Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley

by Antonio García Martínez

The great source of both the misery and disorders of human life, seems to arise from over-rating the difference between one permanent situation and another. Avarice over-rates the difference between poverty and riches: ambition, that between a private and a public station: vainglory, that between obscurity and extensive reputation. The person under the influence of any of those extravagant passions, is not only miserable in his actual situation, but is often disposed to disturb the peace of society, in order to arrive at that which he so foolishly admires.

genuflecting

Thus, many markets were and are inefficient, because that inefficiency is very profitable to those running the market, even if only in the short-term picture.

Wall Street is even simpler than religion. Your entire worth as a human is defined by one number: the compensation number your boss tells you at the end of the year. Pay on Wall Street works as follows: your base salary is actually quite modest, but your “bonus” is where the real money is. That bonus is completely discretionary, and can vary anywhere from zero to a multiple of your base salary. So, come mid-December, everyone on the desk lines up outside the partner’s office, like the Communion line at Christmas Mass, and awaits his or her little crumb off the big Wall Street table. An entire year’s worth of blood, sweat, and tears comes down to that one moment. And the entire New York economy marches to the beat of that bonus drum. Without that number, your privileged place in the New York hierarchy goes away. Gone is the house in the Hamptons. Gone is the duplex on the Upper West Side. Gone is your kid’s $30,000 preschool. And that’s why Wall Street has that roach-motel quality: people check in, but rarely check out. By the time you’ve been through a couple of bonus cycles and seen that wad of cash hit your bank account in mid-January, you can’t imagine a life without it—which is exactly how the senior management at the Wall Street banks like it. If Wall Street investment bankers were dogs, they would flaunt their expensive collars and leashes as marks of status, not realizing their true purpose. My collar was tiny in the scheme of things, but enough to rub my neck raw.

One week into my new Silicon Valley life, and the lesson was this: if you want to be a startup entrepreneur, get used to negotiating from positions of weakness.

Every new form of media initially emulates the forms of the past. The first radio shows were merely people reading books on air, or playing instruments, with no use of clever sound effects or editing. The first TV shows were quiz shows that had originally appeared on radio, with mere headshots of the contestants. No sophisticated panning shots or jump cuts; simply the addition of a face to the spoken word. Internet advertising has the same atavistic resemblance to the newspaper advertising that preceded it. The first such ads were run in La Presse, a Parisian paper, in 1836. Advertisement was originally a scheme to lower the paper’s selling price and capture market share. A successful strategy, it was soon copied by all newspapers. The ads themselves were rectangular frames of advertiser-created content, placed either below or alongside regular content, and marked as distinct by their blocky frame and large, garish lettering.

In the aughts, websites like Yahoo had an entire sales force (as newspapers still do) that sold those little squares of characters and images directly to advertisers. Many a fax and email flew around just to sell one “insertion order,” in the industry argot (and a wonderful double entendre). The ability to target was nil; at best, one could indicate a certain part of the website for an advertisement to appear in (say, the movies section). Analytics and attribution—answering the question of who saw and eventually bought what—were equally nonexistent. The only difference between the Internet and highway billboards was that you didn’t have to physically glue a poster somewhere.

Yahoos Ad platform was manual (physical sales ppl) with no targeting capability

In media, money is merely expendable ammunition; data is power. With this new programmatic technology that allowed each and every ad impression and user to be individually scrutinized and targeted, that power was shifting inexorably from the publisher, the owner of the eyeballs, to the advertiser, the person buying them. If my advertiser data about what you bought and browsed in the past was more important than publisher data like the fact that you were on Yahoo Autos right then, or that you were (supposedly) a thirty-five-year-old male in Ohio, then the power was mine as the advertiser to determine price and desirability of media, not the publisher’s. As it turned out (and as Facebook would painfully realize in 2011, forming the dramatic climax of this book), this “first-party” advertiser data—the data that companies like Amazon know about you—is more valuable than most any publisher data. This was a seismic shift that would affect everything about how we consume media, leaving publishers essentially powerless and at the service of the various middlemen between them and advertiser dollars, all in the name of targeting and accountability. If the publisher wasn’t savvy enough to arm itself with sophisticated targeting and tracking before tangling with the media-buying world, then that world would come to them, in the form of countless arbitrageurs and data quacks peddling media snake oil. Which is why even august publishers like the New York Times live at the pleasure of th...

