This blog contains original articles as well as articles from the book "Start-Up", by Hervé Lebret, which exists both in English and French. It is available on Amazon as well as in electronic versions. To buy it, click here.
I finally read the Steve Jobs biography by Walter Isaacson. I hesitated a long time (the original edition was published in 2011) because I feared disappointement. I had read the excellent The Apple Revolution as well as Return to the Little Kingdom. I finally read it in French and it is excellent. Read it if you have an interest in the topic. I’m not going to do any analysis, but as I usually do just mention some striking or subjective extracts. The citations refer to the French paperback release dated October 2012.
Various cultural earthquakes upset San Francisco and SiIicon Valley in the late 1960s. There was the technological revolution, initiated by the increase of military contracts, which had attracted electronics companies, chip manufacturers, designers of video games and computer manufacturers. There was a sub-culture, the pirates – inventors of genius, cyberpunks, dilettantes as well as pure geeks, they also had in their ranks electronicians refusing to fit the mold of HP and their impetuous children who wanted to break down all barriers. There were (quasi-academic) research groups, who led in vivo experiments on the effects of LSD, such as Doug Engelbart’s Augmentation Research Center, who would later work at the development of the mouse and graphical user interfaces, or Ken Kesey, who praised the psychedelic drug in shows, combining music and light, run by a group of musicians who became the legendary Grateful Dead. There was also the hippie movement, from the Beat Generation of Kerouac, a native of San Francisco Bay, and political activists, born out of the Movement for Freedom of Expression of Berkeley. And encompassing all that, there were various spiritual movements seeking inner enlightenment – Zen, Hinduism, meditation, yoga, primal scream, sensory deprivation and Esalen massage.
Steve Jobs was the embodiment of the fusion of Flower Power and microchips, the pursuit of personal revelation and high tech: he was meditating in the morning, followed in the afternoon courses in physics at Stanford, working the Atari at night and dreaming of starting his own business. [Page 114]
A passion for entrepreneurship
Bushnell is of this opinion: “To be a successful entrepreneur, you must have something special and I saw this thing with Steve. He was not only interested in electronics, also by business. I showed him that one had to behave as if one would succeed in what one wanted to achieve and then everything would naturally follow. That’s what I always say: if you pretend to know what you do, people will follow. “[Page 111]
His closest friends think that having learned so young, he had been abandoned at birth had left indelible scars. “The need for total control of what he did comes from this injury” [Page 34] … “The most amazing thing about Steve is that he cannot help being cruel to some people – a kind of Pavlovian response. The key to the mystery is the fact that he was abandoned at birth.” [Page 35]
So he went back to Nolan Bushnell, “Steve asked me to put fifty thousand dollars on the table and in exchange he’d give me a third of Apple’s shares. I thought I was smart and I said no. When I look back, I still laugh. Not to cry!” [Page 142]
The reality distortion field
- “This is madness. It is impossible. ”
He was answered that Jobs would not listen.
- The best definition of this oddity, you find it in Star Trek. Steve creates a reality distortion field. In his presence, reality is malleable. It can make anyone believe almost anything. The effect of course disappears, when he is not there, but it prevents you seriously to have realistic expectations for anything.
RDF was a confusing mix of charisma and mental strength, it is the willingness to bend the facts so they fit the mold. [Page 207]
When Jobs decreed that the sodas in the fridge would be replaced by organic orange and carrot juice, someone on the team had printed T-shirts with: “Beware of Reality Distortion Field!” And on the back: “It comes from the juice!”
There is a small bug page 225: To draw circles, Atkinson found a trick based on the fact that the sums of odd numbers gave a succession of perfect squares (for example, 1 + 3 = 4, 1 + 3 + 5 = 8, etc.) [The statement is correct because the last sum is 9 and not 8!]
Being a pirate
“Better to be a pirate than join the navy” [Page 248] And the Jolly Roger decorated with the Apple logo floated for a few weeks on the roof of Bandley 3.
The chapters on Jobs’ private life and Pixar are quite interesting. About the IPO of Pixar: “Earlier that year, Jobs had tried to find a buyer for Pixar, for fifty million dollars, just to recover his funds. At the end of this historic day, the actions he had kept – about 80% of the company – were worth more than 20 times that amount: one billion two hundred million dollars! It was nearly five times more than he had gained with the Apple IPO in 1980. But Jobs did not care to make a fortune, as he told John Markoff of the New York Times: “I do not intend to buy a yacht. I never did it for the money.” [Page 471]. He is in this respect very different from Larry Ellison, founder and CEO of Oracle with whom he became a friend who helped him to return to Apple.
Return to Apple
In this regard, there is an funny anecdote page 482: “Two years ago, Guy Kawasaki, Macworld magazine columnist (and former Apple evangelist) published in the magazine a parody telling Apple was buying NeXT and elected Jobs as CEO. The article featuring Mike Markkula talking to Jobs: “You want to spend the rest of your life selling Unix with a nice coating, or change the world?” And Jobs replied:” Now I am a father and I do not want to play adventurers.” The article made the assumption: “Following his troubles with NeXT, it is possible that Jobs, in his return to the parent company, will bring the Apple management a dose of humility. Bill Gates was also quoted; he said that if Jobs returned to the business, Microsoft would again have innovations to copy! Everything was invented and purely humorous. But the reality has this annoying habit of catching up all satires. “([Page 482 and see below]
And on his return: “His credo was perfection. He was not very good at compromise, or to arrange with reality. He did not like complexity. This was the case for the design of his products and the furniture of his houses, it was the same for his personal commitments. If he was sure of himself, then nothing could stop him, but if he had doubts, he sometimes preferred to throw in the towel rather than ending up in a situation that did not satisfy him completely. [Page 509]
[With Markkula] They spent the rest of the time talking about the future of Apple. Jobs wanted to build a company that survives him and asked for his advice. Markkula replied that companies that remain are those who knew how to renew. That had been constant with Hewlett-Packard, beginning by constructing measuring instruments and then calculators and then again computers.” Apple was ousted by Microsoft from the market for personal computers, Markkula explained. You must change the course of Apple to another product. You have to be like a butterfly and accomplish your metamorphosis.” Jobs was hardly talkative, but he retained the lesson. [Page 515]
The music was obviously an essential art in the life of Jobs. We know his passion for Bob Dylan, Joan Baez, and the Beatles. But here’s a most interesting part: Bach, he said, was his favorite classical composer. He particularly liked the contrast between the two versions of the Goldberg Variations recorded by Glenn Gould – the first in 1995 by the little-known pianist of twenty-two years that he was, and the second in 1981, a year before his death. “They are like night and day, Steve told me one day after having listened to one after the other. The first is exuberant, young, brilliant, played so fast that it is a revelation. The second is more efficient, more austere. It reveals a deep soul, a painful experience. “Jobs was sick for the third time when he listened to the two versions. I asked him which was his favorite version. “Gould preferred the latest version. In the past, I preferred the first, the exuberant. But now, I understand better what he meant.”
