The Great Reset: From Startups to What's Next

Drift Signal #248

Credit: Johannes Plenio

Big news! I'm rebranding European Straits as Drift Signal.

• Drift reflects how everything seems to be moving sideways—or even unraveling—in an increasingly uncertain world. Signal underscores the need to cut through the noise and offer insights for those ready to move and act, whether in business, finance, policy, or beyond.

I'm also shifting away from a primarily European focus. I prefer to take a global perspective from now on, as I don’t believe the most critical developments are happening in Europe right now. More broadly, today’s challenges and opportunities transcend regional boundaries. That said, I’ll maintain the numbering sequence that began when I launched this newsletter in 2017, making this edition #248.

• After four years of sporadic publishing, I’m committing to a regular and frequent cadence. I chose January for this relaunch both to wish you a Happy New Year 🤗 and to share some key ideas for understanding how 2025 will take shape.

Drift Signal is the foundation of a broader, multi-channel project. It will complement my French-language work with my wife Laetitia Vitaud on Nouveau Départ and the revival of Capital Call with my friend Vincent Touati-Tomas, which will soon resume with a focus on inflection points across asset classes in finance.

Read on for my discussion of 10 key questions for 2025 👇

1/ Why did Europe fail in building tech giants?

Let’s be honest: During the 2010s, Europe seriously tried to compete with the US and China in tech, but the results are thin. Yes, there’s Spotify… and that’s about it. Most European tech stories ended in disappointment—some retreated to their domestic markets, others collapsed spectacularly (see: Wirecard, once one of the most valuable tech companies in Europe, or the likes of Infarm and Northvolt), while many became celebrated “national champions” that remain obscure beyond their borders.

That doesn’t mean these companies didn’t succeed in their own right—many delivered solid returns and created local value. But there's something that's holding Europe back when it comes to reaching the next level, and many people, myself included, have worked hard trying to understand what that is.

The usual explanations for Europe’s broader struggles range from excessive regulation (a misdiagnosis) to a lack of repeat founders (as Ian Hogarth argued in the FT) to weak university tech transfer and growth capital. But the core problem is simpler: fragmentation. Unlike US companies, which easily overcome regulatory differences from one state to another, Europe is divided by deeper barriers—culture and language. Even Sifted, a pan-European tech publication, still reports on startups country by country. Brexit, fully realised in 2021, was the final blow to any dream of a unified European tech ecosystem.

Now, looking back on a decade of effort, we have to face the hard truth: Europe failed to build tech companies that could stand alongside those in the US and China. The game has changed, and Europe must now play a different one (see below).

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2/ What does the US have that Europe doesn't?

My understanding of America deepened significantly through Peter Zeihan’s geopolitical analysis. His key insight: the US thrives because of fundamental structural advantages—vast territory shielded by natural barriers (two oceans, the Rio Grande, the Great Lakes), abundant natural resources, and steady immigration fueling both talent and demographics. These foundations provide an extraordinary level of national security and enable a unique model: a relatively hands-off federal government that grants entrepreneurs unprecedented freedom to operate.

The contrast with other markets is striking. Reading Joe Studwell’s Asian Godfathers and reflecting on my experiences in France and Germany, a pattern emerges: almost everywhere except the US (and to some extent the UK and China), capitalism is dominated by a small number of well-connected, wealthy families. The US stands apart, with financial markets so deep, liquid, and diverse that nearly anything can secure funding under the right conditions. As Byrne Hobart of The Diff brilliantly explains:

The US is, by far, the best place to raise early-stage funding. It's also a great place to raise late-stage funding, to hold an IPO, to do a secondary offering, to borrow enough money to take an unloved company private, to hedge any conceivable risk and tweak any imaginable corporate structure. The US has a critical mass of financial skill and available capital at almost any level. This has a complicated relationship with the dollar's status as a reserve currency; if your career revolves around doing interesting things with money, you'll have more things to do if the money you choose is the dollar.

This financial depth is what allows US venture capital to thrive. When conventional investments become saturated, there’s still capital willing to bet on frontier moonshots. Compare that to Europe and Asia, where concentrated family wealth leads to less competition in capital allocation. This concentration—combined with Europe’s fragmentation—makes it nearly impossible for companies to reach the scale needed to make venture capital attractive from a risk-adjusted return perspective.

