Reading About Business: A Different Kind of List

Seeing The World In New Ways

  • Being Digital Nicholas Negroponte’s mid-1990’s prognostication about a digital future has all the hallmarks of a Jules Verne novel. So much of what he foresaw about digitization, and its ability to alter radically established business models, has come to pass. It is a visionary work, part manifesto, part prognostication, but it reveals the workings of a prescient mind.
  • Who Owns The Future? Jaron Lanier considers the consequences of “software’s eating the world” for industries and creators displaced or disrupted by digitizaton. He foresees a deflationary cycle of personal income and personal spending, and perhaps, a day of reckoning for the software gods. If products and services costs less and less, ultimately producers and service providers will be paid less, and firms that own all our information — siren servers, he calls them — will suffer reduced margins as well. A rising tide of information transparency and concentrated information ownership will not lift all boats.
  • The Bottomless Well Behind every large-scale advancement in material quality of life or industrialization sits a dramatic change in how we produce and distribute energy. From wood to coal to oil to gas to nuclear to laser to — perhaps — bioengineering, humanity has gotten dramatically better at producing and using energy more efficiently. And yes, despite global warming, energy is consumed overall in less polluting ways (measured by energy intensity and against overall increases in wealth and quality of life.) Much of the 20th century’s growth was the product of massive capital investment in resource extraction and refinement. Much of the 21st century’s growth will decentralize energy production and distribution, thanks in large part to scientific breakthroughs spurred by the inefficiencies of incumbent systems. This will continue to drive higher energy intensity and lower overall per capita energy use. Power plants and oil refineries will fade away not because they are evil polluters but because technology will create cheaper and more efficient ways to produce energy. This is not the way we are taught to think about energy.
  • The Black Swan Nassim Taleb’s classic. It teaches you why forecasts always are wrong, even when they are right. Forecasts should be used as a way to discipline thinking and expose low probability, high value events. They are a point of reference, a starting point for analyzing the potential outcomes of a path of events. By definition, low probability events are hard to protect against at a reasonable price. However, identifying their possibility, and the circumstances under which they might occur, will invite new ways to solve adjacent problems. Taleb also highlights what has proven to be true in financial crisis after financial crisis. Liquidity is the great unknown, even in markets assumed to have high liquidity. In contrast to The Bottomless Well, where the trend is towards ever more precise application of energy, in derivatives trading, highly customized products provide illusory risk protection. They work only so long as someone else is willing to take the other side of the trade, or if the counterparty is liquid/has credit in the market. When that evaporates, as it tends to do very quickly amidst a crisis, so too risk protection quickly becomes risk meltdown.
  • The Other Brain Quick, what is the most numerous kind of cell in our brains? Neurons of course, right? Wrong. It is probably glia cells, a broad category of cells that include astrocytes (which support the activity of neurons and may represent an alternative system of “slow” cognitive communication), oligodendrocytes (which sheath neuronal connections), and microglia (which populate the brain’s home grown immune system). But this book is about more than helping you get a new look at a whole set of cellular processes that have been shunned. It explains how the field of neurology came to focus on neurons, in part because of the profound influence of pioneers, and in part because of the instruments we had available (which could more easily measure neuronal than glial activity). What we see may be what we get, but what we see is seldom all there is to know.
  • Thinking Fast, and Slow This book is brilliant on many levels, most notably in the clarity of its narrative and the insights it provides into how Nobelist Kahneman and his collaborator, Tversky, conceived experiments to test their ideas. The book explains how we think and, how — relevant to business problems — customers are likely to think about product offerings as well. However, Kahneman is also making a pitch, one that appeals in subtle ways to the very neurological processes that he knows predisposes us to make rapid conclusions based on incomplete data. Ruthless objectivity is much easier to desire than to attain; it requires a willful suspension of our natural way of thinking.
  • “This is Water” David Foster Wallace’s commencement address at Kenyon College has been viewed over a million and a half times on YouTube. It describes, in a pithy and easily accessible narrative, how easily it is for us to become immersed in our everyday worlds, gradually losing a sense of “what else” is out there, that the context in which we live is neither pre-ordained nor immutable. Context is critical to building a product or a company. There is a near-magical serendipity between an idea, the technology or financial conditions which make it appealing to consumers, and the creators’ ability to time their launch (e.g. Instagram), or to endure long periods of isolation before an idea takes off. Like Thinking Fast and Slow, and The Other Brain, Wallace reminds us to suspend belief — and disbelief — to understand the time and place in which we live, to understand the context in which everyone else lives, and from that to determine what may be necessary for a seemingly revolutionary business idea to gain acceptance.