Google has developed the “Google Ads Exchange” Facebook has developed the “Facebook Ads Exchange”

Whether it be brand marketers trumpeting the new BMW X5, game developers getting players to spend real money on virtual goods, or someone selling an online nursing degree, the only difference is the time frame in which those different goals occur—in other words, the time between attention and action. If the time frame is very short, like browsing for and buying a shirt at nordstroms.com, it’s called “direct response,” or “DR” advertising. If the time frame is very long, such as making you believe life is unlivable outside the pricey mantle of a Burberry coat, it’s called “brand advertising.” Note that the goal is the same in both: to make you buy shit you likely don’t need with money you likely don’t have. In the former case, the trail is easily trackable, as the “conversion” usually happens online, usually after clicking on the very ad you were served.* In the latter, the media employed is a multipronged strategy of Super Bowl ads, Internet advertising, postal mail, free keychains, and God knows what else. Also, the conversion happens way after the initial exposure to the media, and often offline and in a physical space, like at a car dealership. The tracking and attribution are much harder, due to both the manifold media used and the months or years gone by between the exposure and the sale. As such, brand advertising budgets, which are far larger than direct-response ones, are spent in embarrassingly large broadsides, barely targeted or tracked in any way.

Interesting comparison between “Paid” and “Brand” spend

paroxysms

An empty pageant; a stage play; flocks of sheep, herds of cattle; a bone flung among a pack of dogs; a crumb tossed into a pond of fish; ants, loaded and laboring; mice, scared and scampering; puppets, jerking on their strings; that is life. In the midst of it all you must take your stand, good-temperedly and without disdain, yet always aware that a man’s worth is no greater than the worth of his ambitions. —Marcus Aurelius, Meditations

As Vonnegut wrote in Bluebeard, never trust the survivor of a massacre until you know what he did to survive. And indeed in this case, Murthy wasn’t a mere survivor, but rather an author of said massacre.

Saint Augustine thought the best way to heavenly salvation was to know the route to hell, but avoid it. Consider the various paths to hell I’ve taken for you, dear reader, and do otherwise.

If you consider yourself a Gates or a Musk but aren’t seen as one, then you enter the realm of felt injustice. You assign yourself a certain value, but society ranks you at another. That difference between society’s perception and your own is the gap of injustice you feel. Multiply that gap times your ego, and you get the total balance of rage you’re to expend in your startup quest.

cognoscenti,

I gave Argyris a physical copy of “How to Start a Startup,” a blog post by Paul Graham, which is the crack-like gateway drug to the startup addiction.

It’s me, the author, taking the state inside my mind and, via the gift of language, grafting it onto yours. But man invented language in order to better deceive, not inform. That state I’m transmitting is often a false one, but you judge it not by the depth of its emotion in my mind, but by the beauty and pungency of the thought in yours. Thus the best deceivers are called articulate, as they make listeners and readers fall in love with the thoughts projected into their heads. It’s the essential step in getting men to write you large checks, women to take off their clothes, and the crowd to read and repeat what you’ve thought. All with mere words: memes of meaning strung together according to grammar and good taste. Astonishing when you think about it.

Don’t believe me? Think your idea is worth something? Go and try to sell it, and see what sort of price you’ll get for it. Ideas without implementation, or without an exceptional team to implement them, are like assholes and opinions: everyone’s got one.

Here’s some startup pedagogy for you: When confronted with any startup idea, ask yourself one simple question: How many miracles have to happen for this to succeed? If the answer is zero, you’re not looking at a startup, you’re just dealing with a regular business like a laundry or a trucking business. All you need is capital and minimal execution, and assuming a two-way market, you’ll make some profit. To be a startup, miracles need to happen. But a precise number of miracles. Most successful startups depend on one miracle only. For Airbnb, it was getting people to let strangers into their spare bedrooms and weekend cottages. This was a user-behavior miracle. For Google, it was creating an exponentially better search service than anything that had existed to date. This was a technical miracle. For Uber or Instacart, it was getting people to book and pay for real-world services via websites or phones. This was a consumer-workflow miracle. For Slack, it was getting people to work like they formerly chatted with their girlfriends. This is a business-workflow miracle.

