The fifty-mile stretch of land between San Francisco and San Jose used to be a great place to live and work. The best of the lot—the “gold standard in Silicon Valley,” as journalist David Jacobson wrote in Stanford’s alumni magazine in the 1980s—was Hewlett-Packard. Co-founders Bill Hewlett and Dave Packard created a people-oriented culture known as “the HP Way.” HP was informal and casual. Everyone was on a first-name basis. Hours were flexible. There were no time clocks. Bill and Dave believed a company should feel like a family. They trusted employees, treated workers with dignity and respect, and believed a company should be about more than just making money or delivering returns to investors. They valued job security, tried not to have layoffs, and were good corporate citizens in the community. All employees got bonuses and participated in profit sharing. Bosses engaged in “management by wandering around,” a practice that struck Tom Peters when he studied HP and raved about the company’s way of doing things in his 1982 business classic, In Search of Excellence. By the 1970s, HP was a thriving organization that many in Silicon Valley (and beyond) wanted to emulate. Apple co-founder Steve Wozniak, who worked as an engineer at HP in the 1970s, later recalled: “We had such great camaraderie. We were so happy. Almost everyone spoke about it as the greatest company you could ever work for.”
The 1970s brought another element to Silicon Valley—the idealistic values of the counterculture. “Power to the people” was the slogan of 1960s, and it was also the motto of the people who led the personal computer revolution in the 1970s. Instead of sharing a mainframe, which was controlled by Big Brother, everyone could have their own computer. This was an incredibly radical idea, with huge implications for society. Wozniak and his Apple co-founder Steve Jobs were long-haired hippie-hackers who built their first personal computers as members of the Homebrew Computer Club, a pack of amateur kit-computer hobbyists. Wozniak was steeped in the people-first “HP Way.” Jobs was an LSD-taking, commune-dwelling hippie who often went barefoot and who was influenced by Stewart Brand, a proponent of psychedelic drugs who hung out with Ken Kesey and the Merry Pranksters. Brand created the Whole Earth Catalog and co-founded the WELL, one of the first online communities. Its members included John Perry Barlow, who wrote lyrics for the Grateful Dead and co-founded the Electronic Frontier Foundation, an Internet civil liberties advocacy organization. Counterculture values—freedom, personal liberation, civil rights, respect for the individual—shaped the culture of Silicon Valley.
My first encounter with the old version of Silicon Valley came in the late 1980s, when I visited a software company in Santa Cruz where bearded, long-haired engineers wore shorts and tie-dyed shirts and spent evenings lounging in a huge redwood hot tub, drinking wine and smoking pot. “California companies” was the name used to describe this laid-back hippie-hacker approach to work.
But the days of hanging out in the hot tub are long gone. The new generation of tech companies have become pressure cookers. Uber employees have complained about long hours, abusive managers, and sexual harassment. One Uber engineer committed suicide after only five months on the job; his widow blamed the stress of work. Amazon employees have recounted going days without sleep trying to hit impossible deadlines. One “Amabot” (as Amazon office workers call themselves) who had been put on a “performance improvement plan” (a first step toward getting fired) sent a note to his colleagues and then leapt off the building in a suicide attempt.
Tech work has changed because the people have changed. During the second Internet boom, which began a few years after the dotcom crash in 2001, Silicon Valley has attracted a new kind of person. Instead of geeky engineers, the industry draws hustlers, young guys who hope to get rich quick and who in a previous generation might have gone to work as bond traders on Wall Street. Previously, the kings of tech were the wizards who invented new products and built companies, like Hewlett and Packard, or Bill Gates at Microsoft, and Jobs and Wozniak at Apple. But now the power brokers include venture capitalists—like Marc Andreessen of Andreessen Horowitz, Peter Thiel of Clarium Capital and Founders Fund, and Reid Hoffman of Greylock Ventures. They don’t actually run tech companies. They’re just investors. Nevertheless, their profession is depicted as glamorous, and they rank among the biggest celebrities in Silicon Valley. Wired once lionized Andreessen on its cover, calling him “The Man Who Makes the Future.” Young guys moving west after college no longer hope to become the next Steve Jobs; they want to be the next Marc Andreessen.
