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.

Your data, your asset

Large corporations are currently walking over each others’ faces to gather data on us. Who can blame them – the biggest and most profitable companies in the world specialise in it. They see data as an inevitable asset class, one they can plunder. But that’s all about to change.

Personal Customer Data will very quickly move from being an asset to a liability. We haven’t seen it yet, but coming soon a courtroom nearby will be ‘data litigation’ cases. Think multi-billion dollar court settlements for lax protections and real physical consequences of data misuse. We’ll see corporations hit by both governments and citizens. The technology needed solve the data problem couldn’t come at a better time – yep, here I go again espousing the virtues of blockchain. But this thing is as real as the promise of the internet was. Just like the dot com boom, blockchain will misfire and take a little while to sort out the tech shortcomings, but it will be as big as promised. It is filled with opportunities to literally turn the data business upside down.

The problem of course has always been that while our data isn’t worth much in isolation – a few dollars per user per quarter – it is worth a lot when it gets aggregated by a single firm like Facebook. Many applications in the social media realm like steem.io are creating social platforms where we will own and control our data. Steem might end up as the Friendster or Myspace of blockchain social, but the shift is big, and it goes a little something like this:

In the future, we’ll be able to sell our data to corporations. Those who currently buy advertising, based on our data, will eventually pay us directly instead of some intermediary. Let’s take banking as an example. Currently banks invest millions per month trying to reach people who might require finance for a new home. They use services like Facebook and Google to see who’s posting about open houses, having garage sales or maybe just had babies – social triggers that locate their best potential target audience. But for every hundred or so people the reach, they do business with only one. While the cost of advertising in digital is cheaper and more targeted than TV and outdoor, the cost per acquisition of a new home loan is still very high –  few thousand dollars minimum. Imagine instead us allowing banks ‘rent a data key’ off us directly for a few hundred dollars. With all our relevant financial, employment, living expenses and other anonymised data. Banks who want our business pay us directly for the privilege of access to customers with real intent instead employing a digital dragnetCompeting banks then put an algorithm to task to come back with their best offer for a loan. We get paid via our data to choose a bank to do business with. It will be cheaper for the banks. It will be profitable and painless for us. All the while the data more accurate as it is promulgated via a blockchain. Banks would only need to pay for data sold by customers who actually take out a loan, via a time-sensitive smart contract. This way the process maintains integrity. And boom, just like that, a great data reversal has occurred.

It’s possibilities like this that get me excited about the emerging blockchain era – it seems it is possible to get the internet we always dreamed of. Now it’s time for us to get building the world we want to live in.

Tesla Model 3 & the start of the end of petrol cars

The hype of the new Tesla model 3 is understated as far as I can tell. While it is true Tesla hasn’t actually sold any of the cars – they haven’t made any yet – it is also true that there has never been a car in history (any product?) which achieved $8.86B in pre-order sales. Yes, 253,000 on order at the time of publishing.

Tesla Model 3 Launch

The hype is understated for a simple reason: most people are yet to discover their annual fuel bill costs will cover a $35,000 car repayments. So it will be a curve jump transition to electric cars, not a phase in.  I refer you to this earlier vitally important post I’ve written on the subject. 

The interesting bit is how it impacts the industry beyond Tesla. We are about to go through a war time like reconfiguration of manufacturing facilities as the world rapidly moves to electric cars. Every auto player in the world will need to fast track and maybe even scramble to have relevant cars on the market. A shift the likes of which we’ve not seen in any industry since World War 2. It’s gonna be big.

Giddy up.

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Podcasts are a University on wheels

podcast head

After a false start in the mid 2000’s podcasting is back killing radio. For anyone who spends a fair amount of time driving, exercising, travelling or just existing as a human, it is the ultimate short cut to ‘get learned’ by some of the worlds best thinkers – University on Wheels say some.

So here are some great podcasts I literally rub my ear balls in whenever I am on the move.

My top 7 Podcasts:

  1. EconTalk with Russ Roberts – Not as highbrow as it sounds. An incredible array of topics related to business, culture and sociology. The most insightful look into our economic lives you’ll ever listen to.
  2. The James Alticher show – Mostly about entrepreneurship, technology and financial independence. He interrupts the guests a bit much, but with good thoughts & questions. Has great guests on the show.
  3. Crap Hound with Cory Doctorow – Mostly about cyber security, IoT, income disparity, privacy & surveilance, Gov policy regarding digital rights, and other important digital issues around control and the world you’re about to live in. Eye opening view of the future. One the globes sharpest minds.
  4. HBR Idea cast – Podcasts of around 20 mins. Perfect for short trips. Covers topical issues in business and management. Gets to the critical issues quickly.
  5. The Long Now with Stuart Brand – Seminars about long terms thinking. Generally a long 1 hour plus podcasts which are from Keynote speeches from the Long Now Foundation. Has the world best thinkers on key topics regarding the long term survival of humanity. Kinda heavy I know – but the topics are more ‘human and now’ than you’d expect. Everything from why stories last to can we live on Mars to the long arc of moral progress.
  6. Planet Money NPR – Great stories about all things money and finance. Super interesting stories with insights you’d never expect. Totally entertaining on the usually boring topic finance. Short podcasts too around 20 mins.
  7. Here’s the thing with Alec Baldwin – Has a great range of guests with entertaining content regarding creative and business pursuits. Lots of laughs and relaxing.

