“Why, he hasn’t got anything on!’ the whole crowd was shouting at last!” These words, from Hans Christian Anderson’s 1837 fable “The Emperor’s New Clothes”, raise an important question – why was it that only a child could see the truth when the king, his wise ministers, and all of his subjects couldn’t? And, why was it that once the truth was called out, the king continued to march on, wanting to believe his own world view, with his courtesans following along? Reality is, everyone sees the same set of facts, but no one is sure about calling their version the absolute truth because no truth is absolute, and everything is seen through the lens of an individual’s own realities and insecurities!

Another explanation is human beings’ deep rooted desire to belong. We want to agree with the group so that we are accepted by the group – being part of a group has proved beneficial, from an evolutionary standpoint, by offering better safety and security. The need to belong is still a strong motive for us to agree with the majority view point. This was established by Solomon Asch in the 1950s, through a set of famous experiments (called Asch’s conformity experiments). The experiments showed how normal, intelligent people were willing to give an obviously wrong answer to conform with the rest of their group (of merely actors) who chose the wrong answer to be the right answer.  Asch opined, “That intelligent, well-meaning, young people are willing to call white black is a matter of concern.”

This isn’t new or surprising; we are all followers of the ‘wisdom of the crowd’ philosophy and, for the most part, that serves us well – following the direction of the crowd to get to the baggage area of the airport, facing in the same direction of the people inside an elevator, etc. In his book “Sapiens: A Brief History of Humankind”, Yuval Harari argues that the success of human beings, as a species, is due to our ability to create and sustain grand, collaborative myths or collective fictions. The ability to unite people behind a shared vision or a story allows several thousands of people to work together across a company or even entire industries, or even countries.

One such collective belief – that technology will rule the world – has prompted investors to pour billions of dollars into the startup industry in India and across the world to build a new version of the future. This has powered several thousands of entrepreneurs to build platforms, products, and services that challenge the status quo, making significant leaps and transitions across industries. Millions of developers and marketers have joined them in the attempt to build a better future – one that the rest of humanity deserves and, at times, doesn’t even yet know they need.

All well so far! Or is it? How does one know when we have swung too far? When hubris overshadows real progress? When founders get carried away in the act of building while losing sight of what is worth building, and at what cost? Is there mission drift? Is there a reason to worry about too much focus on form vs. substance? What if the focus shifts from how the emperor looks in the clothes, to how the clothes actually look?

Maybe the start of a new year is a good time to take stock and reflect.

As I delve deeper into the topic, let me clarify a few things so that there is no ambiguity. I am personally a big believer in the power of tech and software to change the world. I also believe that investments need to be made ahead of the curve and shots need to be taken for real change and progress to be delivered. And, some of these will fail – it’s a natural and completely acceptable risk for the rich reward of collective progress. But some recent observations made working with new-age companies have left me wondering if tech at any cost is a smart strategy to pursue. The thoughts in this essay are strictly personal and only possibly belies my expertise.

“Reality is, everyone sees the same set of facts, but no one is sure about calling their version the absolute truth because no truth is absolute, and everything is seen through the lens of an individual’s own realities and insecurities!”

Here are some signs to watch out for that should get the alarm bells going:

Tech being peddled as the answer to all problems. Technology solves problems but not all problems need to be solved with technology. In the last few years, a new crop of fintech companies have all learnt the hard way, through high NPAs on their books, that no AI/ML algorithm for credit underwriting fully replaces the simple collections process with a team, sending reminders and calling people to ensure their accounts have the necessary balance. Disrupting an industry does not mean one needs to reinvent every process in the industry. We should ask ourselves – what’s not working well that we can dramatically improve and what’s working very well that we should embrace without shame?

