Kelie Morgan 6/18/21 Kelie Morgan 6/18/21

The Weekly: Edition #101 - June 18th, 2021

The Long Way Round

"A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves." - Lao Tzu

Young leaders are often easy to spot. They are full of energy, hard-charging, see the way forward, put plans in motion, and delegate accordingly. But with this top down approach to leadership, they often run into issues around team buy-in. If the plan is sound, but team buy-in is lacking, the execution will suffer. A great plan with bad execution is still just that - a badly executed plan. And a bad plan with great execution goes no further - it's just a bad plan.

More experienced leaders tend to see the best way forward, but recognize that not everyone will be on the same page if change is involved. The salty veteran will know how best to coax her team strategically into rowing in the same direction. They will take the indirect route in leading the team, laying the groundwork and sowing the seeds with individual team members to get buy-in.

The best way to get someone on board with an idea or a strategic plan is to let them think it is their own. The best leaders know how to maneuver in a situation to help a team arrive at the best strategic conclusion. They ask the right questions that guide the discussion rather than leading the discussion with their opinion. They may establish the intent and goal of an initiative, but they empower their team to determine the method of achieving the end goal by asking the right questions, giving their team autonomy, and ceding ownership of the initiative to their team.

Most young executives tend to default to traditional, direct, top-down leadership. But more experienced leaders will resort to a bottom up, indirect, empowerment approach. Traditional leaders give orders from the top, and the team can't operate until communication is given. An indirect, decentralized leadership approach leads to a bottom up approach that is decentralized in nature because the leader's intent is known but the ownership for accomplishing the task is squarely with the team on the ground.

Here are a few thoughts for young leaders on how to lead like a veteran:

1) Ask the right questions, even if you believe you know the answer.

2) Establish the intent of a project but ask your team to establish the methods to achieve the goal - even if you have a preferred strategy in mind. Guide the discussion, offer feedback, and commit to your team's approach.

3) Avoid direct confrontation. Commit to revisiting an issue one on one, find the common ground (the end goal in mind), and try to discover what is causing the disagreement. Coercion will win you the battle but lose you the war and cost you leadership capital in the long run with your team.

4) Get in the trenches. Walk the floor. Ride in the truck. Build relationships with your team.

5) "The longest way round is the shortest way home." Ask, don't tell. Watch, don't show. Convince, don't coerce. Often, an indirect, collaborative, decentralized approach to leadership will allow you to achieve your goal much faster than a direct, coercive, top down approach.

Figure out the right hybrid work strategy for your company (Harvard Business Review)
+ "What’s the real cost of hybrid working for our bottom line and our ability to deliver on our promises? How much flexibility do employees want and need? Who should make the decision about who does and doesn’t get to work remotely? Can we maintain our culture if people aren’t spending as much time together in the office? How can we effectively onboard new employees remotely? These are complex challenges requiring leaders to meet varied criteria while considering multiple stakeholders in the context of a volatile, uncertain, and complex environment. Before you can figure out the particulars of hybrid work, though, you must start with an understanding of what makes conversations about hybridity so difficult."

Are we returning to the office? Or is the future remote? (a16z)
+ "However, while it’s clear that our work models changed in the past 18 months, it’s less clear what the long-term model (or models) for working will be — or what will be the most effective and competitive. We have heard plenty of speculation on the subject, but in reality, only 29% of workplaces were back to the office in May 2021, and we are still in the early stages of workplace experiments with hybrid and remote-first models. At a16z, as at many other companies, we view the changes the pandemic brought about as an opportunity to rethink how we work and what’s best for our team today and in the future. As part of this exercise, we also surveyed 226 CEOs in our portfolio — representing early and late stage startups across bio, consumer, crypto, enterprise, and fintech — about their future location and remote work plans."

Stripe: thinking like a civilization (The Generalist)
+ "In Patrick and John Collison, Stripe has two framers thinking at a civilization-level. This is rare, even among tech’s boldest executives. With the exception of Musk, Bezos, and Buterin, no founder is constructing an empire with quite the same thousand-year stare or detailed, architectural love as the Siblings Stripe. (Even Zuckerberg, lover of Augustus Caesar, is perhaps too absorbed with accumulating personal power to qualify). More than anything else it is this horizonal focus that defines Stripe, guiding its remarkable recruitment, celebrated culture, and sophisticated product strategy."

Seven high frequency indicators for the economy (Calculated Risk)
+ 7 indicators that show how travel, entertainment, discretionary spending, and the consumer are recovering as the pandemic subsides.

Spring numbers show 'dramatic' drop in college enrollment (NPR)
+ "Undergraduate college enrollment fell again this spring, down nearly 5% from a year ago. That means 727,000 fewer students, according to new data from the National Student Clearinghouse. "That's really dramatic," says Doug Shapiro, who leads the clearinghouse's research center. Fall enrollment numbers had indicated things were bad, with a 3.6% undergraduate decline compared with a year earlier, but experts were waiting to see if those students who held off in the fall would enroll in the spring. That didn't appear to happen."

Winners and Losers of the Work-From-Home Revolution (Derek Thompson)
+ "This year, two international teams of economists published papers that offer very different impressions of the future of remote work. The first team looked at an unnamed Asian tech company that went remote during the pandemic. Just about everything that could go wrong did go wrong. Working hours went up while productivity plummeted. Uninterrupted work time cratered and mentorship evaporated. Naturally, workers with children at home were the worst off. The second team surveyed more than 30,000 Americans over the past few months and found that workers were overwhelmingly satisfied with their work-from-home experience. Most people said it exceeded their expectations. “Employees will enjoy large benefits from greater remote work” after the pandemic, the paper’s authors predicted. They said that productivity would surge in the post-pandemic economy, “due to re-optimized working arrangements” at some of the economy’s most successful white-collar companies."

The 25 micro habits of high-impact managers (First Round)
+ "It got us thinking — what are the little daily habits that often go unnoticed, but when linked together add up to form an incredibly strong chain between manager and direct report? To that end, we spent the past few weeks reaching out to folks all across the First Round community for their take on this question: What are the small things a great manager has done that have stood out to you across your career? What follows is a can’t-miss list of 25 targeted tactics for upping your management game — no rote training sessions required."

Another day in Katerradise (Construction Physics)
+ "Last week the construction startup Katerra declared that it was shuttering it’s US operations, putting another L on the board for Softbank’s Vision Fund. It is walking away from numerous in-progress construction projects, its employees are being let go, and its assets are being sold. The immediate cause of Katerra’s bankruptcy seems to be the bankruptcy of Greensill Capital, another Softbank-backed startup. At the beginning of 2021, under severe financial strain, Katerra underwent a recapitalization that cut its valuation by 90% (from $4 billion down to $400 million). As part of this, Katerra negotiated away a $440 million debt owed to Greensill, a supply chain finance company. But a few months later, Greensill itself went bankrupt, and the owners of this debt (Credit Suisse) are claiming that Katerra still owes it, which is apparently preventing the company from getting construction bonding. Since the debt is more than the current value of the company, that obviously presents a challenge."

The mystery of the $113M deli (New York Times)
+ "In a letter to his investors this April, David Einhorn, founder of the hedge fund Greenlight Capital and a well-known short-seller, complained that the stock market was in a state of “quasi anarchy.” As one piece of evidence, he pointed to Elon Musk, whose commentary on Twitter, Einhorn said, amounted to market manipulation. “The laws don’t apply to him, and he can do whatever he wants,” Einhorn noted. As another example, he cited a restaurant in rural New Jersey called Your Hometown Deli, which despite making $13,976 in revenue last year had somehow attained a value of $113 million on the stock market."

The crystal hunters of Chamonix (Outside)
+ "The origin of these crystals began 15 million years ago, when a solution of hot, salty water filled cavities that were created in Mont Blanc’s granite by tectonic movement. This solution became saturated with silica, which would, in time, form quartz crystals—silicon dioxide. The process occurred under extremely high pressures around 7.5 miles below the earth’s surface, with the solution reaching temperatures above 800 degrees Fahrenheit. As the Alps rose, crystallization slowly began on the grains of quartz contained in the walls of the cavities, becoming the pockets cristalliers seek out. The first people to climb high in the Alps, as long ago as the 16th century, were hunting either chamois—a goatlike animal—or crystals. Those first cristalliers sold their wares to chandelier-makers in Turin or Geneva. Louis XIV, who ruled France from 1643 to 1715, reportedly owned a “smoky quartz from the Savoy glaciers.” By the 19th century, new sources of crystal emerged in Brazil and Madagascar, and crystal hunting in the Alps waned."

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Kelie Morgan 6/4/21 Kelie Morgan 6/4/21

The Weekly: Edition #100 - June 4th, 2021

The Art of Tough Conversations

Business owners don't stick around for long without developing thick skin and the ability to take some heat. Unsatisfied customers, employee complaints, lackadaisical vendors - the list could go on forever. Whether you are taking the heat or giving it, here are a few principles that may serve you well as an owner when dealing with tough conversations.

1. Ask questions first.
Questions diffuse problems whereas accusations inflame them. Questions also send a signal of dialogue to the the opposing party instead of hostility. Finally, questions allow you to establish a baseline of what the other party believes to be ground truth: an employee may have a legitimate concern, a vendor may have a legitimate excuse, a customer may have a legitimate complaint. You don't know unless you ask and hear their side of the story.

2. Be friendly but fair.
A smile goes a long ways. A kind word takes the edge off. Once all questions have been asked, your position may remain the same. Acknowledge their concern if it is legitimate, and if not, educate them in a friendly manner on where you stand.

3. Transparency is key.
If you are going to negotiate or have a tough conversation, allowing the other side of the table to understand the 'why' behind your position sets the tone for why both parties are at odds and lays all cards on the table. Being transparent allows you to point to the facts that have lead to the situation and creates a decision point for both sides: are you going to yield to the employee, the vendor, or the customer? If so, by how much? If not, why? Transparency is key to establishing the table stakes.

4. Choose humility over cold, unemotional logic.
Customers, employees and vendors don't want to deal with an automaton. Sometimes all they want to know is that you care, even if the situation won't change after a hard conversation. Couple transparency with humility and you may make a friend instead of an enemy.

