The Future

In his speech and conversation with Rob Wolcott, Scott Galloway explains why entrepreneurs should be revisiting everything during this crisis, which will be more of an accelerant for the world.

We are living in exceptionally strange times. There has been an astronomical rise in unemployment, daily active users on Zoom have increased by millions, weekly alcohol sales rose by 55% in the US, divorce filings in Sichuan, China increased by 29% in March, and the list goes on. This pandemic is a shared experience but it appears we are having two pandemics. Depending on the kind of media you consume, you are either told that the world is ending or you are asked to stop at the pub on your way back to work. It appears that we cannot even come around together on the pandemic in terms of what is happening.

Looking back at the history of pestilence or wars or pandemic, one can see that pandemics have taken a greater toll than violence or wars. The problem is that when it comes to wars, you consider the people around you as allies but in the case of pathogens they are considered as threats and enemies. This creates divisiveness and not a shared sense of optimism and unity, which usually results in longer-term damage than even wars or violence. We are also having a different reaction based on age, with the younger population apparently taking this less seriously. 

Events like these are considered as levellers but the income inequality has magnified. It is also ironic that the people who are the essential workers today are the ones who have traditionally been paid the least. 

In the US, people’s political views are determinants of their reaction to this pandemic and the government response to the pandemic. Events like these are considered as levellers but the income inequality has magnified. It is also ironic that the people who are the essential workers today are the ones who have traditionally been paid the least. We are now starting to see a pushback from the workers, demanding to be paid more, and the general speculation is that there is probably going to be a swing back in power from capital to labour. In Europe, the post-pandemic wages among labour have outpaced inflation in the previous pandemics. It is one of the few periods consistently where labour wages outpace inflation, and that is after one of these pandemics.

A silver lining to this pandemic, as said by social psychologist, Jonathan Haidt, is that if another plague comes in 10 years, we would be prepared, as the things that we are learning because of this pandemic is preparing us for a future where something even bigger than this occurs. The younger generations who are experiencing this might observe a world where borders don’t mean as much as we thought they did, that pan-geography cooperation becomes more important, that defunding government has a long-term implication and that we need to fund government and institutions, and stop delegitimizing government employees. Haidt also views this pandemic as a means towards the invention of a sort of vaccine that would better prepare us, and our immune systems to pop up faster the next time so we are not fighting over ventilators, and in fact working together.

The markets are in a state of denial; at least the professional executives are. While they acknowledge the crisis, they think that it would not impact them and it is a crisis for everybody else. 

The most asked question right now is, what does the world look like post-Corona? Firstly, there will be many unintended consequences on the economy.  After a war, there is a sense of rebuilding and investment in capital infrastructure, labour, and a unified vision and optimism, but that is not the case with pandemics. It is a slow burn down, even over decades. Hence, every company now needs to go through a prioritization of their essential expenses. This is going to go longer and the balance sheet damages are going to be more severe than anybody wants to acknowledge. Companies would also need 12-18 months of cash so they need to calibrate their business accordingly. In addition, leaders in businesses need to massively communicate and even have daily updates on what is going on and be transparent about it.

It seems more like the future is happening faster, so this crisis is going to be more of an accelerant than a game-changer.

In terms of investment opportunities in the market, the first opportunities would be in public stocks that are marked every day. The next era of opportunities will be companies with winning business models in a private market and some public markets that require capital because of the destruction in their balance sheets but still have great businesses, like Airbnb for example. The business will surely come back in the future. In the next 6-12 months, it will likely need capital, and it will be a good opportunity for buying great companies on sale. The last place of opportunity from an investor standpoint will likely be start-ups. It will be the greatest opportunity because tremendous innovation is seen coming out of the recession, and it is also an incredible time to start a company because everything is cheap and people are looking for new ideas, labour, capital, investment, real estate, and practically everything. Typically, the funds across private equity and venture capital that are started in boom times don’t do well in comparison to those that started during an economically stressed period.

