Venkatesh Rao - Entrepreneurs Are The New Labor: Part II lyrics

When you examine the 19th century pattern of transformation of an entrepreneurial cla** into a labor cla**, which we covered in Part I, the conclusion is obvious: a labor cla** emerges when privileged knowledge is commoditized and institutionalized in ways that make it basically useless as negotiation leverage with the investor cla**, leaving supply aggregation as the only path left for the extracted and intellectually bankrupted cla**. The extracted knowledge is placed under the stewardship of a new mercenary cla** that eventually turns into a domesticated new middle cla** (this pattern is not just restricted to the 19th century; variants have played out at least a few times before in world history). This is an intrinsic definition of labor rather than an extrinsic one based on historical specifics. What are the cla**ic symptoms that such a transition is happening? The emergence of a new, specialized knowledge worker cla** with mercenary tendencies, from an older cla**. This eventually becomes the new professional cla**. Increasing solidarity in the residual generalist cla** in its relationships with the financial cla**. This eventually becomes the new organized labor cla**. Both developments have occurred in the current technology startup environments, and the differing fates of hackers and hustlers are illuminating here: hackers are turning mercenary, hustlers are turning into the new labor. Let's see how. The New Engineers Hackers are doing to traditional engineering what engineers themselves did to the artisan cla** a century ago. Except this time around, the residual labor cla** they leave behind is not people, but computers that replace traditional engineers. Where engineering in the 1880s organized itself around lines suggested by the physical sciences, the new technologists are organizing in new ways, along lines suggested by the cognitive, aesthetic and social sciences and arts: computer science, psychology, social psychology, user-experience and design. We won't get into these new organizational models, other than to remark that they are going to look superficially similar to the ASME or IEEE, but will be drastically different internally. That is a subject for another day. As software eats the world, every sort of engineering (and indeed, every sort of profession organized along lines suggested by the physical sciences, including fields like medicine) is becoming effectively a branch of computer science. To take my nominal, mostly abandoned profession of mechanical engineering, much of the intelligence is now in CAD tools. Mechanical engineering is no longer about mechanical engineering knowledge per se, but about capturing a century of codified knowledge in software systems (to my fellow mechanical engineers who still practice: when was the last time you computed equations of motions by hand?) If you are in a traditional engineering discipline and are not programming computers to do what you were taught to do, your days are numbered. I recall my computer science peers from college creating a t-shirt for themselves with the slogan, “I'd rather write programs to write programs than write programs.” That ethos of going meta now affects every technical discipline. It now makes more sense for the mechanically talented to write programs to do mechanical engineering than do mechanical engineering. The residual traditional engineering types who eschew computers will increasingly find themselves in the position of 19th century artisans who failed to reinvent themselves as engineers: the knowledge they need will move into the new tools, and they will become the new blue collar cla**. Actually, it is going to get worse. They may not be needed at all. At that level, computers are the new labor. Both designers and hackers are far more likely and able to hedge their options and cultivate horizontal relationships with others who can help them develop and preserve their sk**s within emerging professional organizations, rather than vertical sk**s in the market that can help them contribute to the success of a single enterprise. The very best gravitate to tool-making, open-source projects and other positions of horizontal influence When startups are founded by strongly technical types, they are often explicitly designed as vehicles for acqui-hiring: startups that consciously develop products and services that make for exceptional acquisition properties for larger companies. Such companies are often accused of building features rather than products, but that is the whole point. The founders are looking for fast-track short-cuts to good jobs, and some mercenary freedoms, not a life of adventure. Incidentally, there is no more contentious topic in the startup world today than acqui-hiring, and much of the noise is caused by semantic confusion. If you are attached to the label “entrepreneur” and the increasingly inappropriate archetypes a**ociated with it, you will hate the idea of acqui-hiring. If you see it as a reasonable emerging model of hiring replacing a broken one, you will like it. Acqui-hiring is only a problem if you are attached to specific labels. For this pattern to emerge, the Robber Baron era of our current technology cycle has to have matured and plateaued, and big companies must