FORTUNE – In a post-financial crisis world, it’s easy to hate on Wall Street. But what I’ve been looking for is a rational explanation -- what exactly has gone so very wrong over there?
In Michael Lewis’ new book, Flash Boys, the author provides the most compelling answer I have found – much of Wall Street suffers from a complete and utter lack of mission. The book provides a powerful cultural critique.
John Doerr, one of venture capital’s legends, has a memorable saying: He only backs entrepreneurs who are “missionaries” not “mercenaries”. This is a key part of his investment thesis.
The difference? Mercenaries are in it for themselves (usually money). Missionaries are in it to change the world around them for the better.
The Bay Area is chock full of mission-driven companies. It’s easy to satirize Silicon Valley’s over-earnest desire to ‘change the world’. It’s also fair to ask if the desire is disingenuous, since ‘change’ doesn’t necessarily imply ‘for the better’. But the real question is, does a company’s mission actually matter?
One clear way a mission pays off is in helping a company recruit top talent. Despite public perception of how easy it is to win at startups in Silicon Valley, there is not a monetarily rational reason for the accelerating brain drain of some of our most educated, financially well-positioned future executives from Wall Street to Silicon Valley.
Employee compensation at Google (goog) (including stock grants) averages about $190,000 at a year while at Goldman Sachs (gs) it’s north of $500,000. The odds of striking it rich at an early stage startup are amazingly low. For talented money-seekers, Wall Street remains a relative sure thing compared to the risks of a startup.
But after reading Flash Boys, the trends we’ve being seeing lately at some of the nation’s top business schools makes perfect sense. At the University of Pennsylvania’s Wharton School, for instance, the percentage of MBAs entering investment banking dropped to 13.3% last year from 26% in 2006. During the same period, those entering tech more than doubled to 11.1%.
It’s easy to see why Wall Street could lose talent to Silicon Valley. Who would want to work in an industry where the only acceptable answer to the question “Why?” is “for money.” Past a certain threshold of earnings it makes rational sense to optimize for more than just money. Another way to look at this: Picture two recent MBAs at Thanksgiving dinner. One works for Google, bringing self-driving cars to the market; the other works at Goldman. Who is going to talk proudly about their job, and who is going to sheepishly avoid the subject?
A company mission provides a purpose; it forms a connection between a company and their customer. Missions make companies worth working for. The most successful Silicon Valley companies almost universally exude a sense of mission (think Apple (aapl), Salesforce.com (crm) and Google), while the vulnerable incumbents have lost their sense of purpose (think HP (hpq) and Microsoft). Microsoft resoundingly achieved their mission of ‘a new computer in every home,’ but must now find a new calling to stay relevant.
In the absence of mission, companies devolve into uninspiring backwaters with no purpose and little connection with their customers. They become the kind of companies that would screw over their customer to make profit in the short term at the expense of everything and everyone else. In the fullness of time, and provided an even playing field, I believe all mercenary companies will be out-competed by missionaries.
There is hope for Wall Street. The story in Flash Boys centers on the improbable founding of the stock exchange IEX. Brad Katsuyama founded IEX with the mission to bring transparency and accountability back to the stock market. The team overflows with Silicon Valley’s brand of tech-startup missionary zeal. Flash Boys tells what happens when their business and mission collides solidly with Wall Street’s mercenary culture. It’s an amazing story.
IEX’s journey is an improbable one. Their odds are no better than the average startup. I’d bet on them though, IEX has a powerful mission.
Zachary Rosen is co-founder and CEO of Pantheon, a San Francisco-based company whose professional website platform lets developers, marketers, and IT users build, launch, and run all their Drupal & WordPress websites. Follow him @zack.