We were thrilled to have acclaimed author Malcolm Gladwell sit down for an interview with Tom Gardner recently. Watch as the two talk about Gladwell's latest book, David and Goliath, and why many people would rather "lose conventionally than run the risk of catastrophic loss unconventionally." The two also chat about disruption, playing to your weaknesses, and how David and Goliath principles play out among some of our favorite companies, including Amazon and Facebook. A full transcript follows the video.
TOM GARDNER:
Okay, so as our Motley Fool Onemembers know, I have my questions on my iPhone in this highly, highly formal setting of Foolishness. By the way, what are the chances that my [00:00:12] slides off the back? That will be entertaining.
This is the David and Goliath of hair. So, I guess I have the unique advantage in this, given the great disadvantage that I have. But Malcolm, what would be great is just to have you start by ... First of all, thank you so much for coming and spending time with us. Just outline the overall premise of the book.
MALCOLM GLADWELL:
Well, I was interested in a book describing in asymmetrical conflicts ... or more generally in this notion of is our understanding of what an advantage is accurate? And that's the theme that runs throughout the whole book. So, if our understanding of what an advantage is, is so accurate, why does the weaker party in a war win as often as it does? Because the weird thing about it, if you look at the history of warfare, is that the "underdog," the much smaller party in any kind of conflict, wins an astonishing number of times, which suggests that maybe we're fixating on the wrong variables in explaining conflict. And then I run with that idea and talk about schools and education and dyslexia and all kinds of entrepreneurialism and all kinds of things along those same lines ... wondering whether our kind of intuitive accounting of these things is accurate.
TOM GARDNER:
What I'd like to do is just spot up some of the characters, some of the narrative of the book so you can just tell maybe a couple of short, little tidbits about each one. So, why don't we start with Vivek and since I'm going to mispronounce names, why don't I have you pronounce the full name.
MALCOLM GLADWELL:
Vivek. Runadiv ...
TOM GARDNER:
Vivek.
MALCOLM GLADWELL:
... who is the guy who founded Tibco, a software company in Silicon Valley. He's sort of the one who got me rolling on this because I ran into him at a conference once, and I really had no idea who he was. This is a problem that I have — that I have very, very poor facial recognition. In fact, parenthetically, I once was at a dinner at some conference. Sat next to a guy who, for the whole dinner— I thought he was a graduate student — and I made him discuss Michigan State basketball with me the entire time. Discovered at the end of the conversation that it was Larry Page. It was almost like, "Did you really get to talk to Larry Page?" It was like, "That was Larry Page? I thought he was a graduate student." So, I'm bad at this.
Anyway, I run into this guy Vivek, and I start talking to him, not realizing that he's the head of Tibco, about his daughter's basketball team. He had just finished coaching his 12-year-old daughter's basketball team, and Vivek being from Mumbai doesn't know the slightest thing about basketball. And so, he went to watch basketball to educate himself on this, and concluded that the way Americans play basketball was utterly insane.
He didn't understand why you retreated after you scored. Why do you run back to your own end and wait for the other team to bring the ball up? I mean, sometimes he will play the full-court press, but his whole point was why wouldn't you press all the time? Particularly for the weaker party — if you're the weaker party, why would you allow the other team, which is better at shooting and passing and scoring than you, to shoot, pass and score more quickly than they would otherwise? Why wouldn't you try and stop them from doing the thing that makes them good?
And particularly when you're talking about 12-year-old girls, you realize that if you play the full-court press with 12-year-old girls, they won't even get the ball inbounds. And furthermore, he realized that his team that his daughter was playing on was a team of girls from Silicon Valley. They were the daughters of people like him. In other words, these were not girls who went home every night and shot baskets. They were girls who went home at night and dreamt about becoming marine biologists. They had no talent whatsoever, basically.
So, he gets these girls together and he says, "Look. I don't know anything about basketball. You have no talent whatsoever. It's pointless for us to shoot, dribble, do anything. What we're going to do is get in insane shape, and I'm going to teach you how to play the most aggressive form of the full-court press." And so, they start winning games by scores like 6-0 and they go all the way to the national championship.
Now, the fascinating thing about that story is that it's the rational strategy if your team sucks. In fact, any team that is a decided underdog in any basketball contest ought to play the full-court press. Even though there's a chance that the other team can break the press, you're going to get blown out. But his point is, "So, what? You're going to lose anyway. Your only chance of actually winning is to do something radical."
So interesting that number one is why, then, do so few underdog teams play the full-court press? Why is there an unwillingness to follow a strategy that is in your best interest? And the answer is because it's hard and because people don't like it. And people didn't like Vivek when he was coaching this team.
TOM GARDNER:
Is it also possible that there's a mind-set that it's better to lose in a conventional way than to get utterly blown out in an unorthodox way?
MALCOLM GLADWELL:
Yes, but that's irrational ...
TOM GARDNER:
Absurd ...
MALCOLM GLADWELL:
It's absurd. But what's interesting with this is it is — we could go on and on and talk about this — but it's a perfect allegory for so many things in the marketplace. That people would rather lose conventionally than run the risk of catastrophic loss unconventionally. They would rather 100%, or a 95% chance of losing unconventionally, than a 40% chance of losing and taking a risk.
