Learnable Empathy

The Human Element of Investing

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In 1998, Robin Williams was in a movie called Patch Adams, and there is a scene I think about all the time. The title character is being accused of practicing medicine without a license, treating patients with humor more than anything. He's asked if he'd thought through the potential ramifications of his actions. "What if somebody had died?"

"What's wrong with death sir? What are we so mortally afraid of? Why can't we treat death with a certain amount of humanity and dignity, and decency, and God forbid, maybe even humor. Death is not the enemy gentlemen. If we're going to fight a disease, let's fight one of the most terrible diseases of all, indifference."

In medicine, they talk about the idea of avoiding transference and maintaining professional distance between doctors and patients. Patch Adams argues that transference is inevitable. "Every human being has an impact on another."

I'm no doctor, and I haven't spent nearly enough time on VC twitter to believe that VCs are just as important as doctors. But a particular word always sticks in my mind: indifference. Indifference to the experience of someone else demonstrates a lack of empathy.

And I firmly believe that a lack of empathy is not only one of the biggest obstacles in our political and social life, but it is one of the biggest obstacles to becoming a successful investor.

What's The Valuation Multiple on Empathy?

There is a Tiktok audio that makes the rounds every few month; it’s a conversation between two people. The first person says, "Just a reminder that it costs zero dollars to be nice." And the other person responds, "how much is it to be an a**hole? I can Venmo you." Love it. Solid joke. Well executed.

I'm no Debbie downer looking to rain on funny jokes. But that TikTok came to mind because it’s an example of how empathy isn't always something that immediately comes to mind as being valuable. The internet has taught us that it's more important to be right than to be understanding. If you're right then you get likes. If you're understanding? No one cares.

There is also the more old-school idea that empathy is a very emotional thing; fine for casual elevator courtesy, and things like that. But it doesn’t have much place in business. When companies have corporate values like "we're a family," other people would say that's inappropriate. We're not family. We're co-workers. This is a business. We have a bottom line. We're optimizing for performance and profits, not niceness.

So why does empathy matter in venture? Well, the first reason is people have increasingly started to notice that VCs can be relatively unempathetic.

Will Manidis @WillManidis

Being a reasonably nice person has become a competitive advantage in VC

Rob Biederman @BiedermanRob

VC is the first industry I’ve found where just being a normal person is somewhat of a competitive advantage

Dave Sachse @DSox

The VC and startup industry is so bizarre. If you are direct, kind and authentic, you have a competitive advantage. Lots of fugazis in startup/VC land, be safe out there.

So what does it cost to be an a**hole? It might cost you an opportunity to invest in a great company because nobody wants to work with you. Any other benefits to empathy?

Practical Applications of Empathy

One of the easiest, and most often used, examples of empathy is about customer empathy. The better you can empathize with a potential user or customer, the better you can build products for them. There is a story in Amazon Unbound about the development of the Fire Phone, which went on to be a massive flop of a product.

“Does anyone actually use the calendar on their phone?” [Jeff Bezos] asked in one meeting. “We do use the calendar, yes,” someone who did not have several personal assistants replied."

That was an example of a lack of user empathy from someone who happened to be out of touch with that particular kind of product. As an investor, that can also be a huge blind spot because there can be massive market opportunities in front of your face that you struggle to see because you have no empathy for the people those markets are targeted at.

This is one, of many, reasons why the lack of women and BIPOC in venture is a problem. There are massive markets that wealthy white men who went to one of two schools may struggle to see and appreciate. That is also one of the drivers behind the majority of venture dollars going to white men. There is a meaningful empathy problem in venture capital.

The less empathy one group has for another, the more likely that unempathetic group is to devolve into groupthink. Charlie Munger put it this way:

"It is almost everywhere the case that extremes of ideology are maintained with great intensity and with great antipathy to non-believers, causing extremes of cognitive dysfunction. One antidote to intense, deliberate maintenance of groupthink is an extreme culture of courtesy, kept in place despite ideological differences. Another antidote is to deliberately bring in able and articulate disbelievers of incumbent groupthink."