5. Do not play someone else's game - stick to yours.
There are times when a customer will simply complain because they can, when an employee may not perform well or at all because they choose not to, or when a supplier may drop the ball because your business simply isn't that important to them. If you cannot reason with them, realize when they aren't playing the same game and are trying to extract value from a situation. It is time to move on - don't fall prey to the sunk cost fallacy, especially when your valuable time is at stake.

6. Be willing to lose the battle to win the war.
In any of the above cases, it is paramount to understand when you must give a little to gain a lot (e.g. a disgruntled customer who may be stalling on payment). Equally important is knowing when to stand your ground rather than set a precedent (e.g. employee policy).

How to do long-term (Morgan Housel)
+ "Long-term thinking is easier to believe in than accomplish. Most people know it’s the right strategy in investing, careers, relationships – anything that compounds. But saying “I’m in it for the long run” is a bit like standing at the base of Mt. Everest, pointing to the top, and saying, “That’s where I’m heading.” Well, that’s nice. Now comes the test."

How Milk Bar's Christina Tosi is bringing unabashed indulgence to grocery aisles (Fast Company)
+ "Christina Tosi has made a career of creating innovative treats from familiar, grocery-store flavors. The chef, founder, and CEO of the 12-year-old bakery chain Milk Bar has concocted soft serve ice cream that tastes like the milk left at the end of a sugary bowl of cereal, truffles inspired birthday-cake mix, and deliciously addictive cookies that blend cornflakes, potato chips, and marshmallows. So it seems almost preordained that her unabashedly playful and decadent dessert brand would find its way into supermarkets. Last April, as the world locked down and some of her Milk Bar bakeries closed, Tosi’s baked goods company made its first foray into grocery aisles with a line of Milk Bar soft-bake cookies, sold at Whole Foods. In October, the company expanded to more stores, including Target and Shoprite, and debuted refrigerator-aisle “truffle crumb cakes” (a rich cake with a cookie-like exterior), wrapped in the company’s signature bold packaging. Now, just in time for summer, Milk Bar is launching its next product line: ice cream."

How do consumers feel when companies get political? (Harvard Business Review)
+ "The fact that participants viewed engaging in liberal advocacy as neither good nor bad suggests that they thought doing so was merely normal business. This lack of cynicism, frankly, perplexed us. We live in an age where trust in fundamental institutions — be they church, state, or business — is steadily waning, especially among millennials (which was 75% of the sample). Perhaps this can be explained by our supposition that political advocacy has been absorbed to the extent that it is seen as a natural extension of a business model. Further, participants generally acknowledged that political advocacy is both a way for companies to connect with customers and promote their brand. Using advocacy to advertise to target audiences isn’t seen as manipulative pandering. Rather, it’s seen as common practice."

Will the baking industry still rake in the dough after the pandemic? (The Hustle)
+ "Aspiring bakers cleaned both brick-and-mortar and online stores out of supplies, while baking sales rose faster than your sourdough starter.

King Arthur Baking Company sold 156m+ pounds of flour in 2020, +58% YoY
Sales of baking mixes and ingredients jumped by ~25%, according to market research firm Mintel Group
Hershey’s cocoa sales shot up 126% while its baking chips surged 75%
Yeast sales increased 647%"

How to ask useful questions (Josh Kaufman)
+ "Keys to information-seeking questions:

Be specific about the information you're looking to obtain.
Give context by referencing why you're contacting them and how you found their contact information.
Make it easy for the recipient to refer you to the best resource as quickly as possible, which will save you both time."

Why commuters won't easily be lured back to the office (Financial Times)
+ "Nervous building owners are responding by rolling out more of the amenities popularised in recent years by tech companies such as Google and Facebook. It has become conventional wisdom in the property industry that a 25-year-old software engineer will not set foot in an office unless they are massaged each day like a Kobe cow and given access to cold-brewed coffee, outdoor space and enriching activities planned by a concierge. All that is fine. But it overlooks the many other workers who, I suspect, care little about free candy or a ping-pong table at the office. For them — and me — the great disincentive to returning to the office is the commute."

The week the shook big oil (NPR)
+ "A court in the Netherlands issued a landmark ruling against Royal Dutch Shell — an oil company already pledging to cut its carbon emissions to net zero by 2050 — ordering it to act faster. At Chevron's shareholder meeting, investors voted to demand that the company reduce its contribution to climate change. The demand was short on specifics, but investors made it clear that it was not enough to use renewable energy to power oil and gas operations: Real action on climate change means selling less oil. And a much bigger shareholder revolt took place at Exxon Mobil. Activist investors took on the giant and won, delivering a stinging rebuke to the company's management."

A breakdown of Amazon's revenue model (Visual Capitalist)
+ "Amazon has evolved into more than just an online store. While ecommerce makes up a significant portion of the company’s overall sales, its diverse revenue model generates billions through various business segments. This visualization provides an overview of the different parts that make up Amazon, showing each business unit’s net sales from June 2019 to 2020."

This is the first 3-D house to be printed from raw earth (It's Nice That)
+ "Mario Cucinella Architects and Wasp, Italy’s leading 3D printing company, have completed the first house to be 3D-printed from raw earth. The process coined Tecla (standing for technology and clay) is eco-sustainable and environmentally friendly due to the production being zero waste and needing no materials to be transported to the site as it uses local soil. It took just 200 hours for multiple printers to construct the 60-square-metre prototype in Ravenna, Italy."

Kelie Morgan 5/27/21 Kelie Morgan 5/27/21

The Weekly: Edition #99 - May 28th, 2021

Not All Revenue Is Equal

This week, we came across an in-depth paper written by Michael Mauboussin which explores the economics of customers' lifetime value and the component parts of CLV. CLV is equivalent to the value of each individual customer to a business:

"The present value of the cash flows that a customer generates while they are engaged with a firm minus the cost to acquire the customer. The present value of cash flows, in turn, is a function of sales, costs, and customer longevity."

CLV is an important metric when modeling a business's value. But most small business owners simply don't have the time to analyze customer value, lifetime revenues, and churn every quarter. CLV is like marketing ROI - it is clearly important, but time consuming to track. The biggest mistake we see most small businesses make regarding CLV is concentrating too much on topline revenue value and treating the cost side of the equation as an afterthought. At the end of the day, unit economics is more important than topline growth.

When examining the attractiveness of a new customer or new deal, both the revenue and cost side must be taken into account:

- How much time is involved onboarding the customer?
- How much time will be involved on an ongoing basis engaging with the customer?
- How much staff overhead will be required?
- What are the reporting requirements?
- How much time is involved in retaining the customer?
- Is the customer likely to renew after the contract has expired?
- How mission critical are your services or products to the customer?

Simply put, the best customers are less price sensitive, easy to deal with, require less hand holding throughout the process, and are looking for a quality business to address their need. The more of these boxes that are checked, the higher quality the revenue. Know what you are selling, and know who you are selling it to.

At the end of the day, big deals and big sales are only good for the company if they result in positive margin that moves the needle. It is OK to turn down big business if it won't lead to big profits. It is also OK to let go of customers that don't pass the 80/20 rule. The bottom line when determining whether new business will be profitable: be wary of the cost side of customer value.

Breaking new ground to IPO: The Procore story (Bessemer Venture Partners)
+ "Communication between architects, builders, contractors, subcontractors, and suppliers relied on paper plans, post-it notes, phones, faxes and walkie-talkies. Collaboration was poor—leading to inefficiency, waste, mistakes, and lawsuits. By some accounts, 2.5% of all construction spend is “re-work” from poor communication. Tooey decided there had to be a better way."

Starting a Company in a Space You’re Not an Expert in — This Founder Shares 6 Lessons (First Round Review)
+ "In this exclusive interview, Fain takes us back to how he went unreasonably deep in the earliest days of the company, and the most critical lessons that stick with him. Some he picked up from his first go-round as a startup founder, others caught him by surprise at Bowery — there’s a wealth of wisdom particularly for folks still toying with the idea of starting a company. From narrowing in on an idea with staying power, to convincing investors to climb aboard and assembling an early team, these are pages from Fain’s zero-to-one story that aspiring founders won’t want to miss. Let’s dive in."

Money aggregates, debt, pent-up demand, and inflation: evidence from WWII (Atlanta Fed)
+ "The debt-to-GDP ratio increased from 40 percent to 110 percent because of the war effort. Most of it was financed by Fed debt purchases, through a de facto yield curve control that held down short- and long-term interest rates. The money supply doubled in size, but inflation was muted during the conflict as private consumption demand was severely restrained. Private consumption was suppressed, as factories were fully devoted to the rearmament effort, food was rationed, and construction was practically prohibited. Households’ saving boomed as a result. After the war, swift pent-up consumption demand culminated in a short-lived spike in inflation from 2 percent to 20 percent in 1946–47, which quickly returned to 2 percent in 1949."

Texas’s oil and gas industry is defending its billions in subsidies against a green energy push (Texas Monthly)
+ "The state's energy business has long counted on special tax breaks and other largesse not available to others. Whether renewables or fossil fuels get more depends on how you do the math."

The state of household debt in America (Visual Capitalist)
+ "American households are becoming increasingly indebted. In 2003, total household debt was $7.23 trillion, but that figure has recently doubled to $14.56 trillion in 2020. With just under 130 million households in the country, this equates to an average of $118,000 of debt per household."

Calculating Customer-Based Corporate Valuation (Michael J. Mauboussin)
"This report focuses on the as the basic unit of analysis. The idea of customer lifetime value (CLV) has been around for decades. CLV equals the present value of the cash flows that a
customer generates while they are engaged with the firm minus the cost to acquire the customer. The present value of cash flows, in turn, is a function of sales, costs, and customer longevity."

