The Shift
A storm is coming, and it’s time to shift.
We have been here before. Granted, the circumstances are different and unprecedented, but isn’t that always the case? It’s always unprecedented. At the beginning of 2022, the outlook was highly optimistic. How did they get it so wrong? Did they not know, and we can finally file the ‘experts’ into the same category as any suspect Reddit feed? Or did they know and lied, which could be similar to a suspect Reddit feed. In either case, it is clear, your decisions, your plans…plans for your business, plans for your team, plans for your finances, goals for your health… all of these things need to be decided with a different guide, different heading, differing north star in mind. Please…don’t make the heading political. I can already tell you what is going to happen, the ‘left’ (also, before I get labeled, I would classify myself as a JFK-era democrat, which means I can make either side, not like me) …I digress… the left will blame capitalism while using it to take advantage of the situation. The right will blame the government, conveniently ignoring that they are, in fact, the government. Round and round we go, with no actual progress.
While this cycle is frustrating and always destructive, after being old enough to have managed a few recessions while being a student of other recessions, there are several playbooks one can use.
Also, to be clear, I do not sound the alarm of a recession. Anyone doing business or even taking a quick drive to a grocery store knows inflation is an issue. The ‘recession’ is manufactured to attempt to curb inflation. This is a good thing. Why? Because you cut the rates again, the economy will heat up. Insert economist “that’s not how that works” … lol, ok.
First, let’s set the table for what I think is coming.
1- The obvious - we will see a comprehensive startup workforce reduction by 35%. To be clear, I am not beating up on startups. A founder of a startup has had the craziest four years imaginable. First, they have to navigate the pandemic and then get substantial funding, only to have the bottom fall under them.
Here is a snippet from Andreesen Horowitz, a leading angel investor explaining:
“Continuing our example, a $20M ARR business which last raised at $2B might
observe the leading public companies in its space trading at 10x revenue, rather than
100x. Adjusting for the startup's faster pace of growth relative to public comps, let's
say that 15x ARR is a reasonable valuation for its next round of funding. (Note: 15x
ARR represents a 50% premium to the leading companies in their sector and a 200%
premium to the software average of 5x, but the appropriate multiple will vary across
companies.) This means their goal should be to reach $133M of ARR, or $2 billion
divided by 15x, with 12 months of runway.”
Those impacted will either create new startups, which will revert to a more rigorous funding landscape…this, by the way, is a good thing. Applying rigor to the funding landscape produces fewer but higher-quality startups. In theory, while this all lasts, these founders/startups will build with solid pragmatic fundamentals, preventing startups from collapsing when corrections like these inevitably happen.
What will highlight this even more, is the startups that are run like this now; they will dominate and ‘seem to come out of nowhere in the next year to two. They will take advantage of the gap startups with massive funding rounds in defense mode.
Outside elements to look out for:
Wheat. Another obvious, but my wife and I spoke to some ranchers, and many are saying that increase in food production costs has NOT hit yet, but it's coming. Combine that with Ukraine + India not exporting wheat; we are looking at 2-3x food prices climbing.
APAC. It’s a mess—Taiwan, Japan, etc. Stability in APAC is essential.
LATAM. Columbia, Nicceragua, etc. LATAM can potentially make real economic gains in the next decade if it can prevent destabilization.
Oil. Trading crypto or other currencies would be a real problem for the U.S. What can you do?
1- Get your house in order. Clean your garage if you have it. Declutter your life. Take that trip. Have a game night with your kids. Go camping. Make the road trip anyway (it’s likely only to get more expensive).
2- Connect with your neighbors. You are going to need each other. Take an inventory of what your neighbors might be able to contribute. Consider starting a community garden if that is possible where you live.
3- Build a local supply system. Buying directly from farmers and local suppliers is the way to go. Prices will be reasonable, you are supporting your local infrastructure, which is now vital, and you are likely to get a far superior product.
4- Build a coalition at work. This can work if you are a contractor, a founder of a startup, or an employee. Build a partnership of people who bring different but complementary skill sets, and start working as a loose team. This will decrease the burn rate and increase flexibility to make the most out of opportunities. Some cultures that are known for being wealthy stay that way because they are known for capturing money within their coalitions. On average, $1 is spent 18X within the alliance. That makes a huge difference.
Finally, get quiet. Focus on your family, friends (the shortlist), work coalition, and community/neighbors. Stop worrying about politics, the stock market, or watching news headlines. I think you will find that things are not so bad in doing so, and we have a lot to be thankful for.