Cheap votes: political degradation in government, business, and venture capital.

I’ve written a lot about how people in the mainstream business culture externalize costs in order to improve their personal careers and reputations, and the natural disconnect this creates between them and technologists, who want to get rich by creating new value, and not by finding increasingly clever ways to slough costs to other people. What I haven’t written as much about is how these private-sector social climbers, who present themselves as entrepreneurs but have more in common with Soviet bureaucrats, managed to gain their power. How exactly do these characters establish themselves as leaders? The core concept one needs to understand is one that appears consistently in politics, economics, online gaming, and social relationships: cheap votes.

Why is vote-selling illegal?

First, a question: should it be illegal to buy and sell votes? Some might find it unreasonable that this transaction is illegal; others might be surprised to know that it wasn’t always against the law, even if it seems like the sort of thing that should be. Society generally allows the transfer of one kind of power into another, so why should individual electoral power be considered sacred? On theory alone, it’s hard to make the case that it should be. 

I’ll attempt to answer that. The first thing that must be noted is that vote-buying matters. It increases the statistical power of the bought votes, to the detriment of the rest of the electorate. On paper, one vote is one vote. However, the variance contribution (or proportion of effect) of a voting bloc grows with the square of its size. In that way, the power of a 100-person, perfectly correlated (i.e. no defections) voting bloc is 10,000 times that of an individual. 

Let’s give a concrete example. Let’s say that the payoff of a gamble is based on 101 coins, 100 white and one black. The payoff is based on the heads flipped, with each white coin worth $1 and the black coin worth $100. The total range of payoffs is $0 to $200, and the black coin will, obviously, contribute $100 of that. So does the black coin have “half of” the influence over the payoff? Not quite; it has more. The white coins, as a group, will almost always contribute between $30 and $70– and between $40 and $60, 95 percent of the time. It’s a bell curve. What this means is that whether a round will have a good payoff depends, in practice, almost entirely on the black coin. If it’s heads, you’ll almost never see less than $130. If it’s tails, you’ll rarely see more than $70. The white coins matter, but not nearly as much, because many of the heads and tails cancel each other out. 

Both the white and black coins have the same mean contribution to the payoff: $50. However, the variance of the single black coin is much higher: 2500 (or a standard deviation of $50). The white coins, all together, have a variance of 25, or a standard deviation of $5. Since variance is (under many types of conditions) the best measure of relative influence, one could argue that the black coin has 100 times the mathematical influence of all the white coins added together, and 10,000 times the influence of an individual white coin. 

These simplifications break down in some cases, especially around winner-take-all elections. For example, if two factions are inflexibly opposed (because the people in them benefit or suffer personally, or think they do, based on the result of the election) and each has 45% of the vote, then the people in the remaining 10% (“spoilers”) have significantly more power, especially if something can bring them to congeal into a bloc of their own. That is a commonly-cited case in which individual, generally indifferent “swing” voters gain power. Does this contradict my claim about the disproportionate power of voting blocs? Not really. In this scenario, they have disproportionate decisive effect, but their power is over a binary decision that was already set up by the movement of the other 90%. 

Moreover, it’s improbable that the people in that 10 percent would form a bloc of their own. What prevents this? Indifference. Apathy. They often don’t really care either way about the matter being voted on. They’d probably sell their votes for a hundred dollars each. 

In quite a large number of matters, specific details are too boring for most people to care, even if those issues are extremely important. They’d much rather defer to the experts, throw their power to someone else, and get back to their arguments about colors of bikesheds. Their votes are cheap and, if its legal, people will gain power or wealth by bundling those cheap votes together and selling the blocs.

So why is vote-selling illegal? It causes democracy to degenerate (enough that, as we’ll see, many organizations eschew democracy altogether). The voters who have the most interest in the outcome, and the most knowledge, will be more inclined to vote as individuals. Though they will correlate and may fall into loose clusters (e.g., “conservatives”, “liberals”) this will tend to be emergent rather by intent. On the other hand, the blunt power of an inflexible voting bloc will be attained by… the bought votes, the cheapest votes, the “fuck it, whoever pays me” set. The voting process ceases to reflect the general will (in Rousseau’s sense of the concept) of the people, as power is transferred to those who can package and sell cheap votes– and those who buy them. 

Real-life examples

Official buying and selling of votes is illegal, but indirect forms of it are both legal and not uncommon. For example, over ninety percent of voters in a typical election will give their vote, automatically, to the candidate of one of two major political parties. These candidates are usually chosen, at this point in history, through legitimate electoral means: the party’s primary. But what about the stages before that, as incumbents in other offices issue endorsements and campaign checks are cut?

Effectively, the purpose of these parties is to assume that cheap-vote congealment (and bloc formation) has already happened, tell the populace that it’s down between two remaining candidates, and make the voters feel they have a choice between two people who are often quite very similar in economic (in the U.S., right-of-center) and social (moderately authoritarian) policies while differing on superficial cultural grounds (related to religion in a way that is regional and does generalize uniformly across the whole country). The political parties, in a way, are the most legitimate cheap-vote aggregators. They know that most Americans care more about the bike-shed difference between Democratic corporate crooks and Republican corporate crooks– the spectator-sport conflict between Springfield and Shelbyville– than the nuances of political debate and the merits of the issues.

The vote-buying process is more brazen in the media. While expensive and thorough campaigns can’t turn an unlikeable person into a winner, they can have a large effect in “swing states” or close matches. There are some people who’ll be swayed by the often juvenile political commercials that pop up in the month before an election, and those are some of the cheapest voters. The electioneer need not even buy their vote directly; it has already been sold to the television station or radio show (a highly powerful cheap vote aggregator) to whom they’ve lent their agency. 

This is one of the reasons I don’t find low voter turnout to be distressing or even undesirable, at least not on first principles. If low voter turnout is an artifact of disenfranchisement, then it’s bad. If poorer people can’t get to the polls because their bosses won’t let them have the time off work (and Election Day ought to be a day off from work, but that’s another debate) then that’s quite wrong. On the other hand, if uninformed people don’t show up, that’s fine. I don’t get involved in civic activities unless I know what and who I’m voting for; otherwise, I’d be, at best, adding statistical noise and, at worse, unwittingly giving power to the cheap vote sellers and buyers who’ve put their preferred brand into my head. 

All this said, cheap-vote dynamics aren’t limited to politics. In fact, they’re much more common in economics. Just look at advertising. People vote with their dollars on what products should be made and what businesses should continue. A market, just like an election, is a preference aggregator. The problem? No one knows all of the contenders, or could possibly know. As opposed to a handful of political candidates, there might be twenty or two hundred vendors of a product. Quite a great number of them will buy not based on product quality or personal affinity but on reputation (brand) alone. Advertising has a minimal effect on the most knowledgeable (Gladwell’s “Mavens”) but it’s extremely powerful at bringing in the cheapest votes, the on-the-fence people who’ll go with what seems like the least risky choice. 

Venture capital

Maybe it’s predictable that I would relate this to technology, but it’s so applicable here that I can’t leave the obvious facts of the issue unexplored. 

Selection of organizational leadership almost always has a cheap-vote issue, because elections with large numbers of indistinguishable alternatives are where cheap votes have the most power. (A yes/no decision that affects everyone is where cheap votes will have the least power.) Most people see the contests as wholly external, because all the credible candidates are (from the individual’s point of view) just “not me”. Or, more accurately, if no one they know is in contention, they’re not going to be invested in the matter of which bozo gets the tallest stilts. As organizations get large, the effect of this apathy becomes dominant. 

Therefore, it’s rare in any case that selection of people will be uncorrupted by cheap vote dynamics, no matter how democratic the election or aggregation process may be. While some people are great leaders and others are terrible, it’s nearly impossible to reliably determine who will be which kind until after they have led (and, sometimes, it’s not clear for some time afterward). If asked to choose leaders among 20 candidates in a group of 10,000, you’ll see nuisance (by “nuisance”, I mean, uncorrelated to policy) variables like physical attractiveness, charisma, and even order of presentation (making the person who designs the ballots a potential cheap-vote vendor) take a disproportionate effect. This is an issue in the public sector, but a much more egregious one in the private sector, given the complete lack of transparency into the “leadership” class, in addition to the managerial power relationships and the general lack of concern about organizational corruption. 

Corporations (for better or worse, and I’d argue, for the worse) eliminate this effect by simply depriving employees of the ability to choose leaders at all: supervisors and middle managers and executives are chosen from the top down, based on loyalty to those above, and the workers are assumed to be voting for the pre-selected by continuing to work there. The corporation cheapens the worker’s vote, in effect, by reducing its value to zero. “You were going to sell your vote anyway, so let’s just say that the election happened this way.” Unless they can organize, the workers are complicit in the cheapening of their votes if they continue to work for such companies and, sadly, quite a large number do. 

There are people, of course, who are energetic and creative and naturally anti-authoritarian. Such people dislike an environment where their votes have already been cheapened, bought for a pittance, and sold to the one-party system that calls itself corporate management. The argument often made about them is that they should “just do a startup”, as if the one-party system of Silicon Valley’s venture capital elite would be preferable to the one-party system of a company’s management. By and large, it’s not an improvement.

