Mesoeconomics
The remaining pillar of the “Need” economy
Rather than focusing on the dynamics of a singular particle, or the overall system, we study the relational actions between groups of constituents. This is the mesoscale.
In relations to others, we see that the role of a business is to fulfill an unmet need. Businesses which thrive on wants are short-lived. They lose their clients as soon as the latter are able to identify their needs.
This is not to say that you should build food supply chains, and leave out publishing houses, for seeking knowledge is a human need. Despite the critique on it being ethnocentric or illustrating inaccurate hierarchy, Maslow’s pyramid makes a point of a human needing beyond what has been considered “essential” during the days of the lockdown.
You might argue that “want” businesses are not as short-lived as I claim. There seems to be constant waves of alcoholics seeking their self-destruction. Business is good. Oh, isn’t the long age of eighty, ninety, or hundred years merely an hour of life? What is a thousand years in the age of humanity?
A thriving business which takes its toll on society highlights flawed social dynamics.
When you notice a business thriving despite wreaking havoc on a society, rather than fulfilling its needs, watch out for the chronic, systemic problems underlying it. It is by no chance that a large part of alcoholic drinks are marketed under promoting friendships and socializing, the consumer’s true need, when the product further isolates them.
A business such as that of opioid mass distribution is based on creating addicts out of societal pain. On a more individual level, you are missing out on proteins when you are craving sugar. A thriving business which takes its toll on society highlights flawed social dynamics.
Another might be “purpose-driven”, but suffers from flawed operation. The online shopping giant named after a forest is one example. Its business is straightforward. It delivers. Whether webpages or pillowcases, it delivers. At what cost, however? Two hour deliveries are not worth asking employees to hold in their toilet breaks. While the company fulfills a purpose, there is an underlying epidemic of consumption at the level of society.
Two lessons on sustaining a business could be learnt from the company though. First, it is possible to sustain a high-income business with relatively no profits. It has been meagerly profitable for nearly two decades. Second, in this same picture, sustaining a business comes out as reinvesting revenues in achieving its purpose. Drones and smart doorbells are components of seamless deliveries, after all.
Dividends sustain investors, not the business.
In the days before the Great Recession, Harvard Business Review published an article titled “Ten Ways to Create Shareholder Value”. The very first item on the list is “Do not manage earnings or provide earnings guidance”, citing that 80% of companies pay dividends at the cost of value-creating spending. Dividends sustain investors, not the business.
The “Need” economy thrives on synergies visible at the mesoscale. A mall development might seem like an adequate investment for the neighborhood. It attracts businesses to the area. It brings in the dollars with the crowds. Who wants to live next to a crowded mall though?
Wouldn’t a public park add more value to the neighborhood in the long run? It is likely to decrease health-related spending of the area’s residents. It expands the client base of the local coffeeshop and the food cart to include park visitors or regulars. It contributes to the value of households owned in the vicinity.
You are not meant to sit idle, and watch the cash pour in.
This is the essence of personal investments I have advocated for when describing the nexus. It is to invest in what allows your own business to thrive. This also follows from a critical view of financial independence. You are not meant to sit idle, and watch the cash pour in or “retire early”.
Financial independence is about operating a business which speaks to your own personal motives, your self-identified purpose. Investment is then the value you reinvest in someone else’s business because it aids yours. You help another person fulfill his purpose, and it pays back helping you fulfill yours.
If all what your investment pays back were cash, you would remain poor no matter how large your portfolio is. This explains why an automotive giant created its Mobility entity. The entity couples with its main purpose of facilitating transportation.
It also clarifies the rise of super-apps. A payment gateway is driven to facilitate transactions. It has the power to connect with the grid provider, the water distribution network, your friends, to facilitate all those transactions.
Investment is a value-creation process which value is captured in your other business operations. Sustaining a business is the rescaling of your survival instincts. The cash is a sustenance. The utopia — ideal scenario — is in serving your fellow humans, in fulfilling a purpose. If our businesses reflect our realities, we are rather sad being cash-driven.
It is now evident that net profit is shortsighted. We revisit the development structure visualized on our lattice model in the previous article. We’ve argued that efficiencies need to cross periodic boundaries, coming out of the top level back into the lowest ranks to maintain a stable system.
This is clearest in graduate training programs of corporations. The Edison Engineering Development Program is meant to streamline the innovation process for new recruits, so that it does not have to be as inefficient as Thomas Edison’s efforts have been in the early days of the company.
This is akin to natural convection within the developed systems. Meritocracy is, then, not about finding the smartest person in the room and making him president. It is a more gradual process of allowing abilities to rise, as one becomes more structured — in thoughts, behavior…
Einstein also received and turned down an offer to hold presidency.
The iconic physics wiz started out working as a clerk at a patent office after graduation. Ironically, Einstein also received and turned down an offer to hold presidency — to become a Prime Minister.