Managing

  • The Hard Thing About Hard Things: Ben Horowitz provides an insider view of the difficulty of leading an organization through change. There are constant compromises and trade-offs, forces that are outside the company’s control, customer demands, and personnel issues. Through it all, the successful CEO/Founder/Leader must have a clear understanding of where their enterprise is headed and how to enlist and motivate the team toward these goals. The enterprise must understand what product features or customer demands are essential to meet to fulfill the value proposition and grow, and ultimately, the leader must be ruthless about making sure these are achieved, or that the company changes how it is operating to be successful.
  • Only the Paranoid Survive: Andy Grove navigated Intel through some of the most trying technological changes. A company that started as a very successfully memory chip maker had to become an IC company. Then in successive generations, it had to stay ahead of imitators and disruptors. Grove provides an easy-to-read approach to strategic thinking, how to see what matters and what is uncontrollable in a fast-changing industry, and to position and prepare your management team for strategic disruption. Long ago, Intel would have been dead had Grove not pushed for continual reinvention, most frequently from within.
  • Freedom: William Safire was a uniquely gifted commentator, speechwriter, and author. Freedom is his fictionalized account of the first half of the Civil War, leading up to the issuance of the Emancipation Proclamation. It is also a case study in management, the fictionalized aspects since validated by authoritative histories like Doris Kearns Goodwin’s “Team of Rivals.” But what Safire brings is an insider’s perspective of what it must have been like to walk the hallways of the White House and the War Department Building (now the Old Executive Office Building) sharing Lincoln’s angst and anger. Staffed by just two private secretaries (the estimable Johns — Nicolay and Hay — the latter of which would later become Secretary of State) Lincoln was alone in many respects, in efforts to design a winning strategy for the war. He prevaricated, he equivocated, he maneuvered, and in time, gained confidence in his understanding of the situation and what needed to be done. He took the measure of the men around them, their strengths and their shortcomings, and from it fashioned a highly dysfunctional but ultimately victorious enterprise. He remade the presidency as an institution and as a personage, and stands even today, as one of the most singular leaders in history.
  • Drive: How do you get the best possible performance out of a team? How do you make them want what you want as much as you do, even more so? It is a vexing, and counterintuitive challenge. Dan Pink extolls intrinsic rewards, the value of creating a business culture that recognizes accomplishments for what they are, rather than where in an organizational hierarchy someone resides. People, Pink shows with a range of psychological studies, are motivated in deeper and more lasting ways by an inner sense of accomplishment, by having created something alone or with a team that has real impact and about which they can feel proud. This contrasts with the most common form of business incentive: bonuses and reviews. There is a place for extrinsic rewards, Pink agrees, but they are limited, and are of very limited efficacy.