In fact, the Silicon Valley system is worse in quite a large number of ways. A corporation can fire someone, but generally won’t continue to damage that person’s reputation, for fear of a lawsuit, negative publicity, and plummeting internal morale. This means that a person who rejects, or is rejected by, one company’s one-party system can, at the least, transition over to another company that might have a better one party in charge. There is, although not to the degree that there should be, some competition among corporate managers, and that generally keeps most of them from being truly awful. On the other hand, venture capitalists, with their culture of note-sharing, collusion, and market manipulation (one which if it were applied to publicly-traded stocks instead of unregulated private equities, would result in stiff prison sentences for all of them; alas, lawmakers don’t much care what happens to the careers of middle-class 22-year-old programmers) frequently do damage the careers of those who oppose the interests of the group. Most of the VC-era “innovations” in corporate structure and culture– stack-ranking, the intentional encouragement of a machismo-driven and exclusionary culture, fast firing, horrendous health benefits because “we’re a startup”– have been for the worse. The Valley hasn’t “disrupted” the corporate establishment. It’s reinvented it in a much more onerous way. 

So how do the bastards in charge get away with this? The Silicon Valley elite are, mostly, the discards of Wall Street. They weren’t successful in their original home (the corporate mainstream) and they aren’t nearly as smart as the nerds they manage, so what gives them their power? Who gives up the power that they win? Once again, it’s a cheap vote dynamic in place. 

Venture capitalists are intermediaries between passive capital seeking above-normal returns and top technical talent. There’s a lot of passive capital out there coming from people who want to participate, financially, in new technology development. Likewise, there are a lot of smart people with great ideas but no personal ownership of the resources to implement them. The passive capitalists recognize that they don’t have the ability to judge top talent from pretenders (and neither do the narcissistic careerists on Sand Hill Road to whom they trust to their assets, but that’s another discussion) and so they sell their votes. Venture capitalists are the ones who buy those votes and package them into statistically powerful blocs. Once this is done, the decision of a single venture capitalist (bolstered by others in his industry who’ll follow his lead) determines which contender in a new industry will get the most press coverage, the most expensive programming talent, and sufficient evidence of “virality” to justify the next round of funding. 

As programmers, we (sadly) can’t do much to prevent pension funds and municipalities from erroneously trusting these Bay Area investor celebrities who couldn’t tell talent from their own asshole. I’ve said enough, to this point, about that side, and the cheap-vote buying that happens between passive capitalists and the high priests who are supposed to know better. In theory, the poor returns delivered by those agents ought to result in their eventual downfall. After all, shouldn’t people lose faith in the Sand Hill Road elite after more than a decade of mediocre returns? This seems not to be happening, largely because of the long feedback cycle and high variance intrinsic to the venture capital game. Market dynamics work in a more regularized setting, but when there is that much noise and delay in the system, capable direct judgment of talent (before the results come in) is the only reliable way to get decent performance. Unfortunately, the only people with that capability are us, programmers, and we’re near the bottom of the social hierarchy. Isn’t that odd?

So let’s talk about what we can do. Preventing the flow of capital from passive investors into careerist narcissists at VC firms who fund their underqualified friends is probably not within our power at the present time. It’s nearly impossible to prevent someone with a completely different set of interests from cheapening his or her vote. Do so aggressively, and the person is likely to vote poorly (that is, against the common interest and often his own) just to spite the regulator attempting to prevent it, just as a teenage girl might date low-quality men to offend her parents. So let’s talk about our votes.

VC-funded companies (invariably calling themselves “startups”) don’t pay very well, and the equity disbursements typically range from the trivial down to the outright insulting. Yet young engineers flock to them, underestimating the social distance that a subordinate, engineer-level role will give them from the VC king-makers. They work at these companies because they think they’ll be getting personal introductions from the CEO to investors, and join that circuit as equals; in reality, that rarely happens unless contractually specified. They strengthen the feudal reputation economy that the VCs have created by giving their own power away based on brand (e.g., TechCrunch coverage, name-brand investors). 

When young people work for these VC darlings under such rotten terms, they’re devaluing their votes. When they show unreasonable (and historically refuted) trust in corporate management by refusing to organize their labor, they are (likewise) devaluing not only their political pull, but the credibility and leverage of their profession. That’s something we, as a group, can change. We probably can’t fix the way startups are financed in the next year; maybe, if we play our local politics right and enhance our own status and credibility, we’ll have that power in ten. We can start to clean up our own backyards, and we should. 

Sadly, talent does need access to capital, more than capital needs talent. The pressing needs of the day have given capital, for over a century, that basic supremacy over labor: “you need to eat, I can wait.” But does talent need access to a specific pool of capital controlled by narcissists living in a few hundred square miles of California office park? No, it doesn’t. We need money, but we don’t need them. On the other hand, if the passive investors who provide the capital that fuels their careers even begin to pay the littlest bit of attention, the VCs will need us. After all, it’s the immense productive capacity of what we do (not what VCs do) that gives venture capital the “sexiness” that excuses its decade-plus of mediocrity. Their ability to coast, and to fund suboptimal founders, rests on the fact that no one is paying attention to whether they do their jobs well, the assumption being that we (technologists) will stay on their manor, passively keeping our heads down and saying, “politics is someone else’s job; I just want to solve hard problems.” As long as we live on the VCs’ terrain, there is no way for passive investors to get to us except through Sand Hill Road. But there is no reason for that to continue. We have the power to spot, and to vote against, bad companies (and terrible products, and demoralizing corporate cultures) as and before they form. And we ought to be using it. As I’ve said before, we as software engineers and technologists have to break out of our comfort zones and (dare I say it?) get political.

Never relocate unpaid

Someone asked me, a few months ago, if he should take a Silicon Valley (actually, San Francisco) job offer where the relocation was a “generous” $4,000. I told him to negotiate for more and, if the company wouldn’t budge, to decline. For an adult, that’s not a relocation package. That’s half-assery. 

I won’t get too particular on the details, but this person lived on the East Coast and had children. For an adult of any kind facing a cross-country move, $4,000 is not a generous relocation package. It’s downright pathetic. Movers don’t work for equity. A full-service move for an adult, with a family, costs at least twice that number. When you move for a job, your employer is still going to expect you to start as soon as possible and be 100% on-the-ball in your first weeks. You can’t take on a self-move and start a new job properly. If you do have that kind of energy, it means you’re the alpha-trader type who should be on Wall Street, not taking employee positions at startups. For the 99.99% of us who are mere mortals, taking on a self-move means you’ll be slacking at your job in the first weeks and, while slacking might be OK when you’re 3 years in and just waiting for something better to come along, it’s not a way to start a job– especially not a job you moved across the country to take.

In addition to the small size of that package, I think lump-sum relocations are a bad deal in general. I think they fail for both sides. They’re bad for the employee because, in addition to losing a chunk of it to taxes, the lump-sum arrangement leaves it to the employee to make arrangements and haggle. The employer, however, risks getting the amount severely wrong, while not getting the major benefit of a relocation, which is a 100%-focused employee with high morale, because the employee still has to haggle with movers and manage minutiae. A good employer, knowing how toxic moving stress can be, will solve every niggling, stupid little problem that comes up in the process of relocation. They’ll have a trusted moving company, rather than expecting the employee to make the calls and compare costs. (If the moving company’s client is the company, rather than you, they’ll do a good job because they want repeat business– a concern that isn’t there with “man with a van” outfits.) They’ll manage the flight and, with a high-quality placement agency involved, have an interview per day lined up for the spouse until he or she gets a good job. If you’re moving internationally, you’ll get an extra week or two of vacation (and you won’t have to ask for it) each year and they’ll have tax equalization already worked out. Why? Because genuinely good employers (who are rare these days) want their best people on, 100 percent, rather than phoning it in at their jobs because they’re fighting little piss fires in their personal lives.

I know that relocation is derided as an “old-style perk” in the Valley. If you broach the subject, you risk seeming entitled, high-maintenance, and worst of all, old. Most companies in the Valley don’t fall under the “good employers” qualification. Most of these Valley “startups” are just long-shot gambles running on a shoestring budget, and their real purpose isn’t to build businesses but to try out middling product managers (called “CEOs” of semi-existent, non-autonomous companies) for promotion into the investor ranks (EIRs or associates or partners at VC firms). The reason they can’t pay or relocate properly is that, while investors are handing these half-companies pennies and saying “Humor me”, even their own backers don’t trust the companies enough to take a real risk and give them the resources that’d enable them to pay real salaries and benefits. This raises the question, for the employee: if the investors aren’t willing to bet on that business, then why should you?

Anyway, this person didn’t heed my advice, took the job anyway, left a few months later and, from the titles and prestige of the following company, the next move appears to have been a demotion. I can’t speak for what happened or whether my perception (based on LinkedIn) of a demotion is correct. I generally cut ties with people who make bad decisions, so I haven’t heard his side.

California, here we come

So, there’s an epidemic of Shitty Relo (or even nonexistent relo) in Silicon Valley and it’s California arrogance at its finest. I need to address it, for the good of society. The mythology justifying it is that California is such a wonderful place to live, with its traffic and absurd real estate prices and brogrammers, that a $2,500 relocation package for an adult (meaning, here, 25+ and no longer allowed to live without furniture, because it’s just not socially acceptable to sleep on a hand-me-down mattress with no bed) is to be taken as a perk rather than a fuck-you. 

This culture of cheapness is disgusting. One time a couple of years ago, I spoke to a startup about a supposedly “VP-level” role and, when it came time to discuss an on-site interview, they asked if I could apply to another company (that would cover travel costs) and “piggyback” their interview process on the same day– that is, go to them in the evening after an all-day interview with another company– sparing them the cost of flights and a hotel. At that point, I stopped returning their calls, because I knew that if they couldn’t spring for airfare, they wouldn’t be willing or able to do the right thing when it came to relocation, so there was no point in continuing. 

