Into the Tempest

He caught my eye as I glanced over my shoulder at dinner in the lobby of the conference hotel. His face lit up as my eyes flickered with recognition.

We met halfway between our tables to greet each other and he leaned in to whisper: "I need some advice."

This is a real event, not an AI hallucination. It is, however, one of many similar conversations I've had over the last few months; the world is changing rapidly and the future is wrapped in uncertainty. Seasoned bankers, first time entrepreneurs, and investors that are on the 3rd trip through the spin cycle all feel the same thing: there are fundamental shifts underway. It is unsettling.

Staring over the San Diego Harbor this morning, I thought about the consistency of these conversations and what advice I'd give that is universally applicable.

Mike Campbell, the character in Ernest Hemingway's "The Sun Also Rises" talks about change happening ""Gradually and then suddenly." The same is true of customer expectations in financial services; the steady beat of improvement hit a cacophonic pace post COVID. Customers expect Amazon-like experiences: instant, digital, seamless. Trust is no longer guaranteed based on brand legacy; it must be earned daily.

Interest rates greater than zero, something the industry should have expected, and private debt at record levels puts the banking business model under pressure. The implosion of the fintech venture capital market suddenly made unit economics and a path to profitability more desirable than growth at all costs. Companies that raised too much at a too high of a price that can't backwards solve this become the walking dead. Early stage startups are facing a bifurcation of the minority raising money in record time at high prices while the majority are grinding it out. It is taking longer and fewer are making it from seed to Series A.

These aren't even the biggest pressures.

Deregulation is causing greater instability rather than opportunity for incumbent banks and fintechs as they navigate changing tides. Expertise drained from the system means fewer answers from regulators that can help risk managers in their assessment. Grey areas create opportunities for those who perhaps shouldn't have it which only increases competitive pressure on those who follow the rules.

Tim Mahedy made a not so funny joke at Alloy Labs Annual Member Meeting (paraphrasing): for the first time, everyone needs to pay attention to macroeconomics.

From consumer spending and retirement planning, to Main Street businesses and multinational corporations, the macro environment is in flux. Spreads on the NBA finals have more stability than the economic outlook. Tariff wars, like all wars, live by Neville Chamberlain's reaction to the outbreak of WWII "In war, whichever side may call itself the victor, there are no winners, but all are losers."

The temptation in the tempest is to find a safe harbor or attempt to wait out the storm.

Resist that temptation; a ship at anchor is most vulnerable in a storm. 

You can't outwait the storm, nor can you outrun it; you must learn to dance with it

Stay in Motion: Move, Adapt, Adjust: Action creates optionality. You can’t steer a stationary ship. Pilot smaller experiments rather than waiting for "perfect" plans.

Read the Winds, Not Just the Map: Conditions don't care about your annual strategic planning cycle. An empirical approach to decision making, and decision remaking once more is known, is critical.

Build Flexible Vessels: Modular tech stacks over monolithic systems can adapt to the changing environment. Chris Nichols continues to drive this point home within the Alliance: we undervalue flexibility in our ROI calculations but they are what create opportunity when conditions change. The same is true for talent that is cross-functional, tech-savvy, and customer-centric.

Balance Short-Term Maneuvering with Long-Term Positioning: Hedge today’s risks, but also invest in tomorrow’s capabilities. Cutting expenses, tightening the credit box, and dropping new initiatives in favor of focusing on current essentials may help breach the current wave, but leaves financial institutions in a poor position to navigate the rest of the storm.

"In the middle of difficulty lies opportunity." - Albert Einstein

The upside? Idle seas breed idle hands. The current situation is an opportunity for those that choose to embrace it.