Inside the Mind of A Famous Investor | Marc Andreessen on The Knowledge Project with Shane Parrish

Key Takeaways

  • All the people who have achieved positions of power and authority due to prior generations of technology are now threatened by new technology
  • “The way that power has been exercised in our society through these decades of mass systems has been about people in conference rooms arguing with each other over control of these mass mechanisms.”Marc Andreessen
  • With the arrival of the Internet, anybody could build anything they want, put out any information and organize any movement; it was fundamentally disruptive
  • Analyzing Martin Gurri’s scenario of nihilism from the book “Crisis of Authority”
    • Peer-to-peer networks are good at destroying but they are not necessarily good at building
    • You can build peer-to-peer networks, but can they take power and serve the productive roles that the old power structure used to serve?
  • In the probabilistic domain (e.g. startups, poker), some percentage is always going to fail by definition
    • By trying to explain something that is fundamentally based on randomness, you are only deluding yourself and making your life miserable
  • “Success or failure is not at the unit of an individual investment.”Marc Andreessen
    • It’s at the level of a portfolio, and these portfolio effects are everywhere; level of a fund, at the level of a strategy, etc.
  • “Stress test your ideas through a lens that’s not just your preconceptions.”Marc Andreessen
    • You can “borrow” mental models of people you admire; Marc admires Elon Musk, Steve Jobs, Andy Grove, Peter Thiel

Key Books Marc Keeps Coming Back To

Intro

  • Marc Andreessen (@pmarca) is an American entrepreneur, investor, software engineer, and one of the 100 most influential people in the world according to Time magazine. He is a co-founder and general partner at the venture-capital firm Andreessen Horowitz and has invested in companies such as Facebook, Pinterest, Twitter, Skype, and others
    • In this episode, Marc Andreessen “reads backward” to reveal the patterns of societal reaction to new technology, optimistic and pessimistic scenarios for the future of the Internet, and why he thinks the education system is unfixable
    • Check out Marc’s website
  • Host – Shane Parrish (@ShaneAParrish)

Societal Reaction to New Technology

  • Social media, the Internet, automation robots, blockchain, AI/ML, etc.
    • Political candidates are taking a major stand on new technology trends
    • The go-to question: what are the effects of new technology on children?
    • Marc Andreessen often “reads backward” to make sense of the world
  • He asks the following questions to better understand claims about the negative effects of technology:
    • Is this the first generation of technology for which they have made those claims?
    • Were the claims different or were they the same?
      • If they are, how are they playing out differently this time?
  • Men, Machines, and Modernity by Elting Morison
    • The nature of technological change and society’s reaction
    • Morison offers a three-step process of users’ resistance to change: ignoring it; rational rebuttal; and name-calling
    • The process is a persistent pattern in history that happens all the time
  • The key facet is social change (reordering of the power and status structure), it’s not about technological change
    • Power and status are the core battles
    • All the people who have achieved positions of power and authority due to prior generations of technology are now threatened by new technology

How Does Technology Impact Social Hierarchies?

  • It’s basically a battle between top-down hierarchy and lateral network building
    • For 50-60 years, the West was ruled by giant top-down institutions 
    • The route to power inevitably leads through the conference room (William H. Whyte paraphrased by Marc Andreessen)
    • “The way that power has been exercised in our society through these decades of mass systems has been about people in conference rooms arguing with each other over control of these mass mechanisms.”Marc Andreessen
    • They argue over ad campaigns, new car models, presidential nominees, etc.
  • With the arrival of the internet, anybody could build anything they want, put out any information and organize any movement; it was fundamentally disruptive
    • The internet is not top-down, it’s lateral peer-to-peer, and there is no central node
    • This led to a big fight between people who want to reinforce top-down power and people who want to use the internet to prevent top-down power
    • According to Marc, that same dynamic is also present in American politics in the form of left and right-wing politics

New Kids on the Block (Optimistic Prediction for the Next Ten Years)

  • The arrival of new kids of different backgrounds with wild ideas and advanced skillsets
    • They are educated on the internet; they can do a start-up and create innovative software
    • Their depth of technological, financial, and cultural knowledge is very broad
    • “And so these kids walk in, and like all kids, they are idealists and have an intuitive sense of how new technologies could be harnessed to improve the world, and they actually have the power to do it.”Marc Andreessen
  • There is a continuous movement of new people, ideas, and new ways of doing things, and they have systems that will support them
    • Not all are gonna work because it’s “rebel alliance vs an empire” (the empire has to win 100% of the time)
    • Put simply, in every sector we are going to see better ways of doing things (organizing economy, productive activity, job opportunities, education, etc.)
    • More choice, more options, and better ways of doing things

