Tag: innovation

Why Golden Parachutes are Better Than Tenure

People argue for tenure as a way to allow risk taking, bold explorations into controversial ideas, and new frontiers in academia.  Without knowing their job can never be lost, how would professors have the incentive to take risks?  And after all, even if many don’t pay off, the most important advances come from big risks.

Any time you’re in a non-market or highly distorted market, it’s hard to know what really works and what doesn’t since genuine signals are absent.  Higher education is not even close to a functioning free market industry, so in order to assess the merit of claims about the value of tenure we ought to look elsewhere.

If tenure is really effective we should see it in other areas where risk taking and controversial advocacy are necessary.

It turns out we don’t really see it anywhere.  In a genuine market, it’s not used as a mechanism for incentivizing risk-taking behavior, even where such behavior is arguably far more valuable even than it is an academia.

Entrepreneurs do not have tenure.  Their risk has no subsidy or backstop except the safety net of their own skill and ability to earn a living elsewhere if the venture fails.  Raising capital from an investor is one way to create the space necessary to experiment with bold ideas, but investors fight to ensure the opposite of tenure.  They want seats on the board and the freedom to vote the founder out.

Inventors and artists need to explore wild, crazy, unthinkable ideas.  Yet tenure is not common in any private sector research labs or the entertainment industry and certainly not in the garages and basements of individual creators.  Intellectual property laws can provide a kind of hedge against risk for the tiny percentage of creators with the means to gain and defend IP, but on net IP actually increases the risk to inventors and artists (when other people gain patents and sue).  Even if IP is gained, it protects the creation, which still has to sell to consumers, it doesn’t ensure an income for the creator.

What about CEOs?  Especially in large publicly traded companies, CEOs need to be free to take major risks.  They need to alter the brand, company culture, product lines, production processes, and anything else that might be inhibiting growth.  CEOs need to advocate crazy ideas and bring bold new visions to fruition, with no guarantee whatsoever they will work or be well received by customers, employees, or investors.  Billions of dollars and thousands of careers are on the line.  Do boards offer them tenure as a way to ensure they are properly incentivized to make unpopular decisions or advance bold ideas?

Never.

But the need for such protection is real.  An incentive structure too hard on failed risk-taking would be hugely detrimental.  Instead of the beloved tenure, something else has emerged in the market.  The despised “Golden Parachute”.

CEOs of large companies get really nice compensation packages, even if they get fired or the company tanks.  This is a hugely valuable tool.  Without it, the CEO role would be undesirable, and bold changes would almost never occur.  If they know they won’t be left out in the cold after a risky idea fails, they’re more likely to try it.  Additionally, if the previous CEO wasn’t impoverished for failure it will make the search for a high-quality new CEO far easier.  No one wants to work for a place that might destroy them if things don’t work out.

The huge advantage the golden parachute has over tenure is that it protects the individual risk taker without letting them bring down the quality of the institution.  Tenure for CEOs would be a disaster.  Boards would be stuck with bad CEOs for life, embarrassing the company and making everyone suffer.  Golden Parachutes, in contrast, allow for a speedy dismissal of a bad executive before they bring down the firm, but still create an incentive structure for risk-taking on the part of CEOs.

While some level of protection from catastrophic failure or public opinion is valuable for encouraging risk-taking and innovation in some fields, tenure seems an inferior method than what emerges in the market.

Intellectual Property and Incentives

The standard theory behind support for creating a legal monopoly for certain ideas, processes, and inventions is that absent such promise of monopoly there would be far less innovation.

It has a surface level logic to it.  People respond to incentives.  Legal monopoly means more money for the one who has it.  People tend to like the money incentive.  Therefore, more people will innovate because they have the incentive to capture greater rewards by securing a monopoly on the production or sale of their invention.

The weird thing is it doesn’t play out like this in the real world.  Something is missing.

Inventions typically spring from technicians and masters at a craft.  These are the types who are driven by a passion for what they do.  They want to solve problems, discover things, build things, and create things.  So they do.  If they seek a legal monopoly on their invention this happens after the fact.  It is hard to imagine many innovators saying, “Oh wow!  Think of possibility of solving this chemistry problem and discovering an entirely new way to do X!  Wait…get a lawyer in the lab before I go any further.  I refuse to make any discoveries without proof that I’ll be protected from competition once I do.”

And innovation doesn’t look like that.  You can see this by observing areas without the ability to get legal monopolies on their inventions.  Fashion, food, and football are a few of my favorites.  You can copy, borrow, and imitate fashion designs, recipes, and defensive schemes with abandon.  Many people do.  Yet each of these fields is as dynamic as any industry, constantly evolving and introducing new things.  Apparently the innovative offensive coordinator, cook, and designer don’t require the promise of monopoly to entice them to innovate.

People do respond to incentives.  This is a fact of life and one that need not be overturned to overturn the belief that IP laws are required for innovation.  Any good economist will tell you that incentives are many, and value is subjective.  The innovators are certainly responsive to money incentives, but 1) legal monopoly is not the only or best way to earn money for inventions and, 2) money isn’t the only incentive driving invention.

As for number one, consider how many people are typically working on a similar innovation simultaneously.  With the current IP regime, only one can get the monopoly.  If we want to take incentives seriously, what kind of incentive does this create for all the others?  Furthermore, the one most likely to get the monopoly is the one with all the lawyers and accountants and resources and willingness to take others to court, not the one with the greatest contribution to the discovery.  This would seem to drive upstart innovators away from the task for fear of being sued by the big guys as much or more than it would drive them to innovate for the possible promise of securing a patent.

As for number two, while the promise of monopoly may be the dominant incentive for lawyers and R&D departments, it’s not the dominant incentive for inventors.  They innovate first, driven by a passion for the task, the desire to solve a problem, create their dream, help a colleague, or improve their own daily life with some small innovation.  Yes, they want and seek money for the invention once successful, but the absence of a promise of monopoly does not stop them from creating.

