The Age of Viral Finance

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In a digital world, if we collectively believe in an outcome, it’s very likely to occur.

This is not a new concept. Behavioural Economics says that the economy will respond to the future conditions people believe will transpire. Because they expect it, they make it so. Downturns can become inevitable, just by thinking one might happen.

But it isn’t just memes and videos that can go viral. Our financial markets, which are fully digital, have also become susceptible to virality. An idea can become true, a market can crash or a bank can fail, simply because we think it might happen. The idea becomes the truth. This just happened with Silicon Valley Bank. Their story is an allegory for our modern world.

World’s First Viral Bank Failure

Silicon Valley Bank (SVB) is a very important bank to the startup and tech eco system in the USA. In 2021 when times were good and money was flowing, they were filling up with deposits. Just like any bank, they wanted to put those deposits to best use. So they bought a large amount of long term bonds at the then interest rates at a little over 1% per annum. This was a quasi bet that interest rates wouldn’t change much. Granted, they had been very low for around a decade. Then in 2023, the interest rate goes from near zero, to 5%. This means that SVB has all these unrealised losses on their books. If they had to sell them in the short run, they’d be in some trouble. The reason is that the new higher interest rates, make the bonds worth less, around 95 cents on the dollar. At the same time, the startup eco system was simply spending their capital and not raising more, because financial markets were tightening. And this started to create a bit of a crunch.

Then, in February, a tech blogger named Byrne Hobart wrote a post proclaiming the SVB was functionally insolvent. It actually wasn’t – all banks have less money than they take in. (In Australia, banks only require 17.5% of deposits on hand). The rest they loan out. As you can imagine, this blog post, raised many eyebrows in Silicon Valley. People started to worry. Then, within a couple of weeks, various venture capitalist group chats, all started to send messages around, advising their portfolio companies to withdraw their money from SVB. And because everything is digital, this happened very quickly. As would be the case with any bank, if everyone wanted their money back immediately, they wouldn’t be able to do it. Within weeks SVB had to shut its doors. It was the fastest Bank Run in US history.

This was the worlds first ever Viral Bank Failure

In the same way that a tweet can go viral, so can the idea that a bank might fail, go viral. SVB became insolvent, because people thought it would become insolvent. A bank which was valued at over US$40 billion a few months back, no longer exists.

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Collective Digital Reality

It’s as if the digitisation creates a natural gravity. It empowers ideas which are popular to win, regardless of their veracity.

As a species, collective thought is more important than reality. Once we believe something strongly enough, it becomes a reality. We do this with our gods, our currencies and our economies. We make myths a reality.

The only challenge, is that in a hyper connected world, dangerous ideas can become real – real quick, regardless of what the science says.

Keep Thinking,

Steve.

Disruption and The Shampoo Strategy

Business success is built on what I like to call a Shampoo Strategy. We find a formula, a business model that works, and then we rinse and repeat. It’s the way all wealth is created in the modern economy. We discover a process, service or product which has perpetual demand and we continue to deliver this to the same people again and again and again. The only problem is when to change the formula?

Shampoo Strategies are the type of business outcome any profit centric capitalist should be aiming for. We turn something from an idea into a system which makes money with very few changes to inputs. It’s essentially when we’ve cracked it. Ironically, the Shampoo Strategy is exactly where disruption comes from.

We develop a system which becomes its own thing. It operates on a kind of auto pilot and is highly profitable. Costs continue to go down while margins go up, and we end up serving the system, and losing track of why it worked in the first place. The reason it worked is usually because the formula, the customer and the business model all overlapped in a way that suited the market. But as markets evolve, yesterday’s formula may become less effective, sometimes seemingly overnight. But when we look hard, the signs of deceptive disruption are always there long before that ‘overnight‘ moment.

So what should we do to understand if our formula is about to stop working? Well, it’s rarely one thing on its own, but the way a few things interact. I break them into 3 parts.

The Technology: Questions to ask here include: How the problem gets solved and how can tech change that, reduce costs, or change the method of delivery?

The Business Model: Are people still prepared to pay for what we deliver? Can they serve that need more economically elsewhere? Can we increase our margin or reduce our price with a new emerging technology?

Demand: Is demand for what we do solid, shifting or waning. How can we shift with it? Is the solution just shifting? e.g. digitization of news. Or is the market in perpetual decline? e.g. coal fired power plants.

Finally, how do these three things interact to create a new formula for tomorrow’s rinse and repeat?

The one thing to remember with the Shampoo Strategy is that they never work forever, but new formulas can always be invented. And new formulas only ever get invented by those paying attention to the market, more than they pay attention to what they make or sell.