be in the market for incremental innovations that enhance their main offerings. If you were surprised by the $1 billion Instagram acquisition under conditions that appear close to market blackmail, you shouldn't be; Rockefeller made many such overpriced acquisitions on his way to world dominance in oil, and a veritable cottage industry emerged to take advantage of his world-conquering impatience: people would set up obviously worthless refineries just to get bought up by Rockefeller. And he would make many of them managers. Acqui-hiring is not a new phenomenon. If anything, Zuckerberg is to be commended for thinking at Rockefeller levels — not getting s**ed into minor battles in small skirmishes along the way to much bigger things. He is thinking about the game at the right level. It was probably worth $1 billion to avoid a potentially costly and distracting marketplace battle over a key future battleground (control over the smartphone camera, the first sensor in the emerging Internet of Things). When you are Facebook, trying to convince the world that you are the gateway to a $100B market (not very well at the moment) you have to pick your battles. In this environment, a world apart from the early frontier days of the Internet, hackers today universally exhibit a certain mercenary sensibility, cannily juggling multiple offers, playing judge in hustler beauty contests at hackathons, planning acqui-hire trajectories, and in general maximizing their value as the stewards of the new body of technical knowledge. And often hanging their hustler buddies out to dry. The Fall of the Hustler Hustlers on the other hand, increasingly behave like a new labor cla**. In fact, my first suspicions that this transformation was underway were sparked by a sudden shift in perception of hustlers. Not to put too fine a point on it, true hustlers are generally despised by those who work closely with them. In our time, overnight, they turned into media darlings. They began to be lauded as heroes, saviors of the economy, creative geniuses, even models of patriotic virtue. Even Obama and Romney agree that Entrepreneurs Are Great. That sort of valorization is characteristic of labor movement rhetoric. True hustlers, as they steamroller over markets, rapidly acquire reputations of being arrogant, autocratic, sociopathic and generally lacking in the kindness department. People work with hustlers because they are forced to, with or without being consciously aware of it (hence the “hustle” in hustler) not because they want to. Our age has been no exception. Bezos, Gates and the late Jobs have generally been viewed much like Rockefeller, Carnegie and Vanderbilt were a century before them. The mellowing of their images in later years is generally due to careful PR and charitable works (or in the case of Jobs, a certain romanticization due to untimely d**h). Nobody praises true hustlers as heroes or talks about them as a large, ma**ed cla** of interchangeble Jolly Good Fellows. Or puts them up on a pedestal comparable to that reserved for soldiers. Rather, they are regarded as rapacious predators. Even by bankers. They represent extreme self-interest, so if the fact that they currently share a pedestal with soldiers, who represent extreme self-sacrifice, doesn't strike you as unusual, you aren't reading the situation closely enough. Yet, that is exactly what has been happening to hustlers in the last decade. You have to choose between two readings of the sudden shift: either entrepreneurs have been such praiseworthy souls all along, and we've only just recognized their value, or the new entrepreneurs aren't entrepreneurs at all, but wantapreneur-laborers being humored by a victorious investor cla**. Again, this is not new; post-Robber Baron era young people were fed similar self-perceptions via the Horatio Alger stories; it is notable that Alger had his breakthrough hit in 1868, by which time the major Robber Barons were already well into their later careers. Rather than create more entrepreneurs, the Horatio Alger stories mostly helped fuel the emergence of new labor and middle cla**es. The saccharine rhetoric around entrepreneurship today hides an extraordinarily rapid behind-the-scenes actual devaluation of the hustler cla** in real terms. As the cost of starting new startups has crashed, so has the cost of hiring “CEOs” to run them. Silicon Valley even has cartoons doing the rounds, of homeless CEOs holding up signs begging for CTOs to join them. In fact, the standard now is a sort of ennobling poverty marked by the rent-and-ramen formula that members of the cla** typically accept as a sort of badge of honor (if you took everybody with the CEO title at face value, trust me, you'd feel so sorry for the median homeless CEO that you'd argue for higher wages). About the only thing distinguishing them from waiters in Hollywood is the stock they own, which have approximately the same chance of being worth anything as a Hollywood waiter has of landing a breakthrough role in an audition. Let me hasten to add that this situation is a perfectly natural one. The hustlers of today really don't deserve the outsize compensation packages of hustlers from 10 years ago, because they typically bring no unique and indispensable knowledge of murky markets or technologies with them. They just bring