In case you missed this article earlier during the week, it's worth reading. Prof Galloway discusses how post-crisis periods, like now, tend to be times of productivity, innovation and rebirth.
By Unknown artist – museumoflondonprints.com, Public Domain, Wikimedia. The Great Fire of London, depicted by an unknown painter (1675), as it would have appeared from a boat in the vicinity of Tower Wharf on the evening of Tuesday, 4 September 1666. To the left is London Bridge; to the right, the Tower of London. Old St Paul's Cathedral is in the distance, surrounded by the tallest flames.
The Sonic (Entrepreneurship) Boom
Courtesy of Scott Galloway, No Mercy/No Malice, @profgalloway
Post-crisis periods are among history’s most productive eras. London rebuilt after the Great Fire with grand new architecture, and Europe after the worst of its plagues underwent a commercial revolution. The Marshall Plan turned enemies into allies, fomenting peace and prosperity for over half a century. Leaders also emerge from crises. Ulysses S. Grant was a washed-up soldier without prospects until war broke out, but that war created the opportunity for Grant to save the Union and advance the cause of freedom. This is all to say: In the next 36 months, I believe our economy will birth a new generation of web 3.0 firms and leaders. Why?
I’ve started nine businesses. The best predictive signal for their success has turned out to be the phase of the economic cycle in which they were started. Put simply, the best time to start a business is on the heels of a recession. And while pandemic economics haven’t resulted in a garden-variety recession — in either its duration (short) or its recovery (K-shaped) — there are factors that make this the best time to start a business in over a decade. Specifically:
- Unprecedented stimulus and savings resulting in a Nazaré-like wave of consumer spending.
- A gestalt among consumers and enterprises to question the status quo, and be open to new products and services.
- The emergence of new fields and the capital to disrupt traditional industries as immunities kick in and monopoles are broken up.
Nazaré
Photo: Luis Ascenso CC BY 2.0
The massive waves of Portugal are a function of the Nazaré Canyon, a submarine valley 5,000 meters deep and 2,300 kilometers long that functions as a ripple polarizer. Ocean swells build up over thousands of miles and flow through this geological fault with a minimal dissipation of energy. I just read the last sentence and am wondering about the medium-term effects of edibles. Anyway, the greatest surfer in the world is just a freakishly strong swimmer with a fiberglass board — until the right wave comes along. The Nazaré Canyon generates the biggest waves, and therefore, the most potential for greatness.
Monster waves birth in the open ocean, but tectonic business waves begin with consumer spending. The combination of historic savings, government stimulus, and record asset appreciation is shaping a wave of consumer spending unlike anything we’ve seen since baby boomers decided consumerism was a virtue.
Similar to ocean swells barreling towards the Porteguese coast, the commercial opportunities powered by consumer spending will be shaped by business dynamics. And, as with Nazaré, there is a deep canyon that will convert this energy into the waves of change. That canyon is Dispersion, a fancy way of saying the supply chain, or route through which a product or service travels, is changing. Today, there are four big waves forming in the Dispersion Canyon.
HQ
Remote work will fuel massive opportunities. Over the next decade, we are going to see the most radical transformation of the American landscape since the freeway created the suburbs. This set will have two waves.
First, we will see a significant investment in residential real estate and communities. Commercial real estate is a $16T asset class. If gross demand for office space declines by a third, we could see the GDP of Japan ($5.1T) reallocated from office to residential real estate. Sonos, Sub-Zero, Restoration Hardware, and Slack — along with everything else that enables or enhances work from home — should benefit.
In addition, we will see a great repurposing of office real estate. Many offices will remain, but no company will need the square footage they previously did, and companies will look for increased flexibility. In New York City, the amount of vacant office space available for sublet has doubled since 2019 and, as of December, the commercial vacancy rate in the city was the highest it’s been since the Great Recession. In 2020, San Francisco went from the lowest office vacancy rate in the city’s history to the highest.
Some office towers will be remade as residential, while others will be flexed for multiple tenants (coming soon: Airbnb Office). Cities aren’t going away – young people and inherently collaborative activities will still want/need to congregate in person. But cities will be cheaper, younger, and more diverse, all of which are inputs for startups. At $47B, WeWork was overvalued; going public via SPAC at $9 billion, it might be a buy. Prediction: look for WeWork to rise from the ashes of Covid.
Higher Education
The world’s most powerful lubricant of upward mobility (U.S. higher ed) has morphed into a corrupt enforcer of the caste system. It has enjoyed 30 years of tuition increases matched only by the arrogance and self-aggrandizement of its leadership. Covid is the fist of stone coming for this chin. The pandemic moved 1.6 billion people into online education, and many will stay there. India’s largest edtech firm, Byju, is reportedly closing a $600 million investment, valuing the company at $15 billion, and Coursera is expected to go public at a $5 billion valuation.