TOM GARDNER:
Let's hear about Caroline Sacks.
MALCOLM GLADWELL:
Caroline Sacks was a pseudonym. I got really interested in this literature on what's called relative deprivation. And so the question is if you're choosing a college, do you want to go to the best college you can get into? Everyone says you should. But there's reams and reams and reams of educational data to suggest, actually, that's not a good strategy at all. With some exceptions, you shouldn't go to the best school you can get into.
You should go to the school where your chances of finishing in the top third of your class are greatest. The psychological costs of being at the bottom of any class, particularly if you're in a competitive field like science, math or engineering, are so overwhelming that it's too risky. If you really want to get a science degree, you should go somewhere where you can feel smart.
Caroline Sacks is a girl who was really good at science. Got into Brown. Went, because everyone said that's the best school you should get into. Got to Brown. Dropped out of science, because she looked around at the other brilliant kids in her class and thought she couldn't do it. And realized, belatedly, that she was just in this absurdly elite environment. By any real-world measure, she was good at science, and had she gone to her safety, University of Maryland, she would today have the most valuable commodity in the marketplace ... a science degree. So, that's a case where, again, our obsession with a certain kind of advantage ... in this case, prestige ... completely distorts our rationality.
TOM GARDNER:
David Boies, the well-known lawyer, and his journey to the law.
MALCOLM GLADWELL:
He's dyslexic. He reads, at most, one book a year, and he is America's greatest trial lawyer. When I heard that, I was like, "Whoa!" So, I went and talked to him. I was like, "How do you even get through law school?" I mean, he can read, but really, really slowly. And this fit into this larger theory of if dyslexia is such a terrible problem, then why are such an extraordinarily high percentage of successful entrepreneurs dyslexic?
And the answer is that some portion of dyslexics compensate for their disability in ways that leave them better off. So, Boies said, "I got through school by doing two things. I developed my memory to the point where if you say something, I'll always remember it. Secondly, I learned how to listen." So, in law school, he would sit. No paper, no pen. He'd sit in the front row, focus on the professor, listen to everything the professor said and commit everything the professor said to memory.
He gets into a courtroom. All of a sudden, he's a dynamo. In day four of the cross-examination, he can say to you, "Wait a minute. On day one, you said X, Y, and Z. Now you're contradicting yourself." He's that guy. And that's not something he's born with. It's something he developed as a result of being denied the ability to read fluently.
And you can make the same argument for entrepreneurs — that deprived of the ability to succeed conventionally in school, you are forced to delegate. I must have interviewed 10 very successful dyslexic entrepreneurs. Every single one of them — what do they do in first grade? Identify the smartest kid in the class and make friends with them. Of course! How else are you going to get through school?
They also, by the way, all cheated ... which I didn't go through in my book. But I was actually fascinated by this. Cheating — but it's not cheating. Cheating, most of the time, is where, "I don't want to do the work, so I take a shortcut. I don't really care about school. I have a contempt for it."
These guys care passionately about school, but they can't do it constitutionally. And they care so much that they say, "You know what? I have to stay in school. I am going to come up with strategies that allow me — someone who is constitutionally incapable of reading easily — to continue to flourish." And so, they cheat. At one point, I had a whole chapter on the cheating techniques of successful, dyslexic entrepreneurs, but I left it out.
TOM GARDNER:
Let's hear about Wyatt Walker.
MALCOLM GLADWELL:
Hm. Wyatt Walker, my favorite character in the book. Wyatt Walker is Martin Luther King's shadowy, less-known deputy. He's the fixer. He's brilliant. So, King is like the saint, running the show. Walker's behind the scenes. I wrote a chapter on Birmingham — what happens when King goes to Birmingham to take on Bull Connor — the climactic event of the Civil Rights Movement in 1963.
And the question is, if you have been oppressed for 200 years, what do you learn through that process? What are the lessons — if you're smart and adaptive and resilient — what do you take home from being kicked around for 200 years? And the answer is, you get really, really, really, really clever and you learn how to play tricks.
King, in Birmingham, has nothing. He's got no money. He's at the lowest ebb of his ... He'd just gotten schooled in Albany, Georgia. He's being denounced by everyone, including the black press. He starts to hold marches in Birmingham at the beginning and 12 people show up. Bull Connor is looking at him and laughing. He doesn't even bother to send his cops out after King, because King's so pathetic. And Walker proceeds to play a series of tricks on Bull Connor that have the effect of defeating him. I won't go through all of them, and I'm not going to ruin the chapter for you, but I'll tell you the first one.
They have 12 people marching every day in Birmingham, which is ridiculous. Nothing. One day, they're arguing in the church before they go out on the march and they get delayed. And what happened is that after work, all of the African-Americans who worked in downtown Birmingham would come to 16th Street Baptist Church and just hang out to see what was going on. So, they're delayed until after workers got out.
