Silicon Valley may not be fixable

I’ve come to an upsetting conclusion about Silicon Valley. There’s always been a hold-out hope that I’ve had that it could be fixed, and the balance of power restored to where it belongs (lifelong technologists and engineers) rather than where it currently resides, and categorically does not belong (managers, investors, non-technologists). Traditional business culture, focused on power relationships and emotions and influence peddling, has invaded the Valley and created a rash of startups with mediocre products, terrible treatment of talent, and little respect for users, employees, or technology as a whole. The result has underperformed from a return-on-investment perspective, but remained in force because it makes the well-connected exceedingly rich (at the expense of average workers, and of passive investors).

This is disturbing because, while there are many in Silicon Valley who think that they are ready to rule, that is proven false by some humiliating, and public, failures of that ecosystem. For one thing, the real winners, in the Bay Area, aren’t technology people but landlords. The housing situation in San Francisco alone is sufficient to prove that “nerds”, at least of that stripe, aren’t ready to rule.

We’ve also seen a hard-core Damaso Effect. The highest-status people in the Valley aren’t lifelong technologists, but people who failed out of the corporate mainstream, and are bossing nerds around as a second act. Passed over for MD at Goldman Sachs? Go to California, become a VC partner, and boss nerds around. Bottom 5% of your class in business school, untouchable even by second-rate management consultancies? Congratulations, you’re now the VP of HR at a well-funded, 100-person startup.

If the highest positions in the Valley are reserved for people who failed out of the dominant, old-style, “paper belt” culture, then we’re not going to see much innovation or “nerdiness”. Indeed, most of the winners in this crop are well-connected, full-blooded douchebags like Evan Spiegel and Lucas Duplan, who couldn’t even code themselves a better haircut. The unsettling but faultless distinction of being the last genuine nerd to succeed in the Valley probably goes to Mark Zuckerberg.

The new Valley isn’t one where underdogs can succeed. It’s not a place where land is cheap and ideas flow freely. Instead, it’s where highly productive and often creative, but politically disorganized, people (“nerds”) are treated as a resource from which value is extracted. The dominating culture of the Valley now is that of resource extraction. Economically, the latest incarnation has more in common with Saudi Arabia than with what Silicon Valley used to be. The only difference is that, instead of oil being drilled out of the ground, it’s hours of effort and creative passion being mined from talented but politically clueless (and usually quite young) software professionals, who haven’t figured out yet that their work is worth several times what they’re paid to do it, and that the importance of their skills ought to command some basic respect and equity.

All this said, I’d like to step away from the name-calling and mudslinging. This isn’t some high-minded rejection of those impulses, because I love name-calling and mudslinging. I just want to take a more technical tack. It is fun to pillory the worst people (and that’s why I’m a faithful reader of Valleywag) but, nonetheless, their mere existence shouldn’t prevent the good guys (“nerds”) from succeeding. And, of course, the tribalism that I sometimes invoke (good nerds versus evil businessmen) is, if taken literally, quite ridiculous. There are bad nerds and there are good business people, and I’ve never wanted to imply otherwise. What’s distressing about the Valley is that it so rarely attracts the good business people.

In fact, the bad reputation of business people in the Valley, I think, stems largely from the fact that the competent ones never go there, instead working on billion-dollar Wall Street deals. This makes it easy for a young programmer to forget (or to never know) that they exist. The competent, ethical business people tend either to stay in New York and climb the finance ladder and end up running hedge funds, or deliberately downshift and run smaller “lifestyle” businesses or elite consultancies. Either they win the corporate game, or they leave it, but they don’t half-ass it by playing a less competitive but equally soulless corporate game on the other coast. It’s the inept and malignant ones who tend to find their way out to the Valley, attracted by the enormous “Kick Me” sign that each generation of young software engineers has on its back.

