The return of rules
Welcome back. If you are like over 10 million of your Australian mates, you have been overseas, interstate or staycationing with a twist. After flooding, rain and the general fatigue of normality, the good old summer vacation is back with a vengeance. It’s always dangerous to extrapolate your own lived experience, but it did feel a bit like one last hurrah to tuck the Covid demons firmly under the sheets and perhaps celebrate putting your 1st, 2nd or 3rd time-is-a-charm infection to bed.
Our consumer spending just went on the mother of all benders. Like weekends in your twenties where ‘I’ll figure that out tomorrow, another round please’ was the mantra we all said, Aussies splashed the cash to such an extent that it is still reshaping the ABS numbers. Despite the RBA giving their best efforts to make sure we touched the breaks, we kept going and flew right through November. While people will pause post-Christmas, we are unlikely to shake off the desire to get amongst it after years of being told where and when we could. Interest rates will likely play the role of the bartender calling closing time, but it is still going to take a few more blows to the wallet for us to stop trying to put our pandemic PTSD to rest.
2023: Buttoned up, buckled in
I had a boss once who had a very simple rule to judge the state of the world. He looked at what we were all wearing to work. If he saw his gang feeling expressive, confident and in ties with a touch of panache all was well. If we were more conservative, suited and buttoned down the more worry he felt. Clothing often defines the times. We will all look back at crypto criminal Sam Bankman Fried appearing in an interview about a 7-billion-dollar fraud in a pair of khaki shorts and thongs as the final point of an era of don’t-give-a-rats capitalism.
Something new is emerging. Even if it comes dressed in a mash-up of shorts and a suit made in Midjourney we are still going to be shooting for the stars to be sure; but 2023 will be looked back on as the year fundamentals, realism, hard work and other old rules of life returned.
Old Rule 1: What goes up, must come down
SaaS technology is going through its first recession. It ain’t pretty. Loads of layoffs, burning money piles and cutbacks on the free brekky and buses. They are not alone in feeling the pain. Goldman just walked 6% of its global workforce as a New Year’s present (if there are no overvalued businesses to sell, there is no work to do on the deal desk). Technology, like all industries, has a boom-and-bust cycle. PCs, Internet companies and now mobile apps. San Francisco is a lot like Perth in that respect. Driven by one main industry its success is tied to the push ahead and falls back on one set of employers. It always goes forwards but each bust follows the same pattern. Future speculative returns no longer outweigh current committed costs.
Future and more risky returns are more valuable when buying with cheap money. It makes for all kinds of bad-look-like-good ideas. Unfortunately, most high-value apps tend to solve low-value problems. They lean towards saving bits of time or saving a small bit of effort. Think delivery in 15 mins rather than 20 mins or 1-hour processing rather than 2-hour. Great in theory but more expensive in practice. With venture capital no longer picking up the tab, margins are all returning to normal. Turns out the cost of a taxi has always been broadly what it should be. Hell, you don’t even get the cute little approaching car graphic anymore to watch as your Uber driver cancels you for a longer fare.
Old Rule 2: Stupid is as stupid does
Perhaps my nerdiest personal quirk is that I buy The Economist; not for its witty takes on global affairs and politick but for the two killer charts at the back. Government Bond Rates and Interest Rates. They are a simple view of how those with the money view the winners and losers in our world. They are long on the future being more expensive. Even Japan the founders of the stagflation and those amazingly seductive Suntory 196-degree 9% party juices are turning back towards positive interest rates. For the last fifteen years betting on Japan putting rates up has been called the Widow Maker Trade. A guaranteed loss.
When the price of funding rises so does the price of stupid decisions. The change in the price of money is also altering the dynamics of industry and competency. Big bets on metaversing, self-driving helicopters and autonomous dog walkers are now more costly in the dollars of today and tomorrow. They may yet pay off, but the bet has changed. In life, freedom comes from being the best form of who you are, and this lesson will now get reapplied to business. It is the return of strategic choice rather than growth at all costs.
Apple is already on the path to shedding one-third of its market cap, and on its way to close with a market capitalisation of below $US2 trillion for the first time since March 2021. A year ago, it topped $US3 trillion. It needs to drive value from a lower base, look for more diffusion from the core rather than innovation into new areas outside core competency.
Old Rule 3: The quiet achiever
It used to be that business was in the business of doing rather than talking. We were less LA Lakers ‘showtime’ and more Missouri ‘show me state’. This changed for all sorts of reasons: filling the gap of declining institutions, social norms and seeking brand differentiation in a homogenous world. In the echo chamber of social media, you do start to believe the myth that your opinion on something matters. It might, but only when matched with actions. It is a paradox though.
It is almost impossible to fake making an external operational context your internal reason for being. Your value must be in solving a problem you have agency to solve for consumers rather than providing commentary for the masses. Employers can make a bigger difference on gender diversity simply by changing internal criteria rather than by using external communication. As the perceived benefits wear off, we will see more brands being a bit softer in their stance and harder on the problems they are trying to solve. They will act like Unilever or Patagonia where it is not purpose it is practical pursuit to build a better business.
Old Rule 4: Best to be prepared
Humankind now has another point of difference from other mammals. We are the only ones to end the climatic conditions ourselves that led to our own rise. We have permanently altered the Earth in look, temperature and even material composition. The sand on your local beach is now enhanced with 4000 grains of plastic for every metre of sand. It is enough to drown yourself in despair but if you look beyond the headlines things are changing fast.
Economic policy and corporate investment is now aligned to solving our significant environmental problem. The US government has funded the biggest investment in climate in history through a Biden head fake ‘Inflation Busting Bill’. 2023 or 2024 will see the peak of our fossil fuel consumption globally. Here in Australia, we are finally building incentives to change our energy and automobile mix. Much like there was money to be made digging up dead dinosaur juice there is now money to be made saving ourselves from extinction.
So as you put the work clothes back and start to chart the seas of 2023, the best place to focus on are the other old rules you're taking with you that will shape your impact as an individual and our collective endeavours as a species.
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Be better to each other.
