Interview with Andy Kessler about the Virtue of Eating People

I recently read Andy Kessler’s latest book Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs, and had the pleasure of discussing it with him. Mr. Kessler is a former hedge fund manager who now writes on technology and markets. His other books include Wall Street Meat (2003), Running Money (2004), How We Got Here (2005), The End of Medicine (2006), and Grumby (2010). You can learn more about him and his work at AndyKessler.com. —Daniel Wahl

eat-people

Daniel Wahl: Thank you for joining me, Andy.

Andy Kessler: Thanks for having me.

DW: I just finished your new book, Eat People, and among other things especially enjoyed your attitude toward technology. Many people today disregard the benefits of technology and long for a world without it—but you think this is nonsense. Why?

AK: I don’t think anyone really longs for a world without technology per se—no antibiotics? no refrigerators? no Xbox 360? But some long for a world without the technology that disrupts what they believe to be their contented lives. It’s change that bothers many, and technology is the vehicle that creates change, often feeling like a runaway freight train.

An economy exists to increase the living standards of its participants; productivity—doing more with less—is the only way to create societal wealth. Wealth is not a fixed pie with some getting bigger slices than others; it’s an ever-increasing sized pie, increasing because technology drives productivity. That can mean displacing old jobs with newer, better-paying jobs. This can be a huge disruption, but it’s inevitable, and my advice is to be on the right side of this change, to create it rather than be run over by it.

DW: One of the points you make in the book is that innovations don’t just happen; people make them happen. Who are some of the people you respect for having made your life easier and happier?

AK: Engineers rule the world. They are the ones creating productivity and innovation. So much of this has been concentrated in software programming, writing clever pieces of code that improve our lives. Today, no one has to drive to the library to look up things in a Funk & Wagnalls encyclopedia. Clever code was written enabling people to find the information they need in a great database in the sky. Larry Page and Sergey Brin and the thousands they have hired are great innovators. So are Bill Gates, Larry Ellison, Mark Zuckerberg, and Steve Jobs.

But there is a shadow crew that deserves credit too. Doug Engelbart invented the mouse and network operating systems and implemented hypertext way back in 1968. He gets credit. So do all the creators of Internet protocols and the World Wide Web and smartphones, let alone stents to prop open coronary arteries and the creators of many life-saving diagnostics and drugs. The list is endless. Some low-level employee in West China right now is perfecting the process of manufacturing glass for iPhones—something that helps the innovation process—and we don’t even know who that is.

DW: Given the title of your book, people might be surprised at your view that when a businessman such as Steve Jobs gets rich, we all get richer. How did you reach or what substantiates this view?

AK: Steve Jobs has created a platform for others to run their businesses and lives on. My productivity has increased because I have my e-mail and a web browser and a stock ticker in my pocket at all times, which do things that in the past might have required a staff back in a home office to track. This saves time and money and resources. The Google boys have done much to increase all of our living standards. Mark Zuckerberg has lowered the cost of communications within large groups. Bill Gates gets grief as a nasty businessman and monopolist, but the reality is that society has created and enjoyed more wealth with his tools than he has personally. That’s the kind of innovation that should be embraced; when the creator gets wealthy, it’s because society is getting wealthy too.

DW: Someone who would obviously disagree with you is Saul Alinsky—and you slam him repeatedly in your book for his view of wealth, one very different from yours. Can you explain why?

AK: Saul Alinksy was a community organizer who, in the early 1970s, built a movement based on the disparity of the haves and the have-nots. His process was to organize the have-nots, have them elect someone to office who would then take from the haves and give to the have-nots.

But he never considered why someone was a have in the first place, assuming he either inherited or stole his wealth or was a political entrepreneur, and thus was a have with ill-gotten gains. That’s 1970s thinking for sure.

I focused the book on how someone becomes a have. If he does it right, by driving productivity, even if disruptive near term, he will create wealth and increase all of our living standards. Alinksy would be turning in his grave at these types of thoughts.