The Startup Bubble

There are few things any established industrial economy needs more of than new businesses, but I’m here to say that ‘startups’ might not be the answer. Firstly, there are a lot of businesses calling themselves a startups, when in reality, they’re really just new, small businesses. So, what is a startup?

Startup = A new type of business trying to uncover a business model which doesn’t exist yet. Often, they want to leverage a new technology and be a better solution to an existing problem. A startup isn’t just a small business trying to grow with an established method, like say, a café. It’s a new way of doing business in a certain arena.

This definition is why they can attract large sums of speculative investment – the prize of winning can be big.

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The amount of technological innovation is providing scope for many great startups. But business, like anything, isn’t immune to getting caught up in fashion. Yep, business is massively influenced by what is fashionable. If you run a startup – here are a few things that are highly unfashionable at the moment.

  • To be profitable
  • To self-fund
  • To want to remain small or medium-sized
  • To enter an established industry and just do it better
  • To not try and change the world

The Silicon Valley ethic now runs deep – despite the current tech-lash. There’ll be a lot of startups that realise not everyone (in fact, nearly no one) ends up with a unicorn or gets bought out by big tech. And this is where the problem lies. No one wants to simply run a business, make profit and employ people. Everyone wants to change the world instead of their suburb.

Yes, every technology revolution creates new behemoths which redefine commerce, but the probability of being one of these is extremely low. In fact, it’s a really bad bet to even try.  I’m not trying to steal anyone’s dream. I’m trying to do the opposite and actually help you achieve it. Here’s why.

There has simply never been a better time in history to start a small business, be a freelancer and earn a well above average income by staying small and not aiming for all-or-nothing. Never before have we all had such an equal playing field to start anything. Access to knowledge, finance, manufacturing, promotional tools, distribution, logistics, publishing, you name it. It’s all possible for anyone with internet access, imagination and tenacity. We can literally invent money through organising the factors of production in a new manner, and we don’t need a venture capitalist to help us do it.

What every entrepreneur should remember is that when a startup raises capital, they end up with a boss, which is exactly the thing that most entrepreneurs want to leave behind.  If I see another so-called success story of some startup founders standing in front of a brick wall at a co-working space smiling because they just raised $x million in capital I might even scream… it seems to me so many people have forgotten what should be the biggest motivation of all – independence. Isn’t that why people chase money? For the independence it buys?

So here’s the kicker with all this: more entrepreneurs should aim to run business instead of a startup, to actually make a profit and grow organically. A successful business has options, the owner can stay in control, gain financial power and some wisdom along the way. If entrepreneurs do that, then they might have a better chance to scale and actually change more than their suburb.

Thanks for reading, Steve.

The Blockchain Evolution

New technology often goes through a hype cycle, but few get get hyped more than Blockchain. I imagine most of my readers are across it, if not, I wrote a blockchain 101 article you can read in 2 minutes flat. Now, I’ll put my hand up high, and admit right here and now that I’m a true believer. Before I tell you why, the image below is the reason I decided to write this.

I notice this image on Linkedin – it was posted by someone in an industry poised to benefit significantly from the technology. What astounded me was the absolutism of the statement. Even if a technology doesn’t emerge, it’s a far more useful life and business strategy to have an open mind to new possibilities.

There’s 3 simple reasons I think Blockchain will become a vital layer in our lives.

(1) It solves a real problem: It allows us to transmit things of value (like currency) without making a copy and removes the need for traditional intermediaries. We can finally trade with each other online using cryptography to create trust and transparency/anonymity.

(2) The technology has proven use cases: It has already been proven to ‘work‘ with crypto currencies. While it faces technology hurdles including excessive energy usage, a poor user experience and slow transaction speed – these are problems many similar technologies, like the early internet faced as well. Dial-up internet anyone?

(3) There’s a huge amount of financial and human capital going into it: The sheer investment of intellectual capacity and money flowing into the space almost guarantees that problems with it will be solved and new ways of employing the technology will be found.

In fact, that’s how it always happens. Cars today are very different from cars in 1920. The internet is a very different beast today compared to when we browsed on Netscape. And it’s always the three factors above which are required to keep a new technology from disappearing.

Blockchain isn’t Blockchain, rather, it will become something somewhat different from what we see and experience now. With the prize so big – it has potential to topple some of the worlds biggest industries, and so many people engaged in inventing the desired functionality, we can be certain it won’t go away. Historically, making a technology work smoothly is where the biggest financial wins usually come from.

 

The Hustle Hoax

I came across this article recently discussing the Startup Hustle Bubble which is occurring in many entrepreneurial circles. The title said that working 9-5 is for losers. I tend to agree, but in the opposite direction than many of the Silicon Valley disciples espouse. They promote the 18 hour work day, I reckon that’s a better number for the week, only kidding, but not by much. To save you reading it, the proposition of the so called Hustlers goes like this:

  • Workaholism is a desirable life choice
  • To succeed you must give up everything (depends how you define success)
  • Out grind, outwork and out hustle everyone
  • A cottage industry of Hustle conferences are emerging
  • There’s even a Hustle Jesus – otherwise known as Gary V, that hustlers genuinely worship
  • Then there was some wonderful counter claims by the journalist.