The Valley has become a casino, with VCs and angel investors blindly pumping money into every slot machine, hoping to hit a jackpot. (The difference is that the punter who gets lucky on a slot machine doesn’t walk away convinced he’s a genius.) Instead of writing about tech, the industry’s bloggers now write about venture deals, and who raised how much at what valuation. The Valley has become obsessed with money, and there is a lot of it around. In 2017, venture capitalists pumped $84 billion into start-ups in the United States—that’s ten times as much as in 1995, according to the National Venture Capital Association. Where could all that money go? Are there now ten times as many ideas worth funding? Of course not. But the VCs have to do something with their billions, so they just keep stuffing money into start-ups, fattening them up like foie gras geese. In 2013, when Aileen Lee, a VC, coined the term unicorn to describe a privately held company valued at more than $1 billion, she chose the name because such companies were rare. By 2017 there were nearly three hundred of them. Unicorns were all over the place—and wreaking havoc on the Bay Area.
The second Internet boom has created a new caste of American oligarchs, a bunch of socially awkward, empathy-impaired Sun Kings whose influence extends beyond business into politics and the culture at large. Techies now dominate Vanity Fair’s annual “New Establishment” list, a barometer of the zeitgeist, grabbing 40 of the 100 spots on the 2017 roster. Unfortunately many of these new oligarchs seem to possess a decidedly anti-worker, and even anti-human worldview.
At the top of the list was Amazon founder and CEO Jeff Bezos, who is worth $140 billion, the largest fortune (in absolute terms, not adjusted for inflation) ever accumulated. Some see Bezos as a hero, but his fortune has been built on the backs of warehouse workers who toil away in abominable conditions under huge amounts of stress, sometimes earning so little that they qualify for food stamps. In 2018, when Bezos went to Berlin to receive an award, hundreds of his own German workers showed up to protest. “We have an Amazon boss who wants to Americanize work relationships and take us back to the nineteenth century,” a union boss told Reuters.
Second on the list was Facebook founder Mark Zuckerberg, whose company employs “secret police” also known as the “rat-catching team,” to spy on workers, operating what the Guardian calls “a ruthless code of secrecy,” using legal threats to keep workers from talking about “working conditions, misconduct or culture challenges within the company.” The thirty-four-year-old wunderkind runs a social network with more than two billion members, and has become the most powerful person on the planet, Scott Galloway, a professor at New York University’s Stern School of Business, told CNN in 2018. Zuckerberg has amassed his $80 billion fortune by plunging into the psyches and private lives of his members so that advertisers and political parties can manipulate them. Even some of Facebook’s venture capital investors and employees believe the company has become dangerous. “No one stopped them from running massive sociological and psychological experiments on their users,” Roger McNamee, a Silicon Valley venture capitalist and early Facebook backer, wrote in Washington Monthly in the spring of 2018, in an article calling for greater regulation of Facebook and other online platforms.
In fifth place on the Vanity Fair list was Tesla CEO Elon Musk, whose factory workers complained to the Guardian in 2017 about stressful, dangerous working conditions, and overworked colleagues collapsing on the production floor. Also on the list were Uber founder Travis Kalanick and his successor as Uber CEO Dara Khosrowshahi, whose company exploits drivers so badly that they have repeatedly sued the company. In 2016, Uber offered a proposed $100 million settlement for a lawsuit brought by drivers demanding to be categorized as employees, with salaries and benefits.
Exploiting workers is paying off. Many of these VCs and founders are worth billions. But they have driven wealth inequality to insane levels and brought banana-republic economics to Silicon Valley. Awash in money, once-sleepy towns like Los Altos, Los Gatos, Atherton, and Palo Alto now boast Disneyfied downtowns and Michelin-starred restaurants, with Porsches, Ferraris, and Mercedes G-Wagens parked outside. Silent, speedy Tesla sedans have become as common as Camrys, and the hills above the Valley are dotted with Bond-villain compounds belonging to billionaires. Russian venture capitalist and Facebook investor Yuri Milner owns a twenty-five-thousand-square-foot imitation French château in Los Altos Hills, for which he reportedly paid $100 million in 2011, which was said to be the highest price ever paid in the United States for a piece of residential real estate. Scott McNealy, co-founder of Sun Microsystems, is trying to unload his twenty-eight-thousand-square-foot Palo Alto mansion, which features a climbing wall and a disco, for just under $100 million, the Wall Street Journal reports. Both of those pale in comparison to Oracle founder Larry Ellison’s twenty-three-acre estate in Woodside, which is modeled after a Japanese emperor’s palace. The place took nine years to build, reportedly at a cost of $200 million. Its highlight is Katsura House, a replica of a teahouse from a sixteenth-century royal compound in Kyoto. The replica, which was built in Japan, then disassembled and shipped to California, is 10 percent bigger than the original.
