Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: When did you first experience the lessons that drove his success – this confrontational, psychologically difficult aspect of management yourself? How would you encourage other people to get a taste of it? They can't just read about it, obviously.
· Ben Horowitz
[00:00:00] S1: What happens to founders is you invent something and then you've got to build a company. You don't know what you're doing and you make mistakes. And then those mistakes really cost the company and you lose confidence. And that leads you to hesitate. That hesitation is what causes the failure mode. So then the company is indecisive or they get very open. All these guys got so open to input from their team and their executives. The team doesn't have the full context. Only the leaders got the context. So even if they're smarter than you, you still likely can have better judgment because you have all the knowledge. But, you know, they defer. And then if you defer to people who work for you, then that creates a weird political situation, because people jump into the vacuum of, "You're not making the decision, I'll make the decision." And then that feels political to everybody else. So that's the pattern people run into. You really kind of have to build up enough confidence in them to have that confrontation. The hardest version of this, by the way, is the reorg. Because reorg is basically, you're redistributing power to make the company work better, to have communication be better, to not have as much conflict. But what's going to happen is somebody who's really good, who you've had for a long time, is going to lose power. And they're going to be fucking pissed. So then if you compromise the organization so they can maintain their power, then you've just redistributed power from the people doing all the work to the executives. And that's a catastrophe. So it's always that thing where people don't want to have that confrontation. They don't want to tell that person, "Look, the organization's here. You helped us ‘til here, but you either have to be happy in this new role or it's going to be a wrap." When you're young and inexperienced, you know, it's going to hurt to tell him that. But I don't know it's going to help me to do this reorg. I'm not experienced enough to know that. I've never done that before. Or I'm going to go with the known avoid hurt to the theoretical avoid hurt. And that's when you wreck your company.
· Patrick O'Shaughnessy, Ben Horowitz
[00:00:00] S0: You were lucky that when you started Andreessen Horowitz, you and Marc had both had tons of operating experience, both together. [00:00:00] S1: Yeah, I still didn't know what I was doing as CEO, though. [00:00:00] S0: Fair enough. [00:00:00] S1: And he didn't know what he was doing either. If you ask Marc about management now, like he's so different than how he actually did it. And it actually makes him mad if you talk about it too much because he's like, "I got such bad fucking advice, man. They told me to hire all these guys, I shouldn’t have done it." [00:00:00] S0: How do you think he's most different? Like, what would he say is, or what do you observe to him to be the most different? [00:00:00] S1: Marc is a super emotional person. And he's just way more in control of it than he was then, in terms of just like the personality. He used to be like zero or a hundred. So he would be like, full of emotion. "What the fuck are we doing?" Or like, "I'm just not going to say anything." Nothing in between.
· Ben Horowitz, Patrick O'Shaughnessy
[00:00:00] S1: Marc is a super emotional person. And he's just way more in control of it than he was then, in terms of just like the personality. He used to be like zero or a hundred. So he would be like, full of emotion. "What the fuck are we doing?" Or like, "I'm just not going to say anything." Nothing in between. [00:00:00] S0: Something I know the least about your firm is like the first, I don't know what period of time. Three days, three months, three years. And I'd love to hear about how you thought about the business right as it was getting started. I'm going to come back to what it is now and those ingredients you mentioned for having the impact you want to have. But this is an incredible part of the world. Silicon Valley, Wall Street, these are institutions that make America great. Lots of people listening have ambitions to do this sort of thing. And I'd love to hear like the very, very early primordial case study of what it was like and what kinds of conversations you were having and what your initial ideas were.
· Ben Horowitz
[00:00:00] S1: Venture capital, first of all, you kind of have to understand the context of it was – there hadn't really been new top-tier venture capital firms. The last one before we started that you'd say is top tier was probably Benchmark, which ostensibly started in 1995, but it didn't really because all those guys came from another firm called Merrill Pickard. That firm was from the 80s. There hadn't really been a new one from the 80s. And if you looked at why – every VC was reputation-based, and so to be top tier, you had to have invested in Apple and Cisco and Google and Yahoo and all the great companies. And you couldn't, from a standing start, get to that. And then if you're not top tier in VC, you're not going to last. Because in a super-hot period, everybody makes money, but the best entrepreneurs will only work with the top tier firms. Because that's how you're going to recruit great engineers, that's how you're going to get follow-on money. Like, everything comes out of that. So you'd never take money from a tier two. And so that's why the tier ones always have better returns. So we knew we had to be tier one, but we had that problem. The idea that we had was venture capital is a great product for LPs, but it's not a great product for entrepreneurs. And so if we could build a better product for entrepreneurs, we could win. And that was the original framework. And the idea that we had for the product for entrepreneurs was – because we had been entrepreneurs – was around what you and I had been talking about, which is if you're a founder who wants to run their own company, you're not getting much. You need so much. You don't have the confidence. You don't have the knowledge. You don't have the know-how. You don't have the network. What if we built a firm that was designed to give you enough confidence, power, network reach, advice, that you could actually be a CEO? And so that was the whole idea behind the firm originally. The second idea we had – VCs didn't ever market themselves at all. Because if you're all based on your investing track record, it's best that it's just magic. Why say anything? Like, keep that a secret. And they weren't talking. And so when we went out and talked, everybody covered it. Instantly, everybody knew we had this product.
· Patrick O'Shaughnessy, Ben Horowitz
[00:00:00] S0: Where did the germ of that specific idea come from? Like, let's be fairly loud relative to what others do from the very beginning. [00:00:00] S1: Well, it's funny because, you know, Marc and I were talking about it. He said to me, "Why don't VCs market?" The original thing went all the way back to kind of the first class of VCs. The Industrial Revolution VCs were J.P. Morgan, Rothschild, Goldman Sachs, et cetera. They were the ones financing these things. And it turned out that these guys were financing both sides of World War II. So they really didn't want any publicity because that would have been an extremely fucking bad thing. To a large extent, that just carried over all the way through Arthur Rock and all these things. And then the reputation thing clicked in, and it was working. So there was no need to do it. And we got a lot of criticism when we did it. Our LPs would say, "You know, like the other VCs say, you guys are egomaniacs. You name the firm after yourselves. You're marketing it like this." And it was so funny because the reason we named the firm after ourselves is we raised money in 2009, which was right on the edge of the financial crisis. And the big objection from LPs was, "You guys are like really good entrepreneurs. You're just going to leave this thing and go build another company and then we're going to be stuck with the fund." And we couldn't get them off of that. So then I had the idea, why don't we just name it with our names and then they know we're staying? And that worked.