TLDR: The power of “maybe,” plus the two questions you should be asking right now are “Where do I open a second bank account to diversify my risk?,” and “How can we take action to be long-term winners during times of volatility?”
Don’t worry this post is not about Silicon Valley Bank.
As if you need another email or text or phone call on that topic anyway.
Instead, let’s revisit the topic of having a long-term view, because we’ve just witnessed a long-term industry, supposedly run by long-term thinkers, get turned inside out and upside down in a matter of days.
It reminded me of the parable of the Chinese farmer…
Once upon a time, there was a Chinese farmer whose horse ran away.
That evening, all of his neighbors came around to commiserate.
They said, “We are so sorry to hear your horse has run away. This is most unfortunate.”
The farmer said, “Maybe.”
The next day the horse came back bringing seven wild horses with it, and in the evening everybody came back and said, “Oh, isn’t that lucky? What a great turn of events. You now have eight horses!”
The farmer again said, “Maybe.”
The following day his son tried to break one of the horses, and while riding it, he was thrown and broke his leg.
The neighbors then said, “Oh dear, that’s too bad,”
And the farmer responded, “Maybe.”
The next day the conscription officers came around to conscript people into the army and they rejected his son because he had a broken leg.
Again all the neighbors came around and said, “Isn’t that great!”
Again, he said, “Maybe.”
Of course, it’s easy to panic when there is mass hysteria (or get excited when there’s mass hype, as is often the case in VC), but the prudent thing to do is restrain from virtue signaling, focus on the work to be done, and consider who and how the winners will be made in these moments.
As for this moment, you have to wonder what the structural knock-on effects will be.
Interest rates continue to climb, other companies certainly hold long-term bonds like SVB did that are becoming harder to sell while they also have a rising demand for cash to cover overhead, and unemployment is at all-time lows in a world where disinflation has only been achieved by interest rates so high that companies are forced to cut back.
A bank is obviously an extreme example, and compounded by panic, but what about every other sector? How will companies meet the demand for wages with the cost of capital increasing?
Analysts predict it will require a 3-6% rise in unemployment—meaning interest rates need to keep going and many will need be out of work before consumer demand is forcibly reduced and inflation comes to halt.
The question should not be a short-term panicked “where is the contagion, and which bank is next?,” the question should be
“Where do I open a second bank account to diversify my risk?,” and
“How can we take action to be long-term winners during times of volatility?”
Would be curious to know what you think about #2.
See you Monday.
PS: My new book Inevitable is now available on Amazon. It’s free on Kindle Unlimited for a limited time. Maybe you’re feeling generous today—how about a 5-star review?
About Inevitable. Founders nor career professionals have the time to read every book or listen to every podcast on starting a company or operating with an entrepreneur's mindset. The goal with Inevitable was to create a powerful cliff notes style handbook, distilling advice from around the tech world on building generational companies. At the end of each chapter there is a QR code to a digital repository with the full-length works if you do choose to go deeper on any given topic.