Transcript edited for clarity, Spotify link here.
Hello and welcome to Time Well Spent—A place where the most brilliant minds in the world take on the toughest questions in Science, Politics, Technology, and much more.
Today I have the pleasure of speaking with someone I greatly admire, economist and author. Arnold writes frequently about the economics of business and tech at “In My Tribe”, often drawing on a wealth of hands-on experience he obtained outside the ivory tower. We will focus our discussion on his book “Under the Radar: Starting Your Net Business Without Venture Capital”, with an emphasis on how its advice can be adapted to the current environment. Arnold, thank you for joining me!
Arnold Kling 00:30
Thanks. So I'm also curious to see how it can be adapted to the current environment. It was written shortly after the original dot-com crash, so there have been a few changes since then.
Well I just read it a few days ago, and I actually was surprised how many of my questions it answered, so I'm excited to get more of your thoughts.
So you started your business at a time when no one was really doing anything commercially online—before you corrected them, some of your early clients even assumed you had personally created the internet! Can you give a little more background on what things were like at the time, and how you came to realize you had an opportunity to build something no one had fully conceived of before?
Arnold Kling 01:33
Okay, so I think part of what sold me on the internet was the work of Hal Varian, who later became the chief economist at Google. It was fortunate that I happened to latch on to him, because he obviously had a lot of insights into where things were going. So just from a technical perspective, he distinguished between a circuit switch network and a packet switch network. The telephone system at the time was a circuit switch network, so when you made a connection it created a circuit between you and me. If we were doing this conversation on a circuit switch network, we would have a durable connection that would only drop after we shut down. With a packet switch network, little packets of data could be sent over any number of routes by these routers, and they're sort of sent from end to end. So right now I assume that what's going on is that we're sending this conversation to each other in these little packets, and then they're being reassembled where I am and where you are and somehow put in the right order. So it sort of makes it look like we have a durable connection. But we don't have a durable connection, we have this intermittent connection.
Anyway, Varian looked at the economics of that process and saw that packet switching was getting cheaper and cheaper because it was following Moore's law while circuit switching was not. And so there was a big future for packet switch networks. In fact, other people were able to sort of pinpoint the date at which telephone calls would be cheaper to send over the internet than over the old AT&T telephone network, and that prediction proved to be accurate. So for a technical reason, I was aware that things were going to move to the internet.
And then some of it was just kind of romance. I was at Freddie Mac, I always say, before it became famous. And some time in late 93, we went to a GE research site, I think it was, and we were looking into their methods of doing underwriting using computers until at some point the meeting came down to the higher ups talking to each other and I was no longer welcome in the room. So one of the engineers took me downstairs and showed me Mosaic, which was the first graphical web browser, it came out of the University of Illinois. And I just fell in love with it. I said “this is the future.” I was like this character in a book called “The Wind in the Willows” who just gets fascinated by cars.
Was that the toad?
Arnold Kling 03:05
Yeah, I was the toad.
So I had that view, and I was in a very low point in my career at Freddie Mac. So I was willing to go off and take chances, and I rationalized to myself that “well, worst case is that I'll learn something about this internet.” I did think the internet was gonna be a big deal, so in the worst case I thought I could be some kind of internet consultant when all was said and done. So I conceived the business idea in one sleepless night of setting up a site that would have everything for people who are interested in buying a home—including home listings and mortgage opportunities—because there's so much fat in the home bank system.
There still is a lot of fat, and I've learned since then that you can't cut a lot of it out because the rent-seekers are able to hold on to their rents. But if you'd asked me in 1994 what the home buying experience was gonna look like in 1999, I would have said that we would have almost no transaction costs, consumers would have lots of knowledge about mortgages, there are not going to be real estate agents anymore. I'm not the only one who ever came up with that idea, but that was in my mind and so it took awhile for reality to set in with me.
So it sounds like you had a tremendous amount of expertise in housing, and then you got exposed to this new technology, and basically just ran with it and said, this can be applied to something that I know a lot about.
Arnold Kling 07:27
Yeah. And fortunately I hadn't gone to business school because later that summer I talked to a couple people who had, and one of them pointed out that hardly anyone really had access to the worldwide web. He said, “you know, you really should just should use Gopher”, which was kind of a weaker protocol, less user-friendly, that no one uses anymore. And another one I talked to sort of grilled me on who could really use the internet, because ordinary civilians like you or me—including me when I was running my business—had to access it through a very low bandwidth modem. So if you were getting just one picture over the internet it could take two minutes to download. Whereas the people who really had connections that were high speed were people on universities, those were the only places that had it.
