narcissists use anger to cow and intimidate
…the silicon valley culture of “promise x now, figure out how to do it later,” doesn’t really work in other industries. If you combine that with criminal narcissism, you get Theranos; if you just add regular narcissism, you just get Tesla.
What’s weird about venture capitalists is that they seek out these narcissists. I remember reading about a venture capitalist who said that he looked for an entrepreneur who could. . .I forget the metaphor, but it was something equivalent to short-circuiting the rational part of your brain.
My guess is that there are too many people trying to imitate Steve Jobs and not enough people trying to imitate Patrick Collison.
If you wanted to invest in 100 projects, each with a 90% failure rate, but a single success would lead to 100X return, wouldn’t you look for slightly delusional people to run those projects?
Leadership is also a factor. Many people do not have the conviction to make decisions, particularly decisions that others will follow. They lack the conviction because they know that they are fundamentally guessing and/or relying on something fuzzy like “intuition.” Guessing with conviction takes a lot of charisma and/or narcissism. It’s a useful delusion, though.
Venture capitalists’ behavior is easily explained using the worldview of the Gervais Principle (Venkatesh Rao, 2009). Being Rao’s “Sociopaths” themselves, VCs know that it takes “Sociopaths” to kick off a new firm. And even if the business doesn’t pan out, it may very well by virtue of the founders’ narcissism pull in enough investment and enough “Clueless” for VCs to turn a profit. After reading Carreyrou’s book, I am inclined to view Theranos more as an extreme point on a smooth distribution than as an one-of-a-kind outlier, otherwise the displayed level of credulity is difficult to explain even given a lot of people’s fervent wish for a female Steve Jobs.
As long as you think this is about personalities, you are vulnerable to such scams.
In our postmodern society, we become less concerned with questions of truth and reality, and instead discourse about the effectiveness of marketing and other attempts at calculated social influence.
The most famous term is the “Reality Distortion Field”, originally from Star Trek, and used by Bud Tribble to describe Steve Jobs’ effect on developers way back in 1981. A lot of people say Musk is able to do the same thing, if not necessarily within his companies, then with the press, his investors, and his fan-base.
From Wikipedia, “The RDF was said by Andy Hertzfeld to be Steve Jobs’ ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, maketing, appeasement, and pesistence.”
(I think Hertzfeld left out “hyper-irrational overconfidence, incredible arrogance and stubborness, pugilistic combativeness and eagerness for escalating confrontations, and plenty of domineering and aggressive abuse.”)
This gets back to the issue of “the power of positive thinking”, or when is irrational overconfidence / “fake it till you make it” self-validating, or when are “consensual hallucinations” beneficial (or dangerous), how do they come about, and whether certain skilled and talented individuals can ‘bootstrap’ them or otherwise bring them into existence.
Consider this excerpt from Trump’s Art of the Deal (1987).
From Scott Alexander’s book review of the same:
Influencing and motivating lots of independent people in order to coordinate their activities and get them to contribute to projects to get big risky things done is really, really hard. It apparently takes a special kind of person, who also brings certain, ahem, moral and epistemic flexibility to the table, when engaging in the psychological process. We start to see a pattern, a contemporary “habit of highly sucessful people.”
After all, “What is ‘Leadership’?”
Part of it indeed is “making people believe”, that is, an an under-appreciated component of leadership is “applied social psychology for the purpose of enabling coordination in circumstances where cognitive, information, transaction, and other costs would otherwise make it prohibitive.” It has limits, but making all the important member of a group into players on a “team” oten involves a kind of “common knowledge confidence” trick where everybody signs on to the focal point of a potentially feasible “vision” provided by a high-status prestigious figure, and then with the knowledge that everyone else is likely to come to same conclusion, actually signs on and contributes towards activity that would otherwise be too individually costly or risky in the absence of such coordination.
One can definitely observe (indeed, ‘feel’) this phenomenon occur in high-functioning military units when a new, ‘good leader’ is put in command.
For an economic perspective on this process (originally about Monetary Policy but generalizable to many more situations), see Steve Waldman’s take on Nick Rowe at the end of his Partial equilibrium intuitions about choice post at his Interfluidity blog.
