Ancient Rivers of Money

By Venkatesh Rao

This entry is part 1 of 14 in the series Psychohistory

Sometimes a single phrase will pop into my head and illuminate a murky idea for me. This happened a few days ago. The phrase was “ancient rivers of money” and suddenly it helped me understand the idea of inertia as it applies to business in a deeper way. Inertia in business comes from predictable cash flows. That’s not a particularly original thought, but you get to new insights once you start thinking about the age of a cash flow.  We think of cash-flow as a very present-moment kind of idea. It is money going in and out right now. But actually, major cash flow patterns are the oldest part of any business.

It is the very stability of the cash flow that allows a business to form around it. In fact, most cash flows are older than the businesses that grow around them. They emerge from older cash flows.

When you buy a sandwich at Subway, the few dollars that change hands are part of a very ancient river of money indeed. Through countless small and large course changes, the same river of money that once allowed some ancient Egyptian to buy some bread from his neighbor now allows you to buy a sandwich.

Buyers and sellers alike see markets as an illegible and turbulent churn of transaction opportunities. But really, they are landscapes carved out by great, ancient rivers of money and their tributaries. These rivers change course rarely. Cash flows are also among the most basic financial ideas. Only businesses make profits, but governments and non-profits form around cash flows too.

These ancient rivers carve out both a spatial and temporal landscape. Spatially, the flow metaphor suggests old, dried-up river beds, gorges and ravines, flood plains, ox-bow lakes, watersheds, and of course, the rivers themselves. This plays well with the idea of “segment.”

But markets also have a temporal dimension, based on which river of money you are talking about, and how long ago it last changed course.

If you think of markets that way, things look very different. Some rivers of money are very old and very stable. You can at most fight to displace others from prime positions along the banks. Others are new and unstable and may change course frequently, creating and destroying fortunes through their vagaries. Others may be maturing, with dams being built to stabilize them. People have always bought food and clothes. They are only now beginning to buy iPads. They are starting to not buy CDs.

Generalizing, you can even think of an average “age” of the market as a whole.  An interesting question to ask is whether early adopters as a group should be considered as living in a future market, or whether the mainstream should be thought of as living in the past. I prefer the latter model.

Organizations are like riverbank communities.

To continue reading, please go to the original article here:

https://www.ribbonfarm.com/2010/11/05/ancient-rivers-of-money/