Six lessons from six months at Shopify

Two Truths and a Take, Season 2 Episode 36

I’m now six months into Shopify.

So far it’s going basically on schedule: as I was told, “Your first couple months you’re going to have zero idea what’s going on. Then around month three you’ll come up for air and think, ok, I got this; and then you’ll try to start doing stuff. Then you’ll really struggle, because you won’t be in that happy new float-around-and-learn-people’s-names mode, you’ll be in oh-shit-can-I-really-do-this mode. It’s actually a little scary. But then around month five or six, you start to actually figure some things out for real. And then it starts to feel fun.”

So far it’s gone pretty much exactly to plan. But it’s starting to get fun. So this week I’m sharing six things I’ve learned in my first six months; some of them about working for a big company in general, and some about Shopify specifically. I hope they’re helpful. 

  1. Job number one

In my first week at Shopify, I had a bunch of meet-and-greet conversations with people around the org and one of them really stuck with me. It was a conversation with a GM for somewhere else in the company, and I asked him, hey, what advice do you have for me in my first year? Here’s what he told me:

“In your first 6 months here, here is your number one job. Familiarize yourself with the dozen senior people at Shopify who have the final call on really important decisions, from Tobi and Harley on down. You need to familiarize yourself with their operating philosophy around business and around how Shopify works. Go consume every written memo and every podcast episode (we have a great internal podcast called Context) they’ve ever done, get inside their heads, learn their perspectives and their preferences, and learn what gets them to say Yes to things

“Here’s why this is your most important job. In your first six months, you’re gonna be useless anyways. You’re going to be drowning in new information and context and it’ll take you a few months to learn how to swim. But then once you do, you need to become effective. And in order to be effective, you need to know how to get those people to say Yes to things, and how they would think through a decision down to a detailed level. If you can do that, then you can get basically anything you want done. If you can’t do that, then you’re never going to get anything done. Therefore, this is your most important job right now.”

I remember thinking at the time, wow, that sounds like really important advice, I should listen. And I did put in some effort; not nearly enough, in retrospect, but more than zero. Now, six months in, I’m not nearly at a point where I would consider myself “effective” yet - I still have a long way to go in that department. But that advice is paying huge dividends already; not only with my own initiatives but actually more so with helping other groups with theirs. 

When you’re in a company full of smart people, like Shopify, it can often be quite tricky to resolve disagreements and impasses with, say, product decisions - because the conflicting opinions all have a lot of merit. So I’ve found it very helpful to be able to bring to the table: “Here is how I think ____ would look at this problem, from their perspective and their philosophy. It’s a pretty different POV from how we’ve been talking about it so far, so hopefully that added perspective helps us get unstuck, since they’re ultimately the person who has to say Yes here.”  

Moreover, it’s not like we only care about their opinions because they are decision-makers; this isn't really advice about relationship-building. It's advice about how to think better. Great leaders are right, a lot. They know things. So having their operating philosophy available on-demand, or even a rough approximation of it, can be really useful in moving the ball forward and getting teams aligned around the best possible decision.

  1. Conway’s Law

Conway’s Law, if you don’t know it, is usually summed up in the famous phrase: “You ship your org chart.” The original wording from Melvin Conway goes: “Any organization that designs a system (defined broadly) will produce a design whose structure is a copy of the organization’s communication system.” (Eric S. Raymond helpfully elaborated: “If you have four groups working on a compiler, you’ll get a 4-pass compiler.”)

I’ve known about this concept for a while, I’ve probably repeated it to try and sound smart in conversations, but I never really understood it until joining a large organization.  

Think about any complex product you like - it could be your phone, your car, a public transit system; whatever. That product is composed of many different parts, and sub parts, all the way down to tiny little atomic units that feel like indivisible “chunks” of product. Conway’s law is an observation about the contours of those chunks of product. 

Each individual chunk of product was probably built and shipped by one specific team, who worked together closely and understood each other well. Within that team (think of Amazon’s famous “two pizza teams”), everyone knows each other, and communication flows easily. So the final product that gets shipped by that team will feel like a unified, cohesive, harmonious chunk. You won’t be able to tell that one employee worked on one half and another employee on the other half; it feels like one piece.

But the boundary between that product and an adjacent product - let’s say, between a car door versus the car handle - will be between two internal teams that don’t communicate as easily with one another. Those communication barriers, even when they’re small, shape the contours of the final product that gets shipped. If two teams work side-by-side and speak daily, then the contours between their adjacent products might feel small. But if they rarely speak, or have different product or design principles, or are “far apart” for whatever reason, then the boundaries between the products will feel disjointed and bolted together. 

In an ideal world, everybody would communicate perfectly with everyone. But that's just not practically possible. In a large organization, there are necessarily going to be teams you don't talk to as much. So your organizational design, which imposes a kind of topographic map for communication, matters a lot: it'll shape what products get built, and how, before the product even starts getting brainstormed.

That’s one half of “you ship your org chart”: boundaries between chunks of product mirror communication boundaries inside the org. But there’s a second part, too: not all product teams are able to advocate equally. There are power differences between groups. So the final structure of a product won’t just reflect the boundaries of the teams; it’ll reflect the relative influence those teams in getting their products shipped. Power is, in of itself, a form of communication: in large systems, the meaning of a communication is the behaviour that results. If the system said it happened, then it happened. That system behaviour manifests in the form of the product as it’s made: teams ship what they’re empowered to ship, but their output often finds itself looking a lot like the same hierarchy that went in. 

  1. Partnerships

One particularly inspiring project I’ve been working on over the last month is our newly announced partnership with Operation HOPE to help start 1,000,000 new Black-owned businesses over the next decade. It’s a really great project to help get off the ground, and now the hard work is starting to get it to real success over the long term. 

Working on this project was the first time I’ve ever really interacted with an outside organization from inside Shopify. And it gave me some insight into something I was told a long time ago: “if you’re a startup, try not to waste your time talking to big companies unless you’re doing it deliberately. They have an absolutely endless capacity to consume your time with meetings.” I’m not sure I really understood why at the time. 

But it’s clear to me now how this happens. And not because our current partnership is going badly by any means - we’re still in the early stages of getting a lasting framework in place that will help the partnership succeed over ten years, but we’re making progress and I’m feeling optimistic with how things are going. But even so, I can see firsthand how complexities and potential liabilities, once you introduce them into an environment like the inside of a company, can rapidly metastasize and create more of themselves. 

The art of getting these partnerships right is really solution architecture: making sure from the very beginning that someone who understands every piece involved can get them lined up right, and interacting the right way, from the very outset of the project. If you don’t get that person immediately, what happens is that people who don’t understand every piece (like me, currently, I’m afraid) start “solutioneering” to make forward progress quickly. 

This creates more problems, which often kicks things back to the partner company to straighten out: what are your requirements again? How do you need that workflow to go? And since they won’t understand your architecture problem you’re dealing with internally, they’ll just give you straightforward answers about what they want - without really understanding the degrees of freedom available to fix the problem.

Unless you really fix things quickly, the interface between your two companies (and the mechanics on both sides) just compound with problems on both sides, and never get really fixed - just patched over and over. All the while, this creates meeting after meeting as new groups get pulled in, but never really solving the real problem, which was an initially misunderstood problem or misapplied architecture. (Fortunately, this isn’t happening yet - as far as I can tell - with our project with Operation HOPE so far! But I’ve felt some degree of painful self-awareness as, in an effort to be helpful and move the ball forward, some of my “help” may just be creating net more meetings for everybody. It’s something I’m trying to keep in mind, anyway.) 

  1. Canada & the impact of being in a secondary market

Five years ago when I was starting at Social Capital, I remember an ongoing debate over what tech company would grow into the next $100 billion market cap firm, and retroactively define what that “era” of tech was all about in hindsight. So obviously Uber and Airbnb came up a lot (“this era of tech is about the networking of assets”), Snap (“This era of tech is about images and video taking over as the new default internet format”), we obviously hoped for Slack (“This era of tech is about the future of knowledge work”). 

No one really mentioned payments or commerce. PayPal or Stripe never came up in those discussions, that I can recall. And certainly no one ever mentioned Shopify. (Except one person. He’s doing really well now.) 

Until recently, no one really knew about Shopify. We were just quietly up there in Canada, helping merchants make websites, as far as anyone in Silicon Valley could tell. Not a lot of Tech Twitter, not a lot of hype. Until one day, everyone knew who we were, everyone suddenly figured out that we’re an entrepreneurship company, not a website company, and “Shopify for X” became a Demo Day trope. 