Frankly, I think that the “we don’t do relo” policy is short-sighted if not idiotic. I checked my almanac to be sure, but the world is very big. No metropolitan area has anywhere close to a dominating share of the global talent pool. The Bay Area has some impressive people (and a much larger number of not-impressive people who still command impressive salaries) but if you’re serious about competing for talent, you just can’t restrict yourself to one geographic area. Not in 2014. Either set yourself up to be distributed (which is hard to do) or man the fuck up and pay for talent and pay for it to move. Otherwise, you aren’t serious about winning and you deserve to lose.

Oh, and another thing…

Then there is the matter of relocation clawbacks. Many companies put a stipulation on a relocation package that it must be repaid if the employee leaves within a certain timeframe. On what moral grounds is this OK? Did that employee not suffer the costs of relocation, either way? Do movers reimburse a person who relocated for a job that turned out to be a stinker? Of course they don’t, because they still did the work and that would be ludicrous. Almost no one joins a job expecting to leave in a year, which means people only will do so if things get really shitty. Why make it worse, by imposing a ridiculous penalty, if things go bad? Chances are, if the employee is willing to leave a company in the first year, that the company is partially at fault. The purely opportunistic “job hopper” is a hated straw man for employers, because the reality is that at least 75 percent of employers are just shitty (and bad at hiding it, so savvy people leave quickly). I don’t know why it’s considered a virtue to waste one’s life by investing in an employer that isn’t invested in one’s own career. It’s not. 

Clawbacks aren’t usually a big deal (it’s not hard to stay at a company for a year) but they send a strong signal: we employ at least one person who enjoys shitting in places where fecal matter doesn’t belong. That clawback clause didn’t appear by accident. It’s not likely that cosmic rays hit the hard drive where the contract template was stored and just happened to put additional words there. Someone in that company, at some time, made the decision to include a clawback clause. And I’m sorry, but the people who try to earn their keep by shitting on things should be fired. Companies are complex beasts and need a wide variety of services to maintain and grow them. What they don’t need are people who indiscriminately shit on things because it amuses them to leave festering piles of dookie all over the company. If I wanted to see creatures shitting indiscriminately, I’d go to the zoo. The issue with a relocation clawback isn’t the economic risk for employee, but the fact that the company actually retains someone who took the time to put that garbage in the contract.

The bigger problem

In this essay, I’ve Solved It with regard to relocation, because it actually is a simple issue: if you’re a company, play or go home. If you’re a prospective employee and you’re offered an inadequate relocation package, turn the job down. If the company was serious about winning, they’d give you what you need to pull off the move properly. These, “oh yeah, we offer $2000″ fly-by-night startups aren’t serious about winning. They don’t need top talent. What they need are clueless, naive, true believers who’ll throw enough hours and youthful enthusiasm behind a bad idea to continue the founders’ campaign to defraud investors. It’s best if those true believers don’t have families, because their spouses might “disrupt” (I had to use that word) them with questions like, “why are you working more than 40 hours per week, at a company that only gave you 0.02% in equity?” It’s best if they’re under 27 and don’t mind taking on the insane risk of going into an extremely expensive city without an offer of temporary housing.

Of course, there’s one exception. If you will have at least 20 percent equity in the company, you might consider taking on the risk of an unpaid relocation. That’s right, 20%. You have to be partner-level for it to make sense, and prior to external investment, anything less than 20% is not partner level. (After external investment, full relocation should be a given for all key players.) Don’t take partner-level risk for an employee-level role. It doesn’t engender respect; it shows weakness. 

So what’s the bigger issue? What I’ve noticed about such a large number of startups, in the Valley and elsewhere, is that they’re disgustingly cheap. Cheap things are usually of low quality. Exceptions exist, but they’re rare and if your business strategy is based on cheapness, you’ll fail, because opportunities to buy something of high quality at a low price are usually far too intermittent to build a company on them. Also, one thing you learn in technology is that low-quality components often corrupt the whole system. If you pour a cup of wine in a barrel of sewage, you have a barrel of sewage. But if you pour a cup of sewage in a barrel of wine, you also have a barrel of sewage. Most VC-funded companies are launched with absolutely no understanding of this principle. They’re designed to be as stingy as possible in the hope that one “home run” company will emerge from the chaos and pay for the hundred failures. Occasionally, the idea is so good that even terrible health benefits and sloppy HR and closed allocation won’t block a success. These opportunities only emerge a few times in each generation, but they do exist. In general, though, a company designed poorly and with low-quality components (management, policies, mission and founding principles) will just be a loser. VCs can afford to generate hundreds of losers because they’re diversified. Rank-and-fire employees can’t. 

In reality, a company succeeds not by being as cheap as possible, but focusing on the delta. What are you paying, and what are you getting? Cost-minimization usually leads to low quality and a minuscule if not negative delta. A new Volkswagen GTI for $20,000 is a great deal. A beat-up clunker unlikely to last a year isn’t worth $1,000, and is likely to cost more in headaches and maintenance than buying a quality car. In general, both extremes of the price spectrum are where the worst deals are found. The high end is populated by Veblen goods and dominated by the winner’s curse, while the low end’s psychological and technical advantages (some purchasers will always buy the cheapest option, and sometimes this is by regulation) to the supplier render it protected, often allowing quality to fall to (or below) zero. In hiring, just as with commodity goods, this is observed. Overpaid executives are often the most damaging people in an organization, and paying them more doesn’t improve the quality of people hired; on the other hand, the desperate employees willing to take the worst deals are usually of low or negative value to the business. 

The actual “golden rule” of success at business isn’t “buy low, sell high”, because opportunities to do so are extremely rare, and “carrying costs” associated with the wait for perfect deals are unaffordable. Instead, it’s “maximize the spread between your ‘sell’ and ‘buy’ price” or, for a more practical depiction that sounds less manipulative, “sell something that is more than the sum of its parts”. With some components, the right move is to buy high and sell higher. For others, it’s to buy low and sell less-low. For example, in software, you probably want to take the “buy high and sell higher” strategy with employees. A competent software engineer is worth $1 million per year to the business, so it’s better to hire her at $150,000 (which, in current market conditions, is more than enough to attract talent, if you have interesting problems to solve) than to hire an incompetent at any salary. Talent matters, which means that to spend on salary and benefits and relocation is worth it. The way you win in software is to buy high and sell higher. That said, “buy high” also means you have to buy (in this case, to hire) selectively, because you can’t buy many things if you’re buying high. Unfortunately, people who have sufficient talent to make those calls are rare (and most of us are irrelevant bloggers, not investors). MBA-toting VCs like cheapness because, without the ability to assess talent and make those calls, the scatter-shot approach is all they have. 

I think it’s important, before I go further, to focus on the difference between genuine constraint and stupid cheapness. Before venture capital got involved in small-business formation to the extent that it has (largely because bank loans now require personal liability, making them a non-starter for anything with a non-zero chance of failure) most emerging firms were legitimately limited in their ability to hire more people. “Lean” wasn’t some excuse for being mean-spirited or miserly; it was just the reality of getting a company off the ground. If the constraints really exist, then play within them. If you can barely afford salaries for your three founders because you’re bootstrapping on scant consulting revenue, then maybe you can’t afford to pay their relocation costs. The problem with the VC-funded cheapness is that those constraints really don’t exist. “We can’t afford $X” is predicated on “We only have 100X and need to hire 100 people” which is predicated on “We’re going to hire such mediocre people that we need 100 of them to get the job done”, and that mediocrity wouldn’t be such an issue if $2X were offered instead. If $2X were offered, the job might be feasible with 15 people, but the VCs aren’t able to assess talent at that level, nor pick founders who can, so it’s easier for that class of people to just pretend that talent differentials among engineers don’t exist and implement a closed-allocation MBA culture. 

Mindless, stupid cost-cutting isn’t limited to startups. Large corporations show this behavior, as well, and it’s easy to explain why it’s there. Those who can, do. Those who can’t, evaluate and squeeze. This evaluation process can take many forms, such as micromanagement; but a complementary form is the senseless and mean-spirited penny-shaving of the modern corporate bureaucrat (“I don’t think you need that!”) It takes no vision to “cut costs” in a way that, in 99% of cases, actually externalizes costs to somewhere else (low-quality technology, morale problems, environmental impact). Penny-shaving is what stupid overpaid fuckheads do to justify their executive positions when they don’t have the vision to actually lead or innovate. They cut, and they cut, and they cut. They get good at it, too. Then they start asking questions like, “Why are we paying full relocation for these experienced programmers, when there are a bunch of starry-eyed 22-year-olds with California dreams?” Six months later, that’s answered by the cataclysmic drop in code quality, which is starting to bring major pain to the business, but the cost-cutting idiot who had the idea has already gotten his promotion and moved on to fuck something else up.

When companies balk at the concept of offering a proper relocation, the message it sends to me is that they’re in the business of squeezing zero-sum petty wins out of their employees, rather than vying for actual wins on the market. 


Most software engineers don’t know what they’re getting into when they enter this industry, and spend more time than is reasonable being a loser. I can’t claim innocence on this one. There were jobs where I worked for shitty companies or inept managers or on pointless projects for a variety of reasons that seemed to make sense at the time, but were almost certainly errant. Don’t make that mistake. Don’t be a loser. The good news is that that’s rather easy to control. One can’t change one’s level of talent or influence the large component that is truly luck, but avoiding loserism has some straightforward rules. Don’t work with losers. Don’t work for losers. (Don’t fight against losers either. That’s a mistake I’ve made as well, and they can be vicious and powerful when in groups.) Don’t make excuses for people who don’t seem to be able to get it together and play to win. Stick to the people who actually want to achieve something and will bet big on the things that matter, not the 95% of VC-funded founders and executives just trying to draw a salary on a venture capitalist’s dime (despite all that paper-thin bullshit rhetoric about “changing the world”) while squeezing everyone else at every opportunity. 

