Discover more from European Straits
Dear all,
After several months where I mostly wrote materials for my ‘HEDGE’ manuscript together with shorter online formats, I’ve just published a new issue of our long-form series The Family Papers: 11 Notes on Goldman Sachs.
This is not the first time I’ve explored a large company’s strategy and business model using the ‘11 Notes’ format. 11 Notes on Amazon was published a bit more than a year ago. Another one, covering Berkshire Hathaway (co-written with my co-founder Oussama Ammar), fit in the same format, albeit with a slightly different angle. (In the future, we hope to publish ‘11 Notes on Facebook’, ‘11 Notes on Netflix’, ‘11 Notes on Apple’...)
For many people, Goldman Sachs is the new giant squid that is strangling the world in the context of financialization. But for us contrarians interested in technology and business strategy, it has recently emerged as an extraordinary case of an incumbent of the 20th century that can now be rightly defined as a tech company. Hence studying Goldman Sachs provides us with ammunition to answer that question that we hear so frequently: “How can a traditional company turn into a tech company?”
And I should add that I took great pleasure in reflecting on Goldman Sachs. I think that strong feelings, negative as well as positive, signal the most interesting players in today’s capitalism, and my co-founders and I have long been impressed by the firm’s unique culture—a key to better understanding its current strength and leadership.
So what did it take for Goldman Sachs to become a tech company? Mostly four things:
Goldman Sachs has a long tradition of innovation coupled with its strong, cohesive culture. In many companies, the culture is innovation’s worst enemy. At Goldman Sachs, it’s quite the contrary: whenever faced with adversity, rather than folding back behind barriers, the firm usually chooses to break constraints. In that sense, it truly is what economist Philippe Aghion calls a “frontier firm” or “neck-and-neck firm”: one that is inclined to attack rather than play defense when confronted with increased competition.
The 2008 financial crisis played a role in accelerating the transformation. It confronted Goldman Sachs with a massive blow to its balance sheet as well as a brutal rejection by the general public. Rather than complying with the caricature, the firm’s answer was to open up and explore new territories. Since then, Goldman Sachs has increased its presence on mainstream and social media, made efforts to promote diversity within its ranks, and taken the initiative in launching new, unexpected products on consumer markets.
For many years now, there’s been a book for becoming a tech company—and Goldman Sachs has played by that book. It has reconsidered the importance of its software engineering team, stressing that investment banking was not only about finance but also about technology. It also has invested for years in designing and implementing a software platform that acts as an enabler of their transformation. As explained by CFO R. Martin Chavez in this mind-blowing conference, the whole company is about to be redesigned around APIs.
Finally, I don’t think Goldman Sachs is the only incumbent that has attempted to become a platform and deploy those APIs. What they understood, and what made their success more probable than others, is that to become a platform, it is critical to work with outside parties. So not only have they worked hard on their own IT, they’ve also learned to work and partner with tech startups and have also used other platforms as often as possible. All these decisions contribute to generating a positive feedback loop for the firm’s own efforts.
All these, and many other things, are explained in great detail in the new paper. It’s targeted at corporate executives, strategy consultants, and Entrepreneurs whose raw ambition is to build the technology empires of tomorrow. I sincerely encourage you to read it: you’ll learn more about Goldman Sachs and what it takes to try and become a tech company. I also welcome your comments and feedback.
Oh, and you can also read an overview of my book’s latest completed chapter — Behind Entrepreneurs: The Multitude.
Warm regards,
Nicolas