The Invisible Force That Warps What You Read in the News
By: Aaron Zamost
Tags: Tech, Venture Capital, Startup, Uber, Media

Things we know to be true: John McCain is a maverick. The New England Patriots are cheaters. Apple can’t innovate without Steve Jobs.

But wait a second. How do we actually “know” these things? And what makes them “true”?

The answers reveal something fundamental about how companies and people rise and fall in the eyes of the media. Once a narrative sets in — such as “maverick” in a good case, or “cheater” in a bad one — it becomes very hard to break. But it can be done.

The warping effects of narratives are everywhere, from Uber to Snapchat to Elon Musk. Before we get to those examples, it helps to start with a tale that begins — as so many tech stories do — with fear of a bubble.

In October 2015, The Information reported that BlackRock and Fidelity mutual funds each marked down the value of their holdings in Dropbox. The markdowns implied a 20 to 30 percent decrease in the company’s valuation, from $10 billion to around $7.5 billion.

The Wall Street Journal’s subsequent report presented the markdown as trouble for Dropbox and a sign of weakness for the 100+ “unicorn” private companies with valuations over $1 billion. The public market’s reception of recent tech company IPOs portended similar dangers for unicorns. As the Journal put it:

At least 11 of 49 venture-capital-backed U.S. technology companies with IPOs since the start of 2014 traded below the per-share value where they last raised money as a private company.

A media frenzy followed: The Financial Times reported that Fidelity had written down the value of its stake in Snapchat by 25 percent. Fortune noted that T. Rowe Price and The Hartford had marked down more than a dozen private companies, including Pinterest and Evernote. The markdowns, according to Bloomberg, were “the latest evidence that private technology companies are losing some of their luster.”

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You may have missed it, but 10 days later the Journal published a story titled “Mutual Funds Flail at Valuing Hot Startups like Uber.” They noted that “prices for hot private companies are hard to set and can vary widely,” and “no one knows what those investments are actually worth.” In many instances, the Journal found the same company’s valuation varied widely across different fund managers. Most of the funds’ revisions — up or down — were based in part on guesswork and general fluctuations in the stock market.

So which was it? Were mutual funds a reliable arbiter of private company valuations? Or did the markdowns show fund managers weren’t credible when it comes to valuing unicorns?

I don’t pretend to know the answer. To me, the more interesting question is about narratives. Why did the same fact — mutual funds marking down unicorns — become widely accepted as an indictment of the latter’s businesses, and not the former’s math?

Surprise! I have a metaphor.

The Law of Narrative Gravity

The theory of gravity says objects attract other objects in the universe using a force that is directly proportional to their masses. The greater an object’s mass, the greater the gravitational force. (Like so many origin stories, including those in Silicon Valley, the one where Isaac Newton came up with his famous theory when he saw an apple fall from a tree is probably a myth.)

The Law of Narrative Gravity posits that the public and press are drawn to narratives, and the more widely accepted (or massive) a narrative, the more it attracts and shapes the perception of facts.

Which brings us back to unicorns and mutual fund markdowns. Which narrative was more prevalent in the fall of 2015?

“Mutual funds often have imperfect information, which makes it difficult for them to value private companies.” “We’re in another tech bubble.”

“Another tech bubble” was the subject of an insane amount of reporting, analysis, and speculation at the time (to say nothing of the are-we-or-aren’t-we-in-a-bubble debate that’s been popular for 15 years), and it warped journalistic spacetime, bending stories to fit the narrative.

Here, again, is that sentence from the Wall Street Journal about the challenges of private tech companies after going public:

At least 11 of 49 venture-capital-backed U.S. technology companies with IPOs since the start of 2014 traded below the per-share value where they last raised money as a private company.

In other words, only 22 percent of venture-backed tech companies are worth less since going public. That seems…reasonable?

If the goal was to instead support a bull market theory, the reverse metric would hold: “at least 38 of 49” such tech companies had traded above their earlier value — or 78 percent. If I were a private tech company looking to go public, I’d take those odds. But “the vast majority of tech companies have done well since going public” is irreconcilable with the bubble narrative, so it’s not the story. Facts that might directly rebut the narrative can be easily dismissed.

In fact, only one month after the first reports surfaced of Fidelity’s unicorn markdowns, Fortune reported that Fidelity managers had marked up shares of both Dropbox and Snapchat. But you’d never know it from the news. According to a Google search at the time, the markdown news cycle generated 160 articles. The markup news cycle? Just five.

Narrative gravity is like confirmation bias, “the tendency to search for, interpret, favor, and recall information in a way that confirms one’s beliefs.” But with narratives, it’s less about personal beliefs and more of a bandwagon effect, where everyone processes and interprets information through a framework that is both easily digestible and broadly accepted. Narrative gravity is what makes a startup’s story clock tick.

Narrative gravity exists beyond tech. It’s why Senator John McCain is still considered a maverick and why Tiger Woods’ big comeback is always right around the corner. The gravitational pull of a prevailing narrative is hard to resist.

Negative Narratives — The Black Holes of Media

Narrative gravity is one of the strongest forces in the universe, especially when it comes to negative news cycles.

The worst negative news cycles occur when a story reinforces an already-bad perception of a company, an established negative narrative built from previous news. The story gets pulled towards the popular narrative like a black hole — even if the new facts are ambiguous.

