How Big Business Got So… Dumb… | How Money Works

0:00This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up require compatibility and availability varies 18 plus. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job posts the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at ND.com slash podcast. That's ND.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites

1:03dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed Brussels, and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate, and roasted bacon Brussels side. The season's most desirable menu has returned to sweet green. Featuring falls best dressed. Make your move. Order on the sweet green app. Platforms and algorithms have changed dozens of the world's largest industries, oftentimes basically overnight. The way we listen to music consume movies by useless junk, spread conspiracy theories, find a partner, or just order a hamburger, have all been redefined by just a small handful of companies. Of the top 10 most valuable companies in the world, seven of them are still relatively new businesses that have disrupted major industries. The message is obvious. If you can build a company that changes up the way people do things with technology, you could become one of the richest people in history. The best part is, you don't even need to change it for the better. This has created a problem in the Silicon Valley scene,

2:05where the innovators are trying to disrupt industries that really shouldn't be disrupted. Banking, medical care, mental health, real estate, transport, and even good old communication are still in perfect industries, but sometimes the solution of problems are slow, careful, iterative improvements, not slapping an algorithm on top of it. Over $60,000 frozen up in Yada. $15,440 and $6,000 frozen in Yada. We were, its whole idea was, let's not just be a commercial office leasing company, let us accelerate the new world of how people work and make it better. To be innovative, you have to experiment. If you want to have more invention, you need to do more experiments per week, per month, per year, per decade. OK, so if you want to make f*** you money by starting a disruptive tech company, you really only need to come up with an idea that ticks three boxes. The first step is finding an industry or even an everyday activity that is highly inefficient.

3:08People will gladly pay to make things easier for themselves, and in an economy where people are working multiple jobs, don't have state home partners for domestic chores and are spending hours commuting every week, providing a product that saves a bit of time and energy is great, and people will pay for it. Now, finding a problem and then providing a marketable product to solve it is just business 101. But the problem for you is, it's kind of hard. Some more people are trying to figure this stuff out all the time, and maybe you will get lucky and think of something nobody else has, but there is an easier way. Find an industry that is inefficient because of man-made inefficiencies or as the lawyers would call them regulation. Step two is to figure out how to fix this problem with some kind of marketable technology. Now, this technology could be something revolutionary like the telephone, which fix the issue of slow and inefficient communication through telegrams or postal mail, or it could be something like Tinder, which solve the issue of slow, inefficient, pointing through actually having to go out and talk to people. Technology can really mean anything, but if making money

4:10is all you're interested in, then it's a lot easier for that technology to be software that works on existing devices. Software is ideal because distribution and manufacturing are as simple as an Amazon Web Services subscription and a good copy paste button. Once a program is developed, the variable costs for every additional user is basically negligible. Investors love this, so they will pay you and your business a lot more than they would any other business making real products. According to data collected by NYU Stern, software companies had the highest enterprise value to sales ratio of any business type. The only investments that had higher ratios were real estate investment trusts, but the value comes mostly from the real estate holdings and not their sales. So this is not really a fair comparison. The average company was valued by investors at between six and 10 times their total sales, which was especially impressive considering that some of these companies had negative operating margins. Meaning that even though they were selling a product with almost zero marginal cost, they were still losing money. So by combining the easiest technology to develop with the easiest problems to solve, you will find that the perfect business to scale rapidly

5:12towards a life-changing exit is one that Scourge regulation with software sounds dumb, but some of the fastest growing companies in history were founded on exactly this principle. Uber skirted taxi licensing and regulation by creating software that technically let people carpool together. If people happen to just turn their personal vehicles into full-time taxi services, that was just users not engaging with the technology as intended. Airbnb avoided the intense regulations that hotels have to adhere by by just creating software that technically let people find a temporary roommate. If people purchased multiple specialty built homes to run Airbnb hotel chains, that was just a user not engaging with the technology as intended. Cashapp was just a way to settle small payments between friends. If it gets used as a shadow banking system for questionable activities, well, you get the idea. By the time these businesses get big enough for regulators to take notice of what's going on, they already have so many users that restricting them becomes very politically unpopular. Bill Gurley, a venture capitalist who invests in businesses

