He knew the pros and cons better than anyone else. More important, everybody always seemed to defer to Bill in these kinds of sticky situations, because Bill had a special quality about him. At the time, Bill was in his sixties, with gray hair and a gruff voice, yet he had the energy of a twenty-year-old. He began his career as a college football coach and did not enter the business world until he was forty.
Bill is extremely smart, super-charismatic, and elite operationally, but the key to his success goes beyond those attributes. People offer many complex reasons for why Bill rates so highly. No matter who you are, you need two kinds of friends in your life. The first kind is one you can call when something good happens, and you need someone who will be excited for you.
Not a fake excitement veiling envy, but a real excitement. You need someone who will actually be more excited for you than he would be if it had happened to him. The second kind of friend is somebody you can call when things go horribly wrong—when your life is on the line and you only have one phone call. Who is it going to be? Bill Campbell is both of those friends.
Our choices are to either keep working on private funding or start preparing to go public. As expected, Bill broke the dead air.
Perhaps there was another way. In addition to the issues I had outlined for the board, our business was complex and hard for investors to understand. We typically signed customers to two-year contracts, and then recognized the revenue monthly.
This model is now common, but it was quite unusual then. Given the fast growth in our bookings, revenue lagged behind new bookings by quite a bit. Since earnings are driven by revenue and not bookings, we had gigantic losses. In addition, the stock option rules at the time made it seem like our losses were about four times as large as they actually were. These factors led to extremely negative press heading into the IPO.
It was not at all clear that we would be successful with the offering. The stock market was crashing, and the public market investors we visited were visibly distressed. At the end of the preparation process and after the banks had signed off, our director of finance, Scott Kupor, received a call from our banker at Morgan Stanley.
We gave them all the documents. Second, the company had fallen so far in value that we would have to reverse split the stock two for one. I thought the first part would go okay, but I was worried about how the second piece of news would be received.
We had to reverse split the stock to get the price per share high enough to go public. Each employee owned a certain percentage of the company. The company had a total number of shares of stock. Nothing changed.
Oh, but it did. As we grew from zero to six hundred employees in less than eighteen months, the stage was set for hyperbole and momentum. Some overly excited managers oversold the dream. Employees then calculated their fantasy price per share and figured out how much money they would make. I was aware that this was going on, but I never thought we would reverse split the stock, so I never worried about it. Like many other things that I screwed up during that period, I should have worried. My wife, Felicia, came to the all-company meeting as she always did.
This time her parents were in town, so they came, too. The meeting did not go well. The news of the reverse split made them even less happy—in fact, it infuriated them. I had literally cut their fantasy number in half, and they were not pleased about it. Nobody said harsh things directly to me.
My in-laws, however, heard everything. She was discouraged. My in-laws were depressed. The employees were pissed. The road show was brutal. The stock market crashed daily, and technology stocks were to blame. We were going to go bankrupt for sure. I did not sleep more than two hours total during that entire three-week trip.
Three days into the tour, I received a call from my father-in-law. John Wiley had been through a lot in his seventy-one years. As a boy, his father was murdered in Texas. In order to survive, he and his mother moved in with an unkind man and his nine children.
There, John was abused, made to stay in the barn with the animals, while the other children ate his dinner. Eventually, John and his mother left that cruelty by walking for three days down a dirt road, carrying everything they owned.
John would recall that journey in great detail his entire life. As a young man, before finishing his high school education, he left home to fight in the Korean War so that he could support his mother. He tragically saw two of his children die before he reached the age of sixty. He had a hard life and was used to bad news. John Wiley did not call me for casual reasons. If he called, it was serious, possibly even deadly serious. What happened? I had been so focused on work that I had lost focus of the only thing that really mattered to me.
Once again, I neglected to worry about the one thing that I should have worried about. You just take care of what you need to do. I started sweating so hard that I had to change my clothes right after the call. I had no idea what to do.
