Wednesday, May 22, 2019

The Silicon Valley Bullshit Machine

I had a nightmare last night that I was a lawyer...

I woke up in a cold sweat.  It wasn't so much at nightmare as a reliving of a traumatic event, PTSD if you will.  I was at the odious large Law Firm which I worked at for less than 6 months.  The guy who had hired me quit about a month after I was hired.  He went off to work for one of these "dot-com" startup companies, leaving a trail of destruction in his wake.

In my dream, I was going through a Patent file, and the papers were all out of order.  This was not my file, my files were always kept in proper order.  But this fellow that hired me really didn't understand how to run a Patent practice.  The practice is very paper-intensive and you have to keep things neat and orderly, otherwise you lose track of what's going on.  You have to keep track of deadlines and due dates and you also have to be very proactive about billing, as there are no jumbo bills to send out but rather many small bills for these small transactional events.

When my boss quit the firm, we realized in horror that he hadn't sent out a single bill in the last six months.  Not only that, but client due dates were being missed and we had to file extensions of time on a number of cases. The few bills he sent out were wildly inaccurate, sometimes he billed one client for a different client's work.  It didn't help any that the firm's billing system was set up to charge things by billable hours, which is very difficult to adapt to a Patent practice.

And that's the sad thing right there.  He had the makings of a decent Patent practice, with a number of clients and some legitimate inventions to file patents on.  But he was caught up in the whole "dot-com" nonsense and wanted to make an awful lot of money in a short amount of time.  So he walked away from the Patent practice to take an in-house position with one of these startup companies. They paid him in stock options and he might have made a pile of money when they did an IPO.  I don't really know, as I lost track of him rather quickly.

I saw the writing on the wall.  This fellow had basically left a stink bomb on my desk.  I decide to take my clients with me and move on with life, rather than to try to salvage his damaged practice.  But sadly, the pattern I saw here is one I saw many times in my years working in Silicon Valley.  There were people actually knew what they were doing, and there were a lot of people who bullshitted for a living and had no clue what they were supposed to be doing, but thought that was some quick money to be made in this and tried to fake their way through it.

Back then Silicon Valley was actually silicon.  We made semiconductor chips. Actually, that's not really accurate.  We designed semiconductor chips and then these designs were sent overseas where they were manufactured in China, Japan, or Vietnam.  But the end product was a tangible piece of hardware made of silicon semiconductor.  Today, the big industry in Silicon Valley is software.  Software, and bullshit.

I recounted before about a patent attorney who was working for one of my clients.  We suspected but could never really prove that he was trying to embezzle money from the client.  He worked with another attorney in Silicon Valley and they filed dozens of patent applications which I took over when the attorney unexpectedly died suddenly.

Once again, the files were a mess.  It was hard to tell what documents had actually been filed and I had to physically go to the Patent Office to inspect the files and make copies in order to have an accurate copy of what was going on.  I was chagrined to find out that some of the Patents applications had never been filed but the bills had been sent to the client.  It took a lot of talking to convince the client this happened, as there was a lot of denial going on.  After all, Mr. Slick Fast-Talker couldn't have been ripping us off!  Not with a $200 haircut like that, right?  What do you mean we paid for a patent application that was never filed?   And as usual, often the messenger gets blamed for the bad news.

On the client side, the same thing was also true.  Most of the clients actually made things and made profits - at least most of the time.  But there were other startup companies which were basically frauds from the get-go.   They came up with a product that sounded techie and cool, although most people didn't seem to understand how it actually worked - because it really didn't.  And they got funding and made money but eventually went broke when people discovered the whole thing was a con.

And you wonder why I am skeptical of tech.

Today, we see this is still the case. The most recent one was a company called Theranos which was run by a girl not even old enough to drink yet.  Hey, but that hair!  Perfect!  They supposedly had a semiconductor chip that would diagnose various medical conditions that would revolutionize or disrupt the industry. But it all turned out to be one hundred percent bullshit.  The product simply didn't exist. And in retrospect you wonder how they get as far as they did without anybody finding out.  You wonder why someone would hand $700 million to a kid right out of high school.  But then again, this illustrates how this tech crap goes off the rails and how people suspend disbelief because the believe in unicorns and "the next big thing!"

After all, it makes sense.  If these techies become billionaires in their 20's, then someone in their teens must be absolutely brilliant, right?

I tried to walk away from clients like that. And it wasn't hard to spot them. Usually they had these amazing PowerPoint presentations that threw around a lot of buzzwords.  I would be told things like "it's a new paradigm" or a "sea change" and that they were going to revolutionize the industry.  That was back in the 1990's.  Today, they use words like disruption and whatnot. Folks don't want to appear to be stupid by asking what these things mean, so they remain silent. After all these are smart people must know more than you and I do, right?

Are drugs involved?  I think so, and not those given out by prescription.  And that is sort of the other way you can tell you're being bullshitted, when people have that glassey-eyed look and everything is upbeat and positive all the time.  This is not a realistic view of life.  Life is often a lot of drudgery and hard work.  Science and technology, particularly so - 1% inspiration, 99% perspiration, as Edison once said (as he claimed rights to his employees' inventions).   And I think the drug involved must be cocaine, because that's the kind of drug that turns people into raging assholes.

Recently, people are calling into question whether Tesla will survive the next few years or even months.  The bizarre antics of Elon Musk remind me an awful lot of some people I used to have to deal with.  People who were exuberant most of the time but also made irrational and sometimes troubling comments.  Many folks have made note of Mr. Musk's veiled references to marijuana or 420, and wonder if he is on some sort of drug or not.  The SEC is investigating him for hyping the price of the Tesla stock on Twitter.  But of course, hyping the price of your stock is the name of the game in Silicon Valley.  You start a company, do an IPO, and then sell out your own shares in the company and make money.  That's how the game is played - the actual products and development is sort of secondary.