Take Uber during the immigration order protests. This January, after the White House issued its executive order, thousands of people rallied at airports around the country to protest the ban. During the protests, the New York Taxi Drivers Alliance announced it would not take any pickups at JFK Airport, in solidarity with immigrants and to protest the order. The lack of taxis meant high demand for Uber at JFK. So the company turned off surge pricing to (presumably) avoid the sorts of customer backlash and horrible press it received when previous high-demand events — like winter storms or New Year’s Eve — drove prices up by more than 500 percent.

But since perception of Uber is starkly — and rightly — negative (for many well-deserved reasons, even before the sexual harassment news and everything else over the past two weeks), it got no benefit of the doubt. The facts were caught in the powerful gravitational pull of the “Uber is bad” narrative and were interpreted by users as strike-breaking profiteering, as opposed to what it probably was: a clumsy attempt to avoid profiting from the strike via surge pricing. Lyft, like Uber, also continued to pick up passengers at JFK during the strike, though there was no ensuing #DeleteLyft campaign.

Six weeks later, the Uber star has exploded and collapsed. They have put themselves in such a bad place that there’s a perpetual negative cycle: a barrage of stories fueled, in part, by having the world’s leading journalists and columnists pore over the company’s every move, develop new sources, chase each other’s stories, and uncover previously undisclosed facts. And every bad story looks even worse in light of the previous ones, creating an ever more massive narrative.

Incidentally, when your narrative is positive, certain facts are forgiven. For example, the prevalent Elon Musk narrative is that he’s a crazy futurist who wants to colonize Mars and build a vacuum-tube train, and who thinks humanity is living in a simulation. Musk is also a member of President Trump’s business advisory council, for which he’s received relatively little backlash. Uber CEO Travis Kalanick, meanwhile, was forced to withdraw from the controversial group after days of bad press and public pressure. Though Musk’s membership didn’t fit a negative narrative about Musk — if anything, it advanced the idea that he’s a bit mad — Kalanick’s participation hit the “Uber is bad” sweet spot. He had to step down.

Yes, life is awesome in the positive narrative universe. Snapchat planning to set its IPO price below its last private round? A mature decision that shows focus! (Never mind that for other pre-IPOs it’s a sign of weakness.) When you’re far away from the force of negative narratives, you can tell your story free from their destructive influence.

How To Escape a Negative Narrative

Inside an actual black hole, the gravitational effects are so strong that nothing can escape it and the laws of physics as we know them cease to exist.

Escaping a narrative black hole is not impossible — though it is hard. Here are the laws of physics that still operate:

1. Never do anything to remotely reinforce your negative narrative.

The worst thing you can do when your company’s in a bad narrative is prove to everyone that what they already think of you is correct. Never, ever validate someone’s negative perception of you, fair or unfair.

When you’re in the black hole, every business decision your company makes must include a consideration of how it will be interpreted given the prevailing narrative. This is crucial: Any fact even remotely capable of being interpreted consistently with the narrative will be sucked into its orbit. Always be on the lookout for how you might fall into this trap, and keep your company’s actions as far away from it as you possibly can. No own goals.

2. Find a wormhole to a faraway part of the narrative universe.

One cool theory about black holes is that they might open up a bridge to another part of the universe: You fall into a black hole, only to take a spacetime shortcut (known as a wormhole) to somewhere billions of miles away.

Finding a completely different, even distant audience for your message is a great strategy when you’re stuck in a negative narrative. The tech press only wants to talk about how the economics of your business are bad? Pitch interesting customer stories to consumer outlets — they probably don’t care about your financials. The important thing is to get out of your bubble and talk to people who either don’t know (or don’t care) about what’s consuming those who follow you day to day.

3. Be patient and vigilant — narrative gravity is there even if you can’t see it.

When you’re in a crisis, there’s often an expectation that you can explain your way out of it. (Or, if the tweets have died down, it’s tempting to believe that maybe the narrative’s over.) This is super dangerous. Attempting to tell a turnaround story too soon often backfires. Remember: Narrative gravity pulls everything back toward the negative storyline. There’s no risk for a reporter to tell a story that validates what readers may already believe. On the other hand, it takes real guts to swim against the tide.

This does not mean you should go into a bunker, which can exacerbate the situation by creating a vacuum that everyone but you fills with information. It means you shouldn’t swing for the fences with a “this’ll fix it!” short-term plan, or assume that people have forgotten the last thing they heard about you. You have to play a long game, measured in months—and sometimes years — as opposed to days or weeks. Privacy issues were once a staple of Facebook coverage. It took Square (the company where I work) more than two years to shake perceived financial issues. Angelina Jolie went from homewrecker to humanitarian over a decade. Reputational change doesn’t happen overnight.

4. After the collapse, the only thing that matters is to rebuild.

When everything you do, right or wrong, is being sucked into a narrative black hole, your credibility usually goes with it. Typical statements and gestures no longer work. At best, people are skeptical and dismiss your efforts because they question your motives. At worst, they impute your actions with malice and assume you are lying to them.

To rebuild trust, you must be clear and comprehensive in your explanation, emphatic in your commitment to do right, and ready to back it up with proof. If your messenger isn’t credible, you have to replace them with someone who is. No mealy-mouthed half measures: Every single thing your company does publicly must be consistent and dedicated to addressing your problem. Any action that is not in support of rebuilding credibility is a waste of your time and might even compound your problem.

So pay attention to narrative gravity. It can be weak or strong, and it can warp the way you see things. But unlike actual gravity, it isn’t rocket science. 🚀