The cause of the Great Depression is commonly considered to be an overproduction crisis. I disagree. In my view, the reason for the Great Depression was as follows: the technological landscape changed, but the people were not prepared for it mentally. There was a disconnect between what the people were used to and the new world. Read the history of the First World War. You will see: at first, everyone thought that it would last a couple months. People were used to waging war a certain way. Then, the English had to face the reality that world had changed…
Over there is a German with a machine gun. He’s protecting his hill. And over here is a whole regiment of English soldiers. The English command asks itself: how do we take this hill? How do the officers respond?
“‘Hurrah!’ on their lips and rifle in hand, the soldiers will set out to capture the hill tomorrow morning. By midday, the Jerry will be done for.”
At midday, the English do not take that hill. At midday, they have four hundred corpses, all rifle in hand. But no cries of “Hurrah!”will ever escape their lips again. The survivors are all swearing in pain. So what do the English do? Repeat the exercise, until the regiment is no more. Those stupid generals! Why couldn’t they have realized it sooner: you can’t fight like that. But were the old-timers with the big stars on their shoulders the only ones who made fools of themselves?
Technological progress is a good thing, until technological progress comes knocking on your door…
I’ll tell you something. Young people (even intellectuals) would scramble to get into the military. During the rise of patriotism, a lot of people volunteered, because a healthy man can’t just walk about London during the war. That’s indecent. The girls would ask:Bad Habits
“Why aren’t you in the army? Are you sickly, or just a deserter?”
And so the younglings would all go straight to the army. And this goes on until whole cities start getting condolence letters. Until each citizen has a relative who died in the war. Then, the people start to realize:
“We’re doing something wrong. We have to change something. Maybe it’s time for our generals to rethink the military doctrine?”
The battle tactics change. And changes in war tactics bring about changes in war strategy. And that’s when they realize: a peasant with a rifle is a shoddy fighter. And by the beginning of the 21st century, training one fighter pilot now costs a million dollars or more. And we all understand that it can no longer be some poor farmer who will only fly in wartime. He gets shot down: the women will pop out more. Well, pop out they may, but we can’t train them all. The country’s economy would not allow it. It’s expensive to entrust every potato-digger with military technology worth several million dollars. And money is not the only problem…
In the early 20th century, training a military specialist would take three months. In the mid-20th century: half a year, even for a pilot. After all, the weapons were primitive. But each year, weaponry got more and more complex, and now a farmer with an assault rifle is just cannon fodder for a military drone whose pilot is thousands of yards away from the action.
But the requirements didn’t just change for the soldiers and the officers. They also changed for the factories. And that caused a domino effect that would change the lives of whole cities. A lot of workers were needed to man the machinery. Factory cities emerged. And not just in Russia. They also appeared abroad — take Detroit, for example. That was in the middle of the 20th century. And by the 21st century, there has been another wave of innovation. The technology is different now, so you need different factories. You can’t manufacture every part in one place anymore. Ford factories used to have it so good: you mine the metal in one place, you take that same metal to the factory, and then that factory (how incredible is this!) pops out a whole car.
Car parts got more complicated, and so did plane parts and weapon parts. And in the 21st century, you can’t do what Ford did 100 years ago. Apart from steel, you need electronics and special paint and other materials… And that’s not just impossible to produce within one factory, but even one city or a whole country…
All this economic change was accompanied by ruined businesses and ruined lives. Imagine a breeder who provides horses to the army. And then bam! Order comes in: swap out all the horses out cars. All ammo and supplies are now to be delivered by truck. And it’s not just that one breeder providing the horses: someone else prepares the hay, a third person makes spurs, a fourth one makes carts. One stable feeds a lot of people. And one day, they have a common misfortune. The military men tell them:
“We do not require your services!”
Did it hurt? Of course it did. Imagine your profession is no longer needed. Your business is no longer needed. Technological progress is a good thing, until technological progress comes knocking on your door…
And what did it all start with? One German with a machine gun. Were the English generals really such idiots to send their regiments towards certain death? They just weren’t ready to betray their habits. And it’s not for you or me to judge… But as soon as the military’s perception of the world changed, that brought about colossal changes for the whole world.
I’ll emphasize: the habits of several hundred people changing could also change the global economy. And I’m not exaggerating right now. Just look up how many people made production decisions in the military in the 1930s. Count how many of them specifically made decisions about what would be produced. Should it be horses or trucks? The decisions of this handful of people influenced the global economy. And their decisions were based on a habit: the habit of waging war. And just imagine how much the world will change if hundreds of millions change some of their habits today… Although they’ll find it rather difficult.
Manufacturing a new product is faster than changing the mindsets of the people or the workers. Creating new technologies is easier than replacing people’s habits. Here’s a story from my own experience.