The degenerate balance of power in the Valley attracts the bad business people, those who can’t make it on their home turf. Meanwhile, the talented and scrupulous ones tend to avoid it, not wanting the association. If the worst students out of Harvard Business School are becoming startup founders and venture capitalists and building nerd armies to build toilet check-in apps, then the best students from those programs are going to stay far away from that ecosystem.

So why is the balance of power so broken, in the Valley? I think the answer is its short-term focus. To put numbers to it, let’s note that a typical Valley startup requires a business co-founder (who’ll become CEO) and a technical one (who’ll become CTO). The business co-founder raises money, and the technology co-founder builds the product and team. The general rule with founder inclusion is “Code or Contacts”. If someone’s not packing either, you can’t afford the complexity and cost of making him a founder. Both seem important, so why does the “Contacts” side tend to win? Why can’t “Code” people catch a break?

Let’s look at it as a bilateral matching problem, like dating, and assign an attractiveness level to each. For the purposes of this essay, I’m using a 10-point rating scale. 0-2 are the unqualified, 3-4 are the hangers-on, and 5-6 are average among the set (a fairly small one) of people equipped to found startups at all. 7-8 are the solid players of evident high capability, and 9-10 occur at a rate of a few per generation, and people tend to make “Chuck Norris” jokes about them.

You’d expect 10s to match with 10s, 4s with 4s, and so on. Of course, externalities can skew the market and push one side down a notch. In a typical college environment, for an example, women are more attractive to older men (including graduate students and professors) and therefore have more options, and thus more power, than their same-age male counterparts. Mature women simply have no interest in 18-year-old men, while older men do frequently pair off with young women. That power dynamic tends to reverse with age, to the point that women have a justified grievance about the dating scene later in life; but in college, women hold all the cards.

What does it look like in technology? I’m a Technology 8 and, realistically, I couldn’t expect to pair with a Business 8. It’s not that the Biz 8 is rarer or better than the Tech 8. It’s just that he has more options. Technology people are rated based on what they know and can do. Business people are rated based on connections and what they can squeeze out of their pre-existing relationships. A Business 5 would be a typical graduate of a top-10 MBA program with the connections that implies. A Business 6 has enough contacts to raise venture funding, on reasonable terms, with a product. A Business 7 can raise a Series-A without a product, is frequently invited to lunch with CEOs of large companies, and could become partner at Sequoia on a conversation. What about my at-level counterpart, the Business 8? He’s probably not even in venture-funded technology. He likely has a personal “search fund” and is doing something else.

The Business 8s and 9s have so many options outside of the Valley that they’re almost never seen there. In fact, a genuine Business 8 who entered the Valley would likely become the most powerful person in it. On the other hand, Technology 8’s like me aren’t nearly as rare. In fact, and it seems almost tautological that it would be this way, Tech 10s and 9s and 8s are found predominantly in technology. Where else would they go?

In a weird way, the Tech 10s are in a disadvantageous position because they have to stay in the industry to remain Tech 10s. The typical Tech 10 works on R&D in a place like Google X, and there aren’t many jobs that offer that kind of autonomy. If he leaves that world, he’ll slide down to Tech 9 (or even 8) status in a few years. The technical co-founder’s major asset requires continual work to remain sharp, and at the 7+ level, it’s pretty damn competitive. The business co-founders asset (connection) is much less perishable. In fact, the weird benefit of connections is that they get more powerful with time. College connections are taken to be much deeper than professional ones, and prep-school connections run deeper still. Why? Because connections and pedigree are all about nostalgia. Blue blood runs deep and must be old; otherwise, it won’t be properly blue. For all of our mouth-honored belief in progress as a technological society, we’re still run by people who are inflexibly backward-looking and neophobic. It’s no wonder, one might remark, that Silicon Valley’s greatest contribution to the world over the past five years has been a slew of toilet check-in apps.