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3/ Are startups still a thing?

The concept of a startup has always been somewhat fuzzy. Steve Blank defines it as “a temporary organization in search of a repeatable and scalable business model,” while Paul Graham emphasizes growth above all, which makes a lot of sense. But I’ve long favored Jerry Neumann’s uncertainty framework: startups succeed because high uncertainty around new technology or markets deters incumbents, giving ambitious founders—often with nothing to lose—a rare opportunity to capture and defend market dominance.

That raises the key question: where is the uncertainty today? In computing and networks, the playbook for digitising business is well established, and the uncertainty has long since dissipated. Even AI, supposedly the next great frontier, has shown surprisingly little uncertainty. After ChatGPT’s breakout, it took only months for every major tech player to launch their own LLM. And at least until DeepSeek’s recent breakthrough, AI success seemed more dependent on financial muscle and chip access—classic advantages of incumbents, not startup opportunities.

As I wrote in a series of essays in 2023-2024, the verdict is clear: the startup model that dominated the 2010s is becoming a relic of a past era. The real frontiers in business now lie elsewhere.

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4/ Are we living through a new 1970s?

Just as the 1970s marked the end of the post-war boom and mass production era, we’re now witnessing the conclusion of the digital revolution that has defined the past three decades. The signs are strikingly similar: a small group of dominant companies (today's “Magnificent Seven,” then the “Nifty Fifty”) commanding extraordinary valuations, technology adoption reaching saturation (then factories and suburbs, now smartphones and cloud), and mounting pressure from new challenges (then the energy crisis and Japanese competition, now AI and climate change).

Most tellingly, inflation has resurfaced as a defining economic and political issue. Like in the 1970s, this isn’t just about policy missteps or external shocks—it’s about hitting the limits of our dominant technological paradigm. When computing and networks can no longer drive productivity gains and abundance, the money pumped into the economy increasingly translates into inflation rather than growth, much like what happened when mass production reached its limits fifty years ago.

What stands out most is market concentration. Just as the Nifty Fifty once dominated market indices, today’s Magnificent Seven account for nearly 30% of the S&P 500's value. This concentration reflects a mature phase where the winners have solidified their positions, but history suggests such dominance often precedes major structural shifts. The question is not whether these giants will remain powerful (many Nifty Fifty companies are still around), but whether they’ll continue to drive the next wave of innovation or if new players will emerge to tackle the challenges ahead.

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5/ Does a technology plateau mean the end of innovation?

Far from it. The 1970s, often remembered for stagflation and economic malaise, were actually a period of remarkable innovation—just not in the areas most people were focused on. As mass production reached its limits, new frontiers emerged. Japanese automakers, led by Toyota, revolutionised manufacturing with lean production, delivering unprecedented efficiency gains that would eventually transform global industry. This parallel to today’s AI revolution is striking: as traditional tech plateaus, AI holds the potential for similar breakthroughs in productivity.

The decade also saw two other transformative innovations reshape the global economy. The shipping container, which reached widespread adoption in the 1970s, dramatically reduced transportation costs and enabled truly global supply chains. Meanwhile, countries like France embraced nuclear power at scale, achieving energy independence just as oil shocks wreaked havoc elsewhere. Both innovations helped tame inflation by reducing costs and increasing efficiency across the economy.

Perhaps most significantly, Michael Milken revolutionised finance by creating the high-yield bond market. This innovation unlocked vast pools of capital that fueled a wave of corporate restructuring, including buyouts, hostile takeovers, and strategic consolidation. While controversial at the time, this financial innovation provided the capital needed to modernise American and worldwide industry and adapt to new competitive realities. Today, as we face our own transition, similar opportunities for breakthrough innovation exist—they just might not come from where we expect.

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6/ Which areas will drive the next wave of growth?

As markets mature and growth slows, much like in the 1970s, companies face a zero-sum game where gaining market share means taking it from competitors. In this environment, three distinct opportunities are emerging.