Fundamentals of Finance

  • Liars Poker: No list of business books from the last quarter century is complete without one or two works by Michael Lewis. This was his first book, and remains one of his best. Lewis arrived at Salomon Brothers as a trainee, joining one of the great Wall Street partnerships amidst its Reagan-era equity boom heyday. In actuality, the late 1980’s proved to be Salomon’s undoing, culminating in a bond trading scandal, an attempted rescue by Warren Buffett, and the firm’s eventual absorption by upstart Sandy Weill’s burgeoning financial services conglomerate. In Liars Poker we meet many of the key players in the rise of financialism, the belief that financial engineering can solve almost any economic issue. Financialism came to capture both political parties’ view on a range of issues, from Wall Street to health care, to education, and housing. Lewis gives a front row view of Lew Ranieri and his team of mortgage traders who created mortgage backed securities that ultimately led (abetted by terrible federal policies) to the 2007–2009 real estate collapse. Another key player is John Meriwether, Salomon’s head of trading, who had starring roles in the 1991 bond trading scandal that crippled Salomon, and seven years later in the collapse of Long Term Capital Management (LTCM) — a premonition of the post-Lehman/AIG liquidity crunch that almost imploded the entire financial system.
  • The Predators’ Ball. If white shoe firms like EF Hutton and Merrill Lynch represented the heart of Wall Street while upstarts like Salomon and Goldman championed the synergy of proprietary trading and corporate debt, Drexel Burnham Lambert stood for a wholly new approach to what an investment bank should be. It created markets out of whole cloth, fusing the ambitions of those who had been shunned by Wall Street insiders (like savings and loans) with upstart real estate developers and M&A mavens. Drexel created the junk bond credit markets where none had existed, serving as underwriter, broker, market maker, and sometimes — in effect — guarantor. It worked for awhile, until it didn’t, when insider trading, adverse credit markets, and that bogeyman of all go-go financial eras — illiquidity — caught up with it. Establishment Wall Street joined Drexel for the ride for awhile, until it decided to exit. This left Drexel hemorrhaging from self-inflicted wounds, high and dry. It was a painful lesson that had to keep being relearned by Long Term Capital, Bear Stearns, Lehman Brothers and AIG.
  • The Vulture Investors: To the carcasses of financial wreckages came the vulture investors, a particular breed of bargain hunters cum speculators, who combed through bond indentures and collateral arrangements to extract diamonds in the rough. Cutting their teeth on landmark cases like Penn Central Railroad in the early 1970’s, vulture investors understood how to use the courts, bankruptcy law, and the fear of investment banks and bondholders to get their way.
  • Inventing Money. Remember some of those luminaries in the Salomon story — John Meriwether, Myron Scholes, and some of the other academics who invented option theory? Well, they’re baaaack. This time they have a horde of Russian bonds and complex international bets on correlations and divergences between asset classes and markets. They are brilliant. They are putting to work all the academic insights and computational power that their respective careers have created. In the virtuous cycle of mid-to-late 1990’s international capital flows, their firm, Long Term Capital Management was making a killing. It was doing everything but managing capital for the long-term. And so, eventually, they rediscovered the age-old truth that even their intricate models could not hide: you can only price an asset if someone wants to trade it with you, and you can only trade with someone else if they have sufficient liquidity, or believe they have sufficient liquidity, to reverse the trade in a pinch. In the Fall of 1998, as LTCM unravelled, there was an almost unprecedented meeting among the heads of top Wall Street firms with funds in LTCM, uncertain about how much each might be beholden to the others if LTCM cratered. The get together had all the trappings of JP Morgan’s historic meeting in 1907 to avert an earlier crisis, and presaged meetings that would happen almost a decade to the day, as Lehman collapsed. (It may be helpful to read through “Option Market Making,” discussed below, before reading “Inventing Money.”)
  • Macro Markets: If academics’ reputation in finance took a withering blow after LTCM’s collapse, Robert Shiller’s esteem has undergone a boom, all the way to a Nobel Prize. Writing five years before the Web gained currency, Shiller foresaw in “Macro Markets” how internationalization, information transparency, and growing concern about long-lived risks opened the possibility to new kinds of global risk allocation and management. Even as Wall Street was learning how to slice and dice risks into ever finer tranches of securitized assets and off-exchange derivatives, Shiller was urging financiers and governments in the opposite direction: harness information to manage pensions, health, and other macro risks in more effective ways. We are only now seeing some of his ideas come to fruition in peer-to-peer lending and the growth of non-cash banking in Africa and Asia. We will see it too, in the not-too-distant future, in new approaches to financing treatment of cancer and life-threatening disease, obesity treatments, and higher education. As Shiller rightly foresaw, some risks are so large as to defy traditional allocation, but even so, they represent such large opportunities that intermediaries (including online connectors like Facebook, Airbnb, and Uber) cannot help but profit in a well-managed scheme.
  • Against the Gods: The Remarkable Story of Risk: Bernstein’s work is essentially an intellectual history of probability theory and the thinkers who sought to understand risk. It shows how ideas about risk came to be applied in government and commerce, and eventually in the twentieth century, in finance.

