For decades financiers of one type or another have been the “Masters of the Universe”. People who, as Bob Dylan once sang, “make the rules, for the wise men and the fools”.
In the 1970’s, with stagflation and oil crises, it was the commodities traders who ruled the roost. As the 1980s kicked in, the forex traders had their day; when Tom Wolfe published Bonfire of the Vanities in 1987, the leading character was a bond trader. From 1995 to 2000, the VCs in Silicon Valley had inherited the formula for turning base metal into gold.
Today the crown is shared by Private Equity (PE) and Hedge Funds. When you see the PE big shots selling shares to the public, you know the PE party is nearing its riotous end. And the Hedge Fund party is getting crowded, with too many lesser talented investors dragging average returns down - to levels similar to buying an index fund (but with massively bigger fees).
So who will be the next 'Masters of the Universe'? For the first time ever, maybe it won’t be another financial asset class. All those assets classes remain and their practitioners will always be wealthy and influential; it's a great time to be in commodities again for example. However, we are at a unique moment in history when power is shifting to creative entrepreneurs.
What are Creative Entrepreneurs?
I was going to just say “entrepreneurs”, but it is broader than that. Creative people - whether they are developers, musicians, actors, scientists, writers or (insert creative type that I have annoyed by omitting) - are the next Masters of the Universe. Entrepreneurs who tap the rise of the creative class will do well, but the trend is a deeper one that makes creative people into entrepreneurs.
This has huge disruptive and destructive implications for big companies which today act as the toll booths, through which creativity has to pass. Hedge Funds that like selling short can take note.
It is of course the Internet that changes everything. Here are the “straws in the wind” that indicate a pretty profound change:
* Radiohead opt to sell all their music online, by-passing the 4 major firms that dominate music sales and even by-passing the “new” toll booths called iTunes and Amazon. They are not the first and won’t be the last music artist to do this.
* Software developers who build an intuitive user interface on a SaaS model don’t need to sell to CIOs to get traction within companies.
* People seeking attention (for themselves, their products and services) no longer need to hire PR firms to get journalists to look at them; as long as they have something worth saying of course.
* In Hollywood, clout has shifted from the studios to actors and directors. Outside Hollywood, the path from YouTube to Sundance (and alternatives) to a growing network of independent cinemas is increasingly well trodden.
* For authors, yet another publisher rejection letter is less depressing when you can self-publish using Lulu.
* For entrepreneurs the VC round is no longer mandatory; with much lower start-up costs, lots of 'pay as you go' infrastructure, increasingly active angels and, yes, Hedgies willing to jump in with creative financing when you need to scale. See Fred Wilson's recent post and Alex Iskold's follow-up for more on this trend.
Conclusion: Power Shifting to Creative People
I don’t mean to underplay the very real barriers that still remain and the power still wielded by incumbents. This is a big transformation and one that won’t happen quickly.
A big reason that power is shifting to creative people is the reduction in inter-company friction. You can outsource pretty much everything, other than creativity. More importantly, you can use multiple smaller, specialist vendors on something close to a level playing field relationship - rather than being dependent on one big company that does everything to get you to market. When you add in millions of new knowledge workers from what we used to call the emerging markets, you have a formula that keeps the prices down and terms for these services quite reasonable.
Photo by Thomas Hawk