‘this is a giant mistake. It’s intolerable. I’m literally going to be in the office. I’m not leaving the office. I’m not going home till they’re all written, and I expect everybody here to do the same,’ then you would have corrected for it.

You also include Amazon in the book, which I found interesting given that Amazon has been portrayed for having a kind of brutal culture. But you think part of what’s misunderstood about the company is that it employs so many different types of people, from hardcore geeks to people with retail sales backgrounds, and they probably thrive in different subcultures. How do you create these at a bigger, growing organization? By empowering division heads?

In any software company, you kind of have this issue, you have engineers and salespeople and they’re almost the opposite. It’s almost like jocks and nerds, right? And so what works for the engineer is not necessarily going to work culturally for the sales team. At a tech company, you do want to let your engineers wear their swag or their pajamas or whatever they want to wear. But salespeople are representing the company outside, and they need to look not just professional but [dressed] in a way that makes their customers comfortable when they come in — not make their customers feel like, ‘Okay, you underdressed me, what’s going on?’ That’s not a good feeling when you’re buying something.

So you have to allow for subcultures on certain elements, whereas [in] others, you do want to be universal across the company. I think the exceptions are where you have a monoculture like an Andreessen Horowitz, where [everyone has] more common types of jobs.