In the past couple of weeks, it’s become clearer than ever that the myth of extreme competence is just that – a myth. The collapse of FTX, the mass layoffs, the rapid unravelling of Twitter – all have put a huge dent in the notion that tech companies are led by anyone other than mere mortals. — Image by Freepik
Tech is full of smart people who build, run and invest in successful companies that have produced a tremendous amount of innovation. But the industry’s recent spate of failures and reversals has made one thing clear: Many of its leaders aren’t as smart as they thought they were.
Just this month, a pair of the world’s mightiest tech names, Amazon.com and Facebook parent Meta Platforms, announced broad layoffs after years of breakneck hiring. Another giant, Google parent Alphabet came under pressure from an activist investor to slash its costs.
Some of the biggest names in venture investing, including Sequoia Capital and SoftBank Group, were left trying to figure out what went wrong after FTX, the US$32 billion golden child of the crypto boom, imploded.
And Elon Musk, who perhaps more than anyone embodies the idea of the polymath tech genius, has made a mess of Twitter after paying US$44 billion to buy it.
Silicon Valley has long seemed to operate on a foundational myth that its leading lights, having mastered an alchemy of electronics, code and early stage investing, are not just a breed apart, but could also defy the gravitational laws of business and investment that apply to mere mortals.
According to their articles of faith, their special powers of disruption could transform any industry, while generating outsize returns making them worthy of magazine covers and tremendous wealth.
It’s the myth of extreme competence. Key to the power of this myth was that it wasn’t only techies who believed. Investors, both professionals and everyday Joes and Janes, bid up tech stocks to stratospheric valuations. Leaders in other sectors often took their cues from Silicon Valley’s honchos.
Paradoxically, the same belief has also fuelled a growing movement to regulate these companies, for fear that it could be the only way to check their power over markets, prices, and even our politics, beliefs and mental health.
A prime example is the company formerly known as Facebook.
The idea of a hyper-competent Mark Zuckerberg led investors to value Meta at more than US$1 trillion as recently as September 2021. At the same time, this myth convinced regulators all over the world that Facebook might be a worthy target of antitrust litigation – until it became clear the company’s products might be displaced by competitors like TikTok.
Gods, after all, can be both powerful and vengeful – and must be worshipped or fought accordingly.
In the past couple of weeks, however, it’s become clearer than ever that the myth of extreme competence is just that – a myth. The collapse of FTX, the mass layoffs, the rapid unravelling of Twitter – all have put a huge dent in the notion that tech companies are led by anyone other than mere mortals.
To be clear, Amazon and Meta are enormous companies that have created a huge amount of value – and in some cases, a lot of harm. Twitter, while not as big, has long had influence disproportionate to the size of its user base. FTX is in a different situation. It has collapsed and is under investigation for potential wrongdoing.
In each of these events, what seem to be elementary errors of judgment have been laid bare.
For big tech companies like Meta, there was the delusion, which Zuckerberg acknowledged when announcing layoffs of more than 11,000 employees, that the world would change little once pandemic lockdowns lifted.
“Unfortunately, this did not play out the way I expected,” he wrote in an open letter announcing the layoffs. “Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected.”
In the case of FTX, veteran investment firms collectively dumped nearly US$2 billion into a startup with no real oversight led by a 30-year-old founder, Sam Bankman-Fried, who conducted business meetings while playing videogames.
FTX’s new CEO, a 40-year veteran of restructurings who took the helm after the company’s filing for bankruptcy protection, has said FTX suffered a “complete failure of corporate controls” the likes of which he has never seen.
FTX both welcomed and attempted to leverage scepticism of crypto and regulation of it.
Part of the charm of Bankman-Fried was that, in interviews, he gave the impression that he was not a crypto true believer, and that he was in some sense in on the joke.
For example, in May he declared that bitcoin would never be suitable for payments, soon after comparing a common practice in crypto lending to Ponzi schemes.
Economic conditions abetted poor judgment. Years of low interest rates and stimulus by central banks meant there was just so much low-cost money sloshing around that pumping it into startups hastily made a certain kind of sense.
“The best investors did the logical amount of diligence for 2021, which was very little,” says Jason Lemkin, a venture capitalist and managing director of the SaaStr fund.
It was so easy to make money by investing in the later funding rounds for fast-growing startups in 2021 that the volume of VC deals soared, along with the seeming returns on those deals.
In essence, investors found themselves in a climate in which they could invest almost unprecedented amounts of money, and quickly flip that investment for an almost unprecedented multiple.
With Musk, the rise of his two main companies, Tesla and SpaceX, created an aura of limitless acumen around him for many of his followers.
With Twitter, though, his style of micromanagement and hubris, along with a series of engineer- and revenue-repelling antics, have damaged the business.
Musk himself has said the company could face bankruptcy.
Taken together, these unforced errors have seriously undermined the image of extreme competence that these companies and their leaders fostered during their ascent. It leaves those both inside and outside tech asking whether these mortals should be given all the accolades and compensation they’ve accrued.
Indeed, the most obvious expression of this change in sentiment about America’s biggest tech companies is that they have collectively lost more than US$2 trillion in value on the stock market.
Compared with their peaks, this has wiped out more than half of the personal wealth of both Musk and Zuckerberg.
The realisation that these companies aren’t omnipotent in the way many people hoped or feared also should reshape the perception of them by politicians and regulators.
On one hand, it raises the possibility that some of the more speculative criticism and pre-emptive regulation of them has been either undeserved or unnecessary. This is especially true for attempts to check these companies’ power that assume there is no other way to rein them in. Is antitrust regulation of Meta urgent if, thanks in part to the company’s own missteps, TikTok is eating its lunch?
On the other hand, many in Washington also seemed to buy into Bankman-Fried’s snake oil. It’s telling that he made many trips to Washington, D.C. to advocate for regulation of crypto.
Regulation of crypto was for FTX and Bankman-Fried not an impediment to doing business, but a validation of his approach.
Regulated crypto exchanges like FTX would have allowed a variety of cryptocurrencies, potentially including the ones that FTX made up and are now nearly worthless, to trade as actual securities.
This would have made it possible for FTX to connect with the global banking system in a way that could have sent Bankman Fried’s (now mostly evaporated) US$16 billion net worth into the stratosphere.
Indeed, a now-deleted article commissioned by the investment firm Sequoia declared Bankman-Fried a “future trillionaire”.
Disruption and creative destruction are real, and marvelous new technologies are invented every day that transform the world. But we should lay to rest the myth that those who are best at articulating grand visions also possess the kind of universal competence required to create companies of lasting value.
In the end, the people hurt by this myth aren’t the professional investors who banked record returns, or company leaders with their diminished-but-still-incomprehensible levels of wealth.
The people it hurts most are the average investor, the retiree with a decimated portfolio, the tens of thousands of laid-off tech workers. The ones it hurts the most, in other words, are most of us. – Bangkok Post, Thailand/Tribune News Service
