JOSH: Hello and welcome to Clearer Thinking with Spencer Greenberg, a podcast about ideas that matter. I'm Josh Castle, the producer of the podcast, and I'm so glad you've joined us today. In this episode, Spencer speaks with Mike Maples about what makes startups succeed, having the courage to be disagreeable, and fostering innovation through competition.

SPENCER: Mike, welcome.

MIKE: Thanks for having me.

SPENCER: It seems to me that you think a lot of people get things wrong about the right way to pick which startups are going to win or which startups are going to innovate. What are people doing wrong?

MIKE: Well, I guess it started with what I thought I was doing wrong. About ten years ago, there was a company called Twitch that I was involved with, which was acquired for 970 million, and we made 84 times our money. And the problem is that I had forgotten I was a shareholder in Twitch. I had invested in Justin.tv, which turned into two companies: Socialcam and Twitch. And so I'm sitting here trying to explain to my investors how we got this unexpected windfall. And I'm like, "What business am I even in here?"

SPENCER: That's hilarious. You didn't realize you'd invested in that. [laughs]

MIKE: What's going on, right? And by the same token, the prior year, Twitter and Chegg had gone public within a week of each other, and both had been what's called pivots, where they radically changed from their initial idea. And I started to do the analysis, and I noticed that 80% of our exit profits had come for pivots. And not only that, a lot of the companies that I'd thought were most likely to succeed were not succeeding. And they had done the things you're supposed to do: they'd done business model canvas, and they'd implemented a lot of the best practices that you would normally associate with success. They would be Harvard Business School case studies except for the fact that they failed. And this wasn't an isolated incident. It happened over and over again. I kept seeing companies that seemed to not do all the right things still triumph — Twitter with the fail whale and changing the CEO quite often — and then I saw other companies that seemed to do all the right things not go anywhere. And so part of what I was trying to figure out was just, was I a lucky fool and was this all random? Or was there something else worth understanding that wasn't obvious that was below the surface here?

SPENCER: When people observe how often successful startups are pivots — for example, Wikipedia starting out as having editors and then just trying, at a lark, this idea of letting anyone be an editor, and that being what takes off (those kinds of examples) — people often draw the conclusion that, oh, well, the idea doesn't matter. That's what it shows, that ideas are irrelevant, that it's all about the team. Do you draw that same conclusion?

MIKE: I don't. Basically, what I would say is, there's a whole lot of things to drill down into. But here is the high-order bit that I think I learned: a startup capitalist is a different type of capitalist than normal capitalists are. A normal corporation has a set of competitive advantages, and they try to persistently compound those advantages. In fact, if you listen to people like Warren Buffett describe what makes a good business, he'll often describe it that way, as having a moat, having some type of a structural set of advantages, and the ability to create persistent value for a long time. And what I've come to realize is that startups don't do any of those things. Startups have nothing to compound because they have nothing. All they have is the power of the idea and the capabilities of the founders. So startup capitalists create value, not by persistently compounding things, but by radically changing the subject. If the future is going to be an extension of the present, the corporate capitalist wins. If the future is going to be radically different from the present and can't be reconciled with the present, then the conditions are created for the startup capitalist to win. What I saw happening time and again was that the startup capitalists were breaking the patterns of how business was done, and they were doing it in two ways. They had pattern-breaking ideas that were a radical shift in what was possible, and then they also had pattern-breaking behaviors and actions. And so they both 'think different' — in the words of Steve Jobs — but they also act different. And it's by coming to the world with a radically different idea and making that idea real by creating these movements and acting differently, that's how they change the future.

SPENCER: So what would a nice, clean example of a radical pattern-breaking idea be?

MIKE: Probably a pretty good one would be (say) Lyft. When Lyft came out, nobody said, "Well, how does that compare to taxis?" People instantly understood, "Oh, this new thing, it's an app. You see cars on a map. You ask for a ride. It shows up quickly, takes you where you want to go. It doesn't ask you for cash. It doesn't put your credit card through some swiping triplicate machine." People forget that even the cabs have had to get better in response to the ride-sharing companies. But that would have been a good example of something where you almost couldn't reconcile it with anything that had come before.

SPENCER: And is that the defining characteristic, that it can't be reconciled with what came before? Or are there other attributes that make something a pattern-breaking idea?

MIKE: Yeah. There are three elements I've found to pattern-breaking ideas, but they do add up to this idea that it can't be compared. The first element of a pattern-breaking idea is an inflection. An inflection is a new development that didn't exist before, that creates new forms of empowerment. We just brought up Lyft as an example. The inflection for Lyft was that the iPhone 4s had a GPS chip in it, and the GPS chip in that phone allowed somebody to build an app that could locate people within one meter accuracy with an algorithm. You could have had the idea of ride-sharing before the iPhone 4s, but you wouldn't have been able to implement a solution that takes advantage of that insight. You wouldn't have been able to build a working system that exploits that understanding. But now for the first time, you could, and so the inflection happens external to a startup, and it creates the weaponry for the startup to wage asymmetric warfare on the present. And then the second thing that we've seen is what I like to call an insight. An insight is where the creativity of the founder comes in. It's a non-obvious idea about the future that is both non-consensus and right. With the case of Lyft, it would have been, "Oh, that means you could do Airbnb for cars. You could share rides just like you share houses now, because you can locate riders' drivers, just like you can locate hosts and guests." That required the creative energy and skill and artistry of the founders. The third component is, where does the idea come from in the first place? And I like to term this 'founder future fit.' Some founders are a more authentic match to the future than others. In the case of Logan Green, Zimride was the original name before Lyft, and he had watched ride-sharing happen in Zimbabwe and been very passionate. He was on the county commission for transportation in Santa Barbara when he went to college, and so he's very passionate about that field, even before he came to this idea of Zimride, which ultimately became Lyft.

SPENCER: So how do you square this approach to the idea that lots of companies pivot into their successful idea?

MIKE: The way I look at it is, the idea can be thought of as a reference implementation of an insight. For example, Lyft existed as a company before Lyft — it was Zimride — but they were doing corporate transportation and campus transportation, but peer-to-peer ride-sharing was the bigger opportunity with the bigger upside. And so what we find, quite often, is that a founder can have a good insight. I didn't invest in Zoom, but it's another example. It started out as a consumer idea that was called SASPy. And eight months in, Eric Yuan decided instead to focus on B2B and high-quality video conferencing in B2B. He still had the same knowledge. He had been at Cisco WebEx for ten years focusing on video conferencing, understood the technology really well. He understood the corner cases, but his first implementation of the idea wasn't correct. But what happens with these founders — and this is where pivots come in — is, they have a first mover advantage into the future. And so, even if their initial implementation is not correct, they still have a valid insight, and they're able to navigate the idea to the correct answer. That's what the answer was to this riddle that had vexed me for so long, was that what I was really investing in was not the product; it was the insight and how powerful the Insight was, combined with the capabilities of the founder to make that insight real.

