• nate


In this post, expanding some questions and concepts from a previous post on providing more transparent pricing models for tech companies, by tying company performance to long-tail economic growth, broadly understood. There are two (or three) primary challenges our economy faces as we take baby steps toward a post-scarcity economy. 1. Scaling problem. Markets organically move through boom-bust cycles. To prevent massive catastrophes, governments pull and push fiscal and monetary levers to keep the balance in the force. Recession go into, we will not. However, as our global economy has grown and become more interconnected, this has become considerably more expensive. Debt is scaling faster than real GDP growth in most developed nations. While national economies don't work like a small business or household budget, this should give one pause for concern; at what point will hyper-inflation kick in? Imagine COVID19, times 1000. That can potentially be business-as-usual in 15-30 years. 2. Modal problem. Software ate the world, and to quote the best star wars movie, there's always a bigger fish. Currently, that big fish is data-driven automation. We should expect to see continued displacement over the next 5-15 years. And, while iRobot may be 30 years out, our economy isn't structured C3P0 to work as our personal fashion assistant. While some suggestions like UBI funded via VATs may be part of the solution, I question the scalability, per #1. A more deep question is aligning economic life with our intrinsic (or constructed) human nature. While capitalism may be hitting puberty, I'm not yet convinced that a 100% centrally planned economy is best, even if it will be relatively simple to execute in the near future. With that happy introduction, I'll introduce a potential concept that can reconcile these two challenges. Economic Lifetime Value. eLTV can be understood as the long tail contribution a firm makes to the overall economy. This would include traditional metrics such as revenue, P/E, and all the other fancy acronyms. It may also include out-firm contributions, such as highering growth, employee retention, employee promotions, above-peer wages, and other contributions that generally keep the wheels spinning.

A thought experiment for how this might look in the wild. First, lets imagine Adam Smith's wet dream of a company - a perfect monopoly, which seamlessly converts outside capital and revenues to shareholder profit with surgical precision.

A good example might be to consider a merger by Lyft and Uber. Growth costs and G&A would plummet, and you'd have the lean frame of a global rides company. This might have Jim Kramer smashing a toaster oven on Mad Money, and investors would surely love it. On the supply side, however, while they may create an agile gig-economy for some workers, lower-than-average earnings and lack of benefits would displace costs to workers and government (taxpayers and other firms).

In this case, we can see that a high valuation might not correlate with the real value this firm provides to the overall system, as they'd be contributing to, rather than resolving, both the scaling and modal problems. To me, this invokes the real-life version of a Nozickian Utility Monster. Now for the inverse, and, while we already can see public services like DES, lets move an example to the private market, so we might look at the eLTV valuation. Imagine the sales tech space. You have CRM, sales acceleration, and a bevy of sales enablement tools that help companies scale revenues. Each of these firms has hard costs related to recruiting, billing, etc. Imagine if they, collectively, decided to form a shared service center to push costs and essential, non-revenue functions off the books. High eLTV, but no enterprise value. Will write more later. The human impact of this and other things is pretty high.

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