Here’s a few things worth considering:

Firstly, there is no doubt work is required to get results in anything, but there is no evidence that working a crazy hours makes people any richer – if that’s the goal. I’d add to this that most of the people I know with incredible financial wealth, didn’t hustle all day and night, they used their brains, took calculated risks, saved, invested and compounded small advantages over time. But you know what they did more than anything else? They got others to work the hours for them and arbitraged their wages. It’s how capital works. Capital wins, capital always wins simply because each individual will only ever have 24 hours to give.

It’s also worth remembering that only thing we can never earn back in life is time. No amount of money will buy it back, your kids (if you have any) will only be young once and they’d rather have your time, than toys. We all know that money doesn’t lead to more happiness over a certain threshold. But mostly we should always be driven by our own personal objectives, when it comes to what we sacrifice. It’s vital we don’t get caught up in ‘fashion’ or the goals of others who a vested interest in the amount of hours we put in anything.

If you want more life hacks – then you’ll totally dig my new book The Lessons School Forgot. By the way, I went surfing on Tuesday, had a two hour nap today and I still got all my work done!

Why I choose people over profit

I’m currently working on a TV  show with some major producers and media stations. I’ve teamed up with someone to make this a reality, and quite frankly the concept is strong – first of it’s kind globally and I know it is going to rock. Put it this way, it’s something the world needs right know a lot more than learning how to cook a soufflé or renovate a bedroom – as much as I love cake and nice houses, I care about peoples futures much more. This show once made, will help everyone who watches it future proof their lives.

During discussions with various people, it has been mooted that they want to do it, but might need to bring in their own people. You can guess the line…. get famous hosts and all the rest.. Which, for this concept isn’t necessary – it’s something different, it’s not not about shiny famous people. I was told at some point in the development process I might have to choose between supporting my team and people, or making the project work. And here’s what I said:

I’m loyal to people, not projects or profits. If that means a project might fall over, that’s fine by me, projects come and go, I value loyalty far more than a project or some profit.

Maybe I’m crazy, maybe I’ve missed out in the past by having this philosophy?

But here’s what I know, if the project is strong enough, we’ll find people who’ll work with us and our chosen team. In any case, the project has more chance of succeeding when the team is pumped, keen to work together and put their hearts in it because they believe in each other.

Only once we look after each other, is there ever enough to share around.

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Join me in Melbourne on June 20th and get your mind around ‘The Lessons School Forgot’. 

I’ll be doing a talk on how to hack your way to a radical future, and answer all the questions you might have about finding a path to independence. It’s going to be a great night.

Click here to reserve your Free seat. 

See you then, Steve. 

Why we need to start before we finish

There’s something interesting entrepreneurs and technologists can take from rock bands. When playing live of stage and someone in the band makes a mistake, they don’t stop, they just keep on playing. When rehearsing, it’s important to play the song right through to the end, regardless of mistakes. The only way to practice, is to do it as if you’re on stage. The only way to get good on stage, is to have the courage to get on it before you are ready. The only way to get good on stage is to improve on stage, not in the backyard, rehearsal room or garage. Successful bands take gigs where no one might show up and they all start with exactly zero fans. In other words, we need to start before we are finished. We finish the work live, in market. In fact, the work never finishes, but it only really starts when once we have shipped a product.

The band Guns n Roses has a great story about their most famous song Sweet Child o’ Mine. They had the riff and the first part of the song down, it was sounding good and then they got to a part of the song for which there was no other music written, and no lyrics either. The it happened – Axle started singing:

‘Where do we go – Where do we go…. Oh, Where do we go now?’

He was literally talking to the band, saying geez, what’s next for this song. And through the process of doing, and making and asking, the solution was inside the question itself. That moment became the bridge, the missing part of the song. It worked with the other lyrics without him realizing it at first and lead its way nicely into what I think is the best guitar solo of all time. But of course, unless they started playing it before it was complete, it might never have been finished.

The startups we found, the technology we invent, and our own futures are a lot like that. Searching for perfection instead of progress is what stops us most. Some times all we really need to do is start, and believe that we’ll find the path of ‘where we go next’ once we start moving.

If you’re wondering where to go next, come join me in Melbourne on June 20th for my book launch of  ‘The Lessons School Forgot’. l’ll be doing a talk on the future, and answer all the questions you might have. It’s going to be a great night.

Click here to reserve your Free seat. 

See you then, Steve.