SPENCER: Oh, that's really interesting. So that suggests that, for most successful pivots, they're not pivoting the genuine insight about the world or what inflection they're taking advantage of; they're just pivoting what product they're building based on that? Is that correct?

MIKE: That's right. So when you're trying to get what people in startup-land call product market fit, you're trying to answer a question: what do we uniquely offer that people are desperate for? And if you have an insight, you should already have solved the uniqueness part. You have something that nobody else has. You have something that is truly different. Now we have to find a way to provide that empowerment to people in a way that's going to connect to their desperation for that power. Pivot is a great metaphor, actually, because in basketball, when you pivot, you move your body, but you keep your pivot foot fixed. And pivots in startups are similar, but your pivot foot is your insight. Your insight is the fundamental basis of your advantage, and the way you move your body as you run a startup to get product market fit is, you can vary either the implementation of your insight, or you can vary the customer base that you're talking to about your insight. And so if you go to market and the customers are saying, "Eh, it's okay, but not great," one of three things is true: your insight's wrong — in which case you should just stop; you don't have a startup — or your implementation of the insight is wrong, or you're talking to the wrong person about your insight. That's what pivoting is; it's iterating on those factors, on the implementation, and on who you talk to. A good example of this might be Okta. Okta does identity management for cloud applications. The founders of Okta had been at Salesforce for many years, and they knew all the early adopters of cloud computing. And they went to those early adopters and said, "We have a theory that systems management — making sense and managing the jumble — of cloud applications is going to get harder and harder." And they showed some demos around resolving problem connections and latency and stuff like that. And the customer said, "Yeah, you know, that's interesting, but it's like number five on our priority list." And Todd and Freddie said, "What's number one on your list?" And they said, "Identity management. It's really hard. There's all these cloud services sprouting like weeds. It's hard for people to keep track of their passwords. When they leave the company, we don't want them getting into NetSuite for financials or into Salesforce for customer data. So that's what we really want, better identity management." That's an example where they had the right insight, namely that managing across cloud apps would be hard. They were talking to the right people — early adopters of cloud computing — but their initial implementation was off, and they had to modify their implementation from problem resolution to identity management. And once they did that, they found product market fit and they exploded. But that's what we look for with these startups as they pivot, is holding your insight constant while you vary your audience and/or your implementation.

SPENCER: This reminds me of something that has struck me about startups where a great startup founder has to simultaneously constantly react to the data and evidence about what's working and what's not working, but at the same time not give up. So in some sense, they're driving towards this vision, and they keep adapting based on what's working and what's not, but they don't give up on the long-term vision. And to me, that seems like it's almost a parallel to what you're describing about sticking with the insight but changing the product or the market.

MIKE: I think that's right. I think that the insight and the vision are very closely linked, and you don't want to modify that part of it, because that's kind of your raison d'etre as a startup. But the best way to actualize that insight is really hard to get right at first. In fact, usually you get it wrong. And it makes sense when you think about it, because all breakthroughs haven't been discovered yet at the time the breakthrough occurs. By definition, every breakthrough should involve elements of surprise and serendipity because, if you knew exactly what was going to happen — specifically, deterministically — a lot of people would know what that future is. The future is unknown. The future is highly uncertain. There are things that we can do that improve our chances of dominating the future. We can harness inflections. We can have a fundamental insight. We can develop ideas by living in the future before other people do. But ultimately, we have to get comfortable with the ambiguity of pursuing a future that hasn't happened yet. That's what the great startup founders do; they have their strong conviction about their vision and their insight, but they have loosely-held assumptions about their implementation and their customer audience.

SPENCER: What's another startup that illustrates your approach really well?

MIKE: I think there's a few of them. Another one would be Airbnb. Airbnb had an insight. Well, their inflections were a few fold. One is, a whole lot of people were online. Another was actually the great financial crisis, so people were under pressure to find ways to make money from their house. The other inflection was Facebook Connect, which allowed people to pass their profile information, so it didn't feel quite as much like you were dealing with a stranger when you were a host or a guest. The other thing that happened was that people had a general feeling of more comfort with online ratings and reviews as a way to garner trust. The reason that hotels have existed and been successful is that they have trust, and they build a brand over many decades to represent something that, over time, earns the consumer's trust. And Airbnb, their insight was that someday people could rent their houses and create a new form of hospitality, and that these ratings and reviews and profile information could form a substitute mechanism for gathering the trust of the customer.

SPENCER: You mentioned that there also tend to be pattern-breaking behaviors in addition to the pattern-breaking insight. What are these pattern-breaking behaviors that you see?

MIKE: What happens is, you have an idea, you're living in the future, and it's not enough to have the right idea about the future. You've got to move people to that different future of your design. The first type of pattern-breaking behavior is the idea of starting a movement, which we could get to. But the other thing you have to have is the courage to be disliked, because the present is going to fight back, and it's not going to fight back fair. The word 'status quo' has the word 'status' in it, and there's a lot of people who maintain the status quo to maintain their status and their success, their prosperity. If we take the example of Lyft, Lyft decided to launch an illegal service, and most people wouldn't do that. Most people would be uncomfortable launching something that they knew was illegal. But the alternative was to ask for permission from the San Francisco government, which they would have certainly said no. And so the only way you're going to be able to negotiate with the government is if you have a product that people love, where all of a sudden the government is seen as taking it away from their citizens. And so they had to risk the consequences of launching something illegal to make that mission come to reality in the real world. What most people do is, they don't take pattern-breaking actions. They want to fit in, and they want to not ruffle too many feathers. As a result, the present has a weapon to use against them to impede their progress in fulfilling their mission. As a pattern-breaking founder, you have to decide that you care about fulfilling the mission more than you care about making everybody happy or making friends with everybody; you have to have this courage to be disagreeable in order to make these things come about.

SPENCER: Lyft is an interesting case because they literally were doing something illegal. A lot of startups are obviously doing legal things, most startups. Do you feel that they still have to deal with a similar kind of pressure?

MIKE: I find, for the most part, they do because, ultimately, most startup ideas that achieve breakthroughs are a disagreement with the present. Ride-sharing was a disagreement with the taxi medallion system. Airbnb was a disagreement with the hospitality infrastructure of the hotels. And in all of those cases, the present fought back. The hotels tried to pass legislation that made it unattractive for short-term rentals, for example, in lots of cities. You're always going to see pushback if you have a breakthrough. People are conditioned to like things, and they're unsettled by new things that challenge their assumptions about how the world works. And this isn't true just in startups. It's true in all endeavors that are creative. In science, when Copernicus said, "I agree with Ptolemy that the sun is at the center and the Earth orbits the sun," he was put under house arrest by the Catholic Church, and the Catholic Church didn't come to his point of view for another 200 years. Usually, great breakthroughs start out as an idea that seems heretical, that most people dislike, and it's the challenge for the founder to find the people who are prepared to believe what they believe, who are prepared to move to that different future with them, and work with those people first to co-create the future, and then eventually the rest of the population comes along with them, and what was once heresy becomes the accepted new conventional wisdom.