But there was one entrepreneur that I talked to about the state of the business about four or five months into it, and his eyes just lit up and he said, “This is an apartment market.” College students aren't going to buy homes, but when they graduate they go looking for apartments in new locations. So he said I should put apartment relocation service on, and that was actually the first thing that actually worked. Although it's not the most lucrative part of the real estate business by any means.
So to make it really concrete before we move on, what were the core services that you provided? You had like a mortgage calculator on your website, you had…
Arnold Kling 09:36
Okay, so I had various articles informing people about mortgages because most people don't know much about them. And the mortgage calculator, which is now a dime a dozen, but back then it was sort of a novel thing that you could stick in an interest rate and a home price and get back what the monthly payment would be. So people thought that was cute.
We had very early on the New Homes Guide for Washington DC. There were about 24 partly independent, but sort of mutually linked New Homes Guides for different cities. Washington and Philadelphia were the ones that were most interesting to me. There was a guy from Philadelphia who said he wouldn't bother putting his New Homes Guide on there because he said it's an apartment market. But people liked to look at the DC New Homes Guide, they could browse through the the pages of the New Homes Guide and look at homes for sale, and they could sort by various criteria. And even though it was very little certainly by today's standards, it was very popular with people because there wasn't much on the internet that was of real practical use.
This is the web in April of 94, there were probably fewer than 1000 websites total. So people liked just playing with it to play with it, just to see what they could do, but that wasn't great at generating revenue. One comment that somebody left on the site was, “Congratulations, you've started your lemonade stand on the moon, you just have to wait for the astronauts to get there.” That was kind of the situation as of that time.
If I can say one more thing which was really crucial, it’s that it was really, really hard for an ordinary civilian to get on the internet. And I think what the comparable thing today is that it's really, really hard for a non technically skilled person to invest in crypto. And that's why these third party exchanges have kind of cropped up. So Windows didn't have a way for you to get on the Internet, it didn't have what's called a TCP/IP stack. So I had a disk, a little diskette. It was a floppy disk that had a TCP/IP stack, but I just could not figure out all of the procedures. There was this complex set of procedures, and I couldn't get it to work. So I had to call the internet service provider, which is a small company, and the president of company drives over at night in a driving rainstorm and helps me install the TCP/IP stack. So I really should have known like a week after I'd started the business, I should have realized that boy, you're in a lot of trouble.
So that situation lasted from April of 94 to August of 95, and that was a big reason I had no competition because ordinary civilians couldn't get on the web—why bother putting up something related to home buying or mortgages? And it was only in August of 95 that two things happened: Microsoft finally put out Windows 95, which had a TCP/IP stack built and so all sorts of people could get on the internet. And America Online gave its users access to the web, which they've been holding off and holding off doing because they thought it was a threat to their business, but ultimately they had to do it or else they would lose their customers. So when AOL came on and Microsoft had Windows 95 then all of a sudden the web was exposed to the general public at that point, and there was actually some potential for the business.
My understanding is that up until 1993, it was even illegal to do most commercial activity on the web. And so you're hopping in right at the beginning in early 1994 before all the entrepreneurs have come in and really put a lot of effort into making this accessible to the public so they can make money off of it. And so you really didn't take off until a few years later, which I'm sure we'll touch on later in the interview.
So in the book you teach many things an aspiring business founder wants to know—what makes an idea worth pursuing, how to build productive relationships with team members and clients, and how to finance it all. But you also describe the process of starting a successful business as “a series of miscalculations”.
How does that tie into this discussion and how is that different from how people conceive of the process of entrepreneurship?
Arnold Kling 15:03
Well I think a lot of people, especially venture capitalists, have come to understand that founders make a ton of mistakes. Imagine a kickoff returner in football trying to find a hole where they can run for a touchdown, and they keep running back and forth and side to side and trying different things. That's kind of what this is like. I think most people familiar with startups would say that it's actually rare for something that you plan before it starts to work out exactly according to plan along the way.
I think that what was amazing in my case was the tailwind that the growth of the web provided. It’s like nothing that you've ever seen in history and probably won't see again.
You never know.
