In 2003, Andy Kessler wrote a piece titled "Warren Buffett hates your guts." (You can find it easily by doing a 'Buffett' search on Kessler's website.) In this piece, Kessler gives the reasons he despises the Oracle of Omaha -- five digit stock price, a miserly attitude towards compensation and stock options, a love of the insurance business and dead or dying industries, and an embrace of taxation and population control.
Buffett, in Kessler's view, is the opposite of productive -- a tight-fisted scavenger with an eye for political moats and hoary old businesses that do not create wealth.
I bring this up here because "Eat People" is Kessler's Anti-Buffett Manifesto... his recipe for investing in exactly the type of companies Buffett wouldn't touch with a ten foot pole.
An alternative subtitle for the book might be "A Dozen Ways to Unleash Creative Destruction," an essential thread being that, to the degree the past stands in the way of the future, we have to destroy it. That means tearing down all kinds of old barriers: Destroying obsolete jobs, obsolete moats, obsolete relationships. At his most extreme, Kessler seems to revel in a sort of destroy-or-be-destroyed philosophy where nothing is sacred and everything is moving towards free.
There is good stuff here, though some of it was perhaps explained better (and less controversially) in earlier books. Kessler's "Running Money," for example, explored the waterfall concept, where a vertical drop in the cost of a technology can lead to exponential gains in market share.
So "Eat People" is not a book of new ideas, but more a culmination of Kesslerisms -- trend-based insights built over decades of observation (and investment participation) in the technology space. "Eat people" really lives up to its title in terms of embracing the spirit and ethos of what Kessler dubs "free radicalism" -- creating new wealth, via new productivity, for the entire economy's benefit.
I do have a few quibbles. Kessler's view is useful and insightful for describing 1) a certain type of business model, and 2) a certain part of the investing ecosystem. But there was a part of me that felt the "free radicals" Kessler described bore an uncanny resemblance to social media entrepreneurs.
In other words, businesses that scale relentlessly, waste prodigiously (in terms of things like data and bandwidth), have the ability to create a virtual pipe and so on -- all manifestations of Kessler's rules -- could all be considered a specific type of business, one that taps the emotional, logistical and entertainment needs of the masses (or some combo of all three). This is all well and good. But just because Facebook and Zynga et al are uber-hip at moment, does that really make these models the center of the wealth creation universe? What about, say, cleantech? One could argue the wealth to be created there in the next decade or two will dwarf the social media space by an order of magnitude... while applying a different set of "rules"...
The weakest part of the book (for yours truly anyway) was the expanded conversation on creators and servers, coming up with all kinds of cutesy names -- like "sloppers" and "slimers" -- to describe why only free radicals (i.e. social media entrepreneurs!) are truly productive, while the rest of the working world is not. A bit too glib methinks, and vaguely insulting for anyone not of the "tapping out code in a college dorm room" set.
The most questionable part of Kessler's conceit is the notion that efficiency isn't really worth much, and that entrepreneurs who go for incremental efficiency gains aren't really adding productivity or wealth to the economy on the whole. I beg to differ with this hand waving generalization, and so does the market. If there is no more opportunity in boring "efficiency" oriented areas such as, say, improving the output of internal combustion engines, then why do entrepreneurs who get this stuff right have a shot at becoming billionaires?
A more enlightened view, in my opinion, would be recognizing that "free radicals" have a powerful place in the market ecosystem, but that their efforts only represent one type of productivity and wealth. If one believes in market-provided signals, as Kessler professes to, then one should recognize there are all kinds of productivity and service oriented ways to get legitimately rich (without cheating via politics), and any business model that legally and ethically creates wealth for an individual is automatically getting a "Yes you are productive" vote in a free market system. Sometimes the productivity and wealth-building insight is expanding an existing model into a new market, or tweaking a model to make it better. It doesn't have to be relentlessly new -- if it did, the market would only reward free radicals and no one else.
Plus, back to the moral ideal of productivity -- Zynga, the company that makes Farmville, has a valuation in the billions, by Kessler's estimation deserved via its adherence to the 12 rules. And yet: Farmville? A fount of productivity? C'mon. We can be a little more open-minded in our definition of who is adding productivity and who is not here.
One last issue from an investing and trading point of view: A definitive hallmark of the free radical orientation is the "go big or go home" mindset. This makes for a lot of flame-outs. If ten thousand techies all move to Silicon Valley and decide they are going to create a virtual pipe and become the next Zuck or Larry or Sergey, chances are that 9,990 of them are going to fail. And then the 10 guys who succeed, to some modest degree, are going to get VC capital thrown at them jacking up their pre-val sky high, and when their companies go public (if a bubble is on) the stock price will get juiced by caffeinated e-trade gunners, egged on by some Mary Meeker 3.0 type to justify pie-in-the-sky earnings valuations. Ground floor entry aside, this makes for a challenging investing environment to put real capital to work.
With that said, "Eat People" is another good (and fast) read -- as all Kessler's books are -- with plenty of food for thought. It's good to have a motivated and passionate vanguard focused on creating the future, as opposed to milking the past, and "Eat People" is an inspiration in that regard.