If I returned home, the company would surely go bankrupt. If I stayed. I called back and had him put Felicia on the phone. Get the IPO done. There is no tomorrow for you and the company. One day I wore a mismatching suit jacket and suit pants, which Marc pointed out to me midway through the meeting. I had no idea where I was half the time. Then, the day before the offering, Yahoo, the lighthouse company of the Internet boom, announced Tim Koogle, its CEO, was stepping down. We had hit the nadir of the dot-com crash.
Neither Goldman Sachs nor Morgan Stanley—the two banks that took us public—even offered us the traditional closing dinner. It may have been the least celebratory IPO in history. But Felicia was feeling better, and we had pulled it off. How do you even know who Tim Koogle is? The whole thing is over. They fired Koogle. For most CEOs, the night before their public offering is a highlight. For me, it was a highlight of depression. Customers continued to churn, the macroeconomic environment worsened, and our sales prospects declined.
As we got closer to our first earnings call with investors, I conducted a thorough review to make sure that we were still on track to meet our guidance. The good news was that we would meet our forecast for the quarter. The bad news: There was very little chance that we would meet our forecast for the year. These were exceptional times, but resetting guidance on your very first earnings call was still a very bad thing to do.
As we discussed where to reset guidance to investors, we were faced with a tough choice: Should we try to minimize the initial damage by taking down the number as little as possible or should we minimize the risk of another reset?
If we reduced the number by a lot, the stock might fall apart. Resetting revenue guidance also meant resetting expense guidance, and that meant laying people off. It was the clearest indication yet that I was failing.
Failing my investors, failing my employees, and failing myself. This was a huge slap in the face and a massive reneging of the promises they made when they were pitching us, but times were tough all around, and we had no recourse.
Despite the mammoth negative momentum, we soldiered on, and were putting together a fairly strong quarter in the third quarter of Then, on September 11, terrorists hijacked four jetliners, flying two into the World Trade Center and another into the Pentagon, and in the end throwing the whole world into chaos. It turned out that our largest deal that quarter was with the British government. Our champion on the deal called to inform us that Prime Minister Tony Blair had redirected the funds for our deal to the war chest—literally.
Nonetheless, the close call was a sign to me that the entire operation was far too fragile. I got another sign when our largest competitor, Exodus, filed for bankruptcy on September We studied the deal for weeks, modeling what the two companies might look like together, figuring out product offerings and cost synergies.
My CFO at the time was extremely excited about the deal since it would make use of his favorite skill set—cost cutting. Toward the end of the process, I took a two-day vacation to Ashland, Oregon.
Some things are much easier to see in others than in yourself. I had a great deal of trouble sleeping as I thought about our fate.
In each scenario, step one was separating Opsware from Loudcloud. Opsware had been written to run only in Loudcloud and had many constraints that prevented it from being a product that would work in any environment. He said about nine months, which would prove to be quite optimistic. I immediately assigned a team of ten engineers to start the process in a project we called Oxide.
At this point, our business was still a cloud business, and I gave no indication to the rest of the staff that I might have other ideas. Doing so would have instantly doomed the only business we were in, as everyone would want to work on the future and not the past. I said that Oxide was simply another product line.
This statement deeply worried two of my employees who had graduated from Stanford Business School. They scheduled an appointment and presented me with a slide deck detailing why my decision to start Oxide was quixotic, misguided, and downright stupid. They argued that it would steal precious resources from our core business while pursuing a product that would surely fail. I let them present all forty-five slides without my asking them a single question. By virtue of my position and the fact that we were a public company, nobody besides me had the complete picture.
I knew we were in deep, deep trouble. Nobody besides me could get us out of the trouble, and I was through listening to advice about what we should do from people who did not understand all the pieces. This was wartime. The company would live or die by the quality of my decisions, and there was no way to hedge or soften the responsibility. If everybody I had hired—and who gave their lives to the company—could be sent home with little to show for it, then there were no excuses that would help.
Yes, most things could still be delegated and most managers would be empowered to make decisions in their areas of expertise, but the fundamental question of whether— and how—Loudcloud could survive was mine and mine alone to answer. Not a great win, but very few companies met expectations that year, so I took it as a small victory.
