I was traveling this week (writing from a plane back to NY from SF) and had little/no time to write. So you’ll have to content yourselves with some great reads and takes from elsewhere on the internet for the week.
I’ll be back next week on the regular game and schedule.
Until then, go Knicks.
Thesis Driven
Yesterday I published a guest post in Brad Hargreaves’s fantastic Thesis Driven newsletter: The Future of Real-World Entrepreneurship. It’s quite long so I won’t re-post the whole thing.
Here’s an extended excerpt I’m quite happy with:
I believe that this future isn’t yet set in stone. There are multiple simultaneous forces coming together to create a unique moment to build platforms and businesses that release America’s entrepreneurial potential energy:
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Entrepreneurial culture: just like tech replaced big law and finance as the high status job for the 2000s, real world businesses will replace big tech.
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Technology: with AI, small companies can do way more with way less. Little guys can win.
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Capital markets: as more businesses get rolled up, the best people will get pushed out to do it on their own.
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The end of SaaS: as software LTVs go down and CACs go up, the world is moving beyond software as its favorite business model.
Let’s break down each of those individually.
Entrepreneurial Culture
There’s always been a class of the best and brightest who carve a path for ambitious young people and represent the cultural ideals for success:
In the 60s and 70s, the bright go-getters went to work at big companies that made things in America for the American Century like GM, GE, and DuPont.
In the 80s and 90s, the next cohort went into finance and big law to get right with globalization and corporate consolidation.
Through the 2000s it’s been all about tech—startups and eventually/especially big tech companies—as software became obvious.
So now, in an unstable, multipolar world where will bright, ambitious people turn next? Now that Facebook and Google are uncool, interest rates are high, software competition is going infinite, and institutions feel unreliable, what is the next high status path that will dictate our economy?
They’re going all in on cashflow and independence because they’ve learned that institutions won’t take care of them and can’t monopolize opportunity.
Free cash flow and independence (two sides of the same coin) are hedges against uncertainty, institutional decrepitude, and burnout.
Becoming a creator, buying SMBs/ETA, investing in real estate, drop shipping, building microsaas, forming personal holding companies, etc. are all trendy because they’re opportunities for ambitious (young) people to work for themselves and generate FCF as owners and operators instead of employees.
The next great migration is coming and talent will start flowing out of tech if it isn’t already. It might be harder to recruit for tech but there will be new companies to build for the new epoch.
Technology
AI is completely rewriting the rules of scaling companies and competition.
On one hand, huge companies will be able to get bigger (AI is great for coordination and communication, big returns to scale on data, distribution is everything) more profitably. Certain diseconomies of scale will soften or break down. But it’ll be great to be a big company.
Middle market companies will struggle. Neither nimble enough to win on speed and execution nor big enough to win on scale and reach, they’ll be caught in the valley of death. Many will get aggressively consolidated into bigger platforms.
But on the other extreme, small companies will thrive because they can deploy AI the fastest (use AI with fewer barriers even if not make it or use it the “best”), use AI to the greatest effect (highest returns on effort/low baselines in many functions), and face fewer barriers to entry (progressively lower startup costs). There will be more successful companies and the smallest (down to sole props) will outkick their coverage.
Whole functions and departments that were once the exclusive domain of large companies are now accessible to small and mid-sized businesses. With AI and with newer software more broadly, any company led by a sufficiently resourceful and ambitious operator can access best-in-class capabilities in finance, back office, marketing, legal, customer support, and analytics.
Owners and operators can automate workflows, plug into AI-powered platforms, and make strategic decisions with a level of precision and sophistication that rivals or even surpasses much larger firms. Going from a zero or 1/10 on these kinds of things to even a passable level is a huge improvement.
Today, a sole proprietorship or very small business can scale and succeed in ways previously unthinkable. And for small employers, these tools in the aggregate are a game-changer, bringing sophistication that normally only comes with size and consolidation.
Who needs an institutional owner when you have ChatGPT?
