Episode 5

The Oh Shit Moment

Hosted by Okta's Frederic Kerrest and Epic Magazine's Joshua Davis

Featured on iTunes' Business New and Noteworthy

You aren’t hitting your targets, key team members are quitting, and you're being thrown out of board meetings. It feels like your company is falling apart and you don’t know how to hold it together. What do you do now? In this episode, we’ll discuss those "oh shit" moments, and how some of the most innovative founders discovered the will to persevere.

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Guest List

Amy Pressman

Cofounder and board member of Medallia

Ben Horowitz

Cofounder and general partner of the venture capital firm Andreessen Horowitz

Alexander Asseily

Founder of technology company Jawbone and Zulu Group

Transcript

00:04
Alex Asseily
I was faced with this slightly peculiar thing of being completely burnt out and having to actually tell myself the world wants the headset. You've gotta keep your head down for another year.
00:17
Ben Horowitz
We had a saying. If your guts aren't boiling, you're not even trying.
00:20
Amy Pressman
Sometimes you think you're crazy and you just have to keep pushing through.
00:28
Joshua Davis
Welcome to Zero to IPO. A show about growing a company from just a glimmer in your eye into a massively successful public company. I am Joshua Davis, co-founder of Epic Magazine and a Wired Contributing Editor.
00:45
Frederic K.
And I'm Frederic Kerrest. Co-founder of Okta.
00:47
Joshua Davis
Today on the show, we're going to be looking at the stage in a company's growth that we're calling the oh shit moment.
00:53
Frederic K.
I thought we were calling it the kinda shit moment?
00:56
Joshua Davis
The thing is, that's what this show's about. There's all different kinds of oh shit moments. There's the little ones, the big ones, the ones that will end your company. And we have a very interesting collection of guests who have all been through this moment where you are like, "What the fuck am I going to do? How am I going to get out of this?"
01:17
Frederic K.
Today, we're going to be hearing from Alex Asseily of Jawbone, Amy Pressman of Medallia and Ben Horowitz of Andreessen Horowitz. They're going to be talking to us about what happened in that moment. Through that moment. They're going to set the context and they're going to tell you how they came out of it and what happened afterwards.
01:35
Joshua Davis
Our first guest today is Amy Pressman who is the co-founder of Medallia, which is now a billion dollar software company that specializes in making customer feedback easy. But in the early days of the company, Amy and her co-founder were faced with a national tragedy and had to actually decide whether or not to fold the company. There was something I had read that you had said that I think is maybe a good jumping off point, which is that you're not interested when people just say, "Yes." You're interested when people say no to you.
02:12
Amy Pressman
Right.
02:13
Joshua Davis
Talk about that and describe what that is.
02:15
Amy Pressman
It's the feeling where you have a vision. You have an idea. And you pitch it to someone and they tell you, "It can't be done. No way. It's never been done before." Instead of feeling dejected and deflated, you're like, "Okay. How are we going to change this person's mind? How are we going to address that issue?" And you just get more energized and more into doing it. You want to turn that no into a yes.
02:42
Joshua Davis
And you don't end up just thinking you're crazy because everybody says you're off your rockers?
02:49
Amy Pressman
Sometimes you think you're crazy. You have moments of doubt but I think, no. When you have a vision, you have an idea of what you want the company to be or the product to be, you just have to keep pushing through. I mean I by no means fit the standard ideal of an entrepreneur in Silicon Valley. When I started, I was in my 30s. I was a mother with two kids. I had one while I was in the early stages of the company. We bootstrapped for 10 years. I mean there are so many ways-
03:25
Joshua Davis
You build it with ... You started it with your husband?
03:27
Amy Pressman
I started it with my husband. That's more common than you think actually.
03:27
Joshua Davis
Oh, okay.
03:31
Amy Pressman
That's actually quite common. But the point is, we weren't going down the checklist of get a Series A, get a whatever. But we were really passionate about the idea. So, we didn't back down. Let me give you the most stark example of that. I remember it incredibly well. Our original idea for our technology, we were pitching to hospitality and we went and we pitched a free pilot to a large hotel company on September 10th.
04:06
Joshua Davis
Aka, Hilton.
04:08
Amy Pressman
Yeah. That's right. You've been doing your reading. We came back, and woke up, and the next morning was 9/11. Obviously that was an incredibly devastating moment for the world in a very micro way for us, we knew that there would be no funding for startups. The bubble had been softening. Now it was completely deflated. We knew that we were targeting hospitality that didn't seem like a great target industry as your first industry post 9/11.
04:35
Joshua Davis
That industry just went south.
