31/52: The Administrative Startup

#CapitalAtRisk

Above: The Square and the Tower by Niall Ferguson

The 2010s was the decade of the Entrepreneur. The 2020s will be the decade of the Investor.

“No one wished to consider the possibility that the enemy they now confronted was an ‘acephalous’ or leaderless network, that could no more easily be killed than the many-headed hydra of ancient Greek mythology”.

Niall Ferguson

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A good start & great end

I read the above book over the summer and mentioned I was doing so in a previous newsletter. It got off to a good start but when Hector Hughes emailed me to ask if it was any good my enthusiasm had waned.

I replied to Hector and wrote the following, which I’ve sent on to a few people privately since. Some have encouraged me to share it here too so here you are…

Any good?

Well…. I was about to say 'not really' — it's interesting but I've learned more from other books. It's a bit, "here's a time in history, a hierarchy was dominant, but then it turned into a network which was different in a few ways". Lots of that from the dawn of time onwards.

However! I've not quite finished it and today was reading about 9/11, then the 2008 financial crisis and they were good chapters (each chapter is only about 5-10 pages long so you never get anything super in-depth. 

The network theory stuff is good, but I'm a bit of a geek on that from my CompSci days — so it makes me want to read the papers that Niall cites, especially about the failure to spot the 9/11 baddies' network and the counter insurgency strategy that was eventually a bit more effective in Iraq (after the US first tried hierarchical stuff even though that had failed in Vietnam and they'd seen the British success in Malaya in the 1950s).

However #2!! Chapter 52 is on 'The Administrative State' and there are bits in there related to business I reckon. As in, it resonates with how I (instinctively) want to do things but often have trouble justifying.

I'll try and distill it down…

• The Magna Carta is about 4,000 words.

• The US constitution is 4,543words.

• The Declaration of Independence is just 1,458 words.

• Obamacare regulations in the 'Federal Register' is estimated to be 11,000,000 words.

• So we have a 'regulation epidemic'.

• A simple answer to why could be 'the lawyers'. But Niall rightly points out that there've been lawyers for quite some time ('as readers of Dickens well know').

• A more plausible simple answer might be that this is the price we pay today for the failures of the past. So we 'need' attention to detail (Niall's example is that "perhaps Hitler triumphed because…the constitution of the Weimar Republic did not explicitly prohibit men from Austria with toothbrush moustaches, a criminal record and genocidal tendencies from becoming chancellor".

• Another example, which made me think of the business side, is that he says, 100 years ago the Bank of England issued one speech per year. In 2016 alone it issued 80 speeches, 62 working papers and 200 consultation documents, 100 blogs and over 100 statistical releases — in total 600+ publications and around 9,000 pages (so a lot of words).

• No one has a plan to fix this.

• This complexity is very expensive.

• In 'The Administrative State' there's not enough money from taxes to pay for this.

• But it continues…

So what's the solution? Or at least, what would help?

Thankfully I'm not running the government but business is going the way of the above too and many are sleepwalking into producing millions of words to try and preempt mistakes or justify inevitable and occasional failures or missteps.

I think the solution to this is, in a word, trust.

From an investment / fund management point of view, I think of some of the Value Investors. They take some money, invest it and write an annual letter to their investors. There's one (who I can't remember right now, but will think…) who has it written into his investor agreements that the investors are not allowed to contact him. As you may remember from the Nomad Investment Partnership Letters to Partners, Nick Sleep writes in pretty much every one that, "Nomad’s orientation is genuinely long term, and more regular reports, daily, weekly, monthly or otherwise, are likely to be of little value to you, and may even be counterproductive for us".

That's because he has his investors' trust.

So [in the startup world] if a founder has the trust of their stakeholders they can get on with the important stuff and focus. It's all about focus Vs distractions. With sufficient trust founders can do enough to be accountable but have the focus / autonomy / empowerment not to be held back (e.g. in my world I often say to investors I've worked with, 'If I'm awake I'm available' — and I love thinking about my work 24/7 — but that's different to spewing out millions of words for the sake of it).

So now what?