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TWS 21 | Boxing As Transformational Experience

Lessons From Fighting For Your Business And Entrepreneurial Life with George Foreman III

October 3, 2019 Patrick Donohoe 00:25:03 Comments Off

TWS 21 | Boxing As Transformational Experience

We all need transformational experiences in our lives to bring more sense to it. For George “Monk” Foreman III, he turns to boxing as his way of becoming better in handling situations both in business and our personal life. Founder of EverybodyFights and serving as a business manager and Executive VP of George Foreman Enterprises Inc., he peels off the layers of fighting and how it can be applied to the business world. Moreover, George gives some interesting notes on how fighting helps us handle conflicts in a positive way and why it is popular regardless of the negativity around it. With this, he encourages you to believe in yourself and that the fighter in you can win.

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Lessons From Fighting For Your Business And Entrepreneurial Life with George Foreman III

It’s my pleasure to welcome, George Foreman lll. His nickname is Monk mainly due to his brother is having the same name as him. It’s awesome to have him on. I’m looking forward to this interview. Monk, thanks for joining us.

I’m glad to be with you. Thanks for having me.

The initial question I had as I was preparing for this, your background and experiences are definitely unique and how it applies to the business and entrepreneurial world. Why has fighting been so popular from an entertainment standpoint for probably thousands of years, whether it’s boxing, MMA, wrestling, martial arts, ice hockey. What are your thoughts around that?

Most things that people are afraid of but at the same time would love to not be afraid of is entertaining. When you get a chance to observe others who are aligned with your morals and standards succeeding doing those things, it allows you to experience them vicariously. Sometimes we enjoy hating that person too but being able to experience the rush, the ups and downs through someone you identify with, doing something that you’re terrified to do that you wish you could do, I don’t think that ever gets old. Fighting is one of those things that when done properly and by the rules, especially with the sport, there’s something honorable about it. That’s why it’s a sport and not something that’s illegal in most states. There’s point in a good fight and there are points where everybody can relate. Your back is against the wall. You got knocked down, you get back up, you look the guy or the gal across from you and say, “You’re going to get it.” You want to run, you’re intimidated, you have a bad shake and have to fight and you turn around and you have a comeback.

There are rules, there’s TKO or Technical Knockout or sometimes you break the rules and you lose because of that. You can have the judges or the referee on your side. You’ve got to have good advisers and people to put you back together when you mess up. I think all of these things also resonate with culture, business culture, entrepreneurship culture, sports culture in general. There are a lot of layers that we can peel back but if nothing else, it’s the thrill of observing something that we’re terrified but would love to do.

I look at what I would say gives a person a rush both from a growth standpoint, but also a rush from a fear standpoint. It seems like it’s two ends of a spectrum and a fight is one of those times when there’s going to be both. There’s going to be what people fear most and what people thrive for, which is winning, growth and excelling. It’s an interesting dynamic because you definitely have the proverbial fight that we face multiple types of fights, but then the actual physical fights. Maybe as it pertains to your experience, what are some of those fights that all people face?

Number one is deciding what victory is and it changes. In competing with someone who’s not on your level mentally, physically and spiritually in terms of character, you’ve got to get an objective to win in competing with someone who’s your peer or a legend, maybe you’re the underdog. Being able to compete, win, lose or draw and not lose yourself and be someone that you’re not, that’s a W. Number two is telling yourself, “There are certain things I’m not going to do at all.” In boxing, you would say, “I’m not going to hit below the belt or bite an ear off. If I can’t win by following the rules and being authentic to who I am, then I’m okay not getting the objective win because I need the moral win.” Name your price and stick to it. The last one I’ll say is responding to conflict is everyone’s challenged. How do we respond? We go down the stairs in our $1 million, $2 million condo and the doorman is using the restroom. He doesn’t come out quick enough to tell you where your mail is. That’s not a real conflict but how do we handle that?

You could set your day off the wrong way by handling it wrong and being rude. When they come back, you can turn it into an opportunity to get to know the person a little bit more and let them know like, “I’m late.” You can move on. That’s one element. You see some of this stuff that we see on these security cameras with celebrities, elevators and the stuff they pull and they get in trouble. It can turn around pretty quick. At work, you’re a public company and it’s quarterly report time and you could hit your numbers by pushing the top line in making more revenue and more profit, or you can hit your numbers by laying off people that don’t deserve it. Laying off people at a time where the business is going to suffer, what do you do? Do you keep them on and not hit your numbers and tell the truth to the board? It’s a conflict. How do you handle conflict?

The last thing are the little things like with the relationship. I believe all great relationships are built on being better on the other side of conflict. You have to practice from day one with someone that you engage with to figure out, “How do I get good at resolving conflict with this person?” No matter how much I love them, when it rains, you’re going to get wet. There’s going to be conflict. Can we look at each other at the other side and say, “We’re stronger?” That’s not magical. You have to practice it. As our relationships go our lives and if we can’t get good at solving those type of conflicts, we’re not going to get anywhere. Those are the things like how you respond to conflict and how well you are resolving it and being better on the other side of it. That couldn’t apply more to boxing and MMA. The only way you could apply more is outside the ring.

It’s a fascinating point because there’s so much parallel between the physical sport of fighting and the business world. There are a lot of things within an untrained fighter’s fight that’s mostly instinctive. They don’t have necessarily a strategy. They use that animal instinct to survive. In business as well, I often see at least in my experience that the untrained business person and the inexperienced entrepreneur is also going to instinctively respond to conflict. It’s the training around that. Maybe as you have lived these two parallel lives, the fighting life and business life. How do you take some of your training in the physical fighting life to the business and entrepreneur life?

Most things that people are afraid of, but at the same time would love to not be afraid of, is entertaining. Click To Tweet

What I learned in the ring is that the minute the bell rings, there’s conflict. It’s a fight. You’re in there, you can’t hop out. You have to forfeit and no one wants to fight you ever again. You get in there and it happens and you get hit. You’re supposed to say, “My plan is not to respond when he wants me to respond. My plan is to make him do what I want him to do and then take advantage of those actions.” There is persuasion, misdirection and all these things involved, but I’m not trying to guess what he’s going to do and then respond based on his response. A great coach once told me, “Don’t let his body language change your body language.” That comes from having the confidence in your preparation, having the confidence in your strategy, the general overall confidence in yourself and because somebody does something to you it doesn’t mean you need to get them back right away.

Going in that same thread I learned from one of my dad’s sparring partners. He sparred with my dad when he was a professional fighter. He worked for my dad as a sparring partner in the ‘80s and ‘90s and also with me. He would laugh as he said, “Everybody I sparred if I got them with a good shot, they’d get me right back or maybe the next round or the next day.” George would get me back two weeks later. I think in business, there are some people who thrive on getting you off balance in a place where you’re uncomfortable and taken advantage of you.

That could be forcing a negotiation to be done in a week when you need two weeks or drag you out in negotiation for nine months that could have taken two months. People are trying to get you out of your comfort zone and taking advantage of the mistakes you’ll make outside of your comfort zone. Being patient enough to fight your fight, do things on your terms, not do what people think you’re going to do and create opportunities to catch them off guard, all that I get from boxing. The end result is back to my original point, patience, confidence all these things come from preparation. I think that will be the core principle I get from boxing.

I’m assuming you work with a lot of non-fighters, those that haven’t had necessarily the experience that you’ve had. Are they able to as quickly develop those attributes and values or do you see it more challenging?

They are, I think you’ll see some parallels. There are some people who have a gift. They are working hard. They have a good chin. They can take a lot of abuse. They have all these things, but you still have to train. What I have done is taught by isolating. If I need to teach you patience, then you need to be able to get in the ring and have you spar for six rounds and not throw one punch. That means you’ve got to survive when someone’s trying to attack you at all times. There are no repercussions for them making a mistake when they attack you. You develop your defense. We have to say, “You have one punch you can throw and you have to protect yourself with that one punch in your defense.” That builds the confidence that you only know that you can defend yourself when you’re forced to. You only know that you can survive a fight with one hand because sometimes you break your hand in the fight if I teach you. It’s little things that force people to develop those skills. Putting them in positions where they have no choice but to use this skill that you want them to develop and have confidence in.

Boxing As Transformational Experience: All great relationships are built on being better on the other side of conflict.

In fitness, we use the term the Necessity for Technique as opposed to teaching someone like, “You’ve got to do it this way. Your form, your back, your arch, your hamstring, your gluteus minimus.” Instead of your gastrocs and throwing terms they’ve never heard of, treating them like they’re so inadequate every time they tried to do a kettlebell swing or squat. I apply that in business and managing employees, etc. Putting them in a position where they have no choice but to use the quality that you’re trying to ingrain and do it over and over again. Then it will become a tool.

That environment, which is ripe of friction, definitely transforms people. At the same time, I’ve also seen individuals back down from a fight. The leader and the way in which they are getting a person to experience that, not just go to school and get a degree and train, but to actually experience it is paramount. You as a leader, managing and training other people, leading and inspiring other people, how do you get them to believe that the fighter in them can win?

Put them in situations that they think are impossible for them to overcome, but that they would have to struggle to overcome. The simplest example to demonstrate their point, even if I tell a guy, “You’ve got 30 seconds left and this workout is over.” Or a woman I’m training or anyone and they get to that 30 seconds and they’re coach said, “Give me all you got for ten seconds.” Right at that 30 seconds I’d say, “Give me ten more.” Right at that moment they’re like, “I don’t know where that came from and I’m about to throw up, but I did it. I was sure I couldn’t do it.” That’s a very layman example. Putting them in a situation where it’s like, “I need you to program 30 classes for me.” I know that it takes two days, but they do it in one and a half. You can go deeper with that, but the point is everybody loves a superhero. If you watch Superman, Batman, any of these comics, the equation is very simple. Put the superhero in a situation that’s impossible to get out of and somehow they get out of it. That makes us inspired. We grew up loving these.

You manufacture those situations for the people under you or the people that you’re nurturing or mentoring, even sometimes the people above you and say, “I don’t know how you’re going to get out of this, but I believe in you.” You know they’re going to figure it out. You don’t want to set them up to fail over and over. You have to be careful what you put in front of them. Giving them a little bit more than they think they can bite off and digest and be the person to egg them on to do it. On the other side of that, you find a person that becomes infinitely confident that they can do a little bit more than everyone expects, including themselves.

With your different business ventures, how have you come to develop your businesses’ culture? What are some of the values you’ve discovered along the way with both your professional sports career and then getting into the business world? How have you established the vision, culture, the careers of those that come and work for you? Explain that dynamic.

In business, there are some people who thrive on getting you off balance in a place where you're uncomfortable and taken advantage of. Click To Tweet

A couple of things. Number one, lead by example. Part of leading by example is when you make a mistake, say you made a mistake. Make sure everybody knows that you admitted it, you called it out and we went like that, “I made a mistake. That admission of making a mistake did not fix it. We’re sitting in this mistake and it’s my fault.” As a leader, you have to be able to say that. Even after you make a mistake, it keeps people watching everything else you do that’s not a mistake and wanted to emulate it. They know you have the humility to admit when you’re wrong. Outside of all the positive things that you do that you want them to emulate, you also need them to admit when they’re wrong because we don’t have the truth. We can’t fix it. To me, that’s the biggest breakdown of a lot of cultures. There’s so much posturing. People are not taking responsibility for mistakes that nobody even knows why the company is failing. They’re not growing as fast as it should be. There’s no truth.

Number two is, hire for character not for credential. Obviously, depending on your business that you need a base level of skills that you don’t want to stop what everybody’s doing to teach this person. Maybe use a computer, can read a Word doc, Excel, like a base level of skills depending on your business. In construction, that’s different. Be willing to teach them to do everything else that you need them to be a master at. If you do that, then you’re opening up the ability to hire people that are going to emulate the type of culture you want, communicate the way you want. Dealing with your customers the way you want, handle conflict the way you need to when you’re not around, which you can’t micromanage and grow. The technical stuff, you teach them that as opposed to hiring someone with the credential and technical, who destroys the efficiency of the rest of the team.

To recap, that’s leading by example, have the ability to teach people the technical skills you need beyond the base and allow yourself to hire for character. The last thing is, at which point you’re not unable to recruit every person by face, make sure that it’s only the people that you believe in that are recruiting those people. Never let it go a step past that. If you do recruit the person recruiting, you’re going to run into an issue.

From a leadership standpoint, who do you look to as those iconic leaders in your life that have inspired you to be a leader?

I grew up in a church reading the Bible. I’m far from a minister. This is not a religious conversation. Even throughout the entire Bible, there are different figures that are prophets and they have this ability to speak to the people who only understand point-blank objective, like A plus B. Speak to those people and give them something, but at the same time be able to speak a step higher to people who understand analogies and concepts. My point in that is tailoring your communication to meet people where they’re at. That I got a lot from some of the different figures in the Bible, how they were able to speak in parable and at the same time speak in objectivity or tactical, very simple language and have two lessons. That’s important because everybody communicates differently and you need to be able to communicate across all different communication types, visual and audio. Doing it and letting people watch you do it by written.

Boxing As Transformational Experience: Tailor your communication to meet people where they are at.

Number two, in that story, you find a lot of the leaders using conflict as an opportunity to teach people what the culture is all about. In our business, when it’s time to fire somebody because they keep going wrong, I love the opportunity to say, “Is there a restructuring that I need to do?” Maybe the person’s boss is not having a good month or good six months. Maybe that boss needs a break and that person under them would actually be happier. Maybe the person needs two weeks off. Using these moments of conflict where everybody thinks they know what you’re going to do and say, “No, there might be plan A or plan B. There might be a plan C.” Showing people how we do things. I had a gentleman who’s been stealing for three years. On the third time I said, “The business needs 30%, 70% goes in your pocket. Let’s do the math. What’s our 30%? Bring that 30% back and let’s keep it moving.” He has a family to feed. At the end of the day, he made a mistake. He stole $1,000. We can get past that and it’s horrible to steal. Even the thief said, “You want to make it right, we’re going to move forward. Life goes on.” That’s an opportunity to let them know what your culture is about. Not all culture should be that way.

When we’re talking about money, people deserve an opportunity to make it good. Not millions of dollars where people lose their houses, but a few $100, people deserve to be forgiven. Using conflict as an opportunity to preach your culture, I get that from some of the religious texts. Outside of that, everybody else, you just never know. You see what they do on TV. My dad, I take a lot of inspiration from him. George Conrades, he’s the chairman of Akamai. I learned a lot from him. He was a former IBM executive. Those are the people that come to mind.

I love to know about some of the business ventures you’re up to. Thanks for sharing that. I know you took a moment to think through that. I look at how we learned, there are certain people that inspire us, motivate us, touch us and we ultimately want to emulate them. For most people, it becomes their parents or religious leader, at least in my experience. I was intrigued by your response to hiring people that have character. I love that because I would say that the school system typically teaches kids that their grades and their degree, the different skills that they’re learning is where the value is. Not necessarily in the type of person they are developing, that character developing skills, developing their natural gifts. How do you go about hiring someone for character? What do you do different than the stereotypical interview?