Such crises are not going to change markets, but accelerate the changes that had already been in motion. It seems more like the future is happening faster, so this crisis is going to be more of an accelerant than a game-changer. Looking at the 2008 recession, the big market players got bigger after coming out of the crisis, and across big tech, the stock performance of companies like Google and Amazon outsized everything, and we are seeing the same thing again. Companies like Apple, Google, Amazon, and Facebook have no balance sheet risk and can go on for years if the revenues went to zero. Their revenues will never reach zero though, and they are going to be able to pick up great companies that are a fraction of their value. Meanwhile, every other player in the market will be suffering a heavy setback. 

Every day, the oxygen gets thinner for media companies except for Google and Facebook. If we look at the industry most ripe for disruption, we can take media as a cue. Google and Facebook have much higher growth than other players in the industry who refused to embrace technology. These disruptive companies are also attracting the best talent and recruiting more even in times of crisis while others resort to lay-offs, but it is no surprise. A two-year-old job experience at Google affords the same lifestyle as an eight-year-old job in a traditional communications conglomerate.

We are seeing traffic up in some key sites like New York Times as truth is becoming a more of differentiating quality, not because it is any better than it was 10 years ago but because there are many more non-truths now. At the same time, their advertisement traffic is down. This might make companies move to subscription, which is a decent survivability index across media.

Retail has also been ripe for disruption for a long time. A significant fraction of retail has shut down in this pandemic, and the overall stocks have crashed. With the exception of Amazon, Target, and Walmart, retail has been a loss-inducing business, and the pandemic has accelerated this trend. The safe haven of retail used to be spatial retail because they curated merchandising, but the new merchandising voices are now on Instagram, and they can curate as well as any spatial retailer. So, those companies who focused on spatial retail as their core component are set up for failure. Online grocery shopping has risen, and it is driving the traffic on Walmart. Digital payments have also increased because of the practice of social distancing.

In terms of where the next investment opportunities lie, it is the education and healthcare industry.

In terms of where the next investment opportunities lie, it is the education and healthcare industry. They are likely the most disruptable. The thing that has gotten in the way of healthcare is that it is largely geographically constrained by a hospital or a doctor’s office, both of which are unfriendly, frightening, and supply-constrained, and this virus has taught us that a decent amount of healthcare can be delivered without constraining it geographically. We are also about to figure out that the duopoly held geographically by the universities in every city is about to be broken apart. We are about to find out that we don’t need people on campus and as parents witness what is going on in the classes, they are going to feel like they have been ripped off, and there is going to be a lot of price pressure. Also, when MIT partnering with a big tech company can expand its classroom from 3500 students to 35,000, there doesn’t seem to be any reason for going to Boston College or Pace University.

There is no question that online education will take off in this crisis. The reason is the exorbitant cost of traditional college education that puts students in heavy debt, which has long-term implications on them and is therefore an unsustainable model. Hence, online education portals will be organically the emerging disruptors. However, it is unlikely that they will become the winners, they can at best be great acquisitions. It is because the big winners will be the partnerships with such brands as MIT, NYU, Harvard, etc. These are the brands that have been built over hundreds of years and attract a lot of funding. When they partner with big tech companies, there is going to be an explosion in the number of people who have access to world-class education.

Healthcare is one of the few industries in the US that takes a lot from everyone’s pockets and is also the industry that people are most dissatisfied with. Technology can save time across healthcare, and telemedicine has the potential to become enormous in terms of the opportunities it can open up. Since technology is driving the growth here, Amazon could become the fastest growing healthcare company in the world, because they are ahead of their competitors in terms of the data they have of their users.

Conclusion

This crisis is going to get worse and last longer, and entrepreneurs should be overreacting, should be cutting costs, cutting people, and revisiting everything. However, the crisis will not change the world, but will be more of an accelerant.

Rob Wolcott in Conversation with Scott Galloway

Rob Wolcott: Do you see any hope of new platforms rising in a Facebook universe?