So, they send their march out with 12 people, and the next day, Walker reads in the press that a thousand people marched in Birmingham, Alabama. He was like, "A thousand? We only had twelve." And he realizes, "Oh, wait a minute." To the reporters, they can't tell the difference (a black person is a black person) between someone who's just a bystander and a marcher. So, he's like, "Oh, duh! We're always going to march after work now!" And so in the press, from then on, it's like, "Twelve hundred people marched yesterday in Birmingham." He was like, "We had a dozen." And everyone is fooled. Even Bull Connor is like, "Whoa. All these ..." And it's hilarious. The story builds from there.
A lot of what people assumed were protesters in Birmingham were always bystanders. Some of the famous photos of the firemen turning the water hoses on protesters were not protesters. Wyatt Walker figured this out. They were bystanders who were really hot (it's Birmingham) who went to the firemen and said, "Turn on your hoses. We're really hot." So, then Wyatt Walker had all the photographers line up, take these photos. Then he said, "Oh, look what they're doing!" This man totally outsmarts Bull Connor. It's just a textbook case of how just because you've got nothing doesn't mean ... It's the same lesson as Vivek. Just because you've got nothing doesn't mean you have to roll over and die. There's all kinds of means available to you.
TOM GARDNER:
Use what you got.
MALCOLM GLADWELL:
You've got to use what you've got.
TOM GARDNER:
Let's close in the narrative section here with your version or your interpretation of the real showdown between David and Goliath.
MALCOLM GLADWELL:
Oh, yes. David — first of all — the sling is one of the most feared weapons in ancient times. It's not a child's story. The rock that goes from David's sling has a stopping power that's equivalent to a bullet from a .38-caliber handgun. When David decided to bring a sling to a sword fight, he's got superior technology. He's not messing around here. He knows exactly what he's doing.
Second, Goliath probably had something called acromegaly, which is a condition where there's a tumor on your pituitary gland, and so your pituitary overproduces human growth hormone. And many of the great giants in history had acromegaly. André the Giant — the great wrestler — acromegaly. Tallest man in history — a guy named Robert Wadlow — had acromegaly. He was 7'11", I think. Acromegaly makes you really, really big and tall. It also comes with a side effect that the tumor starts to compress the optic nerves and radically diminish your vision.
And if you read the biblical story of Goliath very closely, it's clear the guy can't see. He's led onto the valley floor, much more than this, by an attendant. He's the mightiest warrior in Palestine and he has to have a boy lead him by the hand to the battlefield. And then there's this whole thing about it takes him forever to figure out where David is and what David is doing — because David comes down from the mountain and doesn't have a sword. Doesn't have a shield. Isn't wearing armor. Duh! He does not intend to fight you in a sword fight. Why does Goliath take forever to respond to this? Because he can't see him.
So, here you have a kid who is really fast moving, nimble, has superior technology. Has changed the rules of the conflict without telling his opponent and his opponent is largely blind. That is not the story of an underdog. David holds all the cards, properly understood. And that's a beautiful example of how the stories we tell about advantages are just so screwy. Why do we worship size, for example, in all forms? Not just in warriors, but also in companies? We have this obsession. If something is big, it must also then be ferocious and a terrifying opponent. Wrong, wrong, wrong, wrong, wrong. And that's the lesson of the original story.
TOM GARDNER:
What I want to do now is search for patterns in your work, in the book, that might overlay nicely to looking for disruptive, smaller companies that might succeed — when we make the assumption that Microsoft will, of course, squash every business that gets in its competitive space 15 years ago and that doesn't end up happening. Or we assume that Apple must win because Apple is of the size and scope that it is today. So, we're going to look for more disruptive companies, smaller companies and see if these principles help us find them. Number one would be occupy a spot off the beaten path. So, maybe the story of the Impressionists and the Salon.
MALCOLM GLADWELL:
The Impressionists are a really interesting group. They come along at a time in the art world in Paris, France, where there was something called the Salon, which was the big art show every year. What every artist did was they competed to get accepted into the Salon. And the Salon was very conservative. It had very strict ideas about what was an acceptable painting.
The Impressionists were doing something radical, and they faced this choice. Should they try and get their paintings into the Salon — which would mean they would have to dumb them down and make them more conventional — or should they go off on their own, and give up all of that prestige and do their own thing. And they decide to give up on the Salon and do their own thing. They start their own little show — which in the beginning no one goes to — which is just in a little upstairs in some little room. And that ends up being the greatest thing they ever did, because they privileged the freedom to do what they wanted over conforming to, as it turned out, a dying set of standards about what art represented.
And that, you know, is a tried and true principle for revolutionaries — that before you can challenge the status quo, you need to leave the status quo. You need to find a safe haven where you can pursue what you think is the right answer free of the deadening constraints of conventional thinking.
TOM GARDNER:
Warren Buffett, Omaha, Nebraska. Leaving New York. Unable to get a job, in a way, in New York City and goes off to Omaha where he can carve his own space out. A little bit of the Ikea story in Poland.
MALCOLM GLADWELL:
Oh, yes. I love that story. Yes. Ingvar Kamprad who has this brilliant idea, which is if you make furniture and don't assemble it, you can ship it flat. You can save on assembly, save on shipping and sell it for much less. And then he gets shut down in the late '50s by his competitors. He's basically blacklisted in Sweden and facing bankruptcy — and he has this second great idea which is Poland, across the Baltic Sea. Really, really cheap labor. Lots of trees. And Ikea is ...
