Anti-fragility in the startup world

If you haven’t read Nasssim Nicholas Taleb’s book, Antifragile, I suggest you do.  So did Vinod Khosla in a talk I attended at Stanford Business School, my alma mater, last week.


antifragile

I have almost finished the book and it is stuffed with thought provoking ideas that I want to write about, but I want to choose the controversial subject of the fallacy of entrepreneurship that is endemic in the Bay Area and creeping into London.
First, a brief description of what antifragility is.  Taleb, who also wrote Black Swan, noticed that in this World there are the:

  • Fragile – those systems or objects that will be damaged by an energetic attack or volatlity.  Your china vase and highly leveraged financial systems
  • Robust – those systems or objects that will withstand an energetic attack or volatility.  A plastic cup (to a degree) and smaller, unleveraged bank
  • Antifragile – those systems or objects that will benefit from an energetic attack or volatility.  The Hydra of Greek mythology that grew an additional head each time one was removed or, simply, a financial instrument that increases in value as volatility increases

Back to the fallacy of entrepreneurship.
Taleb writes that the longer a system or object has existed, the longer it will survive into the future.  He is a statistics obsessed person, and so this is purely a concept based on statistics and it stands up to rigourorous analysis.  It’s such a simple concept, but one that made this venture capitalist shudder at first.  He has great respect for the ancient (he is a classical scholar) and great disdain for the new until it has proved the test of time.  He LOVES time as a measure of something’s worth.  In fact it is just about the only thing he measures something’s value on.
He uses numerous simple examples: the utensils we use to cook and how we cook (pots over fire) has not changed in a few thousand years.  We wear similar kinds of shoes as the oldest examples found to date, and in fact latest releases from Nike and the like are more like ancient, thin-soled shoes than the well padded versions we grew up with.  The same goes for ideas – he cites many examples of ancient philosophers who’s ideas are alive and well today (all the major religions for e.g.), usually emulated by moden philosophers who claim to be coming up with something new.  A book that has been in print for 40 years is more likely to last 40 more years than a book that has been in print for 1 or 5 or 10 years.  Aeroplanes and cars have hardly changed in basic principal since they were invented.    He believes that these ancient and old technologies will be around for a lot longer than the brand new given how well they have stood the test of time – they are antifragile at best and robust at least.  What he gets excited about is not what will be new in the future, but which fragile systems and objects will have disappeared in the future.  It’s a reductionist view of innovation.  Futurists may imagine a future full of flying cars and hover-craft, robots and printed hamburgers, but they will probably (statistically speaking) be wrong according to Taleb.  The basics which have been around forever will likely be around forever (statistically speaking – of course there are examples that will buck this rule).
Does this mean Google X should give up on creating driverless cars and other extraordinary innovations?  Of course not – it’s human nature, and particularly Google’s nature, to push at the boundaries.  But they should perhaps consider innovating in a radical way within the realms of this concept.
Does this mean Episode 1 should give up trying to invest in the cutting edge technology it finds in the market?  Of course not.  But we should be aware that we can learn from what has survived the test of time, investigate why it has survived the test of time and perhaps look for old or even ancient analogues to what we find in the market today.  It took me a few seconds on Google to find ancient Greek and Middle Age examples of peer-to-peer lending systems a la Rate Setter or Funding Circle for example.  Perhaps we should also look to invest more in those startups that are attacking and replacing the fragile – like peer-to-peer systems that are disintermediating the large, too-big-to-fail, financial institutions.
 

adrian

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