Why The Future Is In The Hands Of Individuals, Not Corporations

The power to innovate is falling into the hands of hyper-talented individuals.

Traditionally, the largest and most successful corporations were also the largest employers. Manufacturing and retail businesses required factories, warehouses, logistics and plenty of manpower, all working in harmony to deliver their product or service. Building this capability took years, requiring significant capital investments. Thus, competitors were few and far between, and disruption was painfully slow to make a dent on existing hierarchies.

 

But with the rise of technology, the model of success has gradually evolved, with businesses requiring fewer and fewer resources and employees to make an impact. Whatsapp is the perfect example; already worth $19bn with only 55 employees. And as we enter the next wave of tech innovation, we’ll increasingly see power transfer away from traditional ‘corporations’ and fall into the hands of smaller groups of highly skilled and hyper-talented individuals.

More, but increasingly complex opportunities

There has never been a more exciting time to be an entrepreneur, with emerging technologies bringing an unprecedented number of opportunities for innovation across platforms and software, with minimal physical resources and infrastructure required. We’re only now beginning to understand the potential of tools such as AI, machine learning, AR, VR, and the Internet of Things, and how they can be combined to create breakthroughs across a whole range of industries and problems.

Yet, identifying and then maximizing these complex and increasingly technical opportunities requires equally specialist knowledge and skills, along with the ability to respond rapidly to new innovations and competition. Understanding and manipulating the most cutting-edge tools requires the best brains, not to mention the drive, resilience and vision to identify the ideas with the most potential. The barriers to entry are rising, placing the power in the hands of those highly capable individuals, who are no longer reliant on building large organizations or physical assets to realize their ambitions.

Size doesn’t equal power

Corporations have always struggled to innovate, lacking the natural agility and flexibility of smaller organizations. However, as we enter this new age of innovation, it is becoming even tougher for the incumbents to keep up with the pace of change and increasing complexity, even with all their manpower and their abundance of cash lying dormant on the balance sheet.

What these big businesses are lacking is the ability to harness the power of the most talented individuals, by providing an environment where they can thrive. Radical change needs mavericks and risk takers who in turn need the freedom and ability to innovate; not be put in a straight-jacket and told to behave and operate according to corporate rules. The most extreme innovators don’t fit into old-fashioned, archaic organizational structures, which means it’s very difficult for big businesses to attract, integrate and retain these individuals.

Investing in these most cutting-edge technologies is also extremely risky, and corporations are too afraid of making mistakes and too busy covering their backs to take a serious punt on ideas that might not build any value. Innovation requires agility and radical thinking, which is impossible in an environment that is paralyzed by politics, an aversion to change and worries of cannibalising its existing revenue streams and product lines. Their only real hopes are spin-offs, joint ventures and acquisitions of the most talented individuals – not in-house innovation.  

Supporting the individual

Those who succeed in the next wave of innovation will be those individuals and small teams with the technical skills and a ‘knack’ for understanding the end vision, along with the freedom and agility to explore the unknown. But to have this freedom, these individuals must be adequately supported with resources, networks and capital to take the necessary risks and follow their instincts.

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Kjartan Rist

Contributor

I write about the rapidly evolving VC and start-up sector in Europe
Warren Buffett: Market Collapse will be on YOU
Warren Buffett: Market Collapse will be on YOU! By: Andrew Moran September 18, 2018 Articles, Economic Affairs

 

It has been a decade since the collapse of Lehman Brothers, triggering a financial crisis unseen since the era of flappers, speakeasies, and Keepin’ Cool with Coolidge. The Great Recession came to an end in 2009, meaning that we are nine years into the current bull market, which is one of the longest in U.S. history. While the current economy appears to be on fire, another recession – or worse – is an inevitability, one that will be blamed on President Donald Trump, not his predecessor or successor.

Recently, the Oracle of Omaha, Warren Buffett, spoke with CNBC about the decade anniversary of the fall of Lehman Brothers. He also delved into a wide panoply of financial subjects, forecasting that a financial crisis is nigh. But he made one head scratching meditation that was rather interesting; everyone’s favorite billionaire averred that John Smith and Jane Doe cause bubbles to form, explaining:

“People start being interested in something because it’s going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t. And their spouse is saying can’t you figure it out, too? It is so contagious. So that’s a permanent part of the system.”