Isaacson ends his book with a brilliant remark by Jobs on the topic of life and death. “But on the other hand, maybe it’s like an on/off switch. Click and nothing more!” He paused again and smiled. “This is surely why I never liked the on/off switches on the Apple products.”
I could have put these final remarks earlier in the section A passion for entrepreneurship. “My passion has been to build a sustainable business, where people were motivated to manufacture great products. Everything else was secondary. Of course, it was great to make a profit, because it allowed us to create good products. But the motivation is the product, not profit. [...] The difference is subtle, but in the end it is crucial because it defines all the people we hire, those we promote, the topics we discussed at meetings. [...] People do not know what they want until they have it in front of them. That’s why I do not care about market research. [...] The intersection between the arts and sciences. I love this juncture, IL has a magical aura. [...] Our innovation holds a large part of humanity. I think great artists and great engineers are similar .. Both have the desire to express themselves. [...] I have my own theory to explain the decline of companies like IBM and Microsoft. The company did a great job, innovates and comes almost to a monopoly in some areas. It was then that the quality of the product becomes less important. The company praises great sales people [...] that eventually take control of the company. [...] I hate people who say they are entrepreneurs when their sole objective is to build a start-up that they will sell or go IPO. They do not have the desire to build a real company. [...] People should never stop innovating. [...] I think most creative people want to thank their predecessors who left their legacy.” [Pages 889-892]
An incredible life. Jobs will remain one of the biggest celebrities of the twentieth century. I wondered when I finished reading this book what I remember of Apple and Jobs and here is the result.
Following my recent post (part 1), here is what I keep from the book without giving all details. Moyer probably needs to sell a few copies!
Moyer introduces the Grunt Fund as a mechanism to allocate equity between founders. He is using the classical metrics I have used in the past (again see Equity Splits in Start-ups) but he adds one interesting point: a dynamic allocation based on future contributions such as time and cash, weighted with your value (reputation, experience, etc). His process is simple:
- Appoint a Leader
- Assign a theoretical value to the ingredients provided by the various Grunts.
- Keep track of the contributions and calculate the possible equity whenever you need based on the relative contributions by each Grunt.
A Grunt Fund makes some people uneasy. They like to know what they’re getting into and they like the I’s dotted and the T’s crossed. That’s fine. If this is you, then don’t use a Grunt Fund – get a job instead. [Page 50] Then be careful about who and what you need. It’s up to you to decide what you need, but be fair!
Moyer mentions on the following page Noam Wasserman’s The Founder’s Dilemma (which I have not read) as a theoritical validation of his approach.
Without entering too much detail, Moyer gives value to time (2x what would a normal salary be) and cash (4x the actual amount). This is subjective. The critical element is that all Grunts agree with the rules. It can change from one company to the other… “Remember, you need to compensate them for not only the work they did, but also for the risk they take.” [Page 64]
When it comes to ideas or intellectual property, Moyer has principles I am quite close to: “Don’t get me wrong, ideas are critical to a business’ success. But turning the idea into a reality is where the value is built, not in coming up with the idea in the first place.” [Page 82]
Sometimes you will need to remove someone. There are 3 possibilities:
- he/she resigns without cause. You need to reduce his slice;
- you terminate him/her without cause. The slice should be kept;
- you terminate with cause. He/she may lose the slice.
[Chapter 5 + Pages 141-145]
The Grunt Fund is for the early days only. When do you stop using it? When you have a predictable business model, or when you have raised $1M. [Page 114]
As a conclusion (and Moyer mentions it many times), “a Grunt Fund is a moral contract, not a legal contract. It tells us how to treat each other fairly. [...] A Grunt Fund is the foundation of a trusting relationship.” [Pages 121-122]
An EPFL entrepreneur had contacted me about equity split between founders, employees and investors in a start-up. I mentioned my experience and related blog post on the topic: Equity Splits in Start-ups. Then he came back to me with a book he advised me to read. I am half way through it and it has interesting (and new to me) lessons. So thanks Justin
The book is entitled Slicing Pie, and subtitled Funding Your Company Without Funds.
I will probably go back when I am finished with this book, but already, here are some examples of what I liked:
Somewhere between the inception of your earth-changing idea and the investor presentation to Andreessen Horowitz there is a gap. During that gap, you are expected to have actually built something that resembles a business enough that the gentle and kind venture capitalist will decide that you have your act together and write you a fact check. I call it “the Gap” because it’s during this time that you either fill the gap with behaviors that create a business or let is consume you and your wonderful idea. Most fledging businesses experience the latter.
The days of back-of-the-envelope deals are over. (In fact, they may never have actually existed.) Few investors are willing to provide capital to a company that is little more than a rough idea.
Nowadays, you need to have something worth investing in which often means a management team, a business plan, and, if you’re smart, a working prototype. For bonus points get a few beta customers who are actually paying you. Now you have something worth discussing. [page 2]
The need for Entrepreneurs
“Entrepreneurs give security to other people; they are the generators of social welfare.” The country needs entrepreneurs, the world needs entrepreneurs. Without them not much would happen.
In spite of the exciting life and important role of entrepreneurs, most people never become entrepreneurs. To most people, life is too risky. Most people can’t handle the ambiguity. Most people are afraid of failure. Every entrepreneur fails more often than they succeed. [pages 9-10]
Good and Bad Lessons
Failure is how an entrepreneur learns. Good lessons improve an entrepreneur chances for future success. If you created a product that nobody wants, if your employee leaves you, if a competitor comes out, if your marketing did not work, if you run out of money, you will learn.
Being an entrepreneur requires a lot of trust and confidence.
But if they get burnt by partners, they learn bad lessons. They spend more time covering their own butts. They learn to move more slowly and take fewer risks. They learn to be less like entrepreneurs and more like everyone else. [pages 10-11]
Grunts are people who are willing to forgo cash compensation in exchange for a piece of the pie. Grunts do the work necessary to turn an idea into a reality. They will do the fun work and the dirty work. They are as comfortable licking stamps as they are building a strategic plan. [page 28] (I love grunts probably because in some aspects I am one, even if not an entrepreneur!)
