platforms and algorithms have changed dozens of the world's largest Industries often times basically overnight the way we listen to music consume movies buy useless junk spread conspiracy theories find a partner or just order a hamburger have all been redefined by just a small handful of companies of the top 10 most valuable companies in the world seven of them are still relatively new businesses that have disrupted major industries the message is obvious if you can build a company that changes up the way people do things with technology you could become one of the richest people in
history the best part is you don't even need to change it for the better this has created a problem in the silicon valley scene where the innovators are trying to disrupt industries that really shouldn't be disrupted banking Medical Care Mental Health real estate transport and even good old communication are still imperfect Industries but sometimes the solution to problems are slow careful iterative improvements not slapping an algorithm on top of it over $60,000 Frozen up and Y $5,440 and6 Frozen in yata W's whole idea was let's not just be a commercial office Leasing Company let us
accelerate um the new world of how people work and make it better to be Innovative you have to experiment if you want to have more invention you need to do more experiments per week per month per year per decade okay so if you want to make you money by starting a disruptive tech company you really only need to come up with an idea that ticks three boxes the first step is finding an industry or even an everyday activity that is highly inefficient people will gladly pay to make things easier for themselves and in an economy
where people are working multiple jobs don't have stay-at-home partners for domestic chores and are spending hours commuting every week providing a product that saves a bit of time and energy is great and people will pay for it now finding a problem and then providing a marketable product to solve it is just business 101 but the problem for you is it's kind of hard smart people are trying to figure this stuff out all the time and maybe you will get lucky and think of something nobody else has but there is an easier way find an industry
that is inefficient because of man-made inefficiencies or as the lawyers would call them regulations step two is to figure out how to fix this problem with some kind of marketable Technology now this technology could be something revolutionary like the telephone which fixed the issue of slow and inefficient communication through telegrams or Postal mail or it could be something like Tinder which solve the issue of slow inefficient boinking through actually having to go out and talk to people technology can really mean anything but if making money is all you're interested in then it's a lot easier
for that technology to be software that works on existing devices software is ideal because distribution and Manufacturing are as simple as an Amazon web services subscription and a good copy paste button once a program is developed the variable cost for every additional user is basically negligible investors love this so they will pay you and your business a lot more than they would any other business making real products according to data collected by NYU Stern software companies had the highest Enterprise Value to sales ratio of any business type the only Investments that had higher ratios were
real estate investment trusts but their value comes mostly from the real estate holdings and not their sales so this is not really a fair comparison the average company was valued by investors at between 6 and 10 times their total sales which was especially impressive considering that some of these companies had negative operating margins meaning that even though they were selling a product with almost zero marginal cost they were still losing money so by combining the easiest technology to develop with the easiest problems to solve you will find that the perfect business to scale rapidly towards
a life-changing exit is one that skirts regulation with software sounds dumb but some of the fastest growing companies in history were founded on exactly this principle Uber skirted taxi licensing and regulation by creating software that technically let people car pull together if people happen to just turn their personal vehicles into full-time taxi services that was just users not engaging with the technology as intended Airbnb avoided the intense regulations that hotels have to adhere by by just creating software that technically let people find a temporary roommate if people purchased multiple specialty Built Homes to run Airbnb
hotel chains that was just a user not engaging with the technology as intended cash app was just a way to settle payments between friends if it gets used as a shadow banking system for questionable activities well you get the idea by the time these businesses get big enough for Regulators to take notice of what's going on they already have so many users that restricting them becomes very politically unpopular Bill Gurley AV Venture capitalists who invest in businesses like these gave an admittedly fantastic presentation last year about how important these businesses are to avoid a phenomenon
where big inefficient incumbent businesses aren't challenged because regulations make it too hard for smaller better businesses to enter their Market clever loopholes like this are a great way to disrupt industries that are getting a little bit too comfortable and making a lot of money doing it but before you get too excited you should remember that sometimes regulations exist for a reason so it's time to learn how many Works to find out who the biggest winners and losers are in modern finance's dumbest game this week's video is sponsored by Henson shaving Henson is on a mission
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a healthier more sustainable routine go to Hensen shaving docomo many works and enter code how many works at checkout to get a free shave cream with your purchase of a Hensen razor it's been half a year now since the collapse of yada Bank a bank for people who were fed up with banks the disruptive new platform allowed depositors to participate in lotteries with their savings instead of receiving a typical and predictable interest rate most months people would receive no payments but there were winnings paid out to randomly selected people with entries based on how much