First, I’ll let them walk in the door. I try to let them ask, “Is there something we can do? Can I work here?” They always had that benefit. I try to somehow find a way to identify people within my organization assuming you’ve started that it might be a good fit. You can always do that in terms of interviewing them. Number two, I like to give high-stress projects. It’s for them to start off with like, “I’m not sure if there’s a fit here, but we have a two-month contract opportunity you can do.” I throw it at them and see how they handle all the things that go wrong. Let’s say they’re supposed to do graphics and they’re going to pump out flyers and they don’t have high-resolution photos for the faces in the flyers, how do they deal with that? Do they say, “We need a photographer?” Or do they say, “I can’t do it because I don’t have the photos?” I know that’s not my person right away. I give these opportunities to see how they handle conflict if possible.

Recommendation for people to put the reputation on the line helps. Sometimes you have to ask questions and people typically will tell you who they are if you listen. Questions like, “What’s been the hardest challenge in your life?” If they say, “The hardest challenge was my mom took away my credit card my first year of college and I had to get a job.” I’m not saying they’re a bad person, they actually might be a fit, but they don’t know conflict yet. Then you know what real conflict sounds like. Asking questions like that to understand how they perceive conflict and also how they resolved it. That lets me know what they think the right way to resolve conflict. For instance, if a person has an under-performing employee and they tell me a story about it and I’m like, “What did you do?” They said, “I put him on probation and made him crawl back.” Maybe that’s great if we’re a financial firm. In my world, I’d want to hear that he went and took him to lunch and listen. Even if you still fired him, the fact that he knew the first step is to listen will make a big impact immediately in terms of hiring.

Fighting is one of those things that when done properly and by the rules, especially with the sport, there's something honorable about it. Click To Tweet

Let’s end with explaining what businesses you’re in, what you’re focused on and how our community and audience can learn about you?

Everybody Fights is my baby. I like a lot what’s going on in the media world and I have a high interest in getting into that space. The primary goal for me is to make boxing available to as many people as possible. It’s important for everyone to have one or two transformational experiences in their life. Things like rock climbing is somewhat transformational. Training like a boxer for six weeks is transformational. Learning to meditate and learning to use silence as a response is transformational. I want Everybody Fights to be a part of as many people’s boxing experience as possible, whether that’s your audio fitness, through trainer certification and our locations. That’s my primary goal. They can find us at EverybodyFights.com.

Monk, this has been awesome. Thank you so much for your time. We’ll make sure that we get the word out. Are you a coming out West with your gyms yet or is that still in the works?

We’re close to closing on a location in Orange County. We’ll see how that goes. We’re working on a deal to open up a number of locations in the Mountain Time Zone and looking at Northern California as well, so we’re getting there.

Congrats on all your success.

Thanks a lot and thanks for your time.

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About George “Monk” Foreman III

TWS 21 | Boxing As Transformational Experience George “Monk” Foreman III is an entrepreneur, professional boxer, trainer/coach, founder of EverybodyFights, and son of a businessman and former two-time heavyweight champion George Foreman.

He serves as the business manager and Executive VP of his father’s business empire George Foreman Enterprises, Inc. He also starred on the E! network’s reality series Filthy Rich: Cattle Drive. He opened a boxing fitness gym in Boston called “The Club by George Foreman III”.

In an effort to further promote the core beliefs of the gym’s culture George eventually changed the name of the gym to EverybodyFights. In 2016, the company received a series-A investment from Breakaway in the form of $4 million and soon after announced the opening of another location in Boston.

Since then, Everybody Fights has opened 5 locations and plans to open over 20 new locations by 2020 for growth in other major cities across the U.S.

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Why Certain Societies Succeed And Others Fail with Dr. Richard Rahn

September 26, 2019 Patrick Donohoe 00:42:55 Comments Off

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TWS 20 | Why Certain Societies Succeed

Why do certain societies succeed and why do others fail? Former Economic Advisor to President George W. Bush and currently the Chairman of the Institute for Global Economic Growth Dr. Richard Rahn sheds some light on this question as he shares his perspectives on successful and unsuccessful environments. As an entrepreneur, he lends his understanding of how businesses and people affect economies. He talks about how only a few understand the importance of respecting structures which led to the stagnant growth of their entrepreneurial pursuits.

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Why Certain Societies Succeed And Others Fail with Dr. Richard Rahn

Thank you for tuning in to this episode where we are discussing the theme of entrepreneurship. I hope you have enjoyed and learned a lot from the number of guests that we’ve had this season talking on a variety of topics. I definitely have learned a lot and this is no exception. This is an individual that when I saw him scheduled as a guest, I was excited. It’s someone that I have followed for quite some time and I believe you are going to learn a lot from him. I’m going to introduce him first then talk about what I wanted to get out of the interview, what I was trying to learn from him and I’m hoping that you also are going to learn the same thing or potentially something different.

My guest’s name is Dr. Richard Rahn. He is currently the Chairman of the Institute for Global Economic Growth and is the former Economic Advisor to President George W. Bush and a Vice President and Chief Economist of the United States Chamber of Commerce during the Reagan administration. He’s also a former senior fellow at the Cato Institute and he is consulting and writing for the Washington Times. I met Dr. Rahn several years ago in the country of Belize. I was down there visiting a real estate development of some strategic partners and he happened to be down there as well advising the Belizean government. The group I was with was able to coordinate a dinner with Dr. Rahn.

I still think about that dinner and some of the things that were discussed in relation to Dr. Rahn’s involvement, not just in what Belize was doing, but also a lot of other countries especially in the former Soviet Union, helping to consult with establishing the infrastructure for those countries to thrive. I didn’t know what I didn’t know and back then, that conversation sparked some ideas in my mind and I’ve thought about him and developed more and more respect and admiration for what he has done with his career.

He’s consulted with numerous governments and has truly made a difference. That’s what we get into. The reason why I wanted to bring him on and I’m hoping that you all gain from this is understanding this role of an entrepreneur and the nature of the structure in which they operate. I’ve come to realize that there is these entrepreneurial instinct in most human beings or maybe all human beings. I look at how vital the environment is. He goes into what I would say the hierarchy of the structure of economies, the structure of societies in order for the entrepreneur to thrive. If not, they’re going to leave and the growth of these specific economies or societies will be stifled without the structure.

The reason why I wanted to have him talk about certain things was I believe that there isn’t necessarily a respect for the structure, especially the United States. Very few people have experienced the other side of the spectrum or the lack of a structure in which their entrepreneurial pursuits could take root, take hold and grow. I’d say now, in our day and age, you’ll find that there is a lot of divisiveness with regards to political stances and perspective. This divisiveness, I believe, is creating camps and people are joining camps or aligning with camps without understanding the fundamental reasons behind certain stances on economy.

It’s more that this person believes this way, therefore, I’m not going to give any regard to the structure in which they believe or what they are advocating as the right political or economic environment because they had this name, wear this hat or wear this label. I’m going to discount them completely. I think that’s where we are as American society is we’ve joined these camps more off of emotion than off of reason and logic. I look at going forward and how amazingly entrepreneurial the United States is.

Even though you have an idea of the tax system, if you don't have the rule of law, it still won't work. Click To Tweet

I would say for those of you reading who are US entrepreneurs is to be able to have an understanding of all sides of the spectrum when it comes to the appropriate structure of the economic environment, the political environment and the monetary environment. That we can defend based on principle instead of defending based on rhetoric and talking points. That’s where I believe most people are at now. I look at this conversation as I’m someone who has experienced the pros, the successes of certain structured economies and societies as well as the failures.

I think that within the failure side of things, you learn a lot about what works and what doesn’t. I know we didn’t have a ton of time, but as I researched this interview, watched videos and read articles, especially in the Washington Times where he talks almost every week about these topics. I gained the admiration for how he looks at things and what he’s saying. I think you are going to learn a lot from the show but also learn a lot if you follow Richard and what he is up to. If you’re reading for the first time, we did several months on the theme of entrepreneurship. Previous to that, we did a few months on capitalism.

In 2018, we did seasons on the idea of life, liberty and property as it pertains to one of the more famous quotes and points of John Locke who was a British philosopher. If you like what you’re reading now, definitely go back and read those. We’d love your feedback on the show. If you want to give us some good reviews on iTunes, it would definitely help and if you share the episode with your friends and family would be amazing. You are awesome. You’ve been so supportive and grateful for that support. Let’s go ahead and get to the interview with Dr. Richard Rahn.

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Richard, it’s awesome to have a have you on. It’s something I’ve been looking forward to for quite some time now. We met a little more than a couple of years ago. I’ve been intrigued with the work that you’ve done and I’ve been looking forward to asking you some of these questions. Welcome to the show.

Thank you very much. It’s great to see you and be with you.

The thing that has piqued my interest in regard to some conversations we’ve had had in the past is in relation to the perspective you have on successful and unsuccessful economic environments. Why certain societies succeed and why certain societies fail. Maybe start out by telling the audience or teaching the audience some of the universal reasons for these outcomes.

The End of Money and the Struggle for Financial Privacy

It’s interesting when you mentioned universal reasons because it is indeed true that if you’re looking at six successful countries, you’ll find them over the globe and you find countries that are failures over the globe. It has nothing to do with nationality or planet or where they’re located on the globe. It has all to do with fundamental policy. We have great success stories, not only the US but Switzerland, Singapore and even Ireland now and places that had very high incomes. Venezuela now is the poster child for a country that is rich. It has the world’s largest oil resources and now is the bottom of economic freedom and incomes have been rapidly dropping for a number of years. The place is impoverished because of policy. When you start off, the key policy is the rule of law and without the rule of law, nothing else works. A lot of us like to talk about taxes and regulations and monetary policy.

Even though you have an idea of the tax system, if you don’t have the rule of law, it still won’t work. Fortunately, the British, when they built the British Empire, there was a lot of downsizing there, but one thing they left around the world was the British legal system, the common law system. Many places it took and worked very well. Each country has adapted it somewhat to its own needs. In other places, it got corrupted and it didn’t work. You and I were in Belize a number of years ago. It’s a prime example of a British territory that was given the rule of law, but they managed to corrupt it and destroy it. Once you have the rule of law, you’ve got to have a competent and honest judiciary to carry it out.

The importance of having honest and competent judges can’t be understated. There is then free markets and socialism doesn’t play and work and we can do mini shows on my why socialism doesn’t work. The importance of having free markets, free trade and taxes that are low on work, saving and investment in capital and labor and underlying economics goings-on. Reasonable regulations in many places include those who are overly regulated. There are a lot of unreasonable regulations. I noticed that a number of the Democratic candidates want to take away my plastic straws and I thought I might even do an article on this that I don’t like drinking through paper straws because it dissolves in the mouth. Some places have these aluminum straws, which are terrible because they’re unsanitary, they break your teeth and other problems.

These stupid little regulations are totally unneeded. Having sound money and by that we need money which is a store of value. The dollar has been imperfect, but it’s been far better than the other world currencies. Get off the gold standard and for all intents and purposes, valor is the world’s standard. Those are the fundamentals. If you don’t follow them, you’re probably going to be poor. If you do follow them, you’re likely to be rich. I’m talking about countries, but it’s also true in people’s private lives. People that play by the rules or honest and work hard tend to do better than those who are trying to find the shortcuts, it usually it doesn’t work out too well.

In my experience, many people don’t have the perspective that you do when it comes to other countries and what they faced as the consequences of not following this hierarchy of universal infrastructure. That’s where you look at a lot of the younger entrepreneurs that have built successful businesses and have become wealthy themselves discount sometimes that infrastructure. Oftentimes, they point to the more socialistic type of structures to essentially help those they consider less fortunate. Do you consider that a slippery slope and why?

It’s naive. A number of countries tried it. People often talk about Sweden being socialist. Sweden’s not a socialist. It had been for about a 30-year-period. Sweden had been very capitalistic from about 1870 until around the 1950s and ‘60s. The social go-getters took over and they nationalized a number of things, but they built a welfare state. They didn’t go overboard with the nationalization. They didn’t go as far as Britain and before Margaret Thatcher, but it didn’t work. Sweden went from the fourth wealthiest in the world to something like seventeenth. The Swedes spent many years ago began to reverse course as Sweden is now much more capitalistic. They still have a big social safety net but when you’re there, everything it was privately owned. They have begun the rule of law. They are quite entrepreneurial.

The dollar has been imperfect, but it's been far better than the other world currencies. Click To Tweet

You can start your own business without problems. They’ve got this social welfare state, which works somewhat in small homogeneous economies. In places like Finland, which is very homogeneous, it works somewhat there. There are still the imperfections, but it doesn’t work in large heterogeneous companies. People always think of this wonderful work, everybody gets along and shares. In reality, it’s not what people do. I think it’s interesting a lot of the very wealthy people in the US who are left-leaning and talk about this thing are also the least generous when it comes to private giving. There was a wonderful book years ago by Arthur Brooks, Who Really Cares, and it turned out that there were much greater donations to greater causes from a lot of what are considered some of the tough guy capitalists than the social liberals.

Do you know that people who you view as the hard-headed businessman give enormous amounts of money to hospitals and all kinds of things and that’s a good way. Particularly in this society, when you get billions of dollars, there’s this sort of pact among a number of the billionaires to give away all the money. How much can any one person spend on themselves? Not that much. Bill Gates stresses the same way we do. Have you ever seen him in a suit? Once in a while. They might have a bit nicer car. The one thing they have is a private jet. This is one thing I like, but for the most part anybody who’s successful they can’t eat more and there’s a maximum size of house you want. They have this test of how far should the bathroom be from the master bed. Because some of these houses were being built that the bathrooms were such as distance from the bedroom that you had quite a trek.

I noticed this has now shrunk back down to a reasonable thing. Most people, particularly as they get older and have to get up in the night or whatever. Kids don’t want to walk 200 feet to the bathroom. The point is there’s an optimum in all kinds of things. When a society becomes sufficiently wealthy, there’s no sense of overdoing anymore. Look at Steve jobs with a t-shirt. The billionaires in Silicon Valley wear t-shirts. A few of them have massive houses, but a lot of them don’t. I live in a fairly affluent community in Northern Virginia and we have a neighborhood pub. I never know if the guy sitting at the next table is a billionaire or runs the neighborhood lawn service. That’s wonderful about the US because it doesn’t matter. We’re all there together and that’s true equality when we all have the quality of opportunity, but not necessarily as a result.

There’s a saying I heard a number of years ago that the secret to living is giving. I was intrigued when a local billionaire to where I’m at passed away a few years ago, Jon Huntsman. He had a chemical company and he was very entrepreneurial. He founded one of the first renowned cancer hospitals and that’s what he said in his biographies. He talked about how he became wealthy because he just learned the satisfaction of giving at a very early time. He realized that the more he grew, the more he could contribute and give. I think that’s something that is very interesting when you look at the Bill & Melinda Gates Foundation and what they’ve been able to accomplish.

