My goal is to write one 'Pattern Recognition' a week. Just the top 3-4 stories that stayed under my skin. Here's what stuck this week:
- Mad as Hell: Henry Blodgett of Business Insider has written a fire and brimstone piece intoning that Americans should be 'mad as hell' at big business and the greed mongering 1% for squashing our sense of egalitarianism. But in digesting the piece, I was left with three thoughts. One, it's reminsicent of the story that I read about in junior high school of how totalitarian societies actually encourage symbolic protests by their citizenry. Why? That way, their beleaguered populaces let off some steam, making them less likely to actually rebel. In other words, Blodgett's "get angry" piece feels very similar, encouraging us all to go hit a pillow. Two, is that the most powerful incentive systems are ones that offer variable rewards, and so long as the stock market goes up more often than it goes down, the prevailing narrative will remain, "Keep trying. You still have a chance." (If that goes, look out.) Three, reading the comment thread of the piece frames our collective inability to have anything other than a one-track, linear discussion about what ails our society. It's as if our economy, industry, governance and way of life is just a big black box of inputs and outputs. The truth, however, is: 1) There are NO catalysts for net job creation; 2) Both parties are completely conflicted based upon the revolving door between government and private industry, and the role of big money lobbying and PACs in instituting policy behind closed doors; 3) Even if there was a spirit of adult compromise in Congress, 270 members of Congress and Mitt Romney have signed Grover Norquist's Pledge, stating that under NO circumstances will they approve any legislation that creates new taxes. A policy that costs $2, but cuts $8? Can't do it under The Pledge. Think about that one if you have ever been responsible for negotiating an operating budget with others; 4) Whether you appreciate the power of Creative Destruction or not, the reality is that it moves on its own timeline. It could be 5, 10 or even 20 years before a new job-creating catalyst arrives. Hence, simpletons that suggest that government should "do nothing but cut taxes and get out of the way," blissfully would have us play the societal version of Russian Roulette by ignoring this inconvenient truth that's playing out in countless pockets across the country; and 5) "Greed is good," as the only rationale that you need for any decision in business (or life) can't end well since it incents businesses and citizens to make decisions that provide short term rewards blind to long-term costs. Moral of the story: A wise person once said that the real challenge in life is learning to manage the paradoxes, for true quality and true sustenance comes from embracing the AND, not the OR. To be clear, though, being an AND means that there are a lot of things that you CAN'T do. Case in point, it's the reason that Apple can be hardware, software, service, tools, marketplace, ecosystem AND retailer, but fundamentally, has only one platform, and only one SKU per device type. In other words, rather than us being 'distracted' by being mad, we should focus instead on codifying a coherent mission statement for America in the 21st century, and the requisite plan of record, collective sacrifice, proper incentives, and checks & balances required to bring it about.
- Playing By the Rules: There is an axiom that it is better to ask for forgiveness than to ask for permission. Sadly, playing by the stated rules is NOT a winning recipe. It's for chumps, and there's certainly no glory in being a martyr. Remember, Google didn't ask to link, YouTube didn't ask to encode, Facebook didn't ask to create the social graph. And, Wall Street? If there's an industry that more fully lives by the ethos "loophole," I don't know of one. By the same token, when you live by the sword, you should be prepared to die by it. A little moral hazard goes a long way.
- Cyclical Markets: Before I got into tech, my first career was in real estate as a retail shopping center asset manager. Having cut my teeth professionally in Los Angeles during the Savings and Loan Crisis of the late 1980s, I understood the dynamics of managing through markets where over-development and desperation created a death spiral of high vacancies, high rates of business failures and plummeting rental prices. As luck should have it, when my business partner and I expanded the operations to the San Francisco Bay Area, we found a market that was a picture of the 'calm before the storm.' In other words, all of the environment variables were similar to what had played out in LA; it was just that the Bay Area was ~12 months earlier in the cycle. Hence, while prospective client after client proudly told us how the Bay Area was 'different,' we knew better, and cautioned them accordingly. When the tide turned, we looked like visionaries, and cleaned up, building a business that would become one of the Top 20 Real Estate firms in the Bay Area. The moral of the story is that markets evolve cyclically, and if you can read the tea leaves of markets that are further in the cycle, and apply them to markets that are earlier in the cycle, you can make serious coin. Consider, that for the past 20+ years, the democratization of the PC, led by horizontally focused Microsoft and Intel, taught companies not only in the computer industy, but in orthogonal industries as well, that you couldn't win by building the whole enchilada. Being horizontal, so the conventional wisdom went, created bigger markets, more diverse ecosystems and more opportunities to create wealth. Flash forward, and now horizontal has played its course, resulting in too many hollowed out industries where the product has become a commodity and the customer won't pay a penny more than its worth. We've seen this trend play out in big box retail, personal computing, media and many other segments. Meanwhile, Apple has taught us that through vertical integration (based on a coherent differentiation plan), comes margins, profits, customer loyalty and thus, defensibility. In other words, if the last 20+ year cycle was all about riding the coattails of commodization through horizontal orientation, the next 20+ year growth cycle is all about building new differentiated growth vehicles that are powered by vertical integration. Thus, if you want to look and feel like a visionary, and make a mint in the process, focus on identifying segments where this type of disruption is available. Best of all, most of these segments will already be in a world of hurt. Buy low, and some day you will be able to sell high.