Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs [Hardcover]

In 2003, Andy Kessler wrote a piece titled "Warren Buffett hates your guts." (You can find it easily by doing a 'Buffett' search on Kessler's website.) In this piece, Kessler gives the reasons he despises the Oracle of Omaha -- five digit stock price, a miserly attitude towards compensation and stock options, a love of the insurance business and dead or dying industries, and an embrace of taxation and population control.

Buffett, in Kessler's view, is the opposite of productive -- a tight-fisted scavenger with an eye for political moats and hoary old businesses that do not create wealth.

I bring this up here because "Eat People" is Kessler's Anti-Buffett Manifesto... his recipe for investing in exactly the type of companies Buffett wouldn't touch with a ten foot pole.

An alternative subtitle for the book might be "A Dozen Ways to Unleash Creative Destruction," an essential thread being that, to the degree the past stands in the way of the future, we have to destroy it. That means tearing down all kinds of old barriers: Destroying obsolete jobs, obsolete moats, obsolete relationships. At his most extreme, Kessler seems to revel in a sort of destroy-or-be-destroyed philosophy where nothing is sacred and everything is moving towards free.

There is good stuff here, though some of it was perhaps explained better (and less controversially) in earlier books. Kessler's "Running Money," for example, explored the waterfall concept, where a vertical drop in the cost of a technology can lead to exponential gains in market share.

So "Eat People" is not a book of new ideas, but more a culmination of Kesslerisms -- trend-based insights built over decades of observation (and investment participation) in the technology space. "Eat people" really lives up to its title in terms of embracing the spirit and ethos of what Kessler dubs "free radicalism" -- creating new wealth, via new productivity, for the entire economy's benefit.

I do have a few quibbles. Kessler's view is useful and insightful for describing 1) a certain type of business model, and 2) a certain part of the investing ecosystem. But there was a part of me that felt the "free radicals" Kessler described bore an uncanny resemblance to social media entrepreneurs.

In other words, businesses that scale relentlessly, waste prodigiously (in terms of things like data and bandwidth), have the ability to create a virtual pipe and so on -- all manifestations of Kessler's rules -- could all be considered a specific type of business, one that taps the emotional, logistical and entertainment needs of the masses (or some combo of all three). This is all well and good. But just because Facebook and Zynga et al are uber-hip at moment, does that really make these models the center of the wealth creation universe? What about, say, cleantech? One could argue the wealth to be created there in the next decade or two will dwarf the social media space by an order of magnitude... while applying a different set of "rules"...

The weakest part of the book (for yours truly anyway) was the expanded conversation on creators and servers, coming up with all kinds of cutesy names -- like "sloppers" and "slimers" -- to describe why only free radicals (i.e. social media entrepreneurs!) are truly productive, while the rest of the working world is not. A bit too glib methinks, and vaguely insulting for anyone not of the "tapping out code in a college dorm room" set.

The most questionable part of Kessler's conceit is the notion that efficiency isn't really worth much, and that entrepreneurs who go for incremental efficiency gains aren't really adding productivity or wealth to the economy on the whole. I beg to differ with this hand waving generalization, and so does the market. If there is no more opportunity in boring "efficiency" oriented areas such as, say, improving the output of internal combustion engines, then why do entrepreneurs who get this stuff right have a shot at becoming billionaires?

A more enlightened view, in my opinion, would be recognizing that "free radicals" have a powerful place in the market ecosystem, but that their efforts only represent one type of productivity and wealth. If one believes in market-provided signals, as Kessler professes to, then one should recognize there are all kinds of productivity and service oriented ways to get legitimately rich (without cheating via politics), and any business model that legally and ethically creates wealth for an individual is automatically getting a "Yes you are productive" vote in a free market system. Sometimes the productivity and wealth-building insight is expanding an existing model into a new market, or tweaking a model to make it better. It doesn't have to be relentlessly new -- if it did, the market would only reward free radicals and no one else.

Plus, back to the moral ideal of productivity -- Zynga, the company that makes Farmville, has a valuation in the billions, by Kessler's estimation deserved via its adherence to the 12 rules. And yet: Farmville? A fount of productivity? C'mon. We can be a little more open-minded in our definition of who is adding productivity and who is not here.