Understanding incentives is crucial to really understanding how the world works and how to change it.  But an elementary look at incentives that examines only dollars and cents and only their intended, not actual, beneficiaries will not get you very far.

For more on the problems with intellectual property laws, check out “Against Intellectual Monopoly“.  It’s excellent.

Taking a Walk as a Revolutionary Act

Here’s a really fun article TK Coleman and I wrote for a new publication called Design 4 Emergence.  Check out the beautiful layout on the original!

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Isaac’s Take: The Mind a Blender

It was cliché. I took a walk on the beach and my life changed forever.

I like to imagine ideas as tiny physical objects sloshing around in my skull. The heavier ones sink to the bottom and the rest separate based on weight and viscosity. They mostly find their resting place and stay put, or at least in the same stratum.

Yet in order to create, make personal progress, discover who we are, and do what makes us most alive we need ideas to bump into each other. We need more than prefabricated plans and processes. We need disparate concepts to pair in unlikely, unpredictable ways. We need ideas to not stay in their place.

The rhythmic jostling of a good walk is like a blender. All the layers of ideas begin to move and shake and mix and mash. Walking is like a stirring up of the brain and the soul. Just 20 minutes into a quiet walk and you’ll begin to notice weird things happening. Seemingly random thoughts and thoughts about thoughts will move up and down, side to side, from the back to the front of the mind.

Back to my story.

I was frustrated, restless, and in a rut. Even though it was inconvenient and disruptive to my busy day, I made myself drive 15 minutes to the beach and go for a walk. I needed that endless horizon. I had no specific goal for my walk, which is kind of the point.

Five minutes in and I looked up at the horizon and saw in my mind’s eye a word floating in all caps just above the water.

“PRAXIS”

The bouncing of my steps had shaken this word loose and on its way to the front of my mind it had bumped into a bunch of other ideas long dormant. My decade-long dissatisfaction with the higher education system. My personal knowledge of dozens of entrepreneurs who were hungry for young talent. Recognition of my own skillset and network. It was too perfect. How could I have failed to see this for so long?

Within minutes an entire business model came into view, crisp and clear. I ran to my car, drove home, sat at my laptop and typed for a few hours straight. What is now my business and my passion was born.

Looking back, it all makes sense. I disliked my own college experience and envisioned a radical new model some 12 years earlier. I didn’t know where to go next with my idea so I put it on the shelf and pursued other things. In the dozen years that followed, I mostly pursued whatever was interesting to me personally and professionally with no long term plans. I managed to accidentally accumulate a near perfect mix of knowledge, skill, experience, outlook, and a network to launch what eventually became the higher ed. alternative I once dreamed about.

But I didn’t know any of this stuff was in there. It was all hiding in its own layer. Some nestled deep in the subconscious. Some associated with entirely different aspects of myself. I could never have purposefully made the connections necessary to see what I was capable of building. It had to emerge.

I took a walk. It’s the best way I know of to create the space for emergence in your own life.

You live much of life on a conveyor belt. It’s a structure created by others beginning with school and following you even onto the Internet as your newsfeed is curated based on assumptions about what’s important to you. But you’re hatching ideas and ideas about ideas all the time, whether you know it or not. The trick is accessing them and giving them space to mingle.

All the networks and technology at our fingertips is amazing. But it cannot on its own bring about the great epiphanies and acts of creation.

You can’t deliberately plan emergence. But you can remove obstacles. You can create conditions conducive to it. For me, that’s the simple act of walking. An act as old as our species.

Let your steps stir up your soul.

T.K.’s Take: The Mind an Ocean

One of the concepts that radically changed my life is an idea called “noble boredom.”

According to Rabbi Jonathan Omer-Man noble boredom means, “No anticipation of action. It means having the ability to be present without needing something to happen.”

You don’t need to live very long to discover that busyness is the bearer of many luxuries. Being busy makes you look important. It gives you a good excuse for avoiding unwanted commitments and helps you deal with guilt, inadequacy, and the belief that you’re not working hard enough. Busyness protects from messy confrontations with the thing you fear the most: boredom.

When you consider the primary form of expressing boredom (“I don’t have anything to do”), it’s no wonder that we seek salvation in the experience of perpetual preoccupation. We dread running up against the fact that we often have no idea where we’re going and why we’re traveling in relation to all the stuff we do. If we stop being busy we’ll be bored. And if we become bored, we’ll see how uninteresting and uncreative our lives really are.

But inactivity need not be boring. The stillness and solitude that we look at as evidence of us not being creative enough is the very source of creativity.

Our subconscious mind is like the ocean. Our everyday waking-state consciousness is like the surface of that ocean. The activities of the mind and the external events that demand our attention are like the wind and the waves. Go to the shore of an ocean on a windy day and what do you see? You see the waves on the surface but what lies beneath is invisible.

The ocean is teeming with life, filled with all sorts of exotic and interesting forms waiting to be discovered. But as long as the wind is blowing and the waves are doing their dance such things remain hidden to the observer.

What if you return to the ocean on a quiet and calm day? The ocean doesn’t change but your experience of the ocean would be profoundly different. When the surface waters are still you see into the depths. You encounter astonishing things. You can reach for things that you previously didn’t know were there.

This is a metaphor for the relationship we have to our own  interior depths. As much as we hail the marvelous powers of imagination, that power is often drowned out by all the external noise and busyness of day-to-day life. Our souls are not empty. They only seem to be because we haven’t learned how to look beyond the surface.

The simple act of taking a walk creates a bridge from busyness to stillness that allows us to penetrate the depths of our mind without completely disregarding our strongly conditioned need to “do something.” Some teachers of meditation describe walking as a mantra for the body. The purpose of a mantra is to get our reactive thinking and the incessant activities of the reptilian brain out of the way. It’s like giving a dog a bone. The dog ceases to make noise and it has something to do. This allows you to get on with your work.

