Published in the San Diego Union-Tribune, February 19, 2018
“Move fast and break things,” Mark Zuckerberg, 2005. That was the mantra of Facebook in the early days, and many entrepreneurs in their zeal to emulate the Zuck used that phrase to justify a culture that was more attuned to creating chaos and hoping for the best.
In fact, in 2014, Facebook came out publicly to say that they were ditching that phrase and heading toward building a more stable platform and infrastructure. What they had learned was that the failing fast thing — meaning tolerating bugs in the software in the service of speed — was actually slowing things down. The time it took to fix the bugs was more than the gain from the speed of a new feature. They were failing fast and then failing even faster.
Now you will remember that I have promised to periodically give you a YCMTSU (you can’t make this stuff up) story. Well, please meet Chamath Palihapitiya, founder of Social Capital, a venture fund in Palo Alto. Below are parts of his speech he gave at Stanford Business School late last year.
Palihapitiya says he never logs on to Facebook, he calls venture capitalists “soulless cowards,” he rejects the conventional Silicon Valley wisdom on failing fast. He thinks money may be an evil, yet he is also in favor of making lots of it, “but when you do, don’t lose your moral compass.”
He raised $600 million to take an “as yet unselected company” public in an “IPO-by-acquisition model.” He has created a platform, “Capital as a Service,” which allows an entrepreneur to submit an online application and receive up to $250,000 without even a face-to-face meeting. This guy is out there.
He is not that big on innovation per se; rather he encourages his audience “to be good copiers” (I refuse to make a Xerox joke here), and adds that “a lot of my life, quite honestly, is just copying things I see. There’s not a lot of original thought here.” Well, at least he is honest about intellectual plagiarism.
One of the classic metrics for deals is IRR, commonly known as the internal rate of return. It is a measure of profitability (again, I will pass on the full explanation, which would require a discussion of net present value and discounted cash flows over the term of the investment — oy!), but Palihapitiya’s take on IRR is iconic. He says, “You can’t eat IRR. In the absence of capital, you’re irrelevant; with capital, you’re powerful.” Sounds like he studied under Jerry Maguire.
I teach my CEOs that there are only three rules that are inviolate. 1) Never run out of money. 2) Never ever run out of money. 3) Never forget rule No. 1.
On the matter of failing fast, Palihapitiya does make some cogent arguments. He will concede that for a software company, failing fast may be a requirement to keep up with your customers and their changing desires and demands. But, failing fast is not the solution to a biotech to solving diabetes, for example. “For anything that really matters, going fast and breaking things is not how to use precision medicine to cure cancer, it’s not how you educate broad swaths of the world’s population.”
His take on venture capitalists is marvelous. “If repeatedly picking winners is a proof of genius, then the venture capital community fails the test.” He argues that a lot of the game is luck and that only a very few firms pick more than one unicorn — ever. “If anybody tells you they know what they are doing, they’re lying. Long-term thinking, moderate growth, moderate compounding, that is gold.”
Palihapitiya was a vice president at Facebook in the heyday. Now he feels that the “short-term, dopamine-driven feedback loops today are destroying how society works — no civil discourse, no cooperation, misinformation and mistruth.”
He says, “like it or not, a very small number of men — they are all men — are running the world.” His goal is to make enough money to buy a seat at that table and then reset the menu.
In the final analysis, Palihapitiya says, “American culture places a premium on know-it-alls. Being confident, self-aware and willing to say ‘I don’t know’ is a really powerful response.”
Rule No. 547: Tell truth to power.