Unless you’re a founder and the resources simply don’t exist yet, never relocate unpaid. If the company actually sees you as a key player, and it cares about winning more than zero-sum cost-cutting, it will solve your moving problems for you, so you can get to work in earnest on your first day. 

If you’ll ever die, don’t apply

Some day, I will die. So will everyone I know, everyone who has read this post, and everyone they know. I’m probably more than a third of the way there. I’m not especially afraid of it. Actually, I’m curious. Though I don’t subscribe to any religion or believe in anything resembling an anthropomorphic god or gods, I think it’s more likely than not that something interesting will be on the other side. (If I’m wrong, I won’t know.) All that said, I’m going to die some day, and even before that I’ll experience involuntary change (aging). It’s not an easy thing to forget, and it’s not a thing that I should forget. There’s no virtue in ignorance. And, despite not having any specifically religious faith, I’m pretty sure that what a person does in this life matters. Something in me is convinced that the ultimate reality of human existence is somewhere between the dichotomous nihilisms of materialist reductionism (existence ends fully at death, so all will be erased) and mainstream religion (only the next world matters). Perhaps that is why Buddhism (and its tendency toward middle paths on such questions) appeals to me more than the mainstream interpretations of the Abrahamic faiths (in particular, Christianity). The assertion that believing in the existence of a certain being (who left no evidence of his existence) is the key variable in separating people out for eternal bliss or agony is, in truth, far more nihilistic than most atheistic beliefs.

I’m not a nihilist; whatever this life is, it’s not to be thrown away. I conceive of myself, however, as a realist. I’m not immortal, and even though I haven’t really begun to age (I’m only 30) in any painful or even inconvenient way, I’m increasingly aware of the fact that I will die. People who are young and healthy one year are dead in the next. I’ve seen it happen too many times.

I’ve written at length about Silicon Valley’s perverse bubble culture and its obsession with youth. There isn’t a meaningful physiological difference between a 22-year-old and a 35-year-old that has any business importance. I think, however, I understand what Silicon Valley’s youth obsession is actually about: not age, but immortality. No one is immortal, but some people think they are. They haven’t learned the value and price of time yet. Nothing bad has happened to them yet. They still conceive of themselves as invulnerable.

These venture capitalists don’t just want to fund 22-year-old white males. They fund a specific kind of 22-year-old, white males: people who can trick themselves into living outside of time (and, more practically, throwing their time and health away, often at a pace of 100 hours per week, for someone else’s benefit) because they haven’t been reminded yet, by life, that they very much live in time.

The difference between the 35-year-old and the 22-year-old is not personal health but experience. The 35-year-old has had parents, aunts, and uncles get old, get sick, and die. He’s seen college classmates (and more than an unlucky one or two) lose the cancer lottery and die at a ridiculously young age. He realizes that time brings involuntary, unexpected, and sometimes painful change, and that a year of life spent “paying dues” or enriching ingrates is a permanent loss. Most 22-year-olds haven’t learned those lessons yet, and those who have are unfundable in the current Valley.

The “job hopper” stigma and “team player” nonsense of Corporate America, after all, make sense for people who haven’t figured out yet that their time is finite: that the “technological singularity” might not happen in the next 100 years, that “old people” were once as young as them, that they’ll get old and die and that it will always seem too soon. Those who believe themselves to be immortal are appealing to the exploitative overseers. They value the present at zero, convinced of some superior and unending future (one that will never come, except for the politically sacrificial and lucky). They are (for the moment) timeless and therefore without much memory.

I’ve always feared that if humans became technologically immortal, but if we did not succeed in ending scarcity, the first thing that an elite would do would be to create a “zombie” class of people who (like us mortals) lose most or all memory every hundred years or so, lest they acquire the knowledge that enable them to compete with the existing elite. They would continue to die (in effect) but be biologically maintained as peak-of-their-prime adults (to perform work, for others’ behalf) and probably conceive of themselves as immortal. Obviously, that doesn’t exist yet; the technology isn’t there. But culturally, it’s already happening. Of course, indefinite life extension and memory erasure aren’t there. Instead, the old class of immortals (once they become aware of their own mortality, and seek genuine purpose and value, rather than the enrichment of an ingrate elite, out of their work) is discarded and a new one is put in place.

Silicon Valley is for the immortal. If you’ll ever die, don’t apply.

Ambition tournament (more like a large game) in San Francisco on March 23

This post pertains to the Ambition tournament planned for the eve of Clojure/West.

What?:We’ll be playing the card game, Ambition (follow link for rules) using a modified format capable of handling any number of players (from 4 to ∞).

When? Sunday, March 23. Start time will be 5:17pm (17:17) Pacific time. I’ll be going over the rules in person at 5:00pm. You should plan to show up at 5:00 if you have any questions or need clarification, since I’d like to start play on time. 

How long? About 2.5 to 3.5 hours at expected size (6-8 people). Less with fewer people, not much more with a larger group (because play can occur in parallel).

Where? At or near the Palace Hotel in San Francisco. I’ll tweet a specific location that afternoon, around and probably not later than 4:30.

Who? Based on expressed interest, I’d guess somewhere between 5 and 10 people. If only 4, we’ll play a regular game. If fewer, we may cancel and reschedule.

Is there food? We’ll break around 7:00pm and figure something out.

Do I need prior experience with Ambition? Absolutely not. There will be more new players than experienced people. Ambition is more skill than luck, but I’ve also seen brand new players win 8+ person tournaments.

Do I need to be attending Clojure/West to join? No. This isn’t officially affiliated with Clojure/West and you need not be attending the conference to play. It just happens that a lot of the people playing in this tournament will also be attending Clojure/West.

How should I RSVP? “Purchase” a free ticket on the EventBrite page.

Can I come if I don’t RSVP? Can I invite friends? Yes and yes.

Are there any prizes? Very possibly…

Will you (Michael O. Church) be playing? That depends on how many people there are (if this is a home run and gets 12+ people, I’ll be too busy with administrative stuff). I’ll probably sit in the final rounds but I won’t be eligible to win any prizes.

Here’s why Paul Graham (probably) owes me an apology.

What I am about to say here is not based on a hunch. I don’t say this kind of stuff lightly, and I will give evidence.

Additionally, I make no pretense of knowing whether Graham himself participated in the adverse action. I know that people other than him have been given editorial power, and that some have, in the past, displayed serious incompetence, especially with regard to banning of posters. Reckless silent banning (“hellbanning”) is a notorious problem on Hacker News, and the general consensus is that the problem is with Graham’s hired editors, and not the man himself.

However, I believe that I am owed an apology. (If not, I seriously misunderstand the Hacker News comment ranking algorithm, which I believe to be based on age and votes of the comment.) In September, I was tipped-off (anonymously) that my comments were being downgraded in determining their position on the board. I’d suspected this, since I went at one point from several top comments to seeing mine often at the bottom, despite several upvotes.

At first, I didn’t believe that I’d been personally targeted because, while I have been critical of the VC-funded ecosystem (“VC-istan”) I’ve always supported Paul Graham and what he’s been doing. Additionally, I’m a high-quality contributor to the board: top-100 karma, high average karma, well-written comments. However, there did seem to be a change in the ranking algorithm; something flaky was happening. The tipper gave me a way to test whether something wrong was happening: check latency times from Hacker News while logged in, and though an incognito window (“slowbanning”). Sure enough, the 3- to 5-second latencies I’d experienced under my personal account were not experienced in incognito mode. Typical latency for me, when not logged in, is 250-400 ms.

A few years ago, Hacker News made karma ratings invisible. At the time, as I recall, the justification was to prevent runaway behavior whereby popular comments got even more (less deserved) upvotes than ones with mediocre scores. I now tend to think that the change may have been made for a less noble reason: to hide that certain posters were getting (in terms of comment placement) personal penalties. If it were true (and it may not be, and if I am wrong, then I will be the one owing an apology) then it would be extremely damaging to morale, and hiding the fact would be mandatory.

If I were being personally penalized (presumably, in direct retaliation for my criticism of the VC-funded ecosystem) it would be visible by looking at older comments. Why? With HNSearch, one can find the karma rating of any comment older than about a week. (You can, if you wish, check the assertions I am making here.) Additionally, multiple sources have given me that the age penalty on comments is on the order of (2 + t)^-p, where t is the comment’s age (in hours) and p is an exponent variously given between 1.5 and 2; this means that for old threads (t >> 1000 hours) age would, assuming the comments were within days of each other, which they almost always are, be pretty well factored out.

Looking into some high-karma comments, such as 99-point comment 5 months ago, I found strong evidence of a personal penalty. That comment was placed near the bottom, while the top comments on the thread had substantially lower scores. This is not of direct concern to me (few people read 5-month-old threads) but it confirms what I had suspected.

There are 3 possibilities.

  1. (Least likely.) In retaliation for my criticism of the VC-funded ecosystem, Paul Graham has assigned a personal penalty to my comments, causing them to fall to the bottom, even when they are highly rated. If this is the case, I am owed a personal apology by Paul Graham.
  2. (Most likely.) My comments have been personally targeted, but Paul Graham is not the culprit. In this case, Paul Graham should apologize not only to me, but to Hacker News at large, for giving editorial privileges to the incompetent who pissed off a top contributor. Additionally, this person should be dismissed from the editorial role.
  3. (Other.) There’s something I am missing: perhaps an additional complexity in the ranking algorithm not related to comment success (karma) or age– I’ve tested for both. I can’t see what, but I’d be open to an explanation outside of what I’ve covered here. If I am wrong and my comments are not being penalized, then I must offer my apology for the suspicion. It is not one that I developed (much less voiced) lightly, but I cannot for certain guarantee that I am not wrong.