I had a bit of a partner and he’s also the senior partner, a guy named Bob Krieble years ago. Bob had invented superglue by the Loctite Corporation. He was a great entrepreneur, but he spent most of the time giving away his money. He used to drive a little Ford Escort around Washington and he’d be up in the CDs and he’d scare me to death the way you drove. I said to him one day, “Bob, why don’t you get yourself a bit bigger car? You can afford it. He said, “The more money I spend on myself, the less money I have to give away.” That was his attitude. I thought, “That’s such an American attitude.”

Look at now where you have Bill Gates is a perfect example where he’s still involved to an extent, but for the most part he’s giving. The impact he’s made on the entire world based on his desire to grow. His vision of having a computer at every home has blessed the world and benefited the world. That’s where I look at. It’s interesting where you have this left-leaning entrepreneurial crowd who in essence wants to delegate that responsibility to government and to distribute wealth through taxation and to take care of those that are less fortunate. I think that’s a very flawed philosophy because the government hasn’t created much. If anything, it’s the entrepreneur. It’s the human being and their ability whether it’s creating things in industry or industries themselves changed the way in which people live. Because in order for them to be wealthy, they have to make lives better for a lot of other people first.

Why Certain Societies Succeed: When a society becomes sufficiently wealthy, there’s no sense of overdoing anymore.

In fact, I could argue that Steve Jobs did more to increase the rural standard of living than any human beforehand. With the iPhone and iPad, just of the Apple version, there is like 1.5 billion out there plus all these other versions. For sure anybody on the planet now has it. If you look at the places in Africa, but they all have them and they now do their banking. You’d have a smartphone and you’d have all the world’s knowledge in your hand and things like medical care. Much has stuck you can outsell treatment back. We know that when a typical American comes down with something, the first thing they do is go to WebMD to see how serious it is or whether they could self-treat or they have to go to the doctor.

We look at all the apps that take care of it, things like cameras. I’ve always traveled around the world to go deal with the work I’ve done and I used to take a camera with me, a Rolodex and all these kinds of things. Now, I have everything in my hand all the time. Even poor people around the world have this. That has been enormously empowering and greatly reduced mortality rates and increase this stock of happiness for people. People now know if they have a shortage of something and they know what the world markets are and where surpluses and things are or where shortages are. The markets can arbitrage that over the globe instantaneously. That’s a wonderful innovation and people haven’t thought through of it. It’s one reason we have this apparent worldwide deflation is that the improvements in technology had been so fast that they’ve in certain ways overwhelmed the ability of the government to inflate the currency, which is bizarre.

Interestingly enough, that’s where I wanted to go next. Maybe not specifically to currency, but to maybe the belief systems that you are seeing in the US and American society that may not be in line with what we’ve been talking about. I believe these universal truths are evident in a lot of different respects, a lot of different successful societies. In our day and age, I see a lot of fragileness associated with the markets with interest rates. It starts with the American Society’s belief system or perspective when it comes to how things should operate. What would you say are maybe some of those fragile points that you see that American society is adopting as their belief system?

The biggest problem and you alluded to it is that people don’t understand how the system works and you got a lot of these young entrepreneurs who became rich. They don’t understand why they became rich and how they could do that in the US, but they couldn’t do it in Venezuela. They have the same person. It’s the same genetic structure. This can come from a good family in both countries and in one place, you’re stuck. You have to get out. There was no way to do anything. Then they can come to the US and do most everything. Many years ago, I was very much involved in the economic transition in Eastern Europe and the former Soviet Union. What struck me is when I started working in these countries are all these very smart young entrepreneurial people, but they couldn’t do anything in their own country. They had to get out and then came to the US or Europe or other places, but particularly come into the US.

Particularly, I have worked in Bulgaria and Bulgaria now is a great free-market country. I noticed that the index of economic freedom it’s in the top quintile now. Years ago, it wasn’t. For a Bulgarian to succeed, it was much easier to leave the country. You had all these young Bulgarians who would come to the US and get an education. I used to say, “Why don’t you go back to Bulgaria and help the country?” They say, “It’s hopeless. I’ll stay here.” A lot of them became quite wealthy, some of them who worked for me. I realized that they made the right decision and then Bulgaria changed. They’re the first ones to put a 10% flat tax in and they have a lot of crushes, but they’ve gotten rid of much of it. It is a remarkably different place now because they started adopting the rules that worked in every place. We take Chile. Chile I think is now the 30th freest country in the world. Many years ago, it was a Marxist dictatorship.

It was horrible. It was a communist country. It hadn’t been that long that a guy named Allende who was in his time a dictator, he was overthrown. It took them a number of years to get a democratic government, but they started the economic reform quite early. Now you go to Chile, San Diego and it reminds me so much the way California used to be before California went downhill. It’s beautiful. It’s got the same climate. San Diego is like Southern California. The mountains come up in the sea and beautiful beaches and it’s gorgeous. The vineyards grow almost everything. You’ll see that change for a country was a poor Marxist dictatorship and now is the wealthiest country in South America. It’s the same people and the only thing that’s different is the systems.

True equality is when we all have the equality of opportunity. Click To Tweet

What I find fascinating is polarity oftentimes gives you a different perspective when you’ve experienced what it’s like to have a dictatorship. I think the value that’s placed on freedom is so much greater. I look at how I characterize the perspective of the United States is we don’t have polarity. We’ve had freedom, we’ve had success and we’ve had an infrastructure for so long that people have discounted its nature. Subsequently now, our questioning is nature. Do you see the same thing or maybe something different?

I think you put your finger on it. We look at what’s happening in Hong Kong. The people who are the citizens of Hong Kong, most of them are the descendants of people who came over in the late ‘40s or 1950s from China. If they didn’t directly experience Communism, their parents or grandparents did. They know what it’s all about. You don’t have to explain it to them and you look at how they’re risking everything. They are unarmed and every weekend and every night they go out there and are protesting what may seem like fairly minor issues, but they’re not because they understand that once they start to lose some of these things, there is a slippery slope. They’ll end up looking like China rather than Hong Kong. You can see that they don’t want to go back and I worry about the situation, but the facts that these people have this courage without any weapons or anything. They go out there and confront the authorities night after night and demand to keep the freedoms that were given to them on the basic agreement between the British and Chinese 50-year agreement.

The fighting comes from that understanding of what it’s like to have the opposite and their neighbor is China. If you look at with regards to one of those universal fundamentals, I know that you have some experience here which is a currency, a sound monetary system. I look at what’s going on in our country and we’ve benefited from so much yet at the same time, there’s a great cause for concern with the deficit spending with the future obligations of Medicare and Social Security and the way in which that is operating. You had some communications with a lot of the Silicon Valley folks that were looking at internal payment systems associated with cryptocurrency or blockchain and figuring out new ways in order to make exchanges. It would not only create more efficiency with exchange but would ultimately reduce the central influence and power around that type of exchange. Do you mind speaking to that?

Central Banks are relatively recent phenomena. They are going to be a short-lived phenomenon. From about 1870 to 1914, the world was on the gold standard, which is the great error of monetary stability around the world because all the major countries were on the gold standard. Nobody could control the price of money, there are supply and demand. It worked extremely well. There were no exchange fees between countries because an analysis of gold in London was the same as New York or Tokyo or wherever. That worked well and the reason it fell apart is that when they went in World War I, the countries needed to borrow a whole lot to engage in war. None of the gold sends you’ve limited to how much should you borrow and we should have constrained war. In fact, it destroyed the money engaged in the war.

We look now and we have these they call fiat currencies. The US dollar has backing and the US dollar is the world’s currency. The backing the US dollar has is the ability of the government to tax, take real resources. Take things that have real value that we all own. Take them to the point of a gun and seize them. They try to manage the value of the dollar. We see they can do this less and less well. The open market operations. Some of your readers learned about some of the tools and most of these tools are less potent than they used to be and are hardly used anymore. I should back up, I was a great fan of FA Hayek, the great Nobel Prize economist-philosopher. In 1976, he wrote a book called Denationalization of Money.

I was a young economist at the time and I was fascinated by the book and I was an advisor to one of my exchanges at the time in Austin. I thought, “He’s nailed it, but mechanically it’s hard to do.” This would be before the modern computer digital age. I wrote a lot about it and played with it to how we could do it. In 1998, I wrote a book called The End of Money looking at digital money and so forth. Eventually, several years ago, the blockchain came along with Bitcoin in the early cyber purchases. The question is where does all of this lead? To start with the basic goal would be to have a worldwide monetary standard which would make trade and investment very easy around the world with these big fluctuating exchange rates.

Why Certain Societies Succeed: Central Banks are relatively recent phenomena, and they are going to be a short-lived phenomenon.

Think if you are a German chemical manufacturer. The price of the euro that the Germans use goes up and down considerably against the dollar. Do you put your plants in Louisiana? Do you put it in Hamburg, Germany? Do you put it someplace else? If you make a mistake because you’ve misgauged what the exchange rate would be and nobody knows this for certain. This can be extremely costly too. You can have windfalls or often great penalties. If you had a constant currency throughout the world that everybody used, that problem goes away. A lot of these investment decisions, which are almost difficult to make, disappear and you’ll put your money where it makes the most sense given raw materials in markets and so forth. That is a great promise of the cryptocurrency digital age.

You have then a debate of, “What should be high-end with cryptocurrency?” With Bitcoin, there’s nothing better than a computer algorithm. They kept a scarcity by the system they have and you have to mine the new ones that have increased costs. They have limits. It’s $21 million. There’s nothing real there. Someday somebody will figure out how to hack it. Nobody has to date, but things can go wrong or you have a meltdown of the rural electronic system for some period of time. It won’t be permanent and you see these science-fiction things and not all of them are still science fiction of the electrical grids going down and so forth. If a currency has nothing more than a computer algorithm behind it, you’ll have many more problems that I think are necessary. A lot of people recognize this problem. They’re trying to do cryptocurrencies, but have real backing like with gold or silver, the traditional precious metals.

These are heavily-regulated and I’ve argued that you can use almost any standard commodity, things in trade and organized futures market around the world. We had the standards for a long while. I have a few others who had created a company which we are willing to an aluminum-backed cryptocurrency. That may sound ridiculous because aluminum is inexpensive. It is found everywhere, but it has a number of great advantages. It’s never going to be worth zero. We’re not talking about carrying around aluminum foil in your pocket. The goal is an important flag to carry around. Digitally, she would have stored at any place and still trade and still use it. I think this is the way we’re moving and I had been putting my money and time where my mouth is on the whole thing. It’ll be interesting to see how this works out. When you’ve got a thousand different experiments around the world this time or at any given time.

Richard, one of the conversations we had when we were in Belize was around an idea that you had regarding how to essentially create some sort of ETF or fund around the natural resources of Belize and what that could potentially do to back their currency. It sounds in a similar way what you’re talking about, having something that backs a cryptocurrency.

What I was talking about there was a standard currency board. I used to be on the board when I came out on monetary authority and I’ve got a currency board there where the Cayman dollars fixed the US dollar. Those of us who are on the board, we managed that. It’s easy to have a fixed exchange rate. Years beforehand, I had done some work in Estonia and they had a number of natural resources. The Estonians were trying to figure out how to establish new money and they had some gold in the Bank of England and in New York. They had a lot of timber, oil, shale and so forth.

They were able to put together a currency board which gave total backing for currency. It wasn’t a cryptocurrency, it’s was normal currency at the time. The currency boards I have been, a lot of them is set up in Eastern Europe, the former economist countries. They worked very well for mid-sized countries because they get monetary production outside the political process. Bulgaria has got one and it’s affixed in euro. Bulgaria can inflate as well and have problems. Bulgaria has a very good fiscal policy. Before they had the currency board, they went through a couple of episodes of hyperinflation. Back when I shared the transition project back in 1990, I argued for the courtesy board then they had to go through these bouts of inflation. I got a call one day and said, “Richard, you knew that idea you had for a currency board.” The paper was ready. That is in 1997 and it has worked well since.

If a currency has nothing more than a computer algorithm behind it, you'll have many more problems that are unnecessary. Click To Tweet

That’s the polarity idea. Where ideas and solutions could be valid but if that’s the only thing that a person sees, then it may not be relevant at the time. When they go through some sort of a crisis and experience not having it or something that could have prevented it, that’s when they value it more. That’s I would say one of the last things we can talk about before the end of this fascinating conversation. Where do we stand with the fragile nature of potentially in America and what we experience? I know we have a lot of strength in so many different areas, but do you look at where we’re at as a society and identify one part of it or a couple of parts of it that are more fragile than others.

Yes. The most fragile part is this notion of getting stuff for free and the idea that you can have free medical care and free pensions and so forth. These don’t have to be actuarially sound. That always ends up a disaster. Every place in the world is a separate tribe. It’s like these people, Madison did these debates. It’s like, “People have read no history.” It’s quite astounding to me that they think they can do this. There are some crazy things as Bernie Sanders comes out. It’s like the Soviet Union and all of the other places never existed or maybe in his mind may have worked perfectly.

For those of us who’ve been there, “No, that’s true.” It impoverished everybody. We look at Social Security. We have to make adjustments to the system as we age as a society. When Social Security was first developed in the 1930s, there were about twelve working in Americas for each person’s Social Security. Now we have about three. That at racial continued to decline as people start living to commonplace to 100, 110, 120 or whatever. We can’t have people retire for half their lives and have a good retirement income.

Somebody has to be doing the work. He said, “We’ll increase the taxes,” but the more you increase taxes, that discourages work. You get out of yourself on these treadmills and it’s a formula for disaster. We’re seeing it play out in places in Europe and Japan and other places and in worse shape than the US. In the last few years, we saw it play out in Greece and the average Greek has a per capita income of about 30% less than they did a few years ago. That’s a huge drop in the standard of living and the idea is that we’re going to spend money if they weren’t earning and you can only do that up to a point. At some point, people say, “I’m not going to loan to you anymore.” When that happens, the game is over and that’s what I fear in this country. On the socialized health systems, we’ve seen plenty of those around the world and you tend to get inferior care, queuing and then you always end up with two sets.

I look at it in all the places. There is a medical system for people in welfare willing to pay for their own. They have decent hospitals and state of the art and then there’s the medical care for everybody else’s free. It’s like the VA system. Do you want to go there? One of the great changes the Trump administration made it is now the VA have a choice to either to the VA or go to your own doctor. They call the VA and they say, “We can’t see you for a few months. You can go to your own doctor.” They send the bill over to the VA.

Why Certain Societies Succeed: We have to make adjustments to the system as we age as a society.

I refer to what’s going on sometimes as psychological warfare because it seems that rational thinking has been thrown out the door and its demagoguery and rhetoric that has taken over. It’s the hot buttons. It’s the trigger buttons that ultimately get people to react emotionally. When that exists, you throw rationale at the window because history has shown what some of the things that are being proposed have done to societies. Yet history and reason have nothing to do with the conversation anymore it seems.

I thank you for giving me an opportunity to speak to your audience.

You’re still active and you are still writing. Why don’t you tell people about what you’re doing with the Washington Times and other ways in which people can follow you and keep up to speed with what you’re talking about?