As a conclusion to his first chapter, author Mike Moyer claims that an entrepreneur needs a method for slicing the pie that is easy to understand and
- rewards participants for the relative value they provide,
- provides motivation for them to continue to provide more ingredients,
- allows founders to fairly add or subtract participants to or from the company,
- is flexible in the face of rapid change.
Here’s probably one of the toughest post I ever had to write and I am not sure it is a good one, even if the topic I am addressing is great and important. But it’s been a challenge to summarize what I learnt: Nicholas Nassim Taleb gives in this follow-up to the Black Swan a very interesting analysis of how the world can be less exposed to Black Swans, not by becoming more robust only, but by becoming antifragile, i.e. by benefiting from random events. His views include tensions between the individual and the groups, how distributed systems are more robust than centralized ones, how small unites are less fragile than big ones. This does not mean Taleb is against orgamizations, governments or laws as too little intervention induces totally messy situations. It is about putting the cursor at the right level. Switzerland represents for Taleb a good illustration of good state organizations with little central government, a lot of local responsibility. He has similar analogies for the work place, where he explains that an independent worker, who knows well his market, is less fragile to crises than big corporations and their employees. One way to make systems less fragile is to put some noise, some randomness which will stabilize them. This is well-known in science and also in social science. Just remember Athens was randomly nominating some of its leaders to avoid excess!
You can listen to Taleb here:
Now let me quote the author. These are notes only but for serious reviews, visit the author’s website, www.fooledbyrandomness.com/. First Taleb is, as usual, unfair but maybe less than in the Black Swan. Here is an example: “Academics (particularly in social science) seem to distrust each other, […] not to mention a level of envy I have almost never seen in business… My experience is that money and transactions purify relations; ideas and abstract matters like “recognition” and “credit” warp them, creating an atmosphere of perpetual rivalry. I grew to find people greedy for credentials nauseating, repulsive, and untrustworthy.” [Page 17] Taleb is right about envy and rivalry but wrong in saying it is worse in academia; I think it is universal! In politics for example. But when money is available, maybe rivalry counts less than where there is little.
Now a topic close to my activity: “This message from the ancients is vastly deeper than it seems. It contradicts modern methods and ideas of innovation and progress on many levels, as we tend to think that innovation comes from bureaucratic funding, through central planning, or by putting people through a Harvard Business School class by one Highly Decorated Professor of Innovation and Entrepreneurship (who never innovated anything) or hiring a consultant (who never innovated anything). This is a fallacy – note for now the disproportionate contribution of uneducated technicians and entrepreneurs to various technological leaps, from the Industrial Revolution to the emergence of Silicon Valley, and you will see what I mean.” [Page 42] [Extreme and unfair again, even if not fully wrong!]
“The antifragility of some comes necessarily at the expense of the fragility of others. In a system, the sacrifices of some units – fragile units, that is, or people – are often necessary for the well-being of other units or the whole. The fragility of every start-up is necessary for the economy to be antifragile, and that’s what makes, among other things, entrepreneurship work: the fragility of the individual entrepreneurs and their necessarily high failure rate”. [Page 65] What surprised me later is that Taleb shows that this is true of restaurants (not many succeed) as much as of high-tech start-ups. So it is not only about the uncertainty of new markets, but about uncertainty above all.
Mathematics of convexity
I have to admit Taleb is not easy to read. Not because it is complex (sometimes his ideas are pure common sense), but because it is dense with different even if consistent ideas. The book is divided in 25 chapters, but also in 7 books. In fact, Taleb insists on it, he might have written 7 different books! Even his mathematics is simple. His definition of convexity is a little strange though I found it interested (I teach convex optimization, and you might not know, it was the topic of my PhD!).
Jensen inequality is interesting [Pages 342, 227 – Jensen was an amateur mathematician!]– the convex transformation of a mean is less or equal than the mean after convex transformation. Again individual (concave, we die) vs. collective (convex, antifragile, benefits from individual failures). So risk taking is good for collectivity if with insurance mechanisms. Risk taking + insurance vs. speculation with no value added. An example of a short and deep idea: “Decision making is based on payoffs, not knowledge”. [Page 337]
“Simply, small probabilities are convex to errors of computation. One needs a parameter, called standard deviation, but uncertainty about standard deviation has the effect of making the small probabilities rise. Smaller and smaller probabilities require more precision in computation. In fact small probabilities are incomputable, even if one has the right model – which we of course don’t.” [Taleb fails to mention Poincare yet he quoted him in the Black Swan, but whatever.]
A visible tension between individual and collective interests
Quotes again: “What the economy, as a collective, wants [business school graduates] to do is not to survive, rather to take a lot, a lot of imprudent risks themselves and be blinded by the odds. Their respective industries improve from failure to failure. Natural and nature-like systems want some overconfidence on the part of the individual economic agents, i.e., the overestimation of their chances of success and underestimation of the risks of failure in their business, provided their failure does not impact others. In other words, they want local, but not global overconfidence”. […] In other words, some class of rash, even suicidal, risk taking is healthy for the economy – under the conditions that not all people take the same risks and that these risks remain small and localized. Now, by disrupting the model, as we will see, with bailouts, governments typically favor a certain class of firms that are large enough to require being saved in order to avoid contagion to other businesses. This is the opposite of healthy risk taking; it is transferring fragility from the collective to the unfit. […] Nietzsche’s famous expression “what does not kill me makes me stronger” can be easily implemented as meaning Mithridatization or Hormesis but it may also mean “what did not kill me did not make me stronger, but it spared me because I am stronger than others; but it killed others and the average population is now stronger because the weak are gone”. […] This visible tension between individual and collective interests is new in history. […] Some of the ideas about fitness and selection are not very comfortable to this author, which makes the writing of some sections rather painful – I detest the ruthlessness of selection, the inexorable disloyalty of Mother Nature. I detest the notion of improvement thanks to harm to others. As a humanist, I stand against the antifragility of systems at the expense of individuals, for if you follow the reasoning, this makes us humans individually irrelevant. ” [Pages 75-77]
A National Entrepreneur Day
“Compare the entrepreneurs to the bean-counting managers of companies who climb the ladder of hierarchy with hardly ever any real downside. Their cohort is rarely at risk. My dream – the solution – is that we would have a National Entrepreneur Day, with the following message: Most of you will fail, disrespected, impoverished, but we are grateful for the risks you are taking and the sacrifices you are making for the sake of the economic growth of the planet and pulling others out of poverty. You are the source of our antifragility. Our nation thanks you.” [Page 80]
Local distributed systems, randomness and modernity
“You never have a restaurant crisis. Why? Because it is composed of a lot of independent and competing small units that do not individually threaten the system and make it jump from one state to another. Randomness is distributed rather than concentrated.” [Page 98]
“Adding a certain number of randomly selected politicians to the process can improve the functioning of the parliamentary system.” [Page 104]
“Modernity is the humans’ large-scale domination of the environment, the systematic smoothing of the world’s jaggedness, and the stifling of volatility and stressors. We are going into a phase of modernity marked by the lobbyist, the very, very limited liability corporation, the MBA, sucker problems, secularization, the tax man, fear of the boss…” [Page 108]
“Iatrogenics means literally “caused by the healer”. Medical error still currently kills between three times (as accepted by doctors) and ten times as many people as car accidents in the United States, it is generally accepted that harm from doctors – not including risks from hospitals germs – accounts for more deaths than any single cancer. Iatrogenics is compounded by the “agency problem” which emerges when one party (the agent) has personal interested that are divorced from those of the one using his services (the principal). An agency problem is present with the stockbroker and medical doctor whose ultimate interest is their own checking account, not your financial and medical health.” [Pages 111-112]
Theories and intervention.