Arnold Kling 16:15
Well you know, I would have said you won't see it again, but I think the smartphone acceleration did that. People who were early to figuring out what would be useful apps were in the same position with a strong tailwind. So once you had that tailwind, you could afford to do a lot of stupid things and do a lot of trial and error. The big first mover advantage I had was that by the time competitors came in, I already knew that what they were trying wasn't going to work because I had already tried it myself. So that's part of the first mover advantage that maybe you don't appreciate—you make your mistakes early, and then you just sit and watch other people make those same mistakes and throw even more money at it.
So I think that in the book you put a pretty encouraging spin on this idea. Basically trial and error is so important that you can get a lot of things wrong and still end up with a really great business if you have a good idea that's well matched to your talents.
I wonder how that may have changed more recently. If you look at a company like Amazon, I get the sense that they're essentially in the business of doing trial and error at scale. And they're super optimized, they have a bunch of small teams that experimenting with all kinds of possible innovations, they run user testing, and they iterate over and over again from there. Does the existence of companies like this make you less optimistic about “under the radar” style entrepreneurs?
Arnold Kling 17:58
I'm not sure what to say on that. For example, at some point around 1997 or 1998 Microsoft jumped right into our space—they put out Microsoft HomeAdvisor. The first version of that even had some things that were better than ours. But I think it just wasn't important to Microsoft, it didn't draw enough attention from their corporation. If they had it as a separate business with an all out drive to make it work, they could have buried us.
There was nothing that we had that was so proprietary that they couldn't have buried us, but they just kind of let it languish. It's was like oh yeah we know we can do this, and we will do it well, and probably the executive who was in charge of it cared about it. But it was just a lack of will to compete. So I think the thing about Amazon is, if they have the will to compete in whatever you're doing, God help you. Because you're right, they've got all this capability.
I would say in general one of the things that surprised me is how corporate the Internet became, and how successful some of the bigger businesses became, and how much more difficult it became for a smaller business. Part of what attracted me to the internet in the first place was this idea that the little guys can come in and because the cost of a web server is tiny compared to what the cost of building a store would be, it appeared to be just the ideal thing for the little guy. I remember Daniel Pink sometime in the 1990s wrote something called “Free Agent Nation”, which was another one of these sort of manifestos for the little guy. That’s in some sense what “Under the Radar” is—I positioned myself against venture capitalists. I thought the venture capitalists are looking for these homeruns, but the internet's gonna be a bunch of singles and doubles. And I wasn't really right. The venture capitalists and the big companies, or the companies that became big, ended up being much more powerful than I ever expected.
What's maybe the best hope for avoiding notice of one of these companies and starting a business today?
Arnold Kling 20:50
That's a good question. I think you'd have to know the domain, you have to be pretty confident that you have something that they won't go after, or that you can have some particular proprietary advantage. So I see in your Zoom box, you have “Time Well Spent.” That’s's phrase, right?
Oh, yeah. He has like a reading list and I think that he uses a similar phrase.
Arnold Kling 21:25
Yeah so you can imagine his domain knowledge in genetics being something that could be a real competitive advantage that somebody else couldn't replicate necessarily. But even so, I think in biotech in particular the small companies that have domain knowledge, their exit often has to be purchased by a major pharmaceutical company, as opposed to being able to go all the way to doing an IPO themselves.
Definitely an interesting topic, and you talk about potential exit strategies into venture capital in the book as well, which people may be interested in looking at.
So my next question is related to the interviews that you do for your book. You interviewed 25 other founders, and I was wondering what additional lessons or cautionary tales have you learned from these individuals since the time you published?
Arnold Kling 22:31
The most striking thing I learned was the problem that I call the early divorce. Venture capitalists don't look for individual founders, they look for teams. So I was an individual founder for the first year and then kind of met my beshert, as they say in Hebrew, which means your love match. But a lot of people start out, and it turns out, their partner really doesn't want to put full time in it. Or it turns out there are a lot of things that you have to work out with your founding partner, or founding partnership if its three people or four people. And if you have to go through a divorce that just really sets sets people back.
I just hadn't thought about that, but when I did interviews I found people who'd gone through that. And that's just a very tough thing. The moral of the story is if you're going to found something with somebody, don't make it on the basis of assumptions, or half a conversation. You really have to work out a bunch of contingencies in advance and really know that you can work with somebody and that their assumptions connect with your assumptions.
And you should have maybe a trial period or some plan for what to do if something doesn't quite work out.