Non-billionaires settle for McMansions priced in single-digit millions, like a “secluded Tuscan estate” that the nouveau riche Chandler Guo, the self-proclaimed “Bitcoin King,” snapped up for $5 million in 2018. As for “regular” houses, those no longer exist. In March 2018, a drab, tiny, 848-square-foot house in Sunnyvale sold for $2 million, more than $2,300 per square foot, the highest square-foot price ever recorded on the Multiple Listing Service.
From San Francisco to San Jose, house prices keep soaring. But so do the ranks of the homeless. It is surreal to see so much poverty pressed right up against so much wealth. One day in 2017 I ate lunch on the Google campus with some rank-and-file Googlers who explained that even though they were millionaires, they still felt poor, because here at Google they sat in meetings with people who owned jets and yachts and estates in Hawaii. They seemed not to know how much actual poverty existed all around them. Later, just two miles away, I walked down a street beside Rengstorff Park in Mountain View, where forty or so camper vans lay slumped against the curb. These campers were homes for working-class families who could no longer afford to rent apartments in the Bay Area. Strictly speaking, these campers were mobile homes, but I doubt these rusty, ramshackle old boxes could ever be driven. In the narrow stretch of grass beside the curb, families kept their belongings. Outside one trailer I saw a little kid’s bike. I wanted to cry.
A similar mobile home encampment had sprung up in Palo Alto, near the headquarters of Facebook. People in both communities complained to the police, who eventually arrived with tow trucks and dragged the campers away. Santa Clara County is one of the wealthiest counties in the United States, home to Apple, Facebook, and Google, three of the richest companies in the world. Yet in that county there are ten thousand homeless people, many living in makeshift tents and cardboard boxes under highways.
In 2017, Apple, Facebook, and Google had a combined market value of nearly $2 trillion and were sitting on $400 billion in cash. The founders of Google and Facebook possessed personal fortunes worth $175 billion, combined. Noah Smith, a Bloomberg columnist and former finance professor, reckons that for $10 billion a year, we could eliminate homelessness in the entire United States. A handful of tech oligarchs could easily kick in and solve the problem. Instead, tech companies have been doing the exact opposite. For years they have been dodging taxes in the United States by transferring profits through shell companies and parking hundreds of billions of dollars in offshore accounts. Only when Donald Trump got elected and slashed corporate taxes did companies like Apple agree to bring the money back. To be sure, Apple still paid taxes, but the bill was tens of billions less than it would have been previously. Officially, most Silicon Valley oligarchs express contempt for Trump; yet they were grateful for his tax cuts. Meanwhile, all around the Googleplex and Apple’s gleaming new billion-dollar spaceship campus, people still sleep in campers and huddle under bridges and freeway overpasses.
In 2017, the Guardian published a story about Nicole and Victor, a twenty-something husband and wife who worked in cafeterias at Facebook and earned so little that they were living in a garage with their three kids. Other people rent panel vans outfitted with beds and little kitchens. In 2017 I tracked down a man in Daly City who has made a business out of converting vans into campers and renting them out. He asked that I not use his name. When he first started doing this, his customers were twenty-something tech guys who worked at companies like Google, which provides free food and plenty of places to shower, so they figured they could save a few bucks by living in a van. But lately things have taken a depressing turn. These days he rents his vans to families, working people who have been evicted or priced out of apartments and are turning to vans as a last resort. “These are people just trying to hang on,” he told me.
In San Francisco, home to dozens of big Internet companies like Twitter and Uber, techies grumble about having to step over the homeless people and dodge piles of human excrement as they walk to work. “Every day on my way to and from work I see people sprawled across the sidewalk, tent cities, human feces, and the faces of addiction. The city is becoming a shanty town,” start-up founder Justin Keller ranted in an open letter to San Francisco mayor Ed Lee in 2016. “The wealthy working people have earned their right to live in the city. I shouldn’t have to see the pain, struggle and despair of homeless people on my way to work every day.”
Keller’s letter sparked outrage and reminded some of a rant posted in 2013 on Facebook by another start-up founder, Greg Gopman, who wrote that “in downtown SF the degenerates gather like hyenas, spit, urinate, taunt you, sell drugs, get rowdy, they act like they own the center of the city. If they added the smallest iota of value I’d consider thinking different, but the crazy toothless lady who kicks everyone that gets too close to her cardboard box hasn’t made anyone’s life better in a while.” Gopman’s post prompted a backlash on social media, and he ended up leaving his own company. He later apologized and vowed to help address the city’s homeless problem.