Founders at Work,

One of Mark Twain’s more uplifting quotes maintains that small people always belittle your ambitions, while the great make you feel that you too can be great. Murthy was most assuredly a small man.

The American immigrant visa system amounts to indentured servitude, a type of peonage. This medieval institution has a long history in the United States. Before the American Revolution, half of the European immigrants to the British colonies came over as indentured servants. Poor children or young adults, with no prospects in Europe, would sell years of their labor in exchange for passage to the Americas. Across the pond, employers would purchase these individuals from the captains who had brought them over, and they were pressed into service or apprenticed to craftsmen. Servants could be bought or sold, as with slavery. Also as in slavery, servants were subject to physical punishment, including whipping, they could not marry without permission, and their contract was enforceable by the law; escaped servants were captured and returned. If female servants became pregnant, their contract was extended to compensate for the time out of work. At the end of the contract, servants were given their “freedom dues” (a small cash payment) and set free to seek their fortunes in their new homeland. Not much has changed in Silicon Valley. Skilled immigrant tech workers in the United States have effectively one method of entry: the famous H-1B visa. Capped at a small yearly number, it’s the ticket to the American Dream for a few tens of thousands of foreigners per year. Lasting anywhere from three to six years, the H-1B allows foreigners to prove themselves and eventually apply for perma...

Interesting explanation of American Visa system

Large but unexciting tech outfits like Oracle, Intel, Qualcomm, and IBM that have trouble recruiting the best American talent hire foreign engineers by the boatload. Consultancy firms that bill inflated project costs by the man-hour, such as Accenture and Deloitte, shanghai their foreign laborers, who can’t quit without being eventually deported. By paying them relatively slim H-1B-stipulated salaries while eating the fat consultancy fees, such companies get rich off the artificial employment monopoly created by the visa barrier. It’s a shit deal for the immigrant visa holders, but they put up with the five or so years of stultifying, exploitive labor as an admissions ticket to the tech First World. After that, they’re free.

The reality is, Silicon Valley capitalism is very simple: Investors are people with more money than time. Employees are people with more time than money. Entrepreneurs are simply the seductive go-betweens. Startups are business experiments performed with other people’s money. Marketing is like sex: only losers pay for it. Company culture is what goes without saying. There are no real rules, only laws. Success forgives all sins. People who leak to you, leak about you. Meritocracy is the propaganda we use to bless the charade. Greed and vanity are the twin engines of bourgeois society. Most managers are incompetent and maintain their jobs via inertia and politics. Lawsuits are merely expensive feints in a well-scripted conflict narrative between corporate entities. Capitalism is an amoral farce in which every player—investor, employee, entrepreneur, consumer—is complicit. But hey, look at these shiny iPhones. Right? At the time, we understood none of this. We’d figure it out soon enough.

As a piece of clickbait-y news, want to know which is the most expensive word in the English language? Around 2011 or so, and probably still to this day, the priciest word in the global auction on words was “mesothelioma.” This tongue twister is a rare form of lung disease common among former asbestos-plant workers. Thanks to a series of class-action lawsuits against former factory owners, filed by plaintiffs’ attorneys who make fortunes on contingency fees, the value of this word was bid up as high as $90 per click. Want to screw a slimy lawyer? Google “mesothelioma” and start randomly clicking on the ads that appear. You’re costing a lawyer almost a whole benjamin every time you do that.

Think about this in the context of more traditional industries for a moment. Chain restaurants like McDonald’s have a best-performing outlet in a particularly busy high-rent district. Automakers have a particularly popular, bestselling model like the Ford Fusion or the Chevy Impala that makes their quarter. Google has the words “insurance” and “loans.” Those are its flagship moneymakers. It is a tech empire built on snippets of words and phrases flitting through people’s minds. You as a mere consumer don’t see it, but how Google ranks keywords and runs the auction determines the fate of billion-dollar companies and industries.

jejune

People go into startups thinking that the technical problems are the challenges. In practice, the technical stuff is easy, unless you’re incompetent or really at the hairy edge of human knowledge—for example, putting a man on Mars. No, every real problem in startups is a people problem, and as such they’re the hardest to solve, as they often don’t have a real solution, much less a ready software fix. Startups are experiments in group psychology. As CEO, you’re both the therapist leader, and the patient most in need of therapy. As Geoff Ralston, a YC partner, told us: people don’t really change, they just become better actors. For all the existential challenges you’ll watch us face in the coming pages, it was no external enemy that would eventually do in AdGrok. No. It was our very natures, the men we saw in the mirror every morning.

