Ben Horowitz: Tech’s New Andy Grove

If Silicon Valley is rich, how come it ain’t smart? How is it that we consistently generate innovative companies but rarely produce management thinkers of consequence?

Part of the problem is that many technology leaders are neurotic. They need to be: nobody really knows what is going to work and your idea will most likely fail. So we favor CEOs who combine unjustifiable confidence, foaming and often justified paranoia, youth, and an engineering degree. Stir in a large quantity of money and you are more likely to breed a predatory peacock than someone with memorable management insights.

The great exception is Andy Grove, the legendary CEO of Intel, termed by historian Richard Tedlow “one of the master managers in the history of American business.” Many Silicon Valley CEOs are in awe of Grove – and this is not a group that is easily awed. In the early 1990s, Intel was a successful fast-growing public company that had created and dominated the global market for memory chips.

Grove stood up and announced that memory chips had become a lousy business, so Intel would abandon it and start selling microprocessors instead. This was like McDonalds announcing that they were quitting the burger business and would instead become a chain of gourmet espresso cafes. They would still be in the food business, but the skills, the product marketing, the branding, the pricing, the customers, would all need to change radically. And quickly. Grove pulled it off and, perhaps as remarkably, wrote two classic management books afterwards: High Output Management and Only the Paranoid Survive.

If Andy Grove has a doppelgänger, it is surely Ben Horowitz. Both are foreign-born: Grove is Hungarian; Horowitz is technically a Brit. Grove graduated from UC Berkeley in the early sixties, while Horowitz grew up in Berkeley in the mid sixties, son of leftist turned conservative David Horowitz. Both men have Jewish ancestors in a valley that seldom acknowledges the leadership contributions of those raised Jewish (a quick count would seem to include current or past leaders of Intel, HP, Google!, Yahoo, 3Com, Oracle, Facebook, and Applied Materials). Horowitz joined Silicon Graphics out of college and followed its CEO Jim Barksdale to Netscape, where he went to work for Mark Andreessen, the wunderkind author of the first practical web browser and popular symbol of technology entrepreneurship. Horowitz became Netscape’s first product manager.

After AOL bought Netscape, Horowitz and Andreessen teamed up to form LoudCloud, one of the first companies to host software as a cloud-based service. Horowitz served as CEO. The company was founded on 9/9/99 and went public in 2001. Shortly thereafter, Horowitz had his Andy Grove moment: like memory chips, cloud hosting was quickly becoming commodity. Horowitz sold the managed services operations to EDS in 2002 and focused instead on selling the software that they had developed to run LoudCloud. Enterprise software was a completely different business than managed services, which at the point Horowitz made the change accounted for 100% of LoudCloud’s revenues. Horowitz renamed the business OpsWare, acquired several companies, grew OpsWare to $100 million in revenue and sold it to HP for $1.6 billion in cash. After a stint as a senior VP at HP, Andressen and Horowitz formed a venture fund and now dispense wealth and wisdom from a nice suite of offices on Sand Hill Road. (They invest in more than startups; among other things, they own a majority of Skype).

Following his hero Grove, Horowitz has taken to the pen. This being 2010, he publishes blog posts, not books. Most posts are truly insightful, sharply written, and prefaced by an epigram from a rap artist or two (a flourish that somehow escaped Andy Grove).

A sample from Ben’s Blog:

Why We Prefer Founding CEOs.

“The technology business is fundamentally the innovation business. Etymologically, the word technology means “a better way of doing things.” As a result, innovation is the core competency for technology companies. Technology companies are born because they create a better way of doing things. Eventually, someone else will come up with a better way. Therefore, if a technology company ceases to innovate, it will die.

“These innovations are product cycles. Professional CEOs are effective at maximizing, but not finding, product cycles. Conversely, founding CEOs are excellent at finding, but not maximizing, product cycles. Our experience shows—and the data supports—that teaching a founding CEO how to maximize the product cycle is easier than teaching the professional CEO how to find the new product cycle.”

Ron Conway Explained

“… Ron Conway has invested in a huge percentage of the top technology companies in the world, but entrepreneurs often ask me why Ron would be a good investor for them. When I talk to venture capitalists, they know that Ron is important, but they seldom know why. Gary Rivlin, despite writing an entire book on Ron, completely failed to understand what Ron does (which is why the book is so bad and not worth reading). Speaking as an entrepreneur, if I were to start a firm today and could only have one investor, it would be Ron Conway. This post explains why…

“….we were really in trouble because the customer was signing a long-term contract with our competitor later that week. We had already appealed to the President of the division; the only further escalation points were to the CEO or Chairman. We had already tapped out our VC contacts. If we lost this customer, as Alfred dryly pointed out, it was unlikely we’d be able to get our revenue over our fixed costs in any reasonable timeframe. I asked Alfred what about any of our angel investors, so we went through them and none seemed likely to be able to pull this off.

“Alfred said, “Well there is this one other investor, Ron Conway.” I didn’t know Ron at the time, and his investment was quite small. But we had nothing to lose by reaching out. So sometime after 11pm, I wrote Ron and essentially said: “hello, you don’t know me, I’m an executive at a company you’re an investor in, and we need a meeting—in person—with the CEO himself of this Fortune 50 company—this week—and if you can’t make this happen, hey that’s ok, but we may be going down—sorry.”

Ron wrote back in literally 2 minutes and said, in what I have learned is Ron’s distinctive email style (immediate, short, all caps), “AM ON IT.” The next morning, Ron had done it. Tellme went on to win an eight figure contract that led to a nine figure contract. That’s a lot o’ money from a desperate email from someone he’d never met at 11pm.

Why is it Hard to Bring Big Company Execs into Little Companies?
“So you’ve achieved product market fit and you are ready to start building the company. The board encourages you to bring in some “been there done that” executives who will provide the right financial, sales and marketing expertise to help you transition from a world-class product to a world-class business. You see a few candidates that you like, but the VC on the board says: “You are under shooting. This is going to be a huge company. We can attract better talent.” So you aim high and bring in a super accomplished head of sales. This guy has run huge organizations with thousands of employees. He has stellar references and even looks the part. Your VC loves him, because he has an awesome resume.

Six Months Later…

“Fast-forward six months and everyone in the company is wondering why the sales (or marketing or finance or product) guy who has produced nothing got such a monster stock option package. Meanwhile, the people doing all the work have much fewer options. Even worse than not getting your money’s worth, now the company is in trouble, because you’ve been missing the numbers as your super expensive executive sits on his butt. What the frak just happened?”

Horowitz writes as a guy who has been in enough technology startups and seen them through enough crises and stages of growth that he gets it. He may not have the network of a Ron Conway (although he is in the Conway network, so he automatically does) but he has real pattern recognition when it comes to the aches and pains of growing a technology business. He is worth reading not only for managers in technology companies – but for managers in industries with less competitive pressure as well. He is a huge talent and it is not hard to see why Marc Andreessen chose to go into business with him again.

Publishers take note: a business best seller is taking shape before your eyes.