I’ll never forget an article I read during the first Internet boom, in 1998, (the title of which I unabashedly lifted for this post) called “Soft Values Are Hard Work”. The article described a data management company called AES, that went public in 1991 and had a very interesting story to tell. As if to make a fundamental distinction that would somehow attract the altruism of investment, it declared in its IPO prospectus:
“If the Company perceives a conflict between [its] values and profits, the Company will try to adhere to its values – even though doing so might result in diminished profits or foregone opportunities.”
Despite suffering a series of mishaps following the IPO – including a couple of employee deaths – it also had this to say from one of its cofounders:
“Mistakes are inevitable, but that doesn’t mean we abandon our values. We’re going to continue to strive to live by them, even though we’re going to fail sometimes.”
Some descriptors that would come to mind: Thick value (an Umair Haque precept), corporate accountability, mutual respect, human capital, social integrity, and failing forward.
Cut to present day.
You don’t hear these descriptors used a whole lot, and when you do, you have to wonder if the rubber is really meeting the road. Fact is, in a predominantly quick turnover, highly transactional, overly speculative business and market environment, it seems that only the hard values really matter.
But here’s the thing: Integrity is arguably way more profitable than greed.
Let’s use one of the most popular companies in the world as an example — Apple. Apple has more cash on the books than any other company anywhere (north of $110B), which, just for basic context, is more than what the entire U.S. government has on hand. As we all know, Apple has quite an ethos to support itself, and not without its inherent challenges — its manufacturing partnership with Foxconn is just one example, although it has done quite a lot to rectify the situation, and improve its supply chain management overall. The reality is that Apple is one of the most beloved brands, and one of the most beloved places to work, led by an executive team and a CEO who really, truly care about the company and its people. Just in the last 48 hours, it was announced that its maverick operator Tim Cook gave up a $75M dividend income; sure he’s rich beyond anyone’s dreams, but he intended to make a point: His own wealth will never supersede the company’s well-being.
How is it, then, that a company of this stature, a darling of both Wall Street and Silicon Valley, isn’t emulated by more startups and middle-stage players of all types, especially as they position themselves for an exit or an IP0? How is it that in an age whereby social technologies partially force the hand of transparency and authenticity, and whereby social business is suddenly an ideal that is too chic to ignore – in which, mind you, relationships supersede transactions – there aren’t more examples like this?
Perhaps the answer lies in the disconnect between hard and soft values.
It probably comes as no surprise that the Facebook IPO has been a bust. Truth is, Facebook doesn’t know its own market value, and neither does anyone else. When Google went public in 2004, many pundits were skeptical about its advertising product, but of course that would prove itself out in spades. But this wasn’t, and still isn’t, just about earnings potential. Google, by most accounts, is a great place to work. People want to do better work there, and they don’t mind working longer hours to do it. Google has hard and soft values; Facebook does as well, but errs towards a hard market, simply because it doesn’t know itself, what it wants to be, and why it wants to be. (Hello, can someone at Facebook take a cue from Zappos?!)
These same soft values that Facebook lacks are the same values that determine policy formation and legislation to hopefully save the Internet and keep it open, as well as safe.
These same values determine how humans can grow inside of companies, and how markets, respectively, can scale.
These same values will undo scarcity economics (limited supply, limited access and hyperspeculative demand) and enable a newer, stronger, more valued economy.
But the question remains: Does anyone care?
I work with a venture accelerator as a mentor — I really like the people, and I really like what we are doing (we’re trying to reform venture and investment models), but I rarely hear entrepreneurs, or successful investors, talk about company culture as a proxy for success. The “build features not companies” silent mantra pretty much rings true in my experience with institutional investors. I’d dare say that many accelerators and incubators are exacerbating this; while the intention is to somehow improve the venture model, “placement” of features and functions is the mission of the day. Essentially, there is little, if any, stock and trade in human capital mostly because the focus is on cherry-picking the best deals.
A classic example is Instagram (and very similar to this, Pinterest). It’s literally a billion-dollar feature set (one that found a small deficiency in the Facebook Timeline product), and I would hardly call it a company; not because it employs a relatively small number of people, but because it has no distinct corporate identity, no accessible ethos, no higher social or thick value (at least that I can see) and no real backstory, other than a founder who had relationships with the top VCs in the Valley (and I’m pretty sure he is Stanford progeny). That said, I think Instagram contributes to the visual literacy of a creative Internet populace — which is, without a doubt, a great thing — but I can’t see how it could scale in the vein of a Google (or a Facebook for that matter). And when we think about the Internet’s leanings toward horizontal growth and success by shared, co-opetitive means, the attitude amongst most startup entrepreneurs borrows conversely from the Peter Thiel school of business: Monopolization, hegemonic scale, and your well-fashioned variations on scarcity economics.
MVP (“minimum viable product” or in some circles, “most valuable product”) becomes a horse race for pre-money valuation, with a feature or function as the litmus, and the rest being more or less a cavalcade of venture and private equity firms jockeying for position on a deal, and of course, underwriting that tees up M&A or IPO. In other words, real companies, for the most part, never materialize in this scheme.
And guess what? If they don’t materialize, there is no market.
I won’t belabor any of these points with a dive into statistics, but it’s fairly easy to say that the most successful companies not only exhibit strong soft values, but they redistribute wealth into their own companies and into the market, not away from them.
Maybe, just maybe, the collapse of the global banking system will make people realize that we need to get back to good, old-fashioned value creation, whether we’re building a broadband business, or a simple brick-and-mortar. Time will tell, and it will tell us the revealing parts a lot sooner than we think (if it hasn’t already).
What are the soft values you cherish the most?
What would a market of integrity ideally look like to you?
How can we instill these values in the next generation of entrepreneurs?
Your thoughts are more than welcome…
Related post: “The Future of Money: On Markets and Marketing”