Business and Politics

  • The New Dealers: How did America get to be the way it is today? How did we come to have roads, massive dams, power stations, Social Security, polio vaccines, and rural electrification? The answer, in many cases, begins with FDR and the men and women around him who tangibilized the ideas of the New Deal? Operating in a time of crisis and uncertainty, detached from traditional rules about boundaries between private enterprise and the state, the New Dealers built infrastructure on a scale that perhaps has only just now been matched in China post-Deng. Their efforts were not without tremendous controversy: FDR’s 1940 opponent Wendell Willkie had been CEO of the largest private utility in the company, broken up by FDR’s trustbusters, and undermined by the federally-subsidized Tennessee Valley Authority. Their efforts may have given rise to some, or much, of the bureaucratic sclerosis that now bedevils government — depending on your perspective. But in their time, the speed and scale of their accomplishments were immense, and provided a fertile proving ground for the kind of industrialization necessary to win World War II.
  • Insull: Ubiquity is something technologists like to forecast for new breakthroughs. Yet none of what today’s inventors expect to become ubiquitous would be possible without electricity. The harnessing of fossil and nuclear fuels, and the creation of the organism that is our electricity grid, is along with flight and telecommunications networks, is one of humanity’s most astonishing industrial achievements. Samuel Insull was a builder, a synthesizer, a conglomerator, a showman, and ultimately a bankrupt — but we would not have a power grid without him. Electricity distribution was originally limited to use in urban public transport, but Insull envisioned a centrally-controlled system of power stations and regionally-interconnected grids to balance supply and demand, and provide reliable power. Starting from his Chicago base, Insull ultimately built the largest power company in America. His eventual demise in the Great Depression is also a lesson in the limits of financial engineering. Like Drexel, LTCM, and Lehman, he allowed the possibilities of seemingly limitless capital to blind him to what might happen in a downside scenario. It came, he was humbled — too late for a second act — and he died in ignominy.
  • The Heavens and The Earth. It is impossible to watch the footage of President Kennedy addressing Congress in May 1961 or 35,000 at Rice University a year later about America’s mission to the Moon without feeling a twinge of pride and awe: “we choose to go to the Moon this decade, and to do these other things, not because they are easy but because they are hard.” Yet the path from Sputnik to Saturn V was no accident, proceeding from a series of calculated political choices, first by Eisenhower — reluctant to accelerate the military-industrial complex — and later by Kennedy — enthusiastic to best the Soviets and establish America as a superior technocracy. How is this relevant to business? Walter McDougall’s Pulitzer Prize-winner illustrates how leaders can create a political framework that mobilizes civilian and military resources towards a clear national goal. This is a lesson that avowedly post-national digital companies would do well to take to heart. The Internet — in many ways fostered by the same competitive ethos that fueled the moon race — exists to the extent that governments and consumers are benefitted. But Silicon Valley leaders actively resist the kind of political cohabitation that defense and aerospace industries sought and achieved during the Space Age. Online businesses are, as a result, less vulnerable to minor political insults but more vulnerable to massive overhaul in the wake of a broad scandal or misappropriation of consumer data.
  • The Deal of the Century. The breakup of AT&T is one of the most consequential political and regulatory acts of our time. All that is now possible with mobile computing (from a regulatory perspective, and perhaps from a technological one, too) can be traced to upstart MCI’s petition to deregulate long-distance telecommunications. Internet infrastructures may have emerged in time, regardless, but as it happened, Ma Bell’s breakup came at the perfect moment, just as packet switching, TCP/IP, and other internet protocols became commercially viable.
  • Technological Revolutions and Financial Capital: Recommended by Fred Wilson on his excellent avc.com communiblog, Carlota Perez’s work concisely explains the cycles of inspiration, exuberance, and maturation that characterize technology-driven markets, and the role of financial capital in each of these stages. Perez describes a consistently recurring techno-economic paradigm in which disruptive technologies gain currency, spread and transform adjacent industries and markets, eventually becoming the new norm. However, Perez argues, change also happens in a political context, in a socio-institutional framework, which is slower to adapt technological innovation than the commercial sphere. This creates both tensions and opportunities affecting the pace of change.
  • The Rise and Decline of Nations. Mancur Olsen’s classic is no easy read, but it’s worth it. His work is, in many ways, an extrapolation of Federalist 10 — factions gone wild — and the eventual proliferation of rent seekers and economic parasites. But Olsen’s ideas are equally applicable to businesses, especially rapidly-growing businesses that serve multiple customer groups. Each product team, each functional group can come to behave like a special interest in Olsen’s model, expropriating time and managerial focus to their particular needs at the expense of total growth and cashflow. There is a size beyond which a company’s organization as a conglomeration of interests becomes self-defeating, and the determinant of this moment is not necessarily headcount, revenue, or age. Increasingly, as frictionless communication infiltrates firm operations, factions develop earlier, distracting the company from customer interactions and product and market focus.