I look forward to learning which of these is the case. If I am not alone in suspecting chicanery, it should be discussed.

My name is cleared.

This came from a very high-ranking person at Google, earlier today. It is posted here with the author’s permission.

Dear Michael,

Your continuing outspokenness, with regard to your time at Google, has come to my attention. After reading over your record in detail, I and many others on the senior leadership team agree that you were poorly managed and inaccurately reviewed. Your performance was strong given the short time you were here, and you showed very high potential for growth.

We find it regrettable that you left Google. Having reviewed your history, we want to impress upon you that we see your experiences as unjust and certainly not reflective on you in any negative way but, additionally, extremely unusual for Google. We hope that you will also see it this way, and not continue to regard it as reflecting any underlying pattern at Google. Had you been under different supervision, we believe that you would have been very successful here. You are clearly a driven, passionate, and talented technologist.

We wish for every person we hire to have a productive and successful career here, and of all the companies where I have worked, Google does the best job of achieving this. However, perfection in management is impossible for any company, especially given our size and the fast-paced nature of technology in general.

We wish you the best of success in your career going forward.



My name is cleared.

I’m done criticizing Google. On the whole, Google is a great technology company in many ways, and has plenty of exceptional people with whom it was a privilege to work.

It’s time to move on. Back to building.

Gervais / MacLeod 7: Defining organizational health, the Mike Test, and VC-istan’s fate.

Over the past couple weeks, I’ve delved into organizational health and the processes that compromise it. (See: Part 1Part 2Part 3Part 4Part 5, Part 6.) Typically, organizations tend toward a MacLeod hierarchy with three tiers: the Sociopaths, the Clueless, and the Losers, in that order from top to bottom. Sociopaths, who take an up-or-out strategy and either end up at the top or fired, are strategic and dedicated but not subordinate. They’ll never sacrifice their individual career goals for the benefit of the organization, although they may work to improve the company if there is gain for them. These aren’t always bad people. Of the three personalities, I have most in common with the Sociopaths, but I’m not a bad (much less psychopathic) person. Clueless, on the other hand, are dedicated and subordinate but not strategic. They’ll work hard, and take orders, but they don’t have a good intuition for what is worth working on. They’ll eagerly follow or lead pointless, “death march”, projects. They tend to be shunted into middle management where their dedication and eagerness are an asset but their lack of strategy does minimal damage. Losers are subordinate and strategic but not dedicated. They know what’s worth working on and what not, and will follow orders– they’re subordinate because it makes their lives easier– but rarely put forth more effort than is required of them. (As already said, they’re not actually “losers”. More on that, later.) They’re discomfort-minimizers, while the equally strategic Sociopaths are yield-maximizers.

The MacLeod process exists because most organizations make it inconsistent for a strategic person to also be subordinate and dedicated, meaning that the confluence of these three traits won’t occur. Strategic people tend to be rational and selective with their efforts. Some will aim to minimize change and discomfort, willing to sacrifice compensation and career progress in exchange for an easy job where they won’t get fired. That favors subordinacy: make the boss happy, get away with more and reduce risk. If such a person can leave work at 3:00 and collect the same salary, he will. (Why not? If the firm remains happy with his work ethic, is it unethical?) These are the Losers. It’s important to note that they’re not losers in the sense of being disliked, undesirable, or defective. They only “lose” in the first-order economic sense, since their position is one in which they receive less (usually, a steady pittance) from the organization than they put forth. They trade expectancy (long-term average compensation) for the risk-reduction offered by a large, stable company in which they can retain good standing by appeasing a small number of important people. There’s another crowd who are also strategic, but who have more of an appetite for risk and want to capture some of the surplus value generated by the Losers’ trade (of expected value for risk reduction). They make the equally rational decision to put forth a lot of effort, and to take on a lot of risk, in exchange for rapid career growth. They tend to be dedicated, hard workers, but they’re not subordinate. This doesn’t mean that they’re ideologically or obnoxiously insubordinate, but they’ll never buy into the fiction that people must put company goals above their own career needs. Ultimately, such a person will gladly work a 50 or 70-hour week for the right price, but will never sacrifice her own career goals for the company or “the team”. Such people can’t stay in one place for very long. It’s not that they make themselves disliked, but there is a certain “offness” about them. They’re ambitious. They have “an agenda” (as if that were a bad thing). They’re only loyal to companies that treat them well and give their career needs a special value that can’t be given to all. They’re mercenary. It’s up-or-out for them. Companies promote as many of these as they have room for, but must discard the rest. This is actually an impersonal and necessary process– when you have more ambitious people than there is room at the top, you must make a way out for some, even if they are good people that you personal like. However, companies often have a psychological need to create a mythology for hard decisions, and this leads into the “not a team player” epithet that exists to justify this process (that, in my opinion, companies are not required to justify, because it’s not immoral to fire people; it’s just the way human organizations work). These strategic, ambitious people are the Sociopaths. Finally, the non-strategic who are dedicated and subordinate must, almost by definition, be Clueless. Those are the “true believers” who give to the company without expecting much in return.

The MacLeod organization is very stable according to its own internal metric. The Clueless provide a barrier between Losers and Sociopaths on the rank spectrum, while Losers (who give little, and get little) provide one between (value-capturing) Sociopaths and Clueless (who give a lot, and get little) on the hedonic spectrum. The effort thermocline and differential social status hold everything together. It’s an envy-reducing structure. Clueless are oblivious to the effort thermocline and don’t want the jobs immediately above them. Losers don’t want to become Clueless middle-managers– with only token power and slight improvements to compensation, but substantial increases in responsibility and discomfort. Thus, very few people want the jobs immediately above them, and those who clearly do want to ascend (Sociopaths) are fast-tracked either up or out. The MacLeod organization is, on its own terms, fairly peaceful. On the external market, however, such organizations are not always able to compete. MacLeod hierarchies keep peace within the firm, but often make the organization slow to adapt to the world outside.

The problem with the MacLeod organization is that it’s driven by three tiers for which each has a critical defect. Insubordinacy (of the Sociopaths) is not always bad, but it is a defect from an organization’s point of view, and with no one to audit the Sociopath tier here is no way to exert control over the moral character of the leadership. If “good Sociopaths” (Technocrats) are in charge, it will be a good organization. If bad people get into power, they will drive out the good. The problem isn’t that such ambitious people are uniformly or even often bad, but that organizations can almost never self-regulate in such a way as to audit or change the moral character of their leadership– and once an organization goes bad, it will rarely revert, because bad people have an innate competitive advantage; true psychopaths are more agile in social competition than the irreverent-but-decent “good Sociopaths”. In short, MacLeod Sociopaths are not necessarily bad people, but they’re impossible for an organization to control. The Clueless, lacking strategy, are unable to function without good people above and below them. They produce most of the tactical effort, but require management from above and below in order to retain focus on useful stuff. This dependence on others is their shortcoming. Finally, there are the Losers, who do most of the work and will directly affect the company’s ability to execute as well as its reputation for quality of service but who are, rationally, only dedicated enough to remain in good social standing. It’s not true that they “do the minimum not to get fired” (that’s a common misunderstanding of Loser-ism) so much as they manage their performance to the Socially Acceptable Middling Effort (SAME). They want neither the reputation for being a slacker, nor that for working too hard. They aim for the middle. While less important than the strategic competency of the leadership, the SAME level is a major cultural factor in a company’s macroscopic performance.

The organizational issue with the SAME is that it drifts over time. A high SAME will keep the working people of the company, who are often very competent despite their lack of ambition, highly productive. On the other hand, when the SAME falls to zero, the company ends up with a lot of deadwood; Losers stop working, because there’s no reason to do so. In this light, we can understand Marissa Mayer’s recent decision to crack down on work-from-home employees. This effort is about raising the SAME, which is hard to manage in a distributed setting. The problem isn’t that WFH employees are likely to be lazy. That’s often not the case. In fact, the best WFH-ers are far more productive than any in-office employee. The issue is that the good WFH-ers have no effect on the SAME– they get a lot done, but the rest of the office doesn’t see them working hard– and the bad WFH-ers have fallen to zero. An in-office policy will, at least at first, reduce bulk productivity (by hurting the good WFH-ers more than it brings up the bad ones, most of the latter being incorrigible people who will need to be fired) but the expected second-order effect is to raise the SAME. Mayer’s changes may kick Yahoo into the ugly state of a tough culture, but that’s likely to be less dysfunctional than the stodgy rank culture into which MacLeod corporations devolve. In rank culture, getting along well with management is more important than effort itself, which pushes the SAME down as obedient non-performers get a pass and weak managers become entrenched.

If each of the 3 MacLeod tiers is defective in one of these three desired organizational traits, we must ask the question. Can people be strategic, subordinate, and dedicated? It only happens in the context of a mentor/protege relationship. In truth, people who are truly strategic are never fully subordinate or insubordinate. While I originally approached the MacLeod hierarchy and this three-trait decomposition, I assumed the existence of all three traits to be impossible. In reality, those who are strategic are subordinate or insubordinate based on context. Strategic and dedicated people will subordinate, in the short term, if the leadership (management, advisors, investors) shows a long-term interest in their careers. True loyalty is not incompatible with the insubordinate tendency of the highly capable mind. There’s a pay-it-forward mentality and a personal affinity that enables such people to live in harmony with the organization. This is observed in the rarest of the four work cultures: the guild culture, which creates balance in the relative importance of dedication, subordination, and strategy. The other cultures tend focus on one of the 3 traits at the expense of the others: rank culture, on subordinacy; tough culture, on dedication and sacrifice; self-executive culture, on being strategic. Guild cultures encourage balance. Why, then, are guild cultures rare (and dying)? The answer is two-fold. First, they’re hard to maintain, because the leadership must continually refresh its skill base in order to mentor new people, which means that the teachers must “moonlight” as students and study new methods as well as the external market. Second, guild cultures cannot grow fast. If they take on too many new people at subordinate ranks, it becomes clear that the not all of their careers will succeed (there isn’t enough room higher on the ladder) and the whole thing falls to pieces. While guild culture may be “good”, it is not fit (as an evolutionary term) insofar as it does not allow fast growth of its organizations.

