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Silicon Valley's Big Lie
HughPickens.com writes: Danny Crichton writes at TechCrunch that startups in Silicon Valley run on an alchemy of ignorance and amnesia and that lying is a requisite and daily part of being a founder, the grease that keeps the startup flywheel running. Most startups fail. The vast, vast majority of startup employees will never exercise their options, let alone become millionaires while doing it. But founders have little choice as they sell their company to everyone, whether investors, employees, potential employees, or clients. "Founders have to tell the lie – that everything is fine, that a feature is going to launch even though the engineer for that feature hasn't been hired yet, that payroll will run even though the VC dollars are still nowhere on the horizon," writes Crichton. "For one of the most hyper-rational populations in the world, Silicon Valley runs off a myth about startup success, of the lowly founder conquering the world."
The graveyard from Santa Cruz, San Jose, all the way to Sacramento is huge, but this isn't amnesia. This is hope, and hope sells, and occasionally, hope pays off in huge ways. On the way through the graveyard, you get to learn what worked and what didn't.
Eventually, a handful get to the Holy Gates of IPOs, and maybe things go well from there. Slashdot, financially, is a mirror of being a member of this very set, a long ago huge IPO that kept becoming sold off in hopes of future success, but now itself is on the block.
---- Teach Peace. It's Cheaper Than War.
Nonsense. We will mine asteroids and colonise space.
"For one of the most hyper-rational populations in the world"
That's part of the Big Lie, isn't it? Those greedy men who have least to offer will do their best to paint themselves as having the most to offer, and what better weapon has there been since the Renaissance than sophistry disguised as science, pulling those in just clever enough to know what they should be looking for, but too stupid to know whether they're witnessing it? It's the way of every salesman.
The rational man learns hard, finds an honest job, works hard, saves up, buys a home, keeps his skills up to date, remaining ambitious but staying true to himself (don't pretend you do what you can't, and don't get involved with anything that you know is too good to be true). This is harder than it once was, thanks to the overarching influence of Big Liars who enjoy the revolving door, but it's still the safest way to get along, assuming you're not due to inherit a fortune.
Value needs to be extracted somewhere and if you're not the extractor then chances are you're the chump. The responsibility of not being exploited is mine, and if I drank the koolaid I know who the chump who did the drinking was. Maybe next time I'll learn that my l33t risk analysis skills needs a bit of tweaking, or even better, give up on the self-gaslighting.
People often refer to "Silicon Valley" as if it were a place, but it's more like a term for a generation of individuals and companies, rather than just a place. Confusingly, there have been 4 distinct generations of "Silicon Valley", all using the same name.
The First Silicon Valley was from the time of WWII to around 1980. This was the pre-Internet Silicon Valley, which was dominated by the defense industry, heavy manufacturing, and the electronics industry. Lockheed, Shockley, Fairchild, Intel and Hewlett-Packard were some of the companies from this time.
1980 proved to be a turning point. At this point we saw the rise of personal computing and networking. Computing was going mainstream. Defense and heavy industry gave way to light computer hardware and software. This was the Second Silicon Valley. Apple, Sun, SCO, Oracle, Cisco and NeXT made their names known.
Around 1995, at the dawn of the World Wide Web, we saw another transition take place. This was when Yahoo, Netscape, eBay, PayPal and other Web-related properties, whose main focus was software, took off. This was the Third Silicon Valley generation.
The Third Silicon Valley generation was pretty much destroyed by the tech stock market collapse in early 2000. For several years people were unsure if there would even be another generation of Silicon Valley.
Much later, around 2005, we saw the rise of the Fourth Silicon Valley. This is when companies like the revived Apple, Google, Facebook, and Twitter really started making themselves known. They aren't about software so much as they are about advertising and the collection of personal data, with computing merely a tool to enable this on a massive scale.
The Fourth Silicon Valley also corresponds to the influx of "Hipsters" into the industry. The focus of software and service shifted from being useful to the consumer toward being "pretty" and otherwise satiating the Hipsters' desire for "creativity". We all know the trouble this has caused, from Windows 8's awful user experience to the destruction of Firefox's UI, through to the utter decimation of GNOME.
With any luck, the Fourth Silicon Valley will be coming to an end soon. It has proven itself to be the worst so far, in terms of what it has produced, and the harm it has caused. Every industry needs a renewal periodically, and the Fourth Silicon Valley is due for one.
The Fifth Silicon Valley will likely be made up of companies like Tesla, who are trying to provide useful and innovative products to the masses. It should be noted that many of the people behind such ventures are from the Third Silicon Valley. Not being Hipsters, these are people who knew how to make a real difference, not just take the hard work of others and ruin it.
