Two kinds of truths

Just a few years before I wrote this, WeWork was valued at $47 billion and raised $1.5 billion in cash. That’s a whopping amount of cash; to put it into perspective, several years before that, Meta had acquired Instagram for $1 billion

Yesterday, WeWork declared bankruptcy.

In The Snowball, Alice Schroeder writes, “[Benjamin] Graham used to talk about Class 1 and Class 2 truths. Class 1 truths were absolutes. Class 2 truths became truths by conviction. If enough people thought a company’s stock was worth X, it became worth X until enough people thought otherwise. Yet that did not affect the stock’s intrinsic value—which was a Class 1 truth.”

When Masayoshi Son and Softbank decided to invest in WeWork, they created a Class 2 truth and bet that WeWork would be able to make that a Class 1 truth. They believed WeWork would turn their $1.5 billion investment into an intrinsic value of something much greater; or at least, enough to continue maintaining its Class 2 truth. (It failed to do that.)

Class 1 truths and Class 2 truths exist way beyond investing, of course.

For example, your skills and professional experiences can be considered a Class 1 truth; you either know how to do something well, consistently and reliably, or you don’t. 

However, the opportunities for you to apply your skills and experiences are communicated through demonstrating your expertise, conversations with coworkers and clients, or presentations. They evaluate you through a Class 2 truth.

There are three insights worth noting with these two types of truths:

1. A Class 2 truth can make a new Class 1 truth. At its best, fake it till you make it falls into this category; I write, “As David Friedberg says in All-In episode 19, Elon Musk did not meet the numbers that other people thought he was going to (even regularly falling short of his own goals), but enough people believed in his vision and his story of the future that they bought the stock, which enabled Musk to raise additional capital, and build the business in the way he said it would happen. It was a belief in the future, without a distortion of the past or the present.” So do self-fulfilling prophecies. Storytelling matters and presentation matters; how believable are you? 

2. A great way to present a Class 2 truth is to demonstrate a Class 1 truth. Before you get the promotion, you’re already doing the job you’re being promoted to in order to demonstrate to your boss—and maybe your boss’s boss—that you have the skills to do it, and so that they gain conviction in you. Remember, they may not be able to see your intrinsic skills if your work is intangible, but they can see tangible proof and evidence of the skills. This is why “Do things, tell people,” is so valuable. 

3. Class 1 truths still need Class 2 truths to win. It can seem like Class 2 truths are a lesser-than version of the Class 1 truth; that doesn’t seem to be the case though. The best people and products don’t always win; there are plenty of situations when the best stories, the best collaborators, and the best brands win. If you’re working with a particular class of truth—maybe you’re a marketer working with Class 2 truths all the time (this order of talking points will make the best presentation), or an engineer working with Class 1 truths all the time (this will either work or it won’t)—you’re well-served practicing your skills with the other class of truth, and finding someone who can partner up with you to absorb their perspective.

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