The man who sold millions in counterfeit wine to rich collectors (The Hustle)
+ "Kurniawan seemed to have boundless cash and a knack for finding extremely rare vintage bottles that lifelong oenophiles had only ever dreamed of — 1920 Petrus, 1945 Romanée-Conti, 1947 Château Lafleur. In a few short years, he would sell off millions of dollars’ worth of his wines to some of America’s wealthiest connoisseurs. But behind the ever-flowing stream of Burgundies, Kurniawan harbored a dark secret: He was carrying out history’s greatest wine fraud."

Kelie Morgan 5/21/21 Kelie Morgan 5/21/21

The Weekly: Edition #98 - May 21st, 2021

Picking the Right Game

"Some brands have experimented with connected watches. Patek has not. Why? It’s not our field. Can you imagine? Am I going to fight against Apple, which has nearly the same budget as I do in R&D, except they have five more zeros at the end of it? I can’t compete with that. It’s another way to fabricate watches. We have always been dedicated to mechanical watches, this is what we know and what we enjoy. Working on something electronic may be fun, but it’s not my business. You have to give it to the pro, and I’m not a pro in this type of technology." - Thierry Stern

When business owners consider new business lines, strategic acquisitions, or some other strategic shift in their business, the excitement of the deal or initiative often overshadows the commonsense answer to the question: what game are you trying to play? For example, in an interview with Thierry Stern, CEO of the renowned watch brand Patek Philippe, Stern notes that he chose to play the game that Patek Philippe has always played - the luxury brand game rather than enter the tech-enabled wearables game. And why would they compete in that market when people are willing to pay over $100,000 for a mechanical watch? Why would they choose to compete in a game where they have no expertise, are less capitalized, and aren't desperate to capture a customer in a broader ecosystem (Apple)? Quite simply, these are two very different games.

So how do you know whether a strategic acquisition or a strategy shift in your business is the right move?

The simple answer is that you must decide on the game you want to play. To decide on what game your business should play, consider the competitive landscape, the capital requirements, and the business model changes associated with a strategic shift in your business.

For example, in a Bloomberg article detailing the difficulties that AT&T is having profitably integrating Time Warner into their business, it is evident that AT&T did not consider the competitive landscape in the media business carefully enough prior to its acquisition:

"AT&T chief John Stankey said he believes HBO Max can be one of the three or four services most people pay for on a monthly basis. Executives at WarnerMedia are more optimistic than ever given the recent boost from original movies like “Godzilla vs. Kong.” But competition is expensive. Netflix is going to spend $17 billion this year on programming, and Disney isn’t far behind. Winning is a matter of existential importance for those two companies, which derive all of their value from their entertainment operations."

Why choose to compete in an area that isn't a focus for your business against companies who are wholly focused on the same market and are willing to do anything to survive? Why not keep the main thing, the main thing? Why try to marry two businesses that have different business models, are in different industries, and have different economic profiles (telecom vs. media)?

Business owners always have options for where you should allocate capital. When considering new strategic initiatives, consider whether the shift will be a distraction and take resources away from more profitable endeavors. Survival is first priority, and growth initiatives are secondary. Currently, AT&T is having trouble competing in a secondary focus area (media) when its main focus is maintaining its blue chip status in the telecom industry:

"AT&T is still a phone company. Streaming is not and never will be its main thing. Several senior executives at WarnerMedia have remarked over the past year about how little AT&T’s investors and analysts seem to care about HBO Max, or the economics of streaming. AT&T must worry about paying a dividend, and regaining market share in mobile. It’s now looking up at both Verizon and Sprint/T-Mobile. Spending billions of dollars on HBO Max is a distraction from those efforts."

Finally, consider how the strategic shift or acquisition may impact your business model and whether the impact will be positive or negative. In Ben Thompson's recent piece, Distribution and Demand, he details how AT&T's business model is incompatible with that of Time Warner:

"AT&T, on the other hand, acquired highly differentiated content with its acquisition of Time Warner (which it renamed WarnerMedia). The problem for AT&T is that differentiated content has a business model that is orthogonal to AT&T’s core business. Whereas AT&T competes for customers in a zero sum game, content is best leveraged by reaching as many customers across as many distributors as possible. That means that what would have been best for AT&T’s core business — being the exclusive way to get access to WarnerMedia content, thus giving a reason for customers from Verizon or T-Mobile to switch carriers — would have been value destructive to WarnerMedia, because the cost of producing its differentiated content would have been amortized across fewer customers."

It is clear that business model implications are not to be taken lightly when considering an acquisition or new line of business, especially if it would result in playing a different game (Patek Philippe vs. Apple Watch, AT&T vs. Netflix).

Before making any strategic shifts in your business, you have to ask yourself: what game are you playing and is it worth switching tables?

Patek's Thierry Stern on green dials, smart watches, and running the family business (Hodinkee)
+ "Some brands have experimented with connected watches. Patek has not. Why? It’s not our field. Can you imagine? Am I going to fight against Apple, which has nearly the same budget as I do in R&D, except they have five more zeros at the end of it? I can’t compete with that. It’s another way to fabricate watches. We have always been dedicated to mechanical watches, this is what we know and what we enjoy. Working on something electronic may be fun, but it’s not my business. You have to give it to the pro, and I’m not a pro in this type of technology."

The succession problem (Samo Burja)
+ "Only a few institutions fulfill their intended purposes. Such a functional institution stands out as remarkable. It is the exception, rather than the rule, and always traces its beginnings to a founder. Such institutions at first always have a skilled pilot — he can alter and direct the institution in a way that preserves or improves its functionality. If he weren’t able to do so, he would not have been able to create a functional institution. However, the founder cannot remain the pilot forever. Whether due to death, disease, old age, or simply new concerns, another pilot, a successor, eventually has to step in and take the reins for the institution to remain piloted. Furthermore, in order for the institution to remain both functional and a live player, this new pilot must also be skilled. Such a person extends the life of the institution, allowing it to achieve more than it otherwise would. Ensuring the institution acquires this new, skilled pilot is the succession problem."

The death and life of the central business district (Bloomberg)
+ "As 2020 began, the 21 most important urban business districts in the world housed 4.5 million workers in 100 million square meters of office space. About 20% of Fortune Global 500 corporations had their headquarters in these districts, according to a 2020 report by EY. A few months later, the lion’s share of knowledge and professional work was being done from home. In the proverbial blink of an eye, the Central Business Districts of leading cities around the world went silent — emptied of workers and the buzz of human productive activity. Even as vaccinations have accelerated and America has sprung back to life, these business districts in major cities have been slow to rebound. Across 10 of America’s largest urban CBDs, employee visits to the office stood at roughly a quarter (27%) of pre-pandemic levels according to recent data from Kastle Systems, which tracks these visits through keycards and similar technologies."

Barry Diller’s system of discovery, debate, and development. (Neckar's Notes)
+ "After starting his career at a talent agency, much of Diller’s success can be traced back to his ability to cultivate a different kind of talent. His ability to find, mentor, and develop executives was crucial to his success. He leveraged generations of hungry managers to source ideas and opportunities. He routinely gave his people a hard time, something he called “creative conflict” (and that has been described as an “aggressive advocacy and yelling system”), to unearth their highest conviction ideas. Finally, he “pushed responsibility down” the hierarchy to train and test his people. Diller gained responsibility at lightning speed, was often promoted “out of his competence.” He practiced the same in his companies, “throwing people into the water” to get a “window into their real character.”"

Why introverts make great leaders (The Hustle)
+ "A myth has pervaded the business world for far too long: introverts aren’t cut out to be leaders. Some 65% of senior executives see introversion as a “barrier to leadership,” and only 6% think introverts have the people skills required to oversee a successful team. Many businesses have a singular vision for what a good leader should be — outgoing, gregarious, an expert networker — and write off introversion as some kind of social “pathology.” This is complete nonsense."

AT&T spent $85 billion on Time Warner. It wants the money back. (Bloomberg)
+ "AT&T said it wanted to use an online video service to boost its phone business — a questionable proposition — and combined the resources of HBO, Warner Bros. and Turner Broadcasting into HBO Max. (Plepler didn’t like it, and booked a one-way trip to the Hamptons.) But now AT&T is looking to merge WarnerMedia with Discovery, as my colleague Ed Hammond reported Sunday. While the exact contours of the Discovery deal are still a bit murky, we know AT&T is rethinking its acquisition of Time Warner after less than three years."

Amazon said to make $9 billion offer for MGM (Variety)
+ "In a sign Amazon has upped its focus on entertainment, last week the company announced that it had tapped Jeff Blackburn, a former high-ranking executive who recently exited the ecommerce giant, to return to Amazon in a new role overseeing a consolidated global media and entertainment group."

Distribution and demand (Stratechery)
+ "This is why getting definitions right is so important: if you conflate controlling distribution with controlling demand, you are liable to waste billions of dollars on acquisitions that make no sense..."

Colonial Pipeline CEO tells why he paid hackers a $4.4 million ransom (Wall Street Journal)
+ "Joseph Blount, CEO of Colonial Pipeline Co., told The Wall Street Journal that he authorized the ransom payment of $4.4 million because executives were unsure how badly the cyberattack had breached its systems, and consequently, how long it would take to bring the pipeline back. Mr. Blount acknowledged publicly for the first time that the company had paid the ransom, saying it was an option he felt he had to exercise, given the stakes involved in a shutdown of such critical energy infrastructure. The Colonial Pipeline provides roughly 45% of the fuel for the East Coast, according to the company."

Kelie Morgan 5/14/21 Kelie Morgan 5/14/21

The Weekly: Edition #97 - May 14th, 2021

Supply Chain Shocks

2021 is the year that completely exposed our just-in-time supply chains. The pandemic impacted supply chains all over the world in odd ways from lumber prices to strawberry demand. The Suez Canal debacle illustrated just how much trade flows through one small bottleneck. Just this week, the cyberattack on the Colonial Pipeline showed how thin gas supply chains were from the pipelines to the gas stations.

If there has been one takeaway for small and medium sized businesses this year, it is to examine your supply chain from vendors to customers. The just-in-time flow of goods and services from vendors to producers to customers has been exposed as the pandemic, cyberattacks, and man-made accidents have clogged up key points in supply chains. Running a small business can be hard enough without supply chain interruptions, but nonetheless we wanted to offer a few thoughts to consider on how to build resilience against supply chain shocks.