A guild culture that collapsed recently is that of large-firm law (“biglaw”). Originally, it was difficult to get an associate position at a “white-shoe” law firm, but one who had one stood a very high chance of making partner. Not making partner (after seven to ten years) was the exception reserved for bottom-5% performers. In the 1980s, this changed, due to the increased workload generated by the private equity boom. The firms began taking on large numbers of associates without allowing the partnership ranks to grow in tandem, the result being that making partner is now the rarity. Now, it’s about 5 percent who get partnership, rather than 5 percent being denied it. The guild culture died horribly, being replaced by a catastrophic tough culture where 70-hour work weeks and “4:30 work drops” (late-day assignments with next-morning deadlines) are the norm. New York attorneys frequently describe the state of their (ex-)profession as “banking without the upside”.

So what defines a healthy working culture? We now have the vocabulary to address this. I’m going to elaborate six statements about a healthy workplace culture, and then arrive at a 7th (The Mike Test) which is the most important of all. I derive these six assertions from the three workplace traits– strategy, subordination, and dedication– in addition to the need for moderation in each.

  1. (Dedication, or DED) People can be relied upon to do their jobs well, and to treat their work as important. Ideally, this trust and reliability should exist at all levels of the organization. The company functions best if everyone is willing to do the hard jobs. 
  2. (Moderation in dedication, or M-DED) People do not engage in unnecessary sacrifice for social or subordinate reasons. Pain does not become a measure of a person’s work or value.
  3. (Subordinacy, or SUB) People take a “pay-it-forward” attitude toward their colleagues and the company. Junior employees take direction from mentors; seniors invest in their reports for the long term. People invest in their relationships with the company, because it is worthwhile to do so. 
  4. (Moderation in subordinacy, or M-SUB) Doing the right thing is more important, to employees and the company, than following orders. This requires a culture that enables people to speak up without fear of retribution.
  5. (Strategy, or STR) Individual employees take ownership of their own work and have the autonomy to place their efforts where they perceive the most value. There’s no need to ask permission or “apply for transfer” to work on something that appears important. This is where open allocation shines.
  6. (Moderation in strategy, or M-STR) Allowance is made for exploratory work that might pay off only in the long-term. Work need not deliver short-term dividends to be acceptable. People are allowed, at all ranks, to invest at least some of their time into R&D that is abstractly beneficial to the organization, even if it doesn’t produce an immediate benefit.

If I were to grade each of the four cultures (0 to 8, 8 best) for its typical level of success on each of these traits, here’s how I would assign them (based on their observed performance, not on their purported values).

Trait Rank Tough Guild Self-exec.
DED     2    6     5      8
M-DED   3    0     5      6
SUB     4    1     8      4
M-SUB   0    2     5      7
STR     1    4     4      8
M-STR   2    0     5      3
Avg.   2.0  2.2   5.3    6.0

Rank cultures are across-the-board weak. They excel in superficial subordinacy, but the lack of true loyalty earns them only a ‘4’ grade for that trait (SUB). The only good thing about them is their internal stability, which is why they are the eventual state of a hierarchical (MacLeod) organization. Still, they tend increasingly toward macroscopic underperformance due to their corrosive mediocrity. When the only thing that will prevent laziness is aggressive management, effective managers leave (wanting better reports) and the company ends up getting stuck with lazy managers who tolerate crappy employees. Tough cultures are slightly better– people actually give a shit, if only for selfish reasons such as aggressive performance reviews– but still fail in most critical areas, and behavior tends toward moral degradation. In tough cultures, people are as subordinate as they need to be to survive, but deeply disloyal. Two examples of tough-culture degradation are Enron and Google after the introduction of “calibration scores”, but the tracks of the organizations are different. Enron maintained its tough culture by executive fiat and experienced top-to-bottom ethical corrosion. Google’s tough culture (introduced by a play-for-play copy of Enron’s performance review system) reverted quickly to a rank culture, because many managers had no desire to enforce it and began agreeing to “peg” calibration scores in return for loyalty. (Google is an unusual example, having a healthy self-executive culture above the Real Googler Line– enabling it to maintain strong macroscopic performance– and a necrotic tough-turned-rank culture below the RGL.) The latter path is more common. Tough cultures usually return to rank cultures; those who have the power to protect people from the harsh review system become the new holders of rank.

Let’s examine the healthy cultures, in the light of the grades above. Note that self-executive cultures get top marks for dedication and moderation in dedication. When people are trusted to direct their own efforts, and rewarded for good work, they tend to put their effort levels at the right level. They also excel at moderation in subordinacy and (of course) strategy. What self-executive cultures tend to be bad at is rewarding long-term investment, including mentoring new hires. Guild cultures, although not especially fit due to their intolerance of fast growth, are well-rounded and healthy. When they work well, they excel in terms of a “pay-it-forward” attitude that replaces subordinacy (or insubordinacy) with genuine altruism. They’re also, perhaps surprisingly, the most prone to long-term investment (moderation in strategy). The central planning inherent in guild culture can be a weakness, but it can also allow the firm to “future-proof” itself consciously– if its leadership wants to do this.

Both cultures struggle when it comes to growth, but in different ways. Guild cultures can grow vertically– bringing in people of lower or higher skill levels– because they have the machinery for assimilating them into mentor/student relationships, but tend to fail at horizontal growth, because guild cultures require a carefully managed balance of work quality, skill level, and rewards. If that gets out of whack due to rapid growth, some form of scarcity (e.g.,of good reports, of high-quality work, or of room at the top) will turn the firm into a zero-sum slugfest that destroys the mutual trust of the guild culture. (It becomes a tough or rank culture.) On the other hand, self-executive cultures can grow horizontally– taking on more people at the same skill level– but tend to be incapable of assimilating people of superior or inferior skill levels to those who are already there, because self-executive cultures rarely provide the incentives for managed growth (as opposed to going out and putting forth work that brings immediate results). An example is Valve, an ideologically self-executive culture that simply does not hire junior-level people– it has enough self-awareness to know that it can’t maintain its self-executive culture in the face of the skill inequality that vertical growth creates.

In truth, self-executive cultures tend to downplay differences in skill– everyone has basic autonomy, there are no real “bosses”– and can’t hire below the prevailing skill level and maintain their culture. They could hire above the prevailing skill level and survive– that would be desirable– but have a hard time getting such people to work for them without offering some authority to them. People who are used to be entitled leaders (executives) do not usually want to work on equal terms with people they consider of inferior skill. Thus, self-executive cultures can only hire near the prevailing level and, since they only succeed if the prevailing skill level is fairly high, the scarcity of such talent means they cannot grow fast even if they would want to.

Tough and rank cultures, on the other hand, grow much faster. Why is this so? Tough cultures do not focus on growth so much as churn. They hire a lot of people, fire a lot of people, and are responsive to market conditions but generally agnostic on the direction of headcount numbers. Tough culture, being the absence of a work culture, has no growth management. A tough culture can hire a person of low market value, accepting the very high chance (in some cases, over 50% per year) that it will have to fire him. What causes directional growth (i.e. more hires than fires) in tough cultures is the long-term tendency toward inefficiency (necessitating greater headcount) and the emergence of pockets of rank culture as the tough culture decays. Tough cultures tend to grow in spite of themselves, because the cultural corrosion reduces individual performance despite the culture’s intent of doing the opposite. Rank cultures, for their part, actively encourage headcount growth. Hiring binges mean that there are more subordinates to go around, which makes managerial decision-makers happy.

In other words, neither of the desirable cultures (self-executive, guild) excels at horizontal growth and vertical growth. This makes them less fit, at least in terms of the ability to subsume people, than the pathological rank or tough cultures of typical organizations. There might be as many of these desirable cultures (self-executive and guild) as there are pathological cultures, but the latter house more people. It may be that most businesses have good cultures, but most employees work in dysfunctional businesses, if only because the dysfunctional work cultures are most able to grow quickly.

This conclusion is depressing: most people will work in dysfunctional cultures. Can we change that? If we want to do so, we need to answer some questions? What is the best workplace culture? Should one aim for the guild culture, or the self-executive one? I think the answer is obvious: one needs a hybrid, with ideas from both. I would say that one should aim for a culture that is mostly self-executive, and especially so for senior hires, but that creates an internal market for mentoring new employees, and for long-term investments, in which those efforts are equally valued. In doing so, it would manage to capture some of the assets of the older guild cultures, thus enabling some degree of vertical growth.

On the topic of growth: in addition to the six cultural evaluations above, I’ll add a 7th that is, above all, most important. The other six pertain to the present-time cultural health, but this 7th determines whether an organization will improve or decay over time. It’s The Mike Test. It has one criterion. The Mike Test is…

…would you, if no one would know or give you credit for doing so, want to hire someone better than you? Would it be rational to do so?

Assume that there’s no hiring bonus, and she’s not your best friend. You won’t get credit, in any form, for a great hire, and she won’t feel preternaturally loyal to you if she rises fast. The only benefit you get from hiring this great person is that you improve the company. The risk you take on is that your relative status in that company will decline. In a large company, the risk is low– you’re unlikely to compete directly with her– but so is the reward, making the balance zero. (It’s not worth it to hire her even in the large firm, not because there’s a risk of competition, but because you could spend time on other things.) I would argue that most companies fail The Mike Test. In the vast majority of companies, it is not rational to hire a person of superior ability.

