A friend told me about a young Princeton graduate she knew named Cole. Cole studied mathematics and went to work for a hedge fund directly out of school. He’s now making well into six figures at the age of 24. That’s his whole story to date.
That’s success and the American way. And yet how excited are you about Cole’s trajectory? Think about it for a second. I’ll admit that I’m not too psyched about it, even though I have friends at hedge funds who are very intelligent, stand-up guys and even philanthropists, and I know that hedge funds are positive in that they provide diversified investment opportunities to large pools of capital.
My lack of enthusiasm comes down to a few things. If Cole successfully analyzes an opportunity for the hedge fund and it invests slightly more effectively, that will be a win for the fund’s managers and its investors. But there will very likely be an equivalent loss on the other side of the investment (whoever sold it to them makes out slightly less well for having undervalued the asset). It’s not clear what the macroeconomic benefit is, unless you either favor the hedge fund’s investors over others or have a very abstract view toward capital markets working efficiently.
Cole is almost certainly very smart. But what has he done to merit his almost immediately elevated stature in life? He’s never hazarded anything. He hasn’t demonstrated any outstanding character or virtue, unless you consider studying math and being really smart intrinsically virtuous. He’s never had to go against the grain or go out on a limb. His rewards seem a little bit exaggerated for his accomplishments.
Finally, Cole’s life is very quickly going to become quite different from that of the vast majority of humanity. His housing, education, and professional circles will take him into rarefied air. He’ll donate to causes and he’ll retain an intellectual interest in policy matters. But his experiences are going to be wildly divergent and probably make it tougher for him to understand others’ customary everyday concerns and struggles over the coming years. Ultimately, Cole’s pursuits don’t reflect a sense of value creation, risk and reward, or the common good.
Not to say that Cole’s not a good dude. I have no idea. I’ve never met him. And if your daughter got engaged to him five years from now you would probably think she was all set (and your grandkids would be good at math).
Our culture of achievement has grown to emphasize visions of success that are, for the most part, fairly predictable. Cole skipped a couple of steps. The basic plan is to go to Goldman Sachs, McKinsey, or the like, then maybe to a top-ranked business school, then back to banking, consulting, private equity, hedge funds, or a name-brand tech company. Or maybe go from law school to top firm to partner or in-house at an investment firm, and live in New York, San Francisco, Boston, or Washington, DC.*
Again, these institutions and roles are necessary, and they’re natural developments in our economy. We need them. But we need people doing other things too. We need people willing to take risks and, yes, to occasionally fail. Like real-world consequences fail. We need people committed over extended periods of time to creating value, no matter how hard that is. We need people who care deeply about the work they’re doing.
Imagine someone who you think could stand to take on some risk—someone well educated who would always have something to fall back on, whose family might have some resources so he would be unlikely to starve. And this person would probably be young and free of major life obligations. Someone sort of like... Cole.
What’s interesting is that many of the people I meet who are young, highly educated, and from good families are among the most risk-averse. They feel like they need to be making progress along a ladder with each passing month or year. Their parents have often set high expectations for them. They measure themselves each period against their peers, who are generally following various well-defined paths.
Yet, as Reid Hoffman, the founder of LinkedIn, and others have pointed out, remarkable careers are unlikely to advance in a straightforward, linear fashion. They are more likely to contain breakout opportunities that lead to unusually rapid gains (and, of course, relative dips and plateaus).
We need smart and hardworking people to build businesses around the country as much as or more than we need them to do anything else. We need more intelligent risk takers and value creators who see their communities reflected in the work they do. We need to restore the culture of achievement to include value creation, risk and reward, and the common good so that more of our top people are in position to create new enterprises and opportunities.
If we succeed in this, our best and brightest will build the engines of future economic growth. If we don’t, our talent will continue to heed purely market-based incentives, our economy will likely continue to underperform, and our culture will become more and more bifurcated.
I just had a son. I’d like him to be very well educated. But I don’t want him to necessarily enter a parallel universe where everyone is smart, well paid, and well dressed while the rest of the country wonders where the jobs went.
This is easy to say, but very hard to achieve. People like Cole have every factor turning them toward their current choices; they’re heavily recruited and offered money, prestige, training, a network, community, and opened doors. Expecting people like Cole to completely ignore these inducements is unrealistic.
What would the ideal be? There’s a renewable energy startup in Providence, Rhode Island, called VCharge that probably could have used Cole too. Its chief science officer, Jessica Millar, has a PhD in math from MIT. VCharge is trying to make our energy grid more efficient using energy storage and transmission algorithms. It’s not a sure thing, but if it succeeds we’ll all be better off for it.
How could you get Cole to head to VCharge instead of to the hedge fund? First, you would hope that immediate income maximization is not the main driver—maybe Cole has a longer time horizon, believes he can make money down the road, and thinks that tinkering with the power grid sounds interesting. Maybe he even has an instinct toward value creation, building things, and having an impact. And second, you could employ resources to recruit him and offer him prestige, training, network, a community, and open doors to head in that direction. You could make it a rational, principled choice as opposed to a vague hope that he decides to do something value creating.
One entrepreneur I met said, "You don’t want to be in the army, you want to be an arms dealer." He meant that you want to build a business that doesn’t rely upon someone winning or losing but that would benefit from supplying both sides (say, a component manufacturer like Qualcomm that sells to all smartphones, as opposed to a smartphone manufacturer that has to duke it out in competition with the others).
The quote sounded smart, but I’ve concluded that if our young people all follow his advice, we’re sunk.
One reason the finance business is always busy is that it functions much like the arms dealer. You don’t need to figure out precisely who’s going to win or lose. You wait until a business gets to a certain point, and then you help them access capital in the form of equity or debt, give them a credit line, and help them get acquired. And if a company goes down, you’re there to assist with reorganizations, divestitures, and bankruptcies.
Yet the real innovation and value are being created by the fighters who are forming little squads and cobbling together businesses. Some fail, some succeed. If they succeed, they wind up building an army that’s providing new software, better services, tastier food, or whatever else the world needs. They also create organizations that form the character of the people in the army who believe in what they’re doing.
Which would you rather have, better arms dealers or better fighters? And which should our young people want to be?
Personally, I always dreamed about going into the woods and fighting the dragon, not selling the guy a sword.