There have been several profound consequences of Shopify being a Canadian company, tucked out of the way in Ottawa (and then Montreal, Toronto, Waterloo…) and not in the Silicon Valley limelight. The most important consequences have to do with people. 

The first impact is on employee retention. Shopify never competed in the never-ending war for Silicon Valley product and engineering talent, where average employee tenure at some companies is under two years (!) and employees work for a portfolio of high-growth companies over their best years, not just commit to one. Instead, the common complaint about Shopify up here in Canada is that all the good tech talent comes to work here, and then never leaves. There’s a virtuous feedback cycle at work: since Shopify can count on you staying for longer than your average tech company can, they can invest more into you when you start. Reciprocally, having everyone get more up-front investment and more context and tenure means that you can make a lot tactical choices in how you work that people really like, and makes them stick around. 

The second impact is on what employees do when they’re here, especially product people. In Silicon Valley, if you are a product person, you are probably friends with lots of other product people at other companies and especially with other founders. You are going to feel pressure to live up to, and impress, your peer set. And the ultimate peer set you’re being judged against are successful founders. They are the top of the food chain. 

This peer pressure is a mixed blessing. It’s good in the sense that it promotes more people to start startups. People see founders with status, and ego, and success, and want that too. But it’s bad in that it creates a lot of ego, and big egos aren’t what you want on a team that’s going to stick around for the long run. Shopify doesn’t really have that problem; not because we’re somehow more virtuous or ego-free or anything, but just because the peer set up here in Canada is different. Again, it’s a mixed blessing. We don’t have as many startups or as many wild crazy bets. But it’s great for Shopify, because not only do people stick around, they stick around as team players. That’s valuable. 

  1. The surface area of software is enormous

This is a quick learning but it’s a powerful one: there is so much software. I know this seems like a silly lesson, and that this is something I’ve already had plenty of exposure to. Software markets are huge, we chronically underestimate how big they are, et cetera. But it’s one thing to see all these SaaS businesses and productivity tools as isolated businesses or in market maps; it’s quite another to see all of them inside your Okta portal and realize, oh wow, we use all of these. A lot. 

I forget who said this - someone smart on Twitter - but your mental idea of the software business changes when you realize that the primary customer of software is becoming other software. Shopify runs a pretty tight ship, and even we use so many different tools and work products if you look across different teams and job functions. And that’s just the SaaS products - it all sits on top of an immense body of open source code, of which Shopify is a proud contributor. And we’re just one company. Anyway, it’s all so big, and it’s getting bigger at a rate many people who should know better still don’t appreciate.

  1. Compressed Learning

The last lesson I’ll share here it that Shopify takes learning very seriously. Learning isn’t just something that happens at its own pace: some environments for learning work better than others, because they let you practice certain transferrable skill over and over and over again. I’ll leave you with a quote from Tobi (lightly edited) in a podcast interview with Patrick O’Shaughnessy earlier this year

“I’m a card-carrying member of the “video games are actually good” club. I’ve learned so many things in my life through video games. The only reason I learned programming is because I wanted to make changes to the video games I was playing. And obviously not all games are created equal; I tend to point out a few I think are extremely valuable. Factorio is one of those. It’s the one game that anyone at Shopify can expense. Because it’s just bound to be good for Shopify if people play Factorio for a little while. We’re building supply chains for our customers; logistics networks; and Factorio makes a game out of that kind of thinking. And you know what, it’s actually not surprising, cause that kind of thinking is super fun.

It’s fun to say, hey here’s a factory, and that factory needs inputs, and those inputs come out of the ground, and they needs to be producing at the rate it needs to be consumed. I invariably find that this is a very exciting world. I find that video games are getting a little bit more mature; I mean, sure, I enjoy a good game of Call of Duty every once in a while, but we understand why those our popular; building a supply chain is a little less obvious. But then you play this particular game, and it’ll suck you in. And your brain will have pathways that will light up in many, many more situations than you can imagine. 

The tl;dr of why I think video games are good is because of transfer learning. There’s a good book called The Talent Code that talks about this. There was a famous story about people analyzing why Brazilians became so much better at soccer than anyone else. And there were many reasons - it’s a system that’s reinforced by all these things - but people hadn’t found the key reinforcing mechanism that made this true.

It turns out, in Brazil there was a culture of playing a pickup game, a version of soccer that was played in a much smaller space and with fewer players. And the players did all the things you need to be good at soccer, but they did them significantly more often, because there was more ball contact per person. Just because that’s a different game than soccer doesn’t mean people won’t learn soccer skills. They had way more ball contact than someone who went through the British system, by the time they entered the Premier league, for instance. 

What are other situations where you can - in a compressed way - practice these skills that you need in the business world? I make strategic decisions, for my job at the company. For most of these strategic decisions, I hope I do well, but I only find out a couple years later. The way I’m doing them is I try to get as much context as I can, and resolve this big multi-stakeholder situation, plus technical abilities, plus future timelines, plus the way the internet will go… How often do I do this in a year? A couple times, maybe once a month? I don’t think so. Major opportunities to bet the company and allocate resources don’t come around that often. 

But if I sit down for an evening of poker, I make these decisions every hand. And then you look at a game like Starcraft, which I think is very good, or Factorio, and in a very compressed, fun environment, follow a certain activity over and over and over again which otherwise comes around only rarely. And doing that will change your mind, and your brain, and help you be prepared for situations you could never predict."

I won’t elaborate into this too much more, so as not to reveal anything I shouldn’t, but applying these principles that Tobi walks through here lead pretty directly to some shockingly effective practices. 

Permalink to this post is here: Six Lessons from Six Months at Shopify |

Have a great week,


Covid Kills Inertia: Homeownership Edition

Two Truths and a Take, Season 2 Episode 35

You may have contemplated, or been asked at some point: “How will homeownership and residential real estate change after Covid?” In my experience, most of these discussions become far-fetched hypotheticals about remote work, the role of cities, and other fairly myopic perspectives from the Zoom-Bourgeoisie. 

But there is one specific way where I could see Covid having a pretty significant impact on the way that housing works in specific cities, and on how homeownership works there for regular people.

Homeownership is a peculiar asset class. Most of the time, when we think about assets and why they’re valuable, we think of them in terms of what they enable. When you buy equity shares in a business, commercial real estate, treasury bonds, or other assets, the asset typically derives its value from what it makes possible. More can happen in a world where the asset exists than in a world where it doesn’t. Value is created, the asset captures some of it, and that’s what you’re buying.

But residential real estate is different. When you buy a house on a residential plot, a large part of the value of that house is in what’s not possible, and in what it excludes. Part of the value of your home lies in the zoning laws and building codes that prevent your neighbour from tearing down their house and putting up a bar, or a retail store, or a condo. The value of a good school district isn’t just that your kids get to go to that school; it’s also that other kids don’t. (That’s uncomfortable to say out loud!) The price of residential real estate reflects everything it’s not; and can’t easily become. 

This is why there truly is not a “free market” for housing in the same way there can be for goods and services. The asset you’re buying and selling is entirely a product of the law and regulatory environment that dictates how the asset can be used, how it can’t be used, and how it can be bought and sold.

As a homeowner, you’ve bought a bundle. You get a home, leverage, tax breaks, and most importantly to this discussion, you get friction. You can frame that friction in a positive or a negative light: proponents will argue that you need these rules in place to protect residents from displacement, preserve local social capital, and protect the intangible but undeniable value of neighbourhoods that have accumulated character over time. Opponents see this behaviour as “pulling up the ladder behind you”: once you get into a neighbourhood, residents typically act and vote in ways that support their neighbourhood staying exactly the way it is: opposing more density, multifamily buildings, and especially subsidized housing.

Not all housing works like this, mind you. When you buy a downtown condo, you do not have a whole lot of influence over what happens around you. If you own a rural plot of land, there may not be many rules over what your neighbours can do with theirs. The exclusionary value of residential real estate is most concentrated in where that exclusion is most consequential: 1) single-family zoned neighbourhoods; 2) in fast-growing  or highly unequal cities, where 3) development laws and zoning codes in place are expected to persist

That last part is important: it’s not enough for that exclusion to exist; people need reason to believe that it will continue to exist in the future. In most cities, it’s a pretty safe bet to count on that kind of persistence, because it’s the emergent product of a system of local influence that has evolved over time and accumulated a lot of inertia. 