6:13like these, gave an admittedly fantastic presentation last year about how important these businesses are to avoid a phenomenon were big and efficient and come at businesses aren't challenged because regulations make it too hard for smaller, better businesses to enter their market. Clever loopholes like this are a great way to disrupt industries that are getting a little bit too comfortable in making a lot of money doing it. But before you get too excited, you should remember that sometimes regulations exist for a reason. So it's time to learn how many works to find out who the biggest winners and losers are in modern finance's dumbest game. This week's video is sponsored by Henson Shaving. Henson is on a mission to change shaving for the better, focusing on a skin-friendly shave that eliminates irritation, razor burn, and ingrown hairs. They're addressing their problems we've all come to except with shaving and showing us we don't have to. Their Henson razor made with aerospace level precision in Canada uses recyclable double-edged blades that cost just pennies. Unlike disposable cartridge razors, it's designed for both sustainability and incredible control, helping you achieve

7:14a truly healthy shave without compromise. I've been using the Henson razor for three months and the difference is night and day. Shaving used to be something I dreaded, irritation, bumps, and the constant expense of replacement blades. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up require compatibility and availability varies 18 plus. When you need to build up your team to handle the growing chaos at work, use indeed sponsor jobs. It gives your job posts the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at nnd.com slash podcast.

8:15That's nnd.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for indeed sponsor jobs. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed Brussels and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate, and roasted bacon Brussels side. The season's most desirable menu has returned to sweet green. Featuring falls best dressed. Make your move. Order on the sweet green app. Now, my skin feels smoother and healthier and the whole experience is faster and easier than ever. It's not just a shave, it's a routine I actually look forward to. What makes Henson stand out is their dedication to both your skin and the planet. The Razor's help reduce billions of plastic disposables, tossed into landfills each year while giving you a better, safer shave. Whether you're a daily shaver or an occasional groomer, this Razor transforms the way you think about shaving.

9:17It's time to say goodbye to irritation and hello to a healthier, more sustainable routine. Go to hensonchaving.com for it slash how many works and enter code how many works at checkout to get a free shave cream with your purchase of a Henson Razor. It's been half a year now since the collapse of Yada Bank, a bank for people who were fed up with banks. The disruptive new platform allowed depositors to participate in lotteries with their savings instead of receiving a typical and predictable interest rate. Most months, people would receive no payments, but there were winnings paid out to randomly selected people with entries based on how much cash they held in their accounts. People with more money got more entries and therefore more chances to win a significant prize. The average return on these winnings across all users was supposed to be roughly the same as the yield on a high interest savings account. It was a novel idea that was arguably just a bit of fun for people trying to save some money, but banking and financial services are kind of hard. It's much easier to make money by running a casino which is what Yada Bank slowly turned into with other games that people could play with their savings.

10:18Now you probably already know this, but this wasn't actually the worst part of the sketchy new way to save your money. The actual mechanics of running a bank like processing transfers and you know, keeping track of how much money people had on their accounts was kind of hard. So it used a middleman which provided services to other Fintech platforms on behalf of a real bank that had to adhere to all these boring old regulations. Synapse was a banking as a service provider which was supposed to keep track of transactions for other platforms like Crypto Brokage's online sports books and stock trading platforms. So if you wouldn't feel comfortable keeping your life savings in draft games, you probably shouldn't keep your life savings in a bank that's not directly FDIC compliant. Somewhere in this chain, these companies couldn't agree on how much people had in their accounts. And so far, it has been average consumers that haven't been able to access their money. Simply losing track of how much people have is also outside of the domain of the FDIC which only handles bank failures. So there are thousands of customers who simply had their money Thanos snapped into the banking ether. My friend Patrick Boyle did a great deep dive into the real financial mechanics of this cluster f***.

