Scaling the Pitfalls of Silicon Valley

Question: Why has Silicon Valley drifted so far from the fundamental tenets of business?

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Jason Fried: I don’t know how it happens, but I think fundamentally, it’s all about venture capital. The more money that’s available and the more the culture is about going out and raising money, and the more it just happens and it just feeds on itself. If the venture capitalists weren’t there, there would be a lot of empty companies that wouldn’t be there. And that probably would be better. Not in every case, but in most cases. I think it’s better when you are forced as an entrepreneur to bootstrap. And here’s the fundamental reason why. You have two companies, one that’s bootstrapped, one that is self-funded, and one that’s got venture capital money in the bank. The primary difference is this, on day one, a bootstrap company has to make money. On day one, a funded company has to spend money. They have money in the bank to spend. That’s their first task is to spend. To hire, to get a great beautiful office, to do all that stuff. That’s what they have to do, they have to spend money.

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Unlike a bootstrap company that doesn’t have money to spend, they have to make money first. And I think that’s the right instinct for an entrepreneur to start out with is the idea that, “I’ve got to make money.” That’s the right thing. And I think what happens is, especially in Silicon Valley where there’s a lot of spare money around, people are handing it out essentially, that you don’t have the instinct. The instinct isn’t built to make money; the instinct is built to spend money. And then that kind of just perpetuates itself, and people don’t have to make money because other people are paying for things. Until the money runs out and then you’re kind of screwed and then it’s too late because you don’t have the skills to make money. So, that I think is the problem with Silicon Valley.

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Question: What distinguishes well-funded start-ups from “bootstrapped companies?

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Jason Fried: Well, I think the thing is, is that not having money, or having to make your own forces you to make really smart decisions and good decisions and makes you think about stuff. For example, if you win the lottery, you’re probably not going to make good decisions about how to spend your money. You’ve got a lot of it, so yeah, I’ll buy a house, I’ll buy a boat, I’ll buy this stuff. You’re not actually making decisions, you’re just spending money. But when you have very limited resources, you’re forced into making decisions that make sense. Does it make sense for us to spend this money on marketing? We have it, should we just blow it. Or, are we not going to get a return on it. And you start to think about these things and you start to find yourself wondering, does it make sense to hire 20 people, or should we hire two. We can afford to hire two, so let’s hire two really good people, that’s all we can do. And when you’re forced into those constraints, you just make better decisions.

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I always look at, this is probably a weird analogy, but I tend to look at prisoners in jail, how they make these weapons where they’ll take like a pen and a piece of tape and a comb and they make, they can like break out of prison with that. But if someone had all the money in the world to break out of prison and they would buy a jackhammer and they would buy chisels and stuff, they’d make too much noise, they’d attract too much attention and it wouldn’t work. They’d have all the resources, but they’d spend them and wouldn’t spend them wisely. But the person who has no resources has to make something that’s very, very simple and that is just as effective. And that’s sort of the mentality I think that you see in bootstrap companies. We don’t have the resources, we’ve got to make something that makes sense and we only have one shot at it. So, we’re going to do a good job. And just do exactly what we need and not all the things that we could do.

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Question: What mistakes might you have made had you been better funded?

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Jason Fried: Yeah. I think we would have probably hired a lot of people if we had a lot of money. That’s just something you tended to do in the late ‘90’s. I heard of so many companies say, we’re going to staff up. And it’s the stupidest, fucking thing to say. Staff up? We’re going to staff – well how about we’re going to hire somebody that we need? What’s this idea of staffing up?

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There was this thing going on in the ‘90’s. I remember people saying we’re going to staff up to 100. Where people are saying, “Our company is this big,” when they’re talking about “this big” they’re talking about employees. And it is very easy to get carried away with that. And thinking that you’re inferior unless you have a lot of employees. So, I think that’s something we probably would have done. We probably wouldn’t have put money into marketing that would have been a waste of money, we probably wouldn’t have put a ton of money into PR; it would have been a waste of money. And it wouldn’t have forced us to be creative about how to get the word out, which is something that we’ve learned how to do over the past ten years without having to spend money.

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So, maybe done some things, but I think the real thing is we would have missed learning the important lessons. That’s what I think we would have suffered most over.

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Question: Can any company grow in the way 37signals has?

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Jason Fried: Yeah, well my feeling is like, stuff that I like to talk about is really about my business, my industry. So, my ideas don’t necessarily make sense for a restaurant, or for bowling, for example. But their ideas don’t make sense for me either. So, they shouldn’t be giving me advice and I shouldn’t be giving them advice.

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What I think though, in the software business, which is the business we’re in, or a service business, which a business a lot of people are in outside of the technology world where you don’t have to have a factory, you don’t have to have raw materials, you don’t have to have machinery, you don’t have all these upfront costs which would typically require you to raise capital. You don’t have those costs, they you shouldn’t get the money that you might need to spend to buy those things. In the software business, you need a computer and an internet connection. It’s like, a couple of grand to get started.

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But if I’m building a factory and I’m making widgets, I might need to raise hundreds of thousands, or a few million bucks to make that big capital expenditure. So, I think if you don’t have the raw capital expenditure requirements, then you should not be raising money up front.