SPENCER: It seems to me that, when startup founders are first starting out, a lot of the negative sentiment they get is more just around skepticism of their idea, like, "Oh, that probably won't work out." Maybe some friends will be supportive and give them encouragement, but a lot of people will be skeptical; whereas, as a startup grows and gets bigger and bigger, eventually it's going to start eating someone else's lunch. Some other big players who were making money will eventually not be making as much money because of them. And that, to me, seems like a really big phase transition where now, there are powerful players that are like," Hey, you're taking what's ours," and now they're going to try to crush you. Do you agree with that framing, that there's that phase transition?

MIKE: 100% agree with it. Look at Elon Musk; he launches an electric car company and he launches a company that puts rockets and satellites into outer space. And now, when he's helping the Ukraine with SpaceX, people are saying, "Well, why should one business person be that powerful? Who gave him the right to be that powerful?" Whereas, when he first started, he had to go through just unrelenting pain in both companies to even get him off the ground and have any chance at all of survival. So you're exactly right. I find that the founders at the front end, they're ridiculed. People don't agree with them, people don't care about their ideas, or people think it's stupid or that it can't happen. But then ironically, when they succeed, they get accused of being too powerful, or they get accused of cheating, or they get accused of being bad people somehow. Sometimes it's even harder for the founder after they've succeeded, because it's like, "This was my life's work. I worked really hard. I overcame all these obstacles and barriers. And now that I'm on the other side of it, everybody's criticizing my life's work." And it feels very personal to them, and so that's something that they have to come to grips with over time.

SPENCER: Do you think startup founders that are very successful tend to care less about people liking them or thinking they're doing a good thing than others? Or do you think it's just that they tend to be so attached to their vision and so driven that they put up with it despite actually hating that negative feedback?

MIKE: I think both are likely true at the same time. There's psychological frameworks that profile people. I imagine you've talked about some of this on prior shows.The OCEAN framework, for example, the big five: you have openness to new ideas, conscientiousness, extraversion, agreeableness and neuroticism. And a lot of people index high or low on those factors. And what we find quite often is that great startup founders — especially the pattern-breaking sort — index low on agreeableness; they're actually more disagreeable. And they're disagreeable in a couple of ways. They're disagreeable in terms of how they come up with their ideas; they don't assume that the world is going to always be the way it's been. They're willing to entertain the idea that we're not doing things the best way. It's the disagreeableness with conventional wisdom. But then the other type of disagreeableness is the willingness to engage in the types of behaviors that most people would find disagreeable. Disagreeableness is often a trait that benefits these founders because it allows them to pursue their missions with the type of zeal that they need to succeed and overcome the inertia of the present.

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SPENCER: I was on a grand jury recently where, for two weeks, I saw something like 40 different court cases that we had to say whether there's enough evidence to indict or not, and it reminded me of these old school social experiments that psychologists used to do where they'll have people in a room and they'll start pumping smoke into the room. It will start filling with smoke, and people won't say anything. And they won't say anything because they look around and they see others are not saying anything. And I had a little bit of a similar taste of that in a grand jury where something weird would happen, like the prosecutor would say something that didn't really make sense. And I'd look around like, "Hey, doesn't everyone realize that this doesn't make sense?" But nobody would want to speak out because it was kind of awkward and uncomfortable, and it would derail things and everyone wanted to go to lunch, and all these really stupid little things. But at the end of the day, it adds up to... It's a little bit socially frightening to go in front of the whole room and challenge the prosecutor. [laughs] But a startup founder, I think, has to deal with a lot of that. A lot of standing in front of the room and it's uncomfortable, and someone's disagreeing with you who's more powerful than you. It's just a kind of thing you have to get used to doing regularly, and most people really aren't up for that.

MIKE: Yeah, I think that's right. And this is one of the things that a lot of founders find challenging; some, to be honest, may not be well-suited for it. But the other thing I've learned about the disagreeableness piece is that, if you have a true breakthrough idea that breaks patterns, it goes with the territory that most people aren't going to like it at first. Human beings are conditioned to like things. And if everybody likes your startup idea, it's probably too similar to what they already know, which means that it's probably too similar to the present, which means that it's too incremental. Most of the great startup ideas that I've seen, they seem wrong, or they hit different, or they offend people, or they seem stupid, or they seem like a toy. They're off-putting in some way to most normal, conventional people. But then there's a tiny fraction of people who are like, "Oh my gosh, I've been waiting for this. Where have you been all my life?" And so when the startup founder starts a movement, what they need to do is to recognize who's potentially ready to move and who's not, and to spend their time with only those who are ready to move in the early days because, otherwise, they're just wasting their time. They're wasting their time with people who won't do anything, and they're also getting bad input about what the product should be. What they want to do is, they want to find early people who are ready to move and move them with themselves to that future of their design. And in so doing, the founder co-creates the future with their early believers, with their early employees, their early customers, partners, investors. It's empowering when you realize that, in order to be on the right track, it's by definition true that most people have to dislike the idea, that most people have to push back against what you're doing. That doesn't mean that you're right; you could be non-consensus and wrong. But you can't achieve greatness without departing from the consensus.

SPENCER: Have you had real examples where a startup pitched you and you're like, "This idea is just so idiotic," and then it ended up being some huge success, and you were surprised by that?

MIKE: Oh, yeah. Justin.tv was a terrible idea. I'm sitting in a coffee shop and I'm talking to the guys from Weebly, and then I see this guy walk into the coffee shop, and he's got a baseball cap with a camera that's wired to a backpack. He walks in the coffee shop, and I'm thinking, "Boy, that's kind of strange, even by Silicon Valley standards." And the Weebly guys say to me, "Hey, did you get your email?" And I said, "What are you talking about?" They said, "Well, we're friends with this guy, Justin Kan, and I think that you would like him. Is it okay if he pitches you?" Right as they're saying that, Justin is walking up to the table, he sits down, and then he shows me his laptop, and I'm on the laptop because the camera is pointing at me from his baseball cap. And he says, "I'm Justin Kan. I'm creating a 24/7 reality show about my life." And I say, "Justin, that's one of the dumbest ideas I've ever heard." And he's like,"You're supposed to be a seed investor. Why are you crapping on my idea?" And I said, "Because it's not even a reality show. Reality TV is you film something for a week and you edit it down to the 20 most interesting minutes. Nobody wants to watch you all the time. That's not what reality TV even is. But while you're at it, what's in your backpack?" And he explained to me that the internet was a hostile networking environment, that he had to be able to broadcast live from anywhere. And so co-founder, Kyle Vogt, had created a fusion of EV-DO cellular technology combined with streaming technology over the internet. And I thought, "Hm, that's interesting," and so I ended up writing them a check, thankfully, but writing them a check virtually certain that they would change the idea because I thought it was one of the craziest, dumbest ideas I'd ever heard.

