Fantasy Capitalism – Mats Lederhausen Oct 2011

Posted on October 9th, by Mats Comments Off on Fantasy Capitalism – Mats Lederhausen Oct 2011

What’s wrong with capitalism?  I once asked Paul Hawken this question when we both were frustrated with the lack of progress towards a more sustainable world.  Paul said: “Mats, there is nothing wrong with capitalism. We just haven’t tried it yet.”

Turn on the TV or read the blogosphere and try to figure what is truly going on and you will soon realize that almost all the people either in charge of fixing the problems or the people in charge of commenting on the people in charge are observers themselves. The more I have thought about this, the more I have come to realize that we actually don’t play capitalism at all. We play Fantasy Capitalism.

We have developed a “meta reality” that is distanced from reality. Our culture seems to be obsessed or hijacked by people who claim they know the real world. But all they know is how to bet on the real world. If you look at where money has been made in the past 20 years I would argue a huge part of value creation has gone to people who have placed bets on what other people will eventually do. A smaller portion of that wealth has gone to the actual originators and/or implementers of those ideas.

Is this a problem?

I would say it is an opportunity. I think morality, as one example, fades with distance. Look at the mortgage debacle. The people in charge of those complicated instruments are not bad people. They just had limited visibility. They just didn’t see the people who were ultimately affected. They placed algorithmic bets on faceless papers that had no feelings and no spirit.

I have had the great fortune in my life to work with many entrepreneurs. I believe America and the free world very much were built by these kinds of people. They represent the kind of free market capitalism that I believe we would all be better off if we practiced more of. In this time of mourning the loss of one of the greatest, Steve Jobs, it is important that we reflect on what we can learn from them. Most of them (obviously there are bad apples in every basket) share a few common traits that are worth chewing on:

1. Their idea is their bet and the bet is not their idea

I call this “purpose bigger than product®”. They are all obsessed by an idea. They don’t confuse means and ends. Sure, over time, they too like making money. But it is never what drove them to do what they did. They have a more respectful and, may I say, enlightened relationship with money, fame and the “objectification” of success than the cadre of billionaires we see today.

2. They build to last and they often don’t last to see what they built

They are involved in something much bigger than themselves. And they know it. They don’t care. Or rather, they care so much about their idea that their own role is secondary. In fact, they build things for the very purpose of it lasting. Some are so visionary they start projects that for sure won’t be completed long before their grandchildren are gone. Now that’s vision! They don’t involve themselves with exit plans or quarterly valuations or any of the short-term diseases that I believe play too much of a role in today’s value creation conversations.

3. They keep things simple

Talk to them and their worldview is often refreshingly simple. They have deep conviction and they are as clear about what not to do as they are about what to do. They rarely do anything they don’t understand. They hate bureaucracies, process or political correctness. They call a spade a spade and if something walks like a duck, smells like a duck and behaves like a duck they will call it a duck. For sure.

4. They keep things real

They really do care about their products and how they affect the lives of their customers. They use their products and are obsessed with seeing them grow and improve. If and when something goes wrong they are in the lab, plant or factory to fix, tweak and change things for the better. They tinker, care and tweak. Constantly. Most of their conversations in their companies are therefore about products and customers and less about markets, politics and positioning. They don’t spend much time with lawyers, bankers or PR firms.

5. They are optimists

I saved this one for last. Because I do believe it is the most important point. I don’t believe you can build a strong society from a negative position. And I do believe too many of our leaders today aren’t truly optimistic. In fact, too much of economic activity has become betting “against’ something. That is a foreign concept for an entrepreneur. When someone places a bet against something, isn’t there then an incentive to help that negative outcome to happen? Do we want any intellectual energy in our society spent on making bad things happen? Seriously? What is the true redeeming social value of short–selling, complicated hedges and large speculative positions on important feedstock of society?

It’s easy to think that you are an expert just because you have a pen or you can read. But anyone who has tried to build a real business knows how hard it is to design a product or service, package it appropriately, find your customer base, price it with enough margin for your costs and enough incentive for your customers and then finally execute this process on a continuous basis with ever improving quality. It’s not so easy. It is much easier to get a sophisticated education at a nice University and then spend the rest of your life making bets on what other people are going to do. Particularly when, for some strange reason, we have come to value that activity much higher than the original activity of actually doing it. Go figure?

Obviously I don’t have a grand plan or solution for exactly how to change this. What I have chosen to do is to be a humble servant in the vineyard of real capitalism. I am trying hard, with many good partners, to build great companies that all have a “purpose bigger than their product®” and that hopefully will serve many good needs and also produce good financial returns for those who invested with me along the way.

But I am a concerned capitalist. I do think we would all be better off if we somehow stopped having so “many second opinions from the cheap seats” and if more got in to the game of actually playing rather than betting on the ones that do.

Capitalism has become too much about the conversation about reality vs the reality itself. We have so much work to do. We have to inspire the future generation to build real companies, with real customers, with real income, with real assets. That should be the primary goal of any economy. We can’t all be speculators, day traders, hedge fund managers, journalists, reporters, bloggers and other forms of spectators to the real economy.

I am sure regulation must play some form of role. While I am not for regulation in general or large governments in particular, I don’t think the markets will solve this one alone. I would like to see more transparent pricing of “bads” (things we know are bad for our selves, our planet or our children) and perhaps penalizing taxation (as opposed to incentivized as we have today) on short-term gains. Regulation should inspire investments in long-term real value creation. Not short term speculation.

I’d say, it is time to try the real form of capitalism.