My previous post on how the Industrial Revolution ultimately created culturally-groundbreaking innovations in the fine art market got me thinking about other structural changes that spurred non-obvious innovations. In business school I had a professor who used to be a Corporate Finance MD on Wall Street. He was in the middle of the junk bond-fueled explosion of LBO's in the 1980's.
He claims, and I believe him, that the thing that sparked that explosion was the creation of the spreadsheets Visicalc and then Lotus 123. His thesis is that on Wall Street they all previously understood the theoretical and financial underpinnings that drove that market well before it actually happened. Their problem was that they could not effectively evaluate all the different outcome scenarios of doing those deals until spreadsheets came along. It then unleashed a torrent of innovative financing structures that reshaped the global business environment.
The essence of high-growth startups and of venture capital investing (at least for me) is to find these structural changes and look for the non-obvious ways in which it will impact different markets (see "The Yin of Startups" on the upper left panel of my blog). E.g. the people who saw spreadsheets and realized before everybody else the impact it would have on the global financial markets made a fortune by investing in or operating the institutions that capitalized on it.
I'll try to make these non-obvious insights a recurring theme of this blog and I look forward to hearing from others on this topic.
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