It is difficult to argue with a billionaire who has made tens of thousands of people rich. That said, what he is describing is a symptom, not the cause, of the pecuniary disease. The real cause of the asset bubbles is the Federal Reserve, not your irksome next-door neighbor who acquires a new luxury vehicle every so often because he purchased FAANG stocks or Tesla shares a couple of years ago.

A Bubble In Everything

Right now, most markets are flourishing. It seems like the only sector of the economy that isn’t booming is the world of commodities, particularly of the metal variety. Everyone is getting rich, from the Wall Street executive to the busboy at your local family diner to your 95-year-old grandmother. And that is what’s concerning Buffett.

It is true that many markets are in a bubble, either one that continues to swell or one that is beginning to deflate. The most obvious one is the stock market as most equities are posting all-time highs. But once you begin to look beyond equities, you start to notice a dangerous trend: The fundamentals of most markets are not sound.

Russian billionaire Dmitry Rybolovlev

In 2008, Russian billionaire Dmitry Rybolovlev purchased Paul Gauguin’s “Te Faire La Maison” for $85 million. The fertilizer mogul put the artwork on the auction block in March 2017, but he only garnered $25 million, resulting in a 74% loss. Unfortunately for Rybolovlev, that wasn’t one-time incident. In the last few years, he had started to sell pieces of his $2 billion vintage art collection, enduring a $100 million loss – and counting.

And it isn’t just Rybolovlev who is witnessing his investments crumble. A couple of years ago, there was an immense correction in the international art market. In 2016, Christie’s auction house experienced a 17% sales drop to $5.4 billion. Ditto for Sotheby’s, which reported a 27% decline, falling to $4.9 billion.

Another booming market that is going through a correction stage? Vintage automobiles.

It seems that after years of double-digit growth, classic cars have hit the brakes as their price-tags are no longer going through the roof. For instance, the value of classic Jaguars and Porsches surged as much as 47% in 2013, but average prices rose a tepid 1% in 2016.

The U.S. real estate market is in a housing bubble 2.0. It has all the hallmarks of the 2006 housing crisis:

  • Investors and speculators represented 35% of new home sales in 2016.
  • Banks are gradually offering zero-down mortgages.
  • Mortgage lenders are cutting down their credit standards.
  • Homeowners – primarily of the millennial demographic – are tapping their equity.
  • Foreclosures and delinquency rates are on the rise once again.

If you’re a perma-bear or a goldbug, then you’re probably hoping for a bubble in gold soon.

Blame The Fed

So, bubbles in vintage art, classic cars, and houses. Who’s to blame? It might seem easy to pass the buck onto your annoying neighbors, but the real culprit is the U.S. central bank.

Whenever a bubble forms, it is because the central bank has started to expand the money supply. A rapid increase in the growth trends of the money supply is then followed by a substantial jump in asset prices. This has been the norm since the end of the last recession. Then-Fed Chair Ben Bernanke turned on the printing presses and facilitated the flood of cash into a plethora of asset classes without any savings. His successor, Janet Yellen, wasn’t any better, creating $3 trillion in new money in a four-year span.

The bubble pops when money growth slows, and the bubble cannot be sustained with present levels. The M2 money supply data suggests the Eccles Building is still running the printing presses, though it has slumped over the last two months.

That said, it can be difficult to ascertain when the next bubble will pop and the good times will turn into bad times. What we do know is that the bull market still has some legs in it without a significant slowdown in sight.

Despite what Buffett contends, asset bubbles are not formed by the jealousy of your obnoxious neighbor’s success. They are developed through the Fed’s money-printing schemes.

No wonder why President Donald Trump demands Powell to print money and keep interest rates low.

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A Trillion Dollars

 

To whom much is given, much is required. And for a technology sector on the verge of begetting two trillion-dollar companies in Amazon.com and Apple Inc., the requirements are getting daunting.

Patience is wearing thin. Investors are asking too much. Just this week there was Facebook Inc., a company that boosted quarterly revenue 42 percent — and for its efforts suffered the worst battering in the history of U.S. stocks.

There was Intel Corp., which topped all the forecasts and had $20 billion wiped from its value. A few days earlier Netflix Inc. plunged even though its net income sextupled. Amazon barely held on to gains Friday.

For most companies, it’s been an earnings season for the ages. But for the software and internet titans that have shouldered the bull market for nine years, the strain of expectations is showing. And it’s happening at a time when investors suddenly have other places to put their money.

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