The simple way to think about that system is as a three-way power relationship between developers, politicians and homeowners: the developers want to do stuff, and homeowners want them to not do that stuff. Politicians influence the compromise through immediate decisions and long-term policies: they want economic growth from development, but they also want votes from the homeowners. Every municipality is a little different in how this triangle relationship has evolved; but once it’s in place, it’s pretty hard to change.

In a world with few building restrictions, you'd expect to see positive feedback relationships around growth: investment spurs more investment. However, in a world where local residents have influential power, you reliably see an offsetting negative feedback force from local opposition: more development (developers trying to change what’s there) creates more resistance from residents as they organize and focus on blocking that change. In most North American cities, those feedback loops are a reliable form of inertia. 

But not everywhere. Toronto is an instructive example for what happens when those inertial forces are disrupted or circumvented. Unlike virtually every other North American city, local elected leaders and planners are not the final arbiter of what gets approved for development. We have an institution called the Ontario Municipal Board, which exists at the level of the province, and has near-total power to override local planning decisions. 

Initially, the OMB was imagined a “development-neutral” entity, not strictly pro- or anti- growth, but meant as an appeals tribunal for specific development decisions. The OMB’s job is to consider all hard evidence brought forward to the hearing, and then make the appropriate decision around whether that development is in the best interest to proceed. In practice, this makes OMB planning decisions easily influenced by developers (who can spend money on planning, expert opinions, and other supporting “evidence”), and hard to influence by homeowners, whose main currency - their votes - isn’t worth much here. 

(Illustration and Copy from this Toronto Star article)

What this means in practice is that, although the OMB does not have the power to actively change local zoning rules, the minute that city zoning decisions get made, developers now have a straightforward path to propose, approve and build the maximum-sized project now permitted. It’s a fairly ham-fisted way of promoting growth, since this tends to overwhelm the subtleties and locally-crafted plans for specific areas, and anger local community members. It also effectively severs the negative feedback loop where homeowners had power to block or mediate individually proposed local developments. 

Instead, homeowners here can only really fight development at a larger scope, like rezoning decisions. But those decisions are years-in-the-making, top-down decisions with momentum behind them than individual development proposals. It’s a lot harder for individual neighbourhood groups to block a rezoning decision than a specific new condo proposal. Consequentially, although Toronto certainly has its share of bone-headed individual development decisions or zoning choices, and we have a well-deserved reputation as a city who continually devours itself, we are nonetheless doing an okay job at the hard and necessary thing we need to do, which is to get the big planning and rezoning decisions done, and build a ton of dense new housing. Still not enough, mind you, but we’re sure trying. 

So what does this have to do with Covid? It’s an instructive example because the OMB severed the local feedback loop usually in place between homeowners and local politicians, moving mediation to different levels of government (the province) and different stages of community engagement (larger-scale zoning decisions, rather than individual developments). And one pattern we’re seeing a lot with Covid - not just with city governments, but anywhere - is that Covid has shaken the inertia out of everything. And a lot of old feedback loops keeping things in place (e.g. the relationship between corporate IT departments, vendors, and consulting firms), which have been held in place under the weight of their own inertia, got shaken out really quickly this year, as people have moved to take advantage of the crisis and advance their goals. 

The Toronto example may be instructive for other cities in the wake of Covid, as cities scramble to put in place new policies that both mitigate - and in some cases, exploit - the unusual situation created by the pandemic. The one common effect that Covid had everywhere is it reset all the inertia. Budgets have changed, priorities have changed, and a lot of city-building projects have gotten fast-tracked as planners and politicians try to seize the moment and advance their priorities. 

One of the laws of systems is that they’re really hard to change once they’re established; but one way they do change is that emergency patches to the system, meant to be temporary, become permanent. I would not at all be surprised if some emergency “patches” we’ve made to city governance, or will make in the coming year, introduce temporary short circuits to the development process - just like the OMB did in Toronto - which find end up becoming permanent. 

When we look forward a few years and ask, “what will be the longest-lasting effect of Covid on homeownership and real estate”, most of the predictions and takes you hear involve people and their preferences: like “People will leave cities when they can work remotely.” But if you ask me, I’ll bet you that the most consequential impact of Covid on homeownership will be the temporary short-circuits and policy circumventions that cities and local governments set up to enact their pandemic agendas. 

In the short term, like the next 3-5 years, this change will probably manifest itself in specific developments, rezoning decisions, and civic projects that could never have advanced before - even more likely if we get a round of fiscal stimulus after the election in November. But in the longer term, Covid’s real legacy for homeownership and residential development may be the temporary patches, circumventing local feedback loops, that become permanent. When they stick around and become permanent, they could really change the balance of power between people, politicians and developers in different local markets - maybe with some unintended effects, like what happened here. 

Permalink to this post is here: Covid kills inertia, homeownership edition |

Something neat to highlight this week: the VC firm NFX asked their founders what were the most influential or interesting essays on startups and tech over the past year, and one of the essays they selected was my newsletter issue from back in January, Social Capital in Silicon Valley. They then commissioned audio versions, which you can find here if you’d like to listen to it that way:

Social Capital in Silicon Valley: the NFX Founder’s List | Alex Danco

A few more reading links for the week:

Audio’s opportunity and who will capture it | Matthew Ball

Buy now, pay later | Marc Rubenstein

A big Shopify launch: our new wholesale marketplace, Handshake, officially launched earlier this month. For merchants who want a really simple and easy way to buy wholesale that’s interacted directly with your Shopify account, or alternately who want to sell in bulk to other merchants, check out Handshake and please spread the word. 

And finally, this week’s Tweet of the Week, which made me laugh the hardest: (you’ll have to click through and watch the whole video to get the real effect; it’s pretty great)

Have a great week,


Making is Show Business now

Two Truths and a Take, Season 2 Episode 34

Nadia Eghbal’s new book, Working In Public: the Making and Maintenance of Open Source Software, may not have been on your short list of books to read this year. It’s admittedly a nerdy topic: it’s about open source projects, roles and responsibilities; the rise of GitHub as a developer platform; and how developer culture is evolving around the new power of creator platforms. 

I recommend you get it. It is mostly about software development, but the core insight of the book is bigger: Eghbal clearly sees and articulates something important about the way we make things, and how that’s changing. 

Who does the work?

Working in Public opens by challenging a common perception about open source today: the idea that it’s collaborative

The widespread perception of open source is that it’s community work. Looking back at the first heyday of open source in the 90s, you picture these loosely organized, squabbling, collaborative efforts between a closely-knit group of nerds. Some special technology, notably Linux, emerged from that era as evidence that self-motivated teams of volunteers could build world-class products. 

One of the radical ideas from this period was that loosely organized, socially motivated volunteer communities could accommodate more useful contributors than formally managed teams. Traditionally, the rule in software engineering is that “adding more engineers to a project makes it ship later”, popularized in Fred Brooks’ 1975 book The Mythical Man-Month. It makes sense: beyond a core team, adding marginal engineers to a task creates more costs (getting them up to speed, dealing with team complexity) than benefits (any useful output they manage to ship).  

The open source experience in the 90s violated that rule. Self-organized communities, coordinating via forums and email lists, learned how to accommodate hundreds of productive contributors. We rethought Brooks’ law: if they’re all genuinely self-motivated, then the more the better; they’ll figure out how to make it work. The corollary to this understanding became: if you need to get more work done, go attract more contributors. 

Those lessons have carried forward to today, where open source has become so widespread we’ve dropped the name: it’s just “The Ruby community”, or “the Python community". Eghbal writes: “The default hypothesis today is that, faced with growing demand, an open source “maintainer” - the term used to refer to the primary developer, or developers, of a software project - needs to find more contributors. It’s commonly thought that open source software is built by communities, which means that anyone can pitch in, thus distributing the burden of work. On the surface, this appears to be the right solution, especially because it seems so attainable. If a lone maintainer feels exhausted by their volume of work, they should just bring more developers on board."

Unfortunately, for many maintainers, that collaborative mindset no longer reflects reality. 

"However, in speaking to maintainers privately, I learned that [initiatives to bring on more contributors] caused them to seize with anxiety, because such initiatives often attract low-quality contributions. This creates more work for maintainers - all contributions, after all, must be reviewed before they are accepted. Maintainers frequently lack infrastructure to bring these contributors into a “contributor economy”; in many cases, there is no community behind the project at all, only individual efforts.”