SPENCER: That's really funny. I remember when I first learned about these services that would send you the ingredients to cook food. My reaction was, "This is the stupidest idea I've ever heard. You either want delivery because you want to eat food, or you go cook because you want to cook. Why would you want this in-between thing where it's already half-made and then you just assemble it?" I just completely didn't get it. And obviously I'm completely wrong; these things have been a huge success. It's just funny how we can be so certain that something's idiotic and just not see the potential there.

MIKE: There's a story I've always liked. You may have heard this. There's two fish swimming in the ocean — little fish — and then a big, wise old fish swims up and says, "Morning, boys, how's the water?" And the little fish swim a little bit further. And then one of them says to the other, "What the hell is water?" You realize that there are things that we see all around us that we assume are given, that we assume is just the way things happen in this world. When the iPhone 4s came out with a GPS locator chip, most people didn't know that the thing that was in their pocket had a new form of empowerment that could change the future. But occasionally, an outlier founder does; they do notice something like that and they change the future. Everybody talks about reinventing the wheel. The wheel was originally mounted horizontally to make pottery, and that was actually a great innovation. The ability to spin the wheel while you made the pots radically improved the time and quality of these pots. It wasn't for another 500 years until someone got the bright idea to mount the wheel vertically to enable propulsion and transportation. Just because you have a power doesn't mean you know you have it. Somebody has to recognize the power. Somebody has to recognize the opportunity to break the pattern and implement something. The Wright brothers were a couple of bicycle mechanics. Sixty-nine days before they flew at Kitty Hawk, the New York Times had an article called, "Flying Machines That Won't Fly," and it talked about how it was a waste of time to even try to build airplanes, and that it could take a million years before scientists would have the scientific underpinnings and technology to make a plane. Ironically, it was the experts that were encumbered by their current understanding of the way the world works that couldn't visualize the possibility of an airplane. And it was a couple of bicycle mechanics who just tinkered with the mechanics of the plane that figured it out. Quite often, for that reason, it is the outsider who breaks the pattern, because they have the luxury of the beginner's mind.

SPENCER: And yet, most of the time the naysayers are right. [laughs]

MIKE: Most of the time, they are right. That's the catch-22. In order to have a breakthrough, you have to be non-consensus and right. But when you start, you don't know for sure that you're right, because if you knew that you were right, you would already know the future. You only know that you're non-consensus. You have an instinct that you're right. So you have to risk being wrong for the opportunity and upside of being spectacularly right. There's no way around that. That's true and, in any discipline, if you're going to be truly great, if you're going to have a breakthrough, you have to depart from the consensus. You can only be slightly better than the average if you stay within the consensus.

SPENCER: It's often said that 90% of startups fail. Do you think that that's an accurate number?

MIKE: I think that's probably about right. I think that the data that I have suggests that 85% of the time, the startup doesn't achieve enough success for the effort to have been worth it, from a time and cost perspective.

SPENCER: 85%? And does that have pre-filter applied, where already those startups have gotten (let's say) far enough that they could pitch you or something?

MIKE: If I just look at data... I asked some of our investors, "Can you tell me, of all the companies that funds have invested in over the last 40 years, what percentage of them made 5x or more and what percent didn't make 5x or more? And it turns out that something like only 15% make 5x or more, and then the rest don't make 5x. If you're going to have an outcome where you make 5x or less, it wouldn't be worth the risk and the agony and the sacrifice, if you knew that going in. It becomes worth it if the upside is wildly asymmetric if you're right. What you want to find is the situation where, in the event that you're in the 15% that are right, that the magnitude of your rightness is so great that you have a huge outcome.

SPENCER: It seems to me, though, that those numbers might even be a little overly optimistic, because if you're reaching out to investors, that means that these are startups that manage to get themselves in front of these top investors, and not every startup does, right?

MIKE: Yeah, I think that's probably right, Spencer. I think that the failure rate is probably higher than even 85%. Part of why I wrote this book was not just to explain the mechanism for how founders think different and act different; my goal was also to help founders as they come up with their startup ideas. What you find about these startup ideas is that some of the ideas sound bad, but they're actually good, like Justin.tv. Well, maybe I should put a finer point on that. Justin.tv was a bad idea, but it was a good opportunity. It was an opportunity worth pursuing because it embodied inflections and it embodied an insight, and Justin was a good match for the future that he was trying to build. There are other ideas that sound plausibly good that aren't good. An example might be Fanbase, social network for sports fans. Most people, when they hear that, they're like, "Oh, that sounds reasonable. I could see that working." But the problem is, there were zero desperate people for that, so it wasn't a big business opportunity. So the book is intended to help a founder stress test their ideas. If I have an idea, I can ask, "Okay, what is the inflection? Okay, what's the specific new thing that happened in the world that didn't exist before? How does it empower people? How much empowerment does it provide? Whom does it empower? Under what conditions might that empowerment happen or not happen? And then, okay, what's the insight? Okay, the insight should harness inflections. What inflections does it harness? What does it bring about that's a radical change? What is non-consensus about it? Why is it right and non-consensus? Does this idea come from the future, or does it come from the present? If it comes from the future, what future was the founder living in? Why was that the future?" What I tried to help the founders do is stress test their ideas so that they could decide whether it was worthy of the sacrifice and commitment and time. Because, to me, the number one way to fail as a founder is not success or failure in the traditional sense. It's to be two years into a startup and realize that you don't want to do it anymore because the upside isn't there, and now, all of a sudden, you're doing it, not out of passion, but obligation. You have employees, you have investors, you made commitments that you can't unmake. And so what we're trying to do is help founders assess their ideas and then hopefully pursue risks that are more likely to put them in that upper 15% or even higher percent of success.

SPENCER: We'll put a link to Pattern Breakers in the show notes for anyone interested in checking that out. One thing that confuses me a little bit is, if you look at the writings of Paul Graham, founder of Y Combinator, it really comes across as though he thinks ideas are unimportant, and that really it's about the team who's doing it, and that if you bet on the right team, it doesn't really matter what their ideas are. Okay, maybe some ideas are so bad that you wouldn't invest but, mainly, if it's a good team, that's a good bet. It seems a bit incompatible with what you're saying. Is it a different perspective than he has, or is there a way that it actually fits into what Paul Graham argues?