I do a column which is published each week in the Washington Times. You can find on the Washington Times website or the InstituteForGlobalEconomicGrowth.orgI. I think you’ve got all the information on that and it appears in a lot of other places. If you Google my name, you’ll find me on Twitter and Facebook. You’ll find 2,000 columns by me and my ideas on the week.

Richard, it has been a pleasure. Thank you so much for your time. It’s been an awesome conversation. I appreciate it. I’ve learned a lot.

Thank you.

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About Richard W. Rahn

TWS 20 | Why Certain Societies Succeed Richard W. Rahn is an economist, syndicated columnist, and entrepreneur. Currently, he is Chairman of Improbable Success Productions, the Institute for Global Economic Growth, and Metal Convertibility LLC. He writes a syndicated weekly economic column which is published in The Washington Times, Real Clear Markets and many other places, and serves on the editorial board of the Cayman Financial Review.

Previously, he served: as the Vice President and Chief Economist of the Chamber of Commerce of the United States; as a representative of the United States Information Agency in a number of countries; as the Executive Director of the American Council for Capital Formation; as a member of the Board of Directors of the Cayman Islands Monetary Authority; as the U.S. co-chairman of the Bulgarian Economic Growth and Transition Project (1990-91); as a member of the Quadrennial Social Security Advisory Council (appointed by President Reagan in 1982); and as an economic advisor to President G.H.W. Bush (in 1988-1989). In 1990, he founded the Novecon companies, which included Novecon Financial Ltd., Novecopter, and Sterling Semiconductor (now owned by Dow Corning). He has taught in graduate schools at several universities, and for the U.S. Air Force.

He is a member of the Mont Pelerin Society and has served as a senior fellow at the Cato Institute, the Hudson Institute, and the Discovery Institute; and a visiting fellow at the Heritage Foundation. He has written more than a thousand articles for newspaper, magazines and professional journals, such as the Wall Street Journal, USA Today, Forbes, The American Spectator, The Weekly Standard, National Review, and The National Interest. As an economic commentator, he has appeared on such programs as the Today Show, Good Morning America, Kudlow and Co., Wall Street Week, the PBS Newshour and Crossfire, and was a weekly commentator for Radio America.

He has testified before the U.S. Congress on economic issues more than seventy-five times. He earned a Ph.D. from Columbia University and was awarded an honorary Doctor of Laws by Pepperdine University. In 2018, Dr. Rahn was a recipient of the annual Hayek Lifetime Achievement Award.

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Reality Over Influence with Erik Fogg

September 19, 2019 Patrick Donohoe 00:38:21 Comments Off

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TWS 19 | Reality Over Influence

Your reality is shaped by your education, where you live, and what you consume. How do you view people with different beliefs? Is there a way to bridge the polarity in society? And, how should an entrepreneur respond to influence? Patrick Donohoe gets the answers from Erik Fogg, an author, CEO, and co-host of the ReConsider podcast. Erik introduces his book, Wedged: How You Became a Tool of the Partisan Political Establishment, which talks about the way you can open your mind to the manipulation and fight your way out of political polarization.

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Reality Over Influence with Erik Fogg

This topic may not seem that it has anything to do with the entrepreneur, but I believe it has everything to do with it. My guest, Erik, is in the political arena. This arena is for the most part psychological as it pertains to what we hear and what is represented. I believe that is a skill of the entrepreneur to understand what is hyperbole and what is real and applicable. It takes some discipline when it comes to understanding yourself and how you’re wired. How you’ve been influenced in the past and also the person that is communicating with you. What are they are influenced by and why they are speaking to you? I believe psychology and influence being used all around us without being that known, being that conspicuous. There’s a documentary I saw called The Great Hack. The documentary was fascinating. It’s on Netflix. It’s a group that used big data as well as artificial intelligence to be very strategic in the way that they marketed during the Trump campaign and previous to the Trump campaign, Brexit and some other elections.

These days, I know we’ve heard big data, I know we’ve heard about privacy and we’ve heard the Facebook inquisition and so forth. Our information is everywhere and it’s being used for a strategic advantage of whether it’s marketing and companies or in this case, the political environment. Being aware of that is very important, but also it’s the psychology associated with your understanding of yourself, your perspective, where it stands and then being open to other’s perspectives then weighing everything and then coming up with a decision. This is crucial. I believe in times of crisis and times of chaos, there is a lot of opportunity, yet there’s only a small percentage that capitalizes on that opportunity. I would argue that that percentage understands themselves so well that they aren’t necessarily influenced by the emotional side of things, the rhetoric.

They are able to understand that and hear what’s being said but not necessarily come to a conclusion. Erik and I had a great discussion and I’m going to end my introduction of him with a quote that I found. He says, “The problem with the world is that the intelligent people are full of doubts while the stupid ones are full of confidence.” It’s very interesting. Thanks again for all the support. If you like what you read, go check out the previous episodes. Give us an awesome review on iTunes. I’d be so grateful if you did, so thank you.

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Most of you know that I wrote a book called Heads I Win Tails You Lose: A Financial Strategy To Reignite The American Dream and the book has sold tens of thousands of copies. We’re excited about it. For those of you who are new reading and haven’t had your chance to pick one up, you can get it for free. If you head over to TheWealthStandard.com/book and all you have to do is pay for shipping, you will get your copy for free. Thanks for the support.

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My guest is Erik Fogg and I’m excited. We had a brief conversation and it’s made me even more excited. Erik, thank you so much for spending the time with me. I can’t wait for my audience to read this and learn from you.

Patrick, it’s my pleasure. I’m looking forward to this one for a while.

There is a gap between reality and what is projected into the national conversation. Click To Tweet

The first thing that would help the audience is if you were to maybe describe or characterize the message of your blog, the book that you came out with years ago, what were you trying to achieve? What did you want your audience to walk away with as an understanding or a new view of the world?

I’m glad that you pointed out that it came out years ago because I have a little bit of political history cred now and I was concerned about the political polarization before it was cool, before coming as a team. One of the reasons it’s so important is that I was able to get it out before it reinforces the fact that we were able to do this analysis and the book about political polarization in the United States before Donald Trump was elected, before we saw schism play out in the American electorate. Being able to do that analysis beforehand shows that this has been coming, that Donald Trump’s election and the polarization around it is a result of an ongoing process as opposed to the cause itself.

What we explore in the wedge is what are the forces and incentives in the United States political election system and media around politics that drive us towards choosing these tribal sides and treating politics like a war rather than treating it as a discussion? The big thesis in the wedge is that most Americans have nuanced contradictory, not always necessarily moderate, but often mixed views about how they feel about issues. Many Americans have very moderate views. Not all do, and that’s okay, but that is not reflected in Congress and it’s not reflected in the national conversation. We can talk about as much of the theory behind this as we want, but the big insight is that there’s this gap between reality and what is projected into the national conversation.

Where do you feel these realities come from? It’s so widespread and I’ve thought about this before as how a big group of people comes to do a way of doing things that’s similar. My kids right now are in school. I look at the school system. It was Horace Mann who brought this whole Prussian idea of the school system where it was going to a more regimented, dictatorial, hierarchical structure in which teachers are placed in this very elite role and essentially teach people. The whole theory is that it’s to train workers, to train military people, to be told what to do. You look at going through elementary school and then junior, middle school and then high school and then even college. It’s the repetition over and over again of being told what to do and told what to think. You have to do this in order to succeed. It’s interesting how that plays into our ability to look at what you described as reality. That’s what most people’s reality is. At the same time, it also helps us understand why we’re in the situation we’re in, the political scheme of things.

We don’t bring up the US education system in the book in particular because it’s one of the constants throughout this change period that we’re talking about. The period we’re talking about starts in the early 1990s where we start to see this weird divide happening. A good example is as regards to abortion, the mix of policy ideas that Americans have has been constant since the 1990s, but there used to be much more of a combined identity around what my position was in abortion. Most people were pro-choice, but even though people want the same policies, there’s been this bifurcation of pro-choice for life. It’s about 50/50 now, even though everyone thinks the same thing, they identify differently now. There’s all that time period that we’re explaining. What is the thing that changed? Your point about education is interesting because of how it preps the human mind to respond to what it’s seeing in the media.

What is the thing that changed? What’s driving this split between narrative and reality? What we believe and what we hypothesize in the book is that changes in how media is consumed are the primary driver. If we think about how the brain is prepped and then we think about how media has changed, no longer do we consume media in these long forms of newspapers. We consume media, both television media and internet media in very small chunks that activate a very different part of the brain. They activate this very instinctual, immediate responsive part of the brain, which is a different literal region of the brain that is activated during reading a newspaper. That part of the brain is very responsive to emotion, it’s very responsive to anger, fear and frustration.

Reality Over Influence: The education system wired us to do as we are told. It has prepared our mind to respond to what we are seeing in the media.

If we think of, for example, the incentive of an online newspaper, what they need to do is get you to click. They need to get you in for a few seconds so you see the ad and you ship out. In the shorter attention span mechanism, the tools that are being used to drive revenue for a newspaper are the tools that get you to click, which are the ones that activate that smaller instinctual part of the brain. How did they make money? They make you angry and they make you scared. That is the process. That’s the mechanism. It’s not necessarily anyone’s fault. There’s no bad guy. It’s incentives that have led to how our emotional relationship with politics has changed.

Politics has become much more about the psychological narrative than anything else. It’s clear to those who understand what we’re talking about, where there are triggers that get some chemicals in our brain, things to fire and they don’t allow for rational, critical thinking. Donald Trump is the epitome of this. I don’t think he cares as much about what he says as the reaction he wants. He knows the reaction he’s going to get and it’s fascinating that people still buy into it. If you look at all the information that exists, whether it’s the internet or social media, there’s so much. I’d say our mind is defending ourselves from taking anything else in. That’s why we are so influenced way more than we think, whether it’s by the artificial intelligence that tells companies where they should place ads, how the color scheme should look, what time of day they should be posting, the different ages and sexes and socioeconomic situations.

There’s so much data out there right now that there is strategic influence every minute of the day, it seems like. Most people are ignorant and naive about that. That’s what I would say is scary but also good that you’re blogging, you’re talking about this because we have a huge election is coming up in 2020. Based on you writing this book years ago and how things have evolved and compounded, I can’t imagine what the rhetoric and the narrative and the psychological ways in which people are being swayed one way or the other.

Your example of advertising is so potent for this because it’s the exact same mechanism, techniques, technology, data that are being used in the political sphere to influence how you relate to political parties. What causes you to donate, what causes you to vote, what causes you to read this article are the same techniques used to get you to buy a thing, to click an ad and buy a new product that’s being advertised to you based on all this data. It’s these micro-manipulations to a point the saturation of micro-manipulations that we’re facing from these systems is overwhelming that we can’t process it, we can’t become aware of it. In particularly because they’re designed to influence that smaller part of the brain that is instantaneous, instinctual, quick-action thinking, it never actually makes it to the part of the brain where we fully process it.

It’s happening to us all the time and we don’t notice it. You’re banging on about that and you brought up the president. He’s trapped in the same cycle that everyone else is in terms of what does it take to get elected with this new technology and with these new techniques. He happens to be a master at using it. Whether that’s broken clock is right twice a day, whether he’s a mastermind and understands psychology at a level that other politicians didn’t, it doesn’t ultimately matter. It’s a technique that worked. The real tragedy of it is that because politics is a zero-sum game because there are exactly 535 members of Congress and one president, it means that the person who’s going to do this best for each of those seats, he’s the one who happens to win. We can’t ask politicians not to do it. We can’t wait for a hero to come save us because the ones that don’t do it, that don’t manipulate us will continue to lose.

How have you got to this point? I would say the problem isn’t necessarily just politics. The problem is how we’re influenced and we don’t even know that we’re being influenced. That’s why I look at so many unintended consequences of following this trail of thinking or following this group or following this narrative and what that takes away from a human being’s ability to think through and rationalize and understand for themselves. How did you get to this point? Was it a book? Was it an event that you went to? Was it an experience that you had in school? What led you to view the world this way to the point where you’re writing about it, you wrote a book about it, you’re blogging or podcasting about it?

The problem in our society is how we are being influenced without even knowing it. Click To Tweet

As much as I would like for it to be that I have some Socratic wisdom and some ability to rise above it all that everyone does not have, I super don’t. I have in time started to see where I’m being manipulated by this because I have my emotional reactions and my own biases, my own desire for something to be true and revulsion of some other facts. The thing that caused me to start to see that something was afoot was when I went to college. This was in 2005 in the city of Boston. I had grown up in a farm town in Pennsylvania. I grew up in a very red part of the country where everyone around me was great people that worked hard. They cared about their families, they cared about the country and they cared about helping people. They volunteer as firefighters. They gave money to feed the homeless and the poor. They’re wonderful people, and they hated the left. They vilified them and said, “These people are monsters that hate America and they want to do all these bad things.” Of course as a child, I was very impressionable. I was like, “That must be true.”

I then went to Boston and I ran into a lot of people that were very smart and cared about the country and wanted to work hard and wanted to help people that thought totally differently about all these different policies and hated the right-wing. They are monsters and they want to destroy America and hate all these groups and all this stuff. I was at first very defensive of conservatives where I grew up, but then when I started to come to love the people that I had met in Boston, I realized they were wonderful people too. The Boston people are wrong about the farmers in Pennsylvania and the farmers of Pennsylvania are wrong about the people in Boston. They hold these concepts of monstrosity so deeply. I used to until I had met all these people in Boston and I wonder, “How did that happen? What drove that?” Because disagreeing is one thing and even disagreeing fiercely is one thing, but to believe, and we have good data this in the book, that people in each party believe that other people in the other party have terrible intent, that they’re out to do bad things. How did that happen? That’s the first part I researched. Was this true? Yes. What must be going on? It was a three-year project to try to dig into what causes this divide of heart much more so than the divide of policy in mind.

It’s fascinating that you’re saying this because I was watching something with my wife. It was four days after 9/11 and it was an interaction between a Muslim person and an Orthodox Jew. Talk about extremities. You look at left and right at Pennsylvania versus Massachusetts, but this extreme view led to the exact same conclusion. Both wanted the same outcome, yet they became so involved in their group and the notion of group psychology programs the same thoughts and the same feelings over and over and over where they’re a part of us. We don’t know why we’re reacting the way that we are. We just react that way. If you’re aware of that, then it allows you to question the assumptions associated with what you believe and why you believe it.

It’s not to say that what you believe or don’t believe is true or false. It’s taking ownership over what you think and what you believe. That’s the ability we have. We all have to realize we’re human and we have been influenced as an American and me as a male. I grew up on the east coast, but I live in the West now, on the west coast. We have all these influences and we form a perspective of the world and that’s how we wake up every single morning. If we’re not aware that the majority of our life is subconscious and we’re just going to respond and react to things when it comes down to these very critical votes or critical things that we’re stating or that we’re trying to pursue, that we’re perceiving, we’re going to buy into what all our past has programmed us to do.

