During one of my random browsing through the internet on my mobile device, I came across an interesting set of laws – the basic laws of human stupidity. Yes, you read it right, stupidity. By Carlo M. Cipolla (read the original article here), an Italian-born former professor emeritus of economic history at University of California Berkeley. This is simply genius. This post is to help you find how these laws apply to the start-up ecosystem of today. Read on.
The five laws
Let us first understand the five laws. The first law states:
Always and inevitably everyone underestimates the number of stupid individuals in circulation.
They are everywhere and appear suddenly and unexpectedly. Any attempt at quantifying the numbers would be an underestimation.
The second law states:
The probability that a certain person be stupid is independent of any other characteristic of that person.
There is serious diversity at act here. No race, gender, educational attainment, physical characteristics, psychological traits, or even lineage can explain the incidence of stupidity in a person. He says a stupid man is born stupid by providence, and in this regards, nature has outdone herself.
The third law is also labelled a golden law, and presents itself into a neat 2X2 matrix. It states:
A stupid person is a person who causes losses to another person or to a group of persons while himself deriving no gain and even possibly incurring losses.
This law classifies people in this world into four categories – the helpless, intelligent, the bandit, and the stupid. Organized on the two axes of gains for self and others, the helpless is fooled by others who gain at his expense; the intelligent creates value for himself as well as others; the bandit gains at the expense of others; whereas the stupid loses himself in the process of destroying others’ value.
While the actions of others are justifiable, it is the actions of the stupid that are so difficult to defend – no one can explain why he behaved that way.
While it is possible that people may behave intelligent one day, bandit another day, and helpless in another place and context; stupid people are remarkably consistent – they are stupid, irrespective. No rationality at all – just pure consistent. And that makes stupidity extremely potent and dangerous. For the simple reason that you cannot erect a rational defence against a stupid attack, as it comes as a surprise, and more importantly, there is no rational cause for the attack in the first place.
Which leads us to the fourth law, which states:
Non-stupid people always underestimate the damaging power of stupid individuals. In particular non-stupid people constantly forget that at all times and places and under any circumstances to deal and/or associate with stupid people always turns out to be a costly mistake.
Even intelligent people and bandits (who are rational) underestimate the probability of occurrence of stupid people, are genuinely surprised by the stupid attacks, and are at a loss to defend themselves effectively against stupidity. Given the inherent unpredictability of stupidity, it is both difficult to understand in the first place, and any attempts at defending against it may itself provide the stupid people with more opportunity to exercise his gifts!
Which leads to the fifth law, which states:
A stupid person is the most dangerous type of person.
And by corollary,
A stupid person is more dangerous than a bandit.
The danger of stupidity cannot be sufficiently understated than this law. Given the irrationality of stupidity, and the costs associated with stupid behaviour, a stupid person is far more dangerous than any other type of person. An intelligent person adds value to society, a helpless fool may transfer value from himself to others, a bandit may transfer value from others to himself; but the stupid erodes value to the society by executing a lose-lose strategy. There could be bandits who might border the stupid (someone who can kill a person for stealing $50 – the value they gain is lower than the value you lose; but the $50 for them is as valuable as life for you). But given the power of stupidity, they can create far more harm than one can even imagine.
The five laws of start-up world stupidity
- Stupid business models are aplenty – they rear their head everywhere, every-time. Irrespective of the context, they are omni-present. No exceptions at all. Do you remember business models like Iridium (by Motorola) and the FreePC experiment? It exists even today … Casper Tucker wonders why he should make his own IP redundant (read here).
- The probability of a stupid business model arising from a developed country, a venture of a large organisation, from the famed Silicon Valley (or Bangalore, Berlin, or Shanghai for that matter) is the same (and high). The start-up graves are littered with corpses of stupidity-induced deaths of both the firms, their investors, customers, and every other stakeholder you can think of. You think sandpaper for shaving or hair-removal is a bad idea, check this out!
- Do I need to tell you the costs of stupidity in the start-up world? I have come across founders who in the first few months of the business taking off, begin talking valuation rather than growth. In the process, they have destroyed value squarely and truly for everyone around them, including themselves. Nothing can match the stupidity of a founder who sacrificed his employment to start-up a firm, acquire customers and force them to make asset-specific investments, make wonderful investor presentations and get a few to invest as angels, PE, or VC; and then instead of worrying about making the business profitable, chase valuation. I surely have mentored a few, and do not want to name them for obvious reasons.
- The fourth law is the trick – stupid people thrive by their ability to surprise you by their conviction. And there are enough people who irrationally believe in them; but even the rational actors are unsure how to respond – till it all dawns on them. How many products listed in this article do you remember?
- And they are just plain dangerous – they can bring the entire ecosystem down. Remember how the Real Value Vaccummizer brought the entire innovative company down (do you know the firm was the first to introduce a portable fire extinguisher by the brand name Cease Fire, which by the way stays a generic name for portable fire extinguishers)?
So, customers and investors, start-up founders and entrepreneurs, students and researchers, and everyone else, beware the stupid.
Cheers!
© 2017. R. Srinivasan
Platform Business Firms 