The 120% Stupidity Problem
Jason Calacanis is back like herpes and he has more wisdom. This time he’s managed to solve the economic crisis the United States (and world) is going through.
Americans just need to work more. 120% more.
Calacanis states:
We’ve overspent, taken expensive vacations, built absurd homes (in both scale and quantity), run our savings into the ground and skyrocketed our debt to record levels. Our addiction to consumption and our sense of entitlement have killed us. Sure, many of us have lived conservatively, working hard without debt. But, on average, we’ve:
1. Spent well over 20% more than we should have on the price of homes.
2. Built homes that are well over 20% larger than they need to be.
3. Purchased 20% more consumer electronics than we needed. (In my case, 300%).
4. Extended home ownership rates 20% beyond where they should be (to the mid-to-high risk credit folks).
5. Gotten 20% fatter than we should be.
Where he gets his 20% “average” figure is beyond me. Call it the Calacanis 20% Theorem: everybody does everything bad 20% too much. Of course, given that house prices have fallen by more than 30% in some areas, the market doesn’t seem to support the Calacanis 20% Theorem.
But that’s another subject for another day.
Let’s get to the meat of Calacanis’ solution:
If we’re going to have any chance of bringing America back to greatness, we’re all going to have to work 20% more than we have been.
I’m suggesting that, until America takes care of its debt, untangles the housing mess and gets unemployment under control, we all commit to working six days a week. Yep, move the standard 35-40 hour work week right up to 48 hours.
Now, I hate to burst Calacanis’ bubble, but there are a few problems with this:
- Jobs are being lost. It’s kind of difficult to work six days a week when you don’t have a job. And in case Calacanis hasn’t been following, the situation is getting worse. Even strong companies that are still fundamentally solid have been cutting workers.
- Most employers can’t afford to pay employees for a six day work week While it’s not surprising that a guy who runs the Web 2.0 equivalent of a sweatshop wouldn’t understand the fact that you actually have to pay your employees more money as the number of hours they work increases, Calacanis should pay attention to the news. Lots of companies are asking their employees to take unpaid time off. That’s right. These companies want their employees to work less. You know, to save money and stuff.
Frankly, Calacanis’ “solution” is as unfeasible as it is naive.
Don’t get me wrong: I’m a huge fan of hard work and I agree with Calacanis when he criticizes the poor work ethic that seems to be a real problem in the United States. Personally, I think this is due to an “entitlement” culture in which individuals feel that an unsustainable consumer lifestyle is owed to them.
But moving on, the economic challenges the United States faces today aren’t going to be solved by working more. Employers are feeling the squeeze and that obviously trickles down to employees – whether in the form of layoffs, lower wages, cuts in benefits, reduced hours, etc. There is no six-day-a-week, 48 hour workweek. The money to fund it doesn’t exist. Individuals who are already struggling are not going to be able to work more for less.
No, the solution for Americans is simple: you need to start saving 20% of your income. In 2006, the United States had a negative savings rate of 1%. That means that not only did Americans spend every last cent they earned, they spent more than that by raiding their savings or borrowing.
If the average American is ever to thrive again, he needs to cut his expenses, pay off his debt and start saving like the Rapture is coming and tickets are $250,000.
Of course, this news that Americans had been spending more than they’re making wasn’t entirely surprising given that the United States government has over decades perfected the art of deficit spending. The United States currently makes interest payments of over $400 billion per year. And if that’s not bad enough, it’s borrowing money to make those payments. I’d observe that there are a lot of people who complain that the United States is spending $10 billion each month in Iraq. Yet far fewer complain that every month the United States accumulates far more than that in interest expenses.
As they say: as above, so below. A government that spends like a drunken sailor begets a citizenry that spends like a drunken sailor.
In reality, the United States is fucked. It’s the guy with 5 credit cards and $250,000 in credit card debt who makes $35,000/year and is borrowing more money to make the minimum monthly payments.
Given that the mortgage crisis that broke the camel’s back is really only the tip of the iceberg and a symptom of greater structural flaws in American fiscal and monetary policy, a default of United States debt at some point over the next 5-10 years would not surprise me in the least. And if you think this economic crisis has been bad thus far, that would make all of this seem like a walk in the park.
