Fast times are upon us, baby, fast times. If this isn’t yet a song lyric, it should be. Would be a hit, a YouTube sensation, because we can all relate. If there has been a unifying thread in this column and in the news these past months, which seem like years, it is that of velocity. I should get rid of the arbitrary categories for my articles – these all just beat around the bush – and in a fell swoop replace with this alone: Fast times, and getting faster.
I don’t recall which determines which, at one time I knew but it’s been a while since physics class: velocity and force are related. These days, velocity is the driving force, science and formulas aside, and speed is a central figure in an increasingly complex plot. It is that character behind the curtain who shapes the velocity culture of entrepreneurs, who manipulates giants to rush products like Buzz, and even a choreographed and meticulous offering like an iPad, half-done. “If you’re not breaking stuff you’re not moving fast enough, ”quoth Mark Zuckerberg of Facebook fame. I’ve touched on the complexity of investing, and thoughtful valuation, in an environment marked by such speed, using the Facebook example as a sort of case study. And we may also have noticed velocity’s influence in the declining value of content, diminished by the speed with which such content is consumed.
Such musings often lead me to think about the challenges that present themselves to closed systems, (necessarily slow and rigid), in this extreme environment. A closed system, slow and rigid, is for example a business enterprise, or a private funding vehicle, or a government: systems that are necessarily limited in their motion, or in the effectiveness of rapid motion (e.g., Buzz, see above), or at least so in comparison to a surrounding atmosphere that, as shown, is fast and getting faster. When speed and accelerating change determines any given context, the outcome of illiquid investing (or decision-making), slow exiting (or decision reversal), and everything that occurs between, is undermined. The challenge is not merely one of execution, when dealing within a closed environment, but of value creation and protection, when such a closed system resides in a universe that is open and marked by flux.
(In public capital markets, the ups and downs, the trials and tribulations, and all manner of activity that takes place at the enterprise level or outside it, are reflected in a trading dynamic which often thrives on instinct and is itself marked by velocity. In public markets an almost perfect decision velocity is possible. In and out. In private systems – closed environments in which it is difficult to trade – instinct and velocity are less actionable, and reversal is more difficult.)This dichotomy of an evolving and sometimes chaotic outside, on one hand, and an inside that is confined by the limits of a closed structure on the other, has always existed; but in an environment in which outside speed reaches extreme levels, the contrast is more pronounced and can become problematic. In such an environment, an approach is called for – in regard to the private model and the nature of its decision making, actions, investments, and the uncertainty of reversing exits – that is not only a broadly diversified portfolio approach, but one that is as much as possible self-contained. Position reversals that can be reasonably implemented by a mere shutting down are preferable to an IPO requirement. Assets that produce profit and thus a built-in exit scenario for investors are preferable to capital intensity or the need for additional resources ahead. Platforms that may serve multiple purposes are superior to narrow-scope strategies that may soon be outdated. In short, we are talking about a conglomerate approach that is marked by churn, and this can be taken as literally or as figuratively as suits a given scenario.
Disclosure: No positions