The ‘What’ and ‘How’ of Building

Collection of essays and thoughts on Marc Andreessen’s - ‘Its Time to Build’

Marc Andreessen’s Its Time to Build is going to be a seminal essay. Just like his 2011 essay Why Software is eating the world, many will reference this new essay as they make their case to build in to the future. 

There have been numerous responses to this essay by many smart people. In this newsletter, I will piece together some different responses and discussions to highlight varies points of view. Needless to say, this patchwork forms a rough outline of my own response to Marc’s essay.

We will discuss highlights and criticisms of the essay, the role of regulation and institutions, good examples of what to build, challenges with building, and role of venture capital to facilitate building.

The essay begins in the context of the Coronavirus pandemic but touches upon something much bigger — 

You don’t just see this smug complacency, this satisfaction with the status quo and the unwillingness to build, in the pandemic, or in healthcare generally. You see it throughout Western life, and specifically throughout American life.

As I read through various responses to the article through the week, it seems that the following passage resonates with almost everyone, including myself.

The problem is desire. We need to *want* these things. The problem is inertia. We need to want these things more than we want to prevent these things. The problem is regulatory capture. We need to want new companies to build these things, even if incumbents don’t like it, even if only to force the incumbents to build these things. And the problem is will. We need to build these things.

Marc’s call for action —

In fact, I think building is how we reboot the American dream. The things we build in huge quantities, like computers and TVs, drop rapidly in price. The things we don’t, like housing, schools, and hospitals, skyrocket in price. What’s the American dream? The opportunity to have a home of your own, and a family you can provide for. We need to break the rapidly escalating price curves for housing, education, and healthcare, to make sure that every American can realize the dream, and the only way to do that is to build.

Almost everyone (that I read and listen to) agrees with the spirit of the essay. We need to build our way out of the biggest issues facing us here in America, and the world writ-large. The main critique that many express is that Marc does not provide much in the way of how to go about building. What must we (as an individual or society) do in order to build?

But first on critic, critique and criticism itself by Noah Smith and Max Roser:

Having talked about the vice and virtues of criticism, here is a twitter thread that sums up most of the critics fairly well.

Before we explore what and how to build, Jose Luis Ricon presents a pragmatic take on the major impediments that exist today to build. Read his essay On Building to get insights on challenges with regard to building to resolve big issues such as housing, education, healthcare, manufacturing, transportation and more. He writes —

But what should be built. Look at any organization that has been around for a long time. Is it a law of nature that, as they age, organizations degrade in function and stop making the most efficient use of resources, making their replacement a necessity?

He is all in favor of replacing incumbents by new companies and institutions. He is in vehement support of building new stuff and doing new things that were thought to be impossible before. However, the conversation naturally leads to politics and institutions. He makes a case for building systems and regulations that provide the flexibility to build and try out new ideas in the real world. He also provides examples how the regulations could be structured to create cushion and soft-landing for companies and institutions working under good-faith to be able to make mistakes while sparking innovation and safely bringing new products to market.

Hence what urgently needs building is systems (institutions, regulations) that enable and encourage builders. The quote goes "Build and they will come", but we may say "Regulate wisely and they will build" as well.

However, he leaves open the question of how such systems and instiutions themselves get replaced naturally as they become ineffective and stale.

Schumpeter claimed that the problem of capitalism is not how capital is allocated to existing structures but how structures are created and destroyed. Systems and institutions inevitably get stale or become less effective but also work very hard to survive. 

Bankruptcy takes care of senescent businesses. But how do we get a sufficient replacement rate in systems and institutions that aren't naturally subject to extinction processes?

I do think that Marc understands the role of institutions, government and regulation (or deregulation) in our efforts to build. In fact, I had the following comment prior to reading Jose’s article —

Elaine Ou has an interesting take on regulations and what companies should do about it. Here is one of her reply in response to Naval’s tweets —

Here is another thread from Elaine —

Jerry Brito recognizes the need for better regulations, or more so, deregulations. He writes We Dont Want to Build? Maybe We Should Build Anyway, and invokes Marcus Olson to make the point that —

The result is that “society, acting collectively through its democratic institutions” sends a clear message: “We don’t want these things.”

A stable democracy with the rule of law is a perfect environment for groups to form, grow, and attach themselves to the body politic. Over time interest groups and rules accrete, and after a certain point nations burdened by so much accumulated regulation will become sclerotic and fall into economic decline. And that’s where we are today. That’s why we’re not building.

Marc asks for modest proposals of how to build instead of criticism of his essay. Jerry quotes Elaine as a conclusion to his essay —

“We” didn’t want Uber or Airbnb, but we got them anyway because they were built in spite of regulation, and now “we” can’t live without them. I’m not sure a strategy of civil disobedience scales for other sectors, but a during a pandemic may well be an appropriate time to ask for forgiveness rather than seek permission.

One of the posts I liked a lot was by Shayle Kann — What to build (Climate Edition). Shayle invests in energy-related startups and clearly knows a lot about what it takes to move to a clean energy economy. He refers to the call in Marc’s essay to build nuclear reactors as an easy way to solve the climate crisis. Instead of preaching nuclear power as panacea (while being supportive of it), he lists all of the various things we can build to get us to resolve the climate crisis. I wish that other experts in housing, transportation, education, health care, manufacturing, etc. would provide such a list as well. It really helps put in context what is needed to be practically done in the real world to solve these large issues.

Bilal Zuberi, an investor with Lux Capital, a firm that invests in deep tech companies, writes about How to Build... If its Time to Build. He talks about practical challenges that come with building products and companies that are solving large societal issues. He pleads us to think creatively about hurdles that are associated with deeptech and infrastructure businesses. He discusses lower gross margins, longer sales cycles, complex supply chains, regulatory hurdles, capital intensity and fewer acquirers. All of these challenges I think can eventually be addressed via systemic and creative financing solutions via investors that are interested in building long-term value and large, successful and sustainable businesses.

I want to end this discussion with Ben Thompson’s post — How Tech can Build. He highlights distributed work as a weapon to wield against overbearing regulation because companies can always pick-up-and-leave. He reminds that the possibilities, at least once you let go of the requirement for 90% gross margins, are endless. He asks us to figure our an investing model that is suited to outcomes that have a higher likelihood of success along with a lower upside (as compared to traditional venture capital returns). 

I think this is completely possible to utilize venture capital to respond to Ben’s call. Few venture capital firms do this successfully already. It certainly cannot be all venture capital. There is definitely a role for government and institutions to play to finance basic research, incentivize formation of new companies and finance them through their earliest uncertain times. However, as I said earlier, what is needed are venture capitalists that can recognize diamond-in-the-rough startups chasing tough businesses and help develop a financing strategy that helps the startup achieve its goals. For example, time arbitrage can be key to resolving some of the issues that Bilal mentions and answering Ben’s call for a new investing model.  I wrote about time arbitrage as a venture capital strategy a while ago.

I quote Ben to conclude —

I do believe that It’s Time to Build stands alone: the point is not the details, or the author, but the sentiment. The changes that are necessary in America must go beyond one venture capitalist, or even the entire tech industry. The idea that too much regulation has made tech the only place where innovation is possible is one that must be grappled with, and fixed.

And yet, Andreessen himself said that we need to demand more from one another. We need to figure out how to fix Wisconsin, not flee from it. We need to figure out how to build real businesses that build real things, not virtualize everything. And we need to start fighting for not just infinite upside, but the sort of minute changes in cities, states, and nations that will make it possible to build the future.