1: “What are we not doing?”
That was the question Opsware CEO Ben Horowitz added to the agenda of his weekly staff meeting.
After several near-death experiences during the dot-com bust of the early 2000s, the company began to show signs of life.
“Now that we’d improved our competitive position, we went on the offensive,” Ben writes in his wonderful book The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers.
Asking “What are we not doing?” helped shape the company’s direction.
“Ordinarily in a staff meeting,” Ben writes, we “spend lots of time reviewing, evaluating, and improving all of the things that we do: Build products, sell products, support customers, hire employees, and the like.”
Which is fine.
“Sometimes, however,” he reasons, “the things we’re not doing are the things we should actually be focused on.”
To succeed, Opsware had pivoted to become a software company.
Asking “What are we not doing?” surfaced “an opportunity to bring back our network automation product,” Ben writes.
They could either develop the product in-house or buy one of the four existing network automation companies.
“After confirming that acquiring would be superior to building,” Ben writes, “we negotiated a deal to buy Rendition Networks for $33 million.” What happened next?
“Within three months of completing the acquisition,” he notes, Opsware “negotiated a deal with Cisco Systems—the world’s largest networking company—to resell our product.
“The deal included an agreement to prepay us $30 million for advanced licenses. As a result, the Cisco deal alone paid more than 90 percent of the acquisition costs.”
That’s the power of asking: “What am I not doing?”
Meanwhile, as the story continues, good things were happening at Opsware.
“As we fielded the broader product line, our momentum steadily grew,” Ben writes. “From the ashes, we’d built a software business that approached a $150 million revenue run rate.”
The stock price rose from $0.35 to $8, raising the company’s market cap above $800 million.
Ben wasn’t looking to sell the company, but he knew it was smart to listen to all offers.
“Whenever a potential acquirer approached us, I would always reply, ‘We are not for sale.’
“It was a great answer in that I wasn’t ready to sell and it conveyed that,” he recalls, “but it also left the door open to a particularly aggressive buyer.”
This approach soon paid off: before long, eleven different companies expressed interest in buying Opsware. Given the prices being offered, Ben decided to explore selling the company.
His first call was to Michael Ovitz, an Opsware board member. When he was 28, Michael had started Creative Artists Agency (CAA), which became the most powerful agency in the entertainment industry.
Ben explained to Michael that the software giant Oracle “would be the least likely to bid high, because it was extremely disciplined in its financial analysis.”
Did it make sense to pursue Oracle at all?
Michael’s response: “Well, if you are going to have a dog race, then you are going to need a rabbit. And Oracle will be one hell of a rabbit.”
Ben invited buyers to submit bids.
All of which were between $10 and $11 per share. Which represented a 38 percent premium over the current stock price.
“Although this was considered a good premium, I did not feel right selling the company for $11 per share,” Ben writes.
“The team had worked too hard, we’d accomplished too much, and we were too good a company,” he reasoned. “The risks of staying stand-alone were substantial, but I still wanted to bet on the team.
“I recommended to the board that we not sell.”
Board members were “surprised, but supportive,” Ben remembers. “Still, they had a fiduciary responsibility to shareholders to ask the tough questions. ‘If you’re unwilling to sell at eleven dollars per share, is there a price at which you would sell?'”
Ben told them he needed time to think things through.
“And thus began a series of very long talks with myself,” he writes. “It was an argument to the death, and it was me against me. . . I battled myself for weeks before concluding that things were changing fast enough that we’d need to make major changes to our product architecture in order to stay on top.”
He decided to ask his leadership team: “Were they up for yet another giant challenge or were they at the end of a very long road?”
Their answer? “Everyone, with the exception of one person,” he writes, “opted for the sale.”
But, at what price?
Ben “decided that the right price to sell the company would be $14 per share, or about $1.6 billion,” he recalls. “I took that number back to the board.
“They thought the number was extremely high and that it was unlikely we’d be able to generate a bid at that level, but they were supportive nonetheless.”
Potential buyers were told the company would only entertain bids of $14 or more.
“There were no takers,” Ben writes.
More than a month passed. Ben got back to work running the company.
Then, one day, he received a call from Bob Beauchamp, the CEO of BMC Software.
Who offered $13.25 per share.
“Bob, that’s great,” Ben told him, “but the number is fourteen dollars per share.”
Two days later, Bob called back with an offer of $14 per share.
“Wow. The dog had caught the bus,” Ben writes.
Opsware then notified the other potential acquirers that it had an offer it planned to accept.
At which point, Hewlett-Packard offered $14.25 or $1.65 billion in cash.
“We had a deal,” he writes.
Reflecting back on the journey, Ben writes, “When it finally ended, the long road from Loudcloud to Opsware—I couldn’t believe that I’d sold what it took eight years and all of my life force to build.
“How could I have done that? I was sick. I couldn’t sleep, I had cold sweats, I threw up, and I cried.
“And then I realized that it was the smartest thing that I’d ever done in my career,” Ben notes. “We’d built something from nothing, saw it go back to nothing again, and then rebuilt it into a $1.65 billion franchise.
“At that point, it felt like my business life was kind of over. I had hired all the best people that I knew or could find, and I had gone through every step from founding to going public to sale. I definitely did not feel like doing any of that again.
“But I learned so much,” he writes. “It seemed like such a waste to do something completely different.
“And then I got an idea to build a new kind of venture capital firm.”
More next week!
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Reflection: When my work or life finally starts to stabilize, do I relax into comfort—or do I keep asking “What am I not doing?” to uncover the next level of growth and impact?
Action: Set aside 30 minutes this week to list everything I’m currently doing—and then deliberately brainstorm a second list labeled “What I’m Not Doing,” circling one new strategic action I will commit to exploring over the next quarter.
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