The consequences are unknown, but the cost of failure is certain to be socialised on the grandest of scales. While a few lucky bankers scurry off to Connecticut having personalised their profits, the unlucky ones are losing their jobs and may face prosecution.
With confidence shattered, optimism may seem out of place in these dismal days, but maybe that’s just what’s needed? Perhaps we are experiencing a Darwinian event? A great big kick up the backside that could bring out the best in us; with new ideas and innovation being our best path to another Golden Age – a Second Renaissance?
An optimistic view, certainly, but when things are bad it always pays to stand back and look at the world through a different lens.
We have discovered our financial system is flawed. We also know we can’t rely on financial trickery to create great dollops of value for us any more, just as we can’t rely on natural resources, manufacturing or even service-based economic models as engines for growth. At the same time, the epicenter of ‘who owns the world’ is moving steadily Eastwards, so we in the West really need to focus on new ways to create and capture value and secure our economies for the future.
It’s happened before. As the Renaissance was accompanied by social and political upheaval in Europe, remarkable progress in arts and science took place. The same could be true of our current turmoil. While we wait for the Large Hadron Collider to provide explanations about the origins of life, so fresh ideas and innovation in business could provide us with the way out of our mess. We have to re-invent many of our core systems anyway, but we also need to get back to tangible value by inventing new and better ways of doing things; exploiting our knowledge, creativity and intellectual property.
We could do worse than start with the financial system itself. It’s not just investment banks and sub-prime debt that’s at fault, though many of their systems are antique and opaque: settlement systems in particular. Retail banks and credit card companies also rely and profit from old systems, charging consumers as much as they can get away with at every point in the customer experience. For instance, why, in today’s world of advanced technology, does it still take five days to clear a cheque? Why does it cost 2% extra to buy airline tickets online if I use a credit card? Why area FX spreads so wide? The answer is that structural inefficiencies and ‘cosy-opolies’ are exploited for profit. But for how much longer?
In banking, in pharmaceuticals, and in other sectors it’s now time for uncomfortable transformational change to challenge and dismantle the ‘cosy-opolies’ and provide better value by inventing innovative and transparent solutions that can lead the world. New thinking and new business models are needed to replace the ancient, bloated, inefficient and increasingly broken models that have been responsible for our recent economic decline.
If we now place more value on our ability to create, deploy and protect Intellectual Property, then, perhaps, we can maintain and grow our economies and rebuild the foundations for a safe and prosperous future.
Practising what we preach
At Nucleus, we are practising what we preach through our investments in new business ventures based on ‘challenger’ business models. An example is our e-money smart card sQuid.
Back in 2005 we saw that small payments were non-viable using the existing credit card and bank network, as commissions and inter-connect fees are just too costly, so we took a leaf out of Skype’s book and use the Internet instead. It’s not what a bank would have done, but sQuid’s not a bank (and doesn’t offer any credit). So for pre-pay, low value smart card payments, sQuid is fit-for-purpose and delivers a low cost payments network for ‘the little things in life’, while also enabling transport and local government smart card initiatives to be cost effectively implemented. Three-in-one for less. This is a practical example of Intellectual Property put to work with value shared by everyone.
Perhaps it’s new ideas that investors should focus on?
It may seem strange, but, even in the current climate, investing in innovation has never been more attractive. If conventional investments are now considered unattractively volatile, you can reason that the risk delta between ‘safe’ asset classes and ‘risky’ early stage start-ups is much diminished. Then consider where the big returns will come from in future. Surely, there should be space for backing ‘challenger’ brands in every investment portfolio?
If innovators backed by supportive private equity investors can identify the winning disruptive business models and technologies that can shake up complacent mass markets, they will both enjoy massive value creation, based on real advances.
Fertile territory for a second Renaissance? Perhaps. But who wants to be the next Medici?
Peter Matthews
Nucleus Founder & CEO
October 2008
Agree? Disagree?
Share your views by emailing enquiries@nucleus.co.uk