Something important changed between the 90s and today. If you look at most open source projects now, the distribution of who’s doing the work versus who’s simply there is skewed dramatically: it’s common to see projects where 95% of the work is done by a nucleus of people, perhaps even a single developer, with a long tail of “contributors” who are really more like users or consumers: they might offer occasional pull requests, or flag some issues occasionally, but they’re more like fans watching a football game than the main players. 

“Fans” is a useful comparison. They serve an important purpose, they’re excited about the project, and they want to be a part of it. It's like how fans of a band want to “be a part of something”, while understanding it’s not really their show. You’re happy they’re there; the point of creating open source code is sharing it, and there’s no better sign that you’re doing something useful than fans showing up. Fans are your distribution. But fans are costly. They want to engage with you; they need interaction, and they need your time. Having more fans is great, but it doesn’t make your life easier.

Today, the natural constraint on open-source projects has become like an upside-down Tragedy of the Commons problem. The classic commons problem involves a self-renewing but finite public good, like the town green for grazing animals. Here, the commons at risk of being overdrawn isn’t the product; the code itself can be consumed limitlessly. The risk is that the creators become overdrawn and overwhelmed with participation, and with demands on their time. 

Eghbal puts it succinctly: “It is not the excessive consumption of code but the excessive participation from users vying for a maintainer’s attention that has made the work untenable for maintainers today.” As the creator of code, you aren’t a community member anymore. You’re a performer, and you’re on stage. 

Communities are for collaborators; Platforms are for creators

So how did this happen? How did we go from Brooks’ Mythical Man-Month, where adding more contributors were a net cost on production, to the 90s source ideal where adding new contributors magically worked, and then back to this new present situation, where they’re a cost again?

Here’s where we get to the real insight of the book, which isn’t actually an insight about software. It’s an insight about the relationship between creators and platforms. 

If you go back to the 90s, when we first figured out how communities built software, it took a lot of work to use the internet. It wasn’t fast or easy, but that made it special: it meant that everyone on the internet cared about it, a lot. You were really committed to being there. Online communities back then were like a federation of villages; each one had its own culture, its own customs, and its own values. The open source community was like that too, and remained so for a long time. 

In these kinds of environments, attracting more users really did advance open source projects, because the costs were usually worth it. When a new member joined a community, they were probably serious about it. There weren’t many “tourists” back then, so there was a real environment of camaraderie. Existing users were happy to onboard you and teach you things, because their effort would likely pay off as a good investment. 

Since community members joined slowly and stuck around, there was a lot of trust and shared context in the group. Every community had a different way of working, so there was a fair amount of friction preventing users from jumping around or “surfing” from project to project. Groups could preserve and maintain their collective motivation to keep shipping; they weren’t getting paid, so that motivation was everything.

It sounds pretty idyllic, and for many users back then, it was. As the internet grew more popular, the old timers reliably complained every September as a new crop of college freshmen gained access for the first time, not knowing any of the social conventions. AOL opened the floodgates in 1993, which Usenet bitterly declared “Eternal September”, and the internet veterans have been complaining about it since.  

We know what happened next with online content. The tapestry of forums and newsgroups that made up the early internet flourished for a while, but in the 2000s an invasive species arrived: the platforms. The platforms made it so easy to create, share, distribute and discover that everyone joined them, smushing everything together into common, user-friendly formats without the local context or nuance of the smaller groups.

In the open source community, GitHub changed everything. Before GitHub, open source communities didn’t only differ in their social conventions and quirks; they also differed in how they did the work; specifically, in how they managed something called version control while developing software. Once you’d identified your favourite way, you’d likely stay loyal to the projects who used it. 

GitHub changed all that. In platform fashion, GitHub started with a simple and convenient set of tools for hosting and version control, but quickly grew into a network. If open source before was like a cluster of distinct villages, GitHub was like a highway connecting them all: developers loved it, because GitHub made it easier to create and distribute and discover. It quickly became the standard way you interacted with projects, and with other developers. 

This transition was really tough for the old way. Having one standard set of tools and practices meant a continual revolving door of users, all doing exactly what they’d been told to do: “Want to get into open source? Go check out projects! Make some pull requests! Get involved, be humble, and ask to learn!” With no friction associated with joining or leaving a project, popular projects would get immediately overrun with “help”, but see little real benefit; only irritation and burnout for maintainers, overwhelmed by all of the well-intentioned but short-lived visitors. Developer Nolan Lawson described his experience in the book as “a perverse effect where, the more successful you are, the more you get ‘punished’ with GitHub notifications.” It’s Brooks’ law again, bizarrely reincarnated. 

On the other hand, platforms like GitHub are incredible for creators who understand how to work a crowd. Like Twitter or any other social media format, GitHub helps creators to create franchises around themselves, and become known for who they are, rather than what they’re working on at any given moment. Platforms give power to individuals, but it comes with an imperative: you cannot treat your collaborators as peers. You have to treat them as fans, and give them what they want, while protecting your ability to keep creating. 

As Eghbal notes: “Like any other creator, these developers create work that is intertwined with, and influenced by, their users, but it’s not collaborative in the way that we typically think of online communities. Rather than the users of forums or Facebook groups, GitHub’s open source developers have more in common with solo creators on Twitter, Instagram, YouTube, or Twitch, all of whom must find ways to manage their interactions with a broad and fast-growing audience."

We Shape our Tools, and They Shape Us

We used to think about software as a product with inherent scarcity: we sold licenses, on floppy disks and CDs, like it were a physical good. We recreated the familiar real-world scarcity we were used to, for no reason aside from that it was how we knew how to sell products. We’ve now learned that code isn’t scarce; it’s the making part that’s scarce. Code is simply a byproduct; the makers and maintainers are what’s valuable. 

Code is clearly a kind of technology. It’s a production factor; it gets things done. And yet, in the creator’s mindset, code is also unmistakably content. There’s a cost to making it, and there’s a cost to making it big; but that cost is not because marginal consumption itself is expensive. It’s because success brings attention, interaction, and maintenance - both of the code itself, and of the creator’s reputation. This all takes work, and it’s often not the kind of work the creators like doing. 

When you create great products, and people get engaged, you become a show. Shows create their own success: fans create more fans, just like product use creates more of itself. Conversely, if no one’s at your show, no one will go next time. If no one uses your product, it won’t improve. There’s no business on earth with a greater divergence of outcomes between the winners and everyone else.   

There’s an old bit of wisdom that nothing is harder to sustain than an emotion. Momentarily putting on a great show is one thing; sustaining that environment and that emotion, not just for the fans but especially for the creators, is incredibly hard to do. Show business, in a nutshell, is the art and science and orchestration that happens around the show that keeps those emotions renewed, and not exhausted. 

It feels strange to juxtapose these two kinds of vocations. Making technology seems like a world apart from entertainment and show business. But in this new world, making is show business. Look at what founders do all day! And I don’t mean that in a derogatory way. It’s hard work to create a product, create attention, and then - most importantly - manage that attention so it feeds you momentum but doesn’t burn you out. That’s the hard part of show business; the part they don’t tell you about. 

The hardest thing to do is to create, and then keep creating. The people who make the greatest impact are the people who can keep creating, one thing after another, growing in impact each time. If you look at the world’s great makers - Elon Musk, Beyoncé, whoever you like - they don’t stand apart because of their raw talent. They stand apart because they’re able to sustain their creative output for year after year. They manage to keep shipping and compounding their success while leveraging the show around them.

Platforms reward that skill set. At their extreme, it becomes the primary thing that matters.  Does that mean all making will trend this way? Not necessarily; it’s a choice. But it’s a choice we make lot. Startups begin and grow within the context of a local scene, not unlike the way bands get started and level themselves up. Many modern tech companies have an average employee tenure of around 2 years; this would be disastrous for an older company or community, but in this new creator-driven model, it’s what we’ve optimized for.

In the old world, you maximized engagement and retention of your community by giving them trust, and giving them context, and making them peers. Platforms make it easier to create and discover and distribute, but at a cost: too many people, too much attention, and too little friction to join or leave. The cost of platforms is less overall trust, and less overall context, for everyone but the core nucleus. Instead of fighting that tradeoff, we accept it: we find new ways to build, like microservices, which make it easier for low-trust, low-context participants to be productive anyway.