In 2016, a bunch of rich techies came up with their own solution, sponsoring a ballot proposition that would let police forcibly remove homeless people from the sidewalks. Homeless people would get twenty-four hours to either move to a shelter or get a bus ticket out of town. If they didn’t comply, the cops could seize their tents and belongings. The problem was that San Francisco had only nineteen hundred shelter beds, but four thousand people were living on the streets. Nevertheless, the proposition passed. In 2017, the cops started sweeping people off the streets.
Ayn Rand and the PayPal Mafia
One day in May 2018, the police in Laguna Beach, California, published a set of photographs from a car accident: a Tesla Model S sedan, operating in autopilot mode, had crossed the center line and smashed into a parked police SUV. The photos of the Laguna Beach crash seemed like a perfect metaphor for what the new Masters of the Universe are doing to society: turning loose a bunch of half-baked ideas to careen around and smash into things, all in the name of progress. Their victims include the world at large, but also their employees. The new oligarchs don’t seem to care very much about their community, nor do they show much regard for their workers, or for human beings in general. It’s almost as if, having imagined a world in which robots and artificial intelligence can do everything, they resent the fact that for now they still must put up with messy, inferior biological beings.
Tesla’s forty-seven-year-old South African–born CEO Elon Musk has become a hero to many, who view him as a real-life version of Tony Stark from Iron Man. Yet so far Musk hasn’t proved to be very good at making cars or making money. After fourteen years in business, Tesla has lost billions of dollars, and in 2017 the company sold only one hundred thousand cars—half as many as Toyota sells in a week. Nevertheless, Musk is worth more than $20 billion, thanks to Tesla’s soaring stock price. Yet he hasn’t always been generous to his workers. According to a 2015 biography of Musk by journalist Ashlee Vance, Musk once fired his assistant, a woman who had been with him for twelve years, after she dared to ask for a raise. Even more cruel was the way he did it. Musk told the woman to take two weeks off and he would see if he could get by without her. When she came back, he said he didn’t need her anymore. Musk has denied Vance’s version of this story.
Tesla’s factory workers have it even worse. In 2017 the National Labor Relations Board filed a complaint against Tesla, alleging it had violated labor laws. In the same year, a Tesla factory worker published a blog post complaining about overwork, low pay, and unsafe conditions. WorkSafe, an advocacy group, alleged Tesla’s production plant has twice as many serious injuries as the industry average. The United Automobile Workers union claims Musk has fought efforts by workers to unionize and even fired workers who supported unionization. In 2018, Congressman Keith Ellison published an open letter warning Musk that retaliating against workers for trying to form a union “isn’t just morally wrong—it’s against the law.” Tesla has been hit with numerous worker complaints and lawsuits, including three in 2017 by black workers who said they had been subjected to racist behavior and racist slurs. One complaint described Tesla’s factory as “a hotbed of racist behavior.”
Musk made his first fortune as a co-founder of PayPal, whose alumni, known as the “PayPal Mafia,” have since founded other successful tech companies and/or become venture capitalists. Many of them have known each other since their student days at Stanford in the 1990s. In their current roles they exert outsize influence on the workplace culture of Silicon Valley. The problem is some of them don’t seem like the nicest people.
One billionaire oligarch, Keith Rabois, a PayPal alum who now works as a venture capitalist, commands start-up founders who take his money to embrace an extreme version of workaholism—they’re not supposed to take vacations. Ever. Rabois claims he worked for eighteen years straight without a break, and that others should do the same. In the 1990s, as a law student at Stanford, Rabois became notorious for an incident in which he screamed out homophobic slurs (“Faggot! Faggot! Hope you die of AIDS! Can’t wait until you die, faggot!”).
Rabois’s friends Peter Thiel and David Sacks, who also went to Stanford and also worked at PayPal, and also have gone on to become enormously wealthy and influential tech oligarchs, in 1995 co-authored a book, The Diversity Myth, in which they defended Rabois. Thiel and Sacks decried the rise of “political correctness” and multiculturalism on campus. They argued that women who claim to have been raped might actually have been experiencing “belated regret,” and fretted that “race relations have taken a turn for the worse,” because “multiculturalists charge whites with more evanescent and intangible forms of racism, such as ‘institutional racism’ and ‘unconscious racism.’” In 2016, Thiel apologized for what he wrote about rape. Sacks also apologized and said he regretted his earlier views.