In order to do so, we needed more cash. Given our momentum in the market, raising money was now barely possible and the only way to do it was in the form of a seldom-used construct called a private investment in public equity PIPE. It was like the world stopped spinning. It was worse than I thought. We put the PIPE road show on hold and then issued a press release. Loudcloud was doomed. I had to deploy Oxide. The situation was complex, because of our employees worked in the cloud business, which represented all of our customers and generated percent of our revenue.
I could not tell the employees or even my executive team that I was considering abandoning the cloud business, because our stock price would have collapsed to nothing, killing any hope of selling the company and avoiding bankruptcy. John ran business and corporate development, but more than that he was the greatest big-deal person I had ever known. Whom would you choose?
I told John that he and I needed to execute a contingency plan, and we needed to get started immediately. Next I called Bill Campbell to explain why I thought we needed to exit the cloud business. Essentially GO had attempted to build an iPhone-like device in and ended up being one of the largest venture capital losses in history. I took Bill through my logic: The only way out of the cloud business without going bankrupt was through higher sales, because even if we laid off percent of the employees, the infrastructure costs would still kill us without a sharper sales ramp.
I further explained that the dwindling cash balance decreased customer confidence, which in turn hurt sales, which in turn caused the cash balance to decline further. John and I mapped out the ecosystem to figure out which companies might be interested in acquiring the Loudcloud business. Unfortunately, many of the prospective buyers were in dire straits themselves. Giant telecoms Qwest and WorldCom were embroiled in accounting fraud cases, and Exodus had already gone bankrupt.
Jim valued the Loudcloud brand and our reputation for technological superiority. EDS, on the other hand, showed no interest. Needs always trump wants in mergers and acquisitions. Now with two potential bidders, we put things in motion.
The final step was to set the timeline for the endgame. John and I debated the best way to do this as the deadlines that we planned to set were clearly artificial. When he was twenty-eight years old, he started a talent agency, Creative Artists Agency CAA , which grew to dominate the entertainment industry. When we arrived in his offices, the place buzzed with activity. Michael seemed to be engaged in a dozen different activities, but finally came out to meet with John and me.
We explained the situation: We were racing against time and had two bidders, but no specific incentive to coax them toward the end of the process. Within that philosophy, I have certain beliefs. I believe in artificial deadlines. I believe in playing one against the other. I believe in doing everything and anything short of illegal or immoral to get the damned deal done. We thanked him and headed to the airport. We called both EDS and IBM to let them know that we would complete the process over the next eight weeks and sell the Loudcloud business to someone.
If they wanted to play, they had to move on that schedule or withdraw immediately. The Michael Ovitz artificial deadline was in full effect. We knew that we might have to go past it, but Michael gave us confidence that going past the deadline was a better move than not having one.
After seven weeks, we came to an agreement with EDS. We would retain the intellectual property, Opsware, and become a software company. I thought it was a great deal for both EDS and us. It was certainly far better than bankruptcy.
I felt pounds lighter. I could take a deep breath for the first time in eighteen months. Selling Loudcloud meant selling about employees to EDS and laying off another I called Bill Campbell to tell him the good news: The deal was signed and we would be announcing it in New York on Monday. They need to know whether they are working for you, EDS, or looking for a fucking job. He was right. I sent Marc to New York and prepared to let people know where they stood.
That small piece of advice from Bill proved to be the foundation we needed to rebuild the company. Only a CEO who had been through some awful, horrible, devastating circumstances would know to give that advice at that time. I had sold all of my customers, all of my revenue, and the business they understood. I realized that nobody besides me knew how bad things had become and nobody besides me believed in the future, so I decided to take the employees off-site and resell them on the opportunity.
I rented forty rooms in a low-end motel in Santa Cruz and took our remaining eighty employees there for one night of drinking and one day of explaining the Opsware opportunity. At the end of the day, I tried to be as honest as humanly possible.
Wall Street does not believe Opsware is a good idea, but I do. Since this is a brand-new company and a brand-new challenge, I am issuing everyone new stock grants today. All that I ask is that if you have decided to quit that you quit today. But, we need to know where we stand. We need to know who is with us and whom we can count on. We cannot afford to slowly bleed out. You owe it to your teammates to be honest. Let us know where you stand. Of the other seventy-eight, all but two stayed through the sale to Hewlett-Packard five years later.