This aspect of development merits a separate treatment. Await another article to discuss investing in our youth, and reforming our educational system.
Apart from investment as a game of identifying synergies, it is important to discuss positioning oneself in the landscape. In the nexus framework, I have argued that synergies make market competition redundant within the “Need” economy. In reality, balancing your exposure to risk requires that you keep a safe distance from other participants.
To understand risk, let us first revisit the streaming process over the lattice. Particles collide — interact — within a cell, then are streamed to interact within the other. As Mirza puts it, “Everything happens through your network.” This reality of a collision being an interaction speaks about the truth of market competition being a synergy, and the clash of civilizations being a cultural dialogue.
We have previously mentioned that the rules of a collision — interaction — are prescribed within the cell. However, humans are not mere particles. Not to break the metaphor, we might want to consider adding a memory component for the particles. They interact by the rules of the cells they are in, and by a memory of their previous collision that they drag along. This is the basis of what Shevat states as “When you hire someone from another company, you take some of that company’s DNA into your own company.”
When you want to benefit from another’s success, or uncertain yet spectacular breakthrough, you position yourself next to them. Perhaps this is the rationale behind street food markets. All carts are serving the same need. Together, they attract more visitors than they would have separately. Let those same carts hallucinate of competition — start yelling to attract clients — and your leisurely stroll in search of food would no longer be pleasant.
You wouldn’t call your own brother a consumer, would you?
The pair is born in saturated markets where companies are no longer fulfilling needs, but picking pockets and enforcing consumption. Advertising and obnoxious marketing require a layer of detachment from the people in your immediate vicinity. You wouldn’t call your own brother a consumer, would you? You would sell the carpenter who built your house frame, and your barber what they need. You would not dupe them to buy ten gallons of donkey milk. If you are detached from your locality, you have no place in the lattice — the economy.
This helps us understand the famous coffee chain’s strategy. It provides the same value wherever it opens its branch although it tailors the ambience and maybe flavors to the locality. This also explains how a bakery in a nearby neighborhood went bankrupt. The owner supported a criminal regime loathed by the neighbors. Even in a country where the closure of a bakery is unheard of, nobody is willing to buy stained bread. This brought additional business to the other bakery a block away.
When you want to benefit from another’s success, or uncertain yet spectacular breakthrough, you position yourself next to them. Moving your software startup to the Silicon Valley might allow you to utilize the support of the ecosystem and contribute to it. However, physical relocation is not necessary. As our world grows more connected, and COVID19 accelerates digital transformation, this might even be superfluous.
Start where you are, with what you have, and do what you can, as the saying goes. Positioning yourself to benefit from another’s success is moving closer up in the dimensional space of the sector. Souq is one example of such successful positioning. Online shopping started somewhere. The trend has been carried in memory on the backs of particles, by those who experienced it. It has also arisen from an insight into rising needs.
Do not be afraid to be inspired, and do not be afraid to adapt.
Souq has positioned itself near Amazon by adopting its working principles, as Alibaba did. It did not have to be an exact replica of either, for their cells on the lattice are already occupied. Like Souq, do not be afraid to be inspired, and do not be afraid to adapt. It is by this dichotomy that synergies arise, and sectors develop.
You need to be effective, solving a problem, fulfilling a need, early on before you scale.
Investors are wary of startups claiming their long-term strategy is to be acquired for a valid reason. Do not make your exit strategy dependent on another’s bet. This is also why startups are more likely to fail the earlier they raise venture funds. Remember from how the lattice grows that you need to be effective, solving a problem, fulfilling a need, early on before you scale and rise in the ranks of efficiency. This is obviously not the only way, but it is the best. This is the rationale behind the minimum viable product.
If a competitor fails, you win the market competition, the bellowing at satiated consumers. If a sector fails, you are out of business. If a country explodes, you are running for your life. The brawl over immediate benefit is shortsighted. Reality is of longer term than stock market peaks.
We can now see how managing risk is about sustainability. It is about the long-term, for the realm of risk is reality. When you are positioning yourself near an entity, you are hoping to benefit from its success, from its processes and from the best practices that are streamed to its nearby cells.
Managing risk is then about keeping away from operations that hamper your purpose.
Likewise, when you are positioning yourself away from it, you are shielding yourself from the catastrophes short-sighted collisions might endue. Managing risk is then about keeping away from operations that hamper your purpose.
It is about relocating when a country is plagued with scams, to establish an image of trust. It is about upgrading your technology when it has been proven to be unsafe. It is about creating an exchange with long-term vision, as Ries has done, when Wall street is shorting your innovation.
In brief, make sure your business is needed, and be close to the people nearby, and to others fulfilling the same purpose. Taking risk is about investing in the uncertain. Investment itself is a tool to amplify your own contributions to society. Risk itself deserves a more thorough treatment than the simplistic presentation it got here.
