Goldman's Rules of Acquisition

Date: May 3rd, 2010, 1:52PM
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Last Wednesday. The Eastbound 10 Freeway, in Los Angeles.

An orange Tesla speeds toward Commerce Casino for a No-limit, Texas
Hold ’em training session. CNBC’s coverage of the Goldman Sachs Senate
Hearings can be heard, transmitted via satellite.

The unmistakably heroic, and curmudgeonly, voice of Senator Carl Levin.

Equal parts Jack Welch and Peter Falk: “When you heard your employees
say… God what a shitty deal. God what a piece of crap. When you hear
your own employees, and read about those emails, do you feel
anything?”

A nebbishy, gloating voice responds: “I think that’s very unfortunate
to have on email…  ”

The crowd laughs–nervously. One member drops an “ohhhhhhhhhh….. ,”
as in “oh no he didn’t?” to cap off the truth bomb.

The Trek Back to Brentwood
==================
Later that night, after a successful five-hour session of high-stakes
poker training with professional Joe Sebok, I review the tapes.
Goldman CFO, David Viniar was clearly smirking in utter contempt of
Senator Carl Levin as he tried to explain his “unfortunate”
comment(s).

The Yahoo Video player auto loaded the next Goldman clip. Then
another, and another. For over an hour I watched a parade of
intelligent, well-spoken, well-dressed, executives gloat as they
evaded and sparred with Senators.

I know these guys from somewhere–but where?

It’s unmistakable.

These bastards are reveling in their financial
mischievousness–they’re enjoying explaining exactly how they fucked
us. Like a ‘nit slow playing an overpair who hits his set (that’s
poker lingo, ask a friend), these bastards can’t wait for the hand to
end so they can explain  how they trapped us while counting our chips.

Ferengi! That’s it, they’re Ferengi.

Goldman Sachs is run by the money-loving Ferengi, whose core
principles are outlined in their bible, “The Rules of Acquisition.”

If you’ve never read the rules of acquisition they are outlined at
the bottom of this email. Some classic insights include:

Ferengi Rule 001 » Once you have their money, you never give it back.
Ferengi Rule 042 » What’s mine is mine, and what’s yours is mine too.
Ferengi Rule 152 » A lie is a way to tell the truth to someone who doesn’t know.
Ferengi Rule 069 » Ferengi are not responsible for the stupidity of other races.

The man who would be King
==================
Scumbag CFO Divid Viniar, whose Freudian/Ferengi slip summarized the
entire Goldman Senate hearings, works for Goldman’s CEO Lloyd
Blankfien.

Blankfein grew up in public housing in the Bronx, was a product of the
public school system before going to Harvard and worked at Yankee
Stadium as a kid. His dad worked as clerk at the post office at night
for the 10% bonus given to the graveyard shift. His mom was a
receptionist. This weekend, he told Fareed Zakaria on GPS (Tivo it),
that one of his earliest memories is of his father being out of a job
before landing the post office gig, and the stress he was feeling.

Blankfein made more than $60M bonuses while the economy crashed, and
the value of his equity holdings is over $400M (according to the New
York Times’ topic page on him).

Somehow, this golden boy from the Bronx rose to lead a company of
mercenaries who have seemingly have done more damage to the American
economy than Osama bin Laden, Bernie Madoff and Enron–combined. Oh
yeah, he got paid and bailed out the whole time, and then bailed out.

Where did he go wrong?

Where did America go wrong?

Simple Explanations
=================
Einstein famously explained explanations thusly: If you cant explain
it simply you don’t understand it well enough.

When your contribution to the world is creating confounding financial
products that no one can hope to understand and that don’t actually
add any value, as Goldman did during the housing bubble, you’re
wasting our most precious resource: innovation.

You’re also a bullshit artist.

Sadly, we’re long past the point of just losing innovative people and
resources to these financial shenanigans. We’ve crossed over into
collateral damage territory. These products are clearly being designed
to screw people, and the benchmark for success on Wall Street seems to
be making the most confusing and intimidating product possible in
order to collect the most money.