TOM GARDNER:
And Communism.
MALCOLM GLADWELL:
And Communism. He's able to pull it off. It's an extraordinary story of how he manages to build his first plant in Poland, because it wasn't easy to build a modern manufacturing facility in Communist Poland in 1961. And also, it's the height of the Cold War, and he goes to the enemy. It's like going to North Korea today, essentially. It's the same thing. But he is so convinced of his vision and of his business model that he's willing to thumb his nose at everyone and leave the country where he came of age. He's never really gone back.
TOM GARDNER:
So, we're outside the status quo and we turn for expert advice, and I want just a little riff on that in the form of Roger Craig, San Francisco 49ers running back and his sister. So, in other words, Vivek is outside the status quo, but he probably couldn't have pulled that all off by himself without turning to one of his employees.
MALCOLM GLADWELL:
Yes. Going back to the story of Vivek and his girls' basketball team, it turns out that Roger Craig works for Vivek and Roger Craig's daughter was an all-American basketball player at Duke. So, he recognized the fact that he only really knew cricket and basketball was a little bit of a foreign thing.
Craig's very interesting, actually, as an advisor, because the whole theme of Vivek's basketball experiment was to substitute effort for skill. And his argument, I think, is a very accurate argument ... that in many domains effort properly expressed is an adequate substitute for skill. More than an adequate substitute for skill.
And if you know about Roger Craig's career — that's his whole M.O. He's an effort guy — he's also a very skilled guy — but the thing that set him apart was an extraordinary work ethic. Roger Craig has run seven marathons since retiring as an NFL running back. Most NFL running backs can't walk after they retire. So, he knew what he was doing, in other words. He was bringing people who reinforced this really central notion which is that if you're willing to really work, that can make up for a lot of deficiencies.
TOM GARDNER:
So, third factor. You don't overplay your greatest strength. I phrased it that way from your discussion of the inverted-U curve. Maybe explain that concept. Should a David, even though he has a strength, not think about overdoing it or is he still on this side of the U curve and should be anchoring hard on his strength as far as he can take it.
MALCOLM GLADWELL:
The inverted U is a chapter where I talk about how I think one of the mental models we use to describe relationships between resources and outputs really leads us astray. We have this notion that if a little bit of resources (money) makes the problem better, then a lot of money will make the problem best of all go away the most. And the answer is no. In most situations where we look at relationships between what you put in and what you get out, the curve does not look like that. The curve looks like that or the curve looks like a U. That in the beginning, things get better, and then they flatten out, and then they get worse.
I use the example of class size. It is absolutely the case that if classes are very large and you make them smaller, kids will do better. But then there's a long stretch between probably the high 20s and the low 20s where you can make a class smaller and you will see no effect on kids' performance. And if you go too far below 20, kids are worse off. There's really interesting, compelling evidence of this — that it is not a good thing for a child to be in a class with 14 other students.
One, you cannot get a discussion going with 14. Not enough voices in the room. Two, one bad apple can totally ruin a small class, because there's nowhere for that person to hide. And thirdly, children who are struggling ... what they need most of all is not more attention from the teacher. What they need most of all is another person appear who is learning at the same pace as they are so they don't feel marginal and isolated. You need to have someone who's asking the same questions, struggling with the same problems. If a class gets too small, the struggling kids are just wiped out.
And that's a lesson that is so routinely violated. I made fun of expensive, private schools in my book because, I'm sorry ... they deserve it. They take $50,000 of your money and they boast to you that your kid is in a class with 12 other students. Whoever said that's a good thing? All they're doing is justifying the fact that they took $50,000 of your money.
TOM GARDNER:
And they have 20 Steinway pianos. That was the Hotchkiss School where you, I thought brilliantly, pointed out that a school like that is often serving its primary customer, which is the parent ... not actually the outcome for the student. It's to impress the parent that we have the very best of every piece of equipment times ten.
MALCOLM GLADWELL:
And by the way, where it is written ... I even find the whole notion that the point of a classroom is to maximize the attention that a student gets from a teacher insane. A student has to go through extended periods where they are forced to solve the problem in front of them by themselves. That's called life, right? The teacher should be there for when you are truly stuck and also should be there to get you to the point where you can solve it on your own. It is not a good thing to have the teacher hovering over your shoulder at all times. That's debilitating. We start to make the mistake where we push our use of resources well past the point where they are useful.
TOM GARDNER:
There's a business writer named Les McKeown, and he was the first person to make me see that a company with too much cash — that can be a weakness ...
MALCOLM GLADWELL:
Oh, yes ...
TOM GARDNER:
... because of course, as an investor, you're thinking, "Well, at least I know they've got this huge safety net of billions and billions of cash set aside." But in fact, one of the lines from the book — "shirtsleeves to shirtsleeves in a few generations" — having too much money actually can create a lot of problems and bad incentives inside that system.