In 2014, Thiel, the anti-diversity firebrand, published a book, Zero to One: Notes on Startups, or How to Build the Future. I suspect that concern for diversity does not play a big role in the future that Thiel would like to build. That suspicion is bolstered by the fact that in 2016 Thiel campaigned for Donald Trump. Maybe it is just coincidence, but in the past two decades, as figures like Diversity Myth authors Thiel and Sacks have gained ever more influence in Silicon Valley, the tech industry has developed appalling problems with diversity, with women complaining about sexual harassment and hostile work environments, and people of color complaining that they are shut out nearly completely. I do not think this has happened by accident.
The New Compact
Reid Hoffman considers himself a “public intellectual.” Entrepreneur magazine called him “the philosopher king of entrepreneurs.” Like Musk, Thiel, Sacks, and Rabois, Hoffman launched his career at PayPal, then went on to make an even bigger fortune. In 2002 he founded LinkedIn and was CEO until 2006, when he stepped aside, became executive chairman, and began a new career as a venture capitalist. Hoffman is now worth more than $3 billion, and is one of the architects of what he calls a “new compact” between companies and employees.
The new compact says, essentially, that corporations owe no loyalty to workers, and that workers should not expect any kind of job security. This compact encourages workers to view themselves as independent agents, competing against one another for work. Each individual is a start-up—“the start-up of you,” as Hoffman once put it in a book by that title. Hoffman describes the new compact in his second book, The Alliance: Managing Talent in a Networked Age. The gist is that a job is just a transaction; you’ll work here for a year or two, then go on to the next thing. Refer back to this book’s opener, Welcome to Your New Job, for my own riff on the “new compact.”
The problem with Hoffman giving advice on how to “manage talent” is that he hasn’t actually done much of that himself. To be sure, he spent four years at PayPal, and was CEO of LinkedIn for its first four years, but those were relatively tiny organizations at the time. In 2006, Hoffman decided he didn’t want to be a CEO and hired someone else to run LinkedIn for him, while he became executive chairman. He says he did that specifically because he didn’t like managing people. “I didn’t like running a weekly staff meeting,” he later wrote in a blog post. “I could do it, but I did so reluctantly, not enthusiastically.” He didn’t want to spend his time “debating which employees should get a promotion.” In other words, Hoffman didn’t want to be a manager—he just wanted to write books telling other people how to do the job.
Moreover, LinkedIn doesn’t seem to have been particularly well managed. It’s true the company grew very rapidly, went public in 2011, and in 2016 was acquired by Microsoft for $26 billion. That sounds like a big win, but in fact LinkedIn started losing money in 2014, and before being acquired its stock had plunged from an all-time high of $269 per share to as little as $101 per share. Microsoft paid $196 per share, a steep premium.
Sure, Hoffman got rich. But it’s hard to look at his track record at LinkedIn and see a model for how to manage a company. Howard Schultz or Yvon Chouinard, the founders and CEOs of Starbucks and Patagonia, respectively, have also written books about managing companies. But they’re both longtime practitioners who actually ran their companies for decades, and built sustainable, profitable, independent organizations. For what it’s worth, neither of them espouses anything resembling Hoffman’s tour-of-duty, job-as-transaction philosophy. In fact they urge companies to do the opposite—to invest in employees, treat them well, and try to keep them around.
As an investor, Hoffman has had an amazing track record of picking winners. He and Thiel put early money into Facebook, for example. But in the role of investor Hoffman hasn’t always been an ally to workers. Hoffman was an investor and board member at Zynga, a company founded by his close friend and fellow Facebook investor Mark Pincus. In 2011, Zynga, which makes cheesy games like FarmVille for Facebook, was getting ready to go public. Just before the IPO, the Wall Street Journal broke a story that Pincus had been quietly forcing some employees to give back options that Pincus had granted them when they were hired. Pincus said the company had been too generous. If the employees didn’t comply, he would fire them—in which case they would lose all of their unvested options. The choice was this: lose a little, or lose a lot. Companies like Zynga use option grants to lure in new employees, often at below-market salaries. Now that Zynga’s options were about to be worth something, Pincus wanted them back. This was one of the most egregious cheapskate anti-worker moves in Silicon Valley history—especially since Pincus was about to become a billionaire on the IPO.