But back to Calacanis.
I would observe that Calacanis seems a bit out of touch with economic reality. He writes:
What made America great was our ability to innovate and create world-class products, ideas and services that people around the globe fell in love with and wanted for themselves.
From health care to human rights, from democracy to dishwashers, from windshield wipers to the World Wide Web, from search engines to soda pop, we’ve accomplished so much by dreaming and rolling up our sleeves.
You have to admire his naive nationalistic idealism.
The truth is that lately the United States hasn’t been innovating. The market says it hasn’t been creating a whole lot of world-class products (at least not enough to sustain a society of consumers). In today’s global economy, many countries have looked at the United States and said, “Anything you can do we can do better.” And many have.
The United States is bogged down by health care, its credibility in the human rights arena is in question, democracy is not an export, your dishwashers and windshield wipers probably aren’t made in the USA and while the Internet has done a lot of great things, let’s not pretend that the average American has benefited from it financially in the same fashion as a relatively small number of Internet millionaires and billionaires. What’s good for Larry and Sergey, Tom Perkins and Jason Calacanis isn’t necessarily good for the American people.
None of this is to say that the United States wasn’t and isn’t a great country. Indeed, the financial tsunamis that are hitting and will likely continue to hit the United States will hit the rest of the world too.
Take China for instance: a slowdown in consumer spending in the United States is already hurting exports. Decreased exports will strain China’s manufacturing industry, which is low-margin, high-volume. As the industry is strained and the strain makes its way to workers, social unrest could be a real possibility in China, setting the country back significantly in its drive to bring hundreds of millions more of its citizens out of poverty.
The bottom line is that the world is a complex place. People like Calacanis seem to think that it’s black and white.
If people work more, the economy will be better. Sure. But jobs are being lost and companies are struggling to make payroll as it is.
If entrepreneurs and rich people start more businesses that employ people, the economy will be better. Sure. But established businesses are struggling today and, most new businesses, which usually don’t have hordes of cash and customers, don’t hire new employees needlessly and usually don’t pay top-of-the-line salaries. One should not mistake all of the VC-subsidized companies in the Valley that have bloated headcounts with the real entrepreneurship that is exhibited by small businesses whose owners have to worry about cash flow on a monthly basis.
At the end of the day, the world is made up of shades of gray. If Americans, and individuals around the globe, want to survive this crisis and build a better system, they can’t think in terms of black and white. They need to think in terms of “green.” Green as in money.
How it’s exchanged. How it’s spent. How it’s taxed. How it’s “valued.” And most importantly: how it’s created.
While I don’t have a personal beef with a Calacanis (he might be a great guy), I do have a problem with a person who suggests that Americans need to work 120% harder yet cut staff less than two months ago. Perhaps Calacanis is asking his remaining employees to work more but he still has less of them. And I doubt he’s raising their salaries (he considers a $10/hour “freelance writing” work-from-home job hard-to-beat). Frankly, it’s safe to say Calacanis and his company are contributing little to nothing to the economy and when you consider how much capital has been wasted on Mahalo, he’s probably a net loss to the economy.
Frankly, for a guy who runs a startup that just cut staff, there’s something mildly disturbing about the time Calacanis seems to be wasting not working. From his travels to his attention-whoring to his musings about “solutions” for struggling automakers (without disclosure of his conflicts) to his Facebooking-and-posting-useless-shit habit, I have a solution for Calacanis: start walking the walk and stop talking the talk.
Start thinking about your own business 120% more. Cut your travel 120%. Write 120% fewer “emails.”
In other words, do something productive. Stop talking about solutions and become part of them. Who knows, you might just contribute to society and your flailing startup just might become one of those entrepreneurial ventures creating high-paying jobs that you love to write about.
Who knows. It might just work. Certainly Calacanis hasn’t tried it yet.
i’ve noticed a trend – the posts come, then the bad news comes – could his house or car lot be in trouble?