resourcefulness, youthful pa**ion and energy. Some of the signs are well known and widely acknowledged (I've never had anyone seriously object to these points). The resemblance between the idea of “standardized term sheets” for early stage venture investments, which emerged a few years ago, and labor union contracts, is unmistakable. There are striking similarities between organizations like Adeo Rossi's TheFunded, and early labor unions at the turn of the last century. The transformation of fund-raising activities from genuine negotiations between evenly matched parties to “pitch cultures” that hew to ritual “know your place” expectations on the part of investors (one can hardly imagine a Carnegie or Rockefeller anxiously fretting over what bankers might want to hear at a pitch meeting or anxiously studying how-to books on pitching and business plans; they'd have just walked into the room, hours late, with blackmailer swagger). The change in perception of the investor cla** from a peer-adversary cla** to a Dark Side or Godfather cla**. The sharply declining age of wannabe entrepreneurs. Instead of putting in a decade or more to learn a market, accumulate a significant bootstrapping warchest and a good hand of unfair advantages to play with, we now find fresh college graduates jumping straight into the entrepreneurship path. These overt, punch-in-the-face signs of the ongoing transformation are not surprising to anyone even remotely involved in technology. Let us explore some key elements of the emerging new state of play that are perhaps not obvious to the mainstream world. From Tacit Hustler Knowledge to Student Labor Education If Carnegie's executive boasted that he could turn a farm-hand into a melter in just six to eight weeks, today's hustler-educators sometimes claim to achieve a similar transformation in a weekend. There are a range of offerings from “startup weekends”, to week-long courses, to the prototypical Y-combinator style summer program to “entrepreneur MBA” offerings. The fascinating thing is that these boasts are not idle. These programs are generally not vending snake oil. The knowledge on sale is mostly the real deal. The Truth. So why is there a problem? It's just not The Whole Truth. Entrepreneurship is three things: a set of business sk**s, a set of political sk**s, and a stash of hoarded unfair advantages, held in reserve for the right opportunity. When the latter two vanish, it becomes merely a teachable generalist sk**, rather than a cultivated talent for successful risk-taking. You can codify the first, but only time and experience allow you to develop the other two elements. Almost by definition, you cannot codify political sk**s (politics is the art of hacking the codified), and unfair advantages obviously cannot be codified, merely hoarded. The first (and least important) element, entrepreneurial business sk**, has been codified, and is being sold as the whole package. This phase of unionization is much like the rise of universities and student unions after the maturation of labor unions (it is significant that many of the major Robber Barons — Vanderbilt, Carnegie and Rockefeller among them — established major universities. The Morrill Land Grants simultaneously created the Public University system, and universal high school education was in place by around 1910). An element of the accelerated technological cycle this time around is how quickly the connection to education has appeared. The last time around, it took something like 30 years. This time it has taken less than 10. Organizations like Y-Combinator look less and less like startup incubators and more and more like novel alternative universities, offering the hustler cla** a sort of professional hustler training similar to marketing or sales training in companies like Vicks in the 1920s and 1930s (beautifully chronicled by William Whyte in The Organization Man). The Politics of Codification Codification of tacit knowledge does not codify political sk**, but is never an apolitical act. All codification is political. Knowledge is captured and codified in ways that benefit a specific cla**. In the case of previously tacit entrepreneurial knowledge, the codification has been carried out to benefit investors. The biggest piece of such codified knowledge is the well -known Lean Startup model. While it functions roughly as advertised in a narrow sense, its real political significance is in the control structure it subtly encourages, which increases transparency to investors (and sundry outsiders). For example, by encouraging explicit, written market hypotheses and undisguised (and sometimes even publicly articulated and defended) business model shifts known as “pivots,” it allows investors far greater visibility into operational realities, and therefore, better back-seat steering control via board seats. It takes a sophisticated entrepreneur to use the model for its strengths, and still create a realistic balance of power with investors. Natural true-entrepreneur instincts towards guile and marketplace deception to outmaneuver the competition, and guarded relationships with investors, are suppressed in favor of allowing investors to easily scale their control authority across many cheap startups. Again, this is neither good nor bad. It is merely reflective of the new