After the IPO, Pincus and Hoffman made another controversial move. When the IPO took place, in December 2011, all Zynga workers and management were bound by a lock-up agreement, so they could not sell shares for six months. But as the Financial Times explained: “After its December 2011 IPO, Zynga rejiggered its lock-up agreement in early 2012, allowing Pincus and Hoffman, a Zynga director, to jump the line and sell shares before then-current and former employees. Zynga shares collapsed just after that privileged secondary offering.”
Shareholders sued, alleging securities fraud and breach of fiduciary duty, arguing that Pincus and Hoffman sold early because they knew the company’s financial condition was deteriorating. After a protracted fight, one lawsuit was tossed out and Zynga settled another one, paying monetary settlements but admitting no wrongdoing.
In 2017, Pincus and Hoffman formed a “virtual political party” called #WTF, for Win the Future, to influence the direction of the Democratic Party. The Financial Times pointed out that it was “curious” to see Pincus and Hoffman take such an interest in democracy, since in their own companies they had structured corporate governance with different classes of stock, which gave them control even after the IPO—benevolent dictators, basically, who did not have to answer to shareholders or employees.
These are the people who would advise the world on how to “manage talent” in the networked age. Hoffman’s new compact is terrible for workers, but great for investors, which is understandable since Hoffman’s primary focus these days is on venture investing. The problem is that a venture capitalist writing a book about how companies should treat employees is like Ted Bundy offering dating advice to young women. Unfortunately, in recent years this new compact has become the norm in the tech industry, especially at start-ups. The deal is so awful and exploitative that even Ayn Rand, a hero to many of today’s tech libertarians, might gasp a little and ask, “But can you really get away with this?”
They can. They do. My first glimpse of the tour-of-duty ethos came at HubSpot, which celebrated its enormously high turnover with the slogan, “We’re a team, not a family,” which meant that, just like on a sports team, you might get cut at any moment. When I wrote Disrupted I thought this way of treating employees was unusual. I described my story as a firsthand account of life inside a start-up “during a period when the tech industry had temporarily lost its mind.” A few years later, I worry that the insanity I experienced might be permanent rather than temporary, and that it is no longer contained to the tech industry. The disease seems to be breaking out of its container, infecting the rest of the world.
The Toxic Transfusion
In San Francisco there is a company called Ambrosia that for $8,000 will give you a transfusion of blood drawn from teenage boys. (For $12,000 you can get the premium package, getting two liters of blood instead of just one.) The company’s founder, Dr. Jesse Karmazin, makes the astonishing claim that the new blood does not just slow the aging process but can actually reverse it, so that you get younger. “You’re not going to turn into a twenty-year-old overnight, but theoretically that’s possible if we treat someone enough,” he tells me. The MIT Technology Review quoted doctors and scientists who doubted the treatment will do anything, and questioned whether Karmazin should be offering it. Yet people keep lining up. Karmazin tells me one of his patients is a ninety-two-year-old man who gets a transfusion once a month. Karmazin says the man could live to be one of the oldest people in the world.
Just like that nonagenarian, Big Old Companies are racing out to San Francisco, hoping to become more like start-ups. Some, like Walmart and Target, open tech labs and incubators in Silicon Valley. Others send executives on two-week tours, known as “silicon safaris,” to visit start-ups and learn from them. Local tour guides now sell “innovation tours,” shuttling visitors around on buses to visit start-ups. In 2017 on one trip to San Francisco I met a group of German businessmen whose companies had sent them on a two-week safari. When I met them, Zenefits, one of the hottest unicorns, had just booted out its CEO, Parker Conrad, in a scandal that involved allegations of cheating on licensing tests and letting unlicensed brokers sell insurance policies, as well as having an out-of-control frat-boy party culture. (Conrad and Zenefits would later settle charges brought by the Securities and Exchange Commission that they misled investors; they paid a fine but did not admit or deny wrongdoing.) Uber, the biggest unicorn, was on the verge of booting out its CEO, Kalanick, after a scandal erupted over sexual harassment, spying on competitors and on government regulators, and other misbehavior. I asked the Germans, “What could you possibly learn from these people?” They seemed mostly bemused.
Some companies try to instill a little bit of Silicon Valley culture by building miniature start-ups inside their old-company walls, hiring Millennials who fan out across the organization, wearing Converse sneakers and untucked shirts, running hackathons and teaching oldsters how to get “super pumped” and “mastermind some shit” in a “jam sesh,” as Uber founder Travis Kalanick once put it. Also, many companies are latching on to faddish Silicon Valley management methodologies, like Agile and Lean Startup, because they are convinced that these tech-spawned ideas will make them as nimble as start-ups.
