Making Silicon Valley Learn From the Past
WHY YOU SHOULD CARE
Because ideas alone don’t build new companies — or societies.
By Tom Krazit
It’s 10 a.m. on a Saturday in the Bay Area: Workaholic entrepreneurs sleep off all-night coding sessions, organize engineering “sprints” to build out their apps’ next big feature or maybe just take a rare break and have brunch with mimosas. But here in Palo Alto, a group of young tech managers have instead gathered in an old auto body shop to study an 1856 letter to the stockholders of the New York and Erie Railroad. It’s an assignment from eclectic investor Michael Dearing, who runs a three-session, $1,500 class to help such unseasoned young leaders learn business lessons from the past to build lasting tech companies of the future.
You might not think a 19th-century railway manager has much to teach the creators of Tomorrowland. But here’s what Dearing sees: The author of that letter, Daniel McCallum, struggled to keep the literal trains moving on time across vast expanses of track that no single manager could effectively oversee — and in the process laid out one of the first systems for managing people and processes in a complex environment. (McCallum later ran railroad logistics for the Union Army during the Civil War, a key factor in its defeat of the Confederacy.) It’s a new notion for many of the 14 engineers, marketers and designers here, most of whom have been thrust into management roles at young ages.
And it’s a new, or newish, idea for Silicon Valley itself, which has long tolerated young geniuses with big ideas but little experience actually running startups — at least until their ventures collapse or “professional” managers move in to take over. Dearing, a 47-year-old Stanford professor turned venture investor, wants these young managers to absorb business lessons learned the hard way over 150 years of industrialization and economic expansion. “You all know founders who were failed by bad general management,” Dearing tells the class, many of whom exchange knowing glances.
Some venture firms mentor startups, relying on lessons from the successful firms they once invested in. But Dearing’s approach is different, focused less on traditional startup pep talks about “passion” and “sweat equity” than on building a broader understanding of the business world that forces would-be managers out of the tech bubble and makes them think hard about what makes companies tick.
Dearing himself is no tech wunderkind but a onetime Bain consultant who did several stints in retail and one at Disney before spending six years at eBay in its heyday. He wears a thick, salt-and-pepper beard, and his swept-back hair falls in graying curls to his shoulders, as if he’s channeling an early 1990s Jerry Garcia whose most visible vice is Diet Coke instead of heroin. In the class I observed, Dearing was a natural teacher who moved easily between slides and old-fashioned chalkboards, drawing answers out of the group with well-timed questions, sometimes letting the discussion run and other times poking it with a stick. F-bombs abounded.
“He’s like a combination of Bernie Sanders and Ayn Rand,” said Sam Gerstenzang, a former Dearing student who works on product and strategy for Sidewalk Labs. By which, he says, he means both Dearing’s compassion for his fellow humans and his passion for capitalism. It’s an unusual combination, but one that helps explain why the investor and startup adviser is more interested in education than investing these days. Roughly 500 people have passed through Dearing’s classes over the past two years; there are no admission criteria, but there is a waiting list. Finishing one of his “foundations” courses — like this general management course — qualifies you to take more advanced courses for free. Dearing donates the proceeds, minus compensation for guest speakers, to the Humane Society. (“The investing business pays the bills,” he says.)
Startups, of course, succeed or fail for lots of different reasons (and most do fail — as many as 90 percent by some measures). Dearing is addressing only one of those factors and possibly not the most important one. In a TED talk earlier this year, famed investor Bill Gross ran through several of those elements, including the quality of startup ideas, the makeup of their team, business plans and funding. The most important, in his view? Timing. Getting to market at the Goldilocks moment, neither too early nor too late, accounted for nearly half of the difference between liftoff and a smoking crater, Gross said.
That doesn’t deter Dearing one bit. He doesn’t address the Gross argument directly but notes that solid management — what the Valley often simplistically calls “execution” — can “extend the runway” for early-stage companies. In other words, startups can stay afloat longer with good ideas and a solid understanding of finance, marketing and organizational management than on good ideas alone. Dearing eventually plans to hire additional instructors and exploit online learning systems to meet what he sees as a crying need for such basic business knowledge.
And he’s got even larger goals in mind. The returns from startup investing flow to the institutions that invest in venture-capital funds — universities (through endowments), pension funds and other major investors. The process of creative destruction and the magic of capitalism did more to lift humanity out of stagnation than anything, Dearing says, and he wants this generation to understand how to manage this creative destruction efficiently and humanely. “This is about what we do as a species with our weakest and our oldest,” he tells the class near the end of the session. “Your money helps fund these things, and it’s your turn to drive the train.”
- Tom Krazit, OZY Author Contact Tom Krazit