Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley

by Antonio García Martínez

JMann worked for Goldman Sachs trading credit indices, basically lumped-together sets of credit bets on large corporations, almost like mutual funds. Unlike in the world of stocks, prices in the credit world weren’t determined by some vague premonition of future value, but on the perceived future probability of corporate death. In credit land, there were only ever funerals, no weddings or baby showers. By betting on death, we were the bookie undertakers, gambling on either this or that company living or dying.

To paraphrase the very quotable Silicon Valley venture capitalist Marc Andreessen, in the future there will be two types of jobs: people who tell computers what to do, and people who are told by computers what to do.

So why not trade CDSs on exchanges, as we do shares of Google? The question was raised in 2008 as the financial world burned. The internal chatter on the desk was that the government would exploit the crisis to regulate our Wild West market. Goldman (briefly) considered taking the initiative and self-regulating into exchange-traded markets instead. It decided against doing so, with reasoning I’d see again at Facebook: an incumbent in a market dominated by a few, with total information asymmetry, and the ability to make prices on the market rather than just take them, has little incentive to increase transparency. The bid-ask spread—that is, Goldman’s difference in price when buying or selling the same thing—was huge on credit derivatives. Goldman made fortunes simply passing a piece of paper from its left hand to its right, from seller of risk to buyer of it. While trading on exchanges might have increased the overall volume of trade and hence profits, the openness would have eroded Goldman’s privileged view of the credit markets, and opened it to upstart competition, not to mention financial scrutiny. Even if the open approach had increased the total size of the market, Goldman felt more comfortable owning a small market than merely participating in a larger one. 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.

Such canine reflections were on my mind one day while reading the New York Times during a lull at the trading desk. To an active market participant, the New York Times’ business section is so dated and slow to respond, it may as well be a history book. Which is why it was very random indeed that I noticed something on recently funded Silicon Valley startups. Given the pestilential news from

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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 is how online advertising works: money turns into pixels and electrons in the form of ads, which turn into a scintilla of attention in someone’s mind, which after a few more clicks and electrons shuffling about, turns back into money. The only goal here is to make that second pile of money as large as possible relative to the first pile of money.

The first sign of trouble was an externally visible one, a symptom that any suitably experienced startup practitioner could have detected: nobody from the early days of the company was still around other than Murthy.

The official history of the startup, at least as told by itself, will only ever mention the current leadership, and reweave some narrative about how the current team is the God-ordained combination of human talents that will take the startup to the stratosphere.

What is writing? 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.

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So what idea were we pitching exactly? The short answer: it didn’t matter. Like the canniest early-stage investors, YC cared a lot more about the team at this point than whatever improbable idea we might have. The latter was really there only to judge the former; it was valueless in itself. 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.

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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.

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Reid Hoffman, a large man, thundered like an emperor at the head of this troops, and spilled wonderful stories about the PayPal saga, the founding of LinkedIn, and going to war with Microsoft. He was by far one of the best speakers; you felt like kicking your way through a brick wall when he was done.

capo di tutti capi of

Ruby on Rails,

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.

Recall our cliché about startups being like building a plane after jumping off a cliff; getting to a positive “run rate,” as it’s called, is like finally getting the wings on, firing the engine, and watching the contraption actually maintain or gain altitude (no matter how badly built it may be).

Deep Tweet gave us the inside line on Twitter’s real valuation, and on what terms it had just raised a mountain of money. What fraction of the total float our shares represented, the inner workings of the board, and why Twitter would eventually seem like such an unholy cluster fuck from the outside (answer: because it was a cluster fuck on the inside). The fights between and among the board and the management, often staged at dysfunctional board meetings at which every big-name board member arrived with his or her entourage. The fact that both Ev Williams and Biz Stone were mentally checked out (in fact, both would leave Twitter within two months). That there was little product leadership after the VP of Product, Jason Goldman, left. The various internal messes that every tech company subject to sudden and unexpected meteoric growth experiences, and sedulously conceals from the outside world, presenting that flawless exterior canvas, ready for the journalists to paint their pristine narrative fallacy mural.

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By this point, we’d built a decent rapport, so with a nod and a wink, he said, “Well, you know, in companies like Facebook and Google, they serve you breakfast, lunch, and dinner. Here at Twitter, they only serve you breakfast and lunch.” I cringed inwardly. So the big selling point was that nobody worked late into the night, so we could have that chimerical work-life balance?* I smiled to keep the warm vibe going. But that comment more than anything else sealed my decision. I was not going to blow the biggest career wad of my life on a company that hesitated to work past six p.m. daily.

desengaño.

You pay a pittance for the company, engineering it such that investors get little, and then pack the real value into the hiring offers for the employees. TechCrunch would carry the news that the company sold for X million dollars, but technically it would sell for 10 percent of X, while the rest went into fat signing bonuses and heavily laden vesting schedules for the founders. With no prompting from us, Twitter had given us a plum offer.

How it works is this: The acquiring company doesn’t care less how money is divided between investors and employees. As we’ve reviewed, what they care about is price per high-value person (that is, engineers and product managers). If that works out, and the form of payment is whatever admixture of cash versus equity they prefer (or are willing to put up with), the deal looks fine to them. Every acquiring company will have such a target price per person in mind when you seriously discuss a deal. Your job as deal negotiator is to get as close to that as humanly possible. The founders, however, have a more subtle view. A deal this small is likely not life-changing, fuck-you money. After you’ve rested and vested at the acquiring company, you’ll likely wade into the startup fray again, need to raise money, and again live in the startup ecosystem. Screw your investors and word will get around. Also, you may have a legitimate emotional bond with your investors. After all, they often stood by you when nobody else did and, like Sacca, potentially helped get the company sold. Thus, founders face a moral choice that’s quite ticklish. They can opt to reward their investors for their investments in time and money, but they’re essentially paying them out of their wallet. The deal is very much a zero-sum game between founders and investors in the final stages. To give you an idea of just how indifferent the acquiring company is to investors, keep in mind that Sacca was reputedly Twitter’s...