04:39
Amy Pressman
People either stopped traveling all together or they dramatically reduced their travel. I remember walking with my co-founder around the block. We had opportunities to go back to previous employers and whatnot. But I remember walking around the block saying, "I don't know how we're going to do this. I don't know how we're going to do this. Should we give up? Should we bail?" And we said no. We know this is the right thing. We had no idea how we were going to do it, but we ... It was almost like this moment where we doubled down. That's when I knew we were truly entrepreneurial because it looked so bleak and yet you had so much passion for the vision that you weren't going to give up. We were quite lucky. As it turned out, Hilton called us the next day or a couple of days later and said they wanted to do the free pilot. One of the ironic things is that, and this is awful to say, but 9/11 turned out to be beneficial to us because it's so ... It was such a disruption for the hotel industry that they were looking at all kinds of ways to cut budgets. It turned out we represented a cheaper better way of doing what they had historically done. So, it ended up, I think, accelerating our traction in that industry. But we had no way of knowing at that moment. But it was a massive no, and we just kept thinking, "How are we going to turn this into a yes?"
06:03
Joshua Davis
By cheaper, you mean free?
06:05
Amy Pressman
Well, we didn't stay with the free model.
06:09
Joshua Davis
But that was a key selling point at the beginning. Was like, "Hey, I've got an offer you can't refuse."
06:13
Amy Pressman
That is true. But we did structure into the original deal that if we hit certain milestones they would convert into a paying customer.
06:24
Joshua Davis
In that story you're describing, was this September 12th? Was this the next day that you're walking around?
06:32
Amy Pressman
We were walking around September 11th. I don't know if you remember-
06:35
Joshua Davis
In New York?
06:35
Amy Pressman
No, no, no. We were in Palo Alto. I remember we went to the office. We didn't know what to do. I mean everybody was quite dazed and trying to process that day. But I do remember just walking around the neighborhoods outside of University Ave and Palo Alto. The existential question. Are we going to continue this thing? And we did. I mean it's scary. It's both of us, we have no income, we have two kids, we're living in Palo Alto. I mean that was not a super easy decision to make. In hindsight, it looks like it was right decision but it was a pretty scary one.
07:12
Joshua Davis
Was there any difference of opinion? Do you guys have a yin and yang where you'll say, "I think we should stick it out." And your husband will be, "No. I don't think so." Or were you just immediately both like, "We're doing this."
07:26
Amy Pressman
I think we were both all in. We definitely have differences of opinion but that was not one of them. We were all in.
07:35
Joshua Davis
What would you have done Freddy? In this situation? Personally, I think I would have been like, "You know what? Maybe we shouldn't go into the hotel business."
07:47
Frederic K.
What do you mean maybe? For sure. I would have folded my tent and gone home. Probably gotten out the Xbox.
07:54
Joshua Davis
By the time you got around that block.
07:56
Frederic K.
I would have only gone half way around the block.
07:58
Joshua Davis
I wouldn't have even gone around the block. I would have just gone home.
08:00
Frederic K.
I would have let you keep walking. I would have stopped and turn around and said, "I forgot something."
08:03
Joshua Davis
Got in my car, got home.
08:07
Frederic K.
Busted out the Xbox.
08:08
Joshua Davis
I think though that this says something important about the mentality perhaps of an entrepreneurship. You have to be so committed and in love with your idea that even in the darkest of dark days, you still see the light.
08:27
Frederic K.
Yeah. I mean you have to be obsessed. You have to wake up in the middle of the night thinking this is a good idea. And then when people show up and say, "This is a horrible idea." You have to say, "yeah, this is an even better idea than I thought." So, yes. That's definitely the case.
08:39
Joshua Davis
What Amy's saying is when faced with the oh shit moment, don't fold. Double down. Did you at Okta have any similar oh shit moments, Freddy?
08:49
Frederic K.
Yeah. I mean there were definitely some early ... I think 2011 we had some where we just couldn't get any big customers to sign up. We just had a couple small customers and we were missing our projections by a mile. Our graphs and our projections said that we were going to be doubling revenue and in fact revenue was flat and we were losing customers.
09:08
Joshua Davis
What was it like going into the board and saying, "I know you thought we were going to be doubling our revenue but in fact, we're going the opposite direction."
09:15
Frederic K.
No it was great. I got thrown out of two board meetings in a row for being controversial in my commentary on this fact. The investors were like, "You're just missing the number." And I said, "You're missing the point." "No, we're not missing the point. You're missing the number."
09:32
Joshua Davis
Were you trying to defend the situation and they just wanted you to own up to it and be, "Hey, yes, we haven't delivered." What was the controversy?
09:41
Frederic K.
The controversy was that we needed to make serious change in the way that we were going about our go to market approach.