cash they held in their accounts people with more money got more entries and therefore more chances to win a significant prize the average return on these winnings across all users was supposed to be roughly the same as the yield on a high interest savings account it was a novel idea that was arguably just a bit of fun for people trying to save some money but Banking and Financial Services are kind of hard it's much easier to make money by running a casino which is what Yotta bank slowly turned into with other games that people could
play with their savings now you probably already know this but this wasn't actually the worst part part of this sketchy new way to save your money the actual mechanics of running a bank like processing transfers and you know keeping track of how much money people had on their accounts was kind of hard so it used a middleman which provided services to other fintech platforms on behalf of a real bank that had to adhere to all these boring old regulations synaps was a banking as a service provider which was supposed to keep track of transactions for
other platforms like crypto brokerages online Sports books and stock trading platforms so if you wouldn't feel comfortable keeping your life savings in DraftKings you probably shouldn't keep your life savings in a bank that's not directly FDIC compliant somewhere in this chain these companies couldn't agree on how much people had in their accounts and so far it has been average consumers that haven't been able to access their money simply losing track of how much people have is also outside of the domain of the FDIC which only handles bank failures so there are thousands of customers who
simply had their money Thanos snapped into the banking ether my friend Patrick Bole did a great Deep dive into the real Financial mechanics of this cluster F and of course the suspend wearing superhero coffeezilla covered the story as it was unfolding now the whole people losing their life savings thing here isn't really the point the bigger issue here is that fintech has become one of the most popular Industries for new startups to carve out market share in yata is just one example of where that has the potential to do a lot of harm to regular
people there is an old saying that every warning label on a piece of equipment is a gravestone for an appendage that was lost somewhere down the line the amount of regulations that Financial companies let alone actual banks are subject to is beyond the capabilities of any single human to fully understand endless red tape in services that we all use every day can be immensely frustrating especially when it speeds up the consolidation of bigger and bigger Banks but every law every regulation and every guideline that Financial firms need to adhere to was written because something has
gone horribly wrong in the past the rush of new fintech company skirting these regulations by Falling just outside the bounds of a typically regulated body will end up with a lot more people losing a lot more money by now pay later services like Clara affirm afterpay and PayPal's built-in split payment function now handle billions of dollars in consumer transactions every year and have become a massively popular alternative to traditional credit cards when mix for traditional Consumer Credit these new Services have accelerated Reckless spending with a lot of people using afterpay to pay off their credit
card and their credit card to make their afterpay payments this practice might sound silly to URI but for a lot of people it's just an option of Last Resort when there is too much month at the end of their money it's so common in fact that the Consumer Financial Protection Bureau has a term for It Loan stacking and it's something that is much more difficult with traditional debt products another problem with these new Financial tools is how they make their money if they bother to do that at all these companies don't charge interest like typical
personal loans or credit cards and most of them don't have fees to open or maintain so if you use them to make the scheduled payment without using it to justify any additional purchases you might full pull yourself into thinking that it's just a practical Financial tool but the business case for these companies is that you don't need to pay for the product because you are the product they make their money by charging retailers a commission on purchases these fees have so far been similar to The Merchant fees charged by credit card companies but some analysts
argue that they have only been able to maintain these low fees because they are burning investor money to maintain market share and when that money runs out these hidden fees will all need to increase either way the retailers are willing to pay these additional fees to buy now pay leader companies because they can offer them additional customers when these companies were first growing They promoted their own platforms that would push consumers to retailers that accepted their payment which was a good way for these businesses to get some free advertising as they have become more popular
with consumers it has become hard for retailers not to accept buy now pay later Services because a lot of people simply can't afford to pay with anything else in either case you are the product BNPL services are packaging you up and selling you as a ready to- purchase customer for the low low price of some merch fees consumer credit card laws are starting to catch up with these companies but for a long time they were able to hide just how much debt struggling Americans were taking on oh and they were also really lacked about money
laundering coming from a banking background Finance is the industry that I am most familiar with but it's also simultaneously something that most people don't properly understand and something that can absolutely [ __ ] up your life if you just make a few silly mistakes but this is not just affecting your finances this is happening in plenty of other highly rated regulated Industries as well including Healthcare which has already had some disastrous consequences here is the biggest challenge though nobody likes red tape bureaucracy in big incumbent businesses I mean big Banks and credit cards clearly suck
and so do hotels taxis medical tests traditional therapy traditional Investments and housing so when a new company comes along talking about revolutionizing an outdated industry it's kind of exciting and in The Current financial environment more hype means more investor dollars it's much more unpopular and much less profitable to remind people that sometimes the boring red tape exists for a reason now this isn't helped At All by the fact that the alternative We are rooting for is a bunch of companies that have slowly become monopolies again go and watch this video to find out how we
let that happen and make sure to like And subscribe to keep on learning how money works
