To me a gilded age is based on unsustainable growth, growth caused by the creation of new markets, which collapses once the market matures. However for a lucky few it is possible to turn a gilded age into a golden one; it’s just not easy since it takes something that is difficult to come by, disciplined and innovative leadership.
In the previous post I mentioned Google. Google has emerged from the gilded internet age of the 90’s into a potential golden age by finding new areas to grow in, all the while remaining focused on its core competencies information management and advertisements. To some it might seem that Google might want to take on Dell, and control the computer market, but making computers isn’t one of Google’s core competencies, and win or lose Google might shrink its market, so it is highly unlikely you will be buying a Google PC anytime soon. Someday soon businesses might be running Google DB instead of MS-SQL, since entering that market space makes more sense for Google. This would work best if Google DB had an advantage besides a lower price. Like table management and compression based on Google’s proprietary algorithms, which gave it enterprise (Oracle/DB2) performance at small business prices or something like that.
In order to open up an existing market to rapid expansion again is later generation products must open up a new market segment or be revolutionary. An the example of a green technology company making this switch, would be a company that makes CO2 scrubbers for power plants, could start making low cost CO2 scrubbers for gas or oil home furnaces as a way to enter a new market segment. Or they could gain market share in their existing market by making a new CO2 scrubber for power plants that turned the CO2 and fly ash into super hard paving material or entrains the neutralized flue gas into cement as a hardening and anti-corrosion agent (don’t laugh both are technically possible.) This leap in technology that can turn waste from a liability to an asset, would make it worth ripping out even a not that old CO2 scrubber and putting in a new one, giving the company a boast in sales and a bigger piece of the market.
Speaking of companies that might be heading for a golden age the new Kinko’s, FedEx, Adobe relationship looks very promising. Its like Steve Job’s said of the new iPod, if anyone is going to steal Apple’s market share it’s going to be Apple. This partnership allows you to collaborate on a document with colleagues world wide, then print it to any Kinko’s you want (there are Kinko’s locations in ten countries.) So, now you hit print in LA, and an hour later a Kinko’s van pulls up outside the London and Sydney branches of your company and drops off the new marketing materials. Think of the savings in money and time versus shipping all the materials from LA. Sure this hurts FedEx, but FedEx owns Kinko’s so they make money on the deal. However, this arrangement also takes business from UPS, DHL, and the USPS, and puts the money in FedEx’s pocket. Plus, FedEx has another trick up its sleeve; let’s say that your sales guy is in Munich and there are no Kinko’s in Munich, but you need him to have so brochures by tomorrow. Well FedEx overnight to Europe isn’t cheap and with customs your guy might not have the stuff for a week. So you can hit print in LA, the stuff prints in Amsterdam and get stuffed into a FedEx mailer and since both countries are in the EU, your guy has it next day and it since only data crossed the pond it cost you less. Pretty neat trick, if it works. Logistics people are likely drooling at the just in time possiblities of reduced inventory and shipping costs.
The key to this kind of growth is never move too far from what you know.
GE is the premier example of this kind of growth, and in many ways the exception. GE buys good companies (#3 or 4 in the field) then specializes in making them #1 or 2 and then keeping them there. GE’s core competence is in continuous growth, since it does everything from light bulbs, to wind turbines, enzymes to MRI, and not to mention money, GE’s credit and finance arm really is the key to GE’s power. GE succeeds by leveraging the core competence of the companies it buys to understand the markets it enters, then uses its might to grow company. This makes GE very diversified without the loss of focus that normally comes with diversity. Now there are many who aren't pleased with the rate of GE's recent growth, but as long as they are still growing in the long run they are a good bet.
So, as your little start up grows into a market giant and the changes that happen when little companies become big companies dull your innovative spirit, always remember the rough and tumble early days. Don't become complacent assuming you can make evolutionary changes forever. Never forget Polaroid, photograph giant one day, nearly gone the next, once digital photograph came on the scene.
Saturday, September 08, 2007
The new Y2K for the economy, or the coming of the next gilded age.
There are many who say that it was all the spending on Y2K that pulled our economy out of recession in the mid-ish 90’s and gave us our most recent gilded age.