“Theories are super-fragile outside physics. The very designation “theory” is even upsetting. In social science, we should call these constructs “chimeras” rather than theories. [Now you understand why Taleb has many enemies.] A main source of the economic crisis started in 2007 in the Iatrogenics of the attempt by […] Alan Greenspan to iron out the “boom-bust” cycle which caused risks to go hide under the carpet. The most depressing part of the Greenspan story is that the fellow was a libertarian and seemingly convinced of the idea of leaving systems to their own devices; people can fool themselves endlessly. […] The argument is not against the notion of intervention; in fact I showed above that I am equally worried about under-intervention when it is truly necessary. […] We have a tendency to underestimate the role of randomness in human affairs. We need to avoid being blinded to the natural antifragility of systems, their ability to take care of themselves and fight our tendency to harm and fragilize them by not giving them a chance to do so. […] Alas, it has been hard for me to fit these ideas about fragility within the current US political discourse. The democratic side of the US spectrum favors hyper-intervention, unconditional regulation and large government, while the Republican side loves large corporations, unconditional deregulation and militarism, both are the same to me here. Let me simplify my take on intervention. To me it is mostly about having a systematic protocol to determine when to intervene and when to leave systems alone. And we may need to intervene to control the iatrogenics of modernity – particularly the large-scale harm to the environment and the concentration of potential (though not yet manifested) damage, the kind of thing we only notice when it is too late. The ideas advanced here are not political, but risk-management based. I do not have a political affiliation or allegiance to a specific party; rather, I am introducing the idea of harm and fragility into the vocabulary so we can formulate appropriate policies to ensure we don’t end up blowing up the planet and ourselves.” [Pages 116-118]
“To conclude, the best way to mitigate interventionism is to ration the supply of information. The more data you get, the less you know.” [Page 128]
“Political and economic “tail” events are unpredictable and their probabilities are not scientifically measurable.” [Page 133]
The barbell strategy and optionality
“The Barbell strategy is a way to achieve anti-fragility, by decreasing downside rather than increasing upside, by lowering exposure to negative Black Swans. So just as Stoicism is the domestication, not the elimination, of emotions, so is the barbell a domestication, not the elimination, of uncertainty.” [Page 159] “It is a combination of two extremes, one safe and one speculative, deemed more robust than a monomodal strategy. In biological systems, the equivalent of marrying an accountant and having an occasional fling with a rock star; for a writer, getting a stable sinecure and writing without the pressures of the market. Even trial and error are a form of barbell.” [Glossary page 428]
“The strength of the computer entrepreneur Steve Jobs was precisely in distrusting market research and focus groups – those based on asking people what they want – and following his own imagination, his modus was that people don’t know what they want until you provide them with it.” [Page 171]
“America’s asset is simply risk taking and the use of optionality, the remarkable ability to engage in rational forms of trial and error, with no comparative shame in failing, starting again and repeating failure. In modern Japan, by contrast, shame comes, with failure, which causes people to hide risks under the rug, financial or nuclear.”
“Nature does a California-style “fail early” – it has an option and uses it. Nature understands optionality effects better than humans. […] The idea is voiced by Steve Jobs in a famous speech: “Stay hungry, stay foolish.” He probably meant “Be crazy but retain the rationality of choosing the upper bound when you see it.” Any trial and error can be seen as the expression of an option, so long as one is capable of identifying a favorable result and exploiting it.” [Page 181]
“Option is a substitute for knowledge- actually I don’t understand what sterile knowledge is, since it is necessarily vague and sterile. So I make the bold speculation that many things we think are derived by skill come largely from options, but well-used options, much like Thales’s situation [who had an option with olive presses – pages 173-174] rather than from what we claim to be understanding.” [Page 186]
Taleb is skeptical with experts, with anyone believing in a linear model academia -> applied science ->practice (“lecturing birds how to fly”); he believes in tinkering, heuristics, apprenticeship, and makes again many enemies for free! He claims the jet engine, financial derivatives, architecture, medicine were first developed by practitioners and then theorized by scientists, not invented or discovered by them.
Tinkering vs. research
“There has to be a form of funding that works. By some vicious turn of events, governments have gotten huge payoffs from research, but not as intended – just consider the Internet. It is just that functionaries are too teleological in the way they look for things and so are large corporations. Most large companies, such as Big Pharma, are their own enemies. Consider blue sky research, whereby grants and funding are given to people, not projects, and spread in small amounts across many researchers. It’s been reported that in California, venture capitalists tend to back entrepreneurs, not ideas. Decisions are largely a matter of opinion, strengthened with who you know. Why? Because innovations drift, and one needs flâneur-like abilities to keep capturing the opportunities that arise. The significant venture capital decisions were made without real business plans. So if there was any analysis, it had to be of a backup, confirmatory nature. Visibly the money should go to the tinkerers, the aggressive tinkerers who you trust will milk the option.” [Page 229]
“Despite the commercial success of several companies and the stunning growth in revenues for the industry as a whole, most biotechnology firms earn no profit.” [Page 237] [Optionality again]
“(i) Look for optionality; in fact, rank things according to optionality, (ii) preferably with open-ended, not closed-ended, payoffs; (iii) do not invest in business plans but in people, so look for someone capable of changing six or seven times over his career, or more (an idea that is part of the modus operandi of the venture capitalist Marc Andreessen); one gets immunity from the backfit narratives of the business plan by investing in people. Make sure you are barbelled, whatever that means in your business.” [Page 238]
“I did here just debunk the lecturing-Birds-How-to-Fly epiphenomenon and the “linear model”, suing simple mathematical properties of optionality. There Is no empirical evidence to support the statement that organized research in the sense it is currently marketed leads to great things promised by universities. [Cf also Thiel lamentations about the promise of technologies - http://www.startup-book.com/2010/10/12/tech-equals-salvation/ ] Education is an institution that has been growing without external stressors; eventually the thing will collapse.” [A conclusion to book IV, page 261]
Why is fragility non linear?