Tech being built because it’s cool. There seems to be a lot of pride in building products and a disdain for manual process. It’s understandable that manual processes be automated for higher accuracy, speed, and lower cost. But when tech is being built because it’s cool, the P&L takes the hit. Every dollar going into tech should demonstrate some RoI – without that, you have a balance sheet problem with eroding net worth coming from indiscriminate spending in the name of tech investments. If you are a pure–play mattress company, maybe you can skip building that e-commerce app – your customer comes once in 5-10 years!

Tech being built grounds up because “we are different”. We love first principles thinking – except when it is applied to the tech stack. Trying to build everything new because we are “disrupting” an industry is often an excuse to build without making trade-offs to optimise on cost and time. Founders need to watch out for the “not built here” syndrome in tech teams and manage this desire to build everything bottoms up. Often, it makes more sense to buy vs. build.

Unlimited tech budgets and headcount. Tech talent has become expensive and hard to find. It’s not uncommon to make three to four offers to fill one role. As a result, tech budgets have become sacrosanct, and not to be questioned. In fact, many companies seem to have strong financial controls on everything except tech because of how notoriously hard it has become to manage the function. This results in bloated tech departments with significant costs and unclear returns – and everything is labelled a “long-term” investment.

It’s indeed hard for founders to not get carried away when there is so much at stake and so much of their work is to tell a story of a future based on tech as the core pillar. Founders are drowned in conversations of “democratising” and “disrupting” industries using tech. People around them have also gotten used to discussing burn and not cash flows. Capital allocation, RoI, and profits have been abandoned from the startup lexicon, making it harder for founders and boards to have honest conversations.

It is time founders find their version of that child who would say, “But he hasn’t got anything on”. Founders need to have one or more advisors who can think and act independently. Such people should ideally be a bit removed from the game and have nothing beyond the interest of the founder and the company at heart. Founders need to find people who can disagree with them without becoming disagreeable to them. Such people can be found among your board members or even from among your investors, if they have the right experience and if you have real respect for them. No matter who it is, not having someone who can speak truth to power will likely result in painful lessons when the tide turns and capital becomes harder to come by. Founders should also build an organisation culture where dissent is encouraged and not punished. This will allow for multiple versions of the truth to emerge, helping the founder to do the right thing. But whether the king keeps the procession on and marches prouder than ever is a choice only the king can make! And that, possibly, will differentiate the enduring company from the promising!

“It is time founders find their version of that child who would say, ‘But he hasn’t got anything on’. Founders need to have one or more advisors who can think and act independently.”

Here are three articles I read over the last few weeks that I found interesting:

Does Not Compute, by Morgan Housel, which talks about how not everything is explained by numbers and logic, reiterates the power of storytelling, and people’s affinity to stories over data.

Speed Matters: Why working quickly is more important than it seems, by writer and programmer James Somers, is an interesting take on the relationship between speed and perceived cost/effort in undertaking any task.

I don’t make New Year’s resolutions but I do make goals and plans for the year. But a new year is a great time to kick-start new practices or habits, like taking up a new sport or hitting the gym, or cutting out desserts. In this article, Atlantic reporter Amanda Hull talks about why some people find it easier to be consistent while others struggle with committing to new habits”.

If you have time for a longer read, here are two books I’d like to recommend:

How Bad Do You Want It?: Mastering the Psychology of Mind Over Muscle, by Matt Fitzgerald.

This book, by Matt Fitzgerald, an award-winning endurance sports journalist, was recommended to me by one of my newsletter subscribers (thank you Sreekant!). The book takes us through the stories of several endurance athletes and coping strategies they use to overcome challenges. A fascinating read and powerful takeaways!

Complexity: The Emerging Science at the Edge of Order and Chaos, by M. Mitchell Waldrop.

This book, which is a great introduction to complexity theory and emergent behaviours in nature, helps us understand the world around us a little bit better. It also took me to learning more about all the great work that goes on at Sante Fe institute!

Do write in at gv@peakxv.com if any of my interests intersect with yours! Click here to read more articles on Sequoia’s blog. I’m also on LinkedIn and Twitter.