Basically, they want a transfusion. They want that teenage boy blood. They are old and slow and bloated, with weak hearts and clogged arteries. Most of all, they’re scared. They’ve seen other big old companies get killed off by Silicon Valley, and they would rather not have this happen to them. They seem to believe that some magic elixir exists here, some recipe for innovation that floats in the air and can be absorbed if you drive around with your windows open, smelling the eucalyptus trees. They see people getting rich on things they don’t even understand. Blockchain? Ethereum? Initial coin offerings? So they fly out and have drinks at the Rosewood Hotel on Sand Hill Road in Menlo Park, where venture capitalists hang around, as do expensive “companions,” many with Eastern European accents. They eat lunch at the Battery, a members-only private club for social-climbing parvenus in San Francisco. They wangle an invitation to a Bitcoin party and rub shoulders with the scammers, hustlers, Ponzi schemers, and obnoxious knobs who are trying to cash in on a modern-day tulip mania based around a cryptocurrency that Warren Buffett describes as “rat poison squared.” Buffett’s partner, Charlie Munger, was even less polite about Bitcoin mania: “It’s like somebody else is trading turds and you decide you can’t be left out.”
The problem is that when you dig through the bullshit you discover, as Gertrude Stein once said about Oakland, that “there is no there there.” Silicon Valley has no fountain of youth. Unicorns do not possess any secret management wisdom. Most start-ups are terribly managed, half-assed outfits run by buffoons and bozos and frat boys, and funded by amoral investors who are only hoping to flip the company into the public markets and make a quick buck. They have no operations expertise, no special insight into organizational behavior.
All they have is a not-very-innovative business model: they sell dollar bills for seventy-five cents and take credit for how fast they’re growing. The vast majority of these new companies are losing money. Traditionally, to get rich in business you had to build a company that turned a profit, and then the profits were shared with investors. The new VCs have invented a form of alchemy in which they make a fortune for themselves while skipping the step about building a profitable company. I call it, Grow fast, lose money, go public, cash out. You pump millions (or billions) into a start-up, so that it grows rapidly. You generate hype, flog the shares to mom-and-pop investors in an IPO, and scoot away with the loot.
In 2017 I made a list of sixty tech companies that had gone public since 2011. Fifty of them had never made a profit. Some new companies lose incredible amounts of money. In 2017, Spotify lost $1.5 billion, Snap lost $3 billion, and Uber lost $4.5 billion. Yet, as of early 2018, Spotify founder Daniel Ek and Snap founder Evan Spiegel are each worth about $2.5 billion. Kalanick, the founder of Uber, who made such a mess that his own board tossed him out, nevertheless reportedly has a net worth approaching $5 billion. Where else on earth can you run a company that loses billions of dollars—and become a billionaire yourself by doing this?
The money-losing business model helps explain why VCs have invented the new compact and believe in treating employees so poorly. The VC and founders are not trying to build sustainable companies. So why should they care about providing employees with stable, long-term careers, or distributing wealth among the workers? Workers are merely the fuel that generates sales growth. You hire an army of young telemarketers, who hit the phones all day long. You give them impossible quotas and “burn them out and churn them out.” Employees can (and should) be underpaid, overworked, exhausted, and then discarded. When the IPO finally happens, a few people at the top get incredibly rich, and everyone else gets little or nothing.
My fear is that in their desire to imitate Silicon Valley tech companies, companies from other industries will adopt its methods and mores, including its new compact with labor and its high-stress, anti-worker philosophy. In 2017, Whole Foods Market, which for two decades was known for its fantastic, worker-friendly culture, was acquired by Amazon. Almost overnight, the culture of Whole Foods was destroyed, as Amazon imposed its ruthless number-crunching management style. The danger is what might happen next. Will Wegmans, another supermarket chain known for its worker-friendly culture, become equally brutal in order to keep up?
Turning Point: The Year 2000
During my research, as I pored over data sets depicting various things related to worker unhappiness, a pattern began to emerge. Curiously, in a lot of charts and graphs, there’s an inflection point right around the year 2000. That’s when the first dotcom bubble peaked and crashed. It’s also when a few technologies that made the Internet actually usable started to become more widely available, like speedy broadband connections via cable modem, followed by Wi-Fi routers. Meanwhile personal computers gave way to mobile devices—the BlackBerry in 2001, followed in 2007 by Apple’s iPhone—which have given cheap, ubiquitous Internet access to billions of people.
