The fragility of commodity-type businesses
By Adam Ryan
There are plenty of stories about SVB, the banking crisis, and what transpired the last 7 days.
It’s safe to say that numerous decisions on the financial front caused SVB to come into a liquidity crisis. But that wasn’t their real downfall.
The success of commodity businesses is primarily dictated by the perception that they have among their customers. That perception is cemented by the narrative control they possess.
Nike – best for athletes. Southwest Airlines – most family friendly airline. Starbucks – the most welcoming atmosphere.
Banks are no different. They are commodity businesses. Each with its own narrative.
SVB’s narrative was that they were the most trusted bank for the innovation economy.
Then that narrative started to collapse through a combination of moments.
First, there was a newsletter that was put out about 4 weeks ago about the shakiness of SVB. This newsletter is read by a lot of VCs and investors. You can read the newsletter here. He essentially predicts what unfolded on February 23rd.
Then the rumors started to flurry over the weeks, and investors and board members started emailing Founders encouraging them to move their money out. This started the first run of SVB.
Then the real turning moment. The CEO had a horrible communication crisis.
He got on the phone with a bunch of VCs and said, “If everybody is telling each other that SVB is in trouble, that will be a challenge..stay calm. That’s my ask. We’ve been there for 40 years, supporting you, supporting the portfolio companies, supporting venture capitalists;”
Ugh. Why would he say this? This was the change in narrative. He asked companies to risk their own assets, to save his own ass.
This triggered the bank run.
The loss of narrative control around SVB was what caused the 2nd largest bank failure in the history of the United States. And it took less than 4 weeks from start to finish.
Not the first time
This isn’t anything new.
- Ozy Media was shutdown a week after Ben Smith’s article
- Harvey Weinstein final take down by the LA Times
- Formula1 exploded on the scene after Netflix dropped its series about the sport.
- Buzzfeed and the dossier.
This is the real power of the media industry.
There’s never been a time in history where media can change the narrative of a business or person faster, with more effectiveness.
This power is part of the problem with our industry.
As an industry, we’ve consistently used that power to go after our own financial gains or to help extend our own personal beliefs.
Click bait headlines, polarizing takes, half-truths, and more have all led to the media industry being at an all-time low of trust.
We’ve lost the narrative control of our industry. Before, we would hide behind journalism degrees, editorial boards, and decades of existence to claim we do what is best for the reader.
But, guess what?
Narrative started to shift. People got smarter. They realized media companies were doing what was best for them, not for the reader. A new generation of companies were built to solve this.
The question is, will it happen again?
Will creators disclose that they get paid to shill a software company that claim is the best? Will media companies disclose their reviews are based on who provides an affiliate link? Will media companies continually create bad goods and services but push it on their audience as category leading?
Those are things happening at “the most trusted” upstart media companies.
We’re a commodity industry
Media has the lowest barrier to entry. It cost nothing to get started. It’s easier than ever to build distribution.
What the most successful brands have is the perception and narrative control of their audience. As easy it is to start, now we’ve learned it can finish just as fast.
The path forward
There are a few things media companies can do to maintain narrative control. The easiest way to jumpstart this process is through understanding the book antifragile. To know what you can survive, you have to know what can break you.
- Be values based. When you stand for everything, you stand for nothing. Be clear of what you “don’t” do. Creates a clear lane for you to own vs confusion (hello, Vice)
- Diversify your revenue and audience. SVB struggled because they were too heavily indexed in startup clients.
- Analyze your incentives. Your incentives will show how your team acts. Go through what parameters you can create to help prevent bad behavior. (Hello, Buzzfeed and pageview incentives)
With an election happening next year, the economy at a near breaking point, and more pent up conflict in the world – the media industry will be the largest influence of how these moments shake out.
We have that power. We can crumble an economy. We can change an election. We can unite the world.
It’s up to us what happens, so do the right thing.