MALCOLM GLADWELL:
I think this is at the heart of the R&D drought in big pharma. I think that they have overspent on R&D. If you look at it, it's really fascinating. So, we know, looking over the last 25 years, that the bulk of innovation in the pharmaceutical arena has come from smaller biotech companies who are spending, over the course of developing their products, a fraction of what the big companies are spending.
And the reaction of big pharma to that problem is to spend even more money as opposed to asking, "Does having virtually unlimited resources available for R&D change the nature of the questions you ask and change the nature of the strategies you pursue and change the nature of what you consider to be a worthwhile product?" I think that a lot more time should be spent on wondering whether they have gone too far.
TOM GARDNER:
One last David principle that we might apply to looking at leaders and companies — they truly have nothing to lose.
MALCOLM GLADWELL:
Yes. I'm always really interested by the difference in the strategies that you pursue when you are in a position of relative strength and when you are in a position of weakness — and there is a marked difference. We know that. We all know that intuitively — that when our back's to the wall, we consider a wider range of options than when we are in a comfortable position. And that's what we all know — that a cornered rat is a very, very dangerous opponent — not that struggling companies are rats.
But it's the mistake that the United States makes in Vietnam. It's a mistake we're making now in Afghanistan. We underestimate our opponent because we see that our opponent is relatively impoverished — forgetting that, that very state of relative impoverishment gives our opponent a huge source of strength.
TOM GARDNER:
Is it true that every Goliath was once a David?
MALCOLM GLADWELL:
Not everyone. In New York City, there are lots of Goliaths who are born Goliaths and will no doubt die Goliaths. No, but the most interesting trajectory is when people or companies go from one state to the next ... and the question is can you continue to embody the David values, even as you become Goliath?
On my book tour, I went to Microsoft, and I hadn't been to the Microsoft campus in Seattle for maybe seven or eight years. And I don't know how it's possible, but it's gotten even bigger. And this is not a good thing. I mean, it's like a huge city, now. Are there any vestiges that remain of that really hungry, nimble, innovative company of 20 years ago? So, it is a constant problem — the act of becoming successful undermines the very reasons why you became successful.
TOM GARDNER:
I wonder. What do you think the principles of a great Goliath are? I mean, I can guess one of them has something to do with empathy in the context of the story you tell about Belfast in 1972 and the use of police and power and the assumptions of what would work and what, instead, worked. Maybe through that story or any other examples — what makes for a smart Goliath?
MALCOLM GLADWELL:
Well, one of the things I've been thinking a lot about recently is that when companies become large, one of the things they need to do is to use their size and strength to become more tolerant of dissent, confusion, argument. To back off, in a certain sense. I always remember this. I used to work, many years ago, at the Washington Post in its heyday when it really was Goliath. There was a reporter there named Michael Isikoff. He's still around. One of the single, greatest investigative reporters of my generation. I mean, a legend. And also, I like Michael. A deeply obnoxious guy. But the point was he was a great investigative reporter because he's obnoxious. He's a pit bull. Doesn't take no for an answer.
And I remember that at a certain point that editors at the Washington Post got fed up with him and got rid of him. That is absurd. The whole point of being at the Washington Post, and having tons and tons of resources in a vast newsroom is that you ought to be able to find room for that kind of character. And that requires more work from management — dealing with someone who's difficult and who yells at you when you mess with his stories, and who goes off in quixotic things and disappears for a while. It's more headaches, right? It makes your life more complicated. But you have to understand — that is the price you pay for remaining on the cutting edge — is you have to deal with that.
Now, it's easy if you're a small company to deal with that because everything's chaotic, and you realize, "We have no choice. We have to be this way." When you're large, you fall into the trap of thinking, "I can make everything run smoothly now. I can have layers of comfortable management. We can all do things by the book." As opposed to saying, "No, no, no. You have to continue to find ways to shake it up — to have a kind of disputatious culture."
I write for Grantland, sometimes, the ESPN ... And Grantland's in L.A. and ESPN is, of course, in Bristol, Connecticut. And nothing makes me happier than when I read in some blog about how the guys in L.A. are denouncing the guys in Bristol. I just think that's why ESPN remains interesting and vital and important — because they argue, and they argue in public and they don't care. They're fine with having a public image as a company that is in a state of semi-turmoil.
TOM GARDNER:
A Goliath that's open to dissent ...
MALCOLM GLADWELL:
Is, I think, a Goliath that can stave off the worst parts of bigness.
TOM GARDNER:
And a Goliath that has a smooth tempo — total convention, marches in a line, everyone has a job description, EVP of this, everyone's got a role — you would prefer to bet on the seemingly weaker, smaller, chaotic, disruptive, niche-dominating opponent in their marketplace.
MALCOLM GLADWELL:
I've become more and more convinced, particularly from writing this book, but also just from my experience in this, that company culture is the hardest thing to quantify but the most important predictor of where a company is headed. And spending a lot of time in a large room of people from an organization gives you, I think, really valuable insights into how that company works and how it innovates. If you have that feeling that people have turned down the volume in their brain — then you know that there's trouble.
TOM GARDNER:
I want to talk about the leaders that set up cultures and throw three adjectives at you from the book. Maybe I'm slightly tweaking the wording, but open-minded, persistent and disagreeable. Why are those three important to find in a great leader?