Like it or not, in the “cutting edge tech company” context relevant to VCs like the one you mention, skill at this kind of thing seems to be both indispensible and now a permanent feature of the landscape. Unfortunately, like all processes in social psychology, it has potential “Social Failure Modes”, and apparently abuse by a self-deluded con-artist who is able to undermine any reality-checks or negative-feedbacks and so keep a hopelessly unjustified pipedream / scam going for an absurdly long time is one of them.
What’s weird about venture capitalists is that they seek out these narcissists. I remember reading about a venture capitalist who said that he looked for an entrepreneur who could. .
Maybe most venture capitalist are also narcissists and they are likely to fund a strong narcissist that convinces the VC that they can force these changes. I think VC is throwing money away at Uber that both brought significant change in the taxi marketplace but I believe will never see BIG MONOPOLY PROFITS. (So Uber survives but smaller margins.) I think we are seeing the same thing with Donald Trump as President that many high income voters see someone that tells the lower clases what is right. (And immigration and trade rally rants was able to convince some lower classes to vote for him.)
Traditional venture capitalists were mostly dubious of Theranos – they had raised a lot of their money from nonstandard investors and friends and family, who are easier to fool.
Whether the Silicon Valley culture works in other industries… well the comment you quote cites Tesla as an example of a failure, so we will see how that works out! Uber, Airbnb, and the scooter companies are all cases where the Silicon Valley culture may succeed in disrupting some of the non-software industries.
I’m just finishing a run at a successful startup, more or less from pre-seed phase to exit. There was a lot in the Theranos story, including the sociopathic CEO, to which I could relate. A bunch of those traits are maladaptive and make for a miserable, chew-em-up-spit-em-out work environment, even if on a continuum, I could squint and see why they were necessary to building the company. We had less of a personality cult, but absolutely the same kind of intrigue, revolving door hiring, and unfortunately, some of the same use of aggressive contracting and the legal system to exact conformity and compliance from the managerial workforce.
It’s this last part that I feel has gotten out of hand. Other start-up people I’ve spoken with feel the same way. The overly broad non-competes, the aggressive NDAs, the vested stock buybacks at an artificially reduced basis — all this stuff might make sense to an economist, but from the standpoint of a non-CEO or board member, it feels completely unfair. I came away from both my experience and reading about Theranos thinking that there is no way the little guy can win. I was not a little guy, and I felt like I couldn’t win if it had come down to any sort of conflict, whether or not I was in the right. It wouldn’t have mattered; I would have been drowned in contracts and lawsuits in the event of any sort of whistleblower action. And no doubt, while I do not believe that we crossed the line like Theranos, we got awfully close to faking it and not making it.
The narcissist CEO personality wants to win more than most people do, and coming from me that says something. Having met a number of them, I feel pretty safe saying that they are almost all super damaged people, often without true friends or much personality outside of their core focus. I’m sure there are exceptions, of course. Sad that today’s business culture seems to require that skillset. When all you’re looking for is growth, margin, and exit within 5 years, you might need a narcissistic sociopath to get the job done, including someone willing to go to the mat with lawsuits, HR violations, toxic workforce culture, etc to protect what will always be a small chance of massive success. Someone with more business/cultural/financial experience than me will have to help me understand how we can move away from the quick hitter mentality and onto saner and sustainable ground, or, I suppose, whether we should.
I have heard or read many versions of, “This artist did awful things and hurt the people around him. But he gave us great art so we shouldn’t judge harshly–or maybe even judge at all.”
That seems an awful lot like, “I suppose that personally Steve Jobs was a smelly sh*t but he gave us the iPhone and the App Store and Airpods. Try to take my iPhone and you’ll have to pry it from my cold dead …”
I’m a biotech VC. In defense of my guild, let me note that there were no legitimate life science investors in Theranos. Draper was already so rich that he could make a vanity investment in a field he didn’t understand and female Steve Jobs.
The Theranos fraud was visible from miles. If a company makes amazing claim X, and a simple experiment would prove claim X to everyone’s satisfaction X, extreme skepticism is warranted when they don’t show that experiment.