Arnold Kling 24:20
You definitely don't want to be in a situation where you haven't agreed how to split things up if you have a split up. So if you've done 80% of the work, and the other person says that they're entitled to 50% of the company that's just brutal.
Yeah it was striking to me how many of the arrangements you made as founding partners, even as partners getting along really well, were pretty much just even-steven in order to avoid conflict.
Arnold Kling 24:50
Yeah but then there's an assumption that it's going to be even-steven in terms of contribution as well. When that gets out of line, that's a real problem.
Gotcha. Let's play a game of overrated/underrated, entrepreneurship edition.
We can start with an easy one—Elon Musk, overrated or underrated?
Arnold Kling 25:13
That's an easy one?
I was being facetious a little bit.
Arnold Kling 25:17
People have thrown a lot of banana peels at him, and he hasn't quite hit the ground yet. So I guess I'll go for underrated.
What causes you to hesitate?
Arnold Kling 25:44
Well, because he's so highly rated to begin with. So he can't be underrated by much.
Make sense. The show “Shark Tank”, overrated or underrated?
Arnold Kling 25:57
Overrated. It's just entertainment. I think it's a lot of baloney.
Do you think it actively steers people wrong in any specific ways that bother you?
Arnold Kling 26:09
Hmm I guess I don't… I'm not a devotee of it. When I watch it, it’s because I'm trapped with people who watch it, and they enjoy it more than I do.
I think to the extent that it focuses on the idea and not the execution of it—and maybe I'm not even wrong about that—but to me ideas are easy to come by, execution is hard. I don't know that you can explain your execution in a five minute pitch.
This next one predates the internet by a little bit, but I'll ask it anyway—is Phil Knight overrated or underrated? That’s the founder of Nike.
Arnold Kling 27:18
Yeah if you hadn’t added that I wouldn't have gotten it. I'm gonna say I don't know because I'm not familiar with the business history of Nike.
I liked his book “Shoe Dog” quite a bit about his founding experience.
How about marketing and sales relative to other things that entrepreneurs tend to focus on?
Arnold Kling 27:42
Oh, as you know from reading the book, I'd say it's very underrated.
The whole point of the book is that the time that founders spend fundraising, they should spend selling. There are creative ways to sell before you really have a product. If nothing else, you can pre-sell, you can say what would it take for you to buy this, or how much would you pay for this? I'm a big fan of selling. So I'd say underrated, especially by the person who thinks in engineering terms or in buzzword terms. Sell something.
You suggest in the book that personal charm is an underrated quality. How can one learn to express charm over email and text communications?
Arnold Kling 28:36
That's an interesting one. I think just respecting people's time is important, and early on you should be trying to hear from them as opposed to sell them. So sending somebody a long description of your product is probably not as good as finding out where their pain is.
That's really a key in selling—you want to know the customer's pain point. That's much more important than the features of your product. That's a lesson I've learned. I learned both in person but also from reading a book called “Strategic Selling”, which has been around a while but has survived and been revised. It's probably more valuable than my book, but I’ll leave that to others.
It seems like charm under your definition is is highly related to empathy or putting yourself in their shoes to the point where you’re able to see things the way that they themselves see it.
Arnold Kling 30:18
I think that it's hard to beat something into people's heads. Meeting them where they are is the skill which involves sort of this cognitive empathy. And I think it's very important in sales, because you have got to understand the other person's pain point.
One of the things that helped a lot in my web businesses, one of the first things I put up was a comment block, and I read every comment within 24 hours. So people could comment on the site and just say whatever they wanted to let me know what they liked and what they didn't like. So I was constantly making tweaks, or maybe even major changes in response to those comments. Having feedback from your consumers is really important, and I think a lot of people realize that.
And trial and error is really important here too. Because when you put out a product sometimes they really like the feature that you didn't think much about and they don't care about the thing that you spend all your time on. You’ve just been hyping it up in your mind.
Arnold Kling 31:48
Yes and especially on the internet, you just have to keep changing. Sometimes you see something that a competitor does and say we should be able to do something similar to that, or you wait and say that doesn't look like that's gonna work and you watch it. Hopefully you're right and it doesn't work, but then sometimes you have to change your mind.
Right after you published the book, you came out with a Q&A. And in that Q&A, you answered the question, “what business would you try to start today?”.
I'm curious to hear what potential areas you would be most excited about right now for starting a business.