The transformative moment for most people in my experience, including me, is the moment that you’re in a state of mind that through whatever preparation, perhaps reading a book, perhaps reading this blog where you’re curious. You’re like, “Maybe this is happening,” because we know that it’s happening with advertising. We know that it’s happening about what we buy. We now have this thought, “Maybe this is happening in politics.” With that mindset, you go on your Facebook feed, what’s the stuff you’re normally clicking like on, that you’re normally sharing, that you’re normally reacting and you go, “This must be true because it makes me mad and I’m going to tell the rest of the world.” You question that once and go look it up and go do some digging and go see, “Maybe this is designed to manipulate me.” Understanding the mechanism of how it got to you in the first place is important, but when you see, “In this one instance, I reacted in a way that someone designed me to react in order to get me to do something for them.” That’s the transformative moment we realize, “This is happening,” and then you’re prepared. You have the spine and the knowledge to begin to resist it and filter through it in the future.

Reality Over Influence: Allow yourself to question the assumptions associated with what you believe and why you believe them.

This is what I’ve seen in myself and it’s a flaw that I’ve noticed where I have these biases, these cognitive biases to those that agree with me as opposed to going and checking my assumptions up against those that may have opposing views. As I’ve done that, people have a fear associated with what another group or another philosophy or another perspective is. I’ve found that in myself as well. What are you doing to check the other side too, to check your assumptions? Your book, your podcast and your blog are going to start firing up in the next few months. How are you looking at ways in which you can objectively analyze something, think about something and talk about something so that the audience can get the upper hand in relation to taking your information and realizing that you’re biased, but your bias comes from starting out being unbiased, if that makes sense?

You’re always going to have a perspective, a belief, a conviction and that’s good. Being able to challenge your own convictions is probably the single hardest thing on earth. It’s a tall order. The beginning is when we start vilifying the opposition outright, because when we vilify the opposition, when we fall into these tribal politics that you talked about, it blocks us substantially from being able to consider that they may have an opinion that is valid ever, because they’re bad people. What they think is bad, it’s to hurt people.

When we peel that away and we start to think, “Maybe people ran into what they believe in a similar process by which I ran into what I believe,” that’s the first step to being able to start thinking about different people’s opinions in terms of them being opinions in and of themselves. They may still be wrong, but they are ideas and that they are not the reflections of evil. Not that there aren’t evil people up there if you think within the middle 80% of how the country thinks about stuff. Step one is that we isolate the opinions of the people. The other path to being able to challenge my own biases is to ask, “How did this other person who disagrees with me so much about immigration, about the economy, about gender relations, something, how did they get there?”

You can think of this as a study of another person and it can even be a thought experiment. You don’t necessarily have to interview them or if you know someone, that’s even more helpful. Once you’ve been able to go through that thought experiment and derive a reasonable narrative for how they got to where they got to, other than sitting down and thinking, “I want to hurt people,” once you’ve got that firm, you can then turn it on yourself. Then you have the tools to ask, “How did I get to what I believe? What influenced me to get here?” Similarly, with the first layer of this, which is the anger layer, when we see the process and the mechanism by which we reach wherever we reach, we become less firmly attached to it. It becomes less something that’s part of our identity and something that’s more its own thing that exists. The key is extracting the idea, extracting thought from our sense of identity. That opens our mind to be able to then think critically. Changing our mind, doing the study, that’s the long work. It’s not the emotionally hard work, but that’s the long work.

What have you seen as some of the success of your podcast, your book, where someone had a certain point of view, a way of looking at things and they’ve realized how they’d been influenced and swayed by this political narrative or that political narrative and a can-do and understanding that’s different? I look at most people consuming this information won’t do anything with it. They’ll listen to it and say, “That sounds interesting,” but because of how hard-wired and program we are, they’ll show up tomorrow and respond and react to this the same way they’ve always done. That’s where the notion of a pattern interrupt or a shift in thinking allows us to go about life with maybe a different tweak to the way in which we make our assumptions. Going to the successes you’ve seen in people and how they’ve been able to understand things at a higher level, maybe talk through that?

The way I like to say it most about how we react to hearing something like this, what you and I are talking about is something that generally at the level of nod and then walks away, everyone would agree with or almost everyone in group. They’d say, “That’s great. Those other people who are super wrong, they need to hear this.” That’s the first thought that we’re going to have, is that other people need to hear this and they need to fix themselves. “They can be more like me,” which is correct. It is hard work and part of the problem is that it’s not fun. It’s fun to be right. It’s fun to fight a war. We love fighting wars. We’re very tribal people. We love having an enemy and we don’t have the communists anymore. We don’t have the Soviet Union, so were’ turning on ourselves. I digress a bit. The best story that I see people change on repeatedly, it’s because it’s the first chapter in the book.

People ran into what they believe in a similar process by which you ran into what you believe. Click To Tweet

We lead with it because it’s the most intractably emotional topic I can think of, which is abortion. People are like, “I don’t even want to talk about it,” but we’ve got people into it. The success stories I’ve seen are that someone starts off saying, “I am pro this. Anyone who is not pro this is bad. They either want to murder babies or they want to oppress women. They’ve got a war council about how to oppress women that had murder babies. That’s their plan. This is based on reader feedback and listener feedback. After reading that section on abortion, one of the things they realize is that the vast majority of Americans want abortion to be open and legal most of the time and they want to have some restrictions usually on timeline. They sometimes disagree on that timeline. Should it be 20 weeks, 24 weeks? The vast majority of Americans, whether they call themselves purchase or pro-life, we believe in that.

When you’re at your protest rally with your tribe and you’re saying, “End abortion, abortion is evil,” or you’re saying, “Free and open abortion always,” when you say “never” and “always,” you’re going to create a reaction. When you sit back and you read that most people want it to be legal most of the time, the people who read it then go, “That’s me too.” I also want it to be legal most of the time. The readers get that and go, “We can all sit down and say we can make it legal most of the time. There some tweaks to figure out. We’ll probably fight about it, but most of us want to be legal most of the time. What are we even fighting about?” That’s where people start to change everything because we’ve taken the most terribly, intractable emotional identity, politics, life and death, feminism and patriarchy issue and realize, “As far as policy, we’re not that far apart on it. It’s just stupid branding.”

It’s interesting that you have these two forces, the force of wanting to be right in the chemical reaction you get to being right and winning. We all know what that feels like. There’s this other side of the spectrum, which is the fear of being wrong. Nobody wants to be wrong. You have these two forces that essentially are converging and creating these absolutes, absolute this and absolute that because you want to avoid the feeling of being wrong and feel what it’s like to be right. Those are very animalistic types of responses. We’re all included in this because I react animalistically as much as everybody else does, but it’s being able to take these very critical things, these topics. They have to do with our lawmaking and the future, whether it’s our future, our kids’ future or the future of our society. These are very important issues. Being able to approach them as unemotional as possible is vital. What’s coming down the pipe is probably more artificial intelligence, more computer learning and more very strategic influence that is going to get us to buy into our tribe and if we’re on the fence, buy into some tribe.

Your point about that buy-in represents the biggest strategic challenge to this and the third fear people have, which is the fear of losing influence in stuff that they care. Because what people rightly understand is that, “If I misalign, if I don’t align with a tribe, I’m not able to create the collective power. I’m not able to replicate the collective power that the tribe has.” There’s an incentive to our own beliefs to a tribe because a tribe when it’s big enough and angry enough can get something done. Whereas if we’re sitting out in the middle going like, “It’s complicated.” It is real that the people sitting out are saying, “It’s complicated,” they’re not getting much done.

The hardest part is if you ask an individual to let go of the tribe and be independent, there is a good reason for them not to and that’s the structural thing that we need to change. I do think that there’s this individual perspective and the peak way you can operate right now is to have a bit of emotional detachment where you understand what’s happening. You don’t get caught up in the BS and the propaganda as reality. You still need to pick a tribe. It’s tragic. It’s unfortunate you take the best thing that you can, but the structural change that will allow people to let go of this is going to be a deeper structural change in how we vote and how we set up parties. They’re going to probably have to be some constitutional changes to allow people to have more than two tribes to pick from. There are a little more dynamism and a little more fluidity to represent the real nuance and difference that people have.

If you think of the Republican Party, when Mitt Romney was running for president in 2012, he was very pro-immigration and he was very pro-free trade with other countries. He was very anti-Russia. Obama gave him a hard time on all three of these. He said that his thinking about Russia was backwards. He said that too much free trade is bad for labor and too much immigration is bad for labor and now the two parties have flipped. Even within the Republican Party, you’ve got this pro-free trade, pro-immigration side and an anti-free trade and anti-immigration side. Somehow they’re in the same team. It boggles the mind that they can somehow get along, but because that tribal cohesion and strategic imperative is so powerful, they want to stick around. Whereas if we can structurally change something to let them get divorced and let them have their own parties and advocate for their own stuff, it means you don’t have to have this weird suborning of what you think to whatever dominates the party to get in time.

Reality Over Influence: Once you understand the thought process someone has to go through to reach their beliefs, you start seeing their beliefs as not who they are but something that just exists.

What do you see coming down the line in that regard? As you look at how much money in influence and resources behind these two dominant parties, what’s going to cause them to create factions within themselves or something else to be as influential or start to pierce that veil? People are fed up and the animosity that exists toward all politicians, whether it’s left or right, is probably at the highest levels ever. Are they going to stay the same? Are they going to change? What are you seeing?

Historically, we have had realignments occur where if you get Republicans, they used to be a left-wing radical liberal party. One of the major shifts that occurred was during the 1960s when essentially the Republicans moved south, the Democrats moved out of the south and they realigned to how they think about a lot of stuff. We could have a realignment. I happen to think that in 2016, it would be a lopsided victory for Hillary Clinton. My preferences aside, it’s what I predicted. I was super wrong. It usually takes a serious trouncing of a party to trigger a realignment of that scale. The state of Maine has experimented with rank choice voting. They passed that in a referendum. They’re implementing it in their congressional presidential elections. Thinking about rank choice voting, let’s say you want to vote Jill Stein, but you don’t want Donald Trump to get elected.

Strategically, the right thing to do is to vote for Hillary Clinton in order to keep Jill Stein, in order to keep Donald Trump from getting elected. You don’t vote for Jill Stein, so the Green Party doesn’t get your support. Whereas in rank choice voting, you could vote Jill Stein one, Hillary Clinton two, maybe even Gary Johnson number three and then Donald Trump number four and rank choice voting sorts out such that you voting Jill Stein one doesn’t hurt Hillary Clinton’s chance to beat Donald Trump in case Stein does not win. What that does is it changes all these incentives where you can prioritize someone other than your second least favorite choice. Let’s say Hillary Clinton is your second least favorite choice, but Donald Trump is so much worse for you. You have to prioritize Hillary Clinton. In this rank choice voting feature, you could prioritize the Green Party if that’s your thing. All of a sudden, that leads to a proliferation of parties and ideas that people can then bounce around between and have a few more nuanced ideas besides this seemingly black and white, two ways of looking at the world, which as we discussed, even within the Republican Party alone, it’s not consistent.

Has that been adapted or is it still in that theoretical stage?

It has been adapted and then it went through a legal challenge. The legislature voted down and then the Supreme Court got involved. It is back. It is something that the system will push back on. The two dominant parties, the one thing that we’ll probably agree on is that they don’t want this to happen. The historical moment that needs to happen in order to drive a shift of that magnitude is something like the progressive era of the 1920s. The 1920s post-Gilded Age was when enough people got sufficiently fed up with the system as a whole that they reformed a lot of stuff. They reformed how the Senate works, they reformed how elections work. Women voted and all this crazy stuff, but it all came through from the bottom up. The path forward comes through a reform movement that works on the system as opposed to on specific policy.

Nothing’s going to change from the top down. It’s all going to happen from the bottom up.

People fear losing influence in the stuff that they care about. Click To Tweet

The incentives aren’t in place for it to come from the top.

This has been awesome. We haven’t talked politically on the show. It’s been more business and entrepreneurship and more theory. I look at coming down the line in 2020 and I’ve watched some documentaries and became aware of certain things. From an individual standpoint, the saying that I’ve always heard is, “I’m one person. What difference can I make?” The individual has way more power than they used to have, with their ability to communicate, with their ability to express themselves and with the ability to start a conversation. We have way more influence than we think we have.

I look at what’s coming down the line and starting to become aware and educated and figuring out ways in which you can be influential is vital. I see the world is changing so rapidly on a daily basis. Politics and law, having that type of structure is I would say necessity for a civilized society. I feel like change is brewing. I don’t know where and that’s why we need to talk about how the audience can follow you and how can they get the book? What are ways they can keep up to speed with what you’re seeing so that they can circumvent some of the legwork they have to do on their end?

The one plug I’ll make for why your audience should care about this as a whole, regardless of whether you buy my book, I don’t care. I have my own startup, I make my money doing tech things. There’s no money in books. Buy my book or not, I don’t care. The reason you should care about this is that you are an entrepreneur. You’re a business owner, you’re a stakeholder in this system. Completely and selfishly, the United States political system doesn’t fix itself. There’s going to be a lot of trouble for the economy, frankly. There are a lot of reforms that need to happen to make it work. I don’t want to play armchair economist too hard, but there are dangerous signs about how we’ve been managing the economy from the federal level. They are due to the fact that we’ve spent our time being distracted about stuff such as immigration at the southern border and abortion perennially and whether Donald Trump is a Nazi or not perennially.

Those distractions mean that we’re not actually as a populace advocating for the changes that we need for small business owners or for the bread and butter engine of the American economy. That’s not happening. We are too distracted to do it. Of course, depending on how you feel about it or depending on how you think about it, does that leave the door open for certain special interests to pervert the economy to their interests, against the interests of the whole?

It’s this sleight of hand.

TWS 19 | Reality Over Influence

Even selfishly, even beyond we as entrepreneurs are major actors in the system and have a duty to have a public life, there’s private interest in this as well. Hopefully, that resonates to the audience pretty well. The way you can find us if you want to read a little bit more is ReconsiderMedia.com. It has links both to our podcasts, our blog and my book. I would recommend a probably listening to some podcasts of choice first. It’s going to be the easiest way to get into it. We’re going to talk through a few issues, break apart some of the two-sided narratives about it, dive into some of the nuance and detail and it’s through that repeated practice. A lot of it is in economics. What we don’t want to do is tell you what to think. We try to avoid that as much as we can. We want to help challenge the narrative that you’ve been facing and arm you with the tools to be able to make your own mind up about what’s important to you, what matters and what reality looks like. It’s ReconsiderMedia.com. Come check out the podcast. It would be great to have you.

Erik, this has been awesome. Thank you again. Thanks for what you’re doing. It’s a great conversation. Best of luck to you. Maybe we should link up again once the political environment starts to heat up.

That’s a great idea. It’s off of my own show. I can riff a little bit more and we can talk about the election as it’s coming, which will be terrible, a lot of fun and terrifying all at the same time. I would love to come back. Patrick, you are even more incisive and insightful about all this stuff than I even expected. This has been a real pleasure. Thank you.