09:49
Joshua Davis
And you didn't want to do that?
09:51
Frederic K.
It wasn't clear to me that that was the right decision. I thought that we could continue on where we were and the tables were going to turn.
09:58
Joshua Davis
You weren't seeing the lessons of the oh shit moment.
10:01
Frederic K.
I was not seeing the lessons yet. So I was excused to go think about those lessons and then-
10:06
Joshua Davis
You were told to leave the room.
10:07
Frederic K.
I was told to leave the-
10:07
Joshua Davis
Leave the board meeting.
10:08
Frederic K.
Multiple times.
10:09
Joshua Davis
So, after the second time you came back into the room, had you seen the light?
10:15
Frederic K.
You mean the second board meeting where I was kicked out? These are two different board meetings.
10:19
Joshua Davis
Oh, I see. Two different board meetings.
10:21
Frederic K.
Two successive board meetings. I realized I might get fired from my own company. That was not a very happy place.
10:29
Joshua Davis
And what was the change?
10:32
Frederic K.
Two changes. Early 2012, first of all we brought in our first professional Chief Revenue Officer. Prior to that it had just been me. I had some experience but I didn't have experience building out the teams that we needed to build out next. And then secondly, we brought in our first outside head of engineering. Todd was also doubling as head of engineering, so we both had all of these jobs and they said, "Look. If you guys want to grow up and to be a more serious, established real company, you need to go and find a very serious head of sales and head of engineering." We did that. Brought in two great people in early 2012 and that really started to turn the course of the company around.
11:09
Joshua Davis
Was that one of the things that you were maybe emotionally resistant to? You're like, "Look, this is my company. I can do this. I can run everything that I said I'm going to run." And Todd maybe felt the same way about engineering and you guys needed to open your minds a little bit?
11:24
Frederic K.
Yeah, of course. I mean I think it's very hard to let go of some of those things. It's your baby. I mean we had 20 people and then we had 40 people. Certainly I've learned those lessons over the years. But, yeah, without a doubt. But that moment-
11:35
Joshua Davis
Very hard emotionally.
11:36
Frederic K.
Oh, yeah. Super hard.
11:39
Joshua Davis
So hard that they told you to get the fuck out of the boardroom and think about it a little bit.
11:43
Frederic K.
That's exactly right. Now, if you ask the board members at the time, they have a different recollection of the moment. They seem to recall it being more of a dialogue. I thought it was pretty direct. It was pretty much a one-way communication.
11:57
Joshua Davis
Dialogue meaning, "You go out and talk to yourself."
11:59
Frederic K.
You're done talking at me and telling me to go out and talk to myself. It was actually two dialogues.
12:08
Joshua Davis
Our next story comes from Ben Horowitz. Ben is the co-founder of the venture capital firm Andreessen Horowitz. You heard from his partner Marc Andressen on our first episode. But before he was running one of the most successful venture capital firms of all time, he was going through one of the roughest IPOs of all time. Here's Ben describing his own ultimate oh shit moment and how he and his team got through it. You and Marc started LoudCloud in September '99. September 9, '99. Was that deliberate? Or was it just a coincidence? 9-9-99.
12:43
Frederic K.
That was not a coincidence.
12:46
Ben Horowitz
Actually, we noticed after the fact and it was easy to remember the day we started it but it wasn't a conscious [crosstalk 00:12:54].
12:54
Joshua Davis
So it was a coincidence.
12:54
Frederic K.
It was a coincidence.
12:55
Ben Horowitz
Turned out to be bad luck. Whatever 666 upside down kind of.
13:03
Joshua Davis
Did you start to think about that as things went bumpy?
13:06
Ben Horowitz
No. You know not really a numerologist.
13:09
Joshua Davis
Right. Well, let's get into the bumpiness. Starting out, things were going pretty great. You were raising a lot of money. A lot of money. How did that feel when you were getting, I think you got, if I'm not mistaken, $120 million in your Series B?
13:29
Ben Horowitz
Yeah. Well that was actually I think it was Series B. It was nine months after we founded the company. You gotta remember that was June of 2000, which was two months after the .com crash. The .com crash was particularly scary for us because we had so many .com customers. So, it was a bit of a foreboding I would say. It wasn't all slap happy exciting.
13:59
Joshua Davis
Walk us through some of the memorable moments of the next 12 months. If you remember any of it.
