SXSW Max LevchinThis write-up was whipped together between sessions at SXSW. Grammatical mistakes and typos may occur, and are in fact – if they do occur – quite charming and authentic.

I arrived at SXSW around 11:30am Saturday morning and as of 4:30pm my ears still haven’t popped from the flight. Have tried tacos, beer and a snickers bar, but there seems to be no cure.

Regardless, I stepped up and made it to Max Levchin’s presentation on Unstoppable Trends That Are Changing the World, and I’m glad I did.

Stressing he has no crystal ball and that there’s nothing guaranteed in life, and offering advice that anyone with an idea for a company needs to start it “tomorrow morning,” he said the top success factor for him – and he feels for all of us – is luck.

But even with luck, it helps to have a strong starting point. That’s when Levchin moved into describing what he described as his quasi-scientific method for finding not just ideas, but big ideas.

To find the big trends, Levchin it all starts with a small swell off the coast of where we are today, knowing that swells become waves that you can ride into the future.

He describes waves as secular changes with such massive impacts that you either ride them or get swept up. The trick though, goes back to that small swell. How do you spot it?

Levchin apparently thinks he knows how, and he shared the following four transformation waves that people will either ride or be swept under.

Beneficence

Affirming (a little pun for Levchin fans there) that beneficence is indeed a word, he described this trend as companies that are building businesses and thriving off of “active kindness.” The first of a couple pitches for his current startup, Affirm, Levchin pointed to the opposite of beneficent companies – the big bad banks.

From 2008-2009, some 40 percent of bank revenues came from fees for late payments, overdrafts and the like. These are companies whose financial success is largely attributed to them looking out for themselves, not their customers.

With benificence, Affirm has taken off like wildfire (after 3.5 years of not taking off like wildfire, according to Levchin). Beneficence has Affirm focused on transparency so every customer knows exactly what they’re getting. It lets them focus less on revenue, and more on customers, noting that maximizing revenues is often contrary to the needs of the customer.

Ultimately, this trend will disrupt in those industries where the leaders are ripe to be picked off by the beneficent new player.

Human-Assisted AI

Levchin feels that too many people are worried about the negative impact of AI in terms of jobs and the rise of “robot overlords.” He says that may come but we’re a long way away from it, and that the current wave related to AI is how it will enhance people’s abilities.

Specifically, AI can do the decision-making, but it’s people – backed by the gift of intuition – that will step in whenever AI falls short due to inconclusive data. He used an example in medicine. An avid roadbike racer, Levchin said he’s had his fair share of spills. When that happens, he can call his doctor – which he described as a “pathetic” use of “awesome devices,” or his condition could be turned over first to a large team of medical experts around the world, or eventually to software, with doctors stepping in if their diagnoses were inconclusive.

Software eating older software

A proud graduate of the University of Illinois, Levchin quoted fellow alum Mark Andreeesen’s statement that software is eating the world. Levchin, however, feels the world has been eaten already, and that now software is just digesting it. And it’s in this digestive process that innovators can find a huge opportunity to sweep in and replace legacy technology.

You know those early adopters tech people love? They become tomorrow’s legacy software preservers. If you want to take on an industry with new and better technology, like banking or healthcare, look at the job boards. If they’re looking for Fortran and Cobol programmers, chances are, that there industry needs some disruptin’.

Regulatory Arbitrage

Every year, new government regulations create subsidies and penalties that fast-moving entrepreneurs can capitalize on. Levchin pointed to his fellow Paypal mafia member, Elon Musk, who has done this in both automotive (Tesla) and solar (SolarCity) industries.

Regulations create hidden pools of capital on which businesses can be built. Subsidies make products cheaper and markets larger, and penalties make the new-technology pitch easier than ever – to avoid financial penalty X why not buy my solution for .5 X?

Beyond Musk, Levchin sees this happening first and foremost in healthcare law changes, which have created both subsidies and penalties that innovative startups can capitalize on.

Fractal Knowledge

This was a bonus trend of sorts, but perhaps more of a way of spotting opportunities beyond the waves above. Software, Levchin says, lets companies become amazingly expert in amazingly specific things, expertise that can become a foundation for much broader success over time.

He uses a valve company as an example. It used to be you started with a valve, built a market, and then created some other device required in machinery. Today, he says, software lets you dominate the valve business – turning into more and more specificity on things like materials or manufacturing process. By focusing on materials and manufacturing, much bigger opportunities are created than if the next step had been, say, gauges.