You can see what’s happening here: it’s We Shape our Tools, and They Shape Us (and then We Shape Our Tools Again). Our desire to create and discover leads us to build tools and platforms that make creation and discovery easier. This dramatically levels the playing field for participation, and you get way more participants, but they’ll be coming in without context, and without trust. So we adapt in order to make them useful anyway: software is getting more modular, more plug-and-play, and less monolithic. It’s not necessarily better software, but it accommodates the way we build now.

Working in Public is a great book, because it walks you through in detail how the software community implements this philosophy in practice. It’ll be everywhere, soon enough.

Permalink to this post is here: Making is Show Business now |

Some news out of Shopify this week that, for some of you, has been years in the making: subscription selling is now finally available, and it’s built really well:

Introducing Shopify subscription APIs

Subscriptions are a great example of a hard problem that looks on the surface like an easy problem. And it’s a window into one of the fundamental tensions we face every day building products.

On the one hand, we want to enable as many different use cases, business models, and opportunities for our merchants, partners, and platform developers as we can. Commerce is a tapestry; we want to make all commerce work beautifully, not just certain merchant models. But on the other hand, we don’t Shopify to fragment into different building blocks, custom checkout flows, duplicate admin panels, embedded apps, and cascading complexity. The art of building great products here is nailing both: supporting more use cases, with less complexity.

If you check out how we’ve built Subscriptions on Shopify, you’ll see a great example of what a good job looks like here. Subscriptions aren’t just a new product feature, they take advantage of a new internal architecture inside Shopify built to support any selling model. We mad this possible with an app extension model called Argo that lets custom app features render natively inside Shopify, harness native Shopify checkout, and more. Check it out; it’s really impressive work and it’s a good reminder of how lucky I am to be around a team that ships product like this, so frequently and at such a high standard.

Other reading from around the internet:

Crypto market structure 3.0 | Arjun Balaji This is a well-explained and highly informed picture on the evolution of cryptocurrency trading markets, how they’ve evolved over the past decade, and what’s on the horizon. It’s a rose-coloured glasses version, to be sure, but that doesn’t take away from its utility or merit. Do read this if you’re interested in learning more about where crypto is at these days.

A columnist makes sense of Wall Street like no other (see footnote) | Emily Flitter, NYT Here’s a lovely profile of Matt Levine in the NYT, who as you know from reading this newsletter is one of my favourite writers today. (I enjoyed Gary Shteyngart’s description of him as “the least offensive person in finance.”)

Speaking of the New York Times, here’s an interesting slide deck from Mine Safety Disclosures walking through their new business model in the 2020s, and how to think about them as an investment.

And finally, this week’s Tweet of the Week which made me laugh the hardest:

Have a great week,


The future of the CFA Institute: An interview with Margaret Franklin, CFA

Two Truths and a Take, Season 2 Episode 33

Hello! This week we have another very special interview guest: I’m delighted to share this conversation with Margaret Franklin, CFA. She serves as the President and CEO of the CFA Institute.

Software and the internet haven’t yet made their real impact across the world of professional services, especially when it comes to professional designations and certifications that demonstrate proficiency. On the one hand, the internet has created access we could’ve only dreamed about decades ago, both in terms of access to knowledge and advice, access to financial products like diversification, and access to career opportunities for talented people. On the other hand, that kind of abundant access doesn’t mean there’s less work to do. It just requires a different kind of work.

I’m sure that for many of you reading this newsletter, getting your CFA charter was an important moment in your life. For bright young people around the world who will do the same over the next decade, it will be too - but probably for different reasons than it meant a generation ago. I think you’ll enjoy our conversation about that transformation.


AD: There’s a whole lot I don’t actually know about CFA Institute. When was it founded?

MF: The first charter exams were taken in 1963 at UCLA. But when we think about CFA Institute, we tend to hark back to the New York Society of Security Analysts and Ben Graham who really had the idea that a professional designation for analysts would provide an attestation to knowledge and skills, and it would confer prestige on those market professionals who had it.

So in that context, what was considered the scarce and valuable thing that people were after?

If you think about markets back then, they were inefficient. There certainly wasn't fair disclosure of information. What was rare was the ability to actually analyze securities, and to do that in a professional and standardized way. Investing at that time was dominated by the stock brokerage world, while these pioneers of analysis thought about it from a portfolio perspective. Ben Graham’s Security Analysis book is legendary  -- first  published in 1934 -- and put professionalism into the whole activity. He thought a certification would be a good way to do that. So back in the '40s, a group of them got on a train and went around the country. 

It's such a great story of these deans of Wall Street going around trying to drum up professionalism. But it’s always been a core value and tenet of CFA Institute to focus on investor outcomes, making it better and fairer for investors. 1963 was when the first charter exams occurred. Ironically, now it's early market entrants that tend to be taking the exams. Back then the average age was 45. I think they had 300 people write it, and 33 of them were over 60. These were seasoned professionals. 

As I think about my whole time being involved in CFA Institute through a number of lenses, and now as CEO, and I look at the history, it's remarkable how seasoned, influential market professionals dedicate time, effort, thinking, and whatever resources they have available to making the profession better. 

So what about now though? Because clearly the world has changed a lot since the Ben Graham days and since the '60s, when people started writing the exams, a lot of things are different.

First of all your ability to access information of all kinds has changed a lot. Your ability to access diversification, either as a retail investor or as a professional or anything has changed a lot. But clearly new things are becoming scarce. There are a lot of things that are still valuable here, but they might be different from what they used to be. What do you think those are?

So even thinking about the 30 years I've been in the business, and I guess 23 years since I received my charter, you're right: the availability of instruments in efficient and cost effective ways has changed. We've moved more from individual securities to really thinking about portfolio construction; a total portfolio approach. 

Now we're adding a third dimension. We’ve got risk and return which are the basic measures of investment management, that’s two. Now we think about a third: impact. You’re starting to see material movement towards more environmental, social and governance elements added into the portfolio: the connection to that real stakeholder theory. 

In the last year, we've seen carbon rise to the top of important ESG factors in portfolios. Ways to think about risk from an ESG perspective includes, for example, stranded assets of mining companies:  who pays for those stranded assets? Are there unintended liabilities or undisclosed liabilities associated with environmental factors? These all manifest in portfolios. 

How can one generate returns in an interest rate environment that has really never been present for almost anybody practicing right now. The meaningful impact of central bank activity as it relates to asset allocation and portfolio management is extraordinary in this environment.

That's a good point. So when I think about the timeless lessons of personal finance that I’ve heard, it’s always just: your goal is basically to beat inflation. This is what you're running in place against. This was in a mindset where it's CPI inflation. So, here's what the cost of living is, you're trying to run in place against that. 

Now today, that's not really what my friends and peers are worried about. They're worried about asset inflation, not CPI inflation. A house is getting more expensive, a university degree is getting more expensive, stocks themselves are getting more expensive. It's a very different kind of thing that you're running in place against. At some level it's like, the solution is the same. It's just to generate returns for your customers. But it is a different mindset though. 

So, today's a great day to be talking about it. You may have noticed because you've spent time on the west coast that CalPERS has a target return objective of nominal 7%. That is just becoming harder to do. 

Especially if you have a requirement to have a certain percentage of your assets in fixed income.

Exactly. In 1995, you could do that with 100% high quality bonds. 2005, you could do that in a 50/50 stock bond portfolio, and really without using anything esoteric. Now there’s a kaleidoscope of assets with a significant portion that have real illiquidity built into them. So, you're pushing people further and further out on the spectrum. 

So, you’re right, there's asset inflation, part of which is driven by central banks having such ultra-low rates that, at some point, are going to have some consequences. But other things are actually totally deflationary. So there's a bit of a knife's edge in that, which makes portfolio construction way more complicated. 

It also probably requires investment professionals to have much different conversations with their clients, be they institutional or individual. The pricing of services becomes much more consequential to your ultimate net return. It's a business that has still very healthy profit margins. We're probably going to become an industry with more normal profit margins because the distribution of returns to the investor, versus the provider is skewed. 

Well, speaking of those profit margins, the obvious criticism on all of this is: as you see these big flows into passive management, it's like what exactly are you charging 100+ basis points for? If you’re a retail client, and can get the same returns in a Vanguard target retirement date fund. Then go have a nice life and then go be pleasantly surprised in 30 years when you look at your portfolio. 