14:08
Ben Horowitz
No, so it was pretty scary. We were burning a lot of cash. But we were bringing in a lot of money and we had this very aggressive forecast because you tend to forecast off your history. That's just how you do it. Particularly when history is short, it's not necessarily predictive but it's all you have. So we had this forecast that was way too high. As a result of having a forecast that was too high, we ended up burning more cash and so forth. We were still growing pretty quickly but it was ... Things were getting scary. And then we needed money. Not that long after we had just raised the $120 million dollars, which is you look at that and you go, "That's the dumbest thing ever." But we were in this weird race. We got into the new year and we knew we were going to have to raise money and we went to raise money privately and by that time, which was the beginning of 2001, the private markets were basically closed. I mean I haven't seen anything like that since but nobody was investing in anything. People were shutting down their funds right and left. Like everything. It was like Armageddon everywhere. So it became clear that we could not raise money at any valuation privately, so we were like, "Well, can we go public?" Which is kind of a ... [crosstalk 00:15:42].
15:43
Joshua Davis
What do you remember about that? What were you feeling at that time when none of the private investors were investing? Was your nervousness ratcheting up every day as you saw the bank account go down?
15:54
Ben Horowitz
Yeah. I mean we had a saying, if your guts aren't boiling, you're not even trying. Because that's how it felt every day. Couldn't sleep. Sweating. I was like, "What am I going to do with all these employees? We're going to run out of money." So it kept going like that. And so we're like, Well, maybe we can go public." It was tricky because we were forecasting 2001 to be $75 million in revenue, which would have been ... That's pretty acceptable for a public company in those days.
16:28
Joshua Davis
That was the aggressive forecast?
16:30
Ben Horowitz
Yeah. Well, it was pretty aggressive but it was pretty realistic at the time because most of our customers hadn't gone bankrupt by then. But 2000 was two million in revenue, so we're going two million to $75, which is a very steep revenue ramp. Like a very steep [crosstalk 00:16:48]
16:48
Frederic K.
To say the least.
16:49
Ben Horowitz
But we had most of it was booked. So we had booked it-
16:53
Joshua Davis
From companies that were about to go bankrupt. But you didn't know that.
16:56
Ben Horowitz
About half of them. Not all of them thankfully. So, we said, "Maybe we can take it public." And-
17:05
Joshua Davis
Where did that idea come from? Was that you? Was that marc? Did somebody else recommend it?
17:10
Ben Horowitz
No. It was the only option. The question was, where could we raise money?
17:14
Joshua Davis
Loans I guess?
17:15
Ben Horowitz
I think that would have been hard to take on that much debt. And we already had a fair amount of debt because Morgan Stanley had lent us $45 million in the Series A. So, there was that.
17:31
Joshua Davis
You would really stack things up for yourself. And you were ... How much runway did you have? How long before you ran out of cash?
17:39
Ben Horowitz
Fast forwarding a little, we were going to be completely out of cash probably April 1st.
17:46
Joshua Davis
From the moment you started realizing you needed to do that next raise, whether public or private, how much time do you think you had?
17:54
Ben Horowitz
Well, you know I think we knew ... In November is when we knew that private wasn't going to work.
18:02
Joshua Davis
So maybe five or six months of cash.
18:05
Ben Horowitz
Yeah, about that. Maybe five months. Five months. We're like, "Okay, well, we probably need to go public." And I went through the whole thing. I'm like, "Okay, can we really go public?" And so forth. I made this list of all the reasons why we couldn't. We had no predictability, we couldn't forecast our sales, we couldn't forecast what we had booked already because a lot of the companies were going bankrupt. We didn't really ... We were probably ... Needed to change out a bunch of executives. Just a very long list of reasons why we couldn't go public. So we're sitting in the board meeting and I read my list. I go, "Here are all the reasons why we shouldn't go public." And my friend Bill Campbell, who's on the board, says, "Ben, it's not about the money." I said, "Oh. Okay." He says, "It's about the fucking money." And so I was like, "Okay, guess we're going public." That was basically the decision to go out. And then away we went.
19:14
Joshua Davis
You had this very long list of all the reasons why not to go public.
19:18
Ben Horowitz
Yeah.
19:18
Joshua Davis
And then on the other column, the reason to go public, there's basically one item.
19:22
Ben Horowitz
Mm-hmm (affirmative). We needed the money.
19:23
Joshua Davis
You need the money.
19:23
Ben Horowitz
Yeah. We needed the money.
19:25
Frederic K.
So you drafted the S1 registration, I mean, in a couple of months?
19:30
Ben Horowitz
We had already [crosstalk 00:19:34]
19:34
Frederic K.
Prepared some of those things.
19:35
Ben Horowitz
Because when thing were going good, we were growing so fast that it made sense to go ... So, that was one of the things that saved us. We were prepared to go public because things were so good. But when things went bad, then we actually had to play that card.
19:57
Joshua Davis
How many months would you say were the good months? You had five months?
20:04
Ben Horowitz
Four or five months.
20:04
Joshua Davis
Four or five months of good times.