This hits on the (slightly altered) Jack Welchism that “A players hire A+ players; B players hire C players”. In my use, however, “A” and “B” orientation pertain to context and security rather than innate competence. A players are secure enough that their interests (at least, in hiring) align with the company’s. They want to work with great people, and it has nothing to do with coarse personal benefits (hiring bonuses, “finder’s” credit). They make their companies better. B players, who are insecure because they are unremarkable, want to be safe and manage themselves to the middle. Hiring incompetents minimizes their risk of drifting out of the middle (and into the bottom). Good cultures discourage this kind of B-ness. They make sure that competent people are secure, and they rid themselves swiftly and fairly (preferably with severance; it reduces drama) of incompetents. Sadly, that’s rare. Most companies fail the Mike Test, and MacLeod hierarchies form because of organizations’ tendencies to hire people inferior to the (semi-insecure) real decision makers and, when superior people are brought in, to try to make them inferior using their control over the division of labor. Those tiers emerge because people in an insecure context have the incentive to hire only inferior copies of themselves.

Let’s discuss each of the four cultures in the context of the Mike Test.

Tough cultures fail the Mike Test in the worst way. In a tough culture, no one is secure– that’s the whole point of tough culture– so everyone is a contextual B-player (i.e. incentivized to hire mediocrities and make oneself look better). No rational person living in a tough culture would hire someone of superior skill– that person becomes an immediate threat. Rank cultures don’t fare much better. In a rank culture, one tends to have one of two kinds of managers. The first is the checked-out (i.e., also lazy and mediocre, as befits rank culture) boss who just doesn’t care. There isn’t a major loss inherent in hiring strong people, but it’s not a worthy use of time. The second is the hard-ass, careerist boss who creates a pocket of tough culture under him. (The company might still have a rank culture, but this boss holds high expectations.) That type of boss only cares about hiring insofar as it builds his team, and the tough-culture rules (don’t hire someone better than you, lest you be thrown under the bus) apply. Bosses in rank cultures might want to hire people of superior skill, but only if they could lock in permanent rank superiority. Rank cultures especially stigmatize reporting inversion (i.e. having a younger, less senior, or less educated boss) to the point that it can be career-ending to be at the butt of one. The benefits of having a strong subordinate are offset, in a rank culture, by the risk of reporting inversion. Therefore, both of the dysfunctional cultures (rank and tough) fail the Mike Test, explaining why they hire worse people with each generation of growth.

Guild cultures pass The Mike Test. If you hire someone better than you are, he might end up in a higher place, but that’s okay. You get a mentor, not a threat. A well-managed guild culture can assimilate someone at a higher skill level without eroding the well-being of the rest of the organization. This is the symbiotic nature of the guild culture. Self-executive cultures also pass, because their “bossless” nature means that the prospective hire’s superiority of skill is not a major concern. It’s a good thing to hire a better person, because you’ll have a strong colleague.

To summarize this briefly for each culture:

  • Tough cultures fail the Mike Test catastrophically. You endanger yourself directly if you hire someone better than you are.
  • Rank cultures fail the Mike Test by apathy. People only hire strong people if they can guarantee that person’s subordinate status. Rank cultures tend toward inferior hiring– strong people are less likely to be subordinate– but not as fast as tough cultures.
  • Self-executive cultures pass the Mike Test, as most people would prefer stronger colleagues, but the equality inherent to a self-executive company is a hard sell to one who might expect (because of a higher skill level) a leadership role.
  • Guild cultures pass the Mike Test, if they can convince the superior to take the role of a mentor rather than a manager.

Perhaps surprisingly, most VC-funded startups fail the Mike Test. They pass it for founders and real owners, who will have a more successful company, but they fail for engineers. Founders and investors control the dilution process and, even if they lose relative share, they’ll only make deals that are beneficial to them (50 percent of something is better than 100 percent of nothing.) If you own 20 percent of the company, you’re ecstatic if you just hired someone better than you are. What about engineers, however? What are their incentives?

Let’s consider a typical software engineer at a 50-person technology startup with 25 software engineers. His compensation is $25,000 per year lower than the market level, offset by equity equal to 0.05 percent of the company, vesting over 4 years. (In practice, he’d more likely have options at a low strike price, but I’m going to simplify here.) Salary raises are rare in startups, and equity improvements (without a promotion) are almost unheard-of. When things are going badly, that’s not a time to ask for anything; when they’re going well, the appreciation of equity is the raise. In addition to the $100,000 lost over four years at a low salary, let’s value the lost salary growth at $50,000 over 4 years, plus another $50,000 to account for future income lost to being at a low salary level when he exits. So he’s paying $200,000 for 0.05% of the company, implying a valuation of $400 million. This is, most likely, much higher a valuation than the one at which investors would buy into it. However, I can make a strong case that the engineer’s valuation should be lower than that given by investors, especially in a VC-feeding frenzy. When risk, liquidation preferences, cliffs and the lack of control are included, an engineer doesn’t do well to accept this typical startup offer ($25,000 salary drop, no raises; 0.05% equity) unless he can realistically value the company at approximately $1 billion. With the shoddy IPO climate, not many startups deserve that kind of valuation. (In fact, the companies that do are no longer really startups.) So, the equity offered by a startup is not, for most mere engineers, a good reason to be there.

So why do software engineers work for these VC-funded startups? There are many Clueless in the mix who massively overvalue their equity consideration, but most engineers believe their initial grants to be “teasers”. They know that their starting allocations are low, but expect that they’ll get something closer to a “fair” share when they grab those “inevitable” executive positions at which real equity allotments (0.25 to 0.5 percent for Directors, 0.5 to 1.0 percent for VPs, 2.0 for C-level, 3.0 for CTO/COO and 5.0 for CEO) are common. That is what keeps engineers in VC-istan motivated; the implicit (and often broken) promise of a higher-ranking role (with investor contact, and real equity) as the company grows. The real concern, when engineers participate in hiring decisions, isn’t about equity dilution associated with strong hires. They just don’t have enough equity for that issue to really matter. Their fear is that, if they hire people stronger than them, they’ll lose out on the executive positions implicitly promised to them as early hires at their startups. If they hire engineers better than they are, they’re doomed to languish in a company that has begun hiring above them. One note about typical startup sociology: once your startup hires someone from outside directly above you, it’s over. It will continue doing so, and your career has stalled out. You’re not a real player in the firm.

There’s an inherent conflict of interest in this style of VC-funded startup. The real owners (investors, founders, top management) get a social-climbing mentality and seek to hire stronger technical talent (even if they don’t need it!) for the sake of “scaling”. Engineers, on the other hand, would do well to subvert this. They don’t actually want to hire bad people (terrible software engineers reduce the productivity of the team) so much as they want to hire just-slightly-inferior people who aren’t so bad as to poison the team, but won’t challenge their chances of getting an executive position. This is more of a case of B players hiring B- players than one of them hiring C players. 

However, two to five generations of “just slightly inferior” will turn to bad, and the rapid churn of VC-funded startups means that it doesn’t take that long. VC-istan startups degrade severely and predictably once hiring decisions are made by people with small equity slices, whose concern is not the health of the company (ownership) but the protection of their own inside track to executive positions. Such startups fail the Mike Test, and it doesn’t take long for it to show.

What is VC-istan’s place in the 4-culture taxonomy?

What is the culture of a typical VC-istan startup? Within VC-istan, there are efforts (e.g. Y Combinator) to generate a pay-it-forward guild culture. This is actually quite interesting– entrepreneurship is supposed to be market-oriented, but the most healthy subsector of VC-istan is guild culture– the healthy variety of a command culture. On the other hand, the healthy market culture (self-executive) is shockingly rare. This suggests that VC-istan has become somewhat of a command (not market) culture, and it seems that it would be more of a rank culture than anything else. I tend to believe that this is probably true. VCs talk to each other. They decide as a group who is hot and who is not, and this extortionate power makes them the true holders of rank. VC-istan, a postmodern corporation that manages to transcend mere companies– in VC-istan, companies are disposable– is so amorphous and complex that it cannot be tagged as “only” belonging to one culture, but rank culture is increasingly the dominant force. Unfortunately, I don’t see a solution for this. One possibility would be for the government to interfere with communication among VCs in order to kill off the collusion, herd mentality, and “accept this term sheet or I’ll pick up a phone and no one will fund you” extortions, but a government step-in would probably cause more problems than it would solve.

VC-istan itself may be a rank culture, but an imperfectly formed one. VC-istan exists because a web of socially connected people– reputable investors, and those with welfare-check (err, I mean “acq-hire”) writing ability at large companies– have created a controlled-market zone. Outside of that is regular ol’ business formation: an actual market. By the way, what are free markets? They are like self-executive cultures at best, but tough in their own way. Corporate tough cultures are mean-spirited and driven by intentional human malice (stack ranking, “calibration scores”, transfer blocks). Free markets are tough only because they are indifferent, but self-executive for those who’ve managed to develop a pattern of success. So the “greater world of business” formation is one that contains the market’s mix of self-executive and tough features at its periphery, and becomes more rank-culture-like as one grows closer to the VC-istan power players.

Startups are a reaction against the dysfunctional rank cultures, and would prefer to set themselves up as self-executive enterprises.However, as the company grows, power shifts to the rank culture of the world without (investors, acquirers). Full-on rank culture is usually in force shortly after liquidity, but the phase most typically associated with VC-darling “startups” is a transitional spell of (unplanned) tough culture. 