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An HR person offered some introductory drivel or other, and then it was straight to the first speaker, my superboss, the head of product for Facebook: Chris Cox. Cox was handsome in the way of a Gosling or Depp: a tempered masculinity encased in a cuddly package, custom-made for female desire. It was a recurring internal joke at Facebook to point out the Twitter storm of oohing and ahhing whenever he took the stage at a Facebook PR event. He had the gift of the gab, which he used to great effect, weaving a seductive narrative around Facebook and the future of media. As the first speaker, he was clearly there to instill the big-picture vision of what we had been selected to help build. “What is Facebook? Define it for me,” he asked, challenging the rows of attentive faces almost the moment he appeared. “It’s a social network.” “Wrong! It’s not that at all.” He scanned the audience for another answer. Perfectly articulated, to the point I suspected she was a shill, a young, perky intern came out with: “It’s your personal newspaper.” “Exactly! It’s what I should be reading and thinking about, delivered personally to me every day.” He then embarked on a common trope among Valley types, framing a product in some historical continuum of prior technologies, the product currently discussed being the ultimate and inevitable final chapter in the triumphant procession. Radio and TV were depersonalized media of mass consumption, revolutionary for their time, but ultimately lacking. St...

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As a geographic tangent: New Zealand was commonly used as a test bed for new user-facing products. It was perfect due to its English-language usage, its relative isolation in terms of the social graph (i.e., most friend links were internal to the country), and, frankly, its lack of newsworthiness, so any gossip or reporting of new Facebook features ran a low risk of leaking back to the real target markets of the United States and Europe. Aotearoa is the original Maori word for New Zealand, which roughly translated means “Facebook test set.” Thus does that verdant island nation, graced with stunning fjords and clear alpine lakes, sample whatever random product twiddle a twenty-three-year-old Facebook engineer in Menlo Park dreams up.

All Facebook’s technology is designed thusly, and that will never change. If you stop for a moment and realize how suicidally stupid it would be for Facebook to hand over its data on users to anyone, for any amount of money, you’ll realize how tired that “Facebook sells your data” meme is.

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It’s like the intentional mixing of refined European breeds with wild dingoes in Australia that produced the smart and rangy Australian cattle dog.

The keynote to this festival of schmoozing was given by Sheryl, who delivered a forgettable string of Facebook platitudes for forty-five minutes. The point wasn’t the content, but seeing The Sheryl, live and in person. It was the taste of the Oprah-like celebrity, something to justify the taxi ride to the Upper West Side from Midtown.

Growth for the sake of growth is the ideology of the cancer cell. —Edward Abbey, The Journey Home

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I have never yet been afraid of men who set up marketplaces in the middle of their city, where they lie and cheat one another. —Herodotus, Histories

heterodoxy.

MoPub.

Second, the triumph of apps as the core mobile experience.

When Facebook reported its second-quarter results in June 2013, two facts triggered a market rally in FB shares. First, the number of active users on mobile had increased by more than 50 percent from the previous year. Second, and more important, revenues from mobile had roughly doubled from the previous year. This indicated that Facebook was not only successfully making the much-presaged leap to mobile (whereby all online activity was thought to be moving to devices); it was also managing to monetize there, meaning the leap wouldn’t damage revenues. What was really going on? Facebook was slowly opening up its mobile News Feed to ads, putting on the auction block what was a formerly untouched piece of Facebook property. As 2013 ground on, Facebook turned its monetization knob gradually, opening more and more inventory for Ads, and bringing in steadily more revenue, beating expectations at every earnings call, and guiding the stock price ever higher. Ad inventory is like real estate, and what Facebook was doing was akin to the westward expansion of the United States following the Louisiana Purchase, a onetime land-rush bonanza that featured hardy pioneers racing into the sunset, under the nominal control of an organizing government. Multiple insiders at the time leaked to me the concern around the strategy: pimping out News Feed had to end at some point, and then what would Facebook do? There were even internal projections guesstimating when the moment would arrive, when th...

That’s the nature of Valley success, however: you try ten things, based mostly on random hunches, a few key product insights, and whatever internal mythologies your culture reveres. Seven of them fail miserably, are discontinued, and are soon quietly swept under the rug of “forever today” forgetfulness. Two do OK, for more or less the reasons you thought, but they don’t blow the doors off your success metric. And one, for reasons you discover only after the fact, becomes a huge, transformational success. The amnesiac tech press weaves the narrative fallacy around the proceedings, fabricating a make-believe dramatic arc from steely-eyed product ideation to flawless and unhesitating technical execution. What was an improbable bonanza at the hands of the flailing half-blind becomes the inevitable coup of the assured visionary. The world crowns you a genius, and you start acting like one. When the next usage or revenue crisis hits, you repeat the experiment, rolling your set of product dice on the big Valley table. At some point, you don’t find the crisis-solving winner, the dealer sweeps up your remaining chips, and you’re busted. The company fails and your logo is recycled as a reminder of corporate mortality. Then everyone wonders how such a confirmed genius could have possibly failed, and ruminates on the transience of talent.

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To quote Theodor Herzl, “If you will it, it is no dream; and if you do not will it, a dream it will remain.”