- Building a company is more difficult than building a product because people are irrational.
- The leader's job is to maximize the output of the organization.
- The leader should simplify, clarify, and ask clarifying questions to improve performance.
- Allocating resources can be done top-down or bottom-up.
- The leader should ensure a consistent voice and delegate without abdicating or micromanaging.

- The concept of "rope" refers to a person's level of experience and maturity in a task
- Management style should be dictated by the employee's level of experience and maturity
- It is beneficial to have a mix of references that describe different management styles for a CEO
- Decision-making should be based on the level of conviction and consequences involved
- Delegating is important for low-consequence decisions with low confidence in one's own opinion
- For high-consequence decisions with high conviction, micromanagement may be necessary
- Explaining the reasoning behind decisions is important, but be mindful of burning social capital
- Editing the team involves identifying and promoting "barrels" (high-performing individuals)
- Expand employees' responsibilities until it breaks to determine their optimal role
- Observing who seeks help from others can identify potential high-performers
- Consider individual growth rates and company growth rates when determining roles
- Focusing individuals on one specific task can improve productivity and efficiency.

- The key insight is that most people tend to solve easier problems instead of tackling difficult but high-impact problems.
- It is recommended to assign employees only one priority to focus on, even if it means spending 100% of their time on it.
- Creating a dashboard that simplifies the company's metrics for success is crucial, and it should be used by every employee.
- Transparency is important, and metrics should be accessible to everyone in the company.
- Anomalies and unexpected behavior should be looked for, as they can provide valuable insights.
- Paying attention to details and getting every aspect of the organization right can lead to high performance.

- The highest performing teams are built through attention to detail and eliminating distractions
- Examples of important details in a company include the food provided and the office environment
- Effort and leading by example are crucial for building a successful company
- Transparency in compensation can be achieved through salary bands
- Other important details include the quality of laptops and the overall office environment
- Creating a strong company culture requires prioritization and optimization of resources
- Gaining street cred as a new manager is best achieved by excelling in a specific discipline and then learning to manage
- Consistent voice of the company can be ensured by reviewing all copy and cross-training executives from different backgrounds
- Regular one-on-one meetings with direct reports are essential for effective management

- Employees should craft the agenda for one-on-one meetings with their managers, focusing on 3 or 4 specific topics
- It is acceptable to have these meetings less frequently for highly skilled and experienced employees
- The ratio of ammunition to barrels (employees to managers) should be balanced to avoid wasting resources and frustrating employees
- Venture capitalists typically meet with their portfolio companies every 2 weeks, but communication methods have evolved to include text messaging and even Snapchat
- CEOs should prioritize recruiting and allocate about 25% of their time to it
- CEOs should conduct a calendar audit to ensure their priorities align with how they spend their time
- The importance of details should be emphasized in the early stages of a company to establish a culture of precision and decision-making
- Culture is a framework for decision-making and should be ingrained in the organization's DNA

Building a successful company is challenging due to the irrationality of people. The leader's role is to maximize organizational output by simplifying, clarifying, and asking questions. Resource allocation can be done top-down or bottom-up, and the leader should delegate without micromanaging. Management style should match employees' experience and maturity levels. Decision-making should consider conviction and consequences. Delegating is important for low-consequence decisions, while micromanagement may be necessary for high-consequence ones. The team should be edited by promoting high-performing individuals. Focusing on specific tasks and creating a dashboard with metrics for success is crucial. Transparency, attention to detail, and leading by example are important for building a strong company culture. Regular one-on-one meetings with direct reports are essential. CEOs should prioritize recruiting and align their time with priorities. Establishing a culture of precision and decision-making is important in the early stages of a company. Culture should be ingrained in the organization's DNA.

Lecture Transcript: http://tech.genius.com/Keith-rabois-lecture-14-how-to-operate-annotated

What should the CEO be doing on a day to day basis? How do you make sure the company is moving in the right direction? 
Keith Rabois, Partner at Khosla Ventures and former COO of Square, tackles the nitty gritty - How to Operate. Lots of actionable takeaways from this lecture!

See the slides and readings at http://startupclass.samaltman.com/courses/lec14

Discuss this lecture: http://startupclass.co/courses/how-to-start-a-startup/lectures/64043

So I've watched some of the prior classes.

And I'm gonna assume that you've already sort of hired a bunch of relentlessly resourceful people.

That you've built a product that at least some people love.

That you've probably raised some capital.

And now you're trying to build a company.