If you like hearing me rabbit on, then you can always check out the #BBB podcast (Beers Blokes and Business) which I appear on and I recent recording I did for the newly launched Future Sandwich podcast.

Oh, and if you’re wondering why podcasting has made such a massive comeback in the past couple of years, there’s probably a myriad of reasons. But here are two that spring to mind. (1) We’ve had a couple of super ‘hit’ podcasts to put it on the agenda like ‘Serial‘ and (2) I think the increased data most people now get on their phones these days removes the download it now and listen barrier. No need to plan and download at home.

Startup blog says – let your ears do the reading.

You should totally read my book – The Great Fragmentation.

recent thoughts

Pollenzier logo

I’ve been publishing a few thoughts for the good people at Pollenizer – two recent articles are below:

History repeats: The seminal article written in 1960 by Theodore Levitt of the Harvard Business School called the Marketing Myopia is having a sequel. I wrote about it here and why startups are eating the lunch of many fortune 500’s.

Why we don’t have to invent the future: Sometimes it is enough just to participate and facilitate – I wrote about the feeder startup here.

In fact just yesterday I was doing a keynote for the financial services industry and I spoke about the GFD, ‘Great Finance Disruption’, which I believe is on the way given the recent developments in crowd funding, micro payments and crypto currencies. And I got asked a question about it.

And this was the question:

There are many banks in the audience, what advice can you give them to keep an eye on these trends in non traditional banking?

And here is my answer: 

It’s not about watching from a distance, it’s about getting involved, even in a small way, maybe set up a skunk works or a division for radical finance for dissident customer groups. Instead of watching it or trying to fight it, get involved and even facilitate it. It’s very difficult indeed to shape or benefit from something when you are not participating in it.

New book – The Great Fragmentation – out now.

We're all coders

As a startup entrepreneur I often get asked if I’m coder. I used to say no. My answer used to be something like: our job as an entrepreneurs is to organise the factors of production, not be them. But I’ve recently changed my answer to yes regarding the coding question. And no, I haven’t gone out and learned PHP or Ruby or the latest groovy language.

My code is the english language. I’ve become adept at mashing up the approximate 200,000 words we have at our disposal. On the odd occasion I use the core 26 letters in the code to make up some new words that suit me. At certain times I hack together new code short cuts or ‘sound bites’ which promote and inspire a large number of actions on a simple string of a few words. The newness of the code inspires people to act in different ways.

The code I use can stimulate actions and outputs both physical and virtual. As far as I can tell it is still the greatest software code we’ve ever developed. It is totally open source and varies in its use dependent on many things including the geography in which it is used. This language code I use most often, is still the most interesting platform I’ve worked with. Even the same code, said by a different person with a different tone can have a number of different outcomes. It can even change its meaning based on who wrote it when it is exactly the same line of code. It really is worth mastering.

I sometimes use other codes, including the investing code. This one is based on a 10 point decimal number system. This code is very lucrative when you understand its depth as it pertains to equities, venture capital, property and other income streams. It’s super good to overlay the investing code on top of the English code to get profitable outcomes.

While I’m not amazing at the Mandarin code (another language platform) used in large parts of Asia and even Australia – I sometimes drop in some hacks I’ve learned which the receiving platform responds very well to.  try to find ways in which different codes can be used together and interchangebly on the same platform as I find this often gets a result others just cannot garner.

Code is all around us. In many forms, platforms, typologies and physical manifestations. If you’re human you’re a master at more forms of cade than you think. And if you’re an entrepreneur the real benefits arise when we work out how to let these codes interact as an entirely new language. A language which then becomes our own personal operating system. Which when done well can even turn into a powerful personal brand.  Yes, we’re all coders.

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Value yourself

As the new year starts we all set goals and have ambitions to make it a year to remember – as we should. But sometimes we need simple philosophical shifts too. Small shifts that can have a dramatic impact. One of mine is to ‘value myself appropriately’. As startup entrepreneurs an important part of the process is to be a bootstrapper, to maximise the limited resources we have to gain the momentum we need. This often leads us to doing it all ourselves. To be our own courier, printer, door knocker, community manager, clerk, mail room assistant…. anything and everything which is possible to do ourselves. And this is one of the greatest false economies in startup land. A simple rule to circumvent such folly is this:

Never do a task which can be outsourced at a lower hourly rate than what the open market would pay you for that hour.

While it’s easy to argue that we aren’t actually paying ourselves the market rate, it is certainly true that we should be creating the value of our market rate. And this is usually at least double the pay rate. Hence a person earning $100 per hour, should be generating at least $200 per hour for their organisation. Every hour wasted doing a menial task, has more impact than we actually think. Let’s take this simple example:

If we work 60 hours a week for 50 weeks for 2 years and end up with an equity stake valued at $3 million our hourly rate comes out at $500.

Which doesn’t leave many tasks that are worth doing ourselves. Startup blog says value yourself in 2013!

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