MALCOLM GLADWELL:
Some wonderful work has been done on innovators, recently, and they looked at what is the prototypical profile of an entrepreneur/innovator/leader. The most obvious one is that they are open, meaning they are creative — and that goes without saying. You have to be someone who considers all. The second thing is that you must be conscientious — in the psychological sense of that word — so there are five basic character traits. Conscientiousness is one of them. Are you someone who can follow through on your ideas?
Now, right away we have an interesting situation, here, because there are lots of people who are open and there are lots of people who are conscientious. Those that have both those traits are rare. I can find in any coffee shop in Brooklyn lot and lots and lots and lots of creative people who can't finish their screenplay. I can also find in any law firm in America tons and tons of conscientious people who we don't want to think outside the box. We want them inside the box. They're not creative. But that overlap is rare.
Then add the third, the most important one, which is disagreeable, which is you cannot be someone who requires the approval of others in order to do what you intend to do. That's crucial and that's the hardest of the three because we're hardwired as human beings to want the approval of our peers.
I always remember when I was writing my book, Blink, I hung out with that guy who studied marriages. He was talking about the one emotion that a marriage cannot survive in the face of — contempt — because contempt is the emotion of exclusion. If your spouse argues with you, they are including you. They are saying, "I care about you enough to want to work this out." When they are contemptuous toward you, they are saying, "I'm done with you." And as human beings, we need that kind of approval so much that, that can end a marriage.
Well, the really great entrepreneurs, at some key moment, or innovators or leaders at some key moment ... as they are putting forth their vision ... need to be disagreeable. They need to not need that kind of approval — because the one thing we know is that there's always a moment in the birth of any great idea when the consensus is it's crazy. Find me a transformative idea that was not denounced and criticized at some key moment during its gestation. So, you've got to be that person who can stand up to — Kamprad is one of those people. He goes to Poland in 1961. He's denounced as a traitor and he doesn't care. And that's why Ikea exists. If Kamprad is normal — if he's like me — he whimpers and goes back to Sweden and is probably running a small real estate practice right now in Gothenburg.
TOM GARDNER:
Where do you see yourself in the continuum of David to Goliath, to the extent that they can both be put on a continuum? Where do you see yourself professionally? Where do you see your journey? Where do you see elements of the David qualities having shown up in the work you're doing?
MALCOLM GLADWELL:
Well, you know, I was clearly once David. What I used to do, as a young journalist, is what all young journalists do, is I used to write long, angry, vicious takedowns of prominent, successful journalists who I considered to be Goliaths and therefore worthy of my disdain. Now, of course, I'm Goliath, and what happens? Young journalists write long, lengthy, vicious takedowns of me. And I always read them and I just think, "I have become everything I once despised."
TOM GARDNER:
And as that person, are you an investor and how do you invest?
MALCOLM GLADWELL:
Well, my father, who is a very smart man, has many great qualities, but the one that I have learned the most from is that my father is intellectually humble and it's expressed in the following way. When he meets someone, he makes an immediate assessment of whether in the domain that they're going to be talking about, does this person know more than me or less than me? If the person knows even a little bit more, my father totally defers, which is a lovely trait.
So, here's a guy with a PhD in applied mathematics, and I have seen him deep in conversation with our Mennonite farmer neighbor who has a fifth-grade education. He has that element of humility. Anyway, he taught me this. So, when it comes to investing, my basic position is identify someone who knows more than me and just do whatever ... So, I have someone who manages ...
But, for fun, I have a little Schwab account and I play with it. And it has the wonderful effect of reinforcing that humility ... because try as I might, I cannot beat the market, even though I have a series of what I consider to be brilliant ideas.
TOM GARDNER:
What is your most recent brilliant idea in the form of an option trade?
MALCOLM GLADWELL:
Well, I was just telling you this. I had this whimsical notion. So, if I were to found an investment company, I would call it Stopped Clock Investments, because I have been right twice in my life, like the stopped clock. Once was — and I'm boasting now — I went all cash in 2007. And the second was, in a very minor way, in the beginning of January, I bought protection for my portfolio ...
TOM GARDNER:
Right now — just this month.
MALCOLM GLADWELL:
Right now. From January 1 to April, if the market goes down 10% or more, I'm in the money, I guess. Is that what the phrase is? But as I was saying to you, I only did it because I wanted to know what it felt like to short something, because I've always been fascinated by short sellers.
And I had done this big piece years ago on Nassim Taleb as he described the torture of betting on catastrophe. I was just fascinated by that, so I wanted to feel like it. What was it like? So, I bought my little option and then the market goes drrr for a couple of days. I had this initial surge of elation because my option has suddenly soared in value, and then I feel gross. And now I'm not sure I ever want to do it again. I don't know.
There's a reason why someone like Warren Buffett is so much more appealing than a short seller — not that he's a better person, necessarily — but what he's doing seems so much more consistent with how we want to think as human beings. Or at least a better way of saying it is, it's so much easier to think his way than that the things might fall apart.
TOM GARDNER:
And the mathematics really support that because in a short you can make 100% ...