MIKE: Yeah, I think it mostly fits. I have a very high opinion of Paul. In fact, I remember the early days of YC; I would go to the batches, and he would call me in the morning and make sure that I was going to show up because there would only be a handful of investors at demo day, and a handful of companies. Let me see if I can reconcile it. First of all, I think that Paul would probably say that the ideas can change a lot, and so the capabilities of the founders are what they are. Some founders are just more capable and more entrepreneurial and more well-suited for creating breakthroughs than other people are; whereas, the ideas can vary quite considerably through time. Now I would say, though, it's not just about the founder. For example, Justin Kan, he started Justin.tv, which became Twitch, and was a huge win. The next company he started was Atrium, which was a company that was focused on legal services and automating legal tasks and work, and it was unsuccessful. I think part of the reason was that Justin was not intrinsically motivated by the legal space. He wanted to be a higher status founder like Patrick Collison or like Brian Chesky, and so he wanted to have an even bigger company than Twitch had turned out to be. But he didn't have any innate passion about legal services; whereas, when he was doing Justin.tv, actually, I think Justin wanted to be an influencer before there was such a term. He liked the idea of broadcasting his life. He liked the idea of stirring the pot and seeing what happens and just trying a few things out to see how he could shake things up. And so the term I like to use for it is 'founder future fit.' And I believe that, if you look at Eric Yuan when he started Zoom, he'd been at Cisco WebEx for ten years, working on video conferencing software all the time. If you look at Justin, he wanted to be an influencer, and he was excited about expressing himself in the new way that was happening. So I think that your idea can change a lot — the specific implementation of the idea can change a lot — but the authenticity of the founder to the future that they're pursuing, I think, is important, and I think that that's something that Paul and I would likely agree on. I think that I've heard Paul even mention authenticity as an important trait, but I think that where we would probably strongly agree is that an authentic match to the future is more important than the implementation of the product right now. Because we don't know how the founder is going to juke and jive and change the idea and how they might modify things, but if they're an authentic match to that future, that's a very strong signal that they're likely to lock on to the right value proposition.

SPENCER: So do you think if he found that one of his founder teams was pursuing an idea that just wasn't really a fit for their passion or their insight, that he would nudge them to a different idea?

MIKE: Oh, yeah, that happened quite frequently. When I talked to Justin back in the day, they had all kinds of ideas, and so they had created this Ajax calendar called Kiko in the first YC cohort, and Google decided to come out with Google Calendars. And so Emmett and Justin say, "Okay, well, we're out of business. We need to sell this." And they end up selling the company on eBay for 250,000 and so then they come back to Paul and they're like, "We kind of like this startup game. We made a little bit of money. We've got a couple of other ideas." One of their ideas was, take stuff from your website and turn it into a scrapbook. And Paul was like, "I don't really like that idea and I don't see why you guys are well-suited to that idea." And then Justin said, "Well, the other thing that we've been thinking about is this idea of a live reality show," and Paul was like, "I'll give you money for that just to see you try it, because I just think that's the right kind of crazy. And if it doesn't work, who cares? But that's the kind of thing that could be different enough that it could be interesting." So I do think that Paul probably nudges people in the direction of authenticity more often than some people appreciate.

SPENCER: The Emmett from that story, that's Emmett Shear, right?

MIKE: Yes, yeah.

SPENCER: He was a former Clearer Thinking podcast guest, if anyone wants to check that out. Very interesting discussion.

MIKE: Yep. Yeah, Emmett is rarely boring. [laughs]

SPENCER: Yeah, rarely boring. That's a good way to say it. Another question I have for you: you mentioned briefly that pattern-breaking behaviors don't just involve the courage to be disliked, but also starting a movement. But we didn't really get into that. What does that mean, starting a movement?

MIKE: Yeah, that's right. I'm glad you returned us to that because it's important. Startup markets happen differently from normal markets, and the mechanism that I've seen that animates startup markets is what I like to call 'movements.' When I first heard of the term 'movements' — and maybe others would agree — I used to think of them as more of a social thing or political thing. I would think of the civil rights movement, for example. If you think about what is a movement, a movement is a minority that sees a different future, that has a grievance with the majority, and that wants to move to that different future and convince other like-minded people to move with them. And just like a pattern-breaking idea forces a choice and not a comparison, a movement also forces a choice. So if you're deciding whether you want to follow Martin Luther King, you either believe that people should be judged by the content of their character, not by the color of their skin, or you don't. There's not a gray area there in terms of that belief. What happens with these startup movements is, the founder is in a different future, and they need to get other people to move with them for their different future to become real and not just an idea. And so what they do is, they find early believers, and this is important. Believers are animated, not by utility; they're animated by belief. They want to self-actualize a better future that makes them feel transformed. What the founder does is, they recruit like-minded early believers. I like to call them 'co-conspirators.' That could be true of the early employees of the startup, that could be true of the early customers, the early investors. And this is important. Those early believers are not the mainstream. At first, they're kind of the French who believe what they believe, who believe the contrarian insight. So what happens with the startup is, you start moving people — at first slowly — to that different future, and then more and more people start to see the power of that different future, and they start to join as well. Pretty soon, there's more social anxiety associated with staying with the status quo than moving and then, eventually, what was once a heresy becomes the conventional wisdom. Movements have a few characteristics that are important. The first is an appeal to a higher purpose; Tesla does a good job of this. If you look at their mission, they don't even say cars in their mission statement. They say, "We want to accelerate the world's transition to clean energy, to sustainable energy." They don't say we're going to be better at cars than Toyota; they don't even talk about the fact that they make cars. The reason that you want to appeal to a higher purpose is, you want to animate the beliefs of early believers. And early believers aren't going to say, "I just think that this widget's better than that widget," type of thing. They want to care about something that matters more than that. But then what you also do is, you turn the strength of the status quo into its biggest weakness. A good example of this is what Airbnb did. They didn't say hotels are bad. They just said, "Okay, well, if you want to stay at the Four Seasons in Paris, you can do that. It's going to be in the center of the town where all the other tourists are. It's going to be just like a Four Seasons in New York or Austin or San Francisco. Would you also consider living in Paris like a Parisian would? Maybe you want to live in a 17th century apartment on the left bank, overlooking the river or overlooking the Eiffel Tower. If you're interested in that, you should live like a local." But see, here's the point. Four Seasons has persistently compounded over many decades, the advantage of having common experience and great hospitality and a predictable type of set of amenities. Now all of a sudden, Airbnb turns what was perceived to be the greatest strength and finds the weakness in the strength and uses that to reposition them. And so what you want to do when you start a movement is, you want to show the embedded problem of the status quo and turn it into something that they have to apologize for, rather than leverage in their fight against you.