What follows is a gross oversimplification of the events but it should be enough to make my point. Think about it, all of the sudden companies and people started upgrading their computers so they could be ready for the dreaded day. (The fact that the various national banks also infused a lot of cash in to the world’s economy to prevent a monetary crunch didn’t hurt either. But that isn’t a subject for this post.) These new computers had new features that enabled them to be more that large word processors, features that would spur the coming of the internet age. Now the internet age would have happened with or without the Y2K scare, but massive IT spending spurred it along, and then for awhile it was self sustaining, since there were lots of market niche’s that were wide open. The giants like Amazon, Yahoo and Google came out of these days, but so did a lot of other companies, companies that made nothing but promises, but everything was good. (Until the bubble burst, when is known, why is harder to say, so here is my guess.) Everything was good until the irrational exuberance started to wear off and smart people took a look at what was going on and realized a lot of these companies would never fulfill their promises, and then Y2K came and went without incident. Since Y2K was such a non-event many companies felt cheated, and even the ones that didn’t reduced IT spending, so the big IT money dried up quickly, followed by the big VC money. The bubble was weakened, but didn’t burst because it turned it’s attention to individual consumers as a source of profit, but it’s hard to live on nickels and dimes unless you can get a lot of them (like the companies above) the selective pressure on the markets increased, and without the regular cash infusions they needed lot of companies just folded up, and the bubble popped. The bubble popping caused a lot of people to lose a lot of money in the markets. This meant people had less to spend so they weren’t investing (they were still spending though) and we had a recession, which ended a gilded age.
The economy recovered sort of since the really issues with the economy were never fix, but we limped along with post 9-11 spending and the real estate boom. But irrational exuberance built on personal debt and HGTV hype couldn’t last long. However, no matter which party wins in ’08, it is likely some kind of large scale government bailout of the mortgage crisis is less then a year away, so that will help fix that. In the mean time apartment rents will rise since demand will increase greatly. So, multi-family construction will increase and at least put some people back to work. While the mortgage crisis, could drag us down deep, the fix for this isn’t the economy’s next Y2K.
Now there is a bizarre kind of good news on the horizon. With all the issues with Chinese manufactured goods, it is likely that some previously out-sourced jobs could be coming home. That is if companies can convince the American people to pay more for things that are made in America, with the inherent assumption that the goods are made with far less toxic additives. If the jobs come home that will actually help fix our economy is we won’t be importing as much stuff.
However, this is a delicate balance, I’ve heard that if the Chinese economy doesn’t grow by like 7 or 8% that is the same as a recession to them, (given how many people they have I’d believe that.) Now a slow down in the Chinese economy helps us by reducing their otherwise insatiable demand for raw materials, which would make among other things oil prices fall, which is good for our economy in numerous ways.
On the flip side if things get really bad in China, it could destabilize a very large, very well armed country with disposable soldiers. That would be very bad, not just for Asia but for whole world. Since if there was a coup d'état the people that ended up in power could turn China into another North Korea or pretty much whatever they wanted, or the nation could descend into civil war. This a real possiblity since China now has what all communist/totalitarian nations rightly fear a large-ish middle class. If this happened it could drag the whole world into the conflict.
But let us not dwell on such things since the fix to the Chinese goods crisis will not be what drags the American economy out of the doldrums and into the next gilded age. (Note: If the fix to this problem was real and lasting the age it could bring would be a true golden age, but this happening is unlikely, and this post is about the next gilded age.)
The next crisis should be taken very seriously since America’s infrastructure is crumbling. The collapse of the bridge in Minnesota is only the tip of that iceberg, since we are largely living off the infrastructure built in the couple of decades following WWII. America needs and likely will at least for the next few years spend improving the infrastructure. Roads and bridge construction are a sure thing, but if we are smart we will build power plants, refineries, schools and hospitals as well. Roads and bridges are important but they don’t make directly make that many lasting jobs. Power plants, refineries, schools and hospitals not only make jobs they are value added since they produce valuable commodities that are needed to enable future growth and stability. However, fixing the infrastructure crisis will not be the next Y2K for the American economy.
Now for the moment you might have been waiting for the new Y2K for the economy is wait for it, wait for it, Global Warming! I am not going to debate whether Global Warming is real and if so what the true cause of Global Warming might be, since that is not the point. The point is that it is the new crisis that will spur people, companies and governments to spend large amounts of money to counteract its effects. Large companies all over the world (even in China) are spending lots of money to reduce their “footprints” be it carbon footprint or whatever. This investment combined with government spending in the field of green technologies is doing exactly what the coming of the internet age did; it is creating new market niches which can be filled by new and innovative companies, that can enjoy lots of unhindered growth. This is why the other crisis’s aren’t as important to America’s economic growth, since the growth they will bring is in existing and mature markets, where large scale growth and innovation is difficult to impossible.