Erik, thanks again. Hopefully, we’ll talk soon.

About Erik Fogg

Erik Fogg is the Founder of ProdPerfect, Chief at ReConsider, co-author of the ReConsider blog, co-host of the ReConsider podcast, and author of the bestselling book Wedged: How You Became a Tool of the Partisan Political Establishment, and How to Start Thinking for Yourself Again. Erik is an MIT Bachelors/Masters grad, studying mechanical engineering and political science. He has 4 years of experience as an operations and engineering consultant with Stroud International, followed by an operations/sales executive role at startup HelmetHub. Erik interludes as political author, business book ghost-writer, and consultant for private equity and biotech.

Erik’s big ambitions are to use artificial intelligence to help large organizations and societies consistently identify truth from falsehood, and make better fact-based decisions

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TWS 18 | Financial Freedom For Millennials

Financial Freedom For Millennials with Daniel Ameduri

September 12, 2019 Patrick Donohoe 00:23:28 Comments Off

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TWS 18 | Financial Freedom For Millennials

The road to financial freedom has always been dictated by financial norms, a lot of which don’t really seem like freedom at all. Editor and the Founder of Future Money Trends , Daniel Ameduri, talks about financial freedom and what it looks like for the Millennials. Walking us through the concepts of his book, Don’t Save for Retirement: A Millennial’s Guide to Financial Freedom, Daniel notes that the Baby Boomer generation has inculcated in most Millennials the idea of saving for their retirement and putting their money on retirement funds which has given the younger generation more pressure. Breaking the shackles that are forcing us to commit to that tradition, Dan teaches Millennials how to deviate efficiently from investment and embrace the gifts brought by their time.

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Financial Freedom For Millennials with Daniel Ameduri

On this episode, I have my good friend. He’s become a great friend, but he’s also the Editor and Founder of Future Money Trends, which is a publication business. He has come out with a book, Don’t Save for Retirement: A Millennial’s Guide to Financial Freedom. I know he has been working on this for a while. I had him on the show many years ago. Daniel has been front-running the cryptocurrency, the cannabis, the precious metals and other alternative investment world for quite some time on his YouTube channel and very popular website, FutureMoneyTrends.com. You are going to get to love his perspective on life and I think you’re going to get a lot out of reading his book and hearing the story firsthand. Daniel is an amazing writer and entrepreneur. If you’re reading about him for the first time, then it is going to be a treat. Without further ado, welcome, Daniel Ameduri.

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Daniel, thank you for spending the time, it’s awesome having you back on. You were on several months ago. It’s a pleasure and I’m super excited about your book.

Thank you for having me on. I should let the audience know that I have seventeen policies, dividend-paying, cashflowing, gushing, safe. I’m dual compounding them too, but I’m sure we don’t want to go down that rabbit hole but they need to learn from Paradigm Life for that.

There are many things you can do as a Millennial if you embrace all the gifts and the things that the world has given us. Click To Tweet

Daniel, I’ve gotten to know you over the years and you’ve done some incredible work. It was awesome to hear more about your story. I never got into that with you even though we’ve had some discussions over the years. Your book is well-written and I like how it opens up your life. How people come to this opinion or perspective of life, there’s a backstory to it. Without that backstory, sometimes it’s hard to buy into a person’s perspective, especially if it’s different than the status quo. Looking at the title of your book, it’s totally against what most people believe. Telling your story and opening yourself up that way awesome. Would you mind maybe talking through what was the book about? What was the purpose of it? What message do you want to send? Who is it intended for? Maybe start there.

The book is called Don’t Save for Retirement. For your audience, we’ve set up a special page at FutureMoneyTrends.com/save. They can read the intro in the first chapter. If they like it, they can buy it. There’s a link. This book started when I was in an attorney’s office setting up my trust, my will and I turned to my wife like, “We know where the kids are going to go. We know where the money’s going to go. What about teaching the kids? What if they get this bad conventional wisdom conditioned into them without mom and dad there who is a fairly strong presence and force against that stuff.” We started brainstorming what we could do. I was like, “How about we write a book? It will be great for the business. It will be great for other people who can read it.” It started with no initial audience in the sense that it was teaching my children, but also keeping in mind Millennials and other people who might be saving the conventional means of retirement and what they could do with their money.

I wanted to bring in what my wife and I did because I didn’t want people to think that, “This guy has got an economic sense on his shoulders and all this stuff.” The intro starts in a bankruptcy attorney’s office. We were messed up after 2008. I got a job making $10 an hour. My wife was a school teacher. We were about to have a baby. Things were wrecked. That’s where the book starts. It starts off how I dug myself out, what it took not just financially, but a change in my mindset and my change in what is even acceptable. The book, Don’t Save for Retirement, I would say almost is a cross between my personal story and personal finance. That’s an alternative way.

It’s not Robert Kiyosaki where it’s all getting leverage. It’s definitely not Dave Ramsey where it’s like, “No debt.” It’s like, “This was my story. This is how I did it. This is all the things I learned along the way.” One thing that rings true with what I’ve learned from Robert Kiyosaki is the poor and middle-class speculate, they just do, no matter what they’re in. Their retirement vehicles, they’re always speculating. The rich preserve and focus on income, which is one of the reasons why I’m so attracted to your company, Paradigm Life, that preservation and income mindset. The advantage of the rich is they’re already rich. However, I learned that if the middle class apply those same principles, they can also be very wealthy.

Don’t Save for Retirement: A Millennial’s Guide to Financial Freedom

You use some very strategic words in the book. The one that comes to mind is the idea of control and I thought a lot lately about group psychology, a group narrative. I look at our school system. I look at the workplace. I think it’s programmed into our mind the being told what to do mentality, “You’ve got to do this. I am superior, therefore do what I say.” These days, people are speculating, but they’re not even thinking. They’re doing what everybody else is doing and they’re assuming that whoever’s telling them to do it is going to give them the results that they want, which of course there are many different examples of that not being the case. It was cool as taking control and using your mind to figure out what you want financially is where it starts. Unfortunately, there are these traumatic events, difficult events that cause us to have those paradigm shifts. When you’re writing the book specifically for your kids, if they read the book, what did you want them to get? What was that message? They close the 196-page and it’s like, “What is that next thought?”

That they choose their destiny, that there is no right way or wrong way. Whether they have a job and become great passive income investors or they have a business and they’re investors as well or they’re a stay-at-home-mom or a stay-at-home-dad. I don’t care what they do. I want them to know that they can do whatever they want to do. It is their life and many of us, exactly in line with your question, do what everyone else does and follow the crowd. Everyone else is going to college. Everyone else is saving for retirement. Everyone else is financing their house for a few decades. Everyone else is financing their cars for a few years. Everyone else is buying term because your whole life’s a scheme.

It’s nonstop no critical thinking and I want them to let them know like, “You can do whatever you want and if you want freedom, you have to buy your freedom. It’s not going to be free. It will require sacrifice and it will require good decision-making that will compound. You’re not going to be eighteen and financially-free, but you could be 25 to 40 years old and be financially free as opposed to the alternative plan which is, ‘Give all your money to Wall Street and we promise you in 30 to 40 years, even though you have no idea what your tax withdrawal rate will be or what the funds will even be at, you’ll be able to retire at this magic number that some German politician wanted to win an election.’ He upped the other guy by instead of running on 70, he said 65.” I want people to know that ultimately you choose your destiny and a lot of us have to be woken up and slapped in the face like, “What are you doing? You’re on autopilot.”

I’d love to hear your opinion on what are the events that would cause a person to read this information and not necessarily have it discarded but actually implemented and used. We’re in this period of time where debt is an all-time high, student loan debt, consumer debt. If you look at household income, it’s been stagnant for many decades. You look at people who are not getting ahead and I know that there’s frustration. There are polls. There are headlines that come out all the time about the frustration that exists in America with people not growing, not getting ahead, which essentially is the anti-life because people are naturally compelled to grow. Where do you think the pain threshold is until people snap out of it?

I hope their pain threshold is not bankruptcy or like me, where I was in a bankruptcy attorney’s office with my wife crying. I certainly hope their pain threshold doesn’t go to a point where they get so angry at their job that maybe they do something that gets them fired or damages their resume for the future. Ultimately, that frustration Americans are feeling is because they have subscribed to a middle-class lifestyle that is not sustainable. Much like the national story of what our government is doing, our citizens are doing. I can’t fix the government, but we can all fix ourselves by making some changes in our own lives. In the book, I talk about what my wife and I did. We drastically cut spending.

Did we do it forever? No, but we did it for a year-and-a-half, two years. Even when we weren’t drastically in cutting spending mode, we still live very frugally. I always tell people it took many years. When I achieved that financial independence, net worth millionaire status, not even liquid, but net worth. I was driving a 2003 Nissan Altima. It was a ten-year-old car. I was living in a house, at the time when I purchased it, it was about one time our annual income. By the time I was financially independent, the thing was one-third of our annual income, but I was still doing that and not permanent. Now, I live in a very nice house and I get to enjoy all the luxuries of those sacrifices that I made.

If you want freedom, you have to buy your freedom. It's not going to be free. It will require sacrifice and good decision-making. Click To Tweet

You have to, at some point in time, say stop. For most of us, unfortunately, we’ve subscribed to the unsustainable lifestyle. You might have a car that’s equal to your annual income spread out over a few years. You might have a house that’s ten times your annual income. You might have done a lot of things that have messed you up. That’s where I love the Dave Ramsey personal finance part like, “Start the cutting spending.” Stop doing all this stupid stuff that’s excessive. What I like to do is after I cut the spending is shift the savings of the spending into buying income and training that brain that everything I buy, I want to see a check either quarterly, annually, monthly. I want money coming in from everything I do. One of the things I have in my house in the children’s schoolroom is only to buy assets that cashflow.

We’re all going to get involved with speculation. I’m the worst. I love microcap investing and venture capitalism, especially here in California. Ultimately, 90% of my efforts and my focus is focused on buying income. Anyone who’s frustrated and who is in that lifestyle of trying to keep up with the Joneses realizes that financing everything in your life and spending every last bit of your paycheck, it is not normal. It may be perceived as normal because that’s what everybody else was doing, but it’s not. You have to say no. If you’re reading and that resonates with you, it can be done. It’s going to take a few years to mop this thing up, but you can be financially independent and either quit your job or work part-time or full-time because you love what you do.

These are all amazing points. In the book, what direction are you giving to people? What are the steps that they can take? Starting with whomever that person you were writing to when you were typing out the words of the book and getting them to take that first step then the next step. What are some steps that people can take to go from where they’re at and start to circumvent better or build a bridge over the gap to where they want to be?

The first chapter starts with, “What is wealth?” A lot of people don’t even know what they want. They’re just going through the motions of life. They’re killing time while they’re here on earth, which is very sad. For me, wealth is the ability to be able to do what I want with my time, to wake up when I’m done sleeping, to be free. I think that’s the first step is defining what you want. I always tell people, I learned this from James Altucher. He talked about the three things you want people to say at your funeral. What do you want people to say who you are and then embrace those things? Remind yourself, write it down on a piece of paper and see it every day when you get up. I have daily statements for every single of my kids and my wife and I. I like to remind myself that. Steve Jobs talked about that, ask yourself every day, “Am I happy with what I’m about to do right now?”

The next step is if you decide to become financially free, you need to see what the gap is? What do I need? How much income do I need to pay for my expenses, my monthly lifestyle? Ultimately, becoming financially independent, in my opinion and in the book, is to be able to have multiple sources of income. Instead of having a one or two-household income, think about having how do you get to a 21-household income? Maybe it doesn’t pay all the bills, maybe it just pays the utilities. How good will that feel? It pays all your utilities, maybe it pays the mortgage. However, you want to look at it, how would you like it if every month you went to work and you realize that all your utilities and your mortgage were being paid by passive income?

Financial Freedom For Millennials: The Millennials may have been conditioned to believe that they want socialism, but they love the efficiency of capitalism.

It starts small. The book talks about the biggest first step is work where you can cut. For a lot of people, that’s moving, that’s one of the biggest expenses. Whether you’re moving to a further area in your county or you’re moving to another state. My wife and I moved to a desert community in California. The next area is retraining their brain. Instead of dumping all this money into a 401(k), start using these whole life policies to dual compound. Start using different investments that pay an actual dividend that bring a check into your life. That’s the biggest thing I can tell people to have that mindset of start buying things that make you money.

It’s interesting and I’ll be somewhat open here because the first thing you said resonated. Most people don’t know what they want. I think it goes back to the mindset that we’ve been programmed or highly influenced to understand, which is being told what we want or being told what to do instead of us recognize. It sounds trivial but us recognizing that we have a choice of what we want. I had one of my business coaches, I had this meltdown. I didn’t even anticipate it, but it was the rocking chair test. They essentially get you into this state where you’re 95 years old, you’re sitting in a rocking chair and you’re describing what life was about. It was powerful for me and I connected with what was important to me. I connected with what I wanted.

It wasn’t necessarily a dollar amount. It was more about my relationships. It was about the people that I loved as opposed to anything material. At the same time, those material things allow a magnification of the experiences with the people that you love. The second piece is interesting too that you talked about, which is the idea of understanding where you are financially and where you want to be. I look at what most people obsessed with, which is weight and money because it’s measurable. At the same time, how people measure money is fascinating because it usually has to do with either their income or their bank account and that’s it. The true measurement of money, which Robert Kiyosaki heavily emphasizes in all of his books, is a financial statement.

He has a whole book at how to create a financial statement, which is ultimately the scorecard for where you’re currently at but can also help you objectively measure what you need to do in order to get to where you want. Ultimately, the wealth side of things is fascinating, Daniel, because in the end, why are financially successful people so miserable end up committing suicide or getting multiple divorces or alienating children? It’s interesting where people have connected wealth with money but yet, in the end, people would trade all of their money for what is truly valuable to them if they opened up and were vulnerable. That’s where I look at where we’re at in our day and age with society and what’s available to us with technology.

Wealth is the ability to be able to do what you want with your time, to wake up when you are done sleeping, and to be free. Click To Tweet

It’s more possible than ever to live that type of life, but yet the comfort that people have with what society has told them is a success is still bought into. Even though people are starting to see that there’s a different way of doing things and there’s a different lifestyle. “Look at this guy, look at this friend,” but yet they’re still programmed to do what’s safe and comfortable. How did you break out of that? Where have you may be talked about in the book how you have written whether it’s your newsletter or your YouTube channel, like getting people to snap out of it and believe in what is possible.

I would say that what you just touched on, the first thing I thought of was the Millennials. The Millennials are trying to apply the Baby Boomer life plan to a totally different economy. They are suffering and complaining about it. I got rid of my car because I Uber everywhere and I go for nice long walks or I jump on a Lime scooter and I go as far as I want. I don’t have to go back to a parking lot. I flip out my phone and five minutes later, I’m back at the house. You can start a website for $10 if you’re a Millennial, a business for $10. You can freelance anything, sell your skills, you’re going to work from home and you can monetize your own job. There are many things you can do as a Millennial if you embrace all these gifts and these things that the world has given us.