SPENCER: I imagine that it also makes it a lot harder for the incumbent — who usually has way more resources, way more size, way more influence — it makes it harder for them to combat you if the way that you're deviating is fundamental to their operations or who they are,

MIKE: That's exactly right. There's an expression I like to use: Better doesn't matter when it comes to startups, for this reason. We have to be radically different. Another example would be the original Tesla Roadster. It would not have survived a comparison with a Porsche 911 on traditional terms. Its build quality wasn't as good. Its seats weren't as comfortable. It was really low to the ground. It had a crummy radio and air conditioning. By normal standards of luxury, it would have failed in the comparison. But people didn't buy the Tesla because they thought it was a better utility value of a car than a Porsche 911; they bought it for aesthetic reasons. They bought it because they had a shared belief in the future that Elon was articulating with sustainable energy and electric cars and environmental clean tech. You need that to happen. You need to find a way of avoiding the comparison trap entirely. And then when you engage in these pattern-breaking actions, when you create these movements, you want to avoid the temptation of the conformity trap, because the world will try to get you to conform to established ways of doing things. And in so doing, they'll interfere with the progress of you achieving the mission. So the movement is the mechanism that the startup founder harnesses to create this groundswell of momentum among early believers by casting the status quo as bad, by appealing to a higher purpose, by finding the weakness in the strength of the status quo, and by emphasizing the choice framed to their advantages.

SPENCER: You say that better doesn't matter. But isn't it true that in most successful startups, their product is better, at least in one dimension that the users really care about, even if it might be worse in a bunch of other dimensions?

MIKE: It would be fair for you to probably say that; it may also be kind of mincing words. On some level, there's some notion of betterness. The way I think about it though, Spencer, is that better doesn't matter in the following sense: we're trying to find customers who say, "Where have you been all my life? This is extremely empowering. I can't unsee this. I've got to have it. I'm desperate for it." And so we lose as a startup if the early believer says to Elon Musk, "That Tesla Roadster, how does it compare to a Porsche 911?" We lose when we fall into that comparison trap, and that's what I mean by 'better.' Better means I'm going to compare it with something else. 'Radically different' means, 'I can't unsee that. I've got to have that. I want to pursue this different future that now I can't unsee.' And so what happens too often with startups is, they underestimate the threshold of difference required to get people to move. They think that they can be 20% better, 50% better, and that's why I say better doesn't matter. It's a little bit of a colloquialism, but better doesn't matter in the sense that, if you can be compared to what's come before, you're going to lose because you've unwittingly bought into a context which is to compete by the rules of the incumbents.

SPENCER: This reminds me of the idea of controlling the frame of the situation. There's ways that this can be bad, like frame control in a cult can be really manipulative. But as a startup founder, there's also a large element of framing your product, and part of this is about how you want them to think about your product, what product you want them to compare it to, in what way you want them to compare it. So I'm just curious how that fits into this.

MIKE: I love this question, and it's a great segue. In order to succeed in creating a movement, the founder tries to become a good storyteller. And when I describe storytelling, I mean the hero's journey story primitive. Stories existed even before the written word. And what happens in a story usually is, you have a hero, and they live in the world that is, and then you have a mentor, and the mentor engages the hero in a call to adventure. And the mentor has some type of magic and some type of a tool, and they say, "Hey, come with me on this adventure. We're going to beat the bad guys, and you're going to be transformed, and the world that could be is much better than the world that is." And so then what happens is that the hero usually resists the call. Something bad happens to the hero that causes them to accept the call. Then they go on the adventure. They meet a bunch of co-conspirators. They vanquish the bad guys. They come back with the elixir. They emerge transformed. What's interesting is, a lot of great startup movements map to the story primitive. If you look at (say) Lyft, which we talked about a little bit earlier, you have people in San Francisco who want to get somewhere, and it's really hard because taxis almost never show up in San Francisco. Taxis were way worse in San Francisco than they are in (say) New York. And so everybody knew that taxis were terrible. Everybody knew that they didn't come very often. When they did come, they would come late and they wouldn't let you use a credit card, or if they did, they'd swipe it in these triplicate machines. It was a mess. So that's the world that is. Then the founders of the startup — and this is really important — the founders are not the hero; they're the mentor. The customer, the person being persuaded to join the movement, is the hero. And so what Logan and John do is, they say, "Hey, we've got this new thing. It's called a ride-sharing app, and it'll show you the cars on the map in real time, and you'll know when it's going to show up, and you'll know who the driver is because of their profile. And you can pay for the service within the app. You don't have to have any cash. There's going to be ratings and reviews, and you know how good the driver is." What's interesting is — and this is where the genius of the pink mustache came in — it was honoring the fact that people had a need or a right to resist the call. "Hey, you want me to get in a stranger's car? That sounds a little bit scary and kind of crazy." So the pink mustaches, now you'd see these cars driving around San Francisco with pink mustaches. People would talk amongst each other, and they'd say, "What's up with these cars with pink mustaches?" And somebody'd say, "Oh, haven't you heard? There's this new thing called Lyft, and you can ask for a ride. Check it out. Here's what the app looks like." So it gave the early riders a little bit more of a reason to give the service the benefit of the doubt. It gave them a reason to accept the call to adventure. And so what you end up realizing is that... And by the way, there was the tool and the magic, too. The tool was the app. The magic was the insight that rides could be shared. And so when we have the product as the tool and the magic as the insight that governs the tool, people want to know what those things are because they want to know that they have a credible chance at succeeding in their journey. And so, Obi Wan goes to Luke Skywalker and says, "Hey, there's this thing called a lightsaber, and there's this magic called the Force. And the reason you should care about those things is that they're going to be the weapons that you have to beat the Empire." Before I tell you about these two things, it's probably not credible to think that you could be a hero with this journey. But now, all of a sudden, there's a basis where you can become the hero. And so when you're the startup founder, you're not Luke; you're Obi Wan. The early employees are Luke. The early customers are Luke. The early investors are Luke. The press that writes about your company, and all of them become a hero in a different way. The investor wants to make money. Startup employees want to build something that they're excited about with other awesome people. The partners might want to accelerate their penetration into a new market. A press reporter might want to get a story that their readers like. All of them become a hero in a different way. And so the storytelling of the founder needs to match the ambitions of each of those different types of people to have their own hero's journey of their own lives in their own way.

SPENCER: It's fascinating. I've never heard the hero's journey fly to startups before.

MIKE: Yeah, it's one of my favorite learnings. I learned a lot about this from Nancy Duarte, who helped Al Gore do "An Inconvenient Truth" and she showed me, one time, Steve Jobs' iPhone speech. And she'll say, "Notice how he shows the difference between the world that is and the world that could be. He talks about how nobody wants these keyboards, nobody wants a stylus. Wouldn't it be cool if you could really surf the internet? Nobody wants small screens. Nobody wants a lack of audio. Nobody wants to have multiple devices in their pocket. Wouldn't it be cool if you could have them all in one pocket?" Great storytelling toggles between the world that is and what's wrong with it, and the world that could be and what's bliss about it. Abraham Lincoln does the same thing in the Gettysburg Address. You know, "Four score and seven years ago, we started a country. Now we're in a civil war. These people fought really hard. We need to have a new birth of freedom." Great storytellers create this dynamic tension between the world that is and the world that could be. And they summon early believers to find the tension unacceptable. They can't tolerate living in the world that is anymore. It's too mundane of a world. They're called to join the world that could be. And so that's where storytelling comes in.

SPENCER: Do you think some startup founders are too good at storytelling and they end up building something of no value just around a great story?

