November 15, 2021 • 44min

Ben Horowitz: “The IPO From Hell” and Other REAL Lessons from the Startup Crucible

Pattern Breakers

Ben Horowitz, co-founder of Andreessen Horowitz and former CEO of Opsware/Loudcloud, shares his experiences navigating extreme startup challenges and near-death experiences. He provides an unvarnished look at the realities of building a company, with insights on persevering through crises, making difficult decisions as CEO, and why startups are so challenging yet rewarding.

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Key Takeaways

Startups face extreme challenges that require extraordinary grit and perseverance to overcome. Even successful companies like Netscape and Loudcloud faced near-death experiences.
The CEO role is incredibly difficult with no excuses - you have to find a way to succeed despite seemingly insurmountable obstacles.
Going through major crises makes you a better leader and strengthens the company if you can survive them.
Focus on what you can control and don't waste energy on external factors - "Nobody cares, just run your company."
Be prepared to make extremely difficult decisions to keep the company alive, even if they seem drastic.
Building a great company is one of the most noble and impactful things you can do, despite the immense challenges.

Introduction

Ben Horowitz, co-founder of Andreessen Horowitz and former CEO of Opsware/Loudcloud, shares his experiences navigating extreme startup challenges and near-death experiences. He provides an unvarnished look at the realities of building a company, with insights on persevering through crises, making difficult decisions as CEO, and why startups are so challenging yet rewarding.

Topics Discussed

Early Days at Netscape (2:14)

Ben joined Netscape as a product manager about 6 months before their IPO. The company was experiencing explosive growth but faced an existential threat from Microsoft bundling Internet Explorer with Windows 95.

Netscape went public just 16 months after founding - extremely fast compared to today's average of 8+ years
Microsoft aggressively targeted Netscape, using its Windows monopoly as leverage against partners/customers
Ben had to quickly build out the web server team and product to compete with Microsoft's IIS

"Microsoft has told us if we don't break this deal, we don't get Windows 95...we're going to go bankrupt in like three weeks." - Ben recounting a partner being forced by Microsoft to break a deal with Netscape

Starting Loudcloud (14:08)

After AOL acquired Netscape, Ben teamed up with Marc Andreessen to start Loudcloud in 1999, aiming to provide cloud computing infrastructure for the booming dot-com companies.

The idea was ahead of its time but seemed obvious and urgently needed
They scaled up extremely quickly to meet perceived demand, investing heavily in infrastructure and hiring
When the dot-com crash hit in 2000, many of their customers went bankrupt

"We couldn't sell our way out of it. We couldn't cut our way out of it. There was no way out, but kind of up and out." - Ben on the challenges after the dot-com crash

Going Public in a Crisis (21:58)

With private markets closed, Loudcloud was forced to go public in March 2001 despite being only 18 months old and burning massive amounts of cash.

They had only $2 million in trailing 12-month revenue at IPO
BusinessWeek called it "The IPO from H**l" while they were on the roadshow
They had just 3 weeks of cash left when they went public

"Going public was that, like, we went public just in the nick of time and, like, going public, we got so destroyed in the press for it...But the alternative was bankruptcy."

Pivoting the Business (27:34)

After going public, Loudcloud continued to face major challenges including:

40% of customers going bankrupt in the first quarter
Having to lower revenue guidance on their first earnings call
The 9/11 attacks disrupting business
Their largest customer Atriacs going bankrupt, leaving a $25 million hole

Facing imminent bankruptcy, Ben came up with the idea to:

Sell the Loudcloud services business to EDS for $63 million
License the Opsware software to EDS for $52 million
This allowed them to pivot to being a software company and stay alive

"We sold Loudcloud, the services company, and keep the software that ran it. And I still don't know how we pulled that deal off. That was another kind of, like, miracle thing."

Dealing with Short Sellers (32:52)

As a small public company, Opsware faced constant pressure from short sellers trying to drive them into bankruptcy:

Hedge funds would spread false rumors to customers and press to drive the stock down
This created a vicious cycle, making customers nervous and impacting sales
At one point, Michael Ovitz unexpectedly bought $10 million of stock, blowing up the short sellers

"There was, like, huge short pressure...And they had to press the stock. We had gone up to, like, $3, and they had pushed it down to $1.90 cent."

Selling to HP (35:33)

Opsware ultimately sold to HP for $1.6 billion in 2007, a huge turnaround from their low point of $0.35/share. The negotiation process was extremely challenging:

BMC and HP were in a bidding war
Their auditor Ernst & Young threatened a restatement mid-negotiation
Ben had to get 3 major customers to amend contracts in 24 hours to avoid restatement
This disrupted negotiations and nearly derailed the deal

"I actually got f**king all three companies to amend their contracts in 24 hours. But by that time, like, the whole negotiating dynamic had gotten screwed up."

Advice for Founders (39:09)

Ben shares his perspective on navigating extreme startup challenges:

Every great company goes through major crises - even seemingly smooth successes like Airbnb faced existential threats
Surviving these challenges makes you a dramatically better leader and strengthens the company
You shouldn't start a company if you're not committed to living through extreme difficulties
Focus on what you can control - "Nobody cares, just run your company"

"I don't think you should start a company if you're not committed to living through that kind of h**l and you don't know if you're gonna make it or not."

The Noble Pursuit of Building a Company (41:14)

Despite the immense challenges, Ben views building a company as one of the most impactful things you can do:

It's not glamorous, but you're creating something larger than yourself
Great companies like Moderna have tremendous positive impact on the world
If you have the will and idea, building a company is "the best thing you can do with your life"

"Building a company is not glamorous and you're not. It's one of the hardest things, but it's one of the most noble things. You know, you're doing something larger than yourself."

Conclusion

Ben Horowitz provides a sobering yet inspiring look at the realities of building a startup. His experiences navigating multiple near-death experiences at Loudcloud/Opsware highlight the extreme challenges founders face and the extraordinary grit required to overcome them. While not sugar-coating how difficult it is, Ben ultimately views building a company as one of the most noble and impactful pursuits. His advice to focus on what you can control and persevere through crises offers valuable wisdom for founders embarking on the startup journey.