If you are like me, you remember participating in the economy before 2010. You have had a career job for 15 years or more, had bills to pay, and hopefully some disposable income. You likely have felt the updates to life in the last few years, with an increased cost of everything and quality of nearly everything degrading. Mix this with an oppressively insecure employment setting, and things truly aren’t how they used to be.
There are many factors that make us feel like millennials and later generations got a raw deal. We can easily blame the housing market, inflation, technology, or failures of every administration since Clinton, but that keeps many distracted. We can’t realistically blame everything, and especially don’t do anything about it. This plagued me for a while, not knowing what was going wrong, other than everything.
I used to think it was tech. The idea that there had to be an app for everything or social media driving us further apart seemed like a valid candidate for the root of all modern problems. It made dystopian futures seem closer with every update. AI has only continued that path of degradation. However, while I will still hold most of the internet in contempt for ruining everything I held dear as a child, before the dial-up tone summoned the demon that is the modern internet, it is just another side effect.
The True Culprit: The Private Equity Cadence of Business.
I never learned about private equity as it applied to business in business school. Funding wasn’t talked about much at all in the early 2000s in any of my business classes. We talked about maximizing profits, how to identify target markets, and even the best ways to market to customers pre-Internet (Cringe). We talked about how to assimilate into big business environments and scale, but not once about how funding businesses work. Even though my first jobs were as a manager for medium-sized, blue-collar companies, I assumed that if a business needed money, they got a loan and paid it off, just like I would if I needed money that I didn’t have. It wasn’t until I started working in small tech startups that I heard about angel investors, private equity firms, funding rounds, and boards.
Through the years, I navigated board meetings, growth targets that didn’t align with the business, stock dilution, acquisitions, layoffs, ridiculous product pivots, and even sunsetting great solutions. It never made sense in terms of the business practices I was taught in school, where you simply wanted to operate profitably. The rules were arbitrary, and quarters, or years, in the red were tolerated without a bat of an eye, because they “had plenty of runway.” That is, until they arbitrarily did not, following a board meeting.
As I learned more, I couldn’t unsee it. This cycle was everywhere. It was a treadmill of illogical business decisions that led to predictably bad outcomes. It looks like this:
A business wants to scale, so they hype up their product. They inflate every number they can around growth. They do everything they can to bring in customer numbers, at any cost. These customers demonstrate the demand for the product, the market size, and allow them to get the highest possible valuation of their business. When they show that they have any kind of real customer base and any potential value, the business takes on investors to get some money to keep the lights on a little longer, hire more staff, or crank their marketing up to eleven. With these efforts, they continue to expand their reach and position for the next valuation and round of funding.
With every round of funding, the business takes on new investors, advisors, and board members, loosening their control of the direction of the company until, finally, they set the business up for sale. This means making it as attractive as possible. They slash costs and headcount, and they patch a few legal holes with legacy customers. Then comes the sale.
Post-sale, the company undergoes a transformation. The new managers continue to try to cut costs to maximize profits. To do this, any remnants of the previous way of doing things are eradicated. New managers, new goals, and new ways of maximizing revenue are all implemented. This continues until the business can be sold at a higher price. Then so on, and so on until the company is unrecognizable and closes with the last investor left holding the bag.
Without the original vision of the owner, quality and service degrade, and innovation dies out. The pursuit of next quarter’s revenue is the only target for the business. Without the mission to make something truly great, employees lose the willingness to do good work. When customers notice the reduction in quality and increase in price, they look for alternatives, which creates competitors that never would have entered the market if not for the fall of the incumbent.
If this happened sparingly, it likely would not have gained much traction, but instead, it became the new way of business. Creating solely to sell and acquiring wealth only to buy. Since the founders of these companies are given a windfall of cash with the sale of their business, more money and more investors enter the market of private equity.
It continues until we arrive where we are today. A market of shitty, overpriced products, too much hype, and zero loyalty by employers, employees, or customers. This cadence of private equity has broken all the social contracts we once had between the people who drive businesses. In breaking the contract of simply “good business,” we have exposed ourselves to worsening conditions throughout the entire global economy.
The Cure
I believe there is a revolution coming in the world of business. One where business starts to act in the interest of those willing to play for as long as possible. As AI takes root, humanity and sustainability will be the most valuable assets in business. We see some of that now as people push more for things that do not have AI agents. As AI progresses unchecked, the issues become clearer. Most of all, as humans are displaced in the economy, spending habits are changing. These habits will shift away from consumeristic behavior and more towards essentialism. Quality and service will become more essential as companies push the lower limits as far as the market will allow.
It starts now. It starts with a pushback against these practices. Maybe it is a stream of bad reviews when quality takes a hit, maybe it is choosing the “talk to a real person” option when forced through a wretched phone support tree, or maybe it is simply choosing businesses that prioritize people over profits and letting them know. This is the only way this will slow down, not tolerating the displacement of workers and demanding consistency in quality. Promote “good business” and understand that it is essential if you want to be able to get anything decent in five years. We don’t have much longer to pivot as an economy, but our ability to promote these unfunded businesses will pay off.
We have had a price-competitive economy for longer than anyone could have predicted, but we raced to the bottom. The answer is buy less, buy better, and buy from people.