Alpha fruit
Previously, I identified some archetypical ways to make the case for a venture and speculated about how said archetypes can be leveraged. To recap, these are the archetypical cases:
The user case: the fundamental value proposition made to a core user
The business case: the systems enabling value creation, delivery and capture
The market case: the macro environment or competitive landscape’s latent upside
The team case: the character and pedigree of the people involved
The narrative case: the pull of a mission or vision
The technological case: raw innovations or novel cross-applications of technology
Possibilities for leveraging the archetypes included constructing targeted, compelling cases for particular audience, coherently analysing received cases, benchmarking collective message discipline, and generating divergence and dissonance.
One of these uses—targeted case construction—caused me to wonder: can the same archetypes be used in a systematic manner to identify “alpha”?
Financial alpha is a measure of active return on investment in comparison to a broader market rate, index or benchmark. It’s yoked to a tighter pace layer than concepts like core competencies or frameworks such as the Seven Powers, but it doesn’t have the same rapidity of cycle time as day trading. Alpha exists a little left of bang, being more durable and meaningful than the inherent real-time volatility of markets but less stalwart than sustained, strategic differentiators that agents can reliably leverage.
Broadly, alpha emerges as a consequence of the kinetics of capital, technology and labour, is identified via sociotechnical systems, and is leveraged by individual agents or collectives. Importantly, alpha is more an information asymmetry than a structural or process-orientated advantage. Ceterus paribis, similar agents that have identified the same emerged alpha have an equal capability to leverage it.
A cosy metaphor for alpha appropriation is hanging fruit. There is low-hanging fruit, of course, but there is also fruit that is higher up, fruit that is decomposing on the ground, and fruit that is in the process of ripening.
Why does this relate to the archetypical cases? Well, armed with the archetypical cases—and with a playbook of relevant useful fictions per archetype to deploy—I believe one has a reliable methodology to sift for information asymmetries, to pan for gold, to notice fruit, to identify alpha. And a better alpha identification method seems like it could help an agent do more than just keep the lights on or avoid getting sherlocked; in fact, it could be one of the necessary (but not sufficient) conditions for moating up, monopolising, aggregating, or—gasp!—initiating a paradigm shift.
There is a problem, however. Alpha in the sense of financial markets is—understandably—the target of much attention and effort. It’s fairly coherent and legible as a concept. How, though, does alpha manifest in the context of value propositions, business models, teams, narratives or technologies? I don’t know. But what I do think is that whatever it’s manifestation looks like, it’ll originate inside people’s heads.
Financial alpha exists thanks to the cacophony that is interacting, interconnected, plurally incentivised agents leveraging sociotechnical systems of different sophistication in many smart and not-so-smart ways in order to capture value. It’s external to any one individual. User, business, team, narrative and technological alpha? It seems reasonable that it’ll be the opposite—lurking somewhere somehow within someone’s consciousness. The difficulty is drawing it out.