MIKE: I think so, and I think that it's one of the risks that (I like to say) I can sometimes confuse charisma with authenticity. You can sometimes have a founder who's very charismatic and could tell a really good story, but they're not authentically motivated to bring about that different future. They're really motivated to just have their own power and their own fame and their own get-rich-quick scheme. And you see some of that. You see some bad behaviors where you have the very charismatic founder taking a bunch of people on a ride, but they're not taking them to a better world; they're taking them on an ego trip. And so part of what I also try to do when I invest is stress test the idea for: does it have the inflections? Does it have the insight? Does this person authentically live in the future? Are they really obsessed with making that future come about, or are they just obsessed with being a founder?

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SPENCER: When you think about a case like Theranos run by Elizabeth Holmes, people talked about her like a Steve Jobs. She would talk about this vision of having this device in our homes where we can do all our blood testing and get medical treatment right away. A lot of people were very persuaded by that vision and very inspired. Famous people would meet with her and just seem to immediately become believers in her vision. It's really interesting to think about a case like that where, was this someone who was just a fraudster from the beginning, who is just pulling the wool over everyone's eyes? Or was this someone who actually was trying to do a thing in the world and was telling a story that, if it had worked out, everyone would be like, "What a genius. She really was the next Steve Jobs." But somewhere along the journey, as it failed, she stepped into committing fraud. Maybe it wasn't fraud the first two years, maybe it wasn't even the first four years, but at some point, it became a fraud,

MIKE: Yeah, and it's hard to know. I never knew Elizabeth Holmes, particularly when she was doing Theranos. And this is where people can be deceived, and this is where cults can happen, like you mentioned earlier. Storytelling is persuasive. It works. When you hear a good story, involuntary things happen in your body. Your heart rate might increase, you might sweat, your pupils might dilate. Storytelling has a very powerful impact on our fundamental, innate human wiring and how we decide how to spend our time and what we care about. And so we have to be always on the lookout for someone who's telling a good story, but they don't have the substance to back the story up, that they're just using storytelling as a substitute for creating real value, and they're using it to deceive people and to manipulate people, rather than to move people to a better future.

SPENCER: The way I tend to think about this is that there's the story aspect — which I think of as hype, is a phrase I use — and then there's the value that you're adding to the world. And a lot of the things that succeed in a really big way have both to sufficient degrees where they combine the hype and the value; whereas, if they are just pure hype, it ends up being essentially like a fraud, or maybe not fully a fraud, but something in that ballpark. And if it's just value with no hype, a lot of times, it just doesn't get traction; it just can't take off. Do you agree with that or would you disagree in some way?

MIKE: I would agree with that. Yeah, I think that's right.

SPENCER: Before we wrap up, I wanted to ask you — kind of changing topics a little bit — about innovation more broadly. Do you think that the US has become less innovative or do you think it's still the innovation powerhouse of the world?

MIKE: One way I think about the US is it's comprised of a whole bunch of different institutions: Fortune 500 companies, startups, universities, government agencies, the military. And it kind of comes full circle with this startup capitalism idea. Some institutions are very valuable because they create persistently compounding value. Some institutions, unfortunately, get to a point where their ability to create value gets compromised, and they become more interested in preserving their power and their status than they are in fulfilling their original mission. And then you have startups that hopefully change the subject. There are times where I think you need to start over, and there are times I think you can improve the existing institution, and there are times where a big existing institution is working spectacularly well. I think that the United States has examples of all three: big institutions working well and not working well, startups working well and not working well. So I think that what is good about the US that is sometimes underestimated is just the dynamism. For example, the reason I think that the University of Austin is important — this new school that is trying to innovate in a lot of ways in their curriculum and their student body — I don't know if it'll work or not, but what matters is that it can happen, that we can have universities that don't do it just the exact same way that the university industrial complex does it, and that that complex gets to have absolute veto power on what schools get credentials and which ones don't. I have an opinion about certain institutions in our society. I don't think the K to 12 teachers union works particularly well. I think that there are a lot of government agencies that don't work very well. I think that our withdrawal, for example, from Afghanistan was shambolic. But there are other situations where I think that things do work well. What I think you need in our western world is an environment where the different forms of the experiment can be tried. And that's what I like about the fact that we have 50 states: you can agree or disagree with the law. If you put the laws to the states, the states can A/B test the laws, and we can see in the real world what works better, what doesn't work so well. And citizens and people can vote with their feet where they want to live. I'm a little bit more concerned about Europe than I am about the US. If I think about the Western world in a larger context, I get a little bit nervous that Europe has fewer of these live players who are creating these new institutions or running their core institutions, if they have too many people who are focused on preserving their status and their prestige, and doing things the way they've always been done because that's the way they've been done.

SPENCER: One time, I was trying to figure out the number of unicorns or billion-dollar startups per million people in different countries, and I couldn't find anyone who had calculated it. So I just went and calculated it myself, and I found it quite enlightening. Do you want to guess where the United States is, by the way, in unicorns per million people?

MIKE: Oh, that's interesting. I would guess that we're pretty high up, but not at the very top.

SPENCER: Yeah, you're exactly right. We're number three. The only countries higher were Singapore and Israel. Europe wasn't doing so great. You had the United Kingdom down at number 11, France at 12, Germany at 15, so definitely lagging far behind the US. One thing I wondered about that — I don't know how well you know the economies or startup scenes in Singapore and Israel — but do you see them doing anything especially interesting that might explain why they're at the top of the list?

MIKE: Well, I think that there's a couple things. I think they benefit by being small. The number of units — the denominator — is a lot smaller in terms of the number of people.

SPENCER: Right. As of 2022, Singapore had 13 unicorns; whereas, the United States had 644. So it's a pretty big difference, yeah.

MIKE: Yeah. And I don't know what the population of Singapore is, but I'd guess it's tiny compared to the US.

SPENCER: Yeah, I think it's about six million, if I'm not mistaken.

MIKE: Okay, and if my memory serves me, I think Israel is somewhere in the neighborhood of ten million-ish or something.

SPENCER: Yeah, I think that's right.

MIKE: So I think part of it is, they're just smaller.

SPENCER: Fair, but most smaller places don't even do anywhere close to that well.

MIKE: And I think that also Singapore and Israel, in some ways at the country level, are like new institutions, and they've had the benefit of modern governance. I think that that's helped. And I'm sure there's other factors, too. I probably haven't thought about it as much as I should, but I think that those factors have helped as well. The thing that amazes me about the United States is that it can be that dynamic and that large.

SPENCER: Well, that's where it really blows everyone else out of the water, being so big and number three on the list is really kind of nutty.