Walking allows you to get into a rhythm or a groove that makes it easier for your reactive mind to settle down and open itself up to deeper insights and creative ideas. Many people try various forms of meditation only to find themselves uncomfortable, bored out of their minds, or quickly falling asleep. This is often the case because we’ve come to associate meditation with making the body still. The essence of meditating isn’t, however, about being in the lotus position or bragging about your ability to close your eyes and sit still for an hour. The true purpose of meditation is interior stillness.

You could say that walking is nature’s meditation hack. By involving your body in the act of meditation through casual walking you create a gentle transition to inner stillness. This kind of walking is different from the kind of walking you do when you’re trying to get somewhere. This is the walk of noble boredom. It’s a form of boredom because you’re not doing anything in the typical sense, yet it’s noble because this simple act of non-doing holds the promise of offering greater meaning, creativity, efficiency, and substance to all you do.

I’ve spent many years studying and practicing various forms of meditation. From Osho’s First & Last Freedom to Jean Houston’s The Possible Human, I’ve experimented with many different ways of exploring my own consciousness. All of the methods I’ve tried have been useful to some degree. As a student of philosophy, I love approaches to contemplation that emphasize the importance of taking a break from the world and sitting in silence. As an entrepreneur who enjoys the pressures and challenges of creative life, however, nothing has provided a better balance of satisfying both my need to relax and my impulse to be on the move than the fine art of walking.

When I played basketball in grade school my coach would often say “walk it off” in response to one of the players catching a leg cramp. That advice stills rings true. When I have a problem or puzzle I need to resolve, I walk it off. When my thinking is cramped, I walk it off. It’s never failed me yet.

Episode 55: Beginner’s Guide To Startups Part 4: How To Get Funded, with Evan Baehr

The fourth and final installment of the startup series features Evan Baehr, Cofounder of Able Lending and Coauthor of the bestselling book, “Get Backed: Craft Your Story, Build the Perfect Pitch Deck, and Launch the Venture of Your Dreams“.

Evan lays down the essentials that you need to think about when you are preparing to ask someone for money. He provides some tools and tips that can help you find the right investor(s) for you and your team, and how to get to that crucial point – meeting with investors.

Evan also talks about why he thinks that business plans are dying out and how the pitch deck supplants it.  We dive into some of the pitch deck building blocks.  Evan stresses the importance of storytelling when the time comes for you to pitch.

This episode sponsored by Praxis and the Foundation for Economic Education.  Check out FEE seminars to learn about economics and entrepreneurship this summer!

This and all episodes are also available on SoundCloud, iTunes, YouTube, and Stitcher.

How the Internet is Like Language

The power went out, and with it the WiFi, for four hours the other day while a pole was being replaced and again for an hour today while the A/C was being fixed.  It was almost overwhelming how lonely and isolating it felt.

Before you think me too dramatic let me say that we’re currently in a rental house in Ecuador, in a neighborhood that still consists primarily of empty lots or newly constructed but not yet occupied houses and we’re 45 minutes from the nearest city and without a car at the moment.  None of these things feel isolating when the internet is working.  (As an aside, the WiFi here is better than the best I can get back in South Carolina.)

It’s not that I spend all day on the web.  The bulk of my work requires internet and I do use it heavily, but there are many hours every day where I’m reading, exercising, playing with my kids, eating, preparing food, sleeping, or just relaxing when I do not use the internet.  One would think a few hours without WiFi would simply let me switch to one of these activities with no mental stress.  But it didn’t work that way.

The minute it went down I felt trapped in a desolate place, separated from the world.  Not because I wanted to do something specifically requiring the internet at that moment, but because I didn’t have the option.

WiFi provides a kind of invisible psychological ether that connects me to all of humanity.  Just knowing it’s there, at the tip of my fingers through my smartphone, gives me a profound spiritual sense of connection to all mankind and to great ideas and facts and images and more.  It is the subtle substrate that makes me always a part of a network or community, even when I’m quietly reading or sleeping.

In Ecuador we’ve had experiences where we were nearly incapable of communication with the other humans around us due to my deficiency in Spanish and some Ecuadorians rapid speech.  In our current neighborhood there are many French Canadian expats who speak not a word of anything but French.  At times a feeling of fear and disconnection can sweep over you when you realize you cannot share ideas with any of the people around you.  What if you need something?  What if you just want to chat and aren’t up to the exhausting task of sign-language and hackneyed Spenchglish?  You’re stuck on a (metaphorical) island, surrounded by people but without any connective tissue.

The parallels between these experiences are striking.  Geographic proximity and physical presence do not connect us with our world.  Information and a means of exchanging it do.  That is the task language performs.  The internet performs it even better.  It can instantly translate between languages, among its other wonders.  The web is like a performance enhancing drug for language.  It exponentially increases the idea sharing power of words.

This silly idea that the internet and social media have somehow severed human connections or weakened community is an absurdity espoused by those blind to the world around them.  It’s no less ridiculous than claiming, “People used to really connect before language was invented.  Now all they do is constantly stream ideas back and forth with sound waves.”

It’s not even the speaking or web browsing.  It’s knowing you can.  What a powerful connective web for the human race.

Startup Questions

Beginning in February, I’ll be doing a four-part series on the podcast called, “A Beginner’s Guide to Startups.”  We’ll cover everything from ideas to business plans to bootstrapping to raising money to scaling and more.  We’ll talk with people from both the entrepreneur and investor sides of the table to discover keys for startup success, and who should and shouldn’t consider launching one.

To that end, now is a great time to submit questions you have about startups!  I’ll incorporate them into the series.  Just submit via the Ask Isaac form.  This is intended to be a clear cut, no b-school BS overview of the world of startups, so don’t feel embarrassed by any questions!

A Tale of Two Cities Part 2: Why People are Dumb at the Ballot Box

This is the sequel to a post about the two spheres we all dwell in – the political and the civil – and how each affect our behavior.

Originally published in The Freeman.

Why do so many San Franciscans want to curb Airbnb’s innovative business model?

