2023: Get Real and Focus on Horizon 2

By Geoffrey Moore

Author – The Infinite Staircase: What the Universe Tells Us About Life, Ethics, and Mortality

OK, as we start this new year, looking at the investment side of things, if the party is not over, it is at least on pause. Valuations are way down. Despite there being plenty of capital on the sidelines, investors are skittish about when to get back into the game. Market caps, which in normal times are a reliable indicator of business health, lost all their credibility in the bubble (ludicrously high) and now lack conviction (still looking for a stable new normal). Market history assures us a new normal will emerge, but nobody can say when, so what are we supposed to do in the meantime?

First of all, understand that the economy, in the US at least, is in reasonably good shape. That means that spending in Horizon 1 can be expected to continue pretty much on course (Horizon 1, as a reminder, is spending that generates its returns within the year it is spent.) This explains why the market valuations of industrials in mature categories are holding firm. 

What is up in the air, on the other hand, is anything in Horizon 3 (investments that will take three or more years to get a return). Until the market stabilizes, no one knows how to value these positions. This explains why the stocks of Meta and Google have taken big hits. It’s not that they don’t have great ideas. The market is not saying Never! It is saying, Not now. When the fog is thick, Horizon 3 dynamics are just too hard to make out.

On the other hand, the wild card, and the horizon that deserves all your attention right now, is Horizon 2. These are investments that won’t pay off this year but are expected to in the following year. The investment community does not have sufficient information to handicap these bets, but you do! That is, there is an asymmetry of information based on your specialist knowledge of your specific business opportunities and their generalist knowledge of category and market dynamics overall.  In transitional times, the generalist lens gets fogged—hence all the hesitation. But there is nothing fogging your lens provided you get close enough to your customers to see properly.

Every market, even the grimmest, has opportunities for growth all the time. There are always unmet needs, and these will always be prioritized, and the top priorities will always get funded. In good times, this list is long, in trying times, short, but it is never blank. So, your focus right now should be on detecting what urgent unmet needs are emerging in your customers’ world. Don’t outsource this. You need to be right at the coal face to see exactly where the value is getting trapped and what it is costing the customer. Once you see what is really going on, then you can determine what innovations it would take for you to be the first to address those needs and how soon you could get your innovations to market. Assuming you can bring all this off within the Horizon 2 timeframe, your final task is to clear the decks and make this the number one priority for your company this year. 

So, your New Year’s resolution is simple. Stop talking to yourselves and spend time with your customers. Visit them. Ask them what’s changed. Ask how you can help. Build your store of asymmetrical knowledge. Then act on it.

That’s what I think. What do you think?

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