What do North Korea, the nuclear bomb and the United Nations all have in common? There are direct consequences of the Second World War. To say that I have an obsession with that period of history is an understatement. World War Two is fascinating on so many different levels. Many technological advancements were developed during that period like rocket engines, the genesis of the computer and the nuclear age. Several societal changes occurred with women entering the workforce en masse. The geopolitical impact like the US world hegemony and the end of the British empire are also a direct result. The ripple effects of that massive conflict are still very much felt today and have shaped the world we live in. What makes this period of history so fascinating?
There are so many idiosyncratic battles and events that occurred during that period. It’s easy to endlessly explore. When I zoom out, there are two ideas that I keep coming back to.
History is not predetermined.
The choices made today have an impact on the future. It’s easy to sit back and critique a particular decision or course of action. This is what is so absolutely terrifying when understanding the events that took place during those six years. If Nazi Germany made a few different strategic choices, they had a real shot at winning the war. It was not predetermined that the allies would emerge victorious and that the US would become the world’s superpower along with Soviet Russia. It’s scary to imagine evil incarnate dominating the world yet that is precisely what *could* have happened.
There is a beginning, peak and end to everything
The war saw the rise and fall of nations and empires. The world operates on cycles of a beginning, middle and end. Studying the war is a lens on how to look at history through the lens of cycles. I want to dive a bit deeper on this concept and how it’s shaped my worldview.
Looking at history through cycles
We’re all born, we hit a plateau of intelligence & physical abilities and then slowly decline. Heck, even stars have a birth and death. It’s a useful lens through which to understand a country, a business, or a person’s life. Let’s start with people.
Athletes are the prototypical example. Athletes have a rise, peak and then decline. We marvel at athletes during their physical prime but time is undefeated. Sports are much easier to measure since there is a clear output so we can see exactly. Being a proud Canadian, I’ll point to Wayne Gretzky’s career. Gretzky was at his peak from 1981 to 1985 where he famously broke almost every scoring record in the NHL. He continued to perform at a high level but never matched the output of those years.
We see this trend in creative professions as well. This is much more subjective and nuanced than athletic achievements, yet comparable in my view.
Let’s take Johnny Depp, one of my favorite actors. In my humble opinion, his peak performance was from 1997 to 2003 where he arguably had the best performances of his career leading up to his role in Pirates of the Caribbean. From there, it was a slow & steady decline past his prime.
Circling back to the world war two theme, the US as a country became a superpower as a direct result of that conflict. Instead of following the colonial playbook, the US created the Pax Americana. If you become an ally, we will provide you with protection and unfettered access to our economy. The condition? You cannot side with the Soviets. This strategy clearly worked. The US came to dominate the world economy and its dollar is the world’s reserve currency. The unifying threat of nuclear annihilation was a pretty good motivator.
The country’s power and prestige ultimately peaked at the end of 1991, when the Soviet Union fell. So where are we today? I’m afraid we are in the decline phase.
In the 1930s, it took San Francisco four years to build the Golden Gate bridge. In the 2020s, it took 20 years to open a bathroom in a train station.
Jokes aside, the US is slowly withdrawing from the world stage and is going back to an isolationist approach. There is no need for a Pax Americana if its survival is not hanging in the balance. The concept of the “American empire” is in its decline phase.
If we look at other parts of the world, China is clearly in its ascension phase. Its world economy is already almost on par with the US. By the end of the century, it is predicted to be three times as large. It’s currently rising with its peak likely years away.
I find this concept particularly useful when it comes to businesses. My favorite finance mind to follow is Aswath Damodaran, professor at Stern School of Business. He uses this lifecycle model which is super insightful.
I simplify it down to four inflection points: birth, rise, peak and decline.
1) Birth: Creation of the product that meets a need in the market
2) Rise: Creating the infrastructure to grow and scale (growth)
3) Peak: Dominance of the company in its market (maturity)
4) Decline: Scaling down and returning money to the shareholders
Let’s take Google as an example:
- Birth in 1997: Backrub was the initial innovation that allowed the company to crawl the web and provide more relevant search results.
- Growth from 2002 to 2012: opened up global offices, hired key engineering and sales talent to scale
- Peak from 2012 to today: company has a hegemonic position in the market
- Decline? It doesn’t appear that we are there yet but it is inevitable. No companies are dominant forever.
The VC game looks for companies that are outliers and they invest in their birth and growth phase. It’s usually a different set of people that fund companies in the maturity and decline phases.
The trend I want to understand better is how software companies extend their peak phase & protect their competitive advantage. A canonical example is Facebook’s acquisition of Instagram which gave the company a whole new growth trajectory. This of course is not only achieved with M&A but also with product innovation. Shopify is leading the way by developing product innovations at a torrid pace and has not yet hit its peak.
The cycle of rise, peak and decline is a natural part of life. It’s a useful mental model to use as a frame of reference. Beyond simple observation, are there any practical insights?
Two things do come to mind, a unifying purpose and strong leadership.
Let’s take the US. From 1945 to 1991, there was a clear purpose: defeat the “evil” Soviet empire. It became the single lens through which all decisions were made and led to a period of prosperity for the country. Ever since that objective was met, there has been no vision to replace it. This has led to internal division and strife. If you don’t believe me, go spend some time on Twitter.
Political leadership was also strong, particularly during the war and the years that followed. From an outside perspective, you can make an argument that leadership has been weak which has been exacerbated by the lack of purpose.
For organizations, having a bold purpose & vision is a net positive. A rallying cry that everyone understands and deeply believes in can generate huge momentum. Look at SpaceX’s mission of colonizing Mars. You can disagree with the stated goal but you can’t argue that the company’s innovation vastly outpaces its peers.
Leadership is an obvious cliché. What I’ve noticed is that founder led companies often have an advantage over professional management teams. This is a broad generalization and not a steadfast rule. In the moments that matter, founders have more credibility to make difficult decisions that can alter the trajectory of the company. Of course history is not preordained, that’s what makes it so interesting.