Scott Galloway: Not really. TikTok is one, but outside of TikTok, we haven’t had a social platform of any real substance since 2011 when Pinterest came along. Pinterest and Twitter are largely just kept alive by Facebook and Google, who could kick them out of business in 6-12 months, to pretend there is competition out there. We will come out of this with greater consolidation and greater concentration of power. All of the big companies are using this pandemic as a cloud cover to lobby Governors or legislators in Washington to get them to delay the privacy acts or other regulatory laws. 

Here is a continuation of one basic fact that as the government is distracted trying to repair from this pandemic, Washington is being run by Amazon’s 105 lobbyists, by Facebook, and a sociopathic founder who continues to let the platform be weaponized by foreign intelligence arms. One of the key steps to tyranny is when the government is no longer a counterweighing force to big tech but a co-conspirator. The conspiracy is only going to grow, as we no longer have the time or aren’t as much concerned about breaking up Amazon or Facebook or Google, which will seem like a luxury but it is, unfortunately, going to be even more so important because these companies are going to come out of this, even more, stronger and have even more shares. Facebook and Google will go up 62% in the digital market to 70% and Amazon will soak up all of the excess capital in retail. I am concerned there aren’t any additional platforms emerging.

Wolcott: Given your concerns and the challenges that we are facing, is there anything that citizens can do, or should be doing to try and counterbalance, especially given the crisis that we are all facing?

Galloway: I like to think that we are coming out of this recognizing that the existential threats to mankind are a function of delegitimizing and defunding our governments and also having our governments co-opted by billionaires. It is scary that we are turning to billionaires to put us on Mars or produce our ventilators. I do think that is the role of the federal government and we need a restored sense of humanity and willingness to pay our fair share. We need to elect people who will hold companies to the same scrutiny that we have held companies in the past.

Wolcott: In addition to government intervention, do you see any hope for the notion of stakeholder capitalism, paradigm shift, or is it wishful thinking?

Galloway: I think it is wishful thinking. We always saddle our younger generations with the belief that they are better than us. We always assume that they are going to be the ones who are going to sacrifice and are more concerned about the world, and there is evidence that they are more interested in sustainability than the older generation, but at the end of the day, most generations want economic security for them and their families. They want a better world but one generation is not going to inherently sacrifice more than the other. 

This notion that it is going to be a consumer-led revolution is, I think, another wishful thinking. If you are ordering a dress for $9.99, there is something really ugly going on in that supply chain. The reason we spent 23 cents on the dollar is to elect people who are supposed to think long term and not let General Motors put mercury into the river, and not let Facebook violate our privacy and be weaponized by foreign intelligence arms. That is the government’s job. Our job is to form a government and put in place people who rise to the task. 

Wolcott: What is the hope for live events, whether it is arts, theatre, or something else?

Galloway: It comes back, it surges back, and then it goes back to probably 80% or 90% of where it is because a lot of these companies and start-ups won’t survive, but the big players are going to stay. The scary moment here is going to be in the Fall if and where there are relapses because social distancing will then become a social norm. You are going to see a surge when we get the all-clear on this, but I wonder if it will ever come back to where it was. A lot of it depends on what happens in the Fall, but the honest answer is that I don’t know.

Wolcott: What’s one insight, recommendation, protestation you would provide to us during this crisis?

Galloway: When they talk to old people who are dying and ask them what is the one piece of advice they would give their younger selves, it is that they wish they had been less hard on themselves, and when they ask them “what do you mean by that?” these people don’t say, “I wish I had got divorced” or “wish I had made more money”. What they generally mean by that is that in the moment, your reactions are outsized and your life is not a function of what happens to you, it’s a function of how you respond to what happens to you. Most seniors, before they pass, say that in the moment, nothing is ever as good or as bad as it seems, and what they’re most upset about wasn’t the bad thing that happened to them or the bad experience that happened to them, but the fact they had an outsized reaction to it. It is comforting to think that nothing is ever as good or bad as it seems in the moment.

Wolcott: I would like for you to share with us three words to describe your perspective about the future.

Galloway: Comity, remote, empathy.