Stay vigilant. SME owners are busy folks, make no mistake. But staying plugged into current events can help mitigate major stumbles and help you get ahead of potential supply chain interruptions. Many people began ringing alarm bells about an approaching viral outbreak in the US in late December and early January, a full 2 months before mass lockdowns began. What one did with that information may have made a large difference in business operations in the ensuing months.

Evaluate diversification vs. concentration in vendors and customers. There is a balance between diversifying your vendor base to avoid any interruption risk and concentrating with a couple vendors to achieve scale and negotiating leverage. The problem when supply chain interruptions occur, however, is that negotiating leverage simply doesn't work. If your supplier is out of product, there isn't any amount of negotiating or money that will change the situation. Balance your vendor list accordingly.

Evaluate your position in the supply chain. Each supply chain has multiple positions of strength (a price setter with leverage) and positions of weakness (price takers with no leverage). It is imperative for SME owners to evaluate their position in their industry's supply chain to mitigate risks associated with weak positions. If you are in a weak position relative to your suppliers, building redundancies into your weak areas may mitigate against price or supply shocks. If you are in a stronger position, diversification may give you greater leverage over certain suppliers.

Build redundancy if possible. This isn't always an option for SME's that are strapped for cash, but over time, if you can deploy some of your excess capital into non-perishable redundancies (e.g. inventory, gas, an extra vehicle, etc.), you'll have it when you need it. For example, many companies that require a lot of gas to run their operations (e.g. service contractors with van fleets) simply use gas cards for their fleet. Another option to build redundancy would be to have a gas tank at your office site. This serves the same purpose, but would prevent any interruptions to operations because of a lack of gasoline.

We'd love to hear from our readers: what are some ways that you have built resilience in your organization against supply chain interruptions and shocks?

Inside Jessica Alba’s long and turbulent road to taking the Honest Company public (Forbes)
+ "The business has yet to meaningfully surpass its 2016 peak. According to Honest’s IPO filing, revenues were $238 million in 2018 and $2 million less the next year—down from $300 million in 2016, a drop the company in part attributes to having a diluted product catalog that did not optimize its margins, according to the filing. Meanwhile, Honest’s headcount—reportedly more than 500 in 2016—now stands at 191. A key component of Honest’s pitch to potential stockholders is its “strong financial performance”—namely that it grew revenue nearly 28%, to $300.5 million, last year. Yet that figure means the business is roughly the same size it was about five years ago."

Ransomware attack forces shutdown of major U.S. fuel pipeline (Axios)
+ "Colonial Pipeline, which carries 45% of the East Coast’s fuel supplies, shut down 5,500 miles of its pipeline in response to the attack, according to the New York Times. The pipeline transports around 2.5 million barrels of refined gasoline, diesel fuel or jet fuel every day, supplying harbors and airports on the East Coast."

Five Guys has opened its first ghost kitchen, which only cooks food for delivery, as digital demand continues (Business Insider)
+ "Ghost kitchens, also called dark kitchens, have existed for years but only really gained traction in 2020 during the coronavirus pandemic. They have since sprung up all over the world as demand for food delivery has soared. They allow chains to cut costs and build their delivery capacity, or explore a new area, without opening a new restaurant, which would usually involve large outlays for real estate and staffing. Other chains including Burger King, Wendy's, and even the grocery giant Kroger all have ghost kitchens."

Driscoll’s desperately needs to know America’s appetite for strawberries (Wall Street Journal)
+ "Just over a year ago, Soren Bjorn, who helps run the world’s biggest berry company, made a bad call. Demand for fresh berries was falling as the onset of a pandemic shut restaurants, while grocers focused on keeping staples in stock. Mr. Bjorn, president of the Americas division of Driscoll’s Inc., told farmers in California to plant fewer strawberries. Then, Americans stuck at home went on a berry binge. Strawberry demand surged. This March, Mr. Bjorn made the opposite decision, telling farms to increase their strawberry acres when they plant the crop this fall. Those acres won’t yield berries until next spring. “The world will change three times over between now and then,” Mr. Bjorn said."

The economics of movie product placements (The Hustle)
+ "A frequent misconception is that all brands pay a fortune to appear on the silver screen. In some cases this is certainly true:

Harley-Davidson paid $10m to get its electric motorcycle featured in Marvel’s Avengers: Age Of Ultron (2015).
Heineken shelled out an estimated $45m for 7 seconds of screen time in the James Bond film Skyfall (2012).
BMW plunked down ~$110m to supply cars for GoldenEye (1995), Tomorrow Never Dies (1997), and The World is Not Enough (1999) before Aston Martin outbid them with a ~$140m offer for Die Another Day (2002).
More than 100 brands (including Gillette, Nokia, and Carl’s Junior) offered a combined $160m to be featured in Man of Steel (2013)."

An oncoming mineral shortage may derail our green future (The Hustle)
+ "Popular green energy solutions use a variety of rare earth metals and minerals. Two examples:

An electric vehicle (EV) uses 6x as many mineral resources as a fossil fuel car.
An offshore wind plant requires 9x as many mineral resources as a comparable gas power plant.

According to the IEA’s analysis, manufacturers will need 6x the amount of minerals being produced today by 2040."

One-on-ones are my most valuable meetings; here’s how I run them (Mathilde Collin)
+ "If done effectively, these one-on-ones are an opportunity to show my team that I care about them, their professional success, and their overall happiness. It gives them an opportunity to step back and think about what they need to be successful, and to hold me accountable to setting them up for this success."

The great talent reshuffling of 2021 has begun (Hunter Walk)
+ "Employees are going to vote with their feet and I feel for People Ops teams who are going to be having a tremendous number of emotional conversations. With understaffed HR teams increasingly working with algorithms instead of coworkers, it’s easy to forget that employees are people — people with families, hobbies, and rich inner lives that often go unnoticed and unacknowledged at work. Empathy is not a math problem. And even if most of us aren’t crying behind the webcam, it’s never been more important to know how employees are feeling."

Don't fret about tax-law changes--yet (Morningstar)
+ "A higher capital gains tax, as has been proposed by the Biden administration, would have a meaningful impact on just a small subset of investors during their lifetimes. But proposed limitations to the “step-up” in cost basis on inherited assets have the potential to affect the estates of a broader swath of individuals. Of course, both changes are bound to be contentious and will have to make it through a deeply divided congress before becoming law. The Biden proposal is an opening salvo; there could well be significant alterations along the way. That said, investors with sizable taxable accounts will want to give some thought to whether and how changes to the step-up rules might affect their plans. For example, a reduction in the step-up would make lifetime giving more attractive; the case for leaving appreciated assets behind in taxable accounts would be diminished."

Why Wall Street is salivating over the garbage business (New York Post)
+ "Garbage truck companies may soon be all the rage — thanks to a new report making the rounds on Wall Street that’s advising investors not to overlook the waste management sector when searching for industries that might benefit from the economic rebound being triggered by coronavirus vaccinations."

His ship vanished in the arctic 176 years ago. DNA has offered a clue. (New York Times)
+ "All 129 explorers ultimately perished, succumbing to brutal blizzard conditions and subzero temperatures. The doomed expedition endured in the public imagination — inspiring fiction by Mark Twain and Jules Verne, and, more recently, the 2018 AMC series “The Terror” — driven in part by rumors that the crew resorted to cannibalism. The wreckage lay quiet until 2014, when a remotely controlled underwater vehicle picked up the silhouette of the Erebus near King William Island. Two years later, a tip from a local Inuit hunter led to the discovery of the Terror in the ice-cold water of Terror Bay."

Kelie Morgan 5/7/21 Kelie Morgan 5/7/21

The Weekly: Edition #96 - May 7th, 2021

Parkinson's Law

"Work expands so as to fill the time available for its completion." - Cyril Parkinson

Parkinson's Law is the famous dictum that states whatever time you allocate to a task, that is how much time a task will take. At first blush it isn't a groundbreaking statement. But over the years we have seen our fair share of the pernicious effects of Parkinson's Law on businesses when too much or too little is allocated in the way of staffing, capital, and space.

Have you ever wondered why it's so easy to pack a small storage unit with furniture that can fill an entire house? Or perhaps how you squeezed through a difficult operating period in your business with limited capital? Parkinson's Law doesn't merely apply to time - it also explains why limitations counterintuitively help us achieve more than we thought previously possible and why tasks nearly always consume the resources that are allocated to them. After all, necessity is the mother of all invention.

If too much time is allotted to perform a scope of work or project, there is no sense of urgency and the work expands to fill the team's time. But is it a productive use of time? Likewise, if a company or department of an organization has a large and growing budget (or a massive growth investment), the capital tends to disappear into any initiative imaginable. But is it a productive use of capital? On the other hand, when strict limits are put on baggage weight and size for flights, those space and weight limits tend to be used quite efficiently.

Structured limits around time and capital can be a simple forcing function for productivity and creativity because new limits create a sense of urgency. Perhaps a bit of structured limitation in your business would go farther than you think. Challenge your employees by putting structure and limits on time allotted to a project or capital to an initiative and you may be surprised at how well your team performs when they have something to strive for. Structure in time management, space management, and capital management is the best way to combat a bloated P&L and wasted time.

Try asking your team a few questions to kickstart the discussion:

1) If you had only 1 day to complete the project, how would you do it?
2) How would you accomplish the project if you had half as much capital available?
3) How would your operations look if you had to make do with half as much space?

How Pfizer creates the vaccine (New York Times)
+ "It’s the start of a complex manufacturing and testing process that takes 60 days and involves Pfizer facilities in three states. The result will be millions of doses of the vaccine, frozen and ready to ship."

Just-in-time auto manufacturing is having a rough time (The Hustle)
+ "In the last few months, the auto world has taken one helluva beating:

The Texas snow debacle closed a refinery that produces 85% of US resins, used to make seat cushions. Toyota paused several plants as a result
A March fire at Japanese chip manufacturer Renesas — which supplies ⅔ of the industry — sliced production capacities

Ford, for example, could see a 50% production hit and miss out on $2.5B in profits.