Healthtech
The largest consumer industry in history is U.S. healthcare. It’s also the most ripe for disruption. Imagine: Walking into a Best Buy to ask for help buying a flatscreen TV, only for the salesperson to hand you paperwork, for the 11th time, and ask you to wait 20 minutes before someone will help you. Only, you don’t have to imagine it, just think about the last time you went to a doctor’s office. At the doctor, you have to put up with this BS, because your health literally depends on it. Similar to higher ed, the healthcare industries have been sticking out their chin for years, raising prices while delivering worse outcomes. Healthtech startups raised $15.3 billion in 2020, up from $10.6 billion in 2019, according to Silicon Valley Bank.
Crypto
This is a $1.7T asset class that could be $130T (the size of the bond market), disperse trust (eliminate the need for inefficient intermediaries), and reduce human bias in the financial supply chain. Every generation gets its gold rush (social media followed the web, which followed the personal computer). Young people have the edge when it comes to transformational opportunities, as their brains still have the plasticity needed to comprehend new models. In my fifties, it feels like the part of my brain that I need to understand this sector is dying — along with the part that can mimic my father’s Glaswegian accent. Strange, right? But that’s another post. For now, I’m taking fish oils and speaking to experts. This week on the pod, we spoke with crypto investor Raoul Pal, and a few months ago, Michael Saylor lobbied me to buy bitcoin despite its recent rise to $19k. Note: I didn’t buy.
How Can I Help?
A year ago, it would have been harder to be optimistic about entrepreneurs addressing these opportunities, as Big Tech was likely to move in and dominate every open space. But at the tail end of the last administration, we registered serious movement on antitrust enforcement. And now, the Biden administration has signalled that it will double down, bringing two of the most compelling voices for enforcement, Tim Wu and Lina Kahn, into the administration. The breakup of Big Tech — and the limits on its offensive efforts — will birth new lanes the size of the 405 (yes, I’m in LA today). Thursday’s Congressional hearings confirmed what many of us have been saying for years: Big Tech is bad for society, these firms lied to us, and they need to be broken up.
Big Tech isn’t the only segment of society that has benefitted from the pandemic. If you’re in the top 10 percent, much less the top one percent, the dirty secret of Covid is that many of us have been living our best lives. The deadliest crisis in American history has meant more time with family and Netflix, coupled with an explosion in wealth. The top decile of Americans works with zeroes and ones, and this work has only been levered by remote technologies. Furthermore, the representatives of the shareholder class in government (435 in the House, and 100 in the Senate) have used the cloud cover of the pandemic to funnel trillions of dollars into the market, juicing asset prices.
One thing the shareholder class can do is to invest in early-stage (i.e., seed) startups. I don’t enjoy seed investing. Almost every business idea I hear, I think, “This makes no sense, and will never work” — I also find early-stage CEOs and firms, similar to infants, needy and impossible to predict. Regardless, I have made (in the last week) two seed stage investments: Measured, a platform for weight loss, and ScholarSite, a Substack for academics.
Capital
Despite the broader economic slowdown, we are awash in capital, at every level. Wealthy individuals have by and large done incredibly well over the past year, thanks to the stock market run-up, and are looking for opportunities to invest. Tech-focused investors have done particularly well, and crypto has generated new bitcoin billionaires. Tech companies are important venture investors, and have more capital than they can use for core operations. The result? A record 225 U.S. companies became unicorns in 2020. January 2021 saw the greatest total in venture investments in history, with $40 billion invested, and since the beginning of the year, over 60 additional private companies have achieved “unicorn” status. Meanwhile, the public markets are desperate for quality companies to sate the voracious appetite of SPACs.
Los Angeles & Dispersion
I’m currently in Los Angeles and I’m channeling Michael Jordan. Hear me out: Just as MJ loved baseball, but wasn’t great at it; there is nowhere I enjoy more, and am less successful, than Los Angeles. I meet with agents, producers, and box office superstars who show me their sneaker collection and, over lunch at their house(s), tell me, “You are a genius, we must work together.” And then … nothing. I know this trip to the City of Angels will yield the same business (non)results. But that’s not why I’m here.
My closest friend’s mom, who cooked several hundred meals for me as a child, pre-teen, and teen, is struggling with dementia. I had lunch with her and her husband, who I have written about, today. During lunch, I’d grab her hand, and she’d look at me with surprise and then just smile. I’m not sure if in these moments she knew who I was, but I am confident she knew I loved her, and that was enough. I’ve let so much bullshit get in the way of expressing how I feel for people — some fucked up sense of masculinity or insecurity that to this day diminishes my ability to express true emotions.
There is a meaningful opportunity in the dispersion of HQ, education, and healthcare. There is a profound opportunity to register the finite nature of life and rebel against anything that gets in the way of letting people know that you love them, and how much they’ve impacted your life. I am a professional failure in my hometown of Los Angeles. However, there are people here who were generous with me, and whom I love. I need to get to LA more.
Life is so rich,
P.S. Section4, my EdTech startup, aims to to make elite business education more accessible with 2-3 week intensive “Sprints.” Our upcoming Sprint, Product Strategy, is taught by my NYU Stern colleague Adam Alter.