20:06
Ben Horowitz
And seven-and-a-half years of just sheer terror. But it was what it was. Once you're in it, you can't get out. As Freddy will tell you. You get in that car, you can't get out of that car. You can only get into that car. That's where we were. So, we decided to go public.
20:28
Joshua Davis
And so you have this long list of reasons why you shouldn't IPO, the one reason why you have to, the money, you decide you have to do it.
20:35
Ben Horowitz
We're ready to get on the road and they have these things call comparables, which are ... And we had them with Okta, which is all the companies like your company bid you out a trade like. So, during the time we were on the road from the time we priced to the time we traded, the comparables fell 50%.
20:56
Joshua Davis
That's a two week period?
20:56
Ben Horowitz
Three weeks.
20:58
Joshua Davis
Three weeks.
20:59
Ben Horowitz
Took longer to do our IPO.
21:00
Joshua Davis
Three weeks.
21:01
Ben Horowitz
Yeah, three weeks.
21:02
Joshua Davis
Over three weeks, the companies you were comparing yourself to dropped in value by 50%.
21:07
Ben Horowitz
By half. Yeah, by half. So, that was-
21:09
Joshua Davis
Not a good sign.
21:10
Ben Horowitz
That was a lot of downward pressure. We're on the road. Everybody we see is, "Why are you here?" They're literally saying this, "Why are you here? Don't you see what's going on out there?" The Nasdaq fell every single day were on the road, so it was down every single day. All red days. We're just going to meeting, after meeting, after meeting and it's super, super stressful. But we go and give the presentation. We just gotta find a few guys to invest. We'll be all right. I think it was a weekend. Marc had had this idea to have this Business Week reporter follow us around. His name was Ben Elgin. The idea was we'd give him full access and then after the ... This was long before things went bad, but after the IPO, he'd tell this story. He releases the story while we're on the road, which is semi illegal. It's a gun jumping thing that we gave this guy access. He kind of lied to us, put the story out. It was called, The IPO from Hell.
22:24
Joshua Davis
While you're on the road.
22:25
Ben Horowitz
While we're on the road. It ended with, "This is the story of hubris and greed." Or whatever it was that he called us. But he just called us a bunch of names at the end. So, that was a very ... So, that happened.
22:41
Joshua Davis
How was it ... What was your reaction when you first read it and you saw it?
22:44
Ben Horowitz
We're like, "We're dead. The SEC's going to stop the thing and then we're going to run out of cash." Because when we started on the road, we only had three weeks of cash left. Or I think midway through we had three weeks of cash.
22:56
Joshua Davis
Every day counts now.
22:57
Ben Horowitz
Yeah. That as my big fear. That we're just going to get turned off entirely. But the SEC let it go for whatever reason. We told them, "Hey, we didn't say anything. We had this agreement. We actually had a legal agreement. The guy broke it."
23:12
Joshua Davis
If the SEC had stopped it, what would have happened?
23:17
Ben Horowitz
Well, we would have gone bankrupt. 100%. Like there is no question. That would have been the end of the company. Which brings me to the next bad thing which is ... So, my wife and I are super close. We got married when we were very young, like 22 years old. We had three kids by the time we were 25. Even today, if I go somewhere on business, she'll come with me. That kind of thing. We're super, super close. My father-in-law, he passed away, but he and I were very close and he had had a super hard life. He was a guy who never complained and he never called me period. I'd see him when I saw him but he'd never call me. So, he calls me, while I'm on the road. I'm like, "Okay. This is ..." Just when I heard his voice, I was very worried. And he goes, "Felicia's collapsed." That's my wife's name. Felicia. "She stopped breathing. She collapsed. But I think she's going to be okay." And I'm sitting there going, "I need to go home now." But I knew if I went home, that's it. We're bankrupt. It's over. I was just paralyzed. I had no idea what to do. I remember asking him, "Well what does Felicia want me to do?" He says, "She says, stay out on the road." I knew it was the wrong thing to ... There was nothing right about that thing. But for whatever reason, I stayed out on the road. But after that, it was a complete blur. I couldn't even tell you what happened, who I met with, what was going on. There was one meeting where I had packed two suits that looked similar but they were different colors. I was wearing the jacket of one and the pants of the other. It was that bad.
25:17
Joshua Davis
And was she ... Where were you? Kansas City? You could be anywhere.
25:24
Ben Horowitz
I believe we were in Milwaukee. We went everywhere.
25:24
Joshua Davis
Yeah.
25:27
Ben Horowitz
We went to Italy. We went like crazy. It's crazy. It was a long road trip. To just stumble through it like that, it was just one of those things. It was super, super traumatic. So then the ... We priced it at six dollars. We set the price at six dollars, which we had gone out at a 10, so another disappointment for the employees. They were also not happy with that. But we somehow got it sold. $162 million worth of stock.