11:20And of course, the suspender wearing superhero coffee zilla covered the story as it was unfolding. Now the whole people losing their life savings thing here isn't really the point. The bigger issue here is that Fintech has become one of the most popular industries for new startups to carve out market share in. Yada is just one example of where that has the potential to do a lot of harm to regular people. There is an old saying that every warning label on a piece of equipment is a grave stone for an appendage that was lost somewhere down the line. The amount of regulations that financial companies let alone actual banks are subject to is beyond the capabilities of any single human to fully understand. Endless red tape in services that we all use every day can be immensely frustrating, especially when it speeds up the consolidation of bigger and bigger banks. But every law, every regulation, and every guideline that financial firms need to adhere to was written because something has gone horribly wrong in the past. The rush of new Fintech company scouting these regulations by falling just outside the bounds of a typically regulated body

12:21will end up with a lot more people losing a lot more money. By now, pay later services like Clarna, Affirm, Afterpay, and PayPal's built-in split payment function now handle billions of dollars in consumer transactions every year. And it become a massively popular alternative to traditional credit cards. When mixed for traditional consumer credit, these new services have accelerated reckless spending with a lot of people using Afterpay to pay off their credit card and their credit card to make their Afterpay payments. This practice might sound silly to you or I, but for a lot of people, it's just an option of last resort when there is too much month at the end of their money. It's so common in fact that the consumer financial protection bureau has a term for it, loan stacking. And it's something that is much more difficult with traditional debt products. Another problem with these new financial tools is how they make their money, if they bother to do that at all. These companies don't charge interest like typical personal loans or credit cards, and most of them don't have fees to open or maintain. So if you use them to make the scheduled payments without using it to justify any additional purchases,

13:21you might fool yourself into thinking that it's just a practical financial tool. But the business case for these companies is that you don't need to pay for the product because you are the product. They make their money by charging retailers a commission on purchases. These fees have so far been similar to the merchant fees charged by credit card companies, but some analysts argue that they have only been able to maintain these low fees because they're burning investor money to maintain market share. And when that money runs out, these hidden fees will all need to increase. By the way, the retailers are willing to pay these additional fees to buy now pay later companies because they can offer them additional customers. When these companies were first growing, they promoted their own platforms that would push consumers to retailers that accepted their payment, which was a good way for these businesses to get some free advertising. As they have become more popular with consumers, it has become hard for retailers not to accept buy now pay later services because a lot of people simply can't afford to pay with anything else. In either case, you are the product. B&PL services are packaging you up and selling you as are ready to purchase customer for the low, low price of some merchant fees.

14:22Consumer credit card laws are starting to catch up with these companies, but for a long time, they were able to hide just how much debt struggling Americans were taking on. Oh, and they were also really lacks about money laundering. Coming from a banking background, finance is the industry that I am most familiar with, but it's also simultaneously something that most people don't properly understand and something that can absolutely fuck up your life if you just make a few silly mistakes. But this is not just affecting your finances. This is happening in plenty of other highly regulated industries as well, including healthcare, which has already had some disastrous consequences. Here is the biggest challenge though. Nobody likes red tape, bureaucracy, and big income and businesses. I mean, big banks and credit cards clearly suck and so do hotels, taxis, medical tests, traditional therapy, traditional investments, and housing. So when a new company comes along talking about revolutionizing an outdated industry, it's kind of exciting. And in the current financial environment, more hype means more investor dollars.

15:23It's much more unpopular and much less profitable to remind people that sometimes the boring red tape exists for a reason. Now, this isn't helped at all by the fact that the alternative we are rooting for is a bunch of companies that have slowly become monopolies. Again, go and watch this video to find out how we let that happen and make sure to like and subscribe to keep on learning how money works. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed brussels, and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate, and roasted bacon brussels side. The season's most desirable menu has returned to sweet green. Featuring falls best dressed. Make your move, order on the sweet green app. When you shop pick up at Fred Meyer, you can expect the savings you love and fresh groceries selected just for you.

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