“For the fragile, the cumulative effect of small shocks is smaller than the single effect of an equivalent single large shock. For the antifragile, shocks bring more benefits (equivalently, less harm) as their intensity increases (up to a point).”
“We may not need a name for or even an ability to express anything. We may just say something about what it is not. Michelangelo was asked by the pope about the secret of his genius, particularly how he carved the statue of David. His answer was: It’s simple, I just remove everything that is not David.” [Page 302-304]
[…] “Charlatans are recognizable in that they will give you positive advice. Yet in practice, it is the negative that’s used by the pros. One cannot really tell if a successful person has skills, or if a person with skills will succeed – but we can pretty much predict the negative, that a person totally devoid of skills will eventually fail.”
[…] “The greatest – most robust – contribution to knowledge consist in removing what we think is wrong. We know a lot more what is wrong than what is right. Negative knowledge is more robust to error than positive knowledge. […] Since one small observation can disprove a statement, while millions can hardly confirm it [The Black Swan!], disconfirmation is more rigorous than confirmation. […] Let us say that, in general, failure (and disconfirmation) are more informative than success and confirmation.”
[Funnily, I remember the main critics against my book were the lack of [positive] proposal in the end. I should have said there we many about what not to do!]
“Finally, consider this modernized version in a saying from Steve Jobs: “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.” [Page 302-304]
Less is more
“Simpler methods for forecasting and inference can work much, much better than complicated ones. “Fast and frugal” heuristics make good decisions despite limited time. First extreme effects: there are domains in which the rare event (good or bad) plays a disproportionate share and we tend to be blind to it. Just worry about Black Swan exposures and life is easy. There may not be an easily identifiable cause for a large share of the problems, but often there is an easy solution, sometimes with the naked eye rather than the use of the complicated analyses. Yet people want more data to solve problems.” [Page 305-306]
“The way to predict rigorously is to take away from the future, reduce from it things that do not belong to the coming times. What is fragile will eventually break, and luckily we can easily tell what is fragile. Positive Black Swans are more unpredictable than negative ones. Now I insist on the via negativa method of prophecy as being the only valid one.” [Page 310]
“For the perishable, every additional day in the life translates into a shorter additional life expectancy. For the non perishable, every additional day may imply a longer life expectancy. On general, the older the technology, the longer it is expected to last. I am not saying that all technologies do not age, only that those technologies that were prone to aging are already dead.” [Page 319]
“How can we teach children skills for the twenty-first century, since we do not know which skills will be needed? Effectively my answer would make them read the classics. The future is in the past. Actually there is an Arabic proverb to that effect: he who does not have a past has no future.” [Page 320]
[As can be read later in the book Taleb does not like the Bay Area culture. And it is no coincidence, it is a region with nearly no past, nearly no history, but it certainly help it create Silicon Valley innovations…]
“If you have an old oil painting and a flat screen television, you will never mind changing the television, not the painting. Same with an old fountain pen and the latest Apple computer; [Taleb is really cautious with modernity and innovation, even if a user of it. With architecture, he has similar concerns. Again he prefers tradition to aggressive modernity. Same with the metric system vs. old methods] Top-down is usually irreversible, so mistakes tend to stick, whereas bottom-up is gradual and incremental, with creation and destruction along the way, thought presumably with a positive slope.” [Pages 323-24]
“So we can apply criteria of fragility and robustness to the handling of information – the fragile in that context is, like technology, what does not stand the test of time. […] Books that have been around for ten years will be around for ten more; books that have been around for two millennia should be around for quite a bit of time. […] The problem in deciding whether a scientific result or a new “innovation” is a breakthrough, that is, the opposite of noise, is that one needs to see all aspects of the idea – and there is always some opacity that time, and only time, can dissipate.” [Page 329]
“Now, what is fragile? The large, optimized, overreliance on technology, overreliance on the so-called scientific method instead of age-tested heuristics.”
“By issuing warnings based on vulnerability – that is, substractive prophecy – we are closer to the original role of the prophet: to warn, not necessarily to predict, and to predict calamities if people don’t listen.”
“Under opacity and complexity, people can hide risks and hurt others. Skin in the game is the only true mitigator of fragility. We have developed a fondness for neomanic complication over archaic simplicity. […] The worst problem of modernity lies in the malignant transfer of fragility and antifragility from one party to the other, with one getting the benefits, the other one (unwittingly) getting the harm, with such transfer facilitated by the growing wedge between the ethical and the legal. Modernity hides it especially well. It is of course an agency problem.” [Page 373]
[You can/should have a look at table 7, page 377]
“In traditional societies, a person is only respectable and as worthy as the downside he (or, more, a lot more, than expected, she) is willing to face for the sake of others.” [Page 376]
“I want predictors to have visible scars on their body from prediction errors, not distribute these errors to society.” [Page 386]
[Don Quixote was already the sign of the end of the heroism, of the ethical behavior. Taleb’s models are Malraux and Ralph Nader – “the man is a secular saint” [Page 394]. His enemies Thomas Friedman, Rubin and Stieglitz]
[Is “skin in the game” the only way? The only solution? What about transparency?]
“Science must not be a competition; it must not have rankings – we can see how such a system will end up blowing up. Knowledge must not have an agency problem. One doctoral student once came to tell me that he believed in my ideas of fat tails and my skepticism of current methods of risk management, but that it would not help him get an academic job. “It’s what everybody teaches and uses in papers” he said. Another student explained that he wanted a job at a good university, so he could make money testifying as an expert witness – they would not buy my idea on robust risk management because “everyone uses these textbooks”. [Page 419]
“All I want is to remove the optionality, reduce the antifragility of some at the expense of others. It is simple via negativa. […] The golden rule: “Don’t do unto others what you don’t want them to do to you”. […] Everything gains or loses from volatility. Fragility is what loses from volatility or uncertainty. […] Time is volatility. Education in the sense of the formation of the character, personality, and acquisition of true knowledge, likes disorder; label-driven education and educators abhor disorder. Innovation is precisely something that grains from uncertainty.” [Pages 420-22]
“It so happens that everything nonlinear is convex, concave or both. […] We can build Black-Swan-protected systems thanks to detection of concavity, […] and with a mechanism called convex transformation, the fancier name for the barbell. […] Distributed randomness (as opposed to the concentrated type) is a necessity.”