distribution of privileged information. With the rise of a vibrant new technology blogosphere, paralleling the rise of the newspapers in 1900-1910, it is far harder for hustlers to hide unfair advantages against prying investor eyes. When Y-Combinator recently announced that it would accept applications without ideas, the evolution hit its natural plateau. To anyone operating by the education an*logy, the move made complete sense: it was a “you don't have to declare a major immediately” moment in institutional evolution. So nobody was particularly shocked when, immediately following the announcement, it became clear that MBA types were starting to eye Y-Combinator as a credentialing organization, to augment the fading luster of MBA degrees (in resume-speak, entrepreneurial is the new strategic). Some entrepreneurship watchers feigned shock and distress, but for the most part the development was not unexpected. It wasn't that MBA programs were inching closer to startup turf. It was the other around. Decline in Investor-Entrepreneur Conflict A second key element in the evolving landscape is the sharp decline in conflict between the investor cla** and the entrepreneur cla**. Earlier in a large-scale entrepreneurial cycle, the debate between bootstrapping models and investor-funded models tends to be fierce and real. Rockefeller for instance, never trusted Wall Street money and mostly used internal and debt financing to grow Standard Oil, until he became powerful enough to exercise his own control over Wall Street. Vanderbilt was similar. Even a few years ago, you could find people espousing fierce sentiments and deep reservations about OPM (other people's money). Much of that depth of sentiment appears to have vanished. Today, bootstrapping vs. venture-funding has been subtly reframed as a lifestyle-business vs. growth-business debate. For those new to the subtleties of these debates, growth is an independent axis. Bootstrapping can create large businesses, and with the right kind of investor expectations (read: deliberately decoupled from Wall Street and its Wild West outposts), investor-funded businesses can remain small and lifestyle-sized too. In accepting venture funding as the de facto model for growth and scaling, entrepreneurs as a cla** have mostly handed control over how to create and manage growth to investors, much as most sectors gave in to J. P. Morgan's crew a century ago. There are fewer and fewer figures like the Sean-Parker-coached Zuckerberg, who turn the entrepreneur-investor game into a real contest. At least in the early stages, investors entirely run the game. Hustles like the recent Color.com debacle, where entrepreneurs (seemingly) manage to pull a fast one on investors, become increasingly rare. Today, Color.com type stories are the exception. Ten years ago, they were the rule. The Curious Fate of Serial Entrepreneurs The third key element is perhaps the most curious. This is the fall of serial entrepreneurs, which most people see as the rise of the angel investors. But the fall aspect is actually more interesting (I am tempted to make a “fallen angel” joke here, but can't think of one). Until a few years ago, whether you succeeded or failed, serial entrepreneurship was the main pattern (the other one being the founder-to-VC Dark Side switcheroo). It made perfect sense for restless and exploratory true entrepreneurs craving excitement rather than returns, and also made sense because all the education required was acquired through apprenticeship rather than codified models. You needed multiple experiences before you could learn the business and political sk**s and accumulate enough of an unfair advantage. There was enough to be learned even through failure that a track record of multiple startups was a good sign. Not only could you trust a hustler with a few flameouts to understand the emerging contours of the post-Internet industrial landscape, you could trust him (and it is still mostly him) to have developed a set of good relationships for hiring and business development. I have no numbers, but my sense is that true serial entrepreneurship is on the decline in relative terms. Professional investors today find it easier to groom fresh (and cheap) young hustlers by the dozen than to work with battle-scarred veterans of either the startup or corporate scenes. Startup veterans, for the most part, move on to second careers as angel investors, from which new position they now compete with venture capitalists, often trying to engineer early-exit scenarios at lower multiples, and effectively allying themselves with the big acqui-hiring companies against the traditional VC cla**. You could say the smaller angel investors in particular, are effectively the new outsourced middle managers for big companies in the acqui-hiring market. In a curious parallel development, effective middle managers within large corporations increasingly act like angel investors internally. This is a major new pattern, and has been much talked-about, but what is not talked about is the pattern being replaced. Every new angel investor gained is one pure serial entrepreneur lost. People who stay purely on the other side of the table from the money side over multiple projects are becoming rare. These means there are fewer pure entrepreneurs around with experience. It