MALCOLM GLADWELL:
Yes...
TOM GARDNER:
... but if you buy Netflix at $25 and it's at $350 a share, you've ended up making a multiple on your money. I want to throw out just a couple of company names for you and see if you have any reflections on them — David, Goliath, or any observation. Let's start with Google. Is Google a Goliath that welcomes dissent and is demonstrating some of the great qualities of how to be beloved?
MALCOLM GLADWELL:
Well, I don't know. That's a good question. It once was. I don't know enough about the kind of internal culture to know whether that spirit of giving people time to work on their own thing — that whole kind of thing that was so part of the original culture — whether that's still a powerful element. I'm also really curious to see how it manages that transition where you had that early stage where everyone's a millionaire and then that stage where the newcomers aren't millionaires in the same way — and I wonder how that changes the level of excitement in the company. It would be hard to believe they would feel the same as they did 10 years ago.
TOM GARDNER:
How about Apple?
MALCOLM GLADWELL:
Well, I've never been a huge Applite. This has nothing to do with the company. It has to do with a product, although it may reflect ultimately in the company. I like to work in coffee shops. Sometimes I get on my bicycle, I go into Brooklyn and I work in one of those hipster coffee shops. You walk into the hipster coffee shop where everyone there is doing something radical and edgy and interesting. They're in bands. They've done several apps. They have whatever — the cool things they do. And every single one of them has exactly the same Macbook Air and exactly the same iPhone. And if you talk to them, you would discover that their parents also have the same laptop and the same ...
And I just think, "In my day, if you considered yourself rebellious, you made a conscious choice to make rebellious choices, different choices in your personal ..." The badge of your rebellion was the objects you surrounded yourself with. Today's young consumer doesn't feel the same way. They're fine with all having the same phone, and I just find that weird.
And so, the business model of Apple is based on this very, very curious psychological and sociological fact that you can carve out a "rebellious premium position" for your product, even though you are ubiquitous. Has that happened before? I find that weird.
TOM GARDNER:
The Smurfs maybe was the closest.
MALCOLM GLADWELL:
Yes.
TOM GARDNER:
Two more companies, and then we're going to turn it out for some questions. What about Amazon? What are your thoughts? They're helping to sell a lot of your books?
MALCOLM GLADWELL:
Yes.
TOM GARDNER:
You're helping to bring a lot of people to their site.
MALCOLM GLADWELL:
Yes ...
TOM GARDNER:
To buy your books.
MALCOLM GLADWELL:
No, and I am a huge Amazon customer. My favorite line about Amazon is that they are engaged in "postal arbitrage." I can't get over how ingenious that is. I have never owned the stock. I'm curious to know what will happen if they ever attempt to make money. I don't know.
The one serious question I have is this. I don't understand how long the physical distribution model that they have — how long you can maintain that kind of hegemony. It strikes me as being more vulnerable than it looks for a number of reasons, but the notion now that when I'm wanting to buy something real or virtual, my default mode is Amazon ... that strikes me as something that may not be sustainable.
In other words, I feel like we are in the same kind of trajectory that we went through with the department store and the specialty store. That in the beginning, when that whole notion of modern retail was new, you had one stop. You went to the one big building where everything was all there. And then over time, what happened? That all got disaggregated and the department store went into decline and we were comfortable with the fact that I will go to this little place for my shoes and this little place ...
And I think that something very similar may happen down the road to Amazon. In other words, as much as I am in awe of where they are now, I confess to being a little bit uncertain about where they'll be ten years from now.
TOM GARDNER:
Last company — Facebook. And do you think they're a David or a Goliath right now? And any other impressions of Facebook?
MALCOLM GLADWELL:
I feel similarly about Facebook as I do about Amazon. When I go to L.A., I always stay with this friend of mine, and he has three teenage daughters. Now, they're scarcely representative and it's a sample of three, but their attitudes toward social media are really interesting and I'm sure any of you who have teenagers see the same thing. They're on Facebook, but their level of enthusiasm for it is quite low. It's not where the action is for them.
I'd be concerned if I was Facebook, by that, because I think in order to be something that is a commercial enterprise as opposed to a social utility ... I'm quite convinced it's going to be a social utility for a long time. But in order to be a commercial enterprise that actually generates a lot of money, you have to have a certain amount of cultural excitement around you — but it has to matter what is on your Facebook wall. Someone's got to realize they've got to go and check it out.
Now when the action's moved elsewhere ... Like, when I observed these three teenage daughters of my friend, they're just Snapchatting all day long. The excitement is somewhere else, now. Now, where I could be wrong is maybe there's more money in being a simple utility than I imagine. But I don't know. I think that they think that their future lies with something that is culturally exciting and I'm suspicious.
TOM GARDNER:
What's your time in the 1500 meter now? Because I know you were a competitive and successful runner ...
MALCOLM GLADWELL:
I'm fifty. Let's be clear. I ran a five-minute mile at the Fifth Avenue Mile last year.
TOM GARDNER:
Wow. (Applause)
MALCOLM GLADWELL:
The first time I get a sign of genuine support and emotion from the crowd is when I mention ...
