Managerial Leverage Test
You don't make reports great; you hire people who make you great, and you replace those you have to push
- Difficulty
- Advanced
- Time to result
- ~weeks to results
- Steps
- 3
- Confidence
- 90%
When a functional manager becomes CEO, the job inverts. A VP of engineering develops their people; a CEO cannot develop a world-class CFO or CMO in domains they don't understand, and the company can't afford the time. The test for whether a direct report is providing leverage is simple: are they telling you what the company should do in their domain, or are you pushing them? If you have to supply the ideas and prod them forward, you're getting no leverage and it's time to make a change.
Origin
Horowitz's first-one-on-one lesson to Ali Ghodsi after promoting him from VP of Engineering to CEO of Databricks, tied to a Wang Chung-style quote about graduating and hating school.
Core principles
- 01A CEO's job is fast, high-quality decisions, direction-setting, and a world-class team, not developing people in domains they don't know
- 02You cannot make someone world-class at a function you know nothing about
- 03Leverage exists only when reports push the company forward and tell you what to do, not the reverse
- 04Caring about people and moving fast on leverage are not in conflict
How to run it
- 1
Recognize the CEO job is different from the functional job
Accept that unlike a VP role, the CEO cannot develop most direct reports because the CEO isn't expert in marketing, finance, or HR. The team must arrive world-class.
Pro tip State it starkly to yourself without hedging: 'you find people that make you great,' not the other way around.
Watch out If you were a strong developing-manager as a VP, this is the hardest habit to drop; developing your reports as CEO is very small compared to the leverage cost.
- 2
Apply the leverage test
For each direct report, ask: are they coming to you with what their department should do next and how it pushes the company forward, or are you the one generating those ideas and pushing them?
Pro tip The moment you catch yourself saying 'why aren't we doing this? why aren't we doing that?' is the signal you're supplying the leverage they should be.
- 3
Make the move when leverage is absent
When a report consistently fails the test, change the person. Do it without hesitation even if you like them, because the company needs the leverage.
Pro tip You can care deeply about people's careers and still move fast; the two are compatible, as Ghodsi demonstrates.
Watch out Hesitating here recreates the exact confidence-and-hesitation spiral that sinks CEOs.
In the wild
Newly-promoted CEO Ali Ghodsi tried to coach and level up a set of low performers he'd inherited. Horowitz taught him that a CEO finds people who make the company great and that he learns from, rather than trying to make weak people great from a seat that can't develop them.
→ Ghodsi became, in Horowitz's view, one of the best private-company CEOs, caring genuinely about his people yet never hesitating to make a move when he loses leverage.
Common mistakes
Trying to develop a report into world-class from zero
A CEO who knows nothing about a function cannot make someone world-class in it, and the company can't afford the time the attempt consumes.
Confusing being nice with keeping a no-leverage report
Caring about people is not a reason to keep someone you have to constantly push; the best CEOs do both, moving fast while treating people well.
Is it for you?
Best for
Newly-promoted CEOs and founders who came from a functional role and default to coaching direct reports instead of hiring for leverage
Not ideal for
Early-stage teams too small to have functional heads, or a VP-level manager whose actual job is to develop their people
From the transcript
“You don't make people great. You find people that make you great”
“And that's the point when you feel like you're not getting leverage, when you got to go say, "Hey, why aren't we doing this? Why…”
“he does not hesitate like if he's losing leverage, he'll make a move.”
From the episode
$46B of hard truths from Ben Horowitz: Why founders fail and why you need to run toward fear (a16z co-founder)