Companies are working to improve by stockpiling inventory, building vertically integrated supply chains, and, in the case of Tesla, signing exclusive deals for access to raw materials."

Mapped: the state of small business recovery in America (Visual Capitalist)
+ "During the pandemic, many small businesses have either swiftly pivoted to survive, or struggled to stay afloat. This map pulls data from Opportunity Insights to examine the small business recovery rate in 50 metro areas across America. So, has the situation improved since the last time we examined this data? The short answer is no—on a national scale, 34% of small businesses are closed compared to January 2020."

A massive chlorine shortage could kill your summer pool days (Fatherly.com)
+ "Why has chlorine forsaken us? The reason for the chlorine shortage comes partially from the pandemic, as demand for chlorine tablets greatly increased last summer because people were mostly stuck at home, relegated to hours and hours of sharks and minnows. And while we are seeing signs of a return to normalcy with the vaccine rollout, chlorine demand remains high because, hey, swimming is great. Pool industry experts estimate that chlorine usage could increase by almost 60 percent compared to a typical summer, which many believe could cause prices to jump by nearly 70 percent."

Digital media trends, 15th edition (Deloitte)
+ "With so many entertainment options, asking consumers about their favorite activities can lead to valuable insights. For our respondents, watching TV and movies at home continued to be the overall favorite, with 57% ranking it in their top three (out of 16 entertainment activities). This was the top choice for Millennials, Generation X, and Boomers (figure 2). When we looked at Generation Z, however, there were distinct differences. Playing video games was their favorite activity (26%), followed by listening to music (14%), browsing the internet (12%), and engaging on social platforms (11%). Only 10% of Generation Z said that watching TV or movies at home was their favorite form of entertainment."

6 strategies for leading through uncertainty (Harvard Business Review)
+ "Throughout our careers, we are conditioned to come up with the answer — as in a single, definitive, correct answer. Given that our brains are hardwired to see uncertainty as a risk or threat, it’s physiologically normal to feel stress when faced with unfamiliar situations. This is especially true for high achievers who have built their career on knowing or finding the “right” answer. Although avoiding these unpleasant feelings is a natural human tendency, it can become a significant barrier to learning, future growth, and ultimately performance. Rather than avoid these feelings, we must learn to acknowledge and embrace the discomfort as an expected and normal part of the learning process. As described by Satya Nadella, CEO of Microsoft, leaders must shift from a “know it all” to “learn it all” mindset. This shift in mindset can, itself, help ease the discomfort by taking the pressure off of you to have all the answers."

Flowchart: are you working for a toxic boss? (Visual Capitalist)
+ Visual Capitalist does a wonderful job summarizing scenarios in which it may be necessary to make a change. It is also worth reflecting on as an owner - do you fall into any of categories described here?

Why it’s nearly impossible to buy an original Bob Ross painting (The Hustle)
+ "Though he died in 1995, the late TV painter remains an omnipresent cultural staple. His Chia Pet perm, nap-inducing voice, and meme-worthy sayings — “Happy little trees!” — have transcended time. On YouTube, old episodes of his show, The Joy of Painting, boast ~450m views. Online, you can acquire Bob Ross paints, Bob Ross brushes, Bob Ross underwear, Bob Ross coffee mugs, Bob Ross energy drinks, Bob Ross watches, and Bob Ross toasters. But there’s one thing you won’t often see for sale: his artwork."

Kelie Morgan 4/30/21 Kelie Morgan 4/30/21

The Weekly: Edition #95 - April 30th, 2021

Functional Obsolescence

"The Defense Department spends an estimated $10 billion a year managing and mitigating electronic-part obsolescence. In some cases, obsolescence can trigger the premature overhaul of a system. The F-16 program, for example, spent $500 million to redesign an obsolete radar."

As a business owner, have you ever asked yourself the question "why are we still doing things this way?" You aren't alone. Maintaining legacy systems within a business often becomes burdensome to such a degree that the functional obsolescence of the systems necessitate change. What's more, the cost and effort of upgrading legacy systems becomes more onerous as time passes, so it's best to keep an eye on systems that need improvement before they get out of hand.

This week, we stumbled upon a piece written about functional obsolescence in military technology where development and sales cycles are extremely long in nature. The lesson is clear and applicable to all organizations: obsolescence creeps in at every turn and it is up to the leadership to continuously monitor systems in their business for opportunities to improve them. Corporate inertia is hard to change and often times, the real answer to the opening question above is "because we've always done it this way and don't want to change it."

Obsolescence in job roles. Technology is moving at such a rapid pace that often, work that used to be completed by two people can now be done by one. Are there roles in your organization that are functionally obsolete or easily combined into other roles if new technology is introduced?

Obsolescence in technology. Not only is technology improving the efficiency of the workforce, but at times it moves so fast that one cutting edge system quickly becomes obsolete within a few years. In many industries, there are entire software suites that are designed to be the operating system of the business, but this comes with significant 'legacy system' risk. The more your business depends on a core piece of technology, the more your organization will be at risk of price squeezes, business interruption, and functional obsolescence over time.

When thinking about making a switch in legacy systems in your business, here are a few thoughts to consider to avoid system obsolescence in the future:

1) Consider the availability of alternatives to the system you are considering. The more, the better for competitive reasons.
2) Consider how customer friendly the system is. The less customer friendly the organization, the more likely the system is to become stale and lack maintenance over the long-term.
3) Consider the warranties of the product or service.
4) Consider the history of customer service and maintenance for the product or service in question. The better history, the more reliable the system will be for your business.
5) Consider the market for add-ons, spare parts, or ancillary products and services. The bigger, the better.
6) Consider how well this system will scale as your business scales.
7) Consider whether you are spending more in maintaining the status quo than if you were to upgrade to the new system.

Trapped on technology's trailing edge (IEEE)
+ "The systems hit hardest by obsolescence are the ones that must perform nearly flawlessly. Technologies for mass transit, medicine, the military, air-traffic control, and power-grid management, to name a few, require long design and testing cycles, so they cannot go into operation soon after they are conceived. Because they are so costly, they can return the investment only if they are allowed to operate for a long time, often 20 years or more. Indeed, by 2020, the U.S. Air Force projects that the average age of its aircraft will exceed 30 years—although some of the electronics will no doubt have been replaced by then."

Why the Chip Shortage Is So Hard to Overcome (Wall Street Journal)
+ "Chip makers are trying to eke out more supply through changes to manufacturing processes and by opening up spare capacity to rivals, auditing customer orders to prevent hoarding and swapping over production lines. The bad news is, there are no quick fixes, and shortages will likely continue into next year, according to the industry’s executives."

More Americans are leaving cities, but don’t call it an urban exodus (Bloomberg)
+ "A year into the Covid-19 pandemic, after much speculation about emptied downtowns and the prospect of remote work, the clearest picture yet is emerging about how people moved. There is no urban exodus; perhaps it’s more of an urban shuffle. Despite talk of mass moves to Florida and Texas, data shows most people who did move stayed close to where they came from—although Sun Belt regions that were popular even before the pandemic did see gains."

The two most underappreciated forces driving markets today (A Wealth of Common Sense)
+ "Do valuations and fundamentals still matter in these markets? Yes, fundamentals will always matter. But could demographics overwhelm those fundamentals at times? Definitely. My entire argument for a strong housing market for most, if not all of this decade rests on the fact that the huge millennial demographic is getting older and two-thirds or so of them will buy a house. Interest rates and economic cycles and housing prices will have a say in how many of those young people buy a house but the desire for the American dream will likely have a far greater impact over the long-term than short-term fundamentals."

Young audience flees TV, creating an uncertain future for sports (Sportico)
+ "While it would be premature for anyone to start digging TV’s grave, the ongoing depreciation of the traditional cable bundle and what amounts to a generational indifference to a habit that goes back more than 60 years have made it prudent for advertisers to start sizing up cemetery plots. If the wholesale defection of teenagers from the TV-watching ranks amounts to a real logistical nightmare for anyone trying to sell lip gloss, bubblegum and benzoyl peroxide, the collapsing young-adult audience is bad news for just about everyone with a vested interest in being in business 20 years from now."

The podcast paywall wars have arrived (Axios)
+ "Between the lines: As the subscription podcast ecosystem develops, it wouldn't be surprising if other major podcast publishers start to toy with the idea of putting some of their podcasts behind a paywall.

Driving the news: Spotify on Tuesday launched its new subscription podcast platform that gives podcast creators the ability to create podcasts exclusively for paid subscribers on and off Spotify."

How trader Jeff Yass parlayed poker and horse race handicapping into a $12 billion fortune (Forbes)
+ "Yass is the cofounder and head of a global trading powerhouse named Susquehanna International Group. His firm is the largest trader of listed stock options in America by some measures and like Citadel, Susquehanna’s skilled traders devour the order flow coming from free trading apps like Robinhood. In 2020, Susquehanna’s quants traded some 1.8 billion stock options contracts, 80% more than the prior year, and accounting for nearly a quarter of all options trades in the U.S., according to Alphacution Research. Yass bootstrapped Susquehanna in part with startup capital plucked from racetrack pots and poker tables in the 1970s and early 1980s. He then applied his gambling instincts to options markets during the 1980s bull market, and his skill for handicapping odds and finding an edge set him apart."

The secretary who turned Liquid Paper into a multimillion-dollar business (The Hustle)
+ "On a warm Texas night in 1956, Bette Nesmith — later known as Bette Nesmith Graham — sat in a garage surrounded by buckets of white tempera paint, empty nail polish bottles, and handmade labels. She didn’t know it then, but she was on the brink of something magical. The product she would eventually create — Liquid Paper, a white correction fluid used to conceal handwritten or printed typos — would become one of the world’s most popular and enduring office supplies."

Why are Hawaii visitors cruising around in U-Hauls? Blame the pandemic (Hawaii News)
+ "As the state reopens and many tourists return, there are not enough rental cars to meet the demand. That’s driving up the price of rentals and leading some visitors to get creative. Some are even turning to U-Hauls to get around the islands."