Eight years ago, we worked on raising the productivity of one construction company. Among other things, we noticed: every construction site has a supervising engineer. They go around the site and check the contractors’ work. They find flaws in that work, take pictures, and write letters: “Such and such defect found… please eliminate.”
If you’ve ever been there during commissioning, you know there could be hundreds of complaints. I was once present during commissioning, after every major complaint had already been eliminated. Only the little things remained. There were… 365 of those little things.
So what did we come up with eight years ago? We created a huge database of all the typical complaints. For months, my friends and I wandered around construction sites, following supervising engineers and watching them do their job.
Then, we made a mobile app. The engineer would go to the site, find a fault, choose it in the app and take a picture of it, also through the app. The program would automatically send letters to the contractors and the client. Information about the status of each complaint would then get added to a database: fixed or not fixed.
Of course, that is a gross oversimplification of what we did, but I think you get the gist. How much does such a program accelerate construction? Dramatically. Information about the defects reaches the office momentarily and, most importantly, gets recorded in the database.
Time is the main currency at a construction site. The longer construction lasts, the more expensive it is. The Chinese don’t build fast because they like it, but because if construction lasts two weeks, it costs 50 million dollars, and if it lasts a month, it costs 110. If one day of construction costs a dollar, that doesn’t mean that the second day will also cost one dollar. Nuh-uh. The first day of construction costs one dollar, and the second one costs a dollar and a cent. Or even two whole dollars. Why?
Because the first day was dry and sunny, so you could dig out the ground and transport it away. But on the second day, you get pouring rain. Your trucks can’t drive anymore. Your productivity has decreased. The same result today costs more than it did yesterday. Ergo, time is the most precious thing at a construction site. And the history of construction technology is the history of making everything faster. A revolutionary technology from the last century was sandwich panels. With them, you could assemble a so-called shell in a matter of days. And that’s an order of magnitude cheaper than laying down bricks for months…
But let’s get back to our app. So there we were, having tested it repeatedly. Having made it as easy for engineers to use as possible. We went to sell it.
“We’re going to be rich,” I thought.
“Screw you,” answered life.
To repeat myself: everyone is for progress on paper, until that progress knocks on their door. We did install the app for some clients, but it never went much further than that.
“Well, because everyone’s corrupt and nobody wants to budge. And also, I just don’t get it, how can I steal through this app?” told me one experienced builder.
“Alright, Russia’s not our market. Let’s try another one,” I decided.
So we go and we register a firm in England, much to the same effect. Why? Because nobody wants to change. Not the Russians and not the English. Nor do I, for that matter. I’m currently writing this article in my iPhone notes. Is it convenient? It’s very convenient. Does it help me write articles faster? Absolutely. But how long have I been doing it this way? Since 2018.
Meanwhile, I got my first iPhone ten years ago. Did it have a Notes app I could use to type? Yes it did. But what did I do? First I would take notes with my pen in my paper notebook, and then I would go to my laptop and start typing it all out. I type at 120 characters per minute, without looking at the keyboard. Not very fast, but it was enough for me. I typed at the speed of my thought.
And I didn’t want to relearn. Well, actually, on paper I was for progress, but in practice it’s painful to abandon your habits. Until life kicked my ass. My situation changed, and I had to write in the car, and at the restaurant. And I had to write a lot. But I still preferred answering emails on my laptop. That’s what I was used to.
Technological progress handed me a useful tool ten years ago, and I only started using it two years ago. I’ll tell you more. Just five years ago, if I wanted to buy tickets, I would call my girlfriend from my iPhone (which had all the necessary apps) and ask her to buy me my flight ticket. You see, I was used to having an assistant buy me tickets. And only when life kicked my ass did I figure out how to buy tickets on my phone.
So if I myself only accepted the gifts of progress while moaning and groaning, what did I want from the builders? Carlos Castaneda wrote a book about Don Juan. He was a wise teacher with a critical outlook on humanity. And he once said that people can only change if life has their back against the wall. Not many businessmen are ready to change if their business puts bread on the table anyway. And forget about daily routines: some cannot abandon them under fear of death. And we can see that happening right now.
Companies and businesses are dying out because their owners and managers can’t find it in themselves to change. We all remember the convulsions which accompanied Polaroid’s death. In the 90s, life had their back against the wall, but the management did not want to change. The result was as expected: bankruptcy.
And now, the world is already changing. Our backs are already against that wall Don Juan was talking about. And every one of us has a choice: change yourself or end up either dead or bankrupt. Most choose the second option. That’s normal. Tens of millions of people died for us to change battle tactics and war strategies. Millions more died of hunger until humanity moved from the country to the city, and agriculture changed.