Well f— me, it’s “We’re Backing Britain” back again. During a previous economic crisis three secretaries made headlines by announcing “we’re backing Britain” by working several hours a week more for free, which the newspapers took as some sort of patriotic gesture that would actually help matters. This is presumably what Calacanis means (he probably doesn’t know about hourly wages because all his blogosphere chums are salaried). Obviously it’s bollocks, no real argument needed there. It’s a combination of the Calvinist work ethic that the point of work is suffering rather than economic benefit, the socialist idea that you should produce first and worry about efficiency (productive and allocative) later, and straight-up idiocy.
But say what you will, Calacanis’ plan is still a better idea than the ones our governments are coming up with. Not that that’s a high bar, but still, he’s done better than hundreds of politicians and Wormtongue economists.
By the way, you missed one of his most obviously wrong points in his eulogy of America. The World Wide Web was invented by a Brit and a Belgian in a lab in Switzerland. ARPAnet doesn’t count for much, since all the Americans were going to do with it was to secure their military communications against nuclear attack. Presumably so that once the entire country was laid to radioactive waste, they could set up that radio station that plays Yankee Doodle music in Fallout 3.
Also, there’s an ambiguity between whether Calacanis should reduce his emails by 20% or by 120%. To reduce them by 120%, he would not only never have to email anyone again, ever, but he would have to delete 20% of his emails from his archive, personally come round to all our houses and delete any traces from our computers, then take us out for drinks and keep us going until his pointless uninformed ramblings had been permanently purged from our memory. Knowing this blog I suspect that was intentional.
Sam: I thought the Internet was invented by Al Gore?
Calacanis needs to reduce his emails by 120%. That was no mistake.
cmon let’s get serious – has there been one email that wasn’t posted online somewhere? why does he include the “list count” on each email? instead of posting his typically crappy content on calacanis.com, he’s now got blogs 10-100x his size posting his crap. i give him credit – it’s a smart plan.
I keep saying he’s a hypocrite. I learned that in his attempt to get his employees to “roll up their sleeves” and work harder (i.e. guess his next whim), he alienated 2 more of them this past friday… so tell us, Jason: where does railroading your American employees and replacing them with workers in the Philippines fit in your grand solution?
“a guy who runs the Web 2.0 equivalent of a sweatshop”
In all fairness, sweatshops don’t give their sweatshop workers stock in the company. No sweatshop worker has the potential to make $100,000 overnight.
Will: no Mahalo employee has the potential to make $100,000 overnight.
A Mahalo stock certificate isn’t worth the paper it’s printed on.
If you believe that Mahalo’s stock will ever have real value, I’d suggest you buy 25,000 shares of GM stock on Monday at ~$4. You have a better chance of it going to $8 than you have Jason Calacanis turning Mahalo into a winner.
Calacanis doesn’t have a track record of flipping companies for say $25 million? If you think Calacanis won’t be able to take Mahalo anywhere then you must really believe the bubble burst is going to be horrid. Unlike Facebook, Twitter, Digg etc. Calacanis actually has a sound business model. People visiting a site in the mood to shop/click ads. People visiting pages in “buy mode.” Can’t really say the same for Digg, which won’t be able to find a buyer for a long, long time in this economy. And getting snubbed by Google will only make things worse for them.
You see Mahalo ranking well on Google. They’re only going to rank better in the coming years as Mahalo gains trust and builds more content. When Mahalo starts selling direct ads, more advertisers are going to want to spend money there than on say, Facebook, because they’ll actually get clicks. As Mahalo gets more and more content, it’s going to have more options from a strategic partnership standpoint. Calacanis understands how to build things that have value to advertisers and can be flipped in time. Unlike a lot of other people who walk around making public statements about how they have no clue what their monetization strategy should be, Calacanis develops a calculated plan from beginning to end with his companies. So if you think he’s going to fail then Silicon Valley is really fucked.
Will: if you don’t mind me asking, what’s your connection to Mahalo and Calacanis? You seem to think he’s the Second Coming of Jesus Christ.
First, I don’t give a shit about the fact that Calacanis sold Weblogs for $25 million. That doesn’t guarantee future success and if you took every 10 people who made millions selling their companies, I’d venture a guess that probably 5 of them went on to lose most of that money with their future ventures and investments.