I ordered lunch and I wanted to order some Thai food, so I went onto Grubhub. A lot of people are trying to do the same thing with their investments and their investment mind setting. The Baby Boomers had the best bond market, best real estate market and the best stock market. According to Vanguard, the median account for 65 and older is only $58,000. If that experiment didn’t work for them, and by the way for most people, 401(k)s have only been around since the ‘80s. They passed them in the ‘70s but ‘80s for all intents, purposes and implementation. A lot of people think the 401(k) was with Adam and Eve, and they came out and they had their employer match.

Financial Freedom For Millennials: Trying to keep up with the Joneses financing everything in your life and spending every last bit of your paycheck is not normal.

A lot of this stuff is new. It didn’t work and that’s okay. Some of the intentions were probably good. What does work? What’s been around for hundreds of years, thousands of years when it comes to passive income and the way the rich invest? I look at the frustrations of people that it’s a lot of times it’s because they’re adopting and applying these rituals. I was in Africa and I was with the Maasai. I was asking the guy, “What’s your goal in life?” He was like, “I need more cows.” I was like, “You guys cleaned our rooms and you see the bathrooms and the match them. You don’t want a mattress in your house? The houses are made of cow crap. You don’t want a toilet?” He’s like, “No, the elders say that’s not the Maasai way.” I’m like, “Tradition can kill,” like it’s doing to the Maasai, it’s doing to the Millennials here in America and all around the world because they are in the tradition of something that hasn’t even been around that long, especially when you apply the way conventional finance has been applied to for people.

Here’s what’s fascinating. What you said is that the root of the word capital, like capitalism, comes from cattle. The nature of capitalism isn’t the cattle itself. That’s not capital. The capital comes from the derivative use of cattle, how people figured out to use a cow for not just milk, not just meat, but leather for instance. I look at the world of immense resources and people look at the value in a piece of land or the property. That’s not where the value is. The value is our ability to take our mind and make use of that in a variety of different ways. Look at what we live amongst every single day, whether it’s Grubhub, uh, whether it’s the Lime scooters. These are essentially resources that people figured out how to look at some friction or some frustration and to get a solution to it. That’s all around us, but yet not understanding the fundamentals and subscribing to the status quo doesn’t open your mind up to what those possibilities are. That’s why the Millennials don’t like capitalism. It’s because everybody else is coming up with ideas and they’re not.

They may have been conditioned to believe that they want socialism, but look at every aspect of their life, they love the efficiency of capitalism.

It’s an amazing world we live in and it’s evolving so quickly. It’s awesome that there are more books like this coming out. They are reinforcing not just talking points, but they’re reinforcing principles that have been around for a long time, but also ways in which you can capitalize on the current environment to achieve the outcome that I would assume most people want.

In the book, I provided the links of the different companies I invest with. Obviously, your company is mentioned in there when it comes to my whole life policies. I didn’t hold anything back. I put it out there and the same thing goes with my letter at FutureMoneyTrends.com. If I’m investing in it or writing a check, it’s in there. If not, it’s not in there at all.

Daniel, what are some other ways in which they can follow you, learn about what you’re up to, learn about Future Money Trends, some of the video stuff that you’re doing online. Why don’t you throw those out there?

I would love for them to go to FutureMoneyTrends.com/save. They get the Weekly Wall Digest free. It shares a lot of the different stories and things that my wife and I went through and did to become financially independent as well as some stuff that I teach my children, as well as any investment, passive income or speculative that I’m actively involved in. They get to also read the first chapter of the book.

Daniel, it’s a pleasure talking to you. Thank you so much for taking the time. Hopefully, we get to do a follow-up soon.

I hope to see you soon.

Thank you.

Important Links:

Don’t Save for Retirement: A Millennial’s Guide to Financial Freedom
Daniel Ameduri – Previous episode
Paradigm Life
FutureMoneyTrends.com/save
www.FutureMoneyTrends.com

About Daniel Ameduri

Daniel Ameduri is a self-made multi-millionaire, a full-time skeptic of conventional thought, and a proud father of three. He is the co-founder of FutureMoney-trends.com, which, with nearly 150,000 subscribers, it’s the most widely recognized online authority in investment ideas and economic advice. He’s been featured in The Wall Street Journal, on ABC World News Tonight, and on Russia Today TV. Daniel correctly predicted the collapse of Lehman Brothers, AIG, and Washington Mutual on “Vision Victory,” the YouTube channel he launched in 2007 and which now has had more than thirteen million views.

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Becoming A Tech Company with Jared Hobbs

September 5, 2019 Patrick Donohoe 00:39:06 Comments Off

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TWS 17 | Becoming A Tech Company

If you want to survive in today’s global business, you have no option but to become a tech company. Experienced software engineer and entrepreneur Jared Hobbs shares his insights into what companies are doing these days that most people are not entirely aware of. As he dives deeper into how companies have evolved and are evolving, he also discusses how this evolution has impacted the tech world. Jared shares some concepts on how to get investors and how and when to capitalize your company other than the traditional ways.

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Watch the episode here:

Listen to the podcast here:

Becoming A Tech Company with Jared Hobbs

We are in the season on entrepreneurship where we’re focusing our guests, the topics of discussion, the questions all around the idea of the entrepreneur. Previous themes have been on capitalism, on the notion of life, liberty and property. It’s been fun to focus the episodes, the guests, the questions around this central theme. We’re almost at the end of this season on entrepreneurship. I hope you have been learning a lot. If you’re here for the first time, welcome and go back and definitely check out previous episodes. I know you’re going to get a good course on the idea of the entrepreneur.

This episode is different because I’m interviewing not necessarily a professional speaker or presenter, but someone that I have a lot of respect for. He’s my neighbor and become a friend. He has been in the technology space for quite some time. He works and is part of the foundational software engineering team for Carta. Carta is one of those multibillion-dollar companies that has owned the space of organizing the ownership of public and private companies, not necessarily the ownership but employee ownership. There are other things that they’re doing as well. They’re very innovative and are owning this space.

Jared had this front-row seat of looking at the world from that perspective, which is very unique and it’s led to some high-level conversations with him and I. I’ve learned a ton about how the business world is changing from how companies are getting capital, how they’re being valued. Also from the standpoint of what employees are expecting of companies in that space, which I believe it’s shifting to non-tech companies. Jared in the interview argues that all companies are essentially becoming tech companies, especially if they want to survive in this day and age. It’s a fascinating interview. It’s a perspective that most do not have. We tried to stay as high level as possible because there is some terminology, that technology lexicon that most don’t understand. I believe that we got some good nuggets out of Jared. I may have him back on because there were some things that we’ve talked about offline that I was so intrigued by and wanted to discuss and explore further, but due to the lack of time, we weren’t able to. I want you, depending on your role, to look at this interview from that perspective, wherever you are in your professional space, if you’re an employee, if you’re an owner or if you’re an entrepreneur or maybe a combination of the few things.

First as an employee, I find it interesting how employees are being compensated differently these days and they’re not necessarily looking for companies where they can work for 30 years. They’re looking for companies that align with values in a sense, but also the notion of work has changed. They’re more working to live instead of previous generations who were living to work. I find this interesting because it has put some pressure on companies because if one company is offering what employees are demanding, then that company is going to get high-level employees, high engagement, high retention. Whereas a company that doesn’t necessarily keep up with those times is going to lose top talent, have turnover and probably is going to lose a lot of money. I believe that this space is rapidly evolving as far as what employees are demanding as part of their overall compensation and overall experience in the workplace.

From an investor standpoint, that’s another role that is interesting to look at, the businesses that are coming online these days. You have multibillion-dollar businesses that aren’t profitable, which means that they are spending more money than they’re making. We get into that conversation as well. Also from an entrepreneur space, that perspective, which is what are the various ways in which you can be capitalized? Not necessarily just money capital, but also how do you associate with those that have built big businesses, big companies? They’ve done it with this new way in which companies are capitalized through venture capital, private equity and navigate those waters, which can be pretty treacherous if you don’t know what you’re doing. There’s capital, not just in money, but also the experience that surrounds a lot of incubators and other spaces in which these types of companies are coming online.

It’s a fascinating topic to me. I hope you get a lot out of it. I feel that this is a conversation that needs to happen more because I see in my own business how things are changing. I’m observing the world around me, whether it’s industries that have been around for hundreds of years to companies that have a very good reputation. Things are being disrupted very quickly and it’s going to be an interesting couple of years. You are going to learn a lot from Jared. He moved into the neighborhood. I’ve been there for several years now and we have a lot of things in common. He has a tremendous amount of knowledge associated with his craft and his field. Hopefully, you’ll learn from him. Without any more delay, let’s get to my very fascinating interview with Jared Hobbs.

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I have a special guest. I have been talking a lot about the way in which our society is evolving, how business ownership is evolving, how entrepreneurs are evolving. It seems so fast, it’s hard to keep up with. I brought in my neighbor. His name is Jared Hobbs and he moved into the neighborhood from Palo Alto. It was cool because when I first met him, his wife is a Latina. His dog was the same name as my dog and he liked the same type of music. It was cool. It’s was like my kindred spirit moving in next door. Jared is a software developer, software engineer and he is part of the founding engineering team with Carta. It’s been fascinating to have conversations with him. I wanted to have him on because he has some insights into what companies are doing these days that most people, including myself, aren’t entirely aware of.

We’re going to get into how the evolution of companies and employees has impacted the tech world, how it’s evolving into the rest of the business world from an ownership standpoint and how companies are being capitalized these days. How are they getting investors? What options are available to you? Also, if you’re the entrepreneur or the business owner, there are many ways when you can capitalize your company other than the standard traditional ways. However, there are a lot of unknowns, so we’re going to talk through those because Jared has been at the forefront of that for the last several years.

Most companies in Silicon Valley are valued more for their network effect and potential to make money rather than what they're making now. Click To Tweet

As investors, that’s another thing that I find difficult. These days you have a lot of companies that are multibillion-dollar companies that early on didn’t make any money. They made money from a revenue standpoint but weren’t necessarily profitable. Meaning they were spending more than they were making, but yet they grew and became these huge industry giants. I want to talk through that as well because for me as an investor, you want a company to be profitable. You want it to be earning cashflow. Looking at a company that’s not doing that immediately sets in some concerns.

I want to talk through how as an investor, you look at a company that is capitalized in a modern way and how to determine whether there is some viability there worth investing in or not. Jared, let’s get into it. I know we’ve had some pretty high-level discussions. We talked a little bit now in regards to what you have been a part of. Maybe start with what was your experience like in Palo Alto. How has it been to see different companies on the Carta platform and how they’ve been able to transform based on what tools had been available to them that may not be available or even known about to other businesses?

The business world in Silicon Valley is different. It’s a bubble. It’s different than any other business type that I’ve seen. It’s the only place where you can have a business raise millions and millions of dollars and not have any cashflow, not have any money coming in.

That’s fascinating that people would put money toward that.

It seems like a lot of those companies valued more on their network effect, on the potential to make money rather than what they’re making now. What you’ll see is a company, a couple of founders that have an idea. They start getting some traction and they take their idea to Sand Hill Road in Palo Alto where all the investment firms are. They pitch that idea and these investors see that maybe these people do have this strong network. They’re looking for the next Facebook and the next Uber. Even if this business isn’t making money and they’re burning more money than they are taking in, that network effect is what’s valuable.

What’s the payoff for them? First off, the full potential thing. I think everybody has potential. Looking at those that achieve, what do they look for as the variables to determine whether or not it’s going to be successful?

Venture capital is funny. They’re looking for that one payoff. They’re going to be throwing money at a lot of different companies with the hope that one of them pays off. Most startups fail. That’s a fact. Most of them won’t make it past Series A in financing and they’ll shut their doors. If a venture capital firm finds that needle in the haystack, that one company that will make it to a unicorn or a decacorn status, then it was all worth it. It doesn’t matter that they lost money in all these other companies.

Is there a formula for that or is it just throwing money at the wall and hoping that one investment sticks?

Becoming A Tech Company: Silicon Valley is the only place where you can have a business raise millions and millions of dollars and not have any cashflow.

I’m sure some firms are like that, but for most of the firms I’ve noticed, they look in multiples of an ARR.

What’s ARR?

ARR is the Annual Recurring Revenue of a company. Some of these early-stage companies will have ARR and it will be low, but they’ll be valued based on a multiple of that. Also, investors will look at proven track records of the founders. If a founder had a previous successful startup, they’re more likely to fund that person because they’ve proven themselves. If a founder has not proven themselves and they don’t have a team that’s worked on successful startups before, but they have good ARR numbers, that’s a good signal for those VCs.

You can go the VC route and go and pitch these bigger firms to get that type of capital to start. Crowdfunding is the one that comes to mind. What are some other ways in which smaller businesses or entrepreneurs with ideas have gone to the marketplace as opposed to borrowing money from mom and dad, going to a bank and getting a loan? It received capital and then taken and turn an idea into something tangible.

There are a lot of success stories with companies like Kickstarter, GoFundMe and Indiegogo. A lot of these are exchanged for our product. I haven’t seen a lot of companies give equity through these crowdfunding platforms. I’m not even sure if they’re allowed. Actually, I’ve seen a couple on Carta that have gone that route. The problem with that though is your cap table gets inundated with all these people, all these very small investments. There are laws where you can’t have more than a certain number of people on your cap table. It gets tricky if you try to fund that way.

Do you think that will change? Is there pressure to change it?

I think there is pressure to change it. I know Carta is lobbying the Congress right now to get a lot of changes from happening, especially in the accredited investor space. They’re trying to slack those rules a little bit to make it easier for the average person to invest in privately held companies. A lot of the early-stage startups will go to the bootstrapping route. They’ll try to build their company based on their own savings. The founders will be the main seed investors. Other companies will go to Angel investors, which are wealthy individuals that usually give money in the very early stage, in what we call the pre-seeding stage.

What are some of the more popular Angel investing platforms that people may not be aware of?

Normally a startup will fund their platform or their development using their own money, friends, and family money and angel investors. Click To Tweet

Angel List is the main one that I’m aware of. I’m sure there are other places too. Just go into networking events or pitch competitions, you’ll meet these Angel investors. Normally, a startup will fund their platform or their development using their own money, friends’ and family’s money and Angel investors. If they start seeing some traction that maybe they have a good idea here, they’ll go to a seed-stage fundraise. There are a lot of Angel investors that participate in seed stage. There are also VC firms that participate in seed stage. There are also incubators, Y Combinator, Techstars, Idealab, things like that. These are great. They usually will give you a small amount of money. I think Y Combinator is something like $120,000 in exchange for 7% equity.

Let’s take a back step and describe these stages. At least myself, I don’t know if I understand it 100%. Usually when you have an investment in a new company, there’s essentially one stage. You put an investment, a loan. You put a capital contribution and then you start spending it and hoping you can bring in revenue. That seems like the only stage. Talk about these seed stages and these different series stages and how that all works.

