Some Historical Context On The Current Silicon Valley Implosion
Tech billionaires such as Elon Musk and Mark Zuckerberg have lost far more money this year than ever before. Eccentric behavior and questionable decisions have both played a role. But there are examples in U.S. business history that have other clues.
BERLIN — Life isn’t always fair, especially when it comes to business. Although he had already registered dozens of patents, during the global economic crisis of the 1930s, tireless inventor Nikola Tesla found himself struggling to put food on the table. Sure, investors today associate his name with runaway wealth and business achievements rather than poverty and failure: Tesla, the company that was named after him, has made Elon Musk the richest man in the world.
Bloomberg estimates the 51-year-old’s current fortune to be $185 billion. While Musk is not a brilliant inventor like Nikola Tesla, many see him as the most successful businessperson of our century.
And yet, over the past month, many are beginning to wonder if Musk is in trouble, if he has spread himself too thin. Most obvious is his messy and expensive takeover of Twitter, which includes polarizing antics and a clear lack of a strategy.
And it is Tesla’s shareholders who are suffering from the CEO’s polarizing antics: This year they saw their share value plummet by 50%.
These losses have suddenly taken the shine off the entrepreneur’s genius halo.
Zuck and SBF
And yet Musk is not the only tech billionaire on the way down. Facebook founder Mark Zuckerberg has lost $82 billion since the start of the year — almost as much as Musk, who has lost $85 billion.
While the renamed parent company Meta is losing advertising revenue and Facebook is experiencing the first drop in user numbers in the company’s history, Zuckerberg is pumping billions of dollars into building a virtual reality space called the Metaverse — although it remains uncertain whether this imaginary sphere will ever earn him any money.
Commentators are already talking of the end days of the tech geniuses.
One entrepreneur who has fallen even further than either Musk or Zuck is 30-year-old Sam Bankman-Fried, known on social media as SBF. Up until a few weeks ago he was being touted as a tech prodigy, but now his cryptocurrency trading firm FTX has filed for bankruptcy. Clients and investors stand to lose up to $8 billion. It is now up to the courts to determine whether there has been any foul play, or whether the money was simply lost through over-ambition and mismanagement. One thing is clear, however: SBF is not the financial genius he was thought to be.
Is Elon Musk the new Henry Ford?
Commentators are already talking of the end days of the tech geniuses. Since the start of the year, between them the 10 richest tech entrepreneurs have lost almost half a trillion dollars. These losses can be partly explained by the general downward trend in the stock market: With rising taxes and money no longer flowing into the economy from the Central Bank, investors have become more wary.
“In an era of abundant market liquidity, many investors gravitate towards projects that are trendy, such as the metaverse or cryptocurrencies,” author and Silicon Valley insider Thomas Rappold says of investor behavior in 2020 and 2021. He says that these popular investment sectors are now being recognized for what they are: a gimmick.
In the case of Musk in particular, there are historical parallels to be drawn with legendary entrepreneurs from the past, such as Henry Ford. Just as Ford transformed the automobile from a luxury item into a product owned by the majority of households, Musk popularized the electric car. Ford didn’t invent the assembly line, but in the early 20th century he discovered its enormous potential for the mass-production of cars and turned the automobile industry into a lynchpin of modernization itself.
Politically, the founder espoused a paternalistic worldview with anti-Semitic tendencies. In the 1930s, Ford’s reactionary views even led him to sympathize with the Nazis. His attempt to forge a political career of his own ended in failure.
Henry Ford Looking at V-8 engine
What Bill Gates needed
The multibillionaire – in today’s money his fortune would have stood at around $200 billion – was a highly controversial figure. After 1945 his company got into financial difficulties again and again. But Ford Motors has remained an important player in the automobile industry.
Ford is not the only famous entrepreneur to cut a controversial figure – we can also look to oil magnate John D. Rockefeller. He was one of the first people to recognize the important role that oil would play in the global economy – and built an entire empire out of it. Thanks to industrialization, the company he founded (Standard Oil) grew to be the largest conglomerate in the United States.
You won’t find the name Rockefeller on the list of the world’s 500 richest people.
Eventually concerns that Rockefeller was gaining a monopoly on the oil market led to the introduction of modern antitrust legislation. In 1911 Rockefeller’s opponents finally won a victory in court: Standard Oil was broken up into 34 independent companies. One of the businesses descended from these, ExxonMobil, is now once again one of the largest companies in the world. But you won’t find the name Rockefeller on the list of the world’s 500 richest people.
A similar dispute played out around 100 years later, this time in the software industry. The genius in question, who was one of the first to recognize the importance of the emerging software technology, was Bill Gates, founder of Microsoft. Although he didn’t invent the operating system, he recognized the immense potential of computers, and negotiated licensing agreements that by the turn of the millennium meant that more than 90% of computers ran on Microsoft software.
The U.S .government filed an antitrust case against Microsoft, which in the end the company only just managed to head off with a settlement. In a different way than Musk, Gates was a difficult character. His short temper had to be balanced out by his more level-headed partner Paul Allen. At Microsoft’s competitor Apple, the easy-going Steve Wozniak played a similar role alongside the eccentric visionary Steve Jobs.
The Genius and his Yes Men
Founders who lack this counterweight can run into difficulties: “Successful visionaries automatically run into a problem, when they no longer have anyone daring to contradict them," says Mario Herger, author and tech trend researcher. "Success means the ‘genius’ becomes surrounded by more and more yes-men.”
Founders can walk away with grace.
The danger is that criticism no longer gets through: “If they then start to fire people who disagree with them,” says Herger, “this sends a clear signal to the rest of their team that they don’t want to hear any bad news or criticism.” This is a real risk for Musk and Zuckerberg.
The example of Microsoft shows that founders can walk away with grace. Eight years after Gates stepped down as chairman in 2014, Microsoft is still one of the largest tech companies in the world. Since then the value of its shares has increased almost tenfold. Sometimes life can turn out to be fair, for founders and shareholders alike.
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