The problem for Tesla is the same problem many small car companies have faced in the past. You might see some initial profitability and progress, much is the Kaiser-Frazer company did after the war or as Studebaker and Rambler did when they started selling smaller cars.  But eventually, the larger companies which have much deeper resources and work experience in the car business will compete with you. Customers get scared and stop buying if they think the company doesn't have any long-term prospects.  People don't want to buy an orphan car.

Tesla might have made a go of it, if it could have been bought out by one of the major car companies who wanted to jump into the electric market space quickly and instantly.  However, Tesla stock has been so overpriced that no car company in its right mind would buy it.  And why bother, when you can just make your own electric car?  The barriers to entry, it turns out, are not that high.

At the price points offered by Tesla, many others are jumping into this business such as Porsche.  For someone looking for a car in the near-$100,000 range, Porsche might be a better choice, as it is an established company and there is a nationwide network of dealers.  If Tesla goes belly-up, Tesla owners could find themselves in a bit of a pickle trying to find parts and service.  In fact they're already having trouble finding parts and service as there are no Tesla dealers.  The dealer-less model that Tesla used worked very well in initially selling cars, but long-term support for the product may be lacking.

Of course that's another Silicon Valley feature. When it comes to computers or smartphones or whatever, you only offer support for a few years and then you dump the product and move on to the next thing.  And with electronics, people accept this, because products become so woefully obsolete so quickly.  But the car business is different.  People keep cars for 10 years or even 20 years.  If you can't get parts, resale value will plummet.

I was eventually able to get back to sleep.  But it is sort of a recurring nightmare that I have, maybe once every few months or so.  It's like one of those nightmares where you're trying to run away from a monster and your legs feel like they're frozen in mud.  Everything happens in slow motion, and no matter what you do, you can't extricate yourself from the problem.  In my dream, I dug through these files trying to make sense of the application and figure out what to do, only to see papers just randomly scattered all over the place.  I tried talking to the client but they were incoherent over the phone.

My experience with "dot com" startups and Silicon Valley bullshit is one reason why I have such a negative view of these companies as investments.  People argue with me I shouldn't be so negative about this new technology.  After all, companies like Google and Facebook and Amazon and Apple are making lots of money and if I had bought stock in these companies early on, I would be really wealthy, right?

Maybe yes, maybe no.  Because even a company which seems legitimate one day can become a bullshit company the next.   One company I did work for made semiconductor chips and did very well for many years.  But then their latest chip really didn't work quite right.  People called it "vaporware" as it never appeared on the market even though wild promises were made about its performance capabilities.

I'm still not certain what happened to that product, but the fact that it never materialized nearly bankrupted the company.  Hard-nosed Silicon Valley companies that have an established track record can turn into bullshit factories in a very short period of time, if you aren't keeping a close eye on the ball.   Other companies might be obsoleted by changes in technology.   "Work Stations" used to be a thing, until the lowly desktop PC started to challenge them in terms of performance.   Overnight, it seemed, an entire business went into the toilet.

For every good investment in Silicon Valley, there are ten, a hundred, or even a thousand bad investments.  And many of these were bad by design.  They were utter frauds from the get-go, designed to snooker retail investors into throwing a few hundred dollars here and there to gin up the stock price so the insiders could cash out.

As both an engineer and a lawyer, I was trained to think dispassionately and rationally.   Engineers rely on crunching numbers, not on crunching bullshit, to determine whether a product is going to work or not.  Lawyers need to look at things just dispassionately without emotion, to divine the real truth of a matter.

You would think people in these professions would think rather logically and that frauds and charlatans would not be tolerated for very long. And yet the opposite is somewhat true.  We tend to find people even in these rational endeavors, who behave irrationally. And when that happens it's very scary - much as finding someone in the medical profession who is doing lines of cocaine.

Sadly, the net effect of these sorts of frauds and chicanery is that periodically, the tech market collapses.  People become nervous when they realize that much of what is being hyped was just hype, and share prices fall across the board for all tech companies, even those that are making profits and doing legitimate things.

And I suspect we might be headed for one of these tech recessions shortly.  Theranos was not an aberration, but a symptom of the underlying problems going on in Silicon Valley.  In the pattern was established in the past, housing prices go through the roof, people are paid obscene amounts of money, and nobody seems to worry about the fact the company is not making money.  Then it all comes tumbling down, and usually the small investor and homeowner ends up getting stiffed.

The good news is that usually out of the ashes of these debacles, a Phoenix may arise.  The unused server capacity in massive over investment in fiber optic capabilities from the last tech recession led directly to the software revolution we're seeing today.

Of course, this is cold comfort for the people that bought into these dot-com stocks or bought houses in Silicon Valley, only to see the values plummet later on.  And that right there is the whole point. The people who get burned on these deals are little people like you and me, who think they're going to cash in big, either in real estate or in dot-com stocks.

The people running these enterprises walk away with millions of dollars, if not tens of millions, if not billions, even if the enterprise's they're running, is run into the ground.

And that is why I'm not a big fan of investing in tech stocks.  For the small retail investor, the odds are you'll just get burned.  It is tantalizing to think of how you could have made a ton of money by investing early on in some tech stock.  But chances are, you just would have ended up losing all of your money either through poor timing (such as with Apple, which nearly went bankrupt early on) or with poor stock selection.