The document discusses various management concepts through case studies and perspectives involving critical decision-making processes, such as demotions and raises, while emphasizing the importance of understanding cultural implications and employee viewpoints. It examines scenarios of employee equity and the nuances of offering a fair workplace environment, illustrating the complexities of loyalty, economic incentives, and employee treatment. Furthermore, it highlights historical examples, particularly Toussaint L'Ouverture's leadership in Haiti, to demonstrate successful management through cultural alignment and economic strategies.

1. One Management Concept
B E N H O R O W I T Z , A N D R E E S S E N H O R O W I T Z

2. Sometimes I’m right and I can be wrong
My own beliefs are in my song
The butcher, the banker, the drummer and then
Makes no difference what group I’m in
Sly and the Family Stone

3. In Management Concept Form
When making a critical decision, you must understand how it will
be interpreted from each person’s point of view and its impact on
the union of the individual views.
i.e. culture

4. AGENDA
Demotions
Raises
We evaluate a Sam Altman
blog post
History’s greatest practitioner
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2
3
4

5. BUSINESS EXAMPLE 1
Do You Demote Or Fire?

6. Scenario
Executive has been working extremely hard and is well liked and
a great part of the culture. However, he is not world-class
at running his function and you need someone who is.
Options
Fire him or demote him
Players
You, exec, every other employee

7. You
• It’s tough to fire someone who has put in a big effort
• A demotion is a “have your cake and eat it too” scenario
• No cultural backlash

8. Exec
• May not want the demotion, but it at least gives him
an option
• Saves the embarrassment of getting fired
• Enables him to keep growing with the company
even through he’s demoted

9. Everybody Else
• Does he keep his same equity package?
• Is he going to work as hard being the guy who
reports to the guy?
• Do I have any respect for him now that he’s been
demoted?

10. You
Exec
Employees
What does it mean to
fail on your job?
What is required to
maintain your equity?
C
UL
T
URE

11. An Excellent Employee Asks
You for a Raise
BUSINESS EXAMPLE 2

12. Your Perspective
• You want to retain them
• They have done great work, so it’s “fair”
• They will like you if you give them the raise and you
want to be liked

13. Employee’s Perspective

14. They Do The Shmoney Dance

15. Every Other Employees’ Perspective
• Unfair that I didn’t get a raise
• I did better work, so doubly unfair
• Maybe I should quit

16. Cultural Conclusion
Every employee has a fiduciary responsibility to their
family to ask for a raise all the time

17. Right Answer
• Formal performance evaluation process
• All the right inputs
• Run as frequently as needed
• No raises outside of the process

18. BUSINESS EXAMPLE 3
We Evaluate a Sam Altman Blog
Post

19. Sam Altman Blog Post Excerpt
Most employees only have 90 days after they leave a job to exercise
their options. Unfortunately, this requires money to cover the strike
price and the tax bill due for the year of exercise (which is calculated on
the difference between the strike and the current FMV). This is often
more cash than an employee has, and so the employee often has to
choose between walking away from vested options he or she can’t
afford to exercise, or being locked into staying at the company. It’s a
particularly bad situation when an employee gets terminated.

20. Sam Altman Blog Post Excerpt
This doesn’t seem fair. The best solution I have heard is from Adam
D’Angelo at Quora. The idea is to grant options that are exercisable for
10 years from the grant date, which should cover nearly all cases (i.e. the
company will probably either go public, get acquired, or die in that time
frame, and so either the employee will have the liquidity to exercise or it
won’t matter.) There are some tricky issues around this—for example,
the options will automatically convert from ISOs to NSOs 3 months after
employment terminates (if applicable) but it’s still far better than just
losing the assets. I think this is a policy all startups should adopt.

21. Quick History
• FAS 123 replaces APB opinion No. 25 in 2004
• Previously, long exercise periods would kill any
chance of a company going public or being acquired
• Not the case with FAS 123

22. Your Perspective
• Want to be fair
• Don’t want employees to stay who don’t want to be
there, but feel handcuffed
• Want to reward people who stay

23. Perspective of Employee Who Leaves
• I worked for my shares; I shouldn’t be prevented
from getting them due to economics.
• Did you tell me the truth when you hired me? If you
didn’t, I’ll make sure that everyone knows that.
• If I was fired, I just got screwed a second time.

24. Perspective of Employee Who Stays
• Is it smarter for me to stay or leave economically?
• Are my colleagues being treated fairly?
• Does my loyalty matter?

25. Situation Analysis
• Companies lose employees in Silicon Valley at around
10% per year
• SV companies dilute at 6-8% per year when they are
private for employee comp
• If an employee doesn’t exercise her stock during the
exercise period, it goes back into the pool where it can
be reissued to new or existing employees

26. Situation Analysis
• Losing all your stock is a big financial incentive to stay
• A 10 year option on a highly volatile security is quite
valuable
• When the employee goes to the new company, she
gets the new company stock plus the 10 year option
• The employee who stays gets the option only

27. Two Alternative Cultural Statements
• We treat new employees with the utmost straight-forwardness and
fairness and we will therefore give you 10 years to exercise your stock
if you quit or are fired.
• We’ll tell you up front: You are guaranteed to get your salary. For your
stock to be meaningful, you must (a) vest, (b) stay until we exit or have
the cash to exercise, (c) make the company worth something. We do
this because we massively value those who see it through and will
minimize the dilutive cost of those who leave.
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28. 4 HISTORY’S GREATEST PRACTITIONER
Touissaint L’Overture

29. Brief History and Context
• Born a slave
• Most brutal form of African slavery
• Vision: End slavery, take control of Haiti, and make
it a first class country

30. TOUSSAINT MANAGEMENT EXAMPLE 1
Conquering the enemy
Question: What do you do with the defeated leaders?

31. Perspectives
1 3
CULTURE
THE CULTURE
2
YOUR ENEMY
YOUR SOLDIERS

32. Soldiers Perspective
• Do we get to pillage? We like to pillage…
• They were trying to kill us, let’s kill them.

33. Enemy’s Perspective
• We are fighting savages, so if we lose, we are dead
• Anything else would be extraordinary

34. Culture
• Toussaint wanted a first-class culture
• He believed that Haitian culture was inferior to European
culture and he believed that the slave culture was the
most broken of them all

35. Solution
Make them part of
Toussaint’s army

36. TOUSSAINT MANAGEMENT EXAMPLE 2
What do you do with the
slave owners?

37. Perspectives
1 3
CULTURE
SLAVE OWNERS
2
TOUSSAINT
SLAVES

38. Slaves
• Free us, we fought for this
• Kill those bastards!!!
• Give us their land

39. Toussaint
• Economy is key to being a first world country and sugar is
our top export by far, so productive plantations are critically
important
• I was a slave and my army is mostly slaves
• None of us have the expertise to run sugar plantations
• We earned that land fair and square
• None of us have the business connections to trade sugar

40. Slave Owners
• Our business cost structure is predicated on slave labor
• We paid a lot of money for those slaves up front
• We paid a lot of money for the land
• We have all the know how and business relationships,
so you have to deal with us

41. Solution
End slavery
Let the slave owners keep their land
Require plantation owners to pay salaries to
workers
Lower the taxes of the plantation owners, so that
they could keep sugar business thriving
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42. Results
• Only successful slave revolt in human history
• Let plantation owners keep their land
• Total defeat of Napoleon
• Booming economy + world-class culture.
• Under Toussaint, Haiti had more export income than
the USA

43. Conclusion
It’s not your perspective or the perspective of the person
that you are talking to at the moment that matters.
You must consider the people who are not in the room.
They are the company.
They are the culture.