There have been interesting debates in the technology press of late. Decisions may be made, or unmade, on the basis of issues raised, as these discussions have covered spectacular subjects and lent themselves to momentous, nearly operatic, undertakings. For example, there is for investors the subject of a major bubble, or a minor not-bubble, or a hard to pin down sometimes-bubble, any of which possibilities is ripe with consequence. For entrepreneurs, there is the issue of the “pivot” – much less an argument per se than a mantra of sorts, and one that has become almost a badge of honor. Finally, for many blog readers a new subject has emerged, more sensitive than the others even, dealing with the issue of education. In these big themes, however, a small flaw permeates, having to do with definition and context. Decision makers, and un-makers, should practice caution as they embark upon monumental choices, because roads are slippery when approached with faulty gear.
Take, for example, the case of the alleged tech bubble. A frequent argument in defense of its non-existence is a comparison to the scenario of 1999 and 2000, at which time valuation multiples for public companies were truly spectacular and would in many cases make current standards seem timid in contrast. This is true enough, but by the same token the comparison is of apples and oranges, as it were, because of differences in context. Industry growth prospects when the Internet was at its literal beginning were far different from industry growth prospects more than ten years later. This is not a judgment call but a statement. And that only some investors are now participating in the wave, and that the wave is selective rather than sweeping across all variants, is also true… but does not diminish the possibility of wild overvaluation occurring where and when it does. An asset, in fact, can be priced low and still be in a bubble if its fundamental value is nil.
In regard to the “pivot” – that oft-used term which can only truly catch on like it has, let’s be honest, in an environment that tends to the bubbly – the misunderstanding ranges from mild to considerable. I mean, changing course in business is really a natural progression. When IBM morphed from typewriters to mainframes, was that a “pivot”? When Apple introduced the iPod after years of successful Mac production, was that a “pivot”? Why should natural evolution in an industry that is rapidly evolving get branded with a word that makes the process anxiety-making, self-important, and drastic? As though a wild adventure were in the making when in fact the enterprise is merely moving on… No big congratulations are in order, no trembling emotion, palpitations, ribbon cutting ceremony, because change is necessary to survive – like breathing, for example, the act of which does not elicit accolades.
Which brings us to Thiel’s education critique. The point made by the investor who correctly called both of the last two bubbles is that education has become bubble number three. Because the price of education and its value are far apart for many of the educated on grounds of financial calculation, this difference constitutes a bubble according to standard definition. Can education, however, be appraised like a financial asset? And even if it could, at what point after graduation is this value established? At what point after graduation does schooling actually stop? And what is the rate to use in discounting these numbers to present value? When treating education as a financial asset that can exist in a bubble in the same way that a dot-com stock or a subprime mortgage can, there is a definitional flaw and a distortion of context that serve to diminish the argument.
What all these examples have in common, more than the imperfection of each case as presented, is an insistence on rigidity and generalization, forcing simplistically derived rules upon highly complex and nuanced subjects. As such, guidance is offered up with almost aggressive confidence, and patterns of behavior are encouraged on the foundation of half-baked misconceptions. Mischaracterizing a financial environment is as perilous to the investor as aggrandizing the “pivot” is to the entrepreneur. At once exaggerated and insignificant, such arguments can lead to inaction or otherwise excessive expectation from an outcome. Education, among its other advantages, offers a defense against such risks.