Arnold Kling 32:35
Okay, so where's the tailwind? I think what we've seen in the last couple of weeks is that there’s a tremendous tailwind behind machine learning and artificial intelligence. I think Open AI is just begging you to come up with businesses that are based on that. So that looks like a strong tailwind.
I think that genomic medicine or biotech in general is interesting but a little bit tougher, because I think you you have to have a lot of domain knowledge. And you've got to incur a lot of fixed costs and a lot of risk because in the five years it might take you to have a viable product you could be superseded by some technological change. So I think I go with the machine learning as something that has the tailwind.
I'm trying to think what would I do if I were to start a business, because I don't think I could do machine learning. I think the field of education even though a lot of people are trying things there. I think there's a ton of potential there because I think there's a lot of dissatisfaction with the way public schools are going or even the way private schools are going. There’s a lot of dissatisfaction with higher ed. So I think that's another another field to look at, with the downside being that there's tons of competition.
And the thing you have to get past there too is that people are very change averse. They don't like what they see maybe, but there's a lot of status quo bias. People just think “this is what a K-12 classroom looks like.” They think “this is what a college looks like” or “this is what a credible degree looks like.” So probably that’s the thing you most have to think about in the education space. You have to think, “there's this status quo bias to begin with, how am I going to get get past that?”.
And again you're not going to talk people out of it, you're going to have to meet them where they are, give them trial periods, and hopefully kind of lure people in gradually to a new model.
It seems like homeschooling is one area where this could really take off. If you did it right it could spread through word of mouth as you just deliver a really good product, it wouldn’t even need to be a huge number of parents necessarily in a metropolitan area.
Arnold Kling 35:42
Yeah, I agree. I think that for an ordinary civilian who's not super techie or not an expert in the biotech field, education probably has more potential.
It'd be fun to try to marry the education with the AI. If you could figure out a way to turn kids loose on the Chatbot and find things out for themselves and kind of monitor them and mentor them, that might be a cool thing to do.
And maybe you could even start to kind of whittle away at education’s monopoly by starting with kind of the side arms to education.
So there’s music education, for example. I was just playing with ChatGPT the other day, and I was saying write me a song about this in the style of this artist and give me chords. And it was giving me chords. It was simple stuff, but for a beginner guitar player, like I would have loved to have that. And it'll tell you the strum pattern in more detail then you usually get even if you talk to a teacher. Like maybe the teacher knows how to play guitar, maybe they even have some experience teaching, but it's just so intuitive to them that they don't explain it in the terms that you're really looking for it.
Arnold Kling 37:05
Yeah that's a really cool application. Awesome.
You often say that price discrimination is a great way to be profitable. Can you explain what you mean by that and give a few examples for how a new entrepreneur could apply that insight?
Arnold Kling 37:27
A lot of this was sort of informally laid out by John Perry Barlow, whose claim to fame was that he was supposedly a Grateful Dead lyricist although I don't know that he wrote any of the songs that I most liked from the Grateful Dead. And then he became a founder of the Electronic Frontier Foundation, kind of an early rebellious, free speech oriented group. Who knows what they're like now. But he wrote something called “The Economy of Ideas”, which pointed out that ideas are not only costless to distribute but that their value goes up the more distributed they are. And that's a real difference. So Hal Varian along with Carl Shapiro wrote this book “Information Rules”, and the lesson you get from that is that when you go from distributing something in the form of atoms to the form of bits, it really changes things.
So in 1990, music was distributed physically on CD-ROMs. Once you get distributed on the internet with bits, the marginal cost of distribution is zero. If anything you want things to be more distributed, because it'll be more popular. And that's been true of a lot of businesses, right? For Facebook, the marginal cost of an additional customer is negative—the more customers they have, the better off they are. Developing Facebook requires a huge fixed cost, just as with developing pharmaceuticals. There’s a huge fixed cost, but manufacturing the pill itself is low marginal cost. And that's not just a normal economic good, it's almost like a quasi public good. So the economic problem isn't about trying to set marginal revenue equal to marginal cost, because the marginal cost is close to zero. If you do that you're you get you get nothing but losses. So the the challenge is to recover overhead.