Second, Mahalo is a shitty business. It’s a VC-backed, overhyped and poorly-run SEO play that is arguably nothing more than an undermonetized link farm.
Let’s look at a few examples:
Grand Theft Auto IV
Mahalo ranks on page 8 of Google for this search term. Do you know how many searchers get to page 8?
Mahalo’s page for Grand Theft Auto IV shows Google AdSense ads. Want to guess how much money Mahalo probably makes per click on these? Making matters worse, only 2 of the ads appear above the fold on my 22″ monitor running at 1680×1050 while “The Mahalo Top 7″ links (which take visitors to other websites) are right at the top.
Kim Kardashian
Mahalo ranks on page 5 of Google for this search term.
Mahalo’s page for the popular socialite has zero ads. In other words, this page is completely unmonetized. If Calacanis was serious about making money (and was running his business like the affiliate marketers he scoffs at), he’d sign up for VividCash.com to promote Kardashian’s sex tape and he’d make $50 per signup he generates.
Los Angeles Lakers
Mahalo doesn’t rank in the first 10 pages for Los Angeles Lakers.
The Mahalo Lakers page has two AdSense units. Two of the three above-the-fold AdSense ads that I initially missed were irrelevant – one pushed Atlanta Hawks tickets and the other promoted celebrity photos.
In short, Mahalo is probably the worst-run SEO play I’ve ever seen. It’s an embarrassment.
It should be run by the type of affiliate marketers who make 5 and 6-figure amounts each month from the comfort of their apartments. The only problem is that those affiliate marketers didn’t need over $10 million in VC money to build websites that pull in substantially more money than Mahalo so they’d probably have no interest in running Mahalo.
“Will: if you don’t mind me asking, what’s your connection to Mahalo and Calacanis? You seem to think he’s the Second Coming of Jesus Christ.”
Haha, no, we actually created a comic that satirized him: http://www.rankedhard.com/jason-calacanis-seo-has-no-future.php
I do think he’s a brilliant performance artist (maybe the best in the history of Silicon Valley?), and that’s why I’m surprised that Mahalo was the type of site he decided to create. Calacanis is the Seth Godian “purple cow,” and Mahalo has no edge or linkbait-ability. It just recedes into the furniture…for now.
“If Calacanis was serious about making money (and was running his business like the affiliate marketers he scoffs at), he’d sign up for VividCash.com to promote Kardashian’s sex tape and he’d make $50 per signup he generates.”
He is serious about making money, but big money. And promoting a porn affiliate program would sort of ruin any chance that he could flip the site for the kind of money he would want to flip it for…Talk about ruining the reputation of your site. I know you were half-joking here, but this is the epitome of why his mindset is different than affiliate marketers and why he creates websites that can be flipped for $25 million and affiliate marketers choose not to do that. The smart ones (the ones making 5 and 6 figures a month) could if they wanted to, but they don’t. Maybe they don’t want to deal with Vulture capitalists, or they don’t want to take the risk..what have you. But Calacanis set his monetary goals much higher than super-affiliates, and as a result he has to be less aggressive with ad placement at the beginning to build user loyalty.
Mahalo pages do rank well in Google on average, and it’s obvious that Google has given Mahalo a high trust rank score. See this: http://www.nickycakes.com/stop-ruining-the-internet-mahalo-thats-my-job/
Obviously NOT every page on Mahalo is going to rank well in Google: the site isn’t a bloody Wikipedia. However, many Mahalo pages with actual content (and even some rail thin MFA ones) rank well, and I predict in 2-3 years, when many more pages have actual content, that it’s only going to get more traffic from Google. In fact, that’s a safe assumption.
I have to imagine that Calacanis is sitting and watching this with his Google alerts, but he refuses to comment. Why don’t you chime in, Jason?
Will: I was not joking at all.
Smart people start businesses to make money. Period. If you ain’t in it for the money then get out the game.
I don’t give a shit about “flipping.” I’m not interested in playing poker – I’d rather collect the rake.
Maybe your perspective has been distorted by Bubble 2.0 but most people don’t flip profitless businesses for lots of money. After all, most companies with cash don’t like trading cash for a business that isn’t going to help the bottom line.