26:05
Joshua Davis
What do you attribute that to?
26:08
Ben Horowitz
Well, you know I think it was just we saw so many people in so many countries. We were in Germany and Italy, just everywhere. Which nobody does that now. Nobody goes to see the international investors on a roadshow. With investors, you don't need them all. You just need enough to get the money. We got the money. The Morgan Stanley banker on the deal was Michael Grimes who's a great banker and has been in the business since 1993 or something. So he's been doing. And he's still doing that now. He's still ... He did ... I think he worked on the Facebook IPO. But he's still taking companies public. He and I went to see the Raiders play in Mexico City a couple years ago because he's a Raiders fan. I remember that. So, we went together. I said to him, I was like, "Michael, in all the years of doing IPOs, what is the worst, most difficult IPO you ever did?" And he said, "Not including the ones that failed? Only the ones that actually got done?" I said, "Yeah." He said, "No question, LoudCloud. 100% that's the worst fucking thing I ever experienced in my life." I was like, "Oh, it wasn't just me." But that was the story of the IPOs.
27:37
Joshua Davis
I mean this story just blows my mind.
27:39
Frederic K.
This is a mind bowing story.
27:41
Joshua Davis
Everything that could go wrong, went wrong.
27:44
Frederic K.
Mind blowing.
27:45
Joshua Davis
His wife gets sicks.
27:47
Frederic K.
His wife collapsed.
27:47
Joshua Davis
His wife collapsed. She's in the hospital.
27:49
Frederic K.
Well, first of all, the Business Week reporter's on the road with them. Is going to write the fluff piece-
27:53
Joshua Davis
Embargoed.
27:54
Frederic K.
And it comes out right in the middle. The IPO from Hell.
27:58
Joshua Davis
I feel like there's a lot of wisdom to be gained from listening to Ben because he's been through so much darkness. So many oh shit moments. I mean any one of those-
28:07
Frederic K.
In a three week period.
28:08
Joshua Davis
In a three week period. Any one of those could have been career defining dark low points and he packed it all into a month.
28:17
Frederic K.
I really like the singular focus that he shows and that he talks about is necessary to get through the oh shit moment. I think the example where Ben talks about going to the meeting with one suit pants and the other suit jacket and not even realizing that he was wearing completely dis-coordinated outfit is pretty symbolic and epitomizes the level of focus you have to have in these oh shit moments to get through them. And it's something certainly I think a lot of entrepreneurs can identify with when all the other circumstantial stuff, it just ... The noise goes away. You get locked in. You're zoned in.
28:57
Joshua Davis
If you were on the roadshow leading up to an IPO and your wife collapses, do you continue the roadshow? Or do you go home to your wife in the hospital?
29:10
Frederic K.
I mean I probably go home to my wife in the hospital. I mean I think that that is one of the valuable parts of having a co-founder in the business. You have someone else who can shoulder some of the burden. I think to that situation that Ben was in, he didn't have anyone else with him. He's the CEO. The CFO's there but that's it. What would you do?
29:32
Joshua Davis
I'd go home. I feel like this is one of the things that people don't realize or appreciate when you hear the story of massively successful people. Ben Horowitz made a choice that probably 99.9999% of people would not make. You have to be a special breed of person.
29:53
Frederic K.
That's mainly not wine and roses.
29:55
Joshua Davis
It's mainly chewing glass.
29:57
Frederic K.
And enjoying the taste of your own blood.
30:01
Joshua Davis
I don't know Freddy if our next guess Alex Asseily likes the taste of his own blood, but he has definitely chewed on some glass. Alex is the co-founder of Jawbone the headset company. We last heard from him in our episode about the first big win. But Alex has gone through his fair share of oh shit moments too. The kind that feel insurmountable. Including the eventual liquidation of his company in 2017.
30:27
Alex Asseily
In 2004, we launched a headset under the name Jawbone, which was the first time that Jawbone brand came to life and it was-
30:38
Frederic K.
It was plugged into a USB slot on a computer, wasn't it?
30:43
Alex Asseily
That was actually the second edition.
30:43
Frederic K.
Oh, I'm sorry. I'm sorry.
30:43
Alex Asseily
That was the second edition of a commercially failed product but a product that nonetheless proved some aspect of the vision of clear voice communications. So there was a slightly peculiar moment where we're like, "Ta-da. Heres our technology." But the vehicle it was in was a headset that no one really wanted. In the sense it was still wired. It was still [crosstalk 00:31:16].
31:16
Joshua Davis
Right. It wasn't wireless.
31:16
Alex Asseily
It wasn't wireless.