I don’t want to prophesize doom, but I think there’s a high probability that millions of people will die and dozens of millions will go bankrupt so that a new way of life could be born. What could that way of life be? Let’s think about it together.
Who Needs False Floors?
Many years ago I was lucky enough to work with some of the leading construction companies. Among them, there was a real estate developer who in 2008 realized projects for over 100 million dollars total. And his office was in a typical three-bedroom apartment in Moscow. Basically, he had no office. The staff meetings all took place in a flat that he had rented for the first time.
“Do you understand, they made over 100 million dollars working out of a flat! They managed their business without leaving home!” I told my friends. We would discuss this example often, and then return to our offices. And the developers moved into an office too, to look more respectable. A big real estate developer shouldn’t hold meetings in a flat, after all. But I could never forget this example. And I started finding other examples where people would successfully conduct business without an office of any kind…
We all know that many YouTubers do just fine without an office. And they pull in more viewers than the biggest TV broadcasters. When I realized that, I was honestly stunned. Why?
You see, I used to work in media in the early 2000s. And I remember how television products were made. I remember how many people it took to make them. I remember the numbers: how many people watched one TV program. And now, an acquaintance of mine takes a camera and asks his wife to check if he’s in frame. Then he films a video, edits it himself… And he has over a hundred thousand viewers. That’s more than a big TV channel in the early 2000s.
And now let’s count how many people that eliminates from the production chain:
1. Channel director
5. Makeup artist
6. Camera operator
7. Financial manager
8. Advertising manager
9. ... and lots and lots of other staff.
And when all these people want to meet, where do they go? That’s right, the office. And filming was done in a separate studio. If it wasn’t for the pandemic and the quarantine, nobody would give up traditional studios.
But life has their backs against the wall. During the quarantine, it turned out you don’t need a studio to record people talking. People could hold meetings through Skype. Offices are no longer necessary.
Now let’s travel further down this chain of changes. You need fewer offices now: who will adjust for that? That’s right, the office space owners. They’ll think:
“Do I really need to buy out a new business center? To hell with it, maybe?”
The fewer clients — the fewer orders for the real estate developers. And the fewer orders the developers have — the less work the contractors have. And this chain leads us all the way to a German factory that manufactures false floors. And I’ll tell you, they’re great floors. I’d recommend them.
And believe me, it might seem obvious to you and me from the outside looking in that the demand for false floors is about to plummet, and that it’s time to think about what to produce instead. But this particular German does not want to change his life. The German sees the situation differently:
“I have enough money saved up to last me half a year of operating expenses. Hurrah for financial discipline! In three months, the quarantine will end, and life will change for the better. Of course, we won’t meet our sales objective this year, so we’ll have to downsize a bit. But we’ll catch up next year…”
Except they won’t catch up to squat. In three months, all the small-time office tenants will come to the conclusion:
“Why do we need this office in the first place? We learned to solve all our problems in chat rooms. We’re working remotely. Even better: I used to think, ‘Should I fire Mary or not?’ You see, back when we had an office, I wasn’t sure if she helped in any way. And now it’s clear: that Mary girl doesn’t do a goddamn thing. And why the hell do we even need this office with these stupid false floors? It’s so comfy to walk around on my wooden floor at home…”
You can find the German and tell him all that. He won’t get it. The history of global business shows us: companies restructure with great difficulty. More often than not they go bankrupt. It’s hard to accept a changing reality while you still have some money on your account. And then it’s too late — the money’s gone. But the German with the false floors is not the only victim of progress. There are some bigger victims.
Big Cities as Cages for Cubicle Rats
Be honest: how many questions in your business require an offline meeting and can’t be settled over Skype? I’ll answer for you: not one, except for inspections. If you don’t have to inspect anything, then you don’t have to meet.
Meetings turn from necessary rituals into a luxury that could be forgone if needed. This trend began long ago, but people would not abandon business meetings until the bitter end. It’s a habit.
But the quarantine is forcing us to drop this habit, too. Because the old pattern of behavior is being replaced by a new one: only meeting over Skype… I have a story about this.
Russian sales managers in the late 80s, early 90s would often go around offices offering their products. One man got really good at establishing personal contacts that way… But in the 2000s, nobody would hire him.
“Why can’t we hire him?” I asked the marketing director.
“Just imagine how wild that would look right now: instead of calling, a man barges into your office. How awful! What will our clients think? That’s barbaric!”
So yes. Soon, even making business appointments online will seem barbaric. Don’t believe it?
Well then let’s make an assumption. We’ll assume that the quarantine on a global scale will last three months. And we’ll arm ourselves with the knowledge that three months is enough for someone to replace their habit of meeting online with the habit of meeting on Skype. It will be inconvenient at first, but little by little everyone will get used to it. And in ten years, someone arranging to meet at the office will be regarded as a cretin. How awful! How barbaric!