DW: At the beginning of Eat People, you say that you wrote the book for “purely selfish” reasons. What’s in it for you?

AK: I spent a career as a creator and then in finance providing capital to creators. I have four sons who are beginning to enter the workforce. I hope to live another fifty years and I’d like to see productivity creators create wealth for society and increase living standards, for me and for everyone else. And increase the availability of the next generation of health care diagnostics and products so that my living another fifty years is plausible. It all goes hand in hand; you have to have excess wealth to be able to invest in these next-generation products and services.

DW: I won’t ask you to give away for free each of the twelve rules you discuss in your book, but your advice to “eat people” is both one of these rules and the title of the book. What do you mean by it?

AK: Technology has made obsolete telephone operators and travel agents and stock traders and stockbrokers and a whole slew of other service jobs—all eaten by clever code. This is going to continue, and the level of jobs that are eaten is increasing to the point that sales and marketing and lawyers and doctors will soon come under attack by clever pieces of code. You can’t stop the technology train, nor would you want to, because society benefits every time a class of jobs is somehow automated.

There is always room for new creators to make the world more productive. Don’t buy the argument that technology will lead to massive unemployment and an underclass; just the opposite happens every cycle.

DW: Another of your rules for entrepreneurs is to “get horizontal”—something your old college roommate would say before passing out in front of the TV. Is this your way of promising, like some other books, that laziness is the source of wealth?

AK: In a way, yes, but probably not in the way you think. What I mean by getting horizontal is that instead of owning the entire means of production of your product, instead just own a sliver of technology that you can license to everyone in the industry.

This is how both the computer and telecommunications industry evolved. It used to be that IBM took in half of the computer industry revenue and controlled 80 percent of the profits. It designed chips, manufactured them, put plastic around them, wrote operating systems and application software, marketed, sold, and serviced its mainframes.

The PC took this model out at its knees. Intel made microprocessors, Microsoft made operating systems, Seagate sold hard drives, Read-Rite owned the market for magnetic recording heads, Dell and Compaq manufactured PCs, and CompUSA sold them (Dell, of course, originally sold direct). You didn’t have to control the entire industry, just a sliver of technology that you sold up and down the stack.

Telecom used to have AT&T do everything from making phones to laying fiber optics. Now the same horizontal model has swept through. Level 3 and others provide fiber optics. Skype provides computer-to-computer communications; Rackspace provides computers for datacenters; Google and Facebook provide applications; and on and on.

DW: What are the benefits to businessmen of getting horizontal?

AK: In effect, you can be somewhat lazy. You don’t have to sell to consumers. Someone who is good at that and focuses just on consumer marketing can handle it. Horizontal companies can just focus on their technology, have more engineers than sales people, and focus on just a handful of customers up the stack or industry food chain; eventually your technology is sold to consumers or corporations with you collecting a licensing fee. Business folks can concentrate on what they are good at, and the entire ecosystem wins.

Another huge benefit is that innovation can take place at a much different pace at each layer of the horizontal stack. Intel kept coming out with faster and faster microprocessors while Microsoft was notoriously slow with new releases of Windows. You are no longer slowed by the weakest link in the stack.

Some folks look at Apple and question whether they are horizontal or vertical. Clearly, they do not license much of anything. They choose to deal with consumers directly via their Apple stores. So they certainly have vertical attributes. But what is different is that they have chosen to go horizontal with much of their supply chain. They no longer have factories. They buy assembled iPods and iPhones from Inventec and others in China. Same for glass from Corning and flash memory from Toshiba and Samsung. So Apple is a hybrid, though I’d watch their vertical segments carefully as others, such as Google with their Android operating system licensed freely to all, can create waves for Apple’s vertical areas. But, as my college roommate used to say, “When in doubt, get horizontal!”

DW: Thanks again for your time, Andy. And I hope this book makes you—and all of us—a lot richer!

AK: My pleasure. Now get out there and Eat People.