31:19
Joshua Davis
Do you remember having an executive meeting where, "Hey, we need to reorient. Or we need to go back that our roots."?
31:30
Alex Asseily
And I don't think so. I think it was just a given. Hosain, my co-founder, and I were I think sufficiently aware of the missing ... The missing ...
31:40
Joshua Davis
The mission.
31:41
Alex Asseily
Missing mission. And that we had essentially kept our heads down for survival. But ultimately, we needed to turn back to the thing that was motivating us to do this in the first place. And then this slightly peculiar thing happened where we wrestled the company back, so we wrestled control back from the pawners we'd brought in. Who had taught us a thing or two about operating a business, about building a brand, but who ultimately proved themselves not to be great partners for the vision. We wrestled it back. We were exhausted. And then there was only four of us left. I was faced with this slightly peculiar thing of being completely burnt out. Freddy remembers this. Being completely burnt out and having to actually tell myself the world wants the headset. You've gotta keep your head down for another year." And having to literally pep talk myself on almost a nightly basis.
32:46
Frederic K.
I think it was actually a couple times a day. Because the reality of what you were dealing with was-
32:52
Joshua Davis
The history already. You'd been doing this for six, seven years now. Already gone through the highs, the lows. You launched a commercially un-viable first edition product then second edition product. And then were like, "Okay, we gotta do it one more time.
33:08
Alex Asseily
That's right.
33:09
Joshua Davis
That became the first super successful Jawbone headset.
33:15
Alex Asseily
We then also hesitated to raise more money at that time because we were already two million, two-and-a-half million deep and we didn't want to take the personal reputational risk of taking on more money when-
33:31
Joshua Davis
Because you might lose it.
33:32
Alex Asseily
Because we might lose it, but also this was 2005. This is not like 2012, let alone 2018 where people are actively encouraging you to raise more and fail if you have to. You know what I mean? In those days, it was still a little bit ... People are like, "Haven't you given this enough time? Shouldn't you move to something else?" I had friends of mine saying come and join this other business.
33:55
Joshua Davis
Because you've been at this essentially for eight years at this point. And it doesn't look like it's growing.
34:02
Alex Asseily
Yeah. And there's also 101 reasons-
34:04
Joshua Davis
To walk away.
34:05
Alex Asseily
To walk away and also why ... There's exercise and zen where you look at the list of things that need to happen for you to actually get the next product out. And each one of them not happening will blow out the business. But you somehow have to get into a mental state where you just keep going and you have to just have faith that it's going to pan out. This is something that we could have talked about as the zen of the entrepreneurial journey. The perseverance in spite of all odds.
34:39
Joshua Davis
And what that actually looks like in practice is you staring into a mirror talking to yourself.
34:45
Alex Asseily
Not quite as literal as that, although I'm sure that happened a couple of times. But more like having sleepless nights where you are either getting calls from someone saying the test didn't happen or didn't work. Or the engineer who's been with you for four or five years is like, "I can't do this anymore. My wife wants me to get another job." Anyone of those things, it's like game over.
35:12
Joshua Davis
Everything's falling apart.
35:14
Alex Asseily
It's falling apart.
35:14
Joshua Davis
And in your head you've got this ... I mean this is something I think you see from successful people. This student self coaching almost. Giving yourself motivation.
35:30
Alex Asseily
I think you need it but there's also a lesson in that, which is it's also good to talk to other people. Or to at least have people to lean on.
35:39
Joshua Davis
So, you knew Freddy obviously at that time. What advice-
35:43
Alex Asseily
I think I was sleeping on his couch.
35:44
Joshua Davis
What advice was Freddy giving you?
35:46
Frederic K.
You did actually sleep on my couch a number of times. I think what was interesting was from the outside looking in, I would come and visit you in your apartment and you still had giant sticky notes on the wall with the drawings of the next generations of the headset. So it was like, "Well this one's not working." And I'd be like, "Yeah, I was trying it on Skype last night and it kind of blew up." And you're like-
36:11
Joshua Davis
It had three wires.
36:12
Frederic K.
It had three wires and I didn't know what to do with the third one. And you're like, "That one you're supposed to plug in." I'd walk in and on the side of the wall, that apartment you had, there were these giant sticky notes with diagrams of what the vision of the next set of headsets was going to look like.
36:27
Joshua Davis
Why was this in the apartment and not the office?
36:31
Alex Asseily
Because we'd been kicked out of the office when the whole debacle happened with our investors.
36:36
Joshua Davis
So, the office was now your apartment?
36:38
Alex Asseily
The office was now the apartment. There was a period where the office had been chained shut. And so-
36:38
Joshua Davis
You couldn't get in.