TOM GARDNER:
In the back, first.
MALE:
I'd like to ask both of you about the future. How do you look at things in the future? If you look at our society, the only thing to point to that was successful as a future prediction is the Dick Tracy wristwatch. And I remember being at a conference in the 1980s called Network Supercomputing. It was in Research Triangle Park and this guy had the only viewgraph I ever remembered. We had the head of the postal service, the Postmaster General, saying the Pony Express would never be successful. We had the head of the Pony Express saying the telegraph would never be successful. The head of the telegraph saying that telephones wouldn't be, radio, TV, right down the line.
So, the one thing I learned from that viewgraph is the worst place to go for finding out where the industry is going or the future is, is by going to the people who are in the industry now. So, I'd just to hear from both of you where you go to find out about the future?
MALCOLM GLADWELL:
Well, I totally agree with you that this is the most difficult of all. I think the answer is to stop worrying so much about the future. It's pointless. Aside from relatively short-term things that you can plan for, it just makes no sense to worry about what's going to happen five years from now and to give any kind of long-term ... All you can do is to commit to processes that are predictable — but I don't think you can have any clear sense of where you're going to be. It's a fool's game.
TOM GARDNER:
It is a Fool's game. Honestly, I go to my brother's work and his teams, and I'll identify a few factors; but, of course, these are generalizations and these are only a few factors. But you all have studied and read the work that David's doing and I'm not going to pretend to speak for him, so I'll just put them in the context of how I think about it.
One of them is high-sales growth rates of small companies are some indication of future demand. Obviously, that demand can fall off the side of the table, but many of the great companies over the last 20 years that have been great investments — we've talked about Whole Foods, Starbucks, Apple, Google, Microsoft, LinkedIn — if you look at the early stages after their IPO, their sales growth rates are very high. They're not growing sales at 12% or 18%. They're growing their sales at 40% or 60% and obviously that's going to decelerate over time. But if you look at smaller companies with high sales growth rates, you'll get some indication of the future.
And then, I think it's a good idea to find a founder CEO, because in a way, that's the David who is putting his or her life into that entity. Of course, you're going to get that wrong, sometimes. Sometimes they are only there for a short period of time — then they're going to cash out or they're fraudulent and they're running the company like a piggy bank or they're just incompetent and they happen to be the founder so they're in a power position, but they're not very competent. But against that, you will find enough huge success stories like Jeff Bezos at Amazon, early on as David found. So, I think high sales growth rate and a founder is a good starting point for where the world's going.
MALE:
Reflecting on how you think that Goliath is broken, what's your take on Jeff Bezos buying the Washington Post? Is it a good thing, a bad thing or does it really not matter?
MALCOLM GLADWELL:
Well, it's a good thing if you work at the Washington Post. He bought it for so little that it's not like it's a great financial risk one way or the other. I'm very, very curious to see what his tolerance for losing money is, because I think in the short term, particularly as he tries to expand the editorial base of it ...
The one thing I don't know that any of us knows is whether he has a grander strategy behind that acquisition. I suspect that someone as smart as he is does — that there's something interesting he wants to do with that, and that's why I look on this purchase with a certain amount of excitement.
The news business is really, really interesting. I think it's in this period of transition which is the demand and the need for news has never been higher. More people read the New York Times today than at any point in the New York Times's history. You can express it any way you want — as a percent of population, as a total number. There is no question that some of these media portals have audiences today that dwarf their audiences in their so-called heyday.
It is just simply the case now that in this moment of unparalleled success, the business model has fallen apart. But I don't think that's permanent. I think all that's happening right now is that we are looking for a new way to create a business model behind this insanely successful product. If there's anyone who can figure out that, it's Jeff Bezos. So, I'm really, really, really curious to see what is up his sleeve, and I suspect he does have something interesting up his sleeve.
TOM GARDNER:
We have to close to let you get on your way, but could you just close by sharing a little bit about how we should think about our disadvantages in life? Anyone in the room that sees, "I have this weakness, I have this flaw, I have this thing that's held me back or this shortcoming." Or, "I see it in my child. I see them struggling with this." How should we think about disadvantages?
MALCOLM GLADWELL:
Well, it is a cliché, but as learning opportunities, you can learn by capitalizing on your strengths or you can learn by compensating for your weaknesses. The compensation path is far more difficult, it's far more rare, but it's way more powerful. The things you learn as you are working around or through adversity are lessons that are far more deeply felt than the things you learn because of your strengths.
I chose dyslexia in my book for a reason — because that is just about the most serious impediment you can throw in the path of a child, and the idea that there are lots and lots and lots and lots of really, really successful people who, when faced with that impediment at the age of six and seven, just were undaunted by it and just found another way to go about the business of getting through school and then ultimately through life ... that, to me, is such a beautiful example of how we radically underestimate our ability as human beings to deal with adversity. I think we're much better at it than we think.
TOM GARDNER:
No question. Malcolm Gladwell is a true Fool, and I think we need to get Malcolm in Motley Fool One and give him the service for free so we can help him beat the market. Don't you think we can? So, Malcolm Gladwell, thank you very much.