The creators of this crisis are smart they aren’t saying the end will be sudden and only a few years away like Y2K, they are saying the end is here (just watch the news) and that things are only going to get worse, but not for 20 or 30 years, but by spending money we can save ourselves.
To be historically accurate this is the second coming of pollution will get us all, the first incarnation was in the 70’s and early 80’s with the belief that an Ice Age was coming combined with the oil crisis. So America and Europe went greenish at least for a little while (think Pinto). Then oil crisis came and went since money helped lubricate the peace process in ways I won’t discuss, and oil became cheap again.
The Ice Age theory disappeared and Global Warming took its place. With the coming of a second surge in oil prices (this time caused by demand from Asia, a lack of infrastructure and fear), the lessons the fear mongers learned from the Y2K predictions of doom fresh in their minds, bad weather and a media more than willing to help, I have faith that the spending driven by the need to combat Global Warming could safely see America into a gilded age that lasts seven possibly ten years.
The problem that keeps the gilded age from going longer than that is that, that is about how long it takes to for a market to start to mature. I am only giving it that long since the lead times for some of these technologies to go from drawing board to installation might be longer than normal.
I could be very wrong but here is my logic for the number: it should take a year or two to really ramp up, then once the players emerge it should take four to five years for first generation of green products to really reach the markets. Then depending on the amount and types of overlap of product generations (plus the changing landscape: mergers, lawsuits, etc) another two to four years for the second generation of green products to reach the markets.
By the time a market is on its second generation of products it should be well on its way to maturing. To me this seems to be a natural process, there are fewer large and easy sales to be made, so growth stabilizes. Irrational exuberance is tough to maintain, when the companies performance and the market’s cap can accurately be modeled and tracked.
Thus, all good things must come to an end, let's just hope in the 2014 people aren’t worried about the green bubble bursting.
What follows is a gross oversimplification of the events but it should be enough to make my point. Think about it, all of the sudden companies and people started upgrading their computers so they could be ready for the dreaded day. (The fact that the various national banks also infused a lot of cash in to the world’s economy to prevent a monetary crunch didn’t hurt either. But that isn’t a subject for this post.) These new computers had new features that enabled them to be more that large word processors, features that would spur the coming of the internet age. Now the internet age would have happened with or without the Y2K scare, but massive IT spending spurred it along, and then for awhile it was self sustaining, since there were lots of market niche’s that were wide open. The giants like Amazon, Yahoo and Google came out of these days, but so did a lot of other companies, companies that made nothing but promises, but everything was good. (Until the bubble burst, when is known, why is harder to say, so here is my guess.) Everything was good until the irrational exuberance started to wear off and smart people took a look at what was going on and realized a lot of these companies would never fulfill their promises, and then Y2K came and went without incident. Since Y2K was such a non-event many companies felt cheated, and even the ones that didn’t reduced IT spending, so the big IT money dried up quickly, followed by the big VC money. The bubble was weakened, but didn’t burst because it turned it’s attention to individual consumers as a source of profit, but it’s hard to live on nickels and dimes unless you can get a lot of them (like the companies above) the selective pressure on the markets increased, and without the regular cash infusions they needed lot of companies just folded up, and the bubble popped. The bubble popping caused a lot of people to lose a lot of money in the markets. This meant people had less to spend so they weren’t investing (they were still spending though) and we had a recession, which ended a gilded age.
The economy recovered sort of since the really issues with the economy were never fix, but we limped along with post 9-11 spending and the real estate boom. But irrational exuberance built on personal debt and HGTV hype couldn’t last long. However, no matter which party wins in ’08, it is likely some kind of large scale government bailout of the mortgage crisis is less then a year away, so that will help fix that. In the mean time apartment rents will rise since demand will increase greatly. So, multi-family construction will increase and at least put some people back to work. While the mortgage crisis, could drag us down deep, the fix for this isn’t the economy’s next Y2K.
Now there is a bizarre kind of good news on the horizon. With all the issues with Chinese manufactured goods, it is likely that some previously out-sourced jobs could be coming home. That is if companies can convince the American people to pay more for things that are made in America, with the inherent assumption that the goods are made with far less toxic additives. If the jobs come home that will actually help fix our economy is we won’t be importing as much stuff.