Proposition F would have restricted the number of nights owners could list their homes and which types of rooms could be listed; it would also have required a litany of paperwork and reporting to a city department. Listings that did not meet city standards would have incurred fines of up to $1,000 per day. The details are many, but the thrust is obvious: this proposal was to make Airbnb far less successful at creating value for customers and investors.

The proposal ultimately failed, but it wasn’t a landslide. Forty-four percent of voters supported it. Nearly half of the voters in a city that owes its recent prosperity and identity to this kind of innovative company wanted to strangle one of the geese on whose eggs they are feasting.

Most political action is signaling.

The simplest explanation is that proponents of this proposal were the minority of businesses and individuals who are in direct competition with Airbnb — hotels and those working or investing with them. True, but something deeper is at work. A surprising number of investors, entrepreneurs, and everyday residents of the city who are not involved with competing businesses voiced their support for the proposal. Some supporters were even Airbnb investors.

How could this be?

Here are five reasons (by no means an exhaustive list) why people behave so badly in the political realm.

1. Other People’s Problems

Milton Friedman famously described the four ways to spend money. You can spend your own money on yourself, your own money on someone else, someone else’s money on yourself, or someone else’s money on someone else. It’s clear that you’ll be most judicious in the first scenario, and less so in each that follows.

All political issues are a case of the fourth scenario, even when money is not directly involved. You’re voting on the use of resources that aren’t yours — the pool of taxpayer dollars that fund government bureaucracy — to solve someone else’s problem, in this case hoteliers threatened by competition and San Francisco residents supposedly being pushed out of affordable housing.

Ballot initiatives tell us that some people, somewhere, are having some kind of problem — and that we can vote to make it better. It’ll cost you nothing (at least nothing you can see at the moment), so why not?

Not only voters, but also the regulators, enforcers, and drafters of such propositions are so far removed from the issue at hand and have no personal stake in the outcome that it is impossible for them to make decisions or draft policies without unintended consequences.

2. Information Issues

Proposition F is ridiculously complex. To cast a fully informed vote on the Prop F, one would need to begin by reading all 21 pages of legal text. What’s more, the costs of obtaining the information far exceed the probability that your informed vote will be decisive. The result is what economists call “rational ignorance.”

Customers, employees, managers, and investors of Airbnb are best suited to optimize the service. Even the company’s competitors are in an excellent position to curb it or force it to improve if they channel their efforts where the information matters, namely in the markets where they stand to lose or gain.

3. Signaling for Survival

Most political action is signaling. It’s not so much that people want to buy American or recycle everything — we know this because when their own money is on the line in the real world of trade-offs, they mostly don’t. But people want to be seen as the kind of person who buys American or supports recycling. There is tremendous pressure in the political sphere to prove to everyone that you support all the right things — especially things that come at a direct personal cost to you. This proves you care about that abstraction called “society.”

Once control by force is an option, a great deal of otherwise productive energy and otherwise creative people are drawn into the crooked craft of politics.

The best thing a rich person can do in the political sphere is vote for higher taxes on the rich. The best thing an Airbnb investor can do is claim to support regulations that restrict Airbnb. You’ll get lots of cheap signal points, even if what you support would actually be bad for everyone.

4. Binary Choices

Voting is a yes or no affair. The political sphere is incapable of genuine pluralism. Imagine if markets worked the same way. What if your local grocery store sent out a survey asking you to vote on which kind of wine you wanted them to stock, or how much, or at what price (with any losses to be made up by adjusting other prices)?

Can Airbnb be improved? Of course. Can a bunch of people with no control over the outcome and little skin in the game be given an up or down vote on a single policy proposal and make it better? Don’t be silly.

The adaptability, nuance, and diversity of options, offerings, and solutions in a market are the greatest strength and the very stuff on which the startup scene was built. Cramming broad society-wide solutions into binary choices is absurd.

5. The Problem of Power

The infamous Stanford prison experiment didn’t go horribly wrong because the wrong batch of subjects was chosen: it was a case of dangerous institutions and incentives. When rules are enforced by raw power, the person who wields that power has more control than any human being can responsibly handle.

Contrary to Thomas Hobbes, it is not the “state of nature” that is a war of all against all; it is Leviathan that rewards force over cooperation and cultivates the worst traits. Once control by force is an option, a great deal of otherwise productive energy and otherwise creative people are drawn into the crooked craft of politics.

F.A. Hayek wrote at length in The Road to Serfdom about why, in the political sphere, the worst get on top. It’s a predictable outcome of a powerful state.

Democracy doesn’t keep this tendency in check so much as it directs the power toward those who are best able to appeal to the desire of rationally ignorant voters to signal the trendy positions on the latest issues.

Focus on Freedom

The innovative startup founders on the San Francisco scene are an amazing force for good when they are pursuing their own interests within the incentive structure of civil society. Not one of them would remain a positive influence if they were granted monopoly power through the ballot box. Nor would their customers: even the most forward-thinking minds in the most innovative city in the world become petty and stagnant when operating within the confines of the political sphere.

When you act as a consumer and choose which kind of vacation housing to purchase, your action sends information and incentives rippling through the market price system, helping entrepreneurs guide resources to their highest valued use. When you act as a voter to support or reject a policy, you create losers and enemies, and your vote generates a host of destructive effects.

If you want a freer, better world, you’ve got to build it in the private sphere.

The Futility of Reform

Don’t run for class president.  Don’t go to HOA meetings.  Don’t join a committee.  Don’t get involved in political campaigns.

All of these activities are about reform.  Get into the institution, play by its rules, and try to make it behave differently than it wants to.

Forget this approach.  It sucks.  Here are four reasons why.

It makes you less happy

Have you ever been to a town hall meeting?  Life’s too short to endure such horrors.  The worst life to live is a boring one.  The machinations of every political institution are stale and boring and full of self-serious processes, procedures, and practitioners.  Your every moment is too valuable to suffer through it.  It’s inhumane.  If Roberts Rules of Order are relevant to any effort you’re involved in, get out and go build something new.