Taleb sometimes gives the feeling of contradictions: marketing is bad, but Steve Jobs is great; barbell strategy and optionality is great, but isn’t it about risks and downsides transferred to others [Isn’t Thales a pure speculator?], cigarettes are bad but traditions are good.
Also this love of tradition makes people with more background at ease to take risks with barbell strategy; but what about the poor with nothing to lose? Benefits might statistically go to those who already have… [It reminds the story told by J.-B. Doumeng: It is a millionaire who recounts his difficult beginnings: "I bought an apple 50 cents, I polished it to shine and I sold it for one franc. With this, I bought two apples 50cts, I carefully polished and I sold them 2 Fr after a moment, I could buy a cart to sell my apples and then I made a big inheritance ... "]
You now know why it has been a challenge. A very strange, dense, fascinating book, but if you like these concepts, you must read Antifragile. In fact you must read the Black Swan first, if you have not and if you like it, I am sure you will read Antifragile.
As Guillermo Martinez said rightly in one of his essays, “it’s well-known that there is only one more effective way to kill conversation in a waiting room than to open a book, and that is to open a book of mathematics”. Still you may read more than this first sentence!
Even in high tech. innovation and entrepreneurship, the topic of imagination vs. reason, which could be translated by technology push vs. market push, is recurrent. So when I read books about creativity, whether it is scientific or artistic, I am always looking for links with innovation. I had the opportunity to check it again with Guillermo Martinez’s Borges and Mathematics. Borges is probably one of the “poets” who put the most mathematics in his literary work. Guillermo Martinez who is both a novel author and a mathematician has recently published in English this nice little book about Mathematics in Borges’ short stories. I already talked about mathematics in a recent post so let me add here a few things about what I liked.
Martinez quotes Borges who quotes Poe: “I – naively perhaps – believe Poe’s explanations. I think that the mental process he adduces corresponds to the actual creative process. I’m sure this is how intelligence works: through changes of mind, obstacles, elimination. The complexity of the operation he describes doesn’t bother me; I suspect that the real approach must have been even more complex and much more chaotic and hesitant. All this does not mean to suggest that the arcana of poetic creation were revealed by Poe. In the links, that the writer explores, the conclusion he draws from each premise is logical of course but not the only one necessary.” Borges in The genesis of Poe’s “The Raven”.
And then he adds more about the process of creativity: In the discussion of “divine, winged” intuition versus the prosaic, tortoise pace of logic, I would like to contradict a myth about mathematics: the process Borges describes is exactly the same as what happens in mathematical creation. Let’s consider the mathematician who has to prove a theorem for the first time. Our mathematician sets out to prove a result without even knowing if such a proof really exists. He gropes his way through an unknown world, proving and making mistakes, refining his hypothesis, starting all over again and trying another approach. He too has infinite possibilities within his grasp and with every step he takes. And so each attempt will be logical, but by no means the only one possible. It is like the moves of a chess player. Each of the chess player’s moves conforms to the logic of the game in order to entrap his rival, but none is predetermined. This is the critical step in artistic and mathematical elaboration, and in any imaginative task. I don’t believe there is anything unique to literary creation as far as the duality of imagination/intuition versus logic/reason is concerned.
I strongly believe that innovation is very similar to the process of artistic or scientific creation. But in another essay, Martinez says more about creation: “It’s the same feeling of euphoria you get when, after many years of struggling with your own ignorance, you suddenly understand how to look at something. Everything becomes more beautiful, and you have the feeling you can see farther than before. It’s a glorious moment, but you pay a great price for it, which is your obsession with the problem, like a constant wound or a pebble in your shoe. I wouldn’t recommend that sort of life to anyone. Einstein had a close friend, Michele Besso, with whom he discussed many details of the theory of relativity. But Besso himself never accomplished anything important in science. His wife once asked Einstein why, if in fact her husband was so gifted. “Because he’s a good person!” Einstein replied. And I think it’s true. You have to be a fanatic, an that ruins your life and the lives who are close to you.” Again you might meditate about the high rate of divorce in Silicon Valley and the fanatism creativity requires.
For those really interested in mathematics, I cannot avoid mentioning some other topics Martinez addresses: Gödel’s incompleteness theorem is one of the greatest achievements in mathematics ever, though it is complicated to understand. In a very simplistic ways, even in mathematics, there are things which are true but cannot be proven. Russell’s paradox is nearly as mesmerizing but simple to grab: (From Wikipedia): There are some versions of this paradox that are closer to real-life situations and may be easier to understand for non-logicians. For example, the Barber paradox supposes a barber who shaves all men who do not shave themselves and only men who do not shave themselves. When one thinks about whether the barber should shave himself or not, the paradox begins to emerge. According to naive set theory, any definable collection is a set. Let R be the set of all sets that are not members of themselves. If R qualifies as a member of itself, it would contradict its own definition as a set containing all sets that are not members of themselves. On the other hand, if such a set is not a member of itself, it would qualify as a member of itself by the same definition. This contradiction is Russell’s paradox. Symbolically:
A first illustration comes from a conversation between Douglas and Larry Page: “I realize that more often than not you’ve been right about things. I feel like I’m learning a lot and I appreciate your patience as I go through that process.” […] “More often than not?” [Larry] asked me. “When were we ever wrong?” he didn’t smile as he asked his question or arch an eyebrow to signify annoyance. He simply wanted to know when he had been wrong so he could feed that information into the algorithm that ran his model of the universe. [Pages ix-x]
Douglas was employee number 59 [Page xv]. He left in 2005, so his account of the Google story is extremely rich and shows how exceptional it was. “Other signs pointed to something out of the ordinary. Sequoia Capital and Kleiner Perkins were the Montagues and Capulets of Silicon Valley venture capital firms. An intense rivalry usually kept them from investing in the same startup”. [Page 7] [This is not so true as you may see from When Kleiner Perkins and Sequoia co-invest(ed).]
As a marketing person, he also has an interesting vision of engineers. “Neither Larry nor Sergey had been to business school or run a large corporation, but Larry had studied more than two hundred business books to prepare for his role running Google as a competitive entity”. [Page 141]
“Impulsive and opinionated, Ray [employee #6] will always personify for me Google engineering id, a lone cowboy patrolling the electronic frontier in shocking-pink shorts, facing down the black hats and making them blink, then riding off into a sunset that was only as colorful as he was”. [Page 152]
“The ideal success rate was seventy percent, which showed we were stretching ourselves. Missing targets would not factor in performance reviews, because if they did we would take too few risks”. [Page 55] … “Starting with something that’s more ambitious will get you something that’s reasonable. But if you don’t put the goal post way out there, people are already taking fewer risks and are less ambitious about how big the idea should be. It was another reason Google valued intelligence over experience.” [Page 105] “Think big. Stay flexible. Embrace data. Be efficient and economical in the extreme. [Page 113]”
There is a funny account of MentalPlex, an April Fool that upset some people but which was apparently quite creative, an “Ante-temporal search that anticipated user requests”. [Page 97-103] At the end of the post, you can have a look at how it looked like.
