Risk, Hope, Hype, and the American Dream

In the financial pages of a recent New Yorker, James Surowiecki puts the spotlight on how both the con man and the entrepreneur use risk, hope, and hype to sell their project, product, or business to move your money into their pockets. But can we really compare men such as Charles Ponzi, Bernie Madoff, and Allen Stanford to Steve Jobs, Jeff Bezos, and Mark Zuckerberg?

Surowiecki traces the history of confidence men (“con men”) as revealed in the news and portrayed in entertainment (e.g., American Hustle, The Wolf of Wall Street, and The Sting), and remarks upon how Americans often admire their drive, creativity, and wits. I recall, growing up, how much I admired Robin Hood. Although he was a thief, he only robbed from those he identified as bad guys.

The thrust of Surowiecki’s article is that both the con man and the entrepreneur use the same set of tools to sell their wares: (a) the Music Man personality, (b) the prospect of potential returns that far exceed what an investment adviser can promise, (c) a risk of loss that is invariably understated and minimized, and (d) the ability to burnish the unique opportunity being offered—to hype the investment by saying things like, “Not everyone can qualify for this deal.” Finally, and most important, both types of business operators must have the ability to project conviction (“We will not fail!”) and excellent persuasion skills.

The only issue I take with Surowiecki is that he implies that there are only two categories of “businessmen” in the gene pool: confidence men and entreprenurs. The plain fact is that Bernard Madoff and Steve Jobs are at the extreme edges of a continuum. And where a particular businessperson falls along the continuum depends on two factors; the objective probability that the plan being hyped might succeed, and the extent to which the businessperson needs to rely on prevarication to make the sale.

For example, because Madoff never invested any of the money that he took from investors, the probability of his making his projections was zero; and because he had no intention of investing the money, he had to rely exclusively on prevarication to make the sale. Therefore, Madoff is 100 percent con man.

On the other hand Surowiecki’s exemplar of an entrepreneur, Steve Jobs, was able to  “convince people that improbable outcomes were not just possible, but certain.” Notwithstanding the fact that he was often too optimistic and drove his employees in directions that had low probabilities of success, he was proven right enough of the time to achieve incredible financial and reputational heights.

However, for every Madoff or Jobs, there are thousands of businesspeople who fall between the two on the continuum, and more often than not, their final position is sheer luck. An entrepreneur pursuing a very risky plan might get some lucky breaks, along with adequate financing, and succeed—falling somewhere near Steve Jobs. Another equally competent and well-intentioned entrepreneur can start out with a very realistic plan, but be unable to adequately finance it, lose key employees, skip payroll deposits in order to buy supplies, borrow on collateral that is overvalued, and is eventually get forced into  bankruptcy, at which time all of his financial transgressions become an open book; thus winding up on the Madoff side of the continuum.