What’s the biggest threat to Facebook?Some things leap to mind: Google, Twitter, the shift to mobile, government regulators.
But a top Facebook executive says those aren’t the real problem.
Instead, it’s reversion to the mean, according to Chamath Palihapitiya, who’s now a venture capitalist at the Social + Capital Partnership.
Reversion to the mean, or regression to the mean, is a concept from statistics. It basically says that exceptional performance can’t last forever.
Palihapitiya made the comments in a video interview he gave to Treehouse, an online-education startup he’s backed that’s focused on teaching technology skills like Web development that help its customers get jobs.
Palihapitiya joined Facebook in 2007, working on the social network’s growth and mobile efforts. Towards the end of his career, he also played a role in teaching new employees about the company’s culture.
Here’s how he described Facebook’s challenge:
When companies work, the biggest thing that happens is you revert to the mean. The mean is every crappy company out there. And we all work at crappy companies. We’ve all done it. We all look at our boss and think, “This guy’s an idiot. How does he have this job? This company is so stupid. I hate my job. Is it time to leave yet?”
We’ve all been in that position.
And so the real question that I was asking myself at Facebook was, “What happens and how do companies end up in this situation?” And my realisation was every company gets there eventually. But that last word is the most important.
And the challenge of a senior executive team is to prevent that regression to the mean. And culture is the only thing that does that.
At Facebook, Palihapitiya said he enforced the culture by “scar[ing] the living shit” out of new employees every week as part of their orientation.
In the interview, Palihapitiya even suggests that as an investor, he’ll end up reverting to the mean. Right now, he has some special insights from working on products like Facebook; AOL’s AIM and ICQ instant-messenger software; and Winamp, an early media player that presaged Apple’s iTunes. That won’t last, however.
“Four years from now, I’ll be as dumb as any other VC,” he said.
For now, Palihapitiya seems to be making some smart bets. He told Business Insider that he’s looking at investments in three main areas: healthcare, education, and financial services. He sees opportunities to use technology to solve societal problems in those fields.
Treehouse is one of his educational bets. It’s addressing the lack of practical skills that students receive in traditional higher education—not to mention the huge college-loan burdens they face.
Here’s the 30-minute-long video—the discussion of mean reversion comes about 20 minutes in:
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