Startups tend to remain “flat” for a long time, but this is usually not out of executive altruism. Self-executive cultures are naturally flat, but so are tough cultures. Tough cultures want everyone in competition with everyone else and use a (pathological) flat model to maximize internal competition. The self-executive model of the VC-istan startup dies as soon as the company stops handing out real equity slices (often immediately after the Series A). At this point, the “colony” mentality (live or die as a group) ends and the true goal of the new hires is to get into the executive positions that make real equity slices possible. The internal competition that emerges causes alliances to form and break, influence to be peddled, and informal management (people who manage to win credibility through illicit trades and manufacture the appearance of high performance) will emerge. The tough culture’s informal management is actually substantially worse than the rank culture’s rigid system, because the former encourages more influential people (managers in practice, if not in title) to compete with their (again, informal) inferiors. Rank cultures, at least, are rendered stable by the absence of competition between managers and subordinates– leading, over time, to the Gervais hierarchy. Tough cultures are just amoral, vicious messes.

When a startup first gets funding, the cultural neighborhood of the founders switches from the tough one of an indifferent market to a more self-executive one. They now have some autonomy, measured numerically in “runway” (how long they can survive with current capital). Unfortunately, this self-executive culture cannot survive the rapid growth typically expected by investors (especially VCs). Self-executive cultures can only hire near the prevailing skill level. VCs, on the other hand, want the company to indulge in social climbing (hiring above that level, which involves enticing people with executive positions that reduce the autonomy of those within) and rapid growth (which mandates hiring below the prevailing skill level to tackle the grunt work generated by sloppy, fast growth). Guild culture is clearly not an option, because tight deadlines leave no time for mentoring. Nor is rank culture, because it tends rapidly toward the underperformance of the MegaCorps that startups exist to destroy. Thus, VC-funded startups tend to degrade into a tough culture by default. This should explain the churn-and-burn behavior for which they are so infamous.

So, what culture is VC-istan? It depends. If you’re lucky enough to win the attention and mentorship of the (extremely rare) well-connected person who’s not an asshole, it’s a guild culture. If you’re a founder who just got funding, or a very early hire guaranteed a strong position, it’s self-executive. For founders and executives fighting mostly external battles (with acquirers, investors, and others with a million times more in the way of connections) it’s a rank culture, but one that does not (at that point) seep into the organization. For typical engineers facing internal battles (for scarce future executive positions that come with real equity) it’s a tough culture of long hours, harsh deadlines, vicious politics, and fast firing.

In other words, startups go through four cultural phases. Before funding, they live in the prevailing, indifferent tough culture of the market. Once they get their initial funding and have some autonomy, they turn self-executive (second phase). The romance of the “startup ideal” is derived from this phase of organizational life. As they grow (often sloppily) and take on more people than they can really provide startup perks (real equity, autonomy, leadership) for, they turn into tough cultures (third phase). Most VC darlings have tough cultures. By the time the company is getting that much attention, the self-executive era has ended. Finally, once the startup reaches liquidity and is a full-fledged corporation, it tends toward typical rank culture (fourth phase).

Mike Testing VC-istan to predict its future

Let’s see if we can apply the Mike Test to VC-istan, noting that Silicon Valley emerged as a reaction to the stodgy rank cultures associated (at the time) with East Coast corporations. The Mike Test tells us that self-executive and guild cultures can improve as they grow, although these low-entropy work cultures are hard to grow fast. Rank cultures, on the other hand, tend to stagnate, and tough cultures actively devolve, as headcount grows. What is the future, then, of VC-istan?

Most VC-istan companies are in active cultural devolution, being tough cultures where people are prone to hire inferior versions of themselves. In software engineering, this process is slowed somewhat by the (genuine) desire not to hire outright incompetents. Software is structurally cooperative enough that the pain (bugs, bad designs, low code quality) associated with hiring an incompetent does not offset the gain in relative position. As I said, this software-specific trait means that B players don’t try to hire C players, but B- players, which slows the Mike-Test decay normally associated with tough cultures. All of this is, in fact, not a major problem for VC-istan. Companies are disposable! The thing should be sold before it falls that far. VC-istan can tolerate the corrosion of the tough corporate cultures it generates, since these companies are just going to be sold to rank-culture corporate behemoths. VC-istan is not designed to build free-standing companies. They exist to be bought or to die.

The tough cultures of VC darlings will bring incompetents into those companies, but not a rate that is fast enough to matter to the corporations themselves. They’re build-to-flips that have no reason to care about slow cultural corrosion. There might be a “littering effect”, if these tough cultures are (a) bringing undesirable people from outside of VC-istan, and (b) leaving them in the VC-istan ecosystem after the company fails or is bought. If both (a) and (b) are true, then we can hold these cultures responsible for lowering the overall quality of people in it. I don’t know if that’s the case. That subject needs further study. Since the most egregious incompetents in VC-istan are not low-level engineers but the supernumerary, non-technical, executives, I tend to doubt that any engineering-specific littering effect is a problem, either in the short or long term. The executive-specific one is well-documented; VC-istan does have a way of turning shitty, failed bankers into even shittier non-technical startup “executives”.

In other words, I don’t know if the tough culture that typifies the standard VC darling is going to fill VC-istan with incompetents. The company itself will take on undesirable people, but those companies aren’t built to last very long. That tough cultures are so common is a symptom of something pathological, but that’s a topic for another essay. Instead, to project the future of VC-istan, we need to look not at the culture of the typical VC-funded company, but at the culture of VC-istan itself: the postmodern corporation in which the VCs are executives, so-called “CEOs” are glorified project managers, and engineers are clueless chumps who don’t realize they work for a big company. What we see is a very typical rank culture, with VCs and well-connected “serial entrepreneurs” (read: people whose connections entitle them to continued funding no matter what happens) in the Sociopath tier and a swollen Clueless tier. It’s a very effective, internally stable MacLeod rank culture.

As I discussed earlier, the stability of the MacLeod organization comes from the lack of envy between Losers and Clueless; and between Clueless and Sociopaths. Differential social status (DSS) and the effort thermocline (the level at which jobs become easier, rather than harder, as one ascends) ensure this stability. Losers prefer things of genuine value over the non-transferrable DSS coveted by the Clueless. Clueless are oblivious to the effort thermocline and consider the Sociopaths above them to be harder working and more capable than they are. Losers who want to become Sociopaths are fast-tracked up or out of the organization. How does this work out in VC-istan? The effort thermocline is blindingly obvious: it’s the distinction between startup employees and powerful investors. Above the thermocline are the reputable VC partners, whose social connections entitle them to an easy life; below it are founders and the people they hire. The founders are the upper-tier Clueless who (just as in a MacLeod organization) don’t want the jobs above them, on the assumption that the Sociopaths “just shake hands and push paper around; we do the real work”. Differential social status, in VC-istan, is access to funding and publicity– something that a generation of idealistic idiots has spent decades of hard work to get, while their peers “sold out” and made actual money that could be used to buy actual houses and vacations.

For all this, I used to think that VC-istan didn’t have MacLeod Losers (with the losses borne by the swollen Clueless tier) but I realized that I wasn’t looking hard enough. Clueless are true believers, while Losers are rationally disengaged people who work hard, but minimize discomfort. (Again, they aren’t actually losers per se. Unlike the Clueless, they know the trade they make.) In VC-istan, MacLeod Losers tend to be consultants and freelancers. They cherry-pick the work that’s interesting to them, can lead quite a nice lifestyle if they’re good, and never work for equity. Since these people can often command $250 per hour or more, it’s hard to call them Losers! What they are is checked out of the Clueless game of VC-istan. They will never get rich– it’s hard to get more than 800 hours of work per year, with a decent rate, as a freelancer– but they will never lose a vacation or a relationship to a get-big-or-die company either. They sell tools and water to the idiots who dig for gold in the 120-degree heat. The MacLeod Losers of VC-istan are the mercenary consultants who manage to get by, contribute some work, but never hitch their fortunes or make undue sacrifices for a specific company.

If VC-istan is a MacLeod organization, then what is its future? MacLeod rank cultures decline, but they do it slowly. That is also what will happen to VC-istan. I couldn’t possibly say whether it will happen over the next 2 years or the next 20, but VC-istan is already in a MacLeod state and, while its decline is likely to be gradual, it’s also inexorable. I’ve started calling many of these companies “ad-banking”; VC-istan is what investment banking was in 1995. That is far from “death”. It does not even mean that it will become impossible to get good people; investment banks are able to get good people even now, but they pay dearly. It only means that good people will become more expensive over time. Only when compensation ceases to grow exponentially (in banking, circa 2009) will the best people start to trickle out and look for something new. VC-istan engineer compensation has quite a few years of 10-20% annual growth before reaching the unsustainable level, so I don’t see its “death” setting in until about 2025. Until then, there’ll be a lot of money to be made by mercenary engineers, so long as they know the market well enough to play it.

What will make VC-istan’s unwinding process interesting is its generation of alternatives. As investment banking grew stodgy, boring, and difficult, banks raised compensation (for genuine talent) into the stratosphere. No one would spend 15 years in New York investment banking for less than $400,000 per year at the end of it. This transfer of wealth generated early retirees and a few hedge funds, but not rival investment banks. People did not take their $6-million nest eggs and launch rivals to Goldman Sachs. VC-istan’s story will be different. As talented engineers wake up to the scam, wages may rise to the same levels that bankers commanded, generating a transfer of wealth toward a set of people not typically associated with richness: hard-working computer programmers. Those among them who have a mind for business will want to participate in investment, and to build something different from VC-istan. Something better. I don’t think anyone knows– yet– what will be built.

So what should be built? At 7.7 kilowords, I can’t hack that now. That’ll be covered in a future essay.