Managerial Leverage

You shouldn't develop executives—you should find people who make you and the company better, not the other way around

Ben Horowitz
$46B of hard truths: Why founders fail and why you need to run toward fear

Managerial Leverage

"What's leverage is if you're telling me what you should do and how you can push the company forward, that's leverage, then I'm getting more than I'd have if you weren't there otherwise I could just manage a team." - Ben Horowitz

What It Is

Managerial Leverage is the principle that CEOs should hire executives who expand their capabilities rather than drain them. Unlike VP-level management where developing people is core to the job, CEO-level management requires finding world-class leaders who bring expertise the CEO doesn't have.

Ben Horowitz taught this to Ali Ghodsi (now CEO of Databricks) when Ali transitioned from VP of Engineering to CEO. The key insight: as VP of Engineering, you can develop engineers and engineering managers because you know the domain. As CEO, you can't develop people in functions you don't understand—and the company can't afford for you to try.

How It Works

The VP vs CEO Distinction:

As a VP of Engineering:

  • You can teach engineers to be better engineers
  • You can develop engineering managers
  • People development is a core part of the job
  • You have domain expertise to share

As a CEO:

  • What do you know about being CFO?
  • What do you know about being VP of HR?
  • What do you know about VP of Marketing?
  • You can't take someone who isn't world-class and make them world-class in domains you don't understand

The Leverage Test:

  • No leverage: "I have the ideas about what your department should do next. I'm pushing you to move your organization forward."
  • Leverage: "You're telling me what you should do and how you can push the company forward."

If you're generating the ideas and pushing the executive, you're getting no leverage—you could just manage the team yourself. True leverage is when the executive brings capabilities you wouldn't have without them.

How to Apply It

  1. Recognize when you're losing leverage - If you're constantly telling an executive what to do, you don't have an executive

  2. Be honest about your own limitations - As CEO, you can't be expert in every function

  3. Hire for world-class capability, not potential - You don't have time to develop executives in domains you don't understand

  4. Make changes when leverage disappears - "When you feel like you're not getting leverage, when you got to go say, 'Hey, why aren't we doing this? Why aren't we doing that?' That's when you got to make a change."

  5. Don't confuse caring with enabling - Ali Ghodsi is "as good as anybody I've seen as a guy who's not callous as a CEO. He really cares about the people who work for him... but he does not hesitate. If he's losing leverage, he'll make a move."

When to Use It

  • When evaluating executive hires
  • When deciding whether to keep or replace a senior leader
  • When feeling overwhelmed by managing executives
  • When transitioning from VP to CEO
  • When noticing you're doing an executive's thinking for them

The Hard Truth

This lesson is psychologically difficult for leaders who built their careers developing people:

"If you're a good VP of engineering, you do develop your people. But as a CEO, it's not like you don't do any of it, but it is very, very small compared to it. So I like to make things just very stark. So you get what I'm saying? I don't like to hedge it."

The company needs the CEO to:

  • Make very high quality, fast decisions
  • Set the direction for the company
  • Have a world-class team

None of these are served by the CEO spending time trying to develop executives in unfamiliar domains.

Source

  • Guest: Ben Horowitz
  • Episode: "$46B of hard truths: Why founders fail and why you need to run toward fear"
  • Key Discussion: (00:25:27) - Teaching Ali Ghodsi about managerial leverage when he became CEO of Databricks
  • YouTube: Watch on YouTube

Related Frameworks

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