Capital Markets
The newfound aggressiveness of buyout firms to consolidate and roll up anything it can will backfire in talent markets. When private equity enters a market in force, the best people look for the exits and demand for “business in a box” options (more on that later) shoots up. There’s some signs this is already happening, especially in healthcare.
People don’t want to work for faceless financial institutions or, worse yet, the 29 year old MBA who flies out once a month to “rally the troops” (threaten a layoff). And as interest rates go higher, debt burdened businesses will be under even more pressure to cut further and push employees harder. It will be ugly. Anyone with options elsewhere will exercise them.
The End of SaaS
When building app software was hard, there was a moat in software. The products weren’t easily replicable and that was enough defensibility.
As building application software becomes easy (or even automated because of AI code generation) the execution, biz logic, systems, etc. become the moat. But that kind of moat is hard to prospectively underwrite even if it’s relatively easy to identify at scale. So pure application software businesses are increasingly unappealing.
Eventually/soon we’ll get to a world where someone can just ask GPT-10 to “build me an app to do X, has these features, and looks like this screenshot.” At that point, there will be no moat and infinite competitors for application software.
Software companies (and their margins and outcomes) will generally compress to look services companies: easy to start, usually not very big, little or no need for outside capital at inception, etc.
All told, software is depreciating very quickly, and pure-play software companies look uninvestable on the basis of technology alone.
Instead, it’s becoming obvious that the “software” businesses of the future will be more like compound companies that combine software with operational excellence, services, and/or real world physical businesses. And software might be the least interesting part of that to work on!
What are you gonna do about it?
I Read
How M.L.M. world works on Instagram and TikTok – Read Max
This is obviously germane to me as someone who is excited about catalyzing entrepreneurship online and in the real world. There is always a darker side to the same cultural and economic forces. In this case, the rise of positive-sum, wealth creating entrepreneurship is mirrored by the scaling up and facilitation of pyramid schemes and MLMs (pyramid schemes by another name). MLMs, like all scams, are great at capturing value (great business model) and terrible at creating it (negative or zero sum). So watch and learn, but learn well.
Ben Mendelsohn Loved Reprising His ‘Rogue One’ Villain on ‘Andor’: – Variety
Andor is on another level right now and Mendelson gives a great interview on his “fruity” evolution of the character.
Lightspeed Is Latest Firm to Shift Away From Classic VC Model – Bloomberg
Another week, another venture manager doubling down on being a multi-asset platform/asset manager. Venture looks like more like PE and banking by the day.
The Hidden Struggle of John Fetterman – NY Mag
Fetterman has at this point lost his mind. And it really looks like being way too online has been a big part of it. Terminal internet brain is terrible way to go – genuinely sad to see what’s happened to him.
“MAGA Maoism” is undercutting American capitalism – Axios
I’ve been saying and meme’ing this for a while and I’m glad to see it’s entering the mainstream. Trump is obviously not ideologically communist but his political instincts and vision are increasingly Maoist and he’s getting there on the aesthetic too. Basically “you’ll all suffer but it’ll be worth it” as he centralizes power. Last time it led to one of the greatest mass murders in history.
Abundance
I’ve been sworn to secrecy on this but the news is finally out on the new bipartisan congressional Build America Caucus. Now, for the first time there’s an explicitly Abundance-oriented bloc in government. And crucially, it’s not just democrats.
For as long as Dems are the minority (hopefully not after the midterms) anything we want to accomplish relies on Republican cooperation. And even when we regain the majority, Abundance issues cut across the aisle in surprising ways and we’ll want to keep investing in relationships within a broader coalition on issues like housing and land use, energy and infrastructure, science funding, etc.
And on the local front, good people at Abundance New York are hosting their next happy hour on May 14 in NY. I’m 50/50 right now on attendance because of a prior commitment but hoping I can make it. And regardless, you should all come out to hang with other abundance-pilled friends and talk about how we can save America. We need more of what we need and the state capacity to go achieve it.
I Wrote
The Future of Real-World Entrepreneurship – Thesis Driven