As any economist will tell you, a dollar bill is not worth a dollar. And so the real value of that paper bill is defined by the trust we put in it. The trust that you will receive a particular (yet fluctuating; some days a dollar is worth more than others) amount of goods and services in exchange. Simple right?
So given that, trust is the most critical denomination in determining the value of a product or a service. And trust builds from consistent delivery on stated promises, which – in turn – requires the unwavering commitment from people with integrity and honesty….do you feel the slide coming?
1/ Why do many companies make promises they don’t keep?
I evaluate a lot of technology companies (about 60 this year alone, public and private) and most are just lying about or overstating (decibel marketing) the benefits of their proposition. Because the majority of potential customers and investors are ill-informed about the pros and cons of this specialized industry, technology companies can often get away with sneaky monetization strategies that take advantage of a lesser informed audience.
In Silicon Valley, “success” is often defined by how skilled you are in fooling customers and sucking up to aristocratic investors (to which few have access), rather than the authenticity of your proposition. A mediocre ecosystem is what remains after the technology bust from 2001 in which self-proclaimed “serial entrepreneurs” and investors have been able to dodge real value creation and sell out short.
Not the VC model is broken, but many of the participants are. That noise is severely eroding the trust in an inherently sound technology industry. We need to enforce more transparency and hold ourselves to higher standards to restore integrity and trust.
2/ Why do we allow short-selling on public company stock?
First, the performance of public stock says nothing about the actual value or outlook of a company, in the same way, the dollar offers no guarantee of what you get for it. Public stocks are already a lousy interpretation of the actual performance of a company, as it merely echoes popular opinion (and not the company facts).
So, selling short is a bet on the performance of popular opinion and does nothing but undermine the trust in the longevity of a business and cannibalizes shareholder value. Quarterly earnings reports are an absolute joke as many companies move profits around, claim leadership in a market that is defined by themselves and reduce cost rather than improve their marketplace position to make quarterly earnings look good. They also force strong companies to focus on often unpredictable economic aberrations rather than on their long-term and macro-economic leadership position.
The ability to sell short creates unrest and unnecessary fear in a system that requires the opposite. Can you imagine holding the president of the United States accountable quarterly? That would be bad for our country (in most cases).
We should implement a predetermined holding period for the sale of stock, the expiration determined by the company and regulated by the SEC (which can also prevent some nasty insider trader deals) to build back trust.
3/ Why are some allowed to resell securities?
Reselling securities (which was illegal a few years back) based on finagled credit scores are perhaps the double whammy in the erosion of trust in public companies. Company credit scores that are maintained (and marketed) by commercial companies create profit-driven ratings and unrealistic prices (up and down) for securities. We merely need to stop the resale of securities and regulate the process of maintaining credit scores (both business and personal) vigorously and immediately.
Regulations do not turn us into a socialistic society, but the reality is that no economy operates without rules to protect trust. Free markets require a basic set of rules to prevent a few bad apples from creating insurmountable fear for the rest of us.
For the technologists amongst us: eBay deploys no less than seven dedicated servers to detect suspicious transactions that could challenge the trust in its free-market model.
In the same way, we deploy rigid traffic laws to drive a car, should we implement rules of engagement to protect our economic serenity. As long as we don’t dictate the destination of our travels or where we place our economic bets, we should be just fine in our support of a blossoming capitalistic society.
Trust comes from transparency, integrity, and authenticity that builds real value, not from taking advantage of the ill-informed. So, creating a successful company does not start with a new product strategy but with a leader who has the drive to win that is larger than his greed. Building disruptive products that genuinely improve people’s lives will yield personal satisfaction and trust that will keep customers coming back for more.
Trust is the only currency that matters, so stop squandering it.