Part II is about growth and it is a change from the chaotic experimental company Google was. Not a dramatic change, but a change. The main lesson I keep from part I is that Google did many things in the opposite way that business books or experienced managers would tell you. Always doubtful, always skeptical with obvious truths. In particular anything which is not engineering or which cannot be backed by data.
“Larry’s decision to let user-created ads go live on our site without review convinced me he occupied some alternative and severely distorted reality”. [Page 185]
“There were people my age at Google when I joined and people older than me within a few months. Hardware engineer Will Whitted had been fifty-four when he started, and he saw no gap between his thought process and that of his younger colleagues. “I think that I think younger, which probably means more irresponsibly than most people do” he confessed. “There were people at Google who had the opposite problem – who were a little younger than me, but perceived by people who mattered as old-thinking. To be slow and overly-conservative, and it got them in trouble.” Those who succeeded, as I was trying to do, needed to be open to new ideas regardless of their source or seeming defiance of logic.” [Page 187]
“Would Google never tire of succeeding with big ideas that I found patently ludicrous? It was starting to make me feel like a crotchety geezer yelling at kids to get off his lawn.” [Page 190]
“What matters is whether we are doing the right thing, and if people don’t understand it now, they will eventually come to understand it.” It was a lesson that would shape Google’s attitude towards the public from that point on. Sure we had upset people with MentalPlex, but at least some us conceded their kvetching might have had cause. With Deja, we were clearly on the side of the angels. The public just did not get it. Even when we worked our asses off, spent our own cash, and tried to do something good for them, they bellowed and ranted, bitched and moaned. Since users were being so unreasonable, we could safely ignore their complaints. That suited our founders just fine – they always get with their guts anyway.
I’ve been asked if Larry and Sergey were truly brilliant. I can’t speak to their IQs but I saw with my own eyes that their vision burned so brightly it scorched anything that stands in their way. The truth was so obvious that they felt no need for the niceties of polite society when bringing their ideas to life. Why slow down to explain when the value of what they were doing was so self-evident that people would eventually see it for themselves?
That attitude was both Google strength and Achilles’ heel. From launching a better search engine in an overcrowded field to running unscreened text in Adwords, the success of controversial ideas gave momentum to the conviction that initial public opinion was often irrelevant. [Page 212]
You might remember how shocking Sept 11 was for Americans. But Google’s reaction to Sept 11 was moderate with Alon Cohen’s looped ribbon. Doug is showing how Google has been at the same time extreme with experimentation and much cautious about users than paranoid people might think…
You can skip this section if you have already read “Safe choices are not always good choices“.
[Pages 256-258] “When Google finally recognized its failure in implementing a CRM software to manage customer emails, “composing a list of CRM vendors didn’t take long. Fewer than half a dozen major players offered stable, well-tested systems. […] Larry has a college friend, David, who would advise us on desirable features and then added, by the way, he and a buddy were building a CRM product called Trakken. […] Interested? Interested in an untested CRM product still in development with one tiny client? Sure that’s just what I was looking for – another risky technology with no support and no track record behind it. I thanked David for his help and, because he was a friend of Larry, assured him we’d be happy to send him our request for proposal. [Meanwhile they analyzed established players.] I felt confident I could convince Larry and Sergey to loosen the purse strings and do it right this time: spend money for a high-quality, stable system from a respected vendor. I hoped Larry’s friend had taken the hint and forgotten about us. [He had not] I didn’t want him to complain to Larry when his hopes were dashed. I decided to head him off at the pass by talking to Larry myself. “Actually,” Larry recommended “you should hire these guys. They’re really smart. They’ll work hard to build the product and we can invest in their company. […] They’ll be very responsive.” I could say I was stunned, outraged, incredulous, but that would be an understatement. I couldn’t believe Larry was going cheap again instead of buying reliability. When I informed the other vendors, they thought I was either corrupt or an idiot. […] “If you can believe you can build an email tool like resembling ours in thirty days, you are mistaken. It has taken us four years and twelve hundred customers.” […] I’d still be cursing Larry’s decision today if not for one small thing: Larry was absolutely right. […] Within a couple of months we had the CRM system we wanted built to our specs, fully stable and intuitive to use. […] So what did I learn from all this? I learned that obvious solutions are not the only ones and “safe” choices aren’t always good choices. I had thought that due diligence meant finding the product most people relied on, then putting pressure on the vendor to cut the price. It never occurred to me to talk to Larry not to do that. We had different tolerances for risk and different ideas about what two smart people working alone could accomplish in a complex technical area – and that is why I spent seven years working in mainstream media while Larry found a partner and founded his own company. Two smart guys working on complex technical problems, it turns out, can accomplish a hell of a lot”.
“Yet, once again, risk reaped rewards. The willingness to suffer a few quickly eradicated indignities opened up enormous gates to international audience growth. The world tolerated awkward translations and the occasional insult in order to access Google’s search technology. It was a reminder that perfecting the polish was not as important as giving people access to the product behind it. The results we returned and the speed with which we returned them were ultimately all that mattered. They were the essence of Google’s brand”. [Page 263]
[Pages 290-92] “The hour I spent with (Larry) and Sergey probing their vision for Google gave me my best look at their motivations and aspirations for the company. Larry wanted Google to be a force for good, which meant we would never conduct marketing stunts like sweepstakes, coupons and contests, which only worked because people were stupid. Preying on people’s stupidity, Larry declared, was evil.
We need to do good. We need to do things that matter on a large scale. When I asked for examples, he mentioned microcredit in Bangladesh (…) and talked about changing business systems to make them environmentally friendly while saving money. He also talked about distributed computing, drug discovery and making the Internet faster. And that wasn’t all.
We should be known for making stuff that people can use, he said, not just for providing information. Information is too restrictive. In fact, we shouldn’t be defined by a category but by the fact that our products work – the way you know an Apple product will look nice and a Sony product will work better but cost more. We’re a technology company. A Google product will work better.
(Then they talk about personal information, sensors, storage, cameras, and user-generated data.)