Information Economies

  • Out of Control: Founding Wired editor Kevin Kelly weaves a prescient understanding of the trends in biological discovery, machine design, software, and complex systems to reach two main conclusions: “human-made things are behaving more lifelike, and life is becoming more engineered.” Absent from this early 1990’s work is an appreciation for the explosion in mobile, but that aside, most of what Kelly foresaw is coming true. “Personalization” is merely another way of saying behaviorally-adaptive software to make machines behave in more human-like ways. Likewise, the involvement and intrusion of software-enabled machines in every aspect of our lives continues to grow.
  • Linked: Physicist Albert-László Barabási provides a helpful survey of the science of networks, how they develop and evolve, how they can collapse. He applies the theories of networking to practical situations, from medicine to terrorism. Key to business success in a highly interconnected world is the ability to understand social and informational networks within a firm, networks within an industry, and the strength of connections among customers and competitors.
  • Under the Radar: Although the Web’s essential plumbing and communication protocols were born in an ecumenical spirit, their value was soon captured by proprietary firms and networks, Microsoft most of all. RedHat self-consciously sought to upend proprietary software models, returning the web to its communitarian roots. It labored for years to make a quaint idea profitable. If you build a community that shares ideas openly according to agreed-upon rules and with reciprocity, everyone will have access to better products faster, and over time better paying services, from which lasting revenue can be extracted. RedHat ultimately achieved this goal, creating services around the installation and customization of Linux that made them profitable. However, at the time RedHat CEO Bob Young published the book, RedHat’s future was no certainty. As a result, it reads at times as much like a manifesto, an effort to justify a different way of organizing software development, as it does a history of one firm. It is a great lesson in what it takes to transform market structures and establish a new way of doing business. It is not for the faint of heart.
  • The Perfect Store: eBay figured how to create and manage highly passionate communities online long before firms like Facebook, LinkedIn, Pinterest, Instagram, Etsy, and others built retailing and social media on the power of community. Many of the rules that govern successful startups today — transparency, active community moderation, simplified payment and transactional processes for buyers and sellers, integration with other communication modalities, and opportunities for community members to become personas and leaders — were learned first by eBay.