First, we're entering a new wave of efficiency-focused innovation, primarily driven by AI. Unlike the consumer-facing and B2B SaaS startups of the past decade, these innovators are likely to become specialised, sophisticated AI suppliers within larger industrial value chains—similar to how Japanese auto parts manufacturers became critical to Toyota's success. These companies won't grow into independent tech giants but will instead play specialised roles, deeply embedded in broader ecosystems and creating value through technical excellence and deep value chain integration.

Second, the core discipline of strategy is making a powerful comeback. In stagnant markets, Michael Porter's strategic positioning becomes critical to avoid competing solely on price and to capture lasting value. The 1970s saw the rise of strategy consulting firms like BCG, McKinsey, and Bain, which helped businesses navigate similar challenges. Today, we're likely to see a renaissance in strategic thinking and work on strategic positioning, whether led by established consulting firms or new players who better understand how technology is reshaping competitive dynamics.

Third, major opportunities lie in market consolidation and financial engineering. Just as Michael Milken came up with the high-yield bonds market at Drexel Burnham and Jerome Kohlberg pioneered the modern leveraged buyout before founding KKR, all in the 1970s, we're now witnessing the rise of new financial innovations. The current IPO drought and growing prominence of private markets could trigger a new “Big Bang” in financial services. Institutional interest in crypto, stablecoins, and tokenisation suggests we're on the brink of a major transformation in how capital markets operate, echoing the deregulation waves of the 1980s that reshaped financial hubs like New York, London, and Paris.

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7/ Can we build anything amidst today's polarisation?

Noah Smith recently made an intriguing observation: people may be reaching exhaustion with culture wars and extreme polarisation. While Trump's return to the White House and Elon Musk's antics on social media might seem to contradict this, these could actually be swan songs—final surges of division before society moves on to other priorities. Noah draws a parallel to the 1980s, when focus shifted dramatically toward wealth creation (“greed is good”) and unifying mainstream culture (think Ready Player One's celebration of 1980s pop culture, as quoted by Noah). Even if Trump's presidency proves turbulent, it might paradoxically accelerate this transition toward a less divided era.

The 1970s offer an instructive parallel. That decade saw peak political polarisation and culturally divisive movements. Even disco music, despite being a synthesis project, reflected these divisions: Chic and the Bee Gees emerged from different cultural traditions—one rooted in Black funk and R&B, the other in white pop and rock—while John Travolta, via Saturday Night Fever, helped bridge the gap, bringing disco into the mainstream. The 1980s, by contrast, produced truly mainstream cultural phenomena. Michael Jackson's Thriller became a monument to unified pop culture, and even hip-hop—born as counter-culture—eventually transformed into the music industry's greatest commercial success.

We might see a similar pattern in the coming decade: a decline in niche culture, reduced polarisation, and a stronger mainstream. While this may frustrate cultural sophisticates, a shared focus on prosperity and mainstream culture could help bridge societal divisions. The political parallels are intriguing: if Trump’s first term was akin to Nixon’s presidency and Biden resembles Ford, then perhaps Trump’s next act could mirror the late Jimmy Carter’s unexpectedly deregulatory (yet malaise-prone) presidency—paving the way for a Reagan-like figure to define a new, more unified era.

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8/ What does Trump’s second term mean for the US and Europe?

Trump’s return would signal a new economic doctrine: American dominance through a mix of protectionism and deregulation. Tariffs would shield US companies from foreign competition, while deregulation would aim to counter inflation and stimulate domestic investment. Unlike previous administrations that sought mutual benefits in international trade, Trump’s agenda would focus explicitly on American gains, with any advantages to other nations being incidental.

For European businesses, this creates a double bind. Access to the growing US market would be significantly restricted, making direct investment the primary path—but on America’s terms. At the same time, US companies, protected at home and emboldened by deregulation, would expand aggressively abroad. European firms would thus face both reduced access to US consumers and intensified competition in their own markets from American rivals backed by a strategically supportive government.