36:47
Alex Asseily
We couldn't get in and my apartment became the ... What's it called?
36:51
Joshua Davis
Ground zero.
36:53
Alex Asseily
Ground zero. War room. For both getting the company-
36:56
Joshua Davis
What did it look like Freddy? How big of an apartment?
37:00
Frederic K.
How big of an apartment? I mean it couldn't have been more than 1,000 square feet.
37:05
Joshua Davis
Two bedrooms?
37:05
Frederic K.
Maybe. It was a one bedroom.
37:07
Joshua Davis
What were your observations about Alex's state of mind at that point?
37:10
Frederic K.
I think the perseverance is the thing I would highlight. At that point, you really have to say, "I've gone though all of this. I think it still needs to happen." As you said, the world still needs to get this.
37:23
Joshua Davis
Were you telling him to get the fuck out?
37:26
Frederic K.
I was probably suggesting that we think about other things to do.
37:32
Alex Asseily
But that's-
37:34
Frederic K.
It's hard. You can't walk into an entrepreneur's life and be like, "You need to do something else."
37:38
Alex Asseily
It's a tough one but I do think ... I think that just the interaction is helpful. I'll tell you why. Because you're not going to get into the trenches deep enough to give qualified advice on how to do the business. But just being there caring causes, induces ... It induces a type of thinking on the part of the entrepreneur that either gets them to challenge their assumptions on the business or potentially gets them to challenge the entire idea itself. Right? Am I doing that right thing? And I would always come back to I'm burnt out, but I have to get across the finish line. In my mind it was that clear that we just have to launch this Bluetooth headset.
38:29
Joshua Davis
I like this thing, Freddy, that Alex says. He says, "I was completely burnt out and I had to actually try to convince myself what the world really wants is a headset." You're like, you are spent. You're burned out. You've got nothing left.
38:44
Frederic K.
The world needs this headset.
38:46
Joshua Davis
The world needs a headset. I've gotta peel myself off the ground because the world needs a headset.
38:50
Frederic K.
Oh, man. Yeah. But he also talks about that mental state where you just keep going. He talks about the zone.
38:57
Joshua Davis
Yeah, he does.
38:58
Frederic K.
Talk about the focus. Getting rid of all the other noise. Nothing else matters.
39:01
Joshua Davis
And they just kept hammering it out. Year after year for a decade. Almost ... Yeah, 10 years. Where again, you don't actually see that many wins. For him, his oh shit moment was an oh shit decade. It was an oh shit number of years.
39:20
Frederic K.
It was an oh shit number of years.
39:22
Joshua Davis
Another thing I think you see form Alex's experience is that these oh shit moments don't just happen in the early days of a company, Freddy. Sometimes they happen even after you've reached the pinnacle of startup success going public.
39:34
Frederic K.
I think that's right, Josh. But I think what's important to remember is that you go through a lot of these things and when you're in the moment, you gotta focus. But when you come out, those are the things that make you stronger and allow you to build and allow you to really grow as an entrepreneur. I mean Josh, you went through some tough times in Iraq. Maybe you can talk a little bit about those.
39:52
Joshua Davis
I was there from the start of the war in '03 until Baghdad fell. I was a very young reporter at the time and I remember being completely overwhelmed and scared and trying to navigate the war on my own. I was not an embed. There were a number of journalists who had gone through the Pentagon program and were attached to military units. I was just hitchhiking. The main thing I take away from that now is when I go through a tough time, I think back on that and I think, "Well, I survived." And that was difficult. It calms me down when I'm going through another crisis. I think it's important to have these moments of challenge where you come through the other side and it builds you up for the next time.
40:53
Frederic K.
Special thanks today to our guests Amy Pressman, Alex Asseily, and Ben Horowitz for taking time out of their busy schedules to speak with us. And to Martin Trust Center for MIT Entrepreneurship for collaborating with Okta to bring this podcast to life.
41:07
Joshua Davis
If you like what you've heard and you want to know more, check out exclusive in-depth stories from each episode on fastcompany.com. To hear the next step in taking a company from Zero to IPO, make sure to subscribe and give us a good rating on iTunes, Spotify, Stitcher or wherever you listen to your podcasts. I'm Joshua Davis.
41:28
Frederic K.
And I'm Frederic Kerrest and we hope you'll tune in for our next episode, Culture. Thanks for listening.
41:35
Speaker 6
I really wanted just to work with grownups. That was the most important thing to me. The number one thing I wanted, that was different than I had experienced, was just not tolerating people when they don't act like adults.
Sometimes you think you're crazy. You have moments of doubt, but I think, no, when you have a vision, you have an idea of what you want the company to be, or the product to be, you just have to keep pushing through.
Amy Pressman