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Marc Andreessen on Charlie Munger and Entrepreneurial Misjudgment March 30, 2008

Posted by davidzweig in Uncategorized.

Marc Andreessen, for those of you old enough to remember, was the Wunderkind who did the hard work behind a company called “Netscape” (for those of you old enough to remember). Charlie Munger, now in his eighties, is Warren Buffett’s partner, and old enough to remember a lot.

Munger published a book called Poor Charlie’s Almanack, containing a lot of his writings, and an essay on the 25 key forms of human behavior that lead to misjudgment and error. Marc Andreessen has launched a four-part serial on his blog that comments on Munger’s Top 25, but in the context of starting a business.

In fact, Andreessen’s wisdom is inestimably valuable for anyone in business. I urge you to read it.

A small sample:

…from an incentive standpoint the result of shifting from stock options to restricted stock should be obvious: current employees will be incented to preserve value instead of creating value. And new hires will by definition be people who are conservative and change-averse, as the people who want to swing for the fences and get rewarded for creating something new will go somewhere else, where they will receive stock options — in typically greater volume than anyone will ever grant restricted stock — and have greater upside.

And sure enough, in the wake of shifting towards restricted stock and away from stock options, Microsoft’s stock has been flat as a pancake. The incentive works.



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