Fewer meetings means less strain on the city infrastructure. And then the city dwellers will start asking questions:
“I used to live in a flat so that I could get to work faster. And why should I put up with my noisy neighbors now? Should I spend 200 thousand dollars building my own house instead of buying a three-bedroom apartment? And should I have my own office at home, so that my kids won’t bug me?”
These thoughts used to exist before, but they weren’t supported by habits. Not just the habits of the thinker, but everyone’s habits. Changing the demand for big cities — now there’s a revolution more dramatic than the history with oil companies. After all, oil will always be needed. But the demand for false floors will reduce drastically. And not just for false floors. Let’s calculate together.
The fewer people go to their offices, the less the transport infrastructure is strained. And that infrastructure feeds a lot of people. But we don’t just drive our cars or use the subway, right? We drop by our offices, then we drop by a café… And while we’re running to it, some promoter hands us a flyer. We run further and see an ad in the subway or on some big banner.
There’s this tool in marketing: figuring out the customer’s day, minute by minute. Well, for most market researchers, by the end of this year, this day will look completely different from what it was before all this pandemonium began.
I will note that people would have stopped using offices regardless, just slowly. I’ll remind you how it took me almost ten years to start writing on my phone instead of my laptop. But when the situation forced me to learn, I learned fast. Changes in war strategy, changes in war equipment — all of this would have happened anyway, but the two world wars accelerated the process. And today, the accelerator is the coronavirus. People whose backs are forced against the wall by circumstance will learn very quickly. Three months will be enough to unlearn meeting online. And our chain of events does not stop there…
The End of Corporate Slavery
The past few years, Ilya and I have been managing our business without offices. And I’ll tell you the truth — this is a revolution of the mind. If you have, let’s say, programmers sitting in your office, then it’s possible you won’t hire your best employee. You won’t hire the one with the most initiative. You’ll hire a B- at best.
After all, if the programmer sits in one space with you, you’ll force them to work somehow, using the good old methods. We all know them. And even if you don’t appear at the office, the other staff will act as an incentive. It feels icky to do nothing at all in front of your colleagues.
But if the programmer is far away, you will understand: there’s no point in a mediocre worker. You need a specialist devoted to their craft, because this is the only kind of worker that will bring results. You don’t need a designer who only works under pressure, either. Nor do you need such a salesperson, or a negotiator, or a logistics specialist, or a purchasing agent…
Managing a crowd and managing a high-class specialist are two completely different things. Readers have asked us why we deleted our book called Management a year ago. I’ll answer: it’s because even back then we knew that the methods of management outlined in that book were no longer relevant.
There was a popular article on The Dark Side about managing your staff using whoop-ass. Well, it’s no longer there, because you can’t do that remotely. Whoop-ass will go out of fashion just like offices will.
Some will argue, “Well, can’t you force a person to work remotely by swearing?” Yes you can, but there will be a lot of expenses. Obscenities lose their power when they’re pronounced thousands of miles away from the recipient.
From there we draw a conclusion: mediocre workers will be fired. Those who won’t fire mediocre workers will go bankrupt. What will corporations look like? Read and see for yourself, how Pavel Durov’s business is structured right now. Read and look very carefully at how the Revolut bank functions right now. I’m listing companies that are evaluated at billions of dollars. All they can do remotely — they do remotely. And they have the minimum number of managers possible.
These companies appeared long before the pandemic. But the trend of making managers redundant and working remotely will go up after the quarantine has been lifted and during the quarantine, too. Remote work will mean the end of corporate slavery. Most slaves will not be happy about this liberty. Well, the ones from the 19th and 20th centuries didn’t exactly rejoice either.
You can always comfort yourself with the thought that time will pass and everything will go back to normal… This is the same way the English generals comforted themselves in the beginning of the First World War. This is how that German false floor manufacturer comforts himself. Do you really think the demand for his product will increase the next year?
The pandemic acted as an accelerator for change and placed the backs of the whole planet against Don Juan’s wall. Each of us will have to change. Are there other options? Yes there are: wait for bankruptcy. Wait until the market no longer needs your goods or services. Wait until nobody wants to buy your professional services anymore. Or change your habits, and change your mindset. Of course, most will whine with their back at Don Juan’s wall. They will whine and they will feel wronged. But here’s the thing: on the market, no one can hear you cry…
…Just like in the past, people are hoping for this whole thing to blow over. It’s like a diseased person hoping until their very last to get by. The diseased may check some statistics, calculate some probabilities… But you and I know that the economy is changing. The market has no mercy for those who hope for the better. Look at your business from the outside. Look at it the same we look at the horse breeders of the early 20th century. Be honest and answer a simple question: will anyone need your business?
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