That is the main economic challenge of pretty much any internet-based business and also some non-internet based businesses like pharmaceuticals. And so what follows from that is that if you're trying to maximize revenue, you look for ways to price discriminate—you look for ways you can charge the lowest possible price to the marginal user. That’s the user who has what we call elastic demand, the one who is just barely interested in what you have, because even charging a low price, you get something for them. And then you want to charge the highest possible price to the person who really really wants it. So my example with Twitter is that people who have very few followers probably don't get a whole lot of value out of Twitter, but people who have a lot of followers do. So the thinking is that you charge a monthly fee to people with more than, let's say 1000 followers or 500 followers, and charge less to other people. And that would be a useful way to price discriminate. If you charge the same fee to the person with 100 followers, who is not getting that much value on Twitter, they’ll just say forget it. So you have to charge them a low fee. But the person with high followers says this is really important to me, so I’ll pay.
And you can also find other features of Twitter that people like to use, so a lot of people like to use direct messaging. There you can say, well if you're not a subscriber, you can't use direct messaging. People like to use quote tweets and retweets, and you say, well to do more than five of those a month you're gonna have to be a subscriber. You can have different tiers, with high paying subscribers, low pay, and no pay. Those are some practical examples of price discrimination, and we see some of it in non-Internet businesses, but it's got to be all over for internet business.
I'd like to close with some questions kind of in the mold of Tyler Cowen's “Production Function”—basically trying to get a sense for your more personal background and how all of these things have informed your success.
What features of your personality or background most enabled you to make such a bold shift into the business world? You are an MIT trained economist, you had worked at these prestigious institutions at the Fed and Freddie Mac. I imagine that many of your colleagues must have thought that you were crazy to leave that environment…
Arnold Kling 42:30
They probably looked down on entrepreneurship to some extent as well.
Arnold Kling 42:48
I wouldn't say look down on it, but yeah they thought it was kind of crazy.
Part of it is contrarian personality, and part of it is… I'd say probably the number one thing is creativity, that there are some people who are compulsively creative. I think I'm one of those people. And large organizations are very misaligned with a compulsively creative person. Because the bureaucracy is set up to say no. I think that's actually rational, I once wrote an essay saying that it's basically rational because if you're a middle manager at a big organization, you don't have enough skin in the game in the organization to justify them taking one of your wild ideas and running with it. If they did it frequently, it would be bad because the expected value is negative and they've got valuable franchises. So it's quite rational for them to set up a vetocracy, or a veto bureaucracy. So there's a fundamental misfit with these large organizations, where if you're compulsively creative you just have to deal with it.
So it was just time for me to go. And I was just lucky that the internet was sitting there as a kind of safety net, oddly enough, that I could jump to.
What role has religious community played in your entrepreneurial endeavors, if any?
Arnold Kling 44:36
I would say not much. I’m part of a Jewish synagogue, and I think of the religion as there for you primarily at the main points of life. So Judaism has a ritual at birth, it has a ritual around the time of puberty with the bar mitzvah, it has a ritual when you get married, and it has a ritual when you die. And so that's not too closely related to the business world.
I thought perhaps it would be a little easier socially to part ways with some of your work colleagues if like… at least in my life as a religious person, I feel almost insulated from what other people think because I'm mainly tied into the religious community.
Arnold Kling 45:35
Yeah, I don't know how I was able to part from colleagues… that was maybe again just another part of my personality. There are people that I've been engaged with really strongly I can remember from elementary school, high school. Not as much in college, somewhat in grad school, then at the Fed and at Freddie Mac, but then… you're thinking at the time that you’ve got such close relationships with these people, and yet it just doesn't take me that long to forget about most of them, which is maybe sad, but I guess I've not had a problem disengaging. I don't think the religion has anything to do with it, I think it’s just either a feature or a bug in my personality.
Very interesting. You started Homefair when you were already 40 years old, what advice would you give to those who might be inclined to think that the entrepreneurship window is closed for them?
Arnold Kling 46:53
Because they're too old? I mean at my age I think it's true, I think that window is closed for me. And I've said that to people.
The evidence seems to be that 40 is close to the optimal age in terms of the chance of success. Younger people have more energy and perhaps more risk tolerance, but they don't have much domain experience. So as you get older, you really ought to be very dedicated to a business. In my book I say that it's okay to start something part-time, but at some point if it gets going you really have to put in a ton of energy. It's not just calendar time, it's really doing things that you've never done before. Like I never had networked before, and I'm still terrible at keeping track of people. In theory I could have thousands of LinkedIn people because over the years I've interacted with so many, but I let them go. It's just sort of my story about not staying so much in touch with the people in my life. So intrinsically I'm a terrible networker, but networking was absolutely the key to success for my business.