On the other hand, you can look at the sticker price of an advisor rather than as a percentage of AUM for your returns, and instead as a price for something like education and engagement. 

So, I think we still see the same human behavior manifest itself in portfolio destruction.

I mean, 100 basis points a year is a huge amount in the context of what compounding does, but it also is small compared to the destructive effects of human impulse.


I’m curious as to how you see software robo-adviser offerings improve and expand - these online services, which started out as simple “we’ll auto-balance a portfolio for you” products, are now getting into all sorts of banking products - they’ll give you savings accounts, they’re getting into tax advice; you’ll be able to get your mortgage through these services before too long. Young people certainly seem to be embracing this trend. Are there any second-order consequences of that adoption you anticipate? 

So here's what I would say about pricing and that is FinTech will change this. Our ability to apply technology, particularly machine learning, natural language processing, all that  artificial intelligence thinking, to financial inclusion will make a difference. If you think about a $5,000 portfolio, you're not able to run that cost effectively with a lot of human intervention, because you can only have so many contact points and so many one-to-one client relationships. But technology really does change that -- it provides cost-effective portfolio management at scale. Generally, people with smaller portfolios don't have the complexity as those with a much bigger pool of assets.

With bigger portfolios, complexity in and of itself generally creates a need for more specialized service and that generally comes with size. Even with those big complex portfolios, what we see is that they have a barbell approach. They can get cheap, passive, exposure for certain things. Then they may concentrate their efforts on those that require much deeper skills. So the portfolio construction becomes more complex.

Complexity is also really multidimensional in the sense that it includes more than the portfolio itself. It's also like the client changes over time.

The rough equivalent for me, I think, is my tax guy Brian. I get so much out of him beyond what he charges me, because not only does he deal with my horrifying taxes every year, but he spends dozens of hours per year teaching me things I need to know. That is like some of the best money I spend on anything.

Yes. So I think there are really two aspects to that. There'll be some people who will say, "I'm really only minimally interested. Here are my key objectives. I want to be able to trust you. I want to be able to trust you to have an honest dialogue, what the competing priorities and trade-offs are.”

All of us want 7%, no variability, no ups and downs. If we had all of that, it would be Nirvana depending on what the inflation rate is. So if you think about the value of advice, it is meaningful. What's charged for that advice though, needs to relate to what investment return can be had. I will say, our Trust study that we recently published shows that investors who have an advisor actually have much more confidence in the financial system, because they're much better educated. Ergo they don't abandon what might be a very well thought out program because they didn't understand it and they panicked in the moment. 

That has mathematically beneficial properties to it. So then you say, "Okay, what do we want from the advice system?" We want to make sure that they're well-educated, they're ethically oriented, and that they pursue professional excellence because things change over time. So that's really where CFA Institute becomes very valuable for those in the system.

It does seem like, especially what you said is there is a professional excellence in getting people to not self-sabotage. Which is a hard problem to do. No amount of robo-advisors are really going to be able to help with that. Unless, software can convince themselves to lock their portfolio for the long term. 

Well, here's what I'll say about active management. I think there is a role for active management in portfolios. So if you have inefficient asset classes, active management generally pays off. There are also spots where in portfolios, the benchmark may not actually be your objective. So here we are in Canada where let's just say bank stocks have historically provided a reliable tax- efficient dividend yield. So if cash flow is important to you and you can count on that cash flow, I've certainly seen people's portfolios where the bank stocks cost-base was absolutely ridiculously low. What ends up happening? So they compound tax-free because they're loath to pay the taxes, so they don't actually ever sell the sucker. They get a tax-efficient dividend.

That's the kind of behavior you want to see so they can withstand the ups and downs. You have to manage the clients to say your objective isn't the broad benchmark, the broad market. You have some quite precise things that you're trying to solve for. The benchmark for the indices tends to be shortcut ways to describe the market. Now, there are definitely moments where you say, "I want market exposure." You might just want cost-effective market exposure. 

We have indices for everything now. Some of those markets are efficient and some of them aren't. So there are opportunities for sure, for active management on both the risk management side and on the return side. It's what you pay for. 

It sounds like what you're saying is just like a lot of active management is just becoming active management of the client. Then just saying "We can do some security selection, but that is mostly based on knowing you."


As opposed to, "Well, my job is to sit here and pick stocks all day and I really think that we should go buy some Amazon today.” Unless you have this born gift to be a stock picker, which few people do, or you sit in an information flow that gives you some unusual information - which as a financial advisor, you're probably not going to have - then what is left is the unique needs of the client. Which are not insignificant, but that really becomes what it's about.

This is getting into the next question I wanted to ask you about, which is the idea of craft. The idea that security analysis and being a good steward of this relationship between owners and their assets really has some craft-like elements.


We’ve spoken about this before, about how many of these industries (like software, for instance) are very much a craft. I like to say, look at the difference between the engineers in Office Space versus in Silicon Valley, the TV show, they're practically from different planets. Just based on the difference between how deeply they care about what they're doing.

CFA Institute is in some sense, a torchbearer for this craft, and you have to figure out how to signal this in a way that is equitable and fair and somewhat codifiable. But at the same time, you can’t lose the magic of the craft. 

So, that's a great question. I do think that the very best of our profession think about it as craft. They think deeply about how they apply their trade. What is it that they're uniquely capable of? What is it that they're trying to achieve? How do they express that to clients where they're investing or using other people's capital, and where they're investing for someone else as a fiduciary?

So if I think about the early roots, which we talked about, with Ben Graham, that's just such apparent craftsmanship. Yes, the tools have changed but if I think about someone like Howard Marks or some of the investors who've had long tenure in their career, we all look to them as masters of their craft. 

Well, Howard Marks can communicate his craft because he writes beautiful essays that everybody reads. But most people can't do that, nor even if they did they don't have the brand for people to go read them. Unless you think that, that's something people should more actively be doing...

You can create some level playing field. That was Ben Graham's original idea, to certify a certain level of knowledge, skills, and ability, which I think the CFA program really does. There's a global standard to it, it's an elite program. Then from there you launch into your craft, which I think is lifelong learning. It’s a lifelong commitment to professional excellence and understanding who you're serving. That can sometimes get lost in translation. So I think the ability to be part of an ecosystem that reminds people of who you're ultimately serving is critically important.

So how do you communicate that though? Because in software, for instance, you can communicate a lot more information about how deeply someone cares about a craft based on what internet forums they hang out on, or what commits they might have to an open source project. Is there an equivalent for this in this world that can be easily understandable by somebody who's not in it?

So I'm totally biased, but I think participation in and commitment to the CFA charter world is one of those things. For somebody like me, I didn't start in the business, but getting the CFA charter gave me an amazing career of almost 30 years. It’s a vibrant, aspirational community. It sees the purpose of finance, and the purpose of investing, in this particular dynamic and context that we're in right now as a social good if done well. 

Who is that community? Because I know that you care a lot about diversity, inclusion and the CFA program as a great opportunity leveler. Anybody can write this exam. It's a lot cheaper than an MBA, it's not completely equal opportunity, but it's pretty good in terms of saying "If you were able to get into the door, here is this path that's available to you." Are you where you want to be in terms of who is represented?

So I would say that the CFA program diversity numbers right now are pretty consistent with the industry, which is absolutely not where it should be. So if we just look at gender diversity, when I wrote my exam, when I got my charter in 1997 there were 19% females. It's largely the same number 23 years later. On the brighter side, our pipeline of candidates looks dramatically different: 40% plus are females. 

So I think there are a couple of aspects to that. First of all, it is a culture that is seen as particularly male-dominated. We haven’t done a good job of positioning what a career could look like to a broader audience. We know many young people entering the job market are interested in careers that are meaningful, fulfilling and challenging.  The investment management industry has all of that.  Financial security is a very important aspect of a well functioning economy, and well functioning individuals. It's necessary and it can be very noble work.

One of the things that we have not done as well, and we are changing, is how we're attracting a diverse set of candidates to the program. You're right, it is by and large very cost effective. I think of it as democratic on the way in and meritocratic on the way out. So unlike many elite programs, MBAs, and finance programs, where the hardest thing is to get into the program but almost everybody gets through it, ours is one where anybody can undertake it, but only one in five will actually successfully complete the program and successfully get their charter.  It’s democratic on access but meritocratic on achievement.

