Michael Moritz, the billionaire head of Sequoia Capital, was asked by Charlie Rose why Sequoia was so successful.
Moritz mentioned longevity, noting that some VC firms succeed for five or ten years, but Sequoia has prospered for four decades.
Rose asked why that was: Moritz: I think we’ve always been afraid of going out of business.
Rose: Really? So it’s fear? Only the paranoid survive?
Moritz: There’s a lot of truth to that … We assume that tomorrow won’t be like yesterday. We can’t afford to rest on our laurels. We can’t be complacent.
We can’t assume that yesterday’s success translates into tomorrow’s good fortune. Not skill, or market insight, or even hard work.
Fear and humility. Humility doesn’t mean taking fewer risks. Sequoia takes as big of risks today as it did 30 years ago.
But it’s taken risks in new industries, with new approaches, and new partners, cognizant that work worked yesterday isn’t what will work tomorrow.
IBM and Xerox did this when they shifted from hardware to services.
Netflix did it when it cannibalized its DVD business to invest in streaming.
GE has reinvented itself about every 20 years for the last century, going from a lightbulb company to a dishwasher company to a bank to a wind turbine company.
Each could have looked at their past success and concluded they were doing the right thing, patting themselves on the back. But they didn’t.
They were, for the most part, paranoid, eager and willing to jettison past success in an attempt to keep up with where the world was heading next. It’s not easy to do.
For decades people used Coke, Gillette, and American Express as examples of companies whose success was so solidified – whose moats were so deep and protected – that you could foresee their dominance indefinitely.
But now all three are under attack.
Coke’s is fighting 13 consecutive years of soda decline.
Dollar Shave Club came out of nowhere to take 14 percentage points of market share away from Gillette.
And as Charlie Munger, one of AmEx’s largest investors said this week: “If you think you know what the state of the payments system will be 10 years out you’re in a state of delusion.” Only the paranoid survive.
We don’t know much about Abraham Germansky – only that he went from rich, to broke, to disappeared. But we know a lot about Livermore, whose life was well documented.
Livermore was was one of the most skilled people in the world at getting rich. But few people in the early 20th century had a harder time staying rich.
He made and lost at least four fortunes, never going more than eight years without flirting with bankruptcy.
After his third wipeout, Livermore recognized his mistake:
Getting rich made him feel invincible, and feeling invincible led him to double-down with leverage on what worked in the recent past, which was catastrophic when the world changed and the market turned against him.
He reflected: *I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head.
A great many smashes by brilliant men can be traced directly to the swelled head.“It’s an expensive disease everywhere to everybody” he said. Morgan Housel