As Krugman quipped, “What do you get when you cross a Godfather with
an investment banker? Someone who makes you an offer you can’t
understand.”

It feels like Wall Street’s moral benchmark has fallen from Gordon
Gecko’s credo, “greed is good” to “well, it’s not illegal.” And
perhaps beyond that, to “what are the chances we’ll get caught? I
mean, no one even understands this shit.”

Many of America’s smartest and most driven people–people who start in
the public school system and graduate from Harvard–are not trying to
solve big problems any more. They’re not doing hard science or
building legendary and delightful products and services. Nope, they’re
taking existing value and trying to exploit it so they skim off the
top.

Essentially, this is what happens at a poker game–it’s called the rake.

At underground card rooms in Los Angeles and New York, at a game where
everyone sits down at the table with $2,000, the rake can average $25
a hand (or so I’m told). In an average hour a table will play 20 or so
hands. This means that $500 is taken off the table each hour. These
sessions can last (again I’m told) 12 hours. Which means, $6,000 of
the $20,000–or 30%–is being taken by the organizers in exchange for
getting you drinks, feeding you delivered food and dealing you
cards… Oh yeah, and saving you from having to drive an extra five
miles to a casino where the rake might be $20 an hour per player ($240
over 12 hours, as opposed to $600–12%, not 30%).

In order for any one player in this scenario to “beat the rake” and
make a profit, they have to take $600 off another player first. Anyone
who has been to a card room can suss this out by counting the amount
of money on the table at 7PM and again at 3AM (and again at 7AM, if
you last that long).

Wall Street is a rigged game, run by intelligent people trying to get
over on a combination of  degenerate gamblers and Americans’ basically
trusting nature.

We shouldn’t play their game.

Where Should We Put Our Money?
=================
The only thing that will save our country from the death spiral of
obscene government spending, unsustainable wars and financial
miscreants, is true innovation and value creation. This simply doesn’t
happen on Wall Street. It happens at startup companies.

It’s time for Americans to stop feeding the Ferengi and start angel investing.

Place your bets on young people who are building real products and
services that solve real problems and delight real customers. Heck,
even if they’re old people with young energy, I say invest in them
too! (Note: my stance on entrepreneurship being a “young man’s game”
is inversely proportional to my actual age).

Encourage young people going into the work force to forgo the promise
of unearned and absurd compensation on Wall Street for the more
appropriate and soulful option that comes from creating real value at
a startup company. When you meet a young person who wants to go to
wall street scold them. Tell them how sad it is that they are going to
waste their talents trying to manipulate money instead of creating
value. Explain to them that when they look back on their career, even
if they are successful, they will see a bunch of transactions and
models (they’ve dated and built), but they will never know the
satisfaction of having built something real. Something tangible that
they can be proud of.

How do these Goldman Sach employees go to Thanksgiving, Christmas or
Passover dinner and face their families? Are they not ashamed? Of
wait, I forgot Rule #402: “Never apologize for how you got your
Latinum, or for how much you have.” And of course Rule #171: “Blood is
thicker than water, and Latinum is thicker than both.”

As a country we need to find and support these entrepreneurs. Develop
the ones who think big, work hard, are resilient, honest, resourceful
and who are willing to take reasonable chances with our investments.
Also, we should only invest in the people whose prior products haven’t
left  huge craters of unemployment and financial pain when they
imploded–but I digress.

How to be An Angel Investor & Business Creator
==================
Now, I can’t tell you what to do with your money but I can tell you
what I’m doing with mine. I’m not an expert on angel investing, in
fact I’ve only been doing it in other people’s companies for one year.
However, I plan on sharing everything I learn about this in the Jason
Nation newsletter–good and the bad.

My basic concept is to invest in about 10 startup companies a year for
the next five years. Also, I’m going to create two of my own companies
each year and spin them out. This year I created ThisWeekIn Studios
(www.thisweekin.com) and the Open Angel Forum
(www.openangelforum.com). These were two ideas for which I felt the
market was ready, for so I followed a very simple plan:

Step One: Find a need, trend and/or pain point in the marketplace.
Step Two: Discuss possible solutions and products to address #1.
Step Three: Prototype the solution in step two and share with the world.
Step Four: Discuss the possibility of scaling the prototype with the
smartest folks in that vertical.
Step Five: Find a team to manage the growth of this product and give
it the support of a couple of partners and/or angels if possible.
Step Six: Debate, iterate, engage, recruit, inspire, pivot and
communicate (i.e. My seven keys to running a great the business).