You can’t change the game by playing

Political institutions do one thing best: restrict individual fun and freedom.  It’s natural to want to reduce the role of these rule-happy entities.  But you can’t win playing by their rules.  You can’t vote your way to a system where votes no longer curtail progress.

Trying to reduce the role of the state by engaging in politics is like trying to put a casino out of business by playing blackjack there.  “Oh, I have it figured out.  I’ll beat the house!”  No.  You won’t.  They want you to think that.  They want you to keep playing.  Abiding by house rules is no way to protest or change them.  Especially when the house gets a little richer every time you do.

If you don’t want the casino to keep luring people in don’t go in yourself.  Build something better that people want to go to instead.

Progress always comes from without

Political institutions are reactive.  They wait until the world forces them and then they change.  If humanity is a car these institutions are the brakes, able to stop progress but never create it.  If you want to get to a new destination you need the accelerator.

Accelerators are new ideas and products and services that forge ahead, paying no mind to the consensus-seeking bureaucrats nested in the status quo.  Accelerators don’t care about argument, nor protest.  They care about creation.  They build the world they want to live in instead of hoping to prevent its decay.

There is no permanence

The great thing about innovation is that it only needs to happen once.  That painful, gruelling, child-birth like experience of the creative act or eureka moment is born out of imagination, hard work, and courage.  If the result is of any value to the world it lasts forever and serves as the stepping stone to still greater innovations.

The wheel was invented once.  No one has to re-invent it.  It’s world-improving powers are permanent and irreversible.

Any apparent victory within a political structure is fleeting by definition and design.  You align all the powers and elites and interests just so after years of butt-numbing meetings and pompous proclamations from people you’d never want to have a beer with but now you must woo and coddle.  You have your mandate or constituency or whatever other serious sounding label you slap on the gaggle of interests vying for a win within the house rules.  You get your way.  Hooray!

Until the next month or year or election cycle when the new interests group outmaneuvers you and the tables turn in an instant.  Everything you created in your coalition vanishes, along with all the money you convinced people to throw at it.  The same tiny sliver of ground must be re-won, each time as if from scratch.  Only then do you realize that broader social forces created by the outsiders accelerating humanity are the master, not the servant, to these stale political institutions that apply their rusty brakes against all odds.

Go out and build something

Build something instead.  Exit.  Go your own way.  Forget the suits and speeches and posturing and canvassing and internal climbing and deal-making.  Go build your wildest dream.  Imagine and create things that excite you.  Move to a place that doesn’t suck.  Create a job that’s not boring.  Live a life you want to live.

Don’t wait for the world to change or beg for permission to let it evolve.  Go change your own world.  The rest will follow.

The Education System Isn’t Broken, It Just Sucks

Some people say the education system is broken.  It’s not.  It’s doing exactly what it’s designed to do.  The problem is that what it’s designed to do isn’t good, and it’s less valuable than ever.

I’m not one of those people who thinks it used to be a good system.  It’s not obsolete, it was wrong from the get-go.  It’s always produced undesirable outcomes.  I don’t think obedience, the ability to follow rules, falling in line with authority, uniformity of belief and process, and deferring to experts and standard explanations are desirable traits in individuals and societies.  I think they are dangers to be avoided.

To the extent that part of the result of this will-crushing process is some uniform skills that can be plugged into various business roles, there is some potential market value.  Though even these skills can be gained far better, faster, cheaper, and in more exciting and effective ways.

But today even those few things that people walk away with after 15,000+ hours in a classroom are of almost no value, and the trend is a further decline.

It is less valuable than ever to learn a skill.

It’s less valuable than every to learn to memorize, obey, hoop-jump, and test-take for bureaucratically approved authorities.

It is more valuable than ever to know how to think, how to learn, how to do what machines and software can’t.  Create.  Innovate.  Be entrepreneurial.

Once you realize that the education system isn’t broken you can stop trying to fix it.  It works really well based on its own principles of design.  You can’t make a hammer better at performing surgery.  You need to drop it and grab a scalpel, or invent a laser.

You’ve got to step outside of the education system altogether and build your own learning program tailored to your own goals.  It’s a challenge, but a lot easier than you might think.

Humans are naturally curious, stubborn, adaptive, knowledge-gathering, active, creative beings.  Those are all the things you need to begin, and you don’t really need to do anything to get them.  It’s harder to do what the current system does, which is snuff that out and create uniform widgets.  That’s why they need so many buildings, fences, supervisors, guards, and so much money.

All you need is an environment where natural human tendencies can flourish, bump up against the world, get feedback, and adjust.

Sometimes the system isn’t broken, it just sucks.  Get out.  Build your own thing.

Entrepreneurship Needs the Right Context

Entrepreneurship is really sexy right now.  Startup founders are like rock stars and you can’t go a day without seeing articles about them.  As far as it goes, I welcome this trend.  Entrepreneurship, as J.B. Say might define it, is the act of moving resources from lower to higher valued uses, or more concretely, creating a new process or product to solve old problems in innovative ways.  This seems a pretty good thing to glorify, at least compared with some other superficial traits that get a lot of attention.

Still, if entrepreneurship is praised across the board, regardless of the context, bad things can happen.

Absent competition and markets, being entrepreneurial has no value.  In fact, it can destroy value if channeled into the political process.  Political entrepreneurs find new ways to access resources first taken from others by force (taxation), and therefore do not create wealth.  They shift existing wealth around with no value-add, because the profit/loss signals are short-circuited.  Furthermore, they divert resources from productive activity to lobbying, currying favor, or massive projects with populist appeal but no market value.

Just about any entrepreneurial endeavor with the words “green” or “sustainable” has a high likelihood of being a fraudulent political game rather than genuine value creation.  The web of grants and subsidies and tax incentives and price supports and mandates in this industry make it all but impossible to identify real value creation as distinct from political shenanigans.  There are a great many media friendly entrepreneurs who chase government dollars instead of private investor or customer dollars, which are the real indicator of value creation.