The CFA program, however, does not fit all purposes and I think we have a unique opportunity to expand our credentials and certificates to serve the needs of a broader set of investment professionals. If I think about the investment management industry when I started, our whole ecosystem was largely portfolio managers and research analysts. Now we see data scientists, risk managers, wealth advisors  --  it's a much more complex group of participants. So we're adapting and modernizing to meet the needs of those people where they're at from a learning and professional development perspective.

I opened up my Twitter a few weeks ago and saw that everyone was unhappy about the new online exam format: "When I failed the CFA exam, I had to wait a whole year in agony for writing again. Now kids can just write the entire thing straight through as many times as they want in a year."


It feels to me a little bit like doctors complaining that new residents don't have to do 36 hour call shifts anymore. There's a cult-like experience around the exam, right? Are you getting pushback from your charter holders?

So that's always been the case. Every 10 years we get some sort of a pushback. Computer-based testing does a couple of things. First of all, it does increase our accessibility so we can be in more places, we can offer more windows, and that's more suitable for learning styles. We just know so much more about how people learn, who our candidates are. We can meet them in a better, more effective way. I think you're going to see that change over time.

There were security risks with the old paper-based exams. I mean, getting them to places and  then more importantly, getting those tests back is an extraordinary operation. It increases our accessibility. It does open up more windows for people. Again, it's about attracting the right people and doing a better job in making the exam accessible.  The quality of the exam, and our ability to test and get at those knowledge, skills and abilities actually does not diminish at all under computer-based testing. We've done a tremendous amount of research and testing to validate this.

So it’s true that we have this cult-like experience. Everybody remembers how they studied for the exams and that cult-like experience of getting through it and getting your charter. That does not sustain you through the whole of your career, however. So it has its own half life, that particular experience. CFA Institute is so much more and will become so much more over the next few years. 

So what charterholders should really care about whether they wrote in 1963 or whether they're writing in 2020 or 2021 is our ability to get at and certify that knowledge, skills, and ability. Is it suitable for modern times? I think that improves as we go along.

Do you think that in 20 years the exam will be as central as it has been to the myth, the cult, the idea of the CFA?

I think in our world, the CFA charter will continue to be a really prestigious program. One that is very suitable for particularly the early market entrants. It will distinguish people. If I look 20 years hence, I think we will have a really robust suite of learning strategies that will meet the needs of professionals across their entire career. We know, for example, that the average professional will have six very meaningful changes in their career. For instance, think about a research analyst who goes on to become a portfolio manager, who then takes  on risk responsibility, who may now be in a leadership capacity running an entire ecosystem.

We can see where our ability to develop those really strong learning programs, both experientially and test-based, the rigor and quality with which we’ve done that globally, and if we can capitalize on and leverage that history and legacy into the modern world, we will be able to meet the needs of investment professionals over their entire career. That will be a bit of a game changer for us.

Thank you so much for taking the time for this interview, and for sharing all of this with the newsletter! You can find a permanent link to this interview here:

The Future of the CFA Institute: an Interview with Margaret Franklin, CFA |

Thanks to all of you who wrote in about last week’s post on founders and pre-truth telling. As anticipated, some of you did not like it! In particular, see this Twitter thread about the Microsoft story, which I’d passed on from Byrne’s newsletter but had also understood as commonly accepted tech industry lore.

I do appreciate that Tren is much closer to the real story and certainly knows what factually happened better than I do. I’ve updated the original story with a note on this dispute. But in all honestly, the story has been so widely accepted and retold that it’s here to stay. If everyone says it happened, then you know what, it therefore kinda happened. I have heard this story repeated so many times that it is effectively just part of the background context at this point. It may not have factually happened, but that’s a small detail.

Furthermore, I feel like this kind of just proves my original point: whether or not the deal was based on a complete fabrication or the full truth or somewhere between does not matter, because the point of the story is about what is considered “genuine”, not what happened. Microsoft’s reputation is not diminished in any way by this! And the fact that this is the story now - factual or not - communicates a form of truth that’s a lot more about what’s genuine than what’s factual. You might as well ask a roller coaster enthusiast, “you know that’s not really a runaway mine car, right?” Thanks to Tren for weighing in and for Byrne for the context (see the Twitter thread.)

Another great interview to check out on semiconductors, software, AI, and Taiwan:

“Semiconductors are the closest thing to magic in the modern world”: an interview with Gavin Baker

And here’s a great catchup on our friends at Pipe:

Recurring Revenue: the rise of an asset class | John Street Capital

And finally, this week’s Tweet of the Week:

Have a great week,


Are Founders Allowed to Lie?

Two Truths and a Take, Season 2 Episode 32

Whenever I have a candid conversation with someone interesting in tech, I like to ask: “What are taboo topics in Silicon Valley?”

Unsurprisingly, most of the suggestions I hear are not actually taboo. Controversial, maybe: I hear lots of replies like “Valuations have been too high for years”, or “We’re falling behind China”, or maybe even a dose of self-criticism, like “Venture Capital is a bad asset class” or “Some tech companies are net negative for the world.” 

These are fine topics, but they’re not taboo. If you brought them up at a party, other guests would happily engage in that conversation with you. Tech people are all too happy to debate those kinds of ideas. I’m asking, what’s a real third rail topic - like if you brought it up, you’d be met with silence, or hostility. 

How about: Are founders allowed to lie?

Many of you reading this will reflexively shout back, no! Of course not! Being a founder does not make lying okay! But before you submit your answer, take a minute to think about it. If you are only allowed to tell the literal, complete truth, and you’re compelled to tell that truth at all times, it is very difficult to create something out of nothing. 

You probably don’t call it “lying”, but founders have to will an unlikely future into existence. To build confidence in everyone around you - investors, customers, employees, partners - sometimes you have to paint a picture of how unstoppable you are, or how your duct tape and Mechanical Turk tech stack is scaling beautifully, or tell a few “pre-truths” about your progress. Hey, it will be true, we’re almost there, let’s just say it’s done, it will be soon enough. Here’s Byrne Hobart on Microsoft: 

Microsoft’s march to a $1.54tr market value started with the company selling a product it had not, in fact, built. Bill Gates and Paul Allen contacted computer manufacturer MITS to sell them a BASIC interpreter. They scheduled a demo, and built their interpreter. Or rather, first they built an emulator for the Altair (which they didn’t have) to run on Harvard’s computers (which they didn’t have permission to use) in order to write their interpreter (which Allen finished on the flight to the meeting). Subsequent success turned that from a lie to an endearing exaggeration, although Microsoft’s later successes gave the story a sinister cast once again.

Not everyone does this, of course. Some founders keep on the straight and narrow, and only tell the literal truth at all times. (Good luck to them, honestly.) Other founders bend the truth way too much, and end up as high drama like Theranos or laughingstocks like Fire Fest. Some never get the chance in the first place, like any founder from a less privileged background who doesn’t have the financial or social safety net or the nudge-wink fraternal understanding that this is permitted. But in between, there’s a murky grey area of social contracts and soft power, and it’s where the founder-VC relationship gets really interesting. 

I’ve written before about how the power relationship between founders and VCs today is a lot like the relationship between kings and priests. VCs don’t just give founders money, advice, and introductions. They give founders something powerful, and almost mystical: they bestow on founders a type of blessing. “You are the founder. You stand apart. Now go make the future real."

You Stand Apart is crucial. The most important pillar of the Silicon Valley Social Contract is that founders are not like other people. Founders are not even like CEOs. CEO is a title that is earned; the CEO is peers with everyone else in the company in that anyone, theoretically, could work their way up and become CEO. Founders are not like that. “Founder” is a title that can only be claimed in one way: by founding the company. They stand apart, like kings. 

How do you get to be the King? You get to be king if everyone believes you’re the king. And one powerful way that kings can continually remind their subjects who’s the king is through taboos. When you see the King violate a taboo, but no one else is allowed to, it reinforces that they are different from you. Look at Trump, and how every time some accusation gets bounced off him, his power just grows. Look at Elon, and how every time he breaks some rule and gets away with it, it just reinforces that he is the King of Tesla. 

Founders use this soft power to their advantage. When blessed by their VCs, they are uniquely permitted to “pre-tell” the truth in a way that no one else is allowed to do, so long as they observe all of the unwritten rules in doing so. You can’t push it too much; you can only push it in certain ways and not others; and most importantly, you must genuinely do so in an effort to bootstrap the future into existence. You’re not misleading investors; your investors get it: they’re optimizing for authenticity over ‘fact-fulness’. It’s not fraud. It’s just jump starting a battery, that’s all. 