Speaking from what I know in the Bay Area, how it usually goes is you want to raise money. You’ve decided to take on outside capital in exchange for equity. You build a pitch deck and then you start shopping around. There are different pitch competitions where you show your idea off and then you get people that are interested. They start throwing money at you. You sign a term sheet and then you start working. Usually, what happens is there’s a pre-seed stage and that’s usually friends and family, individual contributions, things like that. That’s just to test, do maybe market research to see if you have an idea that could become profitable. After your idea has been proven and you think that you can build this thing, you need to raise more money. That’s your seed money.

Do the people that put seed money in get paid off and they’re out or they stay in and now the company becomes bigger because there’s more money in it? How does that work?

Every new round of financing that a company takes on, the existing investors will get diluted. A lot of times, the company will give those investors an opportunity to put more money in to get their percentage back up to where they were. A lot of times, these small investors don’t want to do that. They just want to cash out. Usually, when you’re raising a new round of financing, it’s an opportunity to provide liquidity for the existing shareholders. Maybe if you’re raising a Series A now, your seed stage investors want to get some liquidity out from their investment. They’ve probably been around for five years or less. They want to see some return.

Is that the term of the initial term sheet or is that determined when the next round of funding comes in?

It will usually always be written into the term sheet of when they can get their money back out and everything. When you’re raising money, the shares that you give them are usually preferred shares also. In cases of an exit, an acquisition, an IPO or something, those preferred shareholders get their money out first before any common shareholders do.

Do founders usually take a common or do they also have preferred?

Becoming A Tech Company: When companies go public, it’s usually because they need to raise more money.

Some founders do preferred, but most founders’ stock is common but it’s a higher level of common than normal common. Debt gets paid out first, then preferred shares, then founders’ common and then common.

When you go to these different stages, how do the valuations change? If you’re going to bring in new capital, you’ve proven an idea, but then what does that mean? How do you value the next stage? If the idea is proven, is there another theory or formula to determine how is it going to be valued and what determines the next stage after that?

When talking about these tech companies, there are two valuations. There’s the fair market value, which is the value of the common stock and there’s the preferred price, which is what investors are willing to pay for it. They’re both valued in different ways. The common stock, that valuation is required on form 409A of the IRS Tax Code. That’s usually done by an external third party. Carta is the biggest provider of foreign aid in the United States. There’s a Black-Scholes statistical model that goes into that valuation. There are a lot of little knobs and levers that they can pull to tweak the valuation.

There’s a discount for lack of marketability because a lot of times these companies aren’t making any money, so it makes it a little harder. For comparable companies, they only have public companies that they’re able to compare to because private companies aren’t releasing their financials. It’s a little hand-wavy on how that math works because it’s not an apples to apples comparison. For preferred stock, the investors are the ones that value the company. They do their own due diligence before they invest. They’ll also look at comparable companies. They’ll look at their own portfolio of investments and see any similarities there. They will give you a valuation. When you hear about a tech company being valued at $1 billion, that’s not their fair market value. That’s their preferred price that the latest investors have put on their company.

One of the biggest IPOs in history happened, Uber. It was good for a lot of people, but it wasn’t good for others. There are a lot of later-stage investors in Uber that lost money on the IPO. They can keep money in and hopefully it will be more valuable in the future, but how does that happen? A lot of these big companies that have been funded and capitalized this way are now going public. WeWork is another one that’s about to go public. WeWork, their financials is like they’re bleeding money and they’re going public. They’re bleeding money, why would the public market invest in that? Maybe go through the Uber thing first.

Uber is interesting. They went public at an $80 billion valuation or something like that. They were private for a long time, so they had many rounds of private financing. I don’t know exactly offhand how many rounds they did, but it was like Series F, Series G. It was up there. Every round, it dilutes more and more. Seniority goes to the latest investors. Early investors are way down at the bottom of the chain also.

The early investors lost more than the latter stage investors.

Probably, I haven’t looked at any of the public records on it but that’s what I would imagine. With that company, especially now that they’re public, people are seeing their financial. They’re seeing how much money they’re losing. There’s been an analysis done where they said there isn’t anything that they can do to become profitable other than raising the prices. If they raise their prices, no one’s going to use it.

There's capital not just in money but also the experience. Click To Tweet

WeWork is still private and they’re bleeding money. If they don’t raise any more money, they’re going to go out of business. Their options are ultimately to do another round of funding or to go public and they’re trying to go public. Why are they going public? How do you characterize the mentality of somebody willing to buy shares in WeWork if they’re bleeding money?

Companies, when they go public, it’s usually because they need to raise more money. They can’t raise any more private money. Their investors don’t want that. They want out. I’m not sure in cases like that why the public would buy into it when these private investors want out. It’s economics that I don’t understand.

They’re going to go and they’re going raise money and people are going to invest in it because it’s the sexy thing to do.

A lot of times, the companies that aren’t making money even publicly, their values keep going up. I don’t know if it’s a fear of missing out thing. People want in on a company that they believe can 100x in value. You look at earlier IPOs like Google, Amazon, Facebook. Facebook has pretty high evaluation at the time. Compare those to recent IPOs, those things were like nothing. These IPOs keep getting bigger and bigger. Who knows if we’re going to hit a ceiling? We’re in some bubble that’s going to pop and everyone’s going to lose money on all these investments.

Let’s go now to the employee side of things, which is pretty fascinating. We’re going to mention some books and some other people to follow so you can keep up. This is the business world that we live in. It’s not like it’s going to go away. It’s so big and it’s evolved so much where it’s going to continue to evolve. We’re going to approach it in a few ways, but we’ll talk about some books and some other people to follow to keep up with these not necessarily trends but the way in which business is evolving. I want to talk about employees. The employees of Uber or WeWork and I’m talking more about not necessarily the Uber drivers, but the employees that are the developers helping with the technology, the design, the R&D. If WeWork is bleeding money, don’t employees know that they’re bleeding money? How does that preserve the culture of the company? What are these companies doing that’s different than the companies in the past?

When we talk about burn, it’s a normal thing especially in tech startups. If you’re not burning money, you’re not utilizing that capital that you raised. Investors don’t like that. They want to see you spending that money. If you’re not spending it, why did you even raise it in the first place? There’s a yearly or a monthly burn rate and a company will have a runway of time that they can burn this money before they’re out of money. They usually raise money before that runway ends. I’m not sure about WeWork in particular, but I’m sure they’re expecting to burn a certain amount of money. They know how much they’re making, how much they’re spending. Their investors are probably expecting them to burn a certain amount every month. If they’re burning more than that, they could be in trouble. If they’re not hitting that burn target, they’re also in trouble. Without knowing their specific plans and what their investors expect of them, there isn’t much we can do. I’m sure their employees probably know about those things too if the company is transparent about their financials.

Let’s get into how employees are compensated these days. It’s been different in the past, and that’s some of what Carta is trying to make easier. Maybe speak to that because employee retention is important.

In the past, people have gotten a salary. They might have gotten other perks. They’ve gotten their benefits, their health Insurance, 401(k) maybe, things like that. Nowadays, especially with platforms like Carta, which make it easy to grant options to your employees, it’s expected now. If I’m a recent graduate in a technical field and I’m looking for a job, if that company doesn’t offer equity as part of my comp package, I’m not even going to look at that. It’s something that’s expected now like, “If you’re not offering equity, then I’m going to go somewhere else that is offering equity.” Especially living in Palo Alto, you meet a lot of different people. What you notice is the people that have money that can afford to live there, that have a house are either business owners or they’re employees that won the stock lottery. If you want money, if you want to be wealthy, you need to be an owner. You need ownership. Without that ownership, you’re living paycheck to paycheck. You’re not going to become financially independent that way unless you can take part of that paycheck and invest it in something that’s going to make you an owner.

Becoming A Tech Company: Most startups will fail, so your options could end up worthless; but if it succeeds, it can make you a lot of money.

It started as more of a tech phenomenon. Do you see it evolving into other sectors?

Definitely. I think it was Fairchild Semiconductor in the ‘70s that was the first company to offer equity to their employees. It stayed in the tech sector for a long time. Platforms like Carta make it so easy to grant employee equity that lots and lots of more companies are doing that. We’re now in a period of time where every company is a tech company. Every company relies in technology. If they require technology, they require a software already, you’re going to manage your company’s ownership on a platform like Carta. Why not carve off 10%, 20% of your company to give to the employees? It makes them happy. It makes them work harder because now they have a vested stake in the company. There are all sorts of different rules that you can put into the contract to make sure that they stay. Most option grants come with a one-year cliff. You don’t get any grants until you’ve worked there for a year. After that one-year cliff, it vests on a monthly basis. It incentivizes employees to stay there until their options vest at least as a minimum. Other companies will offer refresh grants. As soon as one of their grants is almost done vesting, they might give them another grant that vest it another four years to keep them around.

How many companies are on Carta? Do you know more or less?

There are a lot.

Hundreds, thousands, tens of thousands?

There are thousands of customers, something around 8,000 companies. There are close to 800,000 employees.

Based on what you have experienced from the time you started, do you agree with the theory that this is going to be the new way in which employees are paid or compensated?

Definitely. Equity is probably more important than your W-2 salary. Your W-2 salary can go up incrementally. It’s not going to make a big difference. If you’re working at a company that gives you decent equity and you’re helping to make the value of your company go up, as soon as there’s a liquidation event, an IPO or an acquisition or something, those options are going to be worth way more than your W-2 salary.

Raising a new round of financing is an opportunity to provide liquidity for the existing shareholders. Click To Tweet

From the business owner’s standpoint, why would this make sense for a business owner? We’ll get the first one out of the way, which is this is what employees are expecting. It’s similar to the standard expectation of employees now is that they get healthcare. That wasn’t the case necessarily many years ago, but now it’s an expectation. Going into this way of receiving compensation, that’s going to become an expectation. How does it make sense for a business owner to do this?

One thing, it’s to stay competitive, you’re going to have stock options to your employees. There are tax benefits also for the business owner. With option grants at least, you’re not giving away any stock until it’s the option to buy stock. You are giving your employees the option to buy stock at a discounted price. A lot of employees won’t exercise it until a liquidation event. They’ll do a buy to cover option where they’ll sell everything and then they’ll use that money to pay to exercise the option and the tax that’s necessary. Our CEO at Carta told us many times that he believes there are four stages of employment, where we started out in slavery and moved to indentured servitude and right now we’re in a payroll.

Most society in general, the employment world.

The future will be ownership where you’re not paid just by a monthly paycheck. You’re also given equity and you become part owner of the company that you work for.

How do you determine by employee to employee? Do they all get the same or is it different based on levels of experience, expertise, how long they’d been there or is it equally split across the board?

It’s totally up to the company. It’s very flexible in that, especially in an early-stage company, they might want to give more equity to those founding team members because it’s a lot riskier for them. They’re quitting maybe a job in Corporate America. They’ll work in untested or unproven startup. Once a company is in a later stage, Series B, Series C, maybe the company is making money.

Those are the liquidity events that you were talking about?

Yes. Once that happens, a later stage employee, employee number 200 or 300 will probably get a lot less equity. A lot of times it’s proportional to the risk involved.

Consider Your Options: Get the Most from Your Equity Compensation

Is there a formula to help with that?

I don’t think Carta has that formula. I know that we have an internal formula that we use for our new hires, but every company will be different. Before, our general rule of thumb was 0% to 20% option pool for employees. The first 10% goes to your first ten employees at 1% each, then the other 10% is allocated for all the rest of your employees. You can refresh that off option pool with later rounds of financing and things like that.

For me, a lot of these intrigued me for a while, especially since we’ve started talking. Looking at this being a topic that I am assuming most people don’t study or are aware of, what are some of the recommendations you have for them to learn more?

To learn more about options, there are books and blogs. There’s a book that’s a required reading for Carta employees. It’s called Consider Your Options, which talks about ISOs and NSOs and RSUs and all these different equity instruments. Our CEO at Carta, Henry Ward, He’s got some great blog posts out there. You can find them on Medium. Also Carta’s blog itself, there are a lot of great posts on equity, on 409 valuations, on all sorts of startup-related issues.

There are some required readings at Carta which I found interesting. Zero to One, Peter Thiel’s book and The Lean Startup. The one that was interesting to me is How to Win Friends and Influence People, which is an older book by Dale Carnegie. Why do you think that is a recommended reading?

I think that was one of the first books that was recommended to all new employees to read. It helps an employee gain leverage. It helps with the business relationships, personal relationships and to build this leverage that you need to gain the advantage over competitors, over even your boss, your manager. In the business to business world, you need to build leverage in order to win a contract or to get funding.

Did you know the whole Warren Buffett story behind Dale Carnegie? The only certificate he has in his office wall is his graduation from the Dale Carnegie Institute. I find that interesting. It’s all businesses relationships ultimately. There are some definite core principles and core values around relationship in that book. Jared, this has been awesome. I know you dove into a variety of topics and bounced around. What do you want to use as maybe your final charge to readers in regards to this specific topic?

To the business owners, to the entrepreneurs, there’s so much money out there. There are so many ways to get money. If you think that raising outside funds is the way to go, go for it. If you think that you can bootstrap it and not have to give away part of your company to become successful, that’s also a great way. There’s real value in the accelerator and incubator. If you can get into something like Y Combinator, I totally think that it’s worth it to give away 7% of your company for that network that you’ll get by getting in there. For the employees, keep pressuring your companies to give equity if they don’t already. It’s something that will help you out. Most startups will fail, so your options could end up worthless, but in the chance that your company succeeds, it can make you a lot of money.

There’s a piece in the book that I wrote, as well as a lot of what I believe is employees essentially have all the information at their disposal to be successful. The gap between where you are and where you want to be isn’t necessarily the lack of information. It’s where to get that information. It’s also to understand more about yourself and how you equate to value in the marketplace. A lot of the charge I give people sometimes is go out and look at the marketplace, whether it’s PayScale.com or Salary.com and see what the market is offering. Look at where your position is currently, but more importantly is where you want to go. See what is required from you, either an at experience standpoint, a skill standpoint, a certification standpoint. That information is more valuable than ever, which will enable you to make more money at a much quicker pace than the standard 3% to 4% cost of living increases most people are expecting.

Know what’s you’re worth, that’s a huge thing.

That creates the baseline to becoming worth more. Jared, this has been awesome. Thanks for taking the time.

Thanks for having me.

I appreciate it. See you again soon.

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About Jared Hobbs

TWS 17 | Becoming A Tech Company Jared Hobbs is an experienced software engineer and entrepreneur who has started several small companies. Jared graduated cum laude from the University of Mexico in 2008 with a bachelor’s degree in Computer Science. Jared specializes in creating and developing applications for financial technologies, mass data analysis, image processing, image correlation, and other business-class applications.

In addition to his small business ventures, he is currently working as a Lead Software Engineer for Carta, Inc. where he has played an instrumental role in helping the company grow and scale from 6 employees to well over 300. Jared lives in Salt Lake City, Utah with his wife, children and dog.

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