Now, the steps I outline above are going to be the subject of my next
two emails (how to create a business and how to run a business). If I
put them in this email I will hit  20,000 words and that starts to put
us in book territory (hmmm… a book, that’s an interesting idea.
Would you buy one if I wrote one?).

Bottom line: I’m putting my money to work in companies that my friends
and I create first, and then in startup companies that I can help grow
second.

I have no interest in giving any of my dry powder to the Wall Street
scammers. It’s a rigged game. Owning equity (and equities) in
companies I don’t know and I can’t visit or influence doesn’t make any
sense to me. At least not when there I so many startups I can impact
and visit on a regular basis. For the record, I “store” my dry powerd
in those really secure, revenue-backed government bonds. You know, the
bonds that pay 3-4% tax free and supposedly can never have a
problem–famous last words, I know.

Now, I know most Americans are not in my position. Most folks can’t
angel invest in technology startups where the starting investment is
$25,000. Just getting access to these deals is hard. However, you can
invest in the small startups that you and your friends create. Get a
dozen friends together and put a months salary each into a small
business. Select a business that can sell to everyone on the planet
because that is the future: innovative products and services that can
be sold on a global basis. If you lose the money at least you did it
with a company you could understand, help and watch. I’m going to
figure out more about how you can do this and, again, explain it in
upcoming emails.

Wrapping Up
===================
Your marching orders in the New World Order are:

1. Find talented young people and talk to them about value creation.
2. Find people with money who want to invest in things they can
understand and tell them to do #1.
3. Draw up plans for new products and services and discuss them with
your angels and entrepreneurs.
4. Email this newsletter to anyone you know who is sick of watching
Ferengi bankers fuck up our country.
5. If you find people who have built a killer businesses–or at least
a prototype–please tell them to consider applying to Open Angel
Forum.

Fight the power by being the power.

KJNG,

Jason

P.S. I’m heading to Vegas tomorrow to play in a new national TV show
called “PokerStar’s The Big game” which will air this summer. Wish me
luck, as I’ll be putting up ten “high societies” against Doyle
Brunson, Daniel Negreanu and Phil Hellmuth. Hey, they way I look at
it, the game has no rake and we’re getting paid one high society to
play it on TV. Plus I will get to wear the Mahalo and ThisWeekIn.com
logos on national television! That’s better than giving the ten high
societies to the Ferengi at Goldan Sachs right?

The Ferengi/Goldman Sachs Rules of Acquisition (feel free to add/tweet
your own to me @jason).

