The rapid rise of the magnesium economy

BRITAIN is enduring an economic enema. Bloated and unhealthy, blockages – to consumers, to finance, to starting businesses – are being slooshed away by the disintermediating power of the internet and social media. It doesn’t feel pleasant now, but a refreshed, if mildly emaciated, economy should result. Like a triathlete, the Britain of the future may look gaunt, but it will be more competitive.

This transition from an offline to online economy heralds a new age of short-termism: the jobs market is already hurtling to a project or contractor basis, as organisations shed operating costs (aka full-time employees) in their quest for flexible balance sheets. Stockmarket rallies and slumps last mere minutes, as new information arrives at light speed. Industry lifecycles are shortening to a matter of years.

For us workers (and governments), one of the sternest tests in this new “magnesium economy” will be the emergence of an utterly different kind of organisation; one that has no intention of lasting, indeed is designed for the briefest of lives.

Over 60 years, the lifespan of companies has gradually shrunk. According to an Innosight study, in 1958, corporations on the S&P 500 lasted in the index for an average of 61 years. By 1980, that had fallen to 25; today it’s just 18 years.

Small company trends are even more vivid (though, interestingly, the statistics are harder to find). Office for National Statistics data shows that, of the startup firms born in 2006, 96.5 per cent survived beyond one year; of those born in 2010, however, only 86.7 per cent made it to their first birthday. Nesta (the National Endowment for Science, Technology and the Arts) reckons only 5 per cent of all UK startups have more than five employees ten years later.

Business has been too slow for too long, says Damian Kimmelman, founder of the disruptive data business Duedil. With the internet barely 20 years old, there’s much more anarchy to come. He talks of challenger businesses moving into markets quickly, “like fast-expanding suns”.

But what does this mean for our economy and working lives? First, such productive churn isn’t necessarily a bad thing. “Yes, it can be disruptive for jobs in the short term, but in the long run it’s good for the efficiency of the economy”, says Hiba Sameen, an economist at the Big Innovation Centre (part of the Work Foundation). Think Myspace, Netscape, Friends Reunited, the tech industry cherishes its stories of creative destruction on speed.

As it becomes cheaper and easier to start a business, the likelihood of quick failure (or success) rises. Instagram is the poster boy for this new economy, careering from independent college startup to $1bn Facebook acquisition in just 18 months. Entrepreneurs spot short-term market gaps or inefficiencies, create solutions, make money (or don’t) and move on.

Some see this as business moving to a music industry model, in which the primary motivation is to create “hits” rather than lasting success. Philip Letts, chief executive of Aim-quoted Blur Group, reckons that the entrepreneurs of the future may start and sell 25 businesses over a lifetime, managing a procession of commercial hits like a rock band.

In such a volatile environment, risks increase. Failure, particularly rapid, iridescent failure, doesn’t sit comfortably with economic or personal career planning, but we will just have to get used to it. Silicon Valley investors actively favour entrepreneurs with a turkey or two on their CV. London-based serial online entrepreneur George Karibian says simply: “we don’t celebrate failure enough in this country”.

That may be a step too far for many Brits, but we’ve already come a long way. Howard Leigh, founder of corporate finance house Cavendish (itself celebrating a venerable 25th anniversary), recalls that “25 years ago, the concept that you could start and sell a business within three years would have been laughable; indeed, would have been frowned upon. Now the stigma is gone, and it’s accepted”.

Surprisingly, it’s the digital pioneers who are advising caution and advocating a return to long-termism. Phil Libin, chief executive of the ubiquitous note-taking software firm Evernote, sparked debate recently when he talked of wanting to create a “100 year-old startup”. Britain’s digital rock stars, like Songkick co-founder Ian Hogarth and Wonga chief executive Errol Damelin, talk openly of long-term projects. Damelin speaks in grand tones of building “a sustainable enterprise that re-imagines and re-conceives what’s possible in one of the world’s largest and most critical industries”. In a seething cosmos, at least some planets are settling.

This article was first published in City AM in July 2013.

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