So you're, you've been forging a product and now you've gotta forge a company.

And I'd actually argue forging a company is much more difficult than forging a product.

So you probably all know this, either your parents, your significant other, your brother or sister, your teacher, somebody in your life is irrational.

Building a company is basically taking all the irrational people you know, put them in 1 building, and then living with them 12 hours a day at least.

Now there's techniques for coping with that, and some people get good at it and some people don't.

But that's where really what operating is about.

So basically what you're doing when you build a company is, you're building an engine.

And at first you have a drawing, literally on a whiteboard, and you're architecting it.

And it looks very conceptually clean and beautiful and pretty.

But when you start actually translating it to practice, it actually looks more like this.

And you're holding it together with duct tape.

And it takes a lot of heroic efforts of people to actually hold it together.

That's why people work 80, 100 hours a week.

Is that heroic efforts is actually necessary to keep this thing together because you don't actually yet have polished metal in place.

Eventually, you want to construct a high performance machine.

A machine that actually, almost nobody really has to worry about every hour, every minute.

And you know, as we used to joke about eBay, that if Martians took over eBay, it would take like 6 months for the world to notice.

That's what eventually what you want to get to.

Or as Warren Buffet says, you know, build a company that idiots can run, because eventually they will.

Basically a performance machine that idiots can run.

Strictly speaking, there's only 1 book ever written that actually explains how to do this.

And his definition of what your job is, is to maximize the output of an organization.

Your organization that you're responsible for, so CEOs, everything, and a VP would be part of the organization, and the organizations around you.

So if you're a VPE, you actually are responsible for the performance of the product team too or the marketing team because you have influence there.

And you want to focus on the output, not the input.

The old adage about measuring, not measuring motion and confusing that with progress.

And this is going to sound like a fancy and glamorous thing to do.

Maybe people get excited about managing a whole large organization and being responsible for the output.

But in practice, what you're going to learn today, hopefully, is that it's more about things like ordering smoothies, teaching your receptionist how to answer the phone properly, and serving as a $10 an hour task rabbit for your employees.

So at first, when you start a company, everything's gonna feel like a mess.

If you have too much process, too much predictability, you're probably not innovating fast enough and creatively enough.

So it should feel like every day there's a new problem, and what you're doing is fundamentally triaging.

So some things will look like a problem and they're actually a cold.

So somebody's annoyed about this or that.

That may be a cold and you shouldn't stress about it and you certainly shouldn't allocate a lot of your time to it.

And some things are gonna present themselves as colds, but just like in the emergency room, if they're not diagnosed properly, they actually can become fatal.

So what I'm gonna try to do is help give you frameworks for thinking about which things are colds and which things are potentially fatal.

So 1 of the most important things I learned at Square is actually a concept of editing.

And this is, I think, the best metaphor I've ever seen in like 14 years of running stuff of how to think about your job.

It's natural, it's a natural metaphor, so it's easy to take with you every day.

And actually, it's easy to transmit to each of your employees, so that they can figure out whether they're editing or writing.

You generally know when someone asks you to do something, am I more writing or am I more editing?

So an editor is, is the best metaphor for your job.

And we're gonna talk about the specific things you're doing in editing.

The first thing an editor does, and you've probably all had this experience in school, is you submit a paper to a TA, a draft to your friend.

The first thing an editor does is they take out a red pen, or nowadays, you know, online, And they start striking things.

The most important task of an editor is to simplify, simplify, simplify.

So that's your job too, is to clarify and simplify for everybody on your team.

The more you simplify, the better people will perform.

People cannot understand and keep track of a complicated set of initiatives, so you've got to distill it down to 1, 2, or 3 things.

And use a framework that they can repeat.

They can repeat without thinking about, they can repeat to their friends, they can repeat at night.

A lot of people will tell you that, well, this is too challenging, this is too complicated.

Well, yeah, I know other people simplify, but that's not for me.

You can change the world in 140 characters.

You can build the most important companies in history in a very simple to describe concept.

You can market products in less than about 50 characters.

There's no reason why You can't build your company the same way.

So force yourself to simplify every initiative, every product, every marketing, every, everything you do.

And, and basically take out that red and start eliminating stuff.

Second thing is what editors do is they ask you clarifying questions.

So when you present a paper to somebody, what do they usually do?

They, they find some ambiguity somewhere.

And they say, well, did you really mean this?

So you're in a meeting, and people are going to look to you.

And the real thing you do is you actually ask a lot of questions.