I think maybe that just comes down to being super motivated. Maybe once you're past age 40 or a little older, the ability to be super motivated kind of goes away because you have family ties, you have hobbies and interests that matter, you may have a more diversified portfolio of things to do with your time and that might make it harder to do the entrepreneur thing.
You mentioned networking as not being an inherent strength of yours. Motivation and really caring about making a particular project work definitely helps to overcome that, but another piece is bringing in people who have strengths that offset some of your weaknesses. What advice would you give for seeking out people to do that?
Arnold Kling 49:38
That it's important and that it tends to introduce personality differences.
The key to my business was that I partnered with this guy in Arizona who had no technical knowledge and a high school equivalency degree. He had a temper. I mean, we could barely get along with each other. But the synergy was incredible. He was a super salesman, a very passionate salesman, and I never could have done it without him. I couldn't have done it without him, he couldn't done it without me, and we kind of recognized that. But even so, it’s hard to get along.
So he had this philosophy called “The Integrity Agreement”. The agreement was that if you've got a problem with me, you come straight to me. And if we're going to have a hard time dealing with it, we'll bring in a third person that we trust to observe and monitor us arguing through it. And we had to use that a few times. So you might need a formal mechanism like that when you’re working with somebody whose skills and mindset are quite different from yours.
Last question. How do you continue to express your entrepreneurial side in the things that you do now, whether it's writing for “In My Tribe” or on other projects you may have in the works?
Arnold Kling 51:17
Well as I say, I'm sort of compulsively creative. I put ideas out and work on them to some extent, and if it feels like it's being rewarding I'll go deeper into it. If it's not, I'll back off.
For example, we talked about education and I tried to do an education startup. I tried to develop sort of an all purpose app for teachers to share quizzes and lesson plans, and didn't take me long to realize it wasn't gonna go anywhere. So I dropped that.
The Substack thing was almost like Mosaic, and I said oh, this is a great thing. I was very romantic about it, and I still am. And so I pursued that.
I've tossed out this idea of a network based university where you replace the grades and credentials with a mentor-student relationship, where the mentor gets to know the student and provides letters of introduction or letters of recommendation to employers. Again I feel like I'm too old and not sufficiently networked to carry it out myself, but I keep pitching the idea to different people and somebody somewhere is going to hopefully take some variation of that idea and put it into practice. So those are some examples I guess.
What's the missing piece for having a university like that?
Arnold Kling 52:55
I think it would take someone who is very well connected in the business world to take it and run with it. Somebody who has a great Rolodex.
Imagine if Patrick Collison called up anyone in the business world and said, "Would you like to be a faculty member? I'm going to be a faculty member, would you like to do this?" I'm sure that 90% of people would accept. Once you have 500 people willing to be faculty members, you have tremendous network coverage and the ability to cover a lot of subjects. People in business often know a lot more than just their business, they know things like Shakespeare and about Classical Greece. With that, you could recruit high school students to take a year to learn from their mentors. Hopefully, a fair number of them would be placed in jobs by their mentors and continue to learn. That's the vision.
It seems like Tyler Cowen's Emergent Ventures is not too far off from being able to implement this. He'd probably want to delegate to someone else to really take charge of it. But just with that network of grant recipients alone, you have a lot of people who owe a lot to Tyler and I'm sure would be willing to mentor young people in a wide variety of different areas.
Arnold Kling 55:05
Yeah, I think getting hold of young people is solvable. The bigger challenge is putting together a network of mentors, primarily from business, some of whom might be adjunct professors or people like Brett Weinstein and Heather Heying. These are people who really like teaching and think that universities hold them back. People like that plus business people would be the mentors and faculty, and I think that's the challenge. There's also the status quo bias of parents, but I think you can push past that.
The other question is how many young people are ready for something like this. Is it just a few thousand autodidacts out there, or are there 200,000 to a million? I think if you look around the world, not just the United States, you can find a critical mass of people who could be self-starters or autodidacts who could be the ideal students for something like this.
Definitely an exciting idea. I hope to see it come to fruition someday.
Arnold Kling 56:35
So do I.
Thank you so much for taking the time to talk with me today, it's been a pleasure.
Arnold Kling 56:42
Thanks, I enjoyed your questions.
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