is difficult to find an an*logy for this development in the 1910s, since that era was marked by high-capital-needs opportunities (which were still, however, much lower than the capital needed for businesses like steel or railroards). History repeats itself, but never quite exactly. Once they've broken out of the entry level of the game, where they are part of the student-labor hustler cla**, true hustlers who find themselves locked out of bigger hustling opportunities, increasingly tend towards mercenary hedging like their hacker cousins, via multiple small, low-stakes “studio” projects, while they wait for the next opportunity to engineer a bigger move. The interesting game has now shifted one level up, to the relationship between VC firms and their Limited Partners. This is similar to the J. P. Morgan endgame of the last entrepreneurial era. The difference is that there was no formal VC cla** back then: merely investment-minded second-tier deal-makers who did their wheeling and dealing in the interstices of the stock market, Robber Baron and small-entrepreneur worlds. And of course, there is nobody with J. P. Morgan level clout and stature today; the economy has grown too big and complex for one individual to conduct the orchestra. But those minor differences aside, it is substantially the same endgame. And as in that case, there are clear signs that the Big Brothers might win out and arrange some sort of wide-ranging regulated equilibrium with the aid of the government. In this case, the Big Brothers are the Limited Partners, whose new strategic position (which has been evolving for some time) has now been openly declared in the recent, and much discussed, Kauffman Foundation report indicting the VC industry for poor returns over the last decade, and suggesting reform on the LP side of the fence to counteract it. Suffice it to say that the big guns are about to do to VCs what VCs have done to entrepreneurs. I suspect it might involve an alliance between big Internet-era companies like Google and Facebook, and the Limited Partner world, designed to rationalize and institutionalize a de facto world of acqui-hiring-on-top. Other Signs I don't have time to go into other signs that clearly fit into the “entrepreneurs are the new labor” model. But they include: The strange rise of “social” (as in do-gooder social-mission, not social media) startups and the demonization of the far more natural wealth-now-philanthropy-later model practiced by the Robber Barons and more recently, Bill Gates. This closely parallels the rise of what William Whyte called the “social ethic” in the new Organization Man world that emerged after World War II, where a script based on communitarian ideals of “belongingness” and rejection of no-holds-barred wealth-seeking marked the maturation of the middle cla**. The extremely clever redefinition of the word “pa**ion” to mean a sort of uncritical, unreflective, high-energy drive focused on a creative rather than canny self-image. The result is a sort of go-all-in/go-all-out expending of all resources and advantages in a single opportunity, within which debate and dissent are easily labeled second-guessing and lack of drive. This sort of unhedged and single-minded devotion serves investors rather better than it does entrepreneurs. The replacement of a lifelong narrative with an episodic startup-to-exit narrative that encourages entrepreneurs to not develop and cultivate a**ets that might have different kinds of value in future. The slow shift towards entrepreneurship directed at “first world problems” and a new “experience consumerism” and slackening of interest in harder infrastructure innovation. This is similar to the huge boom in “product consumerism” that started around 1890 and lasted through the 1970s. There is much hand-wringing about entrepreneurs not solving “real” problems that suddenly seems besides the point if you view what they are doing as serving an emerging post-(product) consumer middle cla** devoted to experience-consumption. That this cla** is currently fairly small and economically insecure relative to the vanishing old middle cla** does not mean that is non-existent. Instagramming, food-truck finding and location-aware dating are the photography (Kodak: 1889), washing machines (1930s) and toasters (1920s) of our age: building blocks of a new normal for a self-absorbed new middle cla**. The rapid rise of “lifstyle design” as a quasi-entrepreneurial pattern of behavior on the part of those with modest ambitions (achieved via either bootstrapping or kickstarter-scale investments). This is best understood as a reaction by those who are inhabiting temporary mercenary roles in the economy, while attempting to recreate middle-cla** standards of living at lower costs (it is this cla** incidentally, that is the long-term target of the experience consumerism entrepreneurial sector: far from being at odds with each other, lifestyle designers are basically turning into customers of the domesticated labor-entrepreneur cla**, and forming the new middle cla**). There are many interesting details here, and many fascinating subplots. But I'll stop here. In the concluding part of this series, I will take a shot at reading this apparently depressing situation in a more positive light, and look ahead at how the game might evolve.