The Poverty of Entrepreneurship: The Silicon Valley Theory of History

14 06 2017

 

That’s the title of an intriguing new piece on by Professor John Patrick Leary on a new historical heuristic that has been adopted by many people in Silicon Valley. A historical heuristic is a type of mental short cut that people use to make sense of the world. We use many heuristics. A historical heuristic is a theory derived from an understanding of history that allows one to understand the present and predict the future. Political scientists have shown that historical heuristics are used all the time by policymakers, especially those who make foreign policy. My own research is on how historical heuristics are used in business, an issue that has received very little attention in management journals until very recently but which is very important, in my view. [Political scientists and political psychologists, in contrast, have published a great deal on the use of historical heuristics by policymakers]. My current research (as yet unpublished) suggests that historical heuristics are not only pervasive in business (especially in finance and technology) but that if used correctly can be an important source of competitive advantage. I’m working on two papers in this area, one of which looks at historical heuristics and entrepreneurial cognition in an area of technology, the other is about historical heuristics and the making of bank strategy.  Readers will be aware that both of these sectors are characterized by very levels of uncertainty (Knightian uncertainty to be technical) and very complex systems.

Anyway,  the historical heuristic discussed by Professor Leary was created by Ben Horowitz, co-founder of the powerful venture capital firm AndreessenHorowitz. Horowitz’s day job is to evaluate the many applications for venture capital that his company receives and then decide which start-up is most worthy of investment. Horowitz presented this theory of history in a talk called Culture and Revolution that you can view online.  Horowitz’s theory of  the relationship between organizational change and success is based on a particular reading of the life and times of  Toussaint L’Ouverture, the slave who led a successful rebellion in Haiti in the 1790s. (Think of Spartacus but in the tropics).  Horowitz developed his theory of why certain insurgent organizations succeed in changing the world based on a reading of C.L.R. James’s Marxist history of the Haitian Revolution, The Black Jacobins. The implication of his historical heuristic is that a start up organization, be it a small conspiracy of slaves determined to revolt or a start-up firm that aims to disrupt an industry via an app (think Uber and taxis) is more likely to succeed if it is led by a dynamic, charismatic leader similar to Toussaint L’Ouverture.

toussaint_l27ouverture

Professor Leary  appears to object to the historical analogy Horowitz is drawing here because it is rather flattering to would-be disrupters in Silicon Valley: outside of perhaps a few hard-core conservatives in the Deep South who still regret the Emancipation Proclamation, most Americans who think about historical rebellions see the slaves as “the good guys” and the masters as the “the baddies”. (Certainly that’s the case in any Hollywood film about slave revolts– the rebel slaves are always depicted in sympathetic terms). By associating entrepreneurs with the leaders of slave rebellions, Horowitz is helping to legitimate entrepreneurship. Leary doesn’t like that.

Ok. Leary is entitled to his opinion, which is obviously rooted in a political point of view. As a management academic, I’m more interested in knowing whether Horowitz ever uses the historical heuristic based on the Haitian Revolution to evaluate the prospects of the firms that come to him for capital. If Horowitz’s historical theory does influence his business decision-making, it would be fascinating to determine the extent to which he is aware that this is taking place. The funny thing about historical heuristics and other forms of analogical reasoning is that once we start using a given heuristic (mental short cut) in one area of life, we may start using them in other domains without being aware that we are doing so.

I would love to interview Mr. Horowitz at some point about the issues I’ve raised here.

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