MIKE: Yeah, it's pretty wild. Hopefully, that'll persist. It's interesting because there are a lot of things about the United States I think could be way better, for sure. But one of the things that I think can get lost in this is that dynamism is always messy. Dynamism always has tumult and unrest. You're going to always have tribalism. You're going to always have disagreements. You're going to always have profound, diametrically opposed views. You need that in a dynamic society that's going to be energetic, that's going to be adaptable. I think that some of the things that are happening, I don't like, and I don't really want to get into my politics too much but, a lot of it, I don't think is good. But for the most part, I think that a lot of it comes with the territory. I'd be a lot more worried if there was absolute harmony all the time, because then I would be concerned that the patterns aren't being broken, that there aren't new, dynamic opportunities, and that we're not changing and moving forward fast enough.

SPENCER: There are these two perspectives, and I think both have wisdom in them. One is that, over time, institutions become ossified and bureaucratic; they just become self-perpetuating, and they're no longer about the thing that they started to be about. They're now about just perpetuating themselves, and so they need to be shaken up. And I think that that's significantly true. At the same time, there's this other piece of wisdom which says, we don't fully understand why things are working so well, why we're not living in chaos and anarchy, and it probably has something to do with having good institutions, and they seem to be working well enough that society functions actually really quite well, compared to the past, but also compared to many places in the world,.There is wisdom in not shaking things up too much. So I'm wondering, yeah, how do you think about balancing those two?

MIKE: Yeah. There's a book that I really like that was written in 1970 called Exit, Voice, and Loyalty, and it was written by Albert Hirschman. What he basically said is, if you're part of a society or an institution or a country, you can show up in three different ways. You can be loyal; the canonical example would be the patriot who says, "My country's right no matter what," maybe even jingoistically patriotic. If you're in a church or a religion, you believe 100% strict interpretation of the Bible, for example. Voice is, "I like most of it but there's some things I don't like and I'm going to express my opinion; I'm going to say I don't like this." And then exit is, "I just leave altogether." What I've come to believe is that you want to have all three in a society. Exit is what gives voice its power. If I can take my citizenship business elsewhere, or my money business elsewhere, or my customer loyalty elsewhere, now you're accountable to me in a different way. Now, if I say, "Hey, I don't like what you're doing," you have to listen; whereas, if I can't exit, now, all of a sudden, I can complain, but you don't have to do anything, because I'm captive. And so exit is what gives voice its power. When I think about (say) our university system, I think there's a lot of things wrong with it, but my solution tends to be not to try to figure out how to build the best university, because I don't know; I'm not really qualified. My instinct is to say we need to create the conditions where new ones can be created, because it's that dynamism and tension between exit, voice, and loyalty that forces an accountability mechanism in all these institutions. Where you run into problems is when you have an institution that, even if you're not loyal to it, you can't exit it, and you can't exercise any voice about it, and It becomes oriented not towards fulfilling its mission that it was intended to fulfill, but it becomes oriented towards just preserving its status, and for the people within the organization to preserve their status.

SPENCER: So do you think that there is enough ability to opt out that it does create that pressure to improve?

MIKE: I would like to see more. And by the way, this is why I'm a big fan of (say) Bitcoin, because I think that the US government will have more of an incentive to be a more responsible steward of the dollar and our spending if people can take their money business elsewhere. I think that that creates an accountability that's long-term positive; whereas, before Bitcoin, if the US decides to just print a lot of money, they can say, "Well, yeah, I know we're printing a lot of money, and we're going into these crazy deficits, and our debt is gigantic, but we're no worse than the yen, or we're no worse than the euro. Everybody's going into debt. Everybody's fiat currency is being debased." There wasn't really an option to exit. Now you can, at least partly, exit the dollar, and go into these other types of assets. That would just be one example. But I think that we need examples of that in our education system. I think we need examples of that in business and in the military. For example, I think it would be great if our military said ten percent of our budget is going to always go to companies that are younger than ten years old; just the act of doing that would create dynamism and an incentive for more startups to try to serve the military. The big companies could still preserve their status or could still compete within a really big sandbox, but you create the conditions for more dynamism.

SPENCER: People who deal with government services often observe that they seem really bureaucratic and slow, and it doesn't seem efficient. And sometimes this makes people feel negative towards governments. And one thing you might think is like, "Oh, well, it's because it's the government, and somehow, the government is bad at doing things." But then you can also observe, if you ever deal with a monopolistic company where you really have one option — like a cable company or the only telephone company that provides a service, or a large bank — I think you often observe the same thing. You're like, "How can this work so badly and be so bureaucratic and slow and inefficient?" It just seems to me that a significant chunk of what's going on there with these out-of-control bureaucracies and inefficiencies is just that there isn't another player that you can go to who is putting pressure on it to improve in these different ways. Do you think that's true?

MIKE: I 100% agree. I think that the way you hold any institution accountable is for the customers of that institution to have choice among competing alternatives. It doesn't matter if it's in the private sector or the public sector. If you don't have that, the institutions will, over time, not hold the needs of its primary customers as the highest-order issue to solve for. And so it's just natural and human nature. You have to have a check and balance. It's disappointing to see, right? There's this California bullet train that somehow was going to get built. I think we've spent tens of billions of dollars, and nothing's really happened. You see Pete Buttigieg on TV a few weeks ago. They've spent billions of dollars, and there's only (like) six chargers or something in deployment. You see a lot of these things where Elon Musk can blast a rocket into outer space at two orders of magnitude less cost than NASA had. You see a lot of examples of that where the cost overruns and the bureaucracy and the inability to build and execute is so profound that it becomes a big problem. But I'm not sure that the best way to reform those organizations is to try to design them better or reform them directly. I think that the best way to reform them is to give them competition and give the customers of their output competing alternatives, and then that forces them to either compete or die.

SPENCER: Mike, thanks so much for coming on the show. It was a fascinating conversation.

MIKE: Yeah, thanks for having me, Spencer. I was really looking forward to this and appreciate your taking the time and just the preparation that went into this. I could tell that you've done a lot of work trying to understand the ideas and showing up ready to have a real conversation. I appreciate that.

[outro]

JOSH: A listener asks: "What big open question about mental health would you like to see answered?"

SPENCER: One that comes to mind is, I find it fascinating how many different treatments have some evidence for them for something like depression. There's evidence that cognitive therapy techniques around thinking about your thoughts differently help. Behavioral activation, which is about positive activities, seems to help. You have treatments around sleep that seem to help some people, treatments around light that seem to help some people. You have new life experiences where sometimes people will go on some crazy life journey, and suddenly the depression seems to be cured. So I think part of what could be going on is that maybe some of these things don't work. Maybe the fact that there's ten different things... You're not even talking about medication, all these different medications that seem to help, or electroconvulsive therapy that seems to help some people. Maybe a bunch of these treatments actually don't work. Maybe it's false evidence, or the evidence has been p-hacked or whatever. But I think trying to understand better why it is that there's so many things that seem to help. Is it that they genuinely all help? And what does this tell us about depression, that all these things help? How do we make sense of depression, if they all do help? I think that's an important question that's not yet answered.