Rule 001 » Once you have their money, you never give it back.
Rule 002 » The best deal is the one that brings the most profit.
Rule 003 » Never spend more for an acquisition than you have to.
Rule 004 » A woman wearing clothes is like a man in the kitchen.
Rule 006 » Never allow family to stand in the way of opportunity.
Rule 007 » Keep your ears open.
Rule 008 » Small print leads to large risk.
Rule 009 » Opportunity plus instinct equals profit.
Rule 010 » Greed is eternal.
Rule 011 » Even if it’s free, you can always buy it cheaper.
Rule 012 » Anything worth doing is worth doing for money.
Rule 013 » Anything worth doing is worth doing twice.
Rule 014 » Keep your family close, keep your Latinum closer.
Rule 016 » A deal is a deal. (until a better one comes along).
Rule 017 » A contract is a contract is a contract – but only between Ferengi.
Rule 018 » A Ferengi without profit is no Ferengi at all.
Rule 019 » Satisfaction is not guaranteed.
Rule 020 » Only give money to people you know you can steal from.
Rule 021 » Never place friendship before profit.
Rule 022 » A wise man can hear profit in the wind.
Rule 024 » Latinum can’t buy happiness, but you can sure have a blast
renting it.
Rule 025 » There’s always a way out.
Rule 026 » As the customers go, so goes the wise profiteer.
Rule 027 » There’s nothing more dangerous than an honest businessman.
Rule 028 » Whisper your way to success.
Rule 029 » What’s in it for me?
Rule 031 » Never make fun of a Ferengi’s mother. (insult something he
cares about, instead).
Rule 033 » It never hurts to suck up to the boss.
Rule 034 » War is good for business.
Rule 035 » Peace is good for business.
Rule 037 » If it’s free, take it and worry about hidden costs later.
Rule 039 » Friendship is temporary; profit is forever.
Rule 040 » She can touch your lobes, but never your Latinum.
Rule 041 » Profit is its own reward.
Rule 042 » What’s mine is mine, and what’s yours is mine too.
Rule 044 » Never confuse wisdom with luck.
Rule 045 » Ambition knows no family.
Rule 046 » Make your shop easy to find.
Rule 047 » Don’t trust a man wearing a better suit than your own.
Rule 048 » The bigger the smile, the sharper the knife.
Rule 049 » Everything is worth something to somebody.
Rule 050 » Gratitude can bring on generosity.
Rule 051 » Reward anyone who adds to your profits so they will
continue to do so.
Rule 052 » Never ask when you can take.
Rule 057 » Good customers are as rare as Latinum, Treasure them.
Rule 058 » There is no substitute for success.
Rule 059 » Free advice is seldom cheap.
Rule 060 » Keep your lies consistent.
Rule 062 » The riskier the road, the greater the profit.
Rule 065 » Win or lose, there’s always Huyperian beetle snuff.
Rule 068 » Ear stroking will get you anything.
Rule 069 » Ferengi are not responsible for the stupidity of other races.
Rule 072 » Never trust your customers.
Rule 073 » If it gets you profit, sell your own mother.
Rule 075 » Home is where the heart is, but the stars are made of Latinum.
Rule 076 » Every once in a while, declare peace. “It confuses the hell
out of your enemies”.
Rule 077 » It’s better to swallow your pride than to lose your profit.
Rule 078 » When the going gets tough, the tough change the Rules.
Rule 079 » Beware of the Vulcan greed for knowledge.
Rule 082 » The flimsier the product, the higher the price.
Rule 084 » A friend is not a friend if he asks for a discount.
Rule 085 » Never let the competition know what you’re thinking.
Rule 087 » A friend in need means three times the profit.
Rule 089 » Ask not what your profits can do for you, ask what you can
do for your profits.
Rule 092 » There are many paths to profit.
Rule 093 » Act without delay! The sharp knife cuts quickly.
Rule 094 » Females and finances don’t mix.
Rule 095 » Expand or die.
Rule 096 » For every Rule, there is an equal and opposite Rule,
(except when there’s not).
Rule 097 » Enough… is never enough.
Rule 098 » Every man has his price.
Rule 099 » Trust is the biggest liability of all.
Rule 100 » If they take your first offer, you either asked too little
or offered too much.
Rule 101 » The only value of a collectible is what you can get
somebody else to pay for it.
Rule 102 » Nature decays, but Latinum lasts forever.
Rule 103 » Sleep can interfere with…
Rule 104 » Faith moves mountains… (of inventory).
Rule 105 » Don’t trust anyone who trusts you.
Rule 106 » There is no honor in poverty.
Rule 107 » A warranty is valid only if they can find you.
Rule 109 » Dignity and an empty sack is worth the sack.
Rule 111 » Treat people in your debt like family, exploit them [ruthlessly].