One last issue from an investing and trading point of view: A definitive hallmark of the free radical orientation is the "go big or go home" mindset. This makes for a lot of flame-outs. If ten thousand techies all move to Silicon Valley and decide they are going to create a virtual pipe and become the next Zuck or Larry or Sergey, chances are that 9,990 of them are going to fail. And then the 10 guys who succeed, to some modest degree, are going to get VC capital thrown at them jacking up their pre-val sky high, and when their companies go public (if a bubble is on) the stock price will get juiced by caffeinated e-trade gunners, egged on by some Mary Meeker 3.0 type to justify pie-in-the-sky earnings valuations. Ground floor entry aside, this makes for a challenging investing environment to put real capital to work.

With that said, "Eat People" is another good (and fast) read -- as all Kessler's books are -- with plenty of food for thought. It's good to have a motivated and passionate vanguard focused on creating the future, as opposed to milking the past, and "Eat People" is an inspiration in that regard.

Andy Kessler has views about the modern economy and what works best that irritate and confuse many people. I find him delightful. He writes from his real world experience so he has lots of interesting and humorous anecdotes to illustrate his points. And his points are pretty darn good. I think you will find this an entertaining and worthwhile read whether or not you ultimately agree with everything he says.

Kessler is providing not "Rules for Radicals" a la Saul Alinksy, but what he calls "Rules for Free Radicals". That is, for people whose ideas are so timely and so full of energy that they can combine with the technology of the moment and change the world and make their founders and investors crazy rich in the process. They get rich not because they are gouging wealth from society but because they create so much wealth for society by making it more efficient the little piece of that wealth they take ends up being a huge number.

Not every business is suitable for his approach and his is clear that if your business depends on extracting the most value FROM society or using regulation and business models that limit competition and restrict innovation you aren't going to find anything of value here. But if you want to use technology to radically change an industry these rules will help you analyze your business model. As a modern entrepreneur you must understand and utilize these rules to succeed let alone thrive. If you are an investor, you should look at your potential investments with these rules in mind so you will better understand what is right or wrong with the model being pitched to you. If you are a student of business, Kessler offers you a lot to think about and tools you can use as you study businesses and industries.

You get 12 numbered rules and a bonus rule, so 13 rules. He explains why scale is vital, how to use what is abundant to make better use of what is scarce, why a horizontal business model is vital for Free Radicals and why a vertical business model is for end stage industries, why intelligence has to be at the edge of the network rather than tied up in a secure central repository, and why you have to make your product or service adapt to the ways people need to use it rather than having them trained to adapt to the way you prefer to provide it.

The title of the book is a bit of hyperbole based on the movie "Soylent Green". No, you aren't supposed to actually eat human beings. But you are supposed to eliminate jobs and the need for expensive people to provide your products or services. Fewer people means greater efficiency, lower costs, and more wealth for everyone.

He also wants you to observe markets and adapt to them almost instantly. Building a rigid and centralized decision structure will almost certainly spell your doom and you will miss huge opportunities. He also wants you to embrace meritocracy and look for the very best talent and reward them for their contributions. You should also focus all your energies on exploiting markets and avoid the energy sucking and stultifying effects of politics and political opportunists.

Kessler also points out the power of zero marginal cost and why you will lose out to others who are willing to go there if you try to hold onto higher costs and prices instead of innovating and embracing zero. He points out that you can create your own scarcity by controlling your own pipe (availability). Notice how Apple restricts iTunes and access to its apps. Finally, he reminds you that money will slosh (his word) to those that provide the highest returns. That means there will be some lag time in finding the right level of investment. Sometimes there will be too much and others not enough, but if you hope to get and hold onto investment you must provide the highest returns possible.

I think this is a very valuable book and if you even suppose you might be interested in it I think you should get it and read it. You will find it useful.

I personally learned and gained a ton from this book - as a software startup guy myself, it really helped open my mind and eyes to the patterns that lead to successful technology ventures, products, and companies. There are key lessons in Eat People for anyone who works for, invests in, and/or starts their own technology companies.

Think raising prices is a good thing? Think again - Kessler highlights examples of companies that did exactly what Wall St wanted them to do by raising prices (and boosting profits) - and they ended up getting their lunch eaten!

Another key concept he opened my eyes to is why companies do things "because they can." Meaning that if something can be given away for free, it will be - simply because the creator can do it. The moral is that you need to add value upstream, rather than milk profits in something that can (and likely will) be commoditized.

The chapter about scale - which is also revisited throughout the book - is worth reading several times over. Kessler made a fortune for investors in his wildly successful hedge fund by identifying technologies and tech companies that found scale. Scale is what separates the winners (actually the huge winners, like Intel, Facebook, Google) from the losers in the tech world.

Also, Kessler was kind enough to allow me to interview him about the key concepts in the book - here's a link if you'd like to have a read:
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