Solving Hard Problems: What Science Can Teach Business

  • Billion Dollar Molecule & The Antidote. Barry Werth’s books are the exception that prove the rule that business books tend to be written in retrospect about proven winners. As it happens, the company he profiles, Vertex Pharmaceuticals is a very successful multi-billion dollar company. The road it followed to get there was much less clear. Vertex was conceived to change the way drugs were designed, to flip drug discovery and engineer compounds to attack particular pathogens or diseases. Like many companies in the 1990’s, Vertex attacked HIV/AIDS. It’s drug was a bust. It segued into Hepatitis C drugs and acquired, and almost discarded, a nascent partnership with a patient advocacy group to attack cystic fibrosis. It scored, for awhile, with its Hep-C drug, only to be surpassed by its erstwhile HIV rival, Gilead, and has achieved lasting fortune on the back of its narrowly-marketed CF drug. Werth’s books demonstrate how hard it is to build a company truly committed to innovation, with all the risk that failure and setbacks can bring. CEOs and group leaders must project optimism and certainty even as they inwardly deal with complexity and setbacks. They must be open to new ways to tackle problems without sacrificing focus. These are hard problems indeed.
  • In Search of Memory, Ahead of the Curve, and The Art & Politics of Science. Eric Kandel, David Baltimore, and Harold Varmus have been three of the most imaginative and influential researchers in American medical science over the last forty years (longer in Kandel’s case). Each has been awarded the Nobel Prize. Kandel’s and Varmus’s autobiographies, and Shane Crotty’s biography of Baltimore, are relevant to business in two respects. First, the importance of designing experiments (in business, products or services) to test validity. We so much want our ideas to be true, but the market and consumers do not care about what we want. Only ruthlessly objective experimental design can get at the truth of the matter. Second, many of the best ideas or techniques can be adapted from adjacent fields. Time and again Kandel, Baltimore, and Varmus improvise from other fields, fashioning experimental apparatus, or using ideas from virology to understand cancer. There is a refreshing rhythm to serendipity, grounded in relentless curiosity, diligence, reflection, hard work, self-confidence, and openness to new ideas.
  • Moneyball: Michael Lewis’s second entry on this list is fun because it tells the story of two iconoclasts, Bill James (laboring nights in a Kansas beans factory) and Billy Beane. They brought a value investor’s perspective to baseball, building a statistical framework to evaluate each player’s worth, and — for a time — restructuring how teams were built. James and Beane, and their acolytes Theo Epstein and others, changed baseball culture in a few short years, transforming the market value of players who before would have been passed over and changing the dynamics of free agency.
  • The Double Helix: Before every smart-sounding CEO could say “It’s in our DNA,” someone had to figure out what actually was in humanity’s DNA. That was James Watson, Francis Crick, and (oft overlooked) Rosalind Franklin (who’s x-ray crystallography confirmed Watson’s and Crick’s experiments). There is not a lot different from Watson’s account than that of any number of recent startups — Facebook, Uber, Instagram. The excitement of discovery, the rush of competition, the pain of failure, the rewards of persistence — that is why entrepreneurs start businesses, and why the lure of creating something special remains, despite the odds, among the noblest of callings.

Textbooks

  • The Intelligent Investor. Benjamin Graham’s classic on value investing and understanding company’s real value.
  • The New Corporate Bond Market. Equity holders may own a company when times are good, but bondholders get the first bite at the apple if anything goes seriously wrong. Understanding who gets paid, and in what order, under what circumstances is valuable to structuring contracts, and contemplating which parties to a transaction are in the drivers’ seat in potential future scenarios.
  • Option Market Making. Even if you never trade equity or commodity options, learning how to price and analyze options provides a valuable framework to deconstruct business choices and evaluate potential outcomes.
  • Capital Markets — Institutions and Instruments. Fabozzi and Modigliani’s comprehensive text remains the gold standard survey of capital markets, instruments, and valuation.

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Interested in solving hard problems, improving medicine, and understanding how we think and learn.

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Jeremy Shane

Jeremy Shane

Interested in solving hard problems, improving medicine, and understanding how we think and learn.

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