Furthermore, all the buzz about entrepreneurship has given tech founders a huge platform from which to weigh in on a great many other issues.  Many people assume anyone smart enough to build a great app or billion dollar company could improve public policy.  The problem is that policy doesn’t get debated and implemented in a startup environment, but a monopolized, violence-backed, and fundamentally warped institution with all the wrong incentives.  The technocratic desire many startup types have to make gov’t more like a Silicon Valley company is what Hayek might call the fatal conceit.  It won’t work.  “If only smart people would control all the resources (and the guns that seize them) we’d make public infrastructure flawless!”  This kind of thinking is more dangerous, even if more noble on its face, than political actors openly seeking their own enrichment and not trying to solve grand problems with central plans.

The same thing happened in the industrial era.  Titans like Vanderbilt, Rockefeller, Morgan, and Carnegie were heroes because of their amazing success at improving the world through entrepreneurial action in the market.  When they turned their attention to politics, Gilded Age entrepreneurs built up a horrific behemoth of graft and monopoly that only slowed progress.

In a free or mostly free market entrepreneurs are the greatest force for good the world has ever known.  More than any amount of philanthropy or good intentions.  Outside the market context there is nothing inherently noble about entrepreneurship, and when directed to the political process it can be downright destructive.

How Change Happens – Higher Ed. Edition

The current higher education model is flawed.  If we’re serious about changing it, first we need to get serious about understanding how social change happens.  Intentions and action are not enough to bring about desired ends.  We need an understanding of the causal relationships involved in order to effectively bring about change.

The great truth that flies in the face of civics textbooks and popular myth is that politics is not the source of social change.  It’s more like the last in a line of indicators of cultural shifts that have already occurred.  Politicians and the policies they create only change after the new approach is sufficiently beneficial to the right interests, and sufficiently tolerable to the public at large to help, or at least not harm, political careers.  Of course some politicians guess wrong and suffer accordingly, but by and large the political marketplace tends toward preservation of the status quo until a new direction is imperative for survival.

An entire, and entirely fascinating, branch of political economy called Public Choice Theory examines the incentives at work in the political marketplace in depth, and I highly encourage anyone attracted to political action to gain a working knowledge of this field.  It reveals, in short, that incentives baked into the democratic system create and perpetuate policies that are bad for the public at large, and good for particular concentrated interests.  What Public Choice has a difficult time accounting for is the role of changing beliefs.  There are countless policies that, based purely on the incentives of various interests, ought to be in place but are not, or vice versa.  Some things are simply out of bounds, no matter how much a particular group might benefit and be willing to lobby, because the general public finds them unacceptable.

Contrary to the seemingly ironclad rule of interest driven politics, public beliefs can and do change, and dramatically sometimes, putting parameters around the area within which political actors can ply their trade.  Slavery is a striking example.  At one point, it would’ve been hard to get elected, at least in some areas, if you publicly supported abolition.  Not too many decades later, it’s unthinkable to get elected anywhere if you’ve ever even joked about supporting slavery.  There is certainly a complex relationship between changing economic incentives and public beliefs, but it is undeniable that the about-face on the ethics of slavery was more than a mere shift in power among competing interests.  What most of the public found tolerable they now find reprehensible.

Our institutions are formed by incentives, and incentives are constrained by beliefs.  That makes the beliefs of the public the ultimate key to change.  Smaller changes might occur within the window of things already publicly acceptable, but major change requires a shift in that window.  How to change those beliefs?  There are two primary drivers, both of which feed each other; ideas and experiences.

Ideas are the raw data that form beliefs.  If you accept the idea that minimum wage laws make lower skilled individuals less employable, and you accept the idea that a society with fewer unemployed persons is desirable, then you will have the belief that minimum wage laws are bad.  If, on the other hand, you’ve never really thought about the economics behind minimum wage at all, but your low skilled neighbor lost his job when minimum wage increased, that experience might also cause you to believe minimum wage laws are bad.

I spent a good part of my life focusing entirely on disseminating ideas as a way of changing belief.  It was fulfilling and, I think, valuable work.  But it wasn’t until relatively recently that I began to understand the immense value of experience as a vital second prong when it comes to changing beliefs and the world.

Consider the difficulty of convincing your mother that the New York City taxi cartel is inefficient or immoral.  It requires a great deal of economic theory or philosophizing about rights and coercion.  Your mom might have other things she enjoys more than reading books on these subjects.  Even if you convince her, her newfound belief will probably barely register among things she cares about.  Sure, taxis aren’t the greatest.  So what?  She’s never had that bad an experience.  Even if a policy change to end the cartel were possible, your mom mighn’t pay any attention, or she may be concerned about what the new world without cartels would look like in practice.

Now consider recommending your mom use Uber on her next trip in to Manhattan.  She uses it, likes it, and becomes a regular customer.  She may be completely ignorant of the current cab cartel and the problems with it, but she’s now a believer in an alternative system.  If Uber comes under attack from vested interests, she’ll defend it.  If the chance to end the cartel comes up, she won’t fear because she already knows what the world looks like without it.  She can’t easily be convinced out of her experience.

It is for this reason that dictatorial countries not only ban literature that propagates new ideas, but also goods and services that compete with government monopolies and let people experience something better.  The Soviet Union feared blue jeans, jazz, and Marlboro cigarettes as much as free market textbooks.

If we want to break out of the educational rut it requires new ideas and new experiences.  We mustn’t only talk about new approaches, we must build alternatives.  The best part is, you don’t have to wait on anyone.  You can take your own path right now, and by so doing not only improve your life, but serve as an example to others of what’s possible outside the status quo.  Educational entrepreneurs, not just intellectuals, will change the hidebound approach to education.  It’s already happening.