Not once did the subject of making money come up. I was probably a naïve-middle-aged dreamer, because looking back at it now, I see there was nothing truly extraordinary about what Larry described. But when I walked out of his office I believed that for the first time in my life, I had been in the presence of a true visionary. It wasn’t just the specifics of what he saw, but the passion and conviction he conveyed that made you believe Larry would actually achieve what he described. … My respect for our two capricious, obstinate, provocative and occasionally juvenile founders increased tenfold that day”.
[Page 324] “The experience confirmed the power of prototyping to give definitive answers far more quickly than theoretical discussions. Google learnt a lesson: the prototype had been put together not for a specific project but just because it was found interesting. The real value is that people will do things that everyone thinks are a waste of time. That’s where the big opportunities are. It’s an opportunity because other people don’t see it. Google itself was a canonical example. No other company had thought search was important. If they had, Microsoft or Yahoo would have invested more heavily in technology and Google would never gained such a big head start”.
[Pages 387-389. Finally…] “There was no longer a role at Google for what I did. I would wind things down. I picked March 4, 2005 as my last day: “Three, Four, Five.” I liked the architectural purity of it. […] I had started at a small company as a big-company guy. Now I was leaving a big company as a small-startup guy. And I like to think that, in some small way, I helped advance the human condition. Or at least that I did more good than harm.”
************ GOOGLE MENTALPLEX – APRIL FOOL 2000 ************
New! Search smarter and faster with Google’s MentalPlexTM
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Well yesterday I noticed this strange formula. Would it be that 7 is a magic number and I would go from rational to irrational – though start-ups are often irrational aventures too? No: 7 is not alone, the formula applies to 5 [25=24+1], 3 [9=8+1], and so on: 11, 17. So prime numbers? Not even, true for any integer… I felt a little stupid when I found it is just a particular application of a^2 – b^2 = (a-b) x (a +b)!!
I love maths, but maths is not just magical numbers, it’s much broader. And I love to read books on the topic. There is poetry and beauty in math, for sure. To conclude this unusual post, here is a list of books I enjoyed reading in the past. In no particular order, but thematic.
There are still “many” unsolved problems in mathematics. The most famous one is probably proving the Riemann hypothesis. Here are 2 books developing the story:
(Please click on image for a link to the book)
Indeed there is a million-dollar prize offered to 7 such problems by the Clay Institute. And the first solved one is the Poincare Conjecture by Grigori Perelman. Perelman declined the prize but this is another story!
Before the Millenium problems, there were the Hilbert Problems. At the time, the Fermat theorem was probably the most famous challenge!
And as 2 last examples, but I could mention so many more, here are two biographies of extremely strange geniuses, Srinivasa Ramanujan and Paul Erdös
Maybe one day, I’ll be back with more on the topic of math and more broadly about popular science books! Don’t hesitate to give me examples and advice
“Take your start-up as an example. Why did you do it? If you analyzed the pros and cons for doing a start-up, you’d probably never do it. But your gut feeling pushed you on, knowing that you would get something very valuable out of it. Am I right?”
Martin speculated on why he was so drawn to a world that at times could appear to be no more than sheer madness. Like a world parallel to real life with many of the same attributes, just much more intense and fast-moving. People trying to realize a dream in a world of unpredictability and unknowns, working crazy hours, sacrificing their personal lives, rushing along with all those other technology based start-ups. Medical devices, Internet search engines, telecommunications, nanotechnologies and all the rest competing for the same thing: Money. To make the realization clock tick a little faster.
“Funny you should say that,” Martin finally said. “I’ve always thought of this start-up as a no-brainer.I never tried to justify it in any way.”
After reading The Apple Revolution, I discovered Return to the Little Kingdom, subtitled How Apple and Steve Jobs Changed the World. It’s not just another book about Apple for 2 reasons: it was written in 1984 so when Apple, Inc was still Apple Computer, Inc and it was written by Michael Moritz, then a journalist at Time Magazine, but today one of the most famous venture capitalists, with investments in Yahoo and Google, just to mention two, although I must add that he has “a rare medical condition which can be managed but is incurable” and a result, he stepped back as managing director of Sequoia Capital.
It’s not that it adds a lot to the Apple Revolution, so no need to read both. Now, there are (very) interesting lessons, the best for me was probably in the Epilogue: “In 1984, faced with the challenge of managing a fast growing company in an increasingly competitive business, the board of directors were faced with the most important task that confronts any board: selecting a person to run the company. [...] Only in retrospect have I come to understand the immense risk associated with hiring an outsider. [...] It is not an accident that most of the great companies of yesterday and today have, during their heydays, been run or controlled by the people who gave them life. [...] The founder, acting with an owner’s instincts, will have the confidence, authority and skills to lead. [...] Experience is of little use in a young, fast-growing company in a new business that has a different pulse and unfamiliar rhythm. Experience is the safe choice, but often the wrong one.”
Now I could also refine my Apple cap. table as Moritz gave some nice details about employee shares. I also went back to the Apple S-1 document and slightly changed the content.
Here are the things I learnt: Both Jobs and Wozniak initally had 8’320’000 shares which they paid $2’654.48 so a price per share of $0.00032 in March 1977. Then Markkula bought the same 8’320’000 shares but for an amount of $91’000 so a price per share of $0.01094 in November 1977. The three of them were called the Promoters of the company. Then shares were sold to employees 1’280’000 to Michael Scott at a price per share of $0.01 in November 1977 and again 1’920’000 at $0.09 in August 1978. 800’000 to Frederick Holt at $0.01 in November 1977 and again 960’000 at $0.09 in August 1978. Same with Gene Carter, 160’000 to Gene Carter at $0.09 in June 1978 and 160’000 to at $0.09 in January 1979.
It should be noticed that employees were ranked as
#1 Stephen Wozniak
#2 Steven Jobs
#3 Mike Markkula
#4 Bill Fernandez had no share
#5 Frederick Holt
#6 Randy Wiggington (no info on his shares)
#7 Mike Scott – CEO
#8 Chris Espinosa had no share
#9 Sherry Livingston, first assistant, had shares
#10 Gary Martin – Accounting
#11 Don Bruener had no share
#12 Dan Kottke had no share
#13 John Draper
#14 Mike Wagner
#15 Donna Whitner
#16 Wendell Sander
Unknown Gene Carter had 320’000 shares
Unknown Jim Martindale
#34 Elmer Baum had no share
Jobs was so competitive, he did not like to be #2, so he asked to be #0! Buit Scott refused. Scott gave himself his number as a reference to 007!
Wozniak sold some stock to Fayez Sorfim, Richard Kramlich and Ann Bowers (Noyce’s wife). In the summer of 1979, Apple sold a total of $7M if existing shares are counted. Markkula and Jobs sold about $1M each. The “Wozplan” enabled some people including employees who had no shares so buy some of his.