There’s a Jewish folktale about a biblical king who dispatches one of his wise men to craft him a mantra that would both humble the proud and console the unfortunate. After searching in the market, where our wise man consults a local jeweler, he returns to the king with an engraved ring. The king holds the ring close and reads: THIS TOO SHALL PASS. So remember that, when lamenting your troubles, contemplating the perceived triumphs of peers and competitors, or rejoicing in that rare entrepreneurial triumph. It will all soon pass, and much faster than you think.

According to the leading PR mythologies, day-of-the-week posting choice was critical. The media boom would reverberate depending on its magnitude and resonance inside whatever industry echo chamber it was launched. And so you wanted a few full-on workdays after launch to let that echo play out. Monday was too soon, as everyone was still jet-lagged, hungover, or otherwise groggy from the weekend, and too busy catching up on email and meetings. By Thursday, people were already thinking about the weekend, and likely ducking out early for their first happy hour of the week. Friday was for burying news, not announcing it. It’s when people were fired and bad earnings reports came out. We would post on Tuesday, which left the most time for a PR blowup to echo across the Internet, and across all levels of Internet connectedness, from the assimilated Internet cyborg to the grandmother in Kansas.

In order to understand both the function and the name of the chaos monkey, imagine the following: a chimpanzee rampaging through a data center, one of the air-conditioned warehouses of blinking machines that power everything from Google to Facebook. He yanks cables here, smashes a box there, and generally tears up the place. The software chaos monkey does a virtual version of the same, shutting down random machines and processes at unexpected times. The challenge is to have your particular service—Facebook messaging, Google’s Gmail, your startup’s blog, whatever—survive the monkey’s depredations. More symbolically, technology entrepreneurs are society’s chaos monkeys, pulling the plug on everything from taxi medallions (Uber) to traditional hotels (Airbnb) to dating (Tinder). One industry after another is simply knocked out via venture-backed entrepreneurial daring and hastily shipped software. Silicon Valley is the zoo where the chaos monkeys are kept, and their numbers only grow in time. With the explosion of venture capital, there is no shortage of bananas to feed them. The question for society is whether it can survive these entrepreneurial chaos monkeys intact, and at what human cost.

usury,

Senator Leland Stanford’s

capo di tutti capi

Bryan Schreier,

Elysian quality.

de rigueur air

accessory as the hot receptionists. One quick way to cut through the shit: ask your pretender-to-influence, “Do you have decision-making power?” If he or she even remotely hesitates or hedges, you’re speaking to a lackey (whether he or she acts like one or not). His or her only utility is to get you to the person who does have that power; everything else is so much pig swill. So route around such people if a real investment check is your goal. Arguably (and this is the canonical YC advice) don’t even accept a meeting from someone who can’t answer yes honestly to the above question. You’re wasting your time.

Here is a key insight for any startup: You may think yourself a puny midget among giants when you stride out into a marketplace, and suddenly confront such a giant via litigation or direct competition. But the reality is that larger companies often have much more to fear from you than you from them.

As matters turned out, without Fenwick, we would never have been able to mount a defense. To say Murthy was punished for his one iota of kindness would be an understatement. The lesson here is: if you’re going to be an egomaniacal, sociopathic prick, then do it properly and murder your enemies outright, rather than throw them a bone and expect to kill them later if there is trouble. They might just turn that bone into a weapon.

Russ’s counteroffer presented a sliver of hope. By halving our effective valuation, we would raise enough to at least pay ourselves and keep the machine going. We’d sell way more of the company in a seed round (about 22 percent) than was typical, and this would raise eyebrows when it came time to raise a series A. Investors don’t like it when a prior round of investors has bought a huge part of the company. It means that either they have to take down less of the company in their round, or the founders have to give up a lot of their share to top up the new investors, and hence lessen their incentive to do well. Also, investors like to feel you’re their bitch or their boy when they wire you a bunch of money, and some other pack of moneymen also having you by the short hairs mutes that sense of ownership.

