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May 20th, 2005

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06:11 pm - musings on success
I saw "Enron: The Smartest Guys in the Room" last night. It nicely weaved in with the book I read recently, Roger Lowenstein's "When Genius Failed: the Story of Long Term Capital Management". Both are excellent and highly recommended; if you know anything about finance, read the book, but the movie should be accessible to anyone. These stories, the same and yet disconnected, tell the same tales and end up being what I suspect will be the greater lessons from the bubble burst. Both companies:
  • Felt they were smarter than everyone
  • Had unbelievable success
  • Failed faster than could be expected: LTCM, about two weeks; Enron about a month

  • The culprits were personality, of course, but really accounting, accountability, and -- not explicitly covered in the movie -- the exposure hiding properties of derivitives. LTCM was quiet and closed; Enron was loud and obscure; both were given outrageous money from investors, investment bankers, and the credit markets while simultaneously being described (and self-described) as "black boxes".

    But the theme I haven't heard addressed, that Lowenstein covered but didn't come back to is: They had a brilliant idea. They really were smarter than everyone else about the idea. The idea went away but the momentum did not. The idea went away because everyone else piled on, or the venture grew beyond what the idea could support.

    I'm sure this is the point that was meant to be the backbone of Collins & Porras' "Built to Last: Successful Habits of Visionary Companies" -- that the culture must reflect an ability to either walk away from an idea; shrink to continue to fit it; and build a culture where by the time that everyone else catches on, it is no longer a significant idea.

    Unfortunately, these two were very successful and yet failed to recognize humanity-as-a-social collective's base problem: success breeds an unsustainable environment. This is the story of a venture fund that does well handling $1M investments closing on a $1B fund; the Dilbert Principle or Peter Principle in human resources; the overstretching of empires.

    Success brings about an unsustainable environment. Is this perhaps a better descriptor of hubris than "overbearing pride or presumption"?

    (3 comments | Leave a comment)


    [User Picture]
    Date:May 21st, 2005 12:34 am (UTC)
    I'm glad I don't have any ambition to make a big company.

    I guess I might consider making a company grow if my only goal were to have it get bought buy a really big company.

    I should try to run into you at some point such that we can chat about economics.
    [User Picture]
    Date:May 21st, 2005 01:01 am (UTC)
    Well, there is a probability cloud biased toward my relocation to Boston by September. Not that that means that we will intersect more frequently...

    But maybe!
    [User Picture]
    Date:May 21st, 2005 07:57 am (UTC)
    what would you be doing if you were in Boston?

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