And they can be simple, basic questions like, should we try this 7 days a week or 6 days?

There can be fundamental questions like, where's our competitive advantage here?

We try to do this actually as investors too.

Some investors will ask you a billion questions about a billion things and they'll have you do diligence forever.

We try to narrow down to what are the 1, 2, or 3, 4 things that actually matter for this company and only focus on those things.

So it allows us to be more decisive and we can make decisions rapidly.

It allows us not to distract you from your day job, which is actually building a company.

And yet, I think we still get to the higher, fidelity, highest fidelity answer, because we don't have all these extra extraneous pieces of details and data.

Now it's hard, it's something you have to practice, but when you're good, good at it, Every step you eliminate, Andy Grove estimated that you can improve performance by 30 to 50%.

The next thing you do is allocate resources.

So the editing construct, this is what editors do all the time.

They take editors from the Mideast and covering the Mideast and they move them to Silicon Valley, because Silicon Valley is now, now more interesting.

Or they move them to a sports section, because they want to compete on the basis of sports with other journals and other publications.

So that can be top down, where I take a bunch of allocate, resources and people and say, we're now going over here, we're going to compete on this basis.

And then next month, next quarter, next year, I'm like, well, that Middle East coverage is getting boring and bland.

Just like journalists mostly come up with their own stories, the people who work with you generally should be coming up with their own initiatives.

So a reporter will generally, who covers Google, come up with the interesting stories that they're hearing in the ether.

And propose 1 or 2 to their editor for approval.

But it's not like the editor saying, go cover Google and this is the angle I want.

Once in a while they do that, but that's not the day, the day, the meat and potatoes of what a journalist does every day.

Your goal over time is to actually use less red ink every day.

So 1 way of measuring how well you're doing in communicating to your colleagues about what's important and what's not, why some things are important and some things are not, is how much red ink you're pulling out every day.

It's okay if you have a bad day and the red ink's all over the place.

But it's not okay if the red ink next month is more than it was last month, and next quarter is more than this.

So measure yourself of how much red ink you're creating.

The other thing that's very important that actually isn't as intuitive to a lot of people is the job of an editor is to ensure a consistent voice.

So if any of you read The Economist, you can tell that there's 1 consistent voice.

You can pick up any article, any post in The Economist, and it feels like it was written by the same person.

Ideally, your company should feel like on your website, in your PR release, on your packaging, if it's a physical product, anywhere on your recruiting pages, to feel like it was written by 1 person.

And at first you're gonna be tempted to do that yourself, which is okay for a founder to do that, him or herself initially.

Over time you do not want to be doing all of the consistent voice editing by yourself.

You want to train people so they can recognize the differences in voice.

So if you see this website page, it looks very different than the recruiting page.

Is 1 of the leaders over here not really understanding the voice of the company.

So you gotta, you have to fix that over time.

But you want to start with the objective of everything should feel exactly the same.

Almost every company has at least 1 piece of the organization that isn't exactly on the same voice.

At Apple, which is notori, you know, under, even under Steve's regime, which was notorious for getting this right.

If you ask someone who worked at Apple, talk, ask them about the internal tools about recruiting.

So you're never 100%, But you definitely want to get as close to that as you can.

So just like the other thing I like about the metaphor of editing is, writers do most of the work in the world.

Editors are not actually writing most of the content in any publication.

And the way you get out of doing most of the work is you actually delegate.

Now the problem with delegating is that actually you're responsible for everything.

There's no like that's that department over there, this person over there, screwed up.

You're always responsible for every single thing, especially when things go wrong.

So how do you both delegate but not abdicate?

It's a pretty tricky challenge, and both are sins.

Like if you over delegate, or, and you abdicate, or you micromanage.

So I'm gonna give you a couple techniques for solving this.

First, and this actually comes from high output management and Andy Grove, is what's known as task relevant maturity.

It's kind of a fancy phrase for basically, has this person ever done this before?

Like how mature is this person in doing something?

And the more they've done the exact same task before, the more sort of rope you're gonna give them.

And the less, and the more they're trying something new, the more you're gonna actually instruct them and consistently, constantly, regularly monitor.

So that's kind of a basic concept, but it's worth keeping in the back of your brain.

The interesting implication, and this is pretty radical, is that any executive, any CEO should not have 1 management style.

Your management style actually needs to be dictated by your employee.

So with 1 particular person, you may be very much a micromanager because they're quite low on this scale.

And with another person, you may be delegating a lot because they're actually quite mature on this scale.

