When Worlds Collide

I have the privilege of interfacing with two different and distinct worlds: financial and academic.

On the financial side as a co-founder of ARKequity, a firm focused on start up and early stage ventures, I get to see comprehensive business proposals in their various incarnations: poorly constructed and presented transactions that will never get done, well thought out transactions that will get done because they are too good not to, transactions that may get done someday but will take time and refinement, and of course transactions (and their accompanying dreams) that are on the verge of dying because their entrepreneurs are close to giving up, wondering how financial firms with a lack of vision could derail their businesses by not recognizing upside potential.

“What I see in the worlds of business and academia – where the former increasingly requires a broad, generalized approach, while the latter is increasingly offering more narrow specialization – presents an interesting contrast.”

On the academic side, I serve as a trustee for an independent coeducational preparatory school. In this capacity, I think a lot about our educational system, where I see schools increasingly teaching and focusing more to narrow specializations and away from more generalized and broad-based curriculums. I frequently wonder if the ideas we held so strongly regarding what constitutes a comprehensive education are outdated.

This becomes ever more clear to me in my role as an investor. Specifically, it is essential to understand all of the components that come into play in a transaction to properly evaluate its suitability, not just the technology, or the market or the regulatory framework. For instance, I am not an expert in health care, but as a healthcare investor, I better have the ability to understand all of the operating activities of a health insurance company start to finish if I am evaluating whether or not to fund a start up health plan administrator, which I did, and which to date – fingers crossed – is prospering.

What I see in the worlds of business and academia – where the former increasingly requires a broad, generalized approach, while the latter is increasingly offering more narrow specialization – presents an interesting contrast. But this is more than idle armchair musing. I can’t help thinking about how they are connected and how there needs to be a proper balance between these approaches.

I came to this conclusion because I believe specialization is what got us into our current circumstances. Ford focused on gas-guzzling trucks. GM focused on behemoth SUVs. Airlines focused on air travel rather than transportation. Compaq focused on computers. Tower Records focused on CDs. The list goes on an on.

In finance, when banks originated, underwrote, funded and held mortgages, the chain of accountability/responsibility for these activities was clear and everyone involved was responsible for ultimate asset performance. And of course, there were fewer foreclosures. When the process evolved to origination being done by one firm, funding by another, servicing by another, then repacking/securitizing by yet another, it became difficult for all the specialists involved to see their way through the entire process. Compound this by large amounts of capital seeking yield, and you can see one of the reasons why we ended up where we are.

If over-specialization led to financial trouble in one world, this very naturally leads to the question for another: are we perhaps doing a disservice to our high school and college students by channeling them down a path towards narrow specialization? Perhaps. There are issues of career fulfillment, and I recognize there are many professions that require a great deal of intensive and specialized training. Still, are we taking a risk that the apparent costs of a narrow focus in the worlds of business and education will be so great as to be fundamental game changers for the next generation? It may be that the costs this generation has already borne for its trespasses have already changed the game for their own and future generations.

Ever since I can remember, people have been bashing the U.S. educational system: Our test scores are too low; not enough emphasis on math and science; our students lack discipline and are not as prepared as their foreign counterparts; our teachers aren’t motivating their students; there is too much emphasis on sports, and so on.

But throughout all this, the United States has continued to be the undisputed world leader by almost any economic or social measurement. I believe this is because our educational system, in it’s lack specialization, has always spawned creative thinkers and entrepreneurs who have been able to re write the rules in such a way that we continue to win. Warren Buffet, Bill Gates, Steve Jobs, J.W. Marriott, Jack Welsh, as well as the many trailblazers in the emerging social media that is redefining the news business, come to mind.

So, if too much specialization leads to costly errors, might more generalization lead to greater creativity and the generation of the kind of wealth that just might be able to get us out of the hole we’ve lately dug for ourselves ?