Kelie Morgan 4/23/21 Kelie Morgan 4/23/21

The Weekly: Edition #94 - April 23rd, 2021

Narratives & Data

“All stories have a curious and even dangerous power. They are manifestations of truth — yours and mine. And truth is all at once the most wonderful yet terrifying thing in the world, which makes it nearly impossible to handle. It is such a great responsibility that it’s best not to tell a story at all unless you know you can do it right. You must be very careful, or without knowing it you can change the world.” ― Vera Nazarian, Dreams of the Compass Rose

Humans have a unique ability to take data and create a narrative to explain a trend. Often times, the narratives - especially in the age of the 24/7 news cycle - are depicted as imminent in nature and happening instantaneously. But reality tends to unfold much slower and trends take time to build and manifest.

Take for example, the WSJ piece on the positive revolution and improvements in US airline safety. We've all seen the headlines surrounding the Boeing 737 accidents and subsequent grounding. The narrative around the safety of Boeing's 737 problems led to intense fears around flying, but the fundamental data points to a much more nuanced story. Indeed, between 2017 and 2019, the global fleet of 737s flew over 500,000 flights with 2 crashes - though the crashes were caused by Boeing 737 errors and deserved a thorough investigation.

Department stores have been 'dead' since 2002 - but have they? The data shows a much slower decline and suggests that their death has been slow and painful, punctuated with headlines that declare their death imminent. There is no doubt that brick and mortar retail is on the way out, or at least will need to fundamentally change their business model in order to survive. But the fact that GameStop is resisting corporate death is proof that narratives don't always play out as fast as predicted.

The death of the office is all the rage today. But as more people get vaccinations and feel safe to interact in close quarters, will social gravity overtake this narrative? Sure, the cat is out of the bag where remote work is concerned. But humans are social creatures at their core and some form of meeting space will be needed for many businesses that are currently operating remotely. The data suggests that occupancy numbers in major metros will take time to equilibrate around the new normal of hybrid work patterns, but it's odd that 2 months into the pandemic, the death of the office was such a ubiquitous narrative.

Perhaps the best schism between reality and narratives occurs in the public equities market. Stock prices reflect prevailing narratives which sometimes diverge wildly from fundamental data. Expectations are always weighed heavily in daily pricing, but the fundamental data weighs heavier over the long-term.

The hard part about parsing through narratives that reflect a different picture than the data is that often, narratives accelerate changes in the human behavior that generates the ground level data. For example, at the onset of the pandemic, most people were just trying to manage day to day because the headline narratives were nothing short of doomsday in nature. The unemployment data was almost as quick to respond. Who is to say how much the doomsday narrative influenced people to preemptively cancel travel plans, avoid public spaces, and cut back on business expenditures? Did the narrative influence behavior that became self-fulfilling in nature? Or was the human response inevitable? Probably a mixture of both.

Data is what matters. But the narrative influences data. And data influences the narrative. It pays to understand both, and how they interact in your business and industry. In determining where truth lies between ground level data and the prevailing narrative, it's good to keep a few points in mind:

1) Is the narrative predictive in nature (and hence may fall prey to recency bias)? E.g. Death of the office.

2) Is the narrative reactive in nature (and based on emotion rather than data)? E.g. a stock price halving over a bad quarter.

3) How great is the chance that the narrative will influence human behavior and accelerate the convergence of ground level data with the prevailing narrative? E.g. Pandemic-centric headlines.

The airline safety revolution (Wall Street Journal)
+ "No commercial airline in the U.S. has had a fatal crash since 2009. Here’s the story of the industry insiders who came together to build new systems and to allay the worst fears of air travelers."

Jeff Bezos' final letter to shareholders (Amazon)
+ "If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out."

Oil and gas landmen are going through a dramatic career change (The Hustle)
+ "Traditionally, landmen track down landowners whose properties sit on oil-rich land and offer them payments for drilling rights. As recently as 2018, rights were going for $17k per acre — and landmen were rewarded with 6-figure paychecks for their work. But a swift shift toward renewables — and a pandemic — dropped the price of shale acreage by 70%+."

100k Club: Digital news subscriptions top 23m (Press Gazette)
+ "English-language publishers now boast more than 23m digital news subscriptions between them, according to Press Gazette’s latest 100k Club ranking."

Advance retail sales in department stores (St. Louis Federal Reserve Data)
+ FRED is a treasure trove of real-time data for many industries. This chart depicts the slow decline of department store sales over the past two decades.

Home is where the meal is: pandemic patterns persist (Deloitte)
+ "Many survey respondents say they expect to buy fresh food and cook more frequently than they did before the pandemic. This pattern of behavior suggests a home consumption holdover from pandemic habits. A mere 7% of U.S. survey respondents say they will cook less after the pandemic than they did before, compared with almost half who say they will cook more. Meanwhile, one in three say they will dine out less than before. Restaurants will likely benefit from an ongoing interest in takeout and delivery, however—40% of consumers say they will do this more than they have in the past."

The return of transportation has begun (Javier Blas)
+ "For the first time since the pandemic started, Americans are driving more than they did in 2019 on interstate highways. Data from the US DOT says all vehicle miles driven on interstate highways were up 1% on the week ending April 11 vs same 2019 week."

3 rules for building a more caring culture — this chief people officer shares lessons from Lambda School & InVision (First Round Review)
+ "“Every single company that I walk into, if I'm in charge of the people function, there are a few fundamentals that are really important to me: creating a great employee experience, enabling a workforce that feels seen and heard, and making an environment where people feel developed,” says Frein."

As restaurants try to return to normal, they can’t find staff (Edible Monterey Bay)
+ "In his recent piece “As Diners Return, Restaurants Face a New Hurdle: Finding Workers,” the New York Times’ Brett Anderson describes labor shortages from Miami to Manhattan, citing a number of reasons. They include a big wave of rehiring as restaurants reopen; potential candidates opting for unemployment benefits over long shifts; migrations away from restaurant-heavy urban centers and away from the industry in general; and fear of risks associated from exposure to strangers at restaurants (particularly indoors). Wood echoes some of that. “If you left when your restaurant closed to go work construction, you’ve been busy as hell,” he says. “You get to work outdoors, and you’re not going to take $10 less an hour to work behind a hot dishwasher.”"

The corporate tax burden: facts and fiction (Aswath Damodaran)
+ "While that system worked well for most of the twentieth century, it started to break down towards the end of that century, as the US became a less dominant player in the global economy, and other countries lowered their corporate tax rates. The first development meant that larger proportions of US corporate income was generated overseas, and the second increased the differential tax rates and thus the repatriation penalty. By 2014, when I wrote this post, the US tax code had become dysfunctional, as the trapped cash cumulated to trillions of dollars and some US companies sought to move their incorporation to other countries. This history is worth emphasizing, because the change in the US corporate tax rate in 2021, from 35% to 21%, accompanied by the abandonment of the global tax model just brought the US closer to the rest of the world in terms of both tax rates and treatment of foreign income."

Lomi is tackling food waste with a home composting machine (The Hustle)
+ "It’s an issue we all deal with. After chopping fruits and vegetables, what do you do with the waste? For many, the process is a complete mess with various plastic bins and misplaced foods. Enter Lomi, a home composting machine that — in as little as four hours — turns food waste into nutrient-rich soil that can be used as fill for basic gardening."

Kelie Morgan 4/16/21 Kelie Morgan 4/16/21

The Weekly: Edition #93 - April 16th, 2021

First Impressions

"People don't care how much you know, they want to know how much you care." - Teddy Roosevelt

People don't like change. Heck, we don’t like change either. Change is scary. It’s the loss of control and the anxiety of what-ifs. It can mean different hours, responsibilities, and compensation, or even job losses.

But progress, growth, and efficiency only come through change. Change is hard, so first impressions matter. You only get one.

Having purchased more than a dozen companies and experienced the range of emotions, our team at Permanent Equity is sensitive to change and what it means for the entire company. We wanted to offer a few general thoughts on how to approach a big transition, whether you are a new executive hire, the new CEO, or the new owner of a business.

Rule #1 - 'Do No Harm'. Low hanging fruit, big visions, and audacious goals are tempting to talk about, but it's best to leave those until you have humbly learned the status quo, understood the logic behind it, and built sufficient trust. Change is like tugging at a loose string on a ball of yarn, it might come out just fine, or you might inadvertently unravel half of it. The best approach is to ask questions and reserve judgment, while being willing to role up your sleeves when asked.

Rule #2 - Approach the conversation with a humble and supportive attitude. As Teddy Roosevelt once said, no one cares how much you know. They want to know if you care about them. Take this first impression opportunity to show that you do — and actually mean it.

Rule #3 - Be upfront about why other changes may be made, including roles, jobs, compensation, or restructuring. Sometimes change is necessary. It's always best to be honest. Mitigate resistance to change by addressing 'the why' behind the changes and listening to concerns. Address how change will be implemented to give a clear picture of what will be taking place.

Rule #4 - Tell the staff your story and your 'why' but be brief. First impression moments after change are almost always tense. Most people will not hear much after the big changes are announced. They will only be thinking about how the decision affects them, so keep your introduction brief, address their concerns, and be genuine. Don’t try to be funny. It may be tempting to crack a joke to loosen up the crowd, but even if you are an excellent communicator, read the room and understand that people are usually in flight or fight mode. Bring down the temperature through earnest care.

Rule #5 - Address concerns and questions head on. Offer to address any concerns that staff members have and be willing to find the answers if they are not readily available. How you answer their questions and concerns will set the tone for future interactions with your new coworkers, so pause and think before responding. Always offer to meet privately at their convenience. Most people are going to need time to process before being able to formulate their questions.

If you are a new CEO, a new executive, or are buying a business, we hope you find these lessons to be helpful as you approach your new endeavor.

How to optimize your compensation plan (Permanent Equity)
+ "We’d like to say that we have been great on incentives from the get-go, but it’s only time on the front lines and trial and error that have taught us a few things that work (and others that don’t). This essay is an attempt to lay them out in such a way that makes the basic principles easy to apply to your organization in order to better engage your team."

