“If you want to receive something you’ve never had, you are going to have to do something you’ve never done.” — Chuck Hodges
In the late 1800’s, the United States was the dominant presence in the whaling industry. At $10mm — more than $20 billion in today’s dollars — it was the fifth largest sector of the US economy. Whales provided a source of energy (oil for lamps) and the basis of a number of luxuries (perfumes, umbrellas, etc.). Centered in Massachusetts, the industry was a major driver of employment and productivity.
The US’s dominance in whaling was largely due to innovation — larger/faster ships, better harpoons, improved winch technology for hoisting sails, and better compensation. The latter two innovations were especially interesting. The winch technology reduced the manpower needed on ship. Less sailors led to more profits and productivity. And the industry’s compensation model was one of the first true innovations in pay. Instead of an hourly or daily wage, the sailors were paid a percentage of what they brought back to shore. A true alignment of interests, driving higher productivity.
Despite all of this momentum and innovation, the whaling industry crashed in the 1850’s and never recovered. As Derek Thompson points out in his 2012 article in The Atlantic, wages increased rapidly, providing and opportunity for other countries to enter the market. Those other countries adopted the technology and innovation developed in the United States, and with lower wages, were quickly much more productive. As wages went up in the United States, capital started flowing to new sectors, in particular the new sectors of the Industrial Revolution. Thompson summarizes it best, “It’s about how technology replaces workers and enriches workers, how rising wages benefit us and challenge companies, and how opportunity costs influence investors and change economies.”
The world economy is driven by innovation and productivity, and business models built for a previous era deliver neither. The model for whaling was built around new innovations, low wages, and a market with little alternatives (petroleum was not yet widely available as a substitute). Once those factors began to change, the industry quickly lost relevance — and the leaders in the industry did not adjust quickly enough. Capital fled, and in this case, the industry essentially evaporated.
The parallels in today’s world economy are scary, but represent opportunity as well.
My original post on this topic, The End of Tech Companies, received more comments, reads (nearly 40k), recommends, and tweets than anything I have ever written. While I know that a lot of this was do to the endorsement from John Battelle (thanks John), I believe the sentiment of the article struck a nerve with many. Some are fearful, others are excited, but it all represents an opportunity for leadership.
So I have decided to turn the topic into a book. It won’t be long (more like a handbook), but there are a few places that I want to do a deeper investigation:
- My original post had six “Vital Signs.” I propose a seventh: Design Thinking.
- Specifics on how companies can execute against the vital signs (capital re-allocation, etc.)
- How companies can make the shift required to succeed.
- What this means for individuals in “The Maker era.”
This post is adapted from my new book, The End of Tech Companies, available on Amazon here. The book is only $2.99 and all profits from the book project will go to DOMUS, a human services non-profit that works with children in Connecticut.
I decided to self-publish via Amazon. While I am confident I could find a publisher given my previous book, I am interested in trying the Amazon experience. This will make the book much cheaper for readers (only $2.99), will offer better analytics on sales (I only get sales reports every 6 months from a major publisher), and will be much faster (I will publish in December). Also, as I write, I’ll share select sections/chapters on NewCo Shift. All profits from the book project will go to DOMUS, a human services non-profit that works with struggling children in Connecticut. I am on the board at DOMUS and have volunteered for years in their community center. So, buy/read the book (I hope you enjoy) and help some children towards a better future.
Please share any suggestions or comments, and thanks for reading!