While policymakers, pundits, professors, and provosts squabble about the future of higher education and jockey to secure their position, entrepreneurs are busy creating and delivering alternatives across the globe.  The educational consumer is enjoying new experiences and getting new ideas about education in the process.  The old guard can argue any which way they like, but at the end of the day they’ll have to prove more valuable to the learner than the myriad new options.  All the protections and advantages in the world can’t stop competition now.  Technology has helped break it wide open.

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Excerpted from The Future of School.

How Information Destroys Dictators (Are Demagogues Next?)

I recently saw a presentation by economist Antony Davies on the basics of Public Choice Theory and the predictable problems with democratic systems.  Ant laid out the median voter theorem, then observed that national elections continue to get tighter and tighter as candidates become more and more similar in an effort to win the median voter.

This process is accelerated by the information age.  Candidates don’t have to determine a platform and then go try to sell it, hoping a large chunk of people already agree.  They don’t even have to study opinion research and craft a platform most likely to win.  They can A/B test in real time.  Campaigns can go to Twitter and try out some slogans or positions, they can react immediately and pivot their posture.  The old saw that politicians put their finger in the wind is true as ever, but fingers are no longer necessary when you have a digital weather vane plus anemometer streaming real-time measurements to your smartphone.

In other words, power hungry politicians are more accountable to the shifting moods of the public than ever.  Don’t get too excited.  This is far worse than a free and open market society in terms of decision-making and individual and public good.  People behave differently when voting or tweeting than they do when their own skin is in the game, and a system that caters to the costless whims of the majority is far scarier than a truly free society.

Still, it might be better than a pure dictatorship.  I suspect the days of a charismatic, strong leader who wins over throngs of people with good speeches are numbered.  Absent a better means of communication, societies rally around symbols because they can convey quickly a complex set of feelings and ideas.  They can also be more easily exploited.  Simplistic urges like nationalism, shared hatred of perceived enemies, moral crusades, and other dumbed down tales of us vs. them are the stuff of dreams for power-hungry tyrants.  Whip them up into a sense of unity around a common (often violent, envy-based) cause, and you can own the country.  This is harder than it’s ever been.

More and more citizens around the world can jump online and see pictures of their supposed enemies.  They can see the other side.  Humans seem to have limited compassion, and proximity is one of the rationing mechanisms.  The information age brings the world closer, and therefore makes compassion able to span the globe.  A fine speech about barbarians at the gate can create a wave of support for a hawkish autocrat, but when you can see those ‘barbarians’ with your own eyes, read their stories, and talk with them, it’s harder to get behind.

The ease with which information flows – what economists would call a reduction in transaction costs – is dramatically reshaping the way we do business, culture, life, and politics.  At first we’ll see political figures that appear more like focus-group generated spokespersons, as they get better at following the trends.  The switch from forceful dictator to savvy demagogue is perhaps a small improvement.  But I don’t think it will stop there.

This reduction in transaction costs also means all the things previously thought to be collective action problems solvable only through the clumsy and corrupt mechanisms of voting and politics can be tackled through voluntary markets.  Imagine your neighborhood HOA, instead of voting on higher fees for a new park, letting residents access a Kickstarter-like app where they can pledge an amount they’re willing to pay and the project only goes forward when it hits its goal?  The political figureheads and representatives can be eliminated just as Bitcoin eliminates financial gatekeepers.

The easier it is for individuals to connect and share ideas and goods with each other, the less powerful political gatekeepers trying to take their cut and regulate our relationships become.  Ultimately, information will beat oppression.

Build a Better Signal

Why pay a university to do something you can do better yourself?

From Medium.

A college degree is a signal.

It’s a signal to the world of your value in the market. It conveys information about your ability, skill, and intelligence. There is a lot of noise in the world of work, and it’s hard to figure out who’s worth working with. A degree cuts through some of that noise and puts you in a smaller pool of competitors.

The thing is, this signal is not that valuable. It’s also very expensive.

Not long ago a degree may have been the best signal most people could get. There weren’t many ways to demonstrate your value to the market, so a degree was one of the better bets. Things have changed dramatically. Technology has opened up the world. The tools available to you now have lowered search and information costs, and you can create signals of your own that are far more powerful than a degree.

What’s Better?

A person with a strong GitHub profile has a signal that beats a degree. If you’ve launched a startup, even if it lasted only six months and ultimately failed, you’ve done something that sends a more powerful signal than a degree. If you’ve raised money, sold products, done freelance work, produced videos, run social media campaigns, mastered SEO or AdWords, built a website, designed logos, started a nonprofit, been published in a handful of outlets with good content, had valuable work experience, or even just have an amazing online presence via a personal website and/or excellent LinkedIn and social media profiles, you have a signal more valuable than most degrees.

If you are not very talented or ambitious and you are unable to do anything like the above, a degree might be the best signal you’re capable of getting. When you realize that all the other students half asleep around you in class will walk away with the same signal, it becomes clear that it doesn’t carry that much weight. It says, “I’m no worse than everyone else with a BA.” If getting a BA is a really hard task for you and building something better is overwhelming, the signaling power of a degree might be worth it. But if you are able and willing to do more — if you are above average and can excel in most environments, than you have in your power right now the ability to build a better signal than a degree.

You have at your fingertips tools that young work-seekers and employers a few decades ago didn’t. Never has it been easier and cheaper to start a business, offer freelance services, learn to code, show off your writing or artistic skills, and build a portfolio of value created.

Don’t Just Tell Them, Show Them

Consider the woman who created this website in an effort to get hired at AirBnB. Her resume listing her academic accomplishments and other common signals was lost in the noise. So she built a better signal.

AirBnB website beats a resume

The website is far more valuable than any degree or honor roll listing. AirBnB took notice, and I can guarantee that website alone has created more job offers and interest than she can handle. In fact, so entrenched is the degree-as-signal mindset that this woman’s effort went viral immediately. The competition among degree holders is fierce, while the competition among those who build a better signal is almost nonexistent.

