My Business Magazines Lied to Me

Posted on June 21, 2008
Filed Under Critical Thinking |

Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true. — Demosthenes

Kool-aid is a wonderful thing. It tastes excellent. It comes in pretty colors. If everyone else is having some too, it becomes a bonding point with friends. The problem is, it doesn’t have any nutritional value. It can’t sustain you over the long term.

There are two parts to my business life. Day to day, I am usually on the startup side. I try to follow trends, predict what will happen, embrace risk, and all that other hyperactive stuff that goes along with startups. Long-term, I am on the conservative contrarian side as a value investor. I bet against trends, I minimize risk with a margin of safety, I follow Buffett’s #1 rule - don’t lose money. I always thought that a startup would someday lead me to financial success, but after 6 years of startups, it seems much more likely that will happen from value investing instead. Over the past few years I have watched my stock portfolio grow steadily, consistently trouncing the market while the various startups with which I’ve been involved have been an up and down roller coaster that usually ends up pretty flat.

In retrospect, I wish I had taken all the money I’ve personally put into my startup ideas and put it into the handful of value stocks that have made me the most money. I never expected it to be like this. I never expected the safe boring path to be so much more profitable than the startup path. As a result, the last year of my life has been a major re-evaluation of conventional business wisdom. I am starting to wonder if my business magazines (and books, and blogs) have been lying to me.

Writing From Ignorance
Earlier this year, I received an email from a friend of a friend who is writing a book about making money online. One of the chapters is on blogging, and this friend’s friend was looking for someone to interview about making money from blogs. I agreed to a phone call.

The writer told me she didn’t read blogs, and knew next to nothing about them. This was just an assignment for her. I told her as much as I could in 30 minutes, but it is difficult to convey a sound explanation of blog monetization options in that amount of time. Different niches, different writers, and different traffic levels all have different options for monetization, and to answer a question like “how much traffic do you need to monetize a blog?” is useless without knowing a lot of information about the specific situation.

Who cares, right? I mean, if some idiot buys a book written by someone who doesn’t know what she is talking about, then they deserve the lousy information they get, right? The kicker is that this book will be published and endorsed by a major business publication. A quality stamp of approval will be given to a work that will probably have really bad information.

Writing to Write
Back when I used to blog a lot, I had to post 10 times a week, according to my contract. Sometimes, I spent time writing a post only to realize I didn’t really agree with it. Other times, I slanted my views to the more positive side and told people what they wanted to hear because I didn’t feel like dealing with the comments I would get if I said what I really thought. And still other times, I wrote about things in certain ways just to generate traffic. I wasn’t being deceitful, just incomplete. The problem with most business ideas is that they can be accurately discussed in 500 words, but if you write much more than that, no one will read it. So instead of explaining all the subtle variations on an idea, which are important to know if you want to put it into practice, I just wrote about the main points and left it at that.

What’s the Point?
My point is that most business magazines, books, blogs, etc. that are popular are cranking out content just for the sake of having content. I’m not saying they are willfully misleading people, because they probably aren’t - they probably believe most of what they say. But the market for business publications doesn’t drive towards an equilibrium of truth - it drives towards an equilibrium of what people want to hear.

Few people want to read a boring book about how you can get rich by living below your means when they could read about how to get rich quick by flipping real estate. No one wants to read about how to grow your business by investing in quality assets, monitoring your cash flow, and all that other boring stuff when they could read about how to have the next big idea that will make them a rockstar. The trouble is, in my (admittedly anecdotal) experience, the former are much more successful on average than the latter.

In other words, the point of all this is that I find myself, more and more, not believing the stuff I read in the business press, at least as it relates to what makes companies successful.

Example Number 1 - Bad Strategy
For two years now, I have been experimenting with ideas in the hyperlocal space. All the online trends point towards an increase in local online advertising, and most people believe the web is moving more local. If you follow the space, Rob Curley is the apotheosis of hyperlocal. Numerous articles have been written about how he figured out the space, and revamped a bunch of major sites in recent years to make them successful. Except that he hasn’t. It’s just a bunch of stories.

How do I know? Well, I don’t for sure. But what happened was that I met a high ranking media executive who used to work with Rob, and he said the stuff written about it is just a bunch of hype, and that his projects never have a positive financial ROI. Maybe this guy is just bitter or something, but I think the more likely explanation is that the business media is putting out a story that people want to hear. Why? Because to sell books and magazines and blog ads, you have to offer something new - a new trend, a new answer, a new hero… hypernovelty is one way to publishing success.

