The race to the buyout – how we might be in a bubble

Longevity is what I  seek. Today, the majority of our social and economic system prizes instant gratification, quick money and the shortest path to completion. This is not a rant against our system or people’s material priorities, rather I hope to discuss the lack of long term vision amongst many of our brighter minds. You will die, but your creations can live on if you build a culture around them. If I had to boil it all down to one phrase it would be to say: We must figure out how to avoid shirtsleeves to shirt sleeves in three generations.

I work in the start-up and software world, which is a place that places IPOs, “fuck-you” money and fast growth as its raison d’être. John Doerr, the famed venture capitalist, proudly stated about his career, “we witnessed the largest, legal creation of wealth on the planet”. Venture capital firms relish in the glow of a fast and profitable sale to a large company. It is sad that so few companies, especially in the technology space, pride themselves on long-term thinking, durability and consistency.

In contrast to start-up culture, Japan prides itself on longevity. The Imperial House of Japan was founded in 660 BC by Emperor Jimma and is still running after nearly 2500 years. The oldest hotel in the world is in Japan and a disproportionate number of the oldest companies in the world are Japanese. Building something that lasts centuries is exponentially harder than building something that lasts decades, let alone years. Americans often criticize Europe and Japan for moving too slowly, having too little GDP growth, and too little speed. But, the real test of a social-economic system cannot be made over 20, 30 or even 60 years – you need centuries.

I am hardly the first to say this. The great minds at the LongNow foundation, which include Jeff Bezzos of, understand this. They wrote a great piece on the history of debt here and are building a clock that will last 10,000 years – that’s what I’m talking about!

Everywhere I look in the tech space I see a dangerous emphasis on speed. Though there is genuine long-term wealth creation going on, I think we are in another tech bubble. Yes, certain companies have a lot of cash, but this partly due to a taxation problem. The main tell-tale signs of a bubble are absurdly high salaries for developers who CEOs feel they can leverage, but are themselves leveraged by investors. There is nothing wrong with working with others to go faster, but it is a bit concerning when so much is being spent so fast. I might be wrong, take a look at the great discussion about a potential  2011 tech bubble at HackerNews here.

Part of the problem with tech investment is that it works. Technology can indeed be incredibly profitable incredibly fast. But those profits can disappear just as quickly as they came. Planning for the short-term has become endemic.

Fundamentally, to build for the long-term requires you need to resist temptation. Temptation comes in many forms – venture capital, buyouts, leverage, credit – but all leads down the same path of destruction as soon as you stop peddling fast enough.

The seminal study on temptation by Michelle vanDellen outlines how children who control temptation to eat a cookie turn out better – health, wealth, happiness – than children who can’t. Leverage is a cookie.

Despite the fact that most people in the tech space are very good at resisting personal temptation, they still seem to emphasize the quick payoff at the corporate level. It seems likely that the high levels of personal leverage from mortgages, credit cards, and student loans push us towards get rich quick schemes. Add onto that the jealousy of your neighbour or office mate’s stock options, car, house or wife. That is the foundation of a bubble.

Sometimes the best indicator of a bubble is your local taxi driver. As gold hit 815$ an ounce in 1980 (2150$ in 2011 inflation adjusted dollars), a Wall Street investor was riding in a taxi cab when the cab driver mentioned he was planning to buy gold as an investment. The investor got out of the cab, went upstairs to his office and sold all his gold positions. Gold plummeted to 300$, where it stayed for over 20 years. When everyone is doing one thing, do the opposite.

Rather than build something durable many companies are created with the aim of being sold to someone bigger, VCs want out in under 5 years, and people jump from one job to another every 6 months. This strikes me as an unhealthy system, but hey, that’s just me.

The second, and potentially worse, impact of short-term thinking is the shift in the workforce. Because of the pressure to relieve debt and the drive to buy the things others have, the smartest people move away from durable businesses that take decades to build and go towards get rich quick social media schemes. Just as Wall Street has absorbed some of the best minds of our generation to do high frequency trading (something that clearly adds no value to society), amazing software developers are being used to build social-media-analytic-optimizational-cross-promotional platforms, whatever that is. These great minds of our generation should be building technology that helps run society – hospitals, education, infrastructure, communication and yet unforeseen things only they can imagine.

I believe in the power of technology to change the world, but we need to frame our socio-economic system to value long-term thinking. As the three pigs should have taught you, you need to build in stone, not wood. The true test of a great company is not how much money it makes today, but how long it lasts as a value creation vehicle for society as a whole.

Think big, move fast and aim long. Maybe I’m just old-fashioned.

For your viewing enjoyment, the The Three Little Pigs.


Published on July 20, 2011