Why a higher cap in seed round is important

Briefly: Bill Gates came from wealthy Seattle aristocracy. During the early eighties, his mother served on the executive committee of the United Way, along with IBM’s then CEO John Opel. This allowed William Henry Gates III (her son) to score a meeting with IBM about providing a code compiler for IBM’s new, epoch-making product, the IBM PC. What IBM really wanted, though, was an operating system, the core code that manages memory and runs programs. Gates, whose nascent company, Microsoft, didn’t have anything like an entire operating system, honestly referred IBM to a company run by Gary Kildall, a pioneer in operating systems when the real money in computers was still in the hardware. In a story couched in legend, Kildall was off flying his personal plane when IBM representatives physically came knocking at his company’s office. His wife (the company’s business manager) refused to sign IBM’s aggressive nondisclosure agreement and sent them packing, and so IBM grudgingly went back to Gates asking about operating systems. Gates, smelling an opportunity, offered to provide one, hiring a local Seattle programmer to clone Kildall’s operating system, calling it QDOS (Quick and Dirty Operating System), and which eventually shipped in the IBM PC as DOS (Disk Operating System). Gates, correctly suspecting that other hardware companies would copy IBM’s approach of bundling software separately from hardware, retained copyright over this hacked and copied DOS. As a result, the procee...

The story of how Bill gates created QDOS operating system for IBM through a connection from his mother

Steve Jobs was all smoldering ambition, ruthless will to power, and narcissistic amour propre; by all accounts of people who actually worked with him, he was a mediocre engineer who had good taste and knew how to recognize in others talents he didn’t possess, and got them to work like hell for him, while fending off competitors in the meantime. In that sense, he was the absolute exemplar of your successful startup CEO, even if not in the way people commonly think.

You’ll have to trust me on this: the story of just about every early-stage startup is peppered with tales such as mine. Backroom deals negotiated via phone calls to leave no legal trace, behind-the-back betrayals of investors or cofounders, seductive duping of credulous employees so they work for essentially nothing (e.g., Adchemy itself). The picture I’ve painted of AdGrok—and there’s more sordidness where this came from, not to worry—is not some weird exception; it is the absolute rule. The tech startup scene, for all its pretensions of transparency, principled innovation, and a counterculture renouncement of pressed shirts and staid social convention, is actually a surprisingly reactionary crowd. Its members preen and puff and protect their public image, like a Victorian lady powdering her nose, and refuse to acknowledge anything contrary to their well-marketed exteriors. Sure, it’s no worse than traditional industry or politics, but certainly no better either.

The harsh reality is this: to have influence in the world, you need to be willing and able to reward your friends and punish your enemies.

anathematize

First, the ability to monomaniacally and obsessively focus on one thing and one thing only, at the expense of everything else in life. I lived, breathed, and shat AdGrok. Thanks to focusing on AdGrok, I watched my daughter grow up through the frame of a Skype window while I was in AdGrok’s Mountain View shit hole.

Second, the ability to take and endure endless amounts of shit. I was raised under the sadistic care of a sister ten years my senior who delighted in unleashing endless taunts and abuses.

I observe that some men, like bad runners in the stadium, abandon their purposes when close to the goal; while it is at that particular point, more than at any other, that others secure the victory over their rivals. —Polybius, Histories

However, such fairy tales reveal themselves to be the fantasies they are following a launch. You’ve spent months and gambled your career on a product, and then after a bit of excitement, you realize what a misshapen and misbegotten piece of shit it really is. This is the crisis that kills 90 percent or more of startups that manage to survive the initial plagues of founder disagreements, failure to ship code, and failure to raise money. This nearly uncrossable chasm is behind all those “What happened?” posts on TechCrunch or other tech rags that crop up when some seemingly unstoppable startup suddenly announces it is ceasing operations and giving back what’s left of the investors’ money. Its founders and management could not negotiate the trough of sorrow, and like some lost British adventurer trying to cross a forbidding desert, the company basically gave up and died.