Social networks arose: LinkedIn in 2002, Facebook in 2004, Twitter in 2006. From 2000 to 2010 the number of people on the Internet grew from 360 million, less than 6 percent of the world’s population, to about two billion people, just under one-third of the world, according to Internet World Stats, a website that tracks Internet users. By the end of 2017 there were about four billion people, just over half of the world’s population, on the Internet.
Not coincidentally, the year 2000 was when outsourcing really started taking off, thanks to speedy and reliable Internet connections delivered over a global network of fiber-optic cables. Thomas Friedman dubbed the phenomenon “Globalization 3.0” and marked its beginning to the year 2000, in his book The World Is Flat. The year 2000 is also a point where the economies of China and India take off; the charts shoot skyward.
Another strange phenomenon related to the year 2000 involves the ratio between the compensation of CEOs and average workers. In 1980, the average big-company CEO earned 42 times as much as the average worker, according to the Institute for Policy Studies. But in the second half of the 1990s the ratio explodes, such that by 2000, CEOs were making 525 times as much as workers, probably due to the enormous windfalls that tech CEOs were reaping during the dotcom bubble. The ratio dropped a bit after the bubble burst, and during the Great Recession of the late 2000s. But here’s the curious thing. The ratio never returned to pre-2000 levels. As of 2016, big-company CEOs were still making 347 times as much as regular workers.
Credit: Institute for Policy Studies
Apparently this is the new normal. Somehow, after the Internet came along, the world decided that CEOs should get paid a great deal more than in the past. This happened just as tech companies were coming to dominate the ranks of the world’s biggest companies, when measured by market value—which suggests that somehow the Internet was connected to the rise in CEO pay.
The charts also suggest a connection between the Internet and the increasing levels of worker unhappiness. To be sure, a lot of problems began before the year 2000. But the Internet accelerated those. As outsourcing takes off, manufacturing jobs in the United States plunge. Antidepressant usage climbs, as do suicide rates. Income inequality widens. The top one percent takes ever more of the pie.
My sense that there might be a connection between the Internet and worker unhappiness was reinforced by what I saw on the ground in Silicon Valley—the hustlers and tech bros, the greedy VCs, the obscenely rich oligarchs, the new compact with employees, the stress, the insecurity, the suicides and homelessness.
It doesn’t seem to make sense that the same idealistic, altruistic wizards who design beautiful products and deliver exquisite user experiences—who create so much delightion, as my colleagues at HubSpot would say—should cause so much misery. Yet that’s what is happening. Apple makes terrific smartphones and provides world-class customer support, but the company also has dodged taxes using a scheme that Nobel laureate economist Joseph Stiglitz once called a “fraud.” Amazon Prime is an amazing service, but Amazon abuses workers in its headquarters and warehouses. Customers love Uber, but Uber operates a toxic workplace and exploits its drivers. Tesla makes very sexy electric cars, but by many accounts, Elon Musk behaves abominably toward his employees and has earned a reputation for being less than forthcoming with customers. “I don’t believe anything Elon Musk or Tesla says,” Apple co-founder Steve Wozniak, a disappointed Tesla owner, said in 2018.
In the past few years I’ve come to the uncomfortable conclusion that, for various reasons mostly related to greed, the very people in Silicon Valley who talk so much about making the world a better place are actually making it worse—at least when it comes to the well-being of workers.
It would be nice to believe that this is happening because these tech geniuses are a little bit Aspergery and lack the social skills needed to manage people effectively—that is, that they’re well-meaning nerds who are clueless about their fellow human beings. But I don’t think that’s the case. In fact, it’s quite the opposite. A lot of these founders and venture capitalists understand a great deal about human beings, and some (especially those in the social media space) have become expert at using psychological tricks to manipulate customers and employees alike. Some even employ teams of behavioral psychologists.
The shabby treatment of employees is not happening by accident. It is happening by design. It is happening because the new economy has been hijacked by a caste of venture capitalists and amoral founders who have taken the notion of shareholder capitalism (the idea that a company’s only duty is to provide the biggest possible return to investors) and pushed that caustic ideology to excruciatingly dangerous extremes. But where this leads is nowhere good. This ever-widening income inequality could tear apart the fabric of society. The most appalling part of this is that the oligarchs know this and apparently do not care.
How did we get here? How did progress bring with it such a dark side? In fact, some of what ails us today actually began more than a century ago.