The Tech 8s and 9s and 10s are generally funneled into technology, because few other environments will even let them maintain (much less improve) their skills. On the other hand, the Biz 8s and 9s and 10s are drawn away by other and better options. Alone, this wouldn’t be that devastating. On both scales, there are more people at each level than at the ones above it, so the absence of the Biz 8+ might have the Tech 8-10s pairing with Biz 7s and the Tech 7s pairing with Biz 6s. Fine; they’ll live. A Biz 6 or 7 can still open plenty of doors. Speaking as a Tech 8, I’d be happy to pair with a Biz 7 as an equal partner.

Unfortunately, the advantage of business co-founders seems to be about 3-4 points, at any level. That’s what you way pay for their connections. If you’re a Tech 6 and you pair up with a Biz 2-3 co-founder, you’ll probably split the equity evenly (but raising money will be extremely difficult, if not impossible). Pair with a Biz 4, as a Tech 6, and you’ll probably get a third of what he does. If you pair with a Biz 6 co-founder, you’re likely to get 5%. It’s unfair, and unreasonable, but that’s where the market seems to have settled. Why? Removal of the Business 8+ from the market is not, alone, enough to explain it.

I’ve explained that the business people have up-flight options into other industries. They also have down-flight options when it comes to picking co-founders. If a Tech 8 turns down a Biz 8 to work with a Biz 6, then he’s saying no to someone with millions in VC funding that is essentially already-in-hand, in order to work with someone who might be able to deliver Sequoia after 6 months of work on the product. The Biz 8 is so trusted by the investors that the Tech 8 will probably get a raise to take the founder job; if he works for the Biz 6, he’ll end up working for free for half a year. What, on the other hand, happens to a Biz 8 who turns down his Tech-8 counterpart for a Tech 6?

The answer is… (crickets) nothing. Investors simply don’t care about the difference. The Biz 8 could pair with a Tech 3 or even another business guy and, while the technical infrastructure of company would be terrible, it wouldn’t really matter. In the Valley, technology is just made to be sold, not actually used. Why hire a Tech 7+ who’s going to make annoying sounds about “functional programming” and “deep neural nets” when you can just hire another VC-connected salesman? Why worry about building a company “for investors” when, with more-connected people involved, you can always just get more investors to pay back the early ones?

At any chosen level, the business co-founder can choose a tech co-founder 2 to 4 points below him and not lose very much. Strong technical leadership matters if the business is going to last a long time, but these companies are built to be sold or shot dead within four years, so who cares if the technology sucks? To the Biz 8, a Tech 4 willing to take a terrible equity split is a good-enough substitute for the Tech 8. The same doesn’t hold for the Tech 8. Expecting a Biz 4 to handle the VCs is just not an option for him. Even if a Biz 4 or 5 is able to get venture capital, and that itself is unlikely, he’ll probably still be eaten alive by the investors, resulting in terms like “participating preferred” that will emasculate the entire company.

What all this means is that the business co-founders are more essential because not only are they rarer, but because these businesses don’t last long enough– and aren’t built to last, either– for poor technical leadership to really matter. In such a climate, the leverage of the Tech 7+ is incredibly weak. The value offered by a genuine Tech 8 in the early stages is crucial to a company if one takes a 5- or 10- or 20-year-view, but no one does that anymore. No one cares beyond the sale. The perverse result of this is that technical talent has become non-essential on its home turf. As a result, more power accrues every month to the vision-less, egotistical business guys running the show in Silicon Valley, and lifelong technologists (“nerds”) are even more of a marginalized class.

I’d like to say that I know how to fix this, how to kill the next-quarter mentality and drive the invaders back out of this wonderful territory (cutting-edge technology) where they are most unwelcome, but the truth is that I don’t know what to do. The short-term mentality seems to be a permanent fixture and, in that light, I don’t think that talented technologists are ever going to get a fair shake against influence peddlers, manipulators, and merchants of connections. I’m sorry, but I can’t fix it, and I don’t know whether it can be fixed.

From http://sasamat.xen.prgmr.com/michaelochurch/wp/2014/08/08/silicon-valley-may-not-be-fixable/.