However, this is a delicate balance, I’ve heard that if the Chinese economy doesn’t grow by like 7 or 8% that is the same as a recession to them, (given how many people they have I’d believe that.) Now a slow down in the Chinese economy helps us by reducing their otherwise insatiable demand for raw materials, which would make among other things oil prices fall, which is good for our economy in numerous ways.
On the flip side if things get really bad in China, it could destabilize a very large, very well armed country with disposable soldiers. That would be very bad, not just for Asia but for whole world. Since if there was a coup d'état the people that ended up in power could turn China into another North Korea or pretty much whatever they wanted, or the nation could descend into civil war. This a real possiblity since China now has what all communist/totalitarian nations rightly fear a large-ish middle class. If this happened it could drag the whole world into the conflict.
But let us not dwell on such things since the fix to the Chinese goods crisis will not be what drags the American economy out of the doldrums and into the next gilded age. (Note: If the fix to this problem was real and lasting the age it could bring would be a true golden age, but this happening is unlikely, and this post is about the next gilded age.)
The next crisis should be taken very seriously since America’s infrastructure is crumbling. The collapse of the bridge in Minnesota is only the tip of that iceberg, since we are largely living off the infrastructure built in the couple of decades following WWII. America needs and likely will at least for the next few years spend improving the infrastructure. Roads and bridge construction are a sure thing, but if we are smart we will build power plants, refineries, schools and hospitals as well. Roads and bridges are important but they don’t make directly make that many lasting jobs. Power plants, refineries, schools and hospitals not only make jobs they are value added since they produce valuable commodities that are needed to enable future growth and stability. However, fixing the infrastructure crisis will not be the next Y2K for the American economy.
Now for the moment you might have been waiting for the new Y2K for the economy is wait for it, wait for it, Global Warming! I am not going to debate whether Global Warming is real and if so what the true cause of Global Warming might be, since that is not the point. The point is that it is the new crisis that will spur people, companies and governments to spend large amounts of money to counteract its effects. Large companies all over the world (even in China) are spending lots of money to reduce their “footprints” be it carbon footprint or whatever. This investment combined with government spending in the field of green technologies is doing exactly what the coming of the internet age did; it is creating new market niches which can be filled by new and innovative companies, that can enjoy lots of unhindered growth. This is why the other crisis’s aren’t as important to America’s economic growth, since the growth they will bring is in existing and mature markets, where large scale growth and innovation is difficult to impossible.
The creators of this crisis are smart they aren’t saying the end will be sudden and only a few years away like Y2K, they are saying the end is here (just watch the news) and that things are only going to get worse, but not for 20 or 30 years, but by spending money we can save ourselves.
To be historically accurate this is the second coming of pollution will get us all, the first incarnation was in the 70’s and early 80’s with the belief that an Ice Age was coming combined with the oil crisis. So America and Europe went greenish at least for a little while (think Pinto). Then oil crisis came and went since money helped lubricate the peace process in ways I won’t discuss, and oil became cheap again.
The Ice Age theory disappeared and Global Warming took its place. With the coming of a second surge in oil prices (this time caused by demand from Asia, a lack of infrastructure and fear), the lessons the fear mongers learned from the Y2K predictions of doom fresh in their minds, bad weather and a media more than willing to help, I have faith that the spending driven by the need to combat Global Warming could safely see America into a gilded age that lasts seven possibly ten years.
The problem that keeps the gilded age from going longer than that is that, that is about how long it takes to for a market to start to mature. I am only giving it that long since the lead times for some of these technologies to go from drawing board to installation might be longer than normal.
I could be very wrong but here is my logic for the number: it should take a year or two to really ramp up, then once the players emerge it should take four to five years for first generation of green products to really reach the markets. Then depending on the amount and types of overlap of product generations (plus the changing landscape: mergers, lawsuits, etc) another two to four years for the second generation of green products to reach the markets.
By the time a market is on its second generation of products it should be well on its way to maturing. To me this seems to be a natural process, there are fewer large and easy sales to be made, so growth stabilizes. Irrational exuberance is tough to maintain, when the companies performance and the market’s cap can accurately be modeled and tracked.
Thus, all good things must come to an end, let's just hope in the 2014 people aren’t worried about the green bubble bursting.
Subscribe to:
Posts (Atom)