The problem here is that I had studied Rob Curley’s ideas and strategies because they seemed to be the way to go. Now I realize I was holding many of his ideas in high regard, when they didn’t deserve to be.

Some of you reading this will be thinking “c’mon Rob, of course you shouldn’t listen to these magazines man, they are just writing to sell magazines.” The problem is that next week you will also turn around and send me an article that supports your point of view on something, as if it is convincing proof. You can’t have it both ways.

Example Number 2 - How to Raise Money
The blogosphere is ripe with people telling you how to raise VC money. Before we started trying (about 2 years ago) I read all of the posts I could find, in addition to magazine articles and even a few books by people like Guy Kawasaki. I tried to make sense of it all, but in my experience, there is no standard formula for how you should structure your presentation or pitch. Angels and VCs are all over the map in what they expect, so all those “here’s how to pitch a VC” posts are really better interpreted as “here’s how to pitch me.”

I had potential investors tell me they could not make a decision until I built out the financial model more - that they needed a more in-depth look at the numbers and projections. At the next pitch, when no one brought up our financials, I offered to show them, and to build out the model more, only to be told they don’t take financials seriously because the numbers are certainly wrong. Instead, these guys just cared about market potential, growth rates, and whether or not the underlying economics seemed attractive.

My experience pitching investors, which doesn’t seem to be written about anywhere else, is that they were are surprisingly different in what they expected, what they cared about, where they focused their attention, and what aspects of the idea worried them. It’s not like they were 10% off from each other. In many cases, they were diametrically opposed in what they told us. My advice to someone going to pitch would be not to waste time reading about how to pitch investors.

Telling Us What We Want To Hear
Have you ever had a close friend whose engagement isn’t working out, and now they wonder if they should be concerned about getting married? Sometimes there are signs it isn’t going to last, but they don’t want you to tell them that. They are scared to leave the relationship, scared of failing, scared of being alone, and so they don’t want to you help them go down that path. They want you to tell them it will all be ok. They want to hear that he/she will probably change.

Likewise, people don’t want to read that hard work and discipline are the path to success. They don’t want to have to analyze numbers, because it isn’t as fun as going with the gut feeling. They don’t want to be told that the latest trend is just a fad, even though it almost certainly is. Business magazines that don’t cater to what people want will go out of business. The result then, is that business magazines (and books and blogs) tell us what we want to hear. Then we go off and implement that bad advice, and when it doesn’t work, we make up some other excuse. Or, if we come to realize the advice was wrong, but it is still popular, we keep it to ourselves, because speaking out about it is a quick way to get chastised and be labeled (negative, luddite, sour grapes, etc). People want to believe what they want to believe, and if you try to show them a truth that conflicts with that, you will most likely fail.

But wait…
There is one thing to remember though. Everything can’t be wrong. And sometimes, magazines actually publish flashy articles that go against a popular trend as a way to increase sales. What is a reader to do? Here are the guidelines I use. Don’t copy them. I have my influences just like anybody else. Think for yourself and figure out what you believe, not what I believe. But I hope these can give you some points to seed your thinking

1. Always look at the incentives people have for doing/saying what they do/say.
2. Keep in mind that just because someone has the incentive to frame something a certain way doesn’t necessarily mean it’s wrong. Arguments must be judged on their own merit.
3. If something is “revolutionary” it is most likely hype, but keep your eye on it just in case.
4. Before you evaluate anything, think about what you want to be true, so that you can keep your own biases top of mind when you evaluate evidence. Investors in Facebook don’t want to believe that Facebook is overvalued, and are probably ignoring evidence to the contrary (at their own financial peril).
5. Remember that optimism can send you down paths that ultimately fail, but that pessimism can keep you off of paths that may be fruitful.
6. Keep track of your decisions, why you made them, and re-visit them every few months to see how you are progressing.

My final thought is that the best place to learn is to look at unpopular sources of information. If you read what other people read, you will think like other people think. Relish the obscure, the contrarian, and the unpopular, because they can seed your thoughts with unique ideas. Always keep a skeptical eye and remember that media is frequently lying to you, even if they don’t always know it themselves.


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