too big to succeed

banks & perverse incentives

Not long ago, banks required tax-payer subsidies to offset risky bets that never should have been made in the first place.

These banks had leveraged their bigness into an economic life raft, paid for by the public. Many went on to profit from betting against the exact same messes they’d made in the first place.

The banks were “too big to fail.” Their incentives were aligned to rocket them towards bad outcomes in which other people experience the downside risk.

tech companies

According to some, tech companies are repeating the economic history of the banks.

Some tech companies, like banks before them, have maximized returns by radiating risk onto users. Others have balance sheets that exceed the GDPs of most countries.

As of early 2020, the prices of tech companies are driving the stock market to record highs. Even hardened veterans of of the dot-com crash will tell you that they can’t see the tech titans failing.

They’re too big, after all. How could they?

climate change

I think the notion “too big to fail” is the wrong tool for thinking about the future of tech companies. Or any other company for that matter.

In particular, I believe that climate change will amount to sustained supply chain attacks in which risk correlates highly with geographic reach.

In this environment, the value of adaptability and small failure blast radiuses will greatly exceed the value of bigness as a means for accomplishing business objectives.

Short-term cooperation among teams of small participants working in pursuit of shared goals will outpace hierarchical systems that rely on command & control. They will also be less risky to maintain, and less catastrophic when they fail.

Over time, swarms of small giants will topple most monoliths, much like music monoliths were toppled by decentralized sharing platforms.

(re)training

In addition to these changes, I believe tech companies will be expected to play a much more proactive role in (re)training workers and providing opportunities for people to create jobs, especially for workers who are displaced by automation and AI.

I believe that internal pressures to maximize adaptability and minimize blast radiuses, combined with external expectations to (re)train increasingly large numbers of workers, will push the economy towards the creation lots of small businesses that excel at working together inside local zones of cooperation.

Over the next 5-10 years, I expect we will see more companies that fail because they were too big to adapt quickly as opposed to surviving because they were able to leverage their size.

“Bigness” will increasingly be seen as too risky and too expensive to maintain.

shapeshifters & team topologies

These predictions, if true, will mean that the future will belong to the shapeshifters.

I will return to that topic in my next blog post. In the meantime, please also take a look at my strategy bets for 2020 and reach out and let me know your thoughts.

Photo by Annie Spratt on Unsplash

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