General lack of empathy is most noticeable in politics. There is a very clear (and increasingly divisive) two-sided conflict. That may be the reason some of my favorite quotes about empathy come from politicians, or people who have been heavily exposed to politics. Abraham Lincoln said, "I don't like that man. I must get to know him better." Michelle Obama put it this way: “When voters got to see me as a person, they understood that the caricatures were untrue. I’ve learned that it’s harder to hate up close.”

The more empathy you can develop, the more effectively you can develop products, hire high quality people, communicate a vision, and build a movement. That’s why Steve Jobs described marketing as being about “values.”

“Marketing is about values. It's a complicated and noisy world, and we're not going to get a chance to get people to remember much about us. No company is. So we have to be really clear about what we want them to know about us.”

Empathy is a value, like a lot of other things someone could choose to focus on. Empathy is also most likely to lead to a successful overlap of values between customers and vendors, investors and founders, and managers and employees. The more you understand someone, the better you can identify shared values.

The Empathy Inside Me

There is no better place to reflect on a lack of some character trait than some healthy self-reflection. One way to put it? "I'm starting with the [person] in the mirror." Another way to say it?

“To put the world in order, we must first put the nation in order; to put the nation in order, we must first put the family in order; to put the family in order; we must first cultivate our personal life; we must first set our hearts right.”

Before I got into investing, I briefly worked for one of the wealthiest people in Albuquerque. I didn't come from a wealthy family, so seeing this guy was my first exposure to meaningful wealth. And he was awful. He was mean to everyone. Every conversation we walked into with him people were on edge, ready to get screamed at or personally insulted. On more than two occasions, he made grown men cry. He wasn't, as they say, "a fun guy."

But at one point we had a company dinner, and I saw him with his children. I was so unbelievably caught off guard. He introduced me to his daughter and couldn't have been more sweet, and kind. He was kinder to me, he was considerate of her. I was so confused.

Did I hate him more because he was inconsistent? Did I appreciate him more because there was more than one side to him? I don't know. All of the above, and more. But one thing I thought I knew for sure was that I didn't want to be like him. And don't get me wrong, I still don't. But as I've progressed in my career I've managed more people, I've been under more pressure, and I've felt my consideration and empathy crack.

Does that mean I suddenly condone rich people yelling at everyone who works for them? No. But I understand where he's coming from, first, as a father (I'm also much kinder to my kids than my co-workers, so sue me), and second, as a leader. But here's where the empathy evolves. Empathy does not mean acceptance.

You don't have to be okay with who someone is or how they act. I can understand that guy is under a lot of pressure, and he lets it take control of him. I can empathize with that, having now been a manager who is also under pressure. But when I feel my patience crack, or I get frustrated with the people I work with I take my understanding of his behavior, and have to recognize that I want to be different. I need to turn away from being an a**hole (even though it's free.) By no means am I perfect, I will always make mistakes. The things that make me different is actively trying to choose to be different.

What Does This Mean For Venture Capital?

Venture capital has an empathy problem. Understanding founders, LPs, customers, and employees isn't an easy web to wrangle. And a lot of VCs don't do it well.

I often think about this quote from Doug Leone, and return to it a lot: "The two most important things are (1) performance, and (2) teamwork. But if you don't have number 1 then nothing else matters."

This is a performance business. At the end of the day, if you're not making money it doesn't matter whether you're nice or not. I'm a believer that in the long run, though, that the more people who want to work with you, the more likely you are to be successful.

But even more than that? Our life leaves a reflection on our soul. Who we become is a weighted average of how we behave throughout our life. People will often say things like, "first I'll make a lot of money, and then I'll give to charity." Maybe. But often, philanthropy is a learned behavior. So is empathy. The longer we spend living our life one way, or another, the more that reflection gets established, and we become who we will be for the rest of our life.

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