The tech-capital of the US is gushing with venture capital money. The problem? Many start-ups develop too strong a penchant for "free" and never actually become businesses. Jason Fried explains why not having money is the best way to create profit.

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Image source: Christian Zimmerman/USGS/Big Think
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The Barry Glacier gives its name to Alaska's Barry Arm Fjord, and a new open letter forecasts trouble ahead.

Thanks to global warming, the glacier has been retreating, so far removing two-thirds of its support for a steep mile-long slope, or scarp, containing perhaps 500 million cubic meters of material. (Think the Hoover Dam times several hundred.) The slope has been moving slowly since 1957, but scientists say it's become an avalanche waiting to happen, maybe within the next year, and likely within 20. When it does come crashing down into the fjord, it could set in motion a frightening tsunami overwhelming the fjord's normally peaceful waters .

"It could happen anytime, but the risk just goes way up as this glacier recedes," says hydrologist Anna Liljedahl of Woods Hole, one of the signatories to the letter.

The Barry Arm Fjord

Camping on the fjord's Black Sand Beach

Image source: Matt Zimmerman

The Barry Arm Fjord is a stretch of water between the Harriman Fjord and the Port Wills Fjord, located at the northwest corner of the well-known Prince William Sound. It's a beautiful area, home to a few hundred people supporting the local fishing industry, and it's also a popular destination for tourists — its Black Sand Beach is one of Alaska's most scenic — and cruise ships.

Not Alaska’s first watery rodeo, but likely the biggest

Image source: whrc.org

There have been at least two similar events in the state's recent history, though not on such a massive scale. On July 9, 1958, an earthquake nearby caused 40 million cubic yards of rock to suddenly slide 2,000 feet down into Lituya Bay, producing a tsunami whose peak waves reportedly reached 1,720 feet in height. By the time the wall of water reached the mouth of the bay, it was still 75 feet high. At Taan Fjord in 2015, a landslide caused a tsunami that crested at 600 feet. Both of these events thankfully occurred in sparsely populated areas, so few fatalities occurred.

The Barry Arm event will be larger than either of these by far.

"This is an enormous slope — the mass that could fail weighs over a billion tonnes," said geologist Dave Petley, speaking to Earther. "The internal structure of that rock mass, which will determine whether it collapses, is very complex. At the moment we don't know enough about it to be able to forecast its future behavior."

Outside of Alaska, on the west coast of Greenland, a landslide-produced tsunami towered 300 feet high, obliterating a fishing village in its path.

What the letter predicts for Barry Arm Fjord

Moving slowly at first...

Image source: whrc.org

"The effects would be especially severe near where the landslide enters the water at the head of Barry Arm. Additionally, areas of shallow water, or low-lying land near the shore, would be in danger even further from the source. A minor failure may not produce significant impacts beyond the inner parts of the fiord, while a complete failure could be destructive throughout Barry Arm, Harriman Fiord, and parts of Port Wells. Our initial results show complex impacts further from the landslide than Barry Arm, with over 30 foot waves in some distant bays, including Whittier."

The discovery of the impeding landslide began with an observation by the sister of geologist Hig Higman of Ground Truth, an organization in Seldovia, Alaska. Artist Valisa Higman was vacationing in the area and sent her brother some photos of worrying fractures she noticed in the slope, taken while she was on a boat cruising the fjord.

Higman confirmed his sister's hunch via available satellite imagery and, digging deeper, found that between 2009 and 2015 the slope had moved 600 feet downhill, leaving a prominent scar.

Ohio State's Chunli Dai unearthed a connection between the movement and the receding of the Barry Glacier. Comparison of the Barry Arm slope with other similar areas, combined with computer modeling of the possible resulting tsunamis, led to the publication of the group's letter.

While the full group of signatories from 14 organizations and institutions has only been working on the situation for a month, the implications were immediately clear. The signers include experts from Ohio State University, the University of Southern California, and the Anchorage and Fairbanks campuses of the University of Alaska.

Once informed of the open letter's contents, the Alaska's Department of Natural Resources immediately released a warning that "an increasingly likely landslide could generate a wave with devastating effects on fishermen and recreationalists."

How do you prepare for something like this?

Image source: whrc.org

The obvious question is what can be done to prepare for the landslide and tsunami? For one thing, there's more to understand about the upcoming event, and the researchers lay out their plan in the letter:

"To inform and refine hazard mitigation efforts, we would like to pursue several lines of investigation: Detect changes in the slope that might forewarn of a landslide, better understand what could trigger a landslide, and refine tsunami model projections. By mapping the landslide and nearby terrain, both above and below sea level, we can more accurately determine the basic physical dimensions of the landslide. This can be paired with GPS and seismic measurements made over time to see how the slope responds to changes in the glacier and to events like rainstorms and earthquakes. Field and satellite data can support near-real time hazard monitoring, while computer models of landslide and tsunami scenarios can help identify specific places that are most at risk."

In the letter, the authors reached out to those living in and visiting the area, asking, "What specific questions are most important to you?" and "What could be done to reduce the danger to people who want to visit or work in Barry Arm?" They also invited locals to let them know about any changes, including even small rock-falls and landslides.

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