Given the current economic situation, those who play the gambling game you refer to are going to find it harder and harder to succeed. M&A activity, especially in the consumer Internet space, was already on the decline before the financial markets collapsed. When you look at the massive amount of money that has been shaved from the market cap of companies like Google in just a few short months, you’ll probably recognize why anyone smart who was hoping for an acquisition of their startup by Google is having second thoughts about strategy.
Smart affiliate marketers haven’t done what Calacanis has done because they’re smart.
Why would you? Let’s say you’re an affiliate marketer pulling in $100,000/month. That’s $1.2 million/year in pre-tax revenue. You may outsource some tasks to a small staff and hopefully you are domiciled in a location that has a more favorable tax structure than, say California.
All told, you probably walk away each year with an amount in the high 6-figure range. Is that the $25 million “flip” Calacanis is hoping for? No.
But let’s look at this in more detail.
A $25 million “flip” isn’t always lucrative for founders, management and employees.
Mahalo has raised $21 million from investors over 3 rounds. If Mahalo’s funding structure is typical, Calacanis probably owns 10-20% of Mahalo at this point. So if he “flips” Mahalo for $25 million and owns 20%, he’s made a cool $5 million before taxes, right?
If only it were that easy. When you deal with professional investors, you have to deal with liquidation preferences. They want to make sure that they have some protection. After all, investors don’t want to invest $21 million in a company at a $50 million pre-money valuation, for example, only to see the company sold for $25 million, leaving them walking away with a loss while the founder used their $21 million to walk away with a $5 million profit.
So they demand liquidation preferences that dictate how money is returned to shareholders when a liquidity event occurs. A detailed discussion of liquidation preferences is beyond the scope of this comment but let’s put it this way: if Mahalo is sold tomorrow for $25 million, there’s no way Calacanis is getting his money out before his investors, which include CBS, News Corp. and Sequoia Capital. They invested $21 million in Mahalo and they’re looking for a 3-5x return. Although I don’t know what valuation they gave to Mahalo, we’re probably looking at Mahalo needing a $100-$200+ million acquisition for them to come out ahead. I don’t see where that’s going to come from at this point.
So in short, if Mahalo is sold for $25 million tomorrow, there’d be a good chance that Calacanis walks away with just about the same amount of money that our smart affiliate marketer who grosses $1.2 million/year takes home in single year.
And while Calacanis was busy gambling on Mahalo, that affiliate marketer was accumulating capital that was available for investment elsewhere.
And that gives him the ability to tap into what Albert Einstein called “the greatest invention of all time” – compound interest.
Let’s say that that affiliate marketer takes home $750,000/year, continues to run his affiliate marketing business, keeps his living expenses low, puts some of his money savings and then reinvests $250,000 into other businesses, assets and investments that generate earnings.
I’m not going to do the math for you but if you take a basic compounding formula and plug in some assumptions for various types of businesses/investments/assets, you’ll see that, if our affiliate marketer puts his money to work wisely, in a relatively short period of time (less than a decade), he has the potential to be a very wealthy man.
This is not a hypothetical scenario. There are plenty of people around the world you’ve never heard of who started small and individually make more money every year than probably 95% of the consumer Internet startups in Silicon Valley using this philosophy.
In short, capital produces capital. It’s why the rich get richer.
Looking at things from this perspective, you can now ask yourself a simple question – would I rather focus on building an online business that I can turn into something generating $20,000/month within a year or would I rather start a company, raise money from investors and hope that somebody buys me out?
In other words, do you want to be the house or do you want to be the gambler?
I do not think “building to flip” is like playing poker. More like Russian roulette! In the environment where M&A opportunities are evaporating and burn rates are unsustainable even after cuts, it is Russian roulette with all rounds loaded!
Calacanis is worse than a hypocrite — he doesn’t believe a single bit of the horsedung he shovels out, either to the media or to his own employees. He is the master of overhype and if you ever work for him, you’ll find that he doesn’t care one iota about you. He has no soul.
If you believe what he’s saying now, mark my words you will regret your defense of him later.
What was the specific reason he gave for firing you?