So it's actually a good thing if you do reference checks on somebody and half the people you call say they're a micromanager and the other half say they actually give me a lot of responsibility.

That's actually not a, that's a, that's a feature, not a bug.

I didn't understand that at first at all.

Like I used to be befuddled when people would do reference checks on me and come back with this like complicated mosaic.

And I basically finally figured out that maybe I was actually doing my job correctly.

So then, of course, taught other people that this is the way to do it.

A more nuanced answer though that I've sort of came up with is how do you make decisions?

You don't want to do it yourself too often.

So what I've basically borrowed from Peter, this is my first 2 by 2 matrix ever in my life.

Is you basically sort your, your own level of conviction about a decision on a, a grid.

There's times when you know something's a mistake.

And there's times where you wouldn't do it that way, but you have no real idea what the, whether, whether it's the right or wrong answer.

And then there's a consequence dimension.

There are things that if you make the wrong decision are actually catastrophic to your company and you will fail.

There are things that are pretty low impact.

That really at the end of the day aren't going to make a big difference at least initially.

So what I basically believe is that where there's low consequences and you have very low confidence in your own opinion, you should absolutely delegate.

And delegate completely, let people make mistakes and learn.

On the other side, obviously, where the consequences are extremely dramatic.

And you have extremely high conviction that you're right.

You actually can't let your junior colleague, like, make a mistake.

You're ultimately responsible for that mistake, and if it's really important, you just can't allow that to happen.

Now the best way to do that is to actually explain your thinking, the why.

It's easy to shortcut when you get busy explaining why's of the world, but it's very important to try.

When I was at LinkedIn I had a colleague who's quite, quite talented but occasionally would get annoyed if, if I didn't exactly agree with his opinion on something.

And so I'd spend a lot of time trying to persuade him of why I was making a decision a certain way.

And his wild card, the card he would ultimately call out if I didn't quite persuade him was he's like, okay, you're the boss.

And that meant to me like I was burning a lot of social capital.

Every time he said that I knew I was like really creating a thin line and that ultimately that was gonna backfire if I did that too often.

So you wanna track the times that you're doing that.

An example of this is Square is 1 of my favorite people in the world and my second hire, first marketing hire, had this program he wanted to run called Inner Square.

Which basically allowed people to give out, Square merchants to give out 10 other squares to their call, it's imagine a food truck outside.

Put like 10 squares on the counter and people could just grab them.

And Kyle had this great idea, this would be an awesome marketing program.

Squares would spread squares to other people.

And, you know, to some extent, it was on brand, so it didn't have catastrophic consequences.

Each of these 10 squares didn't cost that much money, so financially we could afford to do it.

But at that time, my 10 years of experience said, there's just no way this is going to work at a meaningful enough scale to move our metrics enough.

And I actually would prefer we don't, not do this.

But Kyle was so excited about this that I decided to just let him do it.

He learned that actually when you measure this thing, it's not massive.

It doesn't create like massive value for the company.

It did require a fair amount of operational complexity to ship all these squares to people and figure out how to get them squares, etc.

But it allowed him to be excited about his job and to learn how to filter future ideas.

So it's totally worth letting him make the quote, unquote mistake.

The next and most possibly most important thing you do is actually edit the team.

So these are the people that you work with.

And nobody's gonna have a perfect team, and you're certainly not gonna start that way.

So what I'm gonna try to do is maximize the probability for success in editing the team.

So I like this idea of barrels and ammunition.

So most companies, once they get into hiring mode, as Sam pointed out, you should defer that for a while.

But once you do, they just hire a lot of people.

And they're like, and you expect that as you add people, your throughput, your horsepower, your velocity of shipping things is going to increase.

Usually when you hire more engineers, you actually don't get that much more done.

You hire more designers, you definitely don't get more done.

But so the reason why is that most people, most great people even, are actually ammunition.

But what you need in your company are barrels.

And you can only shoot through the number of unique barrels you have.

So that's how the velocity of your company improves, is by adding barrels.

And then you stock them with ammunition, and then you can do a lot.

So if you go from 1 barrel company, which is mostly how you start, to a 2 barrel company, suddenly you get twice as many things done per day, per week, per quarter.

Barrels are incredibly difficult to find.

But when you have them, like give them lots of equity, promote them, take them to dinner every week, because it, they're virtually like irreplaceable.

See all Y Combinator transcripts on Youtube

How to Operate with Keith Rabois (How to Start a Startup 2014: Lecture 14)