The price of change
Amongst the drops in consumer confidence, spikes in covid clusters, and consistent climate disasters there is another C word that captures it all. Change. Those amongst us who love a bit of History Channel, or a Robber Baron biography will know this is not the first time the world and its ‘order’ has gone through a rapid re-set. History is never predictive, but it is instructive.
In the early 1900s after our last brush with variants and illness, we started a new super cycle that saw everything from the explosion of drinking dens to the greatest depression in our global society’s history. Whatever you believe about the science of disease there is also the social science of what happens when you put societies at large through a stop/start process that ensures people find a new normal. Humans like control and many naively have recalibrated towards taking a punt after a few years of being locked in place. They did not price in the cost of opportunity lost only the possible upside. It is the hope for opportunity gained through embracing a change that naturally draws all humans in like a mermaid to the ancient mariners of yore.
Change comes in many forms, shapes and sizes but the consequences in our choosing is often what we spend our time avoiding. Change is afoot everywhere you look but our gaze tends to the short-term horizons while the bigger and longer ones pass us by. Want someone to believe in a changing climate ask them to live through a flood or fire. We focus on incremental changes while the larger world around us shifts through more longer-term and more profound changes. As humans, our biggest fallibility is that we fail to see the effect that changing one small piece of the puzzle has on the rest of our agenda.
You are not a lottery ticket
Take the bloodbath that is early-stage technology. The Nasdaq is down 30% year on year, and it’s one of those EOFYs when it is better not to check the old Super balance if you can help it.
The short-term answer we all hone in on is the bull run is over and the matador wins yet again. The long-term answer is actually that the technology era is only just beginning and the choices are finally becoming more era-defining rather than about more apps and asshandedness.
What is over is the economic era when money was free, easy and actually given away by Governments. With rising costs of money and inflation eating our covid nest eggs there is less money out there to support bad ideas in the present that might come good in the future. No one needs another ‘app for that’ but the world does need real ideas on how to address gender and racial inequality, and energy shortages.
While I encourage everyone to wear pants (and ideally for us MAMILs out there a shirt as well while swimming), the tide of investment is definitely going out and we are discovering that most startups forget their bathers. It’s not shocking to discover that people would rather ride their real bikes outside for long distances in real forests rather than virtual ones, and to watch a good times blockbuster like Top Gun (what a fun flick) with your crew in the theatre rather than on Binge in your bedroom.
With the rising cost of capital, the long-term question to ask becomes one of viability. How unique is your business, boom town or brand and how resilient and aligned is it to the risks ahead? If your biz or brand is based on access to zero-cost money you are in trouble.
For example, builders who did not price or account for the downside risk of materials and labour are the ones going to the wall while never being busier in real life. We have also seen this in Fintech with the fall of the Neos, the Cryptos and the BNPLs. These models are focused not on return on investment; they are based on growth and return on scale. When your customer acquisition cost runs ahead of your ability to generate returns you soon end up in the exact same predicament as the builder above. Switch ‘cost per square metre’ for ‘customer acquisition cost’, and you end up in the same spot.
The short-term result? Many bad companies have collapsed with more to come as the friction of consequence catches up with the exuberance of creation. The long-term result, better more substantive ideas will get more attention and more funding. ‘Super pumped’ as a business model is utter bullshit, but you already knew that.
The end of a frictionless future has already been written by the friction of fundamentals
When I was younger, I would have believed we were flying to the moon already. I watched Challenger explode in my grade six classroom and even still I believed. In hindsight, I took a fixed short-term view and expected more of the same. NASA looked and said the moon and people are not the future, but space exploration still is. We have never been more in space, but it has just not taken the form we thought in the short term. In science fiction, we go boldly to the edges of the galaxy; in real life we send probes. Why? It is easier, cheaper and in the long term way more effective.
This same logic applies in business. We are at the end of the frictionless era where unprofitable B corp, purpose-based Siliconites brought us endless items on the back of some underpaid soul trying to make ends meet. For the first time in a long time we as leaders will have to make decisions of consequence to avoid losing margins to increasing costs. The opportunity this presents is to look beyond what everyone else believes as accepted logic, structures and situations and forge a new way to embrace change. This means changing your risk profile by being contrarian to the accepted logic of the masses.
There are three long-term changes that businesses will have to navigate as we move into a new world being shaped by climate risk, economic contraction and technology changing our cultural constructs.
1. Climate: The benign state of the Holocene is gone. Climate risk is everywhere; whether you look to supply chain risk caused by disaster or displaced people needing business continuity risks there needs to be answers from leaders to mitigate risk.
Business answer: Embrace flexibility and ways to build this into your business model and brand. How does your brand embrace real disruption rather than the Silicon Valley type where you address the long-term risk through strengthening your resilience and ability to respond?
Brand answer: Hold a determinate point of view on the future so that you can communicate effectively with consumers and employees and bring abstract risks into the real world so they can be acted on.
2. Contraction: While everyone worried about rising house prices, they didn’t believe that a low-rate environment would end this quickly. Higher interest rates transfer cash from borrowers to lenders, so now is the time to pivot your weighting of investment to drive spending today more than investing in tomorrow.
Business answer: Everything looks like a great idea when you are looking for return in a low-cost of funding environment. A simple change in the cost of money can make the investment into an idea seem silly when you could invest into certainty. Cost increases always focus the mind.
Brand answer: If you see dropping demand for your product, service or experience don’t panic but do act. Decide whether you need to sacrifice your brand in the short term to survive or whether this is a question of driving longer-term difference.
3. Culture: The split in western democracies is another victim of our pursuit of a frictionless life. Businesses as participants in society cannot bridge the divide but also cannot remain silent bystanders in the culture wars. National beliefs that once held us together are being splintered into new subgroups who identify with their take on national values and vision.
Business answer: The key is to make sure that your workplace and the products that you sell sets its own path based on core beliefs and the change that you want to see in the world so that it can be a safe space in the seas of fragmentation and polarisation.
Brand answer: Standing for something is always safer than standing for nothing. In an era of action, no one wants to hear from a brand about what they believe, but they do want brands to deliver products that help them address the issues of our time. This can be as simple as offering escapism and offering your people a chance to find a bit of fun in a world that will feel more and more gloomy. This is counterintuitive in a world where brands are busy telling us about all the purposeful things they do.
Is there a way to be good different? There always is, but you also knew that already.
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Be better to each other.