Pessimistic Prediction for the Next Ten Years

  • The 1984 model
    • Based on 1984, a dystopian sci-fi novel by George Orwell – technology is used to control the masses
    • Technology with the potential to disrupt hierarchical control but instead ends up enabling top-down control
      • E.g. Leader companies using technology to limit free speech
    • Orwell’s Revenge by Peter Huber, a reimagining of 1984 via the optimistic lens (makes telescreen a two-way system)
  • Analyzing Martin Gurri’s scenario of nihilism from the book “Crisis of Authority”
    • Peer-to-peer networks are good at destroying but they are not necessarily good at building
    • The internet is very good at tearing down hierarchies but it has not yet proven its ability to build governance systems
    • You can build peer-to-peer networks, but can they take power and serve the productive roles that the hierarchies used to serve?
    • Can you have a functioning democracy if what you have are people arguing with each other and never forming instruments of state power?

How to Extract the Right Lesson From an Experience?

  • Learning from experience is natural, but you have to understand the domain in which you are operating
    • The domain of startups is probabilistic
    • Half the companies generate positive returns and about half of them don’t
  • In a deterministic domain (e.g. standardized testing) not getting a 100% and asking what you did wrong makes sense; you didn’t study enough, read the material, etc.
    • But this doesn’t work for probabilistic domains; because your goal should not be going for 100%
  • In the probabilistic domain, some percentage is always going to fail by definition
    • By trying to explain something that is fundamentally based on randomness, you are only deluding yourself and making your life miserable
    • In poker, the best way to do is to play the next hand just like you played the previous one because you are in the domain of probability
    • Or, in the example of an entrepreneur, start the next company even in the space where you’ve already tried and failed before
  • “I no longer think there are any qualified people starting tech companies that have bad ideas, it’s just a question of timing and execution.”Marc Andreessen
    • If an idea is good and the person behind it is smart enough it’s likely to work at some point (e.g. failed ideas of the late 1990s, now they’ve all worked)

How Probabilistic Thinking Can Help You Make Great Decisions

  • “What every venture capital capitalist of all time has in common is that each of them missed almost all of the great deals of their generation.”Marc Andreessen
    • The bad news is that you are going to make that kind of mistakes
    • But the good news is that you don’t have to score 100%; you can take chances
  • “Success or failure is not at the unit of an individual investment.”Marc Andreessen
    • It’s at the level of a portfolio, and these portfolio effects are everywhere; level of a fund, at the level of a strategy, etc.
    • Strategy before a decision; if the strategy involves 10 bets, you don’t get evaluated based on any particular bet, or even an average, yet the total performance of the basket investment
    • If one of those bets accounts for 99% of the profit of the basket then that is a perfectly fine outcome
    • You can make risky bets in a way where you know you are not going to lose everything if you don’t score 100%
      • This is the nature of all probabilistic domains
      • All creative artists live in this probabilistic world where they can do that

The Problem With the Education System

  • In Marc’s view, the education system is completely unfixable
    • It’s an old system that has been on autopilot for 100 years and doesn’t fit anywhere anymore
    • It suffered the same fate as every institution that goes across multiple generations
    • It has been taken over by a set of people who have no intention to change it
  • He doesn’t believe in school reforms, he thinks it’s a waste of time and money trying to reform a system that has no intention of being reformed
    • Reform is impossible, there is only one solution: build the new system

Mental Models of Highly Successful People (Elon Musk, Steve Jobs, Andy Grove, and Others)

  • All successful people have their distinct view of the world or a mental model they adhere to
    • There is no way to synthesize all of their different approaches, views, and frameworks into a single model
    • But what you can do is try to assemble your worldview and your way of doing things
  • You can “borrow” mental models of people you admire; Marc admires Elon Musk, Steve Jobs, Andy Grove, and Peter Thiel
    • Ask yourself, what would they say in the face of any particular challenge you are trying to solve
    • Inform about their thought process if they have talked about or written about how they think about things
  • Ellon Musk uses first principles thinking; we all assume too many things
    • Strip the things down to basics and start the logical thought process from beginning
    • Go deeper into the idea and build your way back up
  • Peter Thiel’s core model
    • Based on René Girard’s teachings about mimetic behaviors (people copying behavior between each other)
    • Check out these Podcast Notes with Luke Burgis for more information on mimetic behavior
  • “Stress test your ideas through a lens that’s not just your preconceptions.”Marc Andreessen
    • Getting different perspectives, assuming someone else’s persona can eliminate our blind spots

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Notes By Dario

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