What makes the current shift particularly concerning is the unprecedented power of American tech giants to shape political outcomes beyond US borders. We're witnessing a new form of corporate imperialism that surpasses anything seen in the era of the East India Company or United Fruit Company, supercharged by technology and social media. Elon Musk's direct interference with political processes in Germany and the UK, alongside Mark Zuckerberg's stated determination to work with Trump to force deregulation in Europe, exemplifies this dynamic. As Karl Polanyi's analysis would suggest, this concentrated corporate power often drives the rise of fascism—traditionally a right-wing reaction engineered by big business to counter attempts at subordinating market forces to societal needs. But unlike previous eras, today's tech platforms can shape public opinion and political outcomes at unprecedented speed and scale, creating a particularly volatile mix of corporate and political power.

Europe’s response must be pragmatic. Rather than mirroring US protectionism, it should focus on improving capital productivity, driving export-led growth, and implementing financial measures to prevent excessive capital flight to US markets. That said, Trump’s ambitious agenda carries a major risk: stricter immigration policies could create labor shortages in both low-wage and high-skilled sectors, potentially undermining the very growth that tariffs and deregulation are designed to stimulate.

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9/ Will global fragmentation lead to renewed cooperation?

The 1970s saw the rise of the Asian Tigers—Japan, South Korea, and Taiwan—who achieved prosperity not through radical innovation but by mastering and improving existing Western technologies. Today, a similar pattern is emerging in digital technologies. China has achieved unprecedented speed in digital adoption, India has transformed into a global tech services powerhouse, and Gulf states are aggressively pursuing digital transformation. These countries aren’t inventing new paradigms; they are refining and optimizing the computing and networks model pioneered in the West.

The geopolitical context is equally striking. Just as the 1970s saw the collapse of Bretton Woods and the post-Vietnam realignment, today’s world is grappling with the aftershocks of Iraq and growing questions about dollar dominance. Yet the 1970s also produced new frameworks for cooperation, including Nixon’s visit to China, the European Monetary System, US-USSR détente, and expanded trade relationships. Today’s apparent fragmentation may similarly lay the groundwork for new forms of international collaboration.

Another instructive parallel is the transformation of Spain, Portugal, and Greece, which were dictatorships in the early 1970s but emerged as democracies by decade’s end. This reminds us that periods of apparent regression often contain the seeds of renewal. The challenges to today’s institutions may not signal their collapse but rather their adaptation to new technologies, social changes, and economic realities. The key question isn’t who will dominate the existing system but who will be the Lee Kuan Yew of the digital age—the leader who successfully integrates these technologies into local contexts while building more resilient institutions.

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10/ What's the path forward for Europe?

A difficult truth: in the age of computing and networks, Europe is not an advanced economy on par with the US but rather a developing one, much like South Korea in the 1970s. As I argued in my 2019 essay Europe Is a Developing Economy, this shift in perspective is crucial. Instead of competing head-on with the US in emerging technologies, Europe should focus on mastering and improving existing ones—just as the Asian Tigers did with manufacturing decades ago.

This requires a radical rethinking of resource allocation. Europe's challenge isn't to invent the next technological breakthrough but to ensure its workforce remains productively engaged while building export-driven advantages in high-value industries. This could mean large-scale deployment of renewable energy, modernization and digitization of infrastructure, excellence in state-of-the-art digital services, and strategic investment in manufacturing sectors like semiconductors.

At the same time, fostering self-employment and entrepreneurship—what I now see, following trips to Algeria and Nigeria last year, as the modern equivalent of land reform—should be a key priority. The goal is to channel capital effectively for economic development while creating pathways for both workers and capitalists to higher-value, higher-return activities.

The roadmap is clear but demanding. Europe must redirect capital from speculative investments like real estate toward productive enterprises, effectively implementing financial repression. It needs policies that promote export-driven industrial upgrading rather than preserving inefficient incumbents, and a workforce transition from low-productivity jobs and small-scale self-employment to high-value roles in tech and industry. Most importantly, this requires a cultural shift: abandoning the myth of European economic superiority and embracing the pragmatic, development-focused mindset that drove Asia's rise. Just as South Korea didn't invent the car but mastered its production, Europe's path forward lies in capital-efficient mastery rather than blitzscaling disruption.

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From Paris, France 🇫🇷

Nicolas