You’ve all seen this. It doesn’t look like much; the overly optimistic promises, the “our tech is scaling nicely” head fakes, the logo pages of enterprise customers (whose actual contract status might be somewhat questionable), maybe some slightly fudged licenses to sell insurance in the state of California. It’s not so different from Gates and Allen starting Microsoft with a bit of misdirection. It comes true in time; by the next round, for sure. 

Normally, this would be a dangerous game to play. Violating taboos may set you apart as the untouchable King when your stock is high. But if you fall, you are going to fall really hard, because every taboo you broke to be the King is going to make you a scapegoat, and a sacrifice. That’s why there’s zero cognitive dissonance in the hard pivot from “Travis is the greatest founder of our age, because he breaks all the rules” to “Travis was forced out in disgrace because he broke all the rules.”

Fortunately for the tech community, scapegoatings like this only happen rarely. There is a shared understanding that even if you fail in realizing the future you dreamt up (and pre-sold tickets to), so long as you stayed within the guidelines of the social contract, you’ll be supported by everyone with open arms in whatever future career you choose. 

Outside of Silicon Valley, such a social contract does not exist. If you pre-tell the truth too much and get caught, you’re going to be in an altogether different kind of trouble. Nikola is in that kind of trouble

Now, if you’ve been reading this newsletter since the very beginning, you might have already been familiar with Nikola for some time. I wrote about them in the very first issue, back last year: 

[Nikola] is building autonomous hydrogen fuel cell electric semi trucks. I’m not sure how much actual progress Nikola in particular has made in the real world, but I have heard some pretty convincing explanations that the larger the vehicle, the less that batteries make sense (which I’m pretty willing to accept) and the more that hydrogen fuel cells emerge as a perfect technology to fill that gap. The refuelling station problem isn’t that big of an issue for trucks, because as Ubben points out, you can just stack refuelling stations all the way down I-80 and solve a pretty substantial chunk of your problem right off the bat - your feeling station infrastructure problem is massively easier than, say, Tesla’s. (Furthermore, the charging time for one of these things is much closer to refuelling a gas-powered car than recharging a Tesla). Does anyone know about this? Please let me me know if you do because I have questions.

Since then, Nikola has been busy. They went public through a SPAC, trading as $NKLA, under the leadership of chairman Trevor Milton. Then the story really took off, as their stock spiked in a flurry of speculation that they’d built the next Tesla, or the next something. Their market cap briefly exceeded Ford’s, and they subsequently scored a partnership with GM. All with no earnings to speak of (aside from $30,000 in booked revenue for installing solar panels on the founder’s roof), but that hardly mattered. It’s the story that matters. 

Until the story started to fall apart. Last week the short selling firm Hindenburg Research, normally known for forensic research and short cases on penny stocks and pump-and-dump scams, released a report that I honestly want you to read in full because it’s so, so much fun:

Nikola: how to parlay an ocean of lies into a partnership with the largest OEM in America | Hindenburg Research

Normally, when a short seller accuses a company of fraud, the case to make is financial: that they’re fudging numbers, juicing quarters, or doing improper accounting of some sort. But here there are no numbers. There’s only story, and promises. So the report walks us through various promises by the Nikola team over that period of time, which included:

Promising that they’d developed a fully integrated powertrain technology in-house (later clarified that Bosch provided around 85% of the parts, but that "Nikola’s parts were the important ones”)

Promising at a press conference that the starting date of construction for their first factory was “tomorrow” (it wasn’t; they were still missing permits)

Promising they’d signed a deal with Anheuser-Busch for a promise to sell ‘as many as 800’ hydrogen-powered beer trucks (but also as few as zero!), and that they’d deliver the trucks by the end of 2020 (revised quietly to 2023). 

Promising that real trucks were already coming off an assembly line in a German partner’s factory (later clarified that the trucks were built by hand, but near a factory which contained an assembly line). You get the idea.

But the best promise of all wasn’t a promise made in words. It was this video from 2018, which breathlessly showcased a gorgeous Nikola semi truck cruising down a prairie highway:

In what is some of the funniest professional writing I’ve read maybe ever, the Hindenburg team revealed their biggest red flag: the truck never drove anywhere. They rolled it down a hill. 

Of course, nowhere did it actually say that the vehicle was moving under its own power! If you look carefully, it had been advertised as a “road test”. Which, I guess, fair enough! Nikola’s written response to the allegations is pretty great content too:

Hindenburg seeks to portray Nikola as misrepresenting the capabilities of the Nikola One prototype in a 2017 video produced by a third party, as “simply filmed rolling down a big hill.” Nikola never stated its truck was driving under its own propulsion in the video, although the truck was designed to do just that (as described in previous point). The truck was showcased and filmed by a third party for a commercial. Nikola described this third-party video on the Company’s social media as “In Motion.” It was never described as “under its own propulsion” or “powertrain driven.”

So, I mean, look at the bulk of these accusations, and ask yourself: if Elon made any of these not-quite-true claims, would it matter at all in how anyone thought about Tesla? For that matter, if a startup founder showcased their “order for up to 800 product units” (even with none of them hard committed), wouldn’t you just write that off as salesmanship? A lot of these aren’t that bad. I mean yeah, rolling a truck down a hill while filming it from an impossibly upward camera angle to disguise the incline is pretty funny. But is it that different from some demos you’ve seen? Do you think I’m totally innocent here, for that matter? 

The thing is, outside of Silicon Valley - and especially in the public markets - it’s a far less forgiving climate. You’re going to get a phone call from the SEC pretty quickly. And that seems to have happened, although where it’ll end up is anyone’s guess. 

The problem is that now Nikola, and especially Trevor Milton, are in scapegoat mode. So everything they’ve ever said or promised is now seen in a rather different light. Unfortunately for Nikola, you don’t have to dig very far before you start finding quotes like this, from last year

"The Nikola truck is more than just a fuel cell vehicle; it’s a rolling super computer. One of the key elements of Nikola’s advanced system is the Bosch Vehicle Control Unit, which provides higher computing power for advanced functions while reducing the number of standalone units.

'The entire infotainment system is a HTML 5 super computer,’ Milton said. 'That's the standard language for computer programmers around the world, so using it let's us build our own chips. And HTML 5 is very secure. Every component is linked on the data network, all speaking the same language. It's not a bunch of separate systems that somehow still manage to communicate.'  

See, this is what’s not allowed. You cannot just throw out preposterous line items like “The infotainment system is an HTML 5 super computer that lets us build our own chips.” This disqualifies you! It disqualifies you immediately! If you are caught saying anything like this in Silicon Valley your pre-telling privileges get revoked. And the reason why they get revoked is that saying something like this pretty much reveals that you are not, in fact, building the future. You’re just pretending. 

And that, I think, reveals the real principle behind the rule. What’s important in Silicon Valley isn’t quite what’s true right now. It’s a different kind of truth; less about factual truth and more about authenticity. That's why the blessing that VCs grant founders is so important: it's a power, but also an acknowledgement of the burden of authenticity that founders have to carry.

It's not so different from the Kayfabe bargain between pro wrestlers and the crowd. Founders will present you with something pre-true, under the total insistence that it's really true; and in exchange, everyone around them will experience the genuine emotion necessary to make the project real. Neither party acknowledges the bargain, or else the magic is ruined.

That bargain, as subtle and as powerful as it might be, only works when it’s in the dark. Shining light on it makes it stop working. And that’s why the taboo around asking, are founders always supposed to tell the literal truth, is such an important social convention. Of course, I’m not in VC anymore, so I can say it. But be careful if you want to talk about it, too. It’s like the game where very time you think about the game, you lose. 

Permalink to this post is here: Are founders allowed to lie? |

Some reading and listening for the weekend:

Benchmark’s Peter Fenton: ‘10 to 20 years of innovation just got pulled forward.’ | Connie Loizos, Techcrunch Disrupt

Evernote’s CEO on the company’s long, tricky journey to fix itself | David Pierce, Protocol

Ron Howard - the past, present and future of entertainment | Infinite Loops with Jim O’Shaughnessy (podcast)

And finally, this week’s tweet of the week, which made me laugh the hardest, although probably not intentionally:

Have a great week,


Loading more posts…