ON BAKERS AND CUTTERS

I recently quit my job in real estate private equity — I needed a break, some time off. For those unfamiliar, real estate private equity is the branch of institutional finance that funds large-scale real estate projects like new residential developments, hotels, and, more recently, a lot of warehouses and logistics centers (yes, that’s a thing, and yes, it’s far less glamorous than building luxury hotels with Four Seasons). Initially, I actually enjoyed the industry. As a freshly minted finance graduate who wasn’t keen on the well-trodden paths of investment banking or other common career routes, real estate seemed like an intriguing field where I could apply my newfound financial knowledge. There’s something satisfying about dealing with good old-fashioned brick and mortar that you can actually visit once the construction is complete. But over the past few years, I started to feel increasingly frustrated with the industry. So, I decided to step back and take a break. During this time of reflection, I realized something: the world can be divided into bakers and cutters.

 

Financial professionals (like my former colleagues and myself), along with many others in different industries, spend their careers discussing and negotiating how the cake should be cut into pieces. The day-to-day life of a cutter is all about finding a cake of interest (side note: cake preferences evolve much like fashion trends, so cutters often chase the same cakes, quickly developing a distaste for others if that sentiment is in vogue). There are, of course, some exceptional cutters — the katana-wielding types — who follow their own sense of taste and manage to find cakes that no one else sees. But these are rare and far between. Once a cake is spotted, cutters argue, negotiate, and compete over how to slice it up. Naturally, everyone wants the biggest piece without overpaying, but no one wants to be the first to cut in case the cake turns out to be flawed. The cutter’s skill lies in getting the largest piece possible without later discovering that the cake is more bitter than expected.

 

But who ensures there’s cake to cut in the first place? That’s the bakers. Bakers are the people who make sure there’s cake on the table. Typically, they sustain the supply of cake by adding layers to existing ones — these might be researchers and academics who study past bakers and now contribute their own layers, increasing the cake’s size without ruining it. Then, there’s another type of baker, much rarer, who bakes entirely new cakes, often discovering new flavors previously unknown. These bakers increase the cake supply by creating new cakes altogether. Inventors and entrepreneurs are the most prominent examples here.

 

I can already hear my former colleagues in finance protesting: “Hey, we’re not just cutting cake! We provide the essential ingredient bakers need to make the cake — financing!” And that’s true, but in doing so, you’re essentially estimating the size of the cake your baker is making and positioning your knives to slice the biggest piece of the future cake while taking the least risk. You might not be slicing the cake now, but you’re certainly thinking about how to slice it in the future. And don’t get me wrong — there’s nothing wrong with cutting cake. Cakes are meant to be sliced, and bakers often make them with the sole purpose of sharing. I acknowledge the importance of having people who think about cutting cake into pieces. But there’s a unique satisfaction in baking the cake that cutting it simply can’t match. This is why I left the finance industry.

 

The problem I see is that the risk/reward ratio of being a cutter is vastly superior to being a baker. When you mess up as a cutter, you often still end up with a small slice of cake, or, at worst, no cake at all but with a sharp knife ready to cut the next one. Cutters can slice many different cakes simultaneously, minimizing their overall risk. Bakers, on the other hand, often lose everything if they fail. They’re usually given only one chance for any given recipe. And let’s face it: baking is much harder than cutting. Adding a layer to an existing cake takes years of passion and dedication, and baking an entirely new cake that doesn’t fall apart as soon as it’s out of the oven is another level of difficulty altogether. Even if bakers succeed and increase the availability of cake, their life’s work is eventually sliced up anyway, with only a small slice (if any) reserved for the baker. For all these reasons, people tend to become cutters — it’s simply a much more lucrative and easier choice. However, what people should remember is that the satisfaction of getting the recipe right and baking a cake can’t be matched by the act of cutting it, no matter how large the slice.