Rule 112 » Never have sex with the boss’ sister.
Rule 113 » Always have sex with the boss.
Rule 115 » The best contract always has a lot of fine print.
Rule 116 » There’s always a catch.
Rule 117 » Everything is for sale, including friendship.
Rule 119 » Never judge a customer by the size of his wallet,
(…sometimes, good things come in small packages).
Rule 121 » Everything is for sale, including friendship.
Rule 123 » Even a blind man can recognize the glow of Latinum.
Rule 125 » You can’t make a deal if you’re dead.
Rule 126 » Count it.
Rule 127 » Stay neutral in conflict so that you can sell supplies to both sides.
Rule 135 » Never trust a beneficiary.
Rule 139 » Wives serve, brothers inherit.
Rule 141 » Only fools pay retail.
Rule 142 » There’s no such thing as an unfair advantage.
Rule 143 » Risk is part of the game… play it for all it’s worth.
Rule 144 » There’s nothing wrong with charity…as long as it winds up
in your pocket.
Rule 146 » Necessity, n. The mother of invention. Profit is the father.
Rule 152 » A lie is a way to tell the truth to someone who doesn’t know.
Rule 153 » Sell the sizzle, not the steak.
Rule 162 » Even in the worst of times, someone turns a profit.
Rule 168 » Whisper your way to success.
Rule 169 » Competition and fair play are mutually exclusive.
Rule 171 » Blood is thicker than water, and Latinum is thicker than both.
Rule 172 » Chances aren’t what they used to be.
Rule 177 » Know your enemies… but do business with them always.
Rule 181 » Not even dishonesty can tarnish the shine of profit.
Rule 188 » A fool and his money is the best customer.
Rule 189 » Let others keep their reputation. You keep their money.
Rule 190 » Hear all, trust nothing.
Rule 191 » A Ferengi waits to bid until his opponents have exhausted themselves.
Rule 192 » Never cheat a Klingon… unless you’re sure you can get away with it.
Rule 194 » It’s always good business to know about new customers
before they walk in your door.
Rule 200 » If you’re going to have to endure, make yourself comfortable.
Rule 202 » The justification of profit is profit.
Rule 203 » New customers are like razor-backed Gree worms… They can
be succulent, but sometimes they bite back!
Rule 204 » It takes a Ferengi to cheat a Ferengi.
Rule 208 » Sometimes the only thing more dangerous than a question is an answer.
Rule 211 » Employees are the rungs on the ladder of success… don’t
hesitate to step on them.
Rule 214 » Never begin a business negotiation on an empty stomach.
Rule 216 » Never gamble with an empath.
Rule 217 » You can’t free a fish from water.
Rule 218 » Always know what you’re buying
Rule 219 » Possession is 11/10 of the law.
Rule 223 » Beware the man who doesn’t make time for oo-mox.
Rule 229 » Latinum lasts longer than lust.
Rule 231 » There’s a sucker born every minute; be sure you’re the
first to find each one.
Rule 236 » You can’t buy fate.
Rule 239 » Never be afraid to mislabel a product.
Rule 241 » Never trust a hardworking employee.
Rule 242 » More is good… all is better.
Rule 253 » Synthehol is the lubricant of choice for a customer’s stuck purse.
Rule 255 » A wife is a luxury… a smart accountant, a necessity.
Rule 256 » Accountants do not play the game; they only keep the score.
Rule 260 » Life’s not fair. How else would you turn a profit?
Rule 261 » A wealthy man can afford anything except a conscience.
Rule 262 » A verbal contract isn’t worth the paper it’s written on.
Rule 263 » Never allow doubt to tarnish your lust for Latinum.
Rule 265 » The customer is always right, (…until you get their cash).
Rule 266 » When in doubt, lie.
Rule 267 » If you believe it, they believe it.
Rule 270 » In business deals, a disruptor can be almost as important
as a calculator.
Rule 277 » Anything worth fighting for is worth hiding from.
Rule 284 » Deep down, everyone’s a Ferengi.
Rule 285 » No good deed ever goes unpunished.
Rule 286 » When Morn leaves, it’s all over. (Quark made this rule up)
Rule 299 » Whenever you exploit someone, it never hurts to thank them.
That way, it’s easier to exploit them the next time.

=========================
Sent with love:

Jason McCabe Calacanis
902 Colorado Avenue
Santa Monica, California 90401

My mobile: 310-456-4900
My blog: www.calacanis.com
My company: www.mahalo.com
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www.thisweekin.com.

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Thanks for the edit guys:
Nick Baily: http://nickbaily.typepad.com/
Lon Harris: http://crushedbyinertia.blogspot.com/

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