After the off-site gathering, the first thing I had to do was increase the stock price. The board debated the best way to do this—reverse-split the stock, a stock buyback, or other options—but I felt we just needed to tell our story. The story was simple. Next, I had to ship a product. Opsware had been built to run Loudcloud and Loudcloud only.
It was not yet ready for the world. In fact, parts of the code were hardwired to physical machines in our building. Beyond that, the user interface was far from ready for prime time. The component that managed the network was called the Jive and featured a purple pimp hat on the front page. Project Oxide gave us a running start, but our engineers were nervous.
They brought me a long list of features that they felt we needed to complete prior to entering the market. They pointed to competitors with more finished products. As I listened to their lengthy objections, it became clear to me that the features the engineers wanted to add all came from Loudcloud requirements. Paradoxically, the only way to do that was to ship and try to sell the wrong product.
We would fall on our faces, but we would learn fast and do what was needed to survive. Finally, I had to rebuild the executive team. Every one of them was great at their old jobs, but not qualified for their new jobs.
It was miserable, but necessary, to see them all go. The strategy and the team came together, and the business started working. It felt like we were finally out of the woods. Naturally I was wrong. And they were not happy. Their Opsware deployment had stalled out and not met its goals as they had run into multiple difficult technical issues. EDS wanted to cancel the deployment, end the contract, and get their money back. Giving EDS their money back would mean the end of Opsware. Getting into a big dispute with a customer that accounted for all but 10 percent of our revenue would also mean the end of Opsware.
We were doomed again. I called my top two lieutenants on the account in for a meeting. Jason Rosenthal was the very first employee I had hired and the best manager in the company. A Stanford graduate with an impeccable memory and a genius mind for managing all the details of a complex project, Jason was in charge of the EDS deployment. Anthony Wright grew up in the tough part of Pittsburgh, the son of legendary street fighter Joe Wright, and had earned a black belt in several martial arts himself.
Anthony was the relationship manager for EDS. I began with an assessment: What happened? It turned out, a lot of things. They had data centers connected by kilobit links at a time when no other customer connected at speeds even twenty times that slow. And the people were not our people. Beyond that, our product was far from perfect and every one of the many bugs and shortcomings was a reason to stop the deployment.
I took a long pause, rubbed my head, and then began to give instructions. This is not a scenario where an excuse will do. This is a must win.
We cannot lose this one. Whatever you need, I will make sure you get it. Anthony, Jason is going to work to deliver all the value that EDS expects, but he will fail. You are in charge of finding the exciting value. When you do, we will deliver it. Anthony and Jason touted the Opsware technology and potential cost savings. All I hear about all day is how much this product fucking sucks. He was dead serious.
This is a terrible moment for you and for us. Allow me to use your phone, and I will call Ben Horowitz and give him your instructions. But before I do, can I ask you one thing? If my company made the commitment to fix these issues, how much time would you give us to do that? It was good news: We had exactly sixty days to fix all the problems and make the deployment work.
If we did not, we were done. We had sixty days to live. An early lesson I learned in my career was that whenever a large organization attempts to do anything, it always comes down to a single person who can delay the entire project.
These small, seemingly minor hesitations can cause fatal delays. While many. Ben Horowitz analyzes the problems that confront leaders every day, sharing the insights he's gained. A lifelong rap. While many people talk about how great it is to start a business, very few are honest about how difficult it is to run one.
Ben Horowitz analyzes the problems that confront leaders every day, sharing the insights he's gained developing, managing, selling, buying, investing in, and supervising technology companies. A lifelong rap fanatic, he amplifies business lessons with lyrics from his favorite songs, telling it straight about everything from firing friends to poaching competitors, cultivating and sustaining a CEO mentality to knowing the right time to cash in.
Filled with his trademark humor and straight talk, The Hard Thing About Hard Thing s is invaluable for veteran entrepreneurs as well as those aspiring to their own new ventures, drawing from Horowitz's personal and often humbling experiences.