No, Fourth Silicon Valley, which is rife with Hipsters and social rejects, will not mine asteroids. But I think that the Fifth Silicon Valley very well could! Unlike the Fourth Silicon Valley, the Fifth Silicon Valley will likely be made up of people who truly are gifted, and who will bring improvements, rather than the devastation of computer hardware, software, privacy and usability that the Fourth Silicon Valley's Hipsters have subjected us to.
Sure the chances are, as you say, low that the company you join will IPO and/or make it big.
That doesn't mea it doesn't happen though, and that the company you are joining might have an idea you like enough that you want to push to make it succeeded.
But even if you are just being cynical, there are still a lot of rewards to be had from joining a startup as (at least in CA) the pay is still really, really good thanks to large pools of VC money sloshing all over the place. There's a lot of room to navigate there in ways that mean your own personal success even if the company never hits it big.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
If you believe in the product you are creating, don't build it at a company whose vision is to build the company just to sell it or to IPO it. They don't care about the product, only selling the company. They will shortchange everywhere they can, cut corners, not test or QA, and eventually, once you have the product built, they will let you go before you get a chance to cash in.
If you are not allowed to question your government then the government has answered your question.
Elon Musk says shhhhhh.
There are a lot of reasons to criticize Silicon Valley, but being positive about a plan and having to deal with difficult term sheets are hollow complaints.
When you start ANY new project, there is a period of time when the project is not funded and does not have the necessary people to get it done. Startups are no different in selling a dream than any university professor, large company project lead, or government program manager.
The main point of TFA is that startup employees are starting to get more sophisticated in evaluating stock options coming from the common pool compared to investors' preferred shares. Preferred shares and liquidation preferences are tools investors use to reduce risk, and they are detrimental to employees (and founders) of a startup... except that without those investors, nothing could happen. Investors are going to get leverage somehow, and if you're smart, these clauses are not a problem.
Inflated valuations compound these issues. It should be obvious that early high valuations are bad for employees. Potential startup employees SHOULD understand that going to work for a company that is highly valued and has large investments offers much less financial growth opportunity than working for a company with a low valuation and small investment.
If you're a founder, keeping your valuation low during early stages of a startup company is much, MUCH smarter than arguing for a high valuation. This push for early high valuations is driven by lots of money sloshing around looking for a place to sit. That is a legitimate problem in Silicon Valley. As a founder, it may sound great to take in an extra $10 million, but if you don't need that money and can't actually justify that valuation, you've limited your company's future options (no IPO for you) and made it much harder to hire smart employees.
I guess he believes that the same way some believe the Red Sea was splitted in two by Moses and Jesus actually existed, died, resurrected and flew back to his Dad. In fact, the idea we will actually colonize America has its root from the same religious beliefs we inherited the world and must conquer it. At least from the protestant's view of the world. The man is created to engineer the world. It is just an extension of religion.
The job of executive leadership is to tell a nice story and not let facts get in the way. The job of engineering is make factual decisions without letting the nice story get in the way. It's much easier to get people to believe things they *want* to believe. Yeah a lot of the stories are thin and many people see right through them. But remember, in corporate communications, you have four groups of people. Those who want to know the truth and have the acumen to figure it out. Nothing to say to them as they already know. Those who don't want to know the truth but could figure it out. They aren't going to listen. Those who want the truth but don't have the skills to unearth it. They will hang on your every word. Those who have neither the skills nor the desire. I have no idea hos they manage to keep getting paid. Engineers and programmers aren't good at saying yes until they know how, often to our own detriment. I may not know *how* I'm going to meet payroll (Said in the first person, but I've never had one to meet) but that doesn't mean I'm not determined and confident that I will find a way.
...and while it has significantly better odds than the actual lottery, it's much the same thing. Part of what drives the Valley -- and the IT startup industry in general -- is that it's very easy to track down large numbers of people who have, in fact, become millionaires (or better) through stock options and buy outs. It is a siren song that occasionally pays off.
The problem since the late 1990s is that vast amounts of capital have distorted the natural harsh realities of running a business, not to mention Economics 101. Too many tech startup business plans are, in effect, "Get funding. Create buzz. Get more funding. Sell out to a firm that actually makes money or go public." It occasionally works -- and all you have to do is read the industry press to see the multi-billion-dollar IPOs/acquisitions that never panned out.
Now, excuse me while I go back to work on my indie game and my graphic novel. :-) ..bruce..
Bruce F. Webster (brucefwebster.com)
Sure things have low profit margins. Things that could turn you into a billionaire or whatever are going to be long shots.
Ideally what you want to do is hedge. This is not really possible in employment because time is time. But with investments you want to have the bulk of your capital in a sure thing and a reasonable amount in speculative investments.
As regards employment in a start up the way to manage this is with the ratio of pay versus stock options.
To the extent that you judge your start up to be a sure thing or a risky proposition... you are going to want to adjust the balance of stock options versus salary. Riskier jobs should have more upfront salary where as more certain enterprises can have more stock options. Obviously it is in the interest of either organization to sell you the opposite.