Retailers want smaller stores. So why is Dick’s Sporting Goods testing its biggest one ever? (Forbes)
+ "So I ask these CEO’s, what if, for the same money as you’d pay for the smaller stores you want, you could get stores that are bigger than what you currently have? What would you do with those bigger stores? The most common answer I get is “collaborations,” bringing in other retailers and brands to fill the space and hopefully cross-sell one brand’s products to another brand’s consumers."

How to survive the future of retail (Business of Fashion)
+ "Covid-19 is the commercial equivalent of a meteor impact: an existential, once-in-a-century event that will change the chemical composition of the industry’s atmosphere. The result will be a complete eradication of many retail species, frantic adaptation by others and the rapid growth and evolution of a few. A new class of predator will emerge: an entirely novel, genetically mutated species of retailer that faces few threats. In nature, they’re referred to as apex predators. In retail, they’re called Amazon, Alibaba, Walmart and JD.com."

Brands, Amazon, and the rise of e-marketplaces (Feedvisor)
+ "Indeed, e-marketplaces were the biggest beneficiaries of consumers’ accelerated adoption of e-commerce, driven by the Covid-19 pandemic. In 2020, Amazon grew its e-commerce market share to 39%, while Walmart displaced eBay as the No. 2 online player in the U.S., with 5.8% market share, per eMarketer."

41st semi-annual taking stock with teens survey, Spring 2021 (Piper Sandler)
+ "- 33% of teens hold a part-time job—unchanged from Fall 2020 but below the 37% level in Spring 2020
- Teen “self-reported” spending improved slightly to $2,165—up 1% sequentially; parent contribution was 61%
- Female spend inflecting for clothing +9% Y/Y, strongest Y/Y gain since 2015 (male spending still down)"

Carnival Cruise bookings surge even with fleet sidelined (Bloomberg)
+ "In a quarterly update Wednesday, the company said booking volumes in the first quarter of 2021 were about 90% higher than in the fourth quarter of 2020. Cumulative advanced bookings for next year are ahead of 2019, which was already a particularly strong year."

Joining a startup for the first time? 30 actionable tips from folks who've been there (First Round Review)
+ While this list of advice is aimed at startup employees, many of the nuggets apply in the SMB world as well.

How asynchronous communication could change your workday (BBC)
+ "On one hand, this gives workers more freedom to work in a way that makes sense for our lives. However, some say asynchronous communication is slower and less collaborative, and can make us feel isolated. So, as more companies bang the drum of worker flexibility in the post-pandemic world, should we all expect to operate asynchronously in the future? And how will this change the way we do our jobs?"

Amazon's private labels (Benedict Evans)
+ "Amazon looks at data on what sells on its site, both the first party operation and, perhaps, the third party marketplace (which is 60% of volume), and uses that to commission its own products, which it sells in competition with its suppliers and without necessarily any obvious indication that they come from Amazon. There are hundreds of these ‘Amazon’ brands and thousands of products, competing with the products from Amazon’s suppliers. Some people feel very strongly that this is bad."

Dollar’s share of global reserves sinks to lowest since 1995 (Bloomberg)
+ "The dollar’s share of global currency reserves dropped in the fourth quarter to around 59%, the lowest in 25 years, according to International Monetary Fund data. The slide came in a quarter when a gauge of the greenback fell the most since 2010, and amid questions about how long the dollar can maintain its status as the pre-eminent reserve currency. The Chinese renminbi is transforming into a force to be reckoned with in currency markets, with more yuan changing hands than ever before in London, the world’s leading foreign-exchange center."

The price of lumber is up 193% and is about to spike higher (Fortune)
+ "Lumberyards and homebuilders alike have delayed buying lumber from sawmills in hopes the price of the sky-high commodity would finally come back down to earth. It hasn’t budged, and now the buying rush is on ahead of spring and summer projects. “Clearly mills won the standoff,” Stinson Dean, CEO of Deacon Lumber, told Fortune."

Kelie Morgan 4/9/21 Kelie Morgan 4/9/21

The Weekly: Edition #92 - April 9th, 2021

Goodhart's Law & Business

"When a measure becomes a target, it ceases to be a good measure." - Marilyn Strathern summarizing Goodhart's Law

Most business owners know their KPI's cold and know how to craft systems and processes that achieve successful growth in these KPI's. But every once in a while, the pressure placed on a single measure, whether through incentive programs or competitive emphasis, causes second-order effects that are purely detrimental - all in order to 'hit the target'. This is known as Goodhart's Law - the more a measure becomes a target, the more reasons people will find to game the system to achieve a satisfactory rating.

We have written about incentives before, and Goodhart's Law is a mental model for understanding why incentives cause second order effects that are not always apparent from the start. Applying Goodhart's Law helps explain why, for example, some teachers may cheat for their students when their bonuses are on the line or why hospitals may fudge patient data when their ratings are at stake.

Simply put, when a rating or measure becomes everything, human behavior tends to get funky.

Let us be clear - tracking KPI's for a business is incredibly important in order to understand what direction your business is heading. Simply tracking KPI's doesn't tend to lead to adverse outcomes. Rather, when extreme pressure is exerted on a particular measure through incentives, second order effects tend emerge in ways that are hard to foresee.

For example:

- The Federal Reserve publicly pushes for 2% inflation and maintains that CPI is in line currently. However, this emphasis on one single indicator leads to second-order effects that are deeply felt but not taken into account in the CPI. For example asset prices are running hot and supply chain constraints (and thus pricing pressures) are real, but this doesn't 'show up' in CPI.

- Wells Fargo employees were pressed hard for growth in absolute number of checking accounts - and growth is exactly what happened, but at what cost? The measure became so emphasized that employees began bending rules and compromising their integrity just to hit the mark.

- Academic citations are incredibly important for scholars. So important in fact, that one professor decided he would cite his own work to boost his credibility:

"For scholars, being frequently cited is a path to tenure and stardom, so the temptation to manipulate citations is huge. Sundarapandian Vaidyanathan, a computer scientist at the Vel Tech R&D Institute of Technology, won an award from the Indian government for being among the nation’s top researchers by productivity and citations. But in 2019 the journal Nature wrote that 94% of the citations of his work through 2017 came from himself or co-authors. He has defended himself, writing that “the next work cannot be carried on without referring to previous work.”'

In general, the more a measure or rating is emphasized, the more that behavior will change to achieve a certain level of that rating. Goodhart's Law tends to be at the heart of scandalous behavior when the measure of success becomes so important that the incentive to succeed overrides all ethical boundaries. Gaming the system is inevitable, so be careful in choosing what you incentivize as a business owner.

Here are four parting thoughts to consider when deciding how to track, measure, and incentivize better performance in your business with Goodhart's Law in mind:

1) Know your KPI's and what human input is required. This is the first place to start thinking about what could go wrong before it does.
2) Do not incentivize proxy KPI's because this encourages gaming the system without real results (e.g. growing the number of checking accounts vs. growing dollars in checking accounts).
3) Avoid creating a pressure-cooker effect where one single measure is emphasized above all else.
4) Create guardrails and policies (e.g. qualifications on incentives) to get ahead of any potential unethical behavior.

Goodhart’s law rules the modern world. Here are nine examples. (Bloomberg)
+ "What Goodhart said 46 years ago in Sydney was this, which he jokingly termed Goodhart’s Law: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” In other words, as the British anthropologist Marilyn Strathern later boiled it down: “When a measure becomes a target, it ceases to be a good measure.”"

What it cost to keep two restaurants open during the pandemic without outdoor dining or delivery (Eater)
+ "Sales for Big King and North totaled nearly $2 million in 2019, with 65,000 in-person guests served. In 2020, total sales were closer to $1 million. Of that, $457,000 came in before March 15; since then, Mark says, his monthly average has been only $40,000 to $50,000. Neither restaurant offered delivery before the pandemic — and they still don’t. Mark refuses to work with third-party delivery services like Grubhub or Uber Eats because he considers their business practices — such as regularly charging restaurants more than 30 percent of the cost of an order in delivery fees — “predatory.” Aside from that, he says, the cost of insurance and wages for drivers wouldn’t be worth the money made from added sales. That left takeout as the only option for the restaurants to survive."

Air travel is already back to normal in some places. Here’s where. (New York Times)
+ "In Florida, Key West International Airport is busier than normal, while Miami International has half as many passengers as it did before the pandemic. In the West, big-city airports — in San Francisco, Portland, Seattle — are serving a fraction of their typical traveler volume, between 24 percent and 46 percent. But smaller regional airports, near Jackson Hole, Wyo., and Colorado ski country, have passenger volume as much as 12 percent higher than this time last year. This pattern is typical across the country, detailed new data shows. Large hub airports have just a fraction of the travelers they did at this time last year, even as Americans are returning to flying, particularly to vacation destinations."

Craft Distillers Were Particularly Hurt by COVID (Inside Hook)
+ "As reported by The Spirits Business, the ADI January survey — which included 269 distilleries across 42 states and the District of Columbia — saw a 55% decline in revenue for U.S. craft distilleries in 2020, while 61% of the participating distilleries experienced a drop in revenue from online sales. The latter statistic might be surprising, given that several states loosened direct-to-consumer laws for distilleries."

10% of all restaurants have closed during pandemic (Restaurant Dive)
+ "Over 10% of U.S. restaurants have closed permanently since the start of the pandemic in March 2020, according to Datassential research. This equates to 79,438 shuttered restaurants out of the 778,807 in operation since the onset of COVID-19. The data does not include restaurants that have opened during the pandemic. The food truck segment has been the hardest hit of any foodservice segment, with 22.5% of mobile eateries closing. The quick-service segment has had the fewest closures, losing only 9.8% of fast food joints. Chain restaurants with less than 501 locations have closed at a higher rate than independent restaurants, with the largest permanent closure rate —16.2% — among chains with 51 to 100 units."

U.S. farmers vie for land as a grain rally sparks shopping spree (Wall Street Journal)
+ "The battle for farmland is playing out in small town community centers, online portals and parking lots, where bids in Covid-19-era auctions are placed with a wave from the window of a pickup truck or a quick flashing of headlights. There, auctioneers are peddling parcels of land to farmers eager to cash in on the best commodity prices in nearly a decade. They are also presiding over intense jockeying for fields that can test the fabric of rural communities as a shrinking set of growers compete for control of the nation’s prime soil."

