You Don’t Deserve Anything
(Initially published May 21st 2015)
Reid Hoffman provides us a very interesting perspective on diversification, investments and entrepreneurship. For those of you who do not know him, Reid is a co-founder of the LinkedIn professional network and co-author of the book “The Startup of You”. For those of you who do not know LinkedIn, I recommend that you do not waste your time with this article, go back to the cave in which you have been living and continue with your ascetic life. Happiness is too precious a commodity for reality to intrude. For the rest of the audience, I invite you to continue reading.
What Reid tells us is that whether you are a lawyer or a doctor or an engineer, nowadays you have to think like an entrepreneur, because at least you have to manage a very special start-up: your own professional career. Like it or not, this is a change that has already happened, a reality in which we are already living, fostered by events that have radically transformed the labor market, not only in the USA but globally and in few places experienced as radically as in Spain, a country immersed for many decades in a complacent protectionism inherited from the Franco regime (let’s not forget that national-socialism, like communism, mistrusts capitalism and extols proletarian values) and continued in a populist path with successive governments on the right as well as on the left side of the spectrum.
In that protected “welfare state” the labor market functioned as an elevator: one entered after graduating on the ground floor, and while he did not do too badly he continued to climb the elevator with promotions every few years, a lifetime employee at the same company, until the last floor and a comfortable retirement assured.
But now the elevator is stuck on all levels. Veterans can not retire at the expected age. The middle cadres can not progress simply by doing what they did yesterday. And young people with the greatest preparation in the history of our country can not find any open elevator door. The combined effect of technology and globalization means that fewer people are needed to produce more things, and that these people can be located in different markets. And as in Spain we have waited for the biggest crisis of the last eighty years to force us to question unsustainable models of social pact, we have been plunged into the abyss and have suffered like the unfortunate one who has measles for the first time at age thirty-five.
The important thing here for us is how that model changes: before there used to be a pact between the employee and the employer that guaranteed lifetime employment in exchange for loyalty, also for life. This pact has been replaced by productivity-based, short-term contracts that both parties can cancel quickly and cheaply. This has caused professional loyalty to now flow “horizontally” to and from a professional network instead of “vertically” to a boss. Let me make a point here for those who think that this is “a problem of the workers” who are “being abused by employers”. Whoever thinks so I am afraid that he has attended too many meetings of leftist parties like Podemos and is unfortunately very misguided, because the reality is that the environment is even harder for entrepreneurs. Today, companies are falling faster and more frequently than ever. In the 20s and 30s companies remained in the S&P 500 for an average of 65 years. In the 90’s this average had been reduced to 10 years. Now it must be around 5 years of permanence. It is interesting to note also that a similar compression has happened in the time that an investor maintains a portfolio title: in the 40s the average stay was 4 years, in the 90 it was 8 months. In 2008 it was 2 months. And in 2011 it was… 22 seconds, with important consequences that we will explore in more detail in future articles related to algorithmic and high frequency trading, two phenomena that have changed the financial markets forever.
The irreversible reality is that we are in an environment in which there is only one constant: change. To a large extent, the conditions in which we now live are the same conditions in which entrepreneurs are accustomed to managing their businesses. Uncertainty reigns. The information is asymmetric and expensive. The resources are limited. The competition is high. And that means you have to adapt. If you do not, no one — not your boss, not the government — will help you when you fall. You can no longer keep “hiding your head in the sand” of a job that is insured for life, and let other economic agents carry out the task of managing the risks of the environment. Now risk management is an individual responsibility. And more generally, society thrives when people think entrepreneurially. Examples of practices to be avoided in the new world are, for example, maintaining an identity rooted in a company instead of cultivating a personal brand, or hyper-specialization, promoted by a culture and incentive scheme typical of the industrial age, in the one that you learn more and more of an increasingly reduced domain of tasks. In an environment that changes this strategy so quickly, it makes you much more susceptible to professional obsolescence.
And maybe the worst is to think that once the university is finished there is no need to learn. For many people, “twenty years of experience” meant a year of experience repeated twenty times. That world, fortunately, is over. In contrast, the strategies employed by successful individuals and businesses in the new world are strikingly similar. Principles like: analyze what makes you different, and better, turn that into your competitive advantage. Learn something new every day. Compare your aspirations with your resources to plan viable tactics. Go where there is rapid growth, because rapid growth is the mother of all opportunities. Pivot as fast as you can as soon as you see that a substantial opportunity opens up. Take risks intelligently, with the likelihood of small losses and large profits. Use technological scalability and network effects to create competitive barriers. And above all, build a network of allies that can help you with information, ideas, resources, opportunities… your professional network is your strategy of diversification in an uncertain and risky world. Another remarkable reading about it that I highly recommend is Dan Pink’s book “Free Agent Nation”.
In USA, Detroit exemplifies the disastrous failure to adapt to new conditions. However, for much of the twentieth century Detroit was the model of progress. Ford, General Motors (GM) and Chrysler where among the most innovative companies in the world, leading President Harry Truman to postulate the city as a synonym for industrial grandeur. Alfred P Sloan, the legendary GM chairman (and patron of the MIT business school) implemented new operational management techniques to get “one car for every pocket”. In 1955 GM was the first corporation in the world to earn a trillion dollars, so big that the Justice Department thought of dividing it as it would happen to Microsoft in the 90s. But, gradually, such innovative automotive sector was turning into a stagnant bureaucracy, averse to risk and profoundly anti-meritocratic. The result: GM lost 82 billion dollars in the three and a half years that led to its rescue and final closure by the federal government. Now Detroit is a ghost town, with most of its urban area empty and the highest crime rate in the USA.
Silicon Valley has become the model of progress of the 21st century, catapulted to success by its ecosystem of entrepreneurship and venture capital that gave birth to firms such as Google, Apple, Facebook, Twitter, LinkedIn … But, in fact, entrepreneurship is not a prerogative of Silicon Valley. It is in the minds and hands of many men and women around the world who oftentimes are not (and should not) going to start a businesses, but face the challenges of their professional career with the right spirit and vision. You are not a victim of anyone. Nobody owes you anything. You deserve nothing. Now, get out there and build something outstanding.
And if you want to get deeper into the roots of capitalism and liberalism you definitely should read these posts In Defense of Commerce.