A risky venture's interests are in selling you options because if everything goes wrong they paid you with monopoly money. And the reliable entity is effectively paying you more with stock options than with salary so they're going to be inclined to pay you with just straight money instead.
Part of negotiating for pay is understanding what is in your interests and leveraging your value to get what you want.
A company that is going down in flames should pay you in cash... even checks bounce. This was something that was going on with General Motors before their last default. They were paying their suppliers with IOUs. That's entirely unacceptable. A company with shaky financials hands you an IOU and you respond with "no sale".
If the company has solid financials then you say "I'll give this to you on credit"... and then set the interest rate to whatever the banks say is correct... have the bank finance it on the other company's credit rating.
Anyway... point is... if you're being paid mostly in stock options in a start up in SV... the only companies you want to accept that from are sure things.
Sure sure... you can win the lottery. Just know that's what you're doing.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
I'd worked at nine different startups until I finally got reasonably lucky. Seriously, that is roughly the odds. Somewhere around ten percent of them are really successful. And that is honestly all you need. Is it really any worse than working as second assistant icon bezel engineer at some giant company on a project that you know will get killed anyway in the next reorg? The pay is roughly the same and the frustration and alienation level are comparable, if for different reasons.
Startups can be a lot of fun, especially if you don't get too emotionally attached or take it too seriously. And all you need is to be in the right place at the right time once and you can retire to a monastery in Bhutan or go fly-fishing in Montana. That isn't too bad a deal.
As for the lying part, I'd more accurately describe it as a kind of self-delusion or cognitive dissonance. One of the hard parts about being the founder of a company is that 24/7 you need to be positive and upbeat. My own experience in the founders seat and getting a great many doors slammed in my face by VCs is that if you don't believe in what you are doing, no one else will. Rejection can only make you stronger.
You're quite sure that turning the lights off is still up to you? An electric circuit has switches at both ends ;)
I suspect you're being sarcastic but you might as well be sincere for all the difference it makes. It's the system of continually ramping up the jackpots and pay-outs that is failing. It might be a natural consequence of market capitalism where people cannot fully inform themselves about all things.
In fact, with regard to public valuation, it's impossible for people to accurately inform themselves about this because it's purely a feedback loop of what other people think, making outright lying a winning strategy (especially when combined with bailing out before the thing crashes, like Enron did).
When you couple that with a culture that mandates socializing the losses from these games, to reward the wealthy people willing to play them and encourage them to play more and harder, truthfulness becomes completely unworkable and is at a devastating disadvantage. Basically you can't do that, it's a guarantee of tanking your valuation. Even if a person believes you, they're likely to conclude that other dumb investors will be tricked into acting against you, and therefore game theory says you've already lost.
So, literally, we do need to look at rewarding failures and low achievers simply in order to keep the wheels turning and the lights on at all. Making conscious decisions to reward the big winners inevitably means rewarding only the biggest liars, plus they're typically making a cash grab and running rather than building industries for the betterment of all.
Silicon Valley doesn't EMPLOY. The highest aspiration is to have a massive server farm minded by the CEO and one hapless sysadmin, replacing worldwide industries with millions of employees. You're right: it is over and people are gradually figuring that out. Whatever does end up replacing the system won't look like Silicon Valley. It's sort of a cancerous growth, diverting the resources of market capitalism into a feedback loop.
I do not expect this to happen quickly, it'll be on a hundreds-of-years timescale.
Which rather underscores the point that idiots investing dollars today in pie-in-the-sky schemes like asteroid mining are most assuredly throwing their money away.
I think the better way of saying this is that it underscores the point that obstructionist idiots have held back progress substantially because they are incredibly short sighted, and we should have been to that point decades ago.
We went from cars to landing on the moon in less than 60 years.
It's now been almost another 60 years. What significant progress has been made, while you idiots are all wasting time oppressing and shooting at each other?
Exactly.
This is mostly true; I work for a IT outsource company and almost all of our customers are startups that cannot afford to hire a full time IT person. They are constantly going through periods where they need to get funding and when you hit that period everything spending wise stops; You know things are going really bad when they stop filling the break room with soda and snacks; But for every 10 that have failed; 1 has gone on spectacularly. 2 Of the companies we have been supporting will be going IPO in the next 6 months. They both have solid products and should do well on their own or as a take over. The innovation that used to come out of NASA has now been replaced with Stanford. The chip foundries have been replaced by Medical Labs. The new Silicon Valley is DNA Valley because all of the technology firms are being replaced by bio-tech. Rich people are getting old, and they want to live, so there is plenty VC money if you can find the next cure for cancer. So when they say that this place will bust, its because they dont live here. Unlike Detroit, the industry here has evolved from Ag, to manufacturing, to tech, to bio tech, and lets face it, we have WAY better weather.