There is nothing in her story that required a degree. If you want to work for a cool company, you can do something like this yourself right now regardless of educational status. Why settle for a dated, baseline signal that says you’re no worse than every other degree holder?

What Happens to College?

Here’s the interesting thing: The more young people begin to build better signals, the better college will become.

Fewer people will go because most students attend to purchase the signal and that only. But those who stay will be there for the best reasons. They’ll be there because they love the college experience, the lectures, the professors, and the rest of the bundle.

Losing all those customers who are just suffering through the courses to get the signal will hurt the bottom line of most universities. Some might go under entirely. But for those who care deeply about higher education in its best form, this will be a welcome change. Schools will get sharper and better as they face competition. Instead of contenting themselves with delivering mediocre product because they have consumers who feel captive to the need to get that degree, colleges will begin to become more accountable to the customers there to gain knowledge.

Professors — good ones at least — will love this change. Students in their classes will be the ones who actually want to be there for the value of the classroom experience itself. Severing the credential from the classroom will enhance the quality of both.

How Do I Do It?

Most young people don’t know how to take advantage of this new world where they can craft their own signal. They’ve spent years in a conveyor belt education system that has instilled in them a rule-following, paper accolade chasing mentality. They see degrees and grades as safe, as fallbacks that will magically keep them afloat in hard times. They overestimate the signaling power of paper and underestimate their ability to create product. Product beats paper in the world of signals.

Entrepreneurship is becoming more than just an activity that a tiny number of company founders engage in. We once shifted from farming to factories, then from factories to offices. Today a shift from corporate offices to remote workers, freelancers, intrapreneurs and entrepreneurs is happening fast. Those who learn to think entrepreneurially, whether or not they ever launch their own company, and see themselves as their own firm, regardless of where their paycheck comes from, will build the future.

It’s hard to internalize and act on the opportunity in this new world. That’s one of the main reasons behind Praxis, the entrepreneur education company I launched. We want to help you build a signal that is more valuable than a degree. We want to help you do it in one quarter the time and for zero cost. We want you to have fun and become excellent in the process. We want to help you use the tools available and create your own future.

That’s why we place participants with growing companies to get work experience. That’s why we help them create personal development projects, tangible skills training, portfolio projects, and personal websites.

Praxis is just one way to help young people take advantage of the opportunity to build a better signal. The options are limited only by your imagination. Find one that works for you.

Carpe Diem

The future is bright. You have in your hands the power to create your own brand, to broadcast it to the world, to demonstrate your ability to create value. You can built a better signal than the generic one in the hands of tens of millions of other young people.

What will it be?

The Shortest Summary of How to Change the World

Help people imagine new things by introducing new ideas.

Help people experience new things by creating new alternatives.

These two things – ideas and experiences – change people’s beliefs about what’s possible, and their beliefs about what’s possible are the binding constraint on the institutions we live under.

If you want to change the world, spread new ideas and create new experiences.

Why I Started Praxis

I didn’t start Praxis because I think college is bad, or because I want to convince people it is.  I didn’t start it to be hip and trendy and “disruptive”.  I didn’t start it because I want to point out problems with the world.  I started it because I want to create value for individuals.

There are a lot of young people hungry for valuable experiences and not finding them.  There are a lot of young people unhappy with the education, career, and life options they see before them, searching for something more.  Praxis exists for you.

Praxis is more than a program or a company to me.  It’s the embodiment of a mindset and a way of life.  It is a tangible way to help people live free, self-directed lives.  It’s a community and a set of resources and ideas and businesses and participants built around the understanding that no conveyor belt can lead you to the life you want, and no structure you don’t choose and create yourself will bring you fulfillment.

Praxis is a concrete opportunity, not a vague notion.  It offers an interesting, challenging, amazing job and an interesting, challenging, amazing self-guided educational experience, all with a relentless focus on deliverable results.  It’s a recognition that your life will be determined by the quality of your product more than the pedigree of your paper.  It’s a way to remove the fear and doubt and strictures of the linear ladder to imagined success.  It’s a way to reveal and fan into flame the deep human love of adventure, play, possibility, and experimentation.

I don’t believe doing things you don’t like and hoping it leads to unspecified things you do like is a recipe for success.  Praxis pushes you to define what you don’t like and what you do, to learn what you’re good at and what you’re not, to identify definite outcomes you wish to achieve and definite causality between those outcomes and your desired next step.  Praxis does not ask you to learn things or perform tasks in the hope that it will get you work experience, we give you that work experience from the start.  You cannot separate learning from doing.

Praxis is a recognition that, wherever you get your paycheck, you are your own firm.  The future does not belong to those who follow orders, but those who solve problems with creativity.  The future belongs to entrepreneurs, whether founders or builders within firms.  Entrepreneurial thinking and acting cannot be learned from study, but must be practiced.  Praxis exists to put those eager to learn it into environments right now – not tomorrow, not after more study and certification – where they can be around and become entrepreneurs.

Praxis exists to offer a valuable service to young people who are searching for a way to build their confidence, skills, experience, network, and knowledge.  Praxis is built upon questions like, “Why not now?”, and “Why not me?”

Praxis is about that powerful combination of big picture dreamers and blue-collar doers.  It’s all the imagination of Silicon Valley startups with all the work-ethic of Midwestern small businesses.  It’s grit plus grind plus greatness.  Praxis is the realization that the most radical thing you can do is often the most practical, and that the most practical thing you can do is sometimes be radical.

Praxis is an idea.  The idea is simple.  Find the best way to get from where you are to where you want to be.  If we can help you do that better and faster with a great job that comes with a great education and community, jump in.  If not, we’ll still be rooting for you every step of the way.

I didn’t start Praxis to make enemies or to make friends.  I started it to create value.  I started it because the idea was so powerful I had no choice but to bring it into the world.  I started it because theorizing about ways young people could build their lives wasn’t enough.  I started it because it’s fun, fulfilling, and harder than anything I’ve ever done.  I wouldn’t have it any other way.

Break the mold.