The Law of the Universe
In 1906, Italian economist Vilfredo Pareto famously observed that 20% of the people owned 80% of the property in Italy, later termed the “Pareto principle” or the “80-20 rule” or the “law of the vital few” when a similar distribution was found all around the natural and social world. In seismology, the “Gutenberg-Richter law” is the fact that a handful of earthquakes cause many times more destruction than all the rest put together. In linguistics, “Zipf’s law” states that a small percentage of words are used more than all other words combined. And in academia, “Lotka’s law” describes the uneven distribution of scientific output, where a small number of authors produce the vast majority of published research. Plot any of these on a graph—land ownership, earthquake magnitudes, word or publication frequency—and the result is what statisticians call a “power law” distribution curve. Drawing from the language of exponents, where a base number is raised “to the power” of another, power law distributions are characterized by a large number of very small events, occurrences, or outcomes and a small number of very large ones. So common across the natural and social world, “the power law,” as Peter Thiel writes in Zero to One, “is the law of the universe. It defines our surroundings so completely that we usually don’t even see it…We don’t live in a normal world; we live under a power law.”
Living under a power law—that’s the theme of this SIX at 6…
The Kahnweiler Technique
Born in Germany to a Jewish family in 1884, Daniel-Henry Kahnweiler survived the Nazi occupation in hiding and went on to become one of the most influential art dealers of the twentieth century. Among his collection, Kahnweiler owned works that would later sell for staggering sums: Picasso’s Buffalo Bill for over $12 million, Georges Braque’s L’église de Carrières-Saint-Denis nearly $4 million, and Fernand Léger’s Contraste de formes a record-setting $70 million. In the late 2000s, researchers at the Horizon Research Group set out to answer a simple question: How did the great art dealers of the nineteenth and twentieth centuries do it? How did they spot masterpieces before they were considered masterpieces? How did they know which works were to be worth fortunes fifty years in the future? Perhaps they possessed some mysterious instinct for genius. Maybe it was dumb luck. Or could it be that there was a method, some pattern repeated across all the great collectors? It turned out that nearly all the great collectors operated by what the Horizon Group termed the Kahnweiler Technique. A letter from Pablo Picasso illustrates the technique perfectly. Dated December 18, 1912—when Picasso was an artist “whom nobody else was after,” as one biographer put it—Picasso writes to Kahnweiler,
My Dear Friend,
This letter confirms our agreement covering a period of three years beginning December 2, 1912.
During this period I agree to sell nothing to anyone except you…It is understood that a right of reproduction to all the paintings that I sell you belongs to you. I promise to sell you at fixed prices my entire production of paintings, sculptures, drawings and prints, keeping for myself a maximum of five paintings a year…
Yours,
Picasso
As was his approach with other artists, Kahnweiler bought Picasso’s entire production, sight unseen. He didn’t have a prophetic eye for future masterpieces. He didn’t handpick individual works he suspected might one day be worth a fortune. Instead, he had a sense that the art market was governed not by taste, vision, or luck, but by a power law: a small handful of works emerge to be disproportionately valuable. As did all the great collectors. They all amassed their enormous fortunes the same way, the Horizon Group reports: “[they] bought vast quantities of art. A subset of the collections turned out to be great investments…That’s all that happens.”
The Picasso Technique
That’s really all that happens with the artists themselves as well. Presumably, in that letter to Kahnweiler, Picasso added the stipulation about “keeping for myself a maximum of five paintings a year” in case he produced something he believed might be especially valuable. Yet, in the end, he never held on to what became his most sought-after paintings. Meaning, he didn’t have a prophetic eye for future masterpieces either. Instead, he had a work ethic that generated an extraordinary volume of work. Over his lifetime, Picasso produced tens of thousands of paintings, sculptures, drawings, and prints. The exact number is hard to pin down. My favorite detail illustrating the sheer enormity of his output is that after Picasso died, Kahnweiler and Picasso’s former secretary compiled a catalogue of his work, and it ended up being thirty-three volumes long. The vast majority of what is in those thirty-three books are works few people have heard of. But a tiny fraction of them are the canonical masterpieces that have established Picasso as one of the most celebrated artists who ever lived. Of course, in the moment, stepping back from a finished canvas, he didn’t know whether it would end up among the unacclaimed majority or the exalted few. And he didn’t seem to think it mattered. “What matters,” as Picasso once encouraged another artist just starting out, “is that you make a large number of them. Your drawings must go out into the world.” Only then can the vital few emerge.
“Here’s A Dopey Idea”
Not only do a small handful of companies disproportionately outperform all others, but within those companies are even more power law distributions. Nearly all of Amazon’s revenue comes from just two products: its online marketplace and Amazon Web Services. Nvidia is the most valuable company in the world—88% of its total revenue comes from its Data Center division, and the bulk of those earnings flow from just three customers. And Apple runs on something like the Kahnweiler technique, but with the iPhone and App Store instead of Picassos and Braques. The most influential companies in the world, as we talked about last week, just keep bumbling and failing, occasionally stumbling into a winner that dwarfs all the failures. Apple’s former Senior VP of industrial design Jony Ive said it was one of the things he learned from Steve Job: don’t be afraid to try a dopey idea. “Steve used to say to me,” Ive said, “and he used to say this a lot, ‘Hey, Jony, here’s a dopey idea.’ And sometimes they were: really dopey. Sometimes they were truly dreadful. But sometimes they took the air from the room, and they left us both completely silent. Bold, crazy, magnificent ideas.” The vital few ideas, found only by those willing to generate the dopey and dreadful majority.
The “Genius” Hangs Around His Laboratory Day And Night
With a total of 1,093 patents, Thomas Edison was one of history’s most prolific inventors. Averaged across his adult life, he filed a patent roughly every eleven days. Biographer Edmund Morris tells us that toward the end of Edison’s life, about $15 billion of the national economy stemmed from his inventions alone. Though often called a genius, Edison himself rejected the label, believing that he simply had a higher tolerance than most for the dopey and the dreadful. On a single day when he was forty, for instance, he jotted down 112 ideas for “new things,” among them artificial silk, a platinum wire ice slicer, concrete furniture, a snow compressor, and “Ink for the Blind.” As for his better ideas, Edison insisted, “I’ve created nothing. Nobody does. There’s no such thing as an idea being brain-born. Everything comes from the outside…The ‘genius’ hangs around his laboratory day and night. If anything happens he’s there to catch it; if he wasn’t, it might happen just the same, only it would never be his.” “What he’s talking about is showing up,” Ryan Holiday writes in Discipline is Destiny. “The incredible, underrated power of clocking in every day, putting your ass in the seat, and the luck this seems to inevitably produce.”
A Motto
To a nineteen-year-old aspiring writer who wrote to her for advice, on October 24, 1878, Louisa May Alcott—then one of the most popular authors in the world, with her Little Women being hailed as “the triumph of the century!”—wrote back: “Write, and print if you can; if not, still write, and improve as you go on…Work for twenty years, and then you will some day find that you have a style and place of your own.” She closed with a favorite quote she’d also used in Little Women: “I wish you success, and give you for a motto Michelangelo’s wise words: ‘Genius is infinite patience.’” What she’s talking about is the underrated power of clocking vast amounts of hours in the laboratory, at the easel, in the writing chair, on the court, or wherever you do your work. In a power law world, a subset of those hours inevitably yields something great. That’s all that happens.