The pandemic is changing employee benefits (Harvard Business Review)
+ "But one of the most dire consequences we face is the alarming amount of working mothers who face an untenable choice: their children or their paycheck. And as any parent will tell you, that’s not really a choice. This problem has surged over the last year: nearly 3 million women — especially Black and Latina women — have been pushed out of the U.S. labor force. A year-long pandemic has erased decades of progress, underscoring just how fragile and inept our old care system was. Our post-pandemic economy won’t fully recover — or reach its full potential — unless and until women get the caregiving support they and their families need."

Archegos poses hard questions for Wall Street (Financial Times)
+ "Historically, family offices have not had to register with the Securities and Exchange Commission because of an exemption for firms with 15 clients or fewer. The Dodd-Frank Act that tightened regulations in the wake of the 2008 financial crisis removed this exemption to shed more light on the hedge fund industry. However, the SEC has let family offices decide for themselves whether they should be registered and file regular reports. A search for Archegos on the SEC’s “Edgar” reporting system yields pretty much nothing — itself eye-catching. Its use of financial derivatives known as swaps to build positions might have allowed it to circumvent reporting requirements on big stakes. Finally, but most importantly: Can the Archegos blow-up trigger a wider financial conflagration, as LTCM did two decades ago? "

MLB’S 2021 Agenda: find fans, avoid covid, and labor strife (Sportico)
+ "Coming off a season abbreviated to 60 games by the coronavirus, MLB is trying to return to a full 162-game slate with three immediate missions: Keep control of COVID spread among each of the individual teams, as players and on-field staff become vaccinated; reopen stadiums to a modicum of fans facing modified restrictions dictated by health and safety protocols; and begin the process of collectively bargaining the current Basic Agreement, which expires Dec. 1 and could lead to a lockout."

Why ships keep crashing (The Atlantic)
+ "The Ever Given’s predicament is both highly unusual and typical: Seldom does a ship get stuck in the Suez (though it does happen every few years), and seldom does a maritime disaster attract such attention. But even though the world is incredibly dependent on ships like Ever Given—a reality that pandemic-related disruptions have suddenly made visible—major maritime incidents are surprisingly common. According to the insurer Allianz, 41 large ships were lost in 2019, and 46 in 2018. Over the past decade, about 100 big vessels have been lost annually. Why does this keep happening?"

Kelie Morgan 4/2/21 Kelie Morgan 4/2/21

The Weekly: Edition #91 - April 2nd, 2021

Leadership and Sacrifice

"The heart of good leadership is sacrifice." - John C. Maxwell

From an outside perspective, leading an organization may seem like flashy work. But most leaders will shudder at this perception, because leadership involves daily sacrifices and tradeoffs, most of which are not glamorous at all. Hiring, firing, correcting, promoting, demoting, steering, course correcting, strategizing, selling, training, shutting down, starting up, investing, divesting. Every choice for a leader comes with real tradeoffs and often personal sacrifice.

True leadership, according to John Maxwell in The 21 Irrefutable Laws of Leadership involves sacrifice at every turn. At times, this includes:

- Sacrificing your ego (is it worth arguing with this customer?)
- Sacrificing your time (doing the small things often results in big wins, but costs precious time)
- Sacrificing your control (it matters less how things are done, so long as they get done in a manner worthy of the organization's values)
- Sacrificing your finances (in tough times, are you willing to take a pay cut alongside your staff?)

Leadership decisions must be made in the interest of your team and moving your organization forward. But what is more - there is never a time where sacrifices can be put on hold, unless leadership responsibilities are relinquished. Most people believe that greater leadership comes with less responsibilities and more freedom. In reality, it normally comes with more responsibilities, less freedom, and greater sacrifice.

The cost of leadership is high and comes in different forms. Only you can determine whether the personal satisfaction of watching an organization grow and flourish is worth the sacrifice. Greater leadership requires greater sacrifice. There is a clear tradeoff between greater freedom and greater responsibility as more or less leadership responsibilities are assumed. Choose wisely and think hard about what you are willing (and are not willing) to sacrifice as a leader to grow your organization.

On the nature of CEO time allocation in an SME (Danny Qiao, AJ Wasserstein, Brent Beshore)
+ "Many MBA students harbor dreams of becoming an entrepreneur and CEO. These students channel their MBA coursework toward this goal, concluding from the popular media narrative that this is the career for them. Perhaps these students believe that entrepreneurs and CEOslive glamorous and exciting lives filled with thrilling activities like bare-knuckled negotiations, ponderous strategy sessions, and capital formation gamesmanship. Before MBA students andaspiring entrepreneurs commit themselves to this future, they should know exactly what a CEO does with their work hours—that is, how they allocate their time and what, precisely, they do all day long in small and medium-sized enterprises (SMEs)."

Marketplace supply strategy: comprehensive, exclusive, or curated (a16z)
+ "The right supply strategy varies based on the product being offered and those customers’ needs. If users value consistency and predictability—like, say, UberX—the path to long-term success generally lies in being both better and cheaper than the competition. However, in most marketplaces, users value having a high variety of supply. For these marketplaces, there are three main strategies for supply differentiation: comprehensiveness, exclusivity, and curation."

The a16z top 100 marketplaces (a16z)
+ "The second edition of the Marketplace 100 offers a new perspective. The ranking is revealing not only in uncovering the top companies and categories of an unprecedented year, but also in showcasing certain startups’ consistency since 2019. You’ll see that data indicated by the rank change from last year."

The return of neighborhood retail and other surprising real estate trends (TechCrunch)
+ "I do think we will continue to see more ‘Apple store’-type retail experiences, where the focus is less on selling inventory and more on creating an environment for customers to physically interact with goods and experience the brand ethos beyond a website. Because I anticipate that retail rents are going to be meaningfully lower at the end of the pandemic, I actually think we will see even more experimentation than we did pre-COVID. It will be a very interesting period for retail."

Auto dealerships can’t keep up with new models. The global chip shortage is to blame. (Wall Street Journal)
+ "A monthslong shortage of semiconductors has forced auto makers to cut production of even their most-lucrative vehicles. Winter storms in Texas last month disrupted plastics production, leading to shortages of seat foam and other materials, car makers and suppliers have said. A backup at West Coast ports is delaying vehicle-part shipments from Asia."

A playbook on building systems for COO's & Chiefs of Staff (First Round Review)
+ "What are the core systems that are the manifestation of the culture that we want to build? At HashiCorp, we’ve grown from a few hundred to over a thousand people, so the goal is to build scalable systems that enable employees to do their best work and contribute to the outcomes of the company. For us, that’s shaped up into three specific systems: strategic planning, knowledge management, and communications."

A template for defining your company's brand (Jake Knapp, Google Ventures)
+ If you are looking for a little inspiration on defining what makes your company unique, this 'brand sprint' template walks through helpful exercises to zero in on your organization's brand. Here is a longer article on how to use the template.

Losing dollars by pinching pennies: when short-termism goes bad (Wall Street Journal)
+ "Pfizer is hardly the only company to be forced to figure it out on the fly: The Wall Street Journal reported earlier this week that supply chain woes have mounted world-wide for all sorts of businesses, thanks to the pandemic and other disruptions. The world is learning that a just-in-time inventory system and a short-term focus on maximizing return on investment is no match for a restive Mother Nature."

What happens to NYC’s 3.2 million tons Of trash (Business Insider)
+ "New York City is one of the most wasteful cities in the world. But none of its trash is actually processed in NYC. It's sent to waste-to-energy facilities and landfills as far away as Ohio and South Carolina. It takes a vast network of sanitation workers, trucks, trains, cranes, and barges — and $429 million a year — to get it there."

Kelie Morgan 3/26/21 Kelie Morgan 3/26/21

The Weekly: Edition #90 - March 26th, 2021

The Roaring 20's

"History doesn't repeat itself, but it often rhymes."

Permanent Equity isn't in the business of making predictions, and we generally run our operations with an emphasis on maintaining financial strength no matter what economic climate prevails. However, we can't help but notice the quantitative - and more importantly the qualitative - trends that are unfolding before us.

In 1920, after World War I and the Spanish Flu Pandemic, people craved human support, connection, and interaction. The world was a different place from a mere ten years prior. Historians estimate that nearly 100 million people died worldwide from the 1-2 punch of WWI and Spanish Flu. People were desperate for comraderie.

Most historians credit the combination of these two macro events for what would become known as 'The Roaring Twenties.' Culture developed, music flourished, parties ensued, speculation was rampant, and the good times rolled. Indeed, it's almost as if the 'laws' of human psychology mimic the physical laws of nature. As Newton postulated, every action has an equal and opposite reaction. Is there a kernel of truth to this in human psychology as well?

If we apply this logic to the present, are we on the precipice of another reaction similar to the 1920's?

The early data is encouraging:

- Job postings are up 20% over last year
- Rail traffic is up compared to pre-covid levels: "Total combined U.S. traffic for the first 11 weeks of 2021 was 5,493,350 carloads and intermodal units, an increase of 3.5 percent compared to last year." - AAR Rail Traffic
- Manufacturing supply chains are stretched and demand is booming
- Daily flights have all but recovered from their 2020 lows back to 2019 levels (166,000 on March 24th in 2021 vs. 179,000 March 24th in 2019)
- Walk-in dining is steadily recovering from a January low of -60% from comparable 2019 time periods as more people get vaccinated
- Personal savings are up more than any prior year since 1984: "US households ended 2020 with about $1.6 trillion of excess savings from the increase in disposable personal income and the reduction in overall consumption (equivalent to about 7 percent of GDP)."
- In a recent 'friends of the firm' piece, Dr. Hedlund, research fellow at the St. Louis Federal Reserve, believes that businesses need to "prepare for a coming surge in consumer demand, particularly in food, clothing, utilities, household supplies, and personal care followed eventually by travel and other experiential goods and services that have