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Admiring the Problem

Summary:
I had dinner with a friend a couple months back. Harry from Jersey, we’ll call him. He runs a national financial advice business. Unlike most of the other companies in his industry, his is thriving. I wanted to know why. “I banned admiring the problem.” “Come again?” I asked him. “I figured out that we kept banging our heads against the wall on the same problems over and over. We approached them from every direction. We threw all our resources and ideas at describing them. We knew everything there was to know about them. And after we were done admiring the problem, we were no closer to solving them than when we started.” Harry from Jersey’s description of this familiar trope has stuck in my head a bit. Maybe it’s because I’m intimately familiar with the intractable

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Admiring the Problem

I had dinner with a friend a couple months back. Harry from Jersey, we’ll call him. He runs a national financial advice business. Unlike most of the other companies in his industry, his is thriving. I wanted to know why.

“I banned admiring the problem.”

“Come again?” I asked him.

“I figured out that we kept banging our heads against the wall on the same problems over and over. We approached them from every direction. We threw all our resources and ideas at describing them. We knew everything there was to know about them. And after we were done admiring the problem, we were no closer to solving them than when we started.”

Harry from Jersey’s description of this familiar trope has stuck in my head a bit. Maybe it’s because I’m intimately familiar with the intractable problems of wealth management that inspire this kind of obsession. If we can figure out how to really educate our clients correctly, they won’t jump ship when things go bad. If we can find the perfect hire, we can make investment prowess part of our differentiated value proposition. If we can get compensation structure right, or if we can make relationships ‘firm relationships’ instead of ‘broker relationships’ we can mitigate the risk of FAs taking their books with them at the first good offer.

But it isn’t just a financial services problem. Of course it isn’t. Like many of you, I watched the HBO Theranos documentary last night, and there it was again: a beautiful description of admiring the problem.

They were very adamant about the machine being this big. It’s gotta be this big. And I said, We can’t do that. The laws of physics just are not going to permit us to cram all the stuff we’ve decided needs to go in there into this little box. Can the box be bigger?

And a common response at Theranos was something along the lines of, ‘Maybe you’re not a…maybe you’re not a Silicon Valley person. Maybe you should go work for another company if you don’t believe in the vision of the product’. And what would start as a very serious brainstorming meeting would turn into a two-hour conversation about the name of the cloud that’s going to process the information.

Ryan Wistort, R&D at Theranos, from “The Inventor: Out for Blood in Silicon Valley”

I am hesitant to be too cynical about this. The world is better today because men and women yesterday committed to solving problems that seemed to be unsolvable. The world is better today because we collectively settled upon a capitalist system in which solving problems that seemed to be unsolvable is one of the surest paths to fabulous wealth and influence. In some of those cases, the problem seemed unsolvable because we hadn’t even considered trying the only approach that would work. In other cases, the problem seemed unsolvable because we hadn’t devoted enough time, energy and brainpower to understanding what the problem really was in the first place. And yet, it was the common knowledge about the importance – the necessity – of attempting and conquering the impossible that Elizabeth Holmes cultivated as the common knowledge about Theranos. It was this very thing which allowed them to so famously defraud investors, employees and prospective clients. Theranos rose and fell on its unparalleled ability to admire the problem.

As it always seems to be with this sort of thing, only one day later I saw another problem being admired.

Only this time, it wasn’t a problem of business, or a question of commercial innovation. Instead, it came up in the monitors we have been developing to track emerging narratives and common knowledge about both topics and candidates in expectation of the 2020 elections. What was it? The Electoral College. Here is the Quid network graph of the topic since the beginning of this year.

Admiring the Problem
Source: Quid, Epsilon Theory

The Electoral College and a National Popular Vote are drawing a surprising amount of media attention. They are also being increasingly attached to discussions of Democratic Party attempts to recapture “white, blue collar voters” and to appeal to populism. It’s early in the connection of these narratives, but I’m not going out on a limb to make this prediction: Within the next year, the narrative that “Donald Trump and Republicans don’t want your vote to count” will emerge as a primary plank in the left’s platform to combat Trump’s nationalist/populist electoral strategy. Probably simultaneously, a counter-narrative of “The Democrats are trying to steal an election by taking away the votes of everyday Americans in small towns” will emerge.

There’s just one thing: Nothing is going to happen to the Electoral College. Nothing. And every single one of these people knows it.

Neither of these narratives is being promoted in good faith. I don’t say that because the people promoting them don’t believe that these things should happen. I think they do. I think Elizabeth Warren really, truly believes that it is an unfair, disenfranchising system that should change. I think the conservatives in the WSJ opinion pages, the National Review and elsewhere really, truly believe that it is an important part of preventing federal encroachment on the unenumerated rights of the people and the several states that should be retained. And for all those shoulds, they all know what will happen: nothing. And yet here we are. Why?

Because admiring the unsolvable problem is one of the missionary’s most powerful tools.

This isn’t rocket science. The oldest game in sales (ok, maybe the second oldest) is to find your customer’s biggest problem and tell them that you have a solution. This is a good business when that problem has a solution, but it’s a great business when it doesn’t. There’s a reason people continued to buy high fee long/short funds that were little more than obscenely expensive beta. They had an unsolvable problem. They had to do something. There’s a reason all those wealth management companies hire consultants and promote executives who have a ‘new’ way of thinking about those old business model flaws that have always existed. There’s a reason Theranos was able to raise the kind of money it did, retain the kind of professionals they did, and develop the reputation it did. There’s a reason we’re going to hear about “The Electoral College” from both sides for the next 18 months.

There is still a needle to thread through all of this: How do we draw the line between the missionaries, salesmen and charlatans who want to extract rents from us by finding new ways of admiring the problem, and the visionaries who are earnestly seeking feasible alternative solutions?

I have no idea.

That’s not right. I have an idea, but I am still struggling with it. Still, these questions are the best ones I’ve found to help me sort through this problem when I see it in the wild:

Is the person/company/employee/author/politician earnestly seeking a solution to the problem? Or is the person extracting value from the common knowledge about the importance of the problem by doing nothing but finding new ways to describe it?

When Harry from Jersey banned admiring the problem, he didn’t mean to just walk away from any problem that looked unsolvable. He meant that you have to draw a line on how much you’re willing to let people milk the problem itself so that they could sell you something. He meant that there’s a certain point where you’ve got to demand that your people or advisers either get to work on exploring feasible solutions, or to move on.

Either way, Harry from Jersey is right. At some point we’ve got to stop admiring the problem.

Rusty Guinn
Executive Vice President of Asset Management, Salient. Rusty Guinn is the executive vice president of asset management at Salient. He oversees Salient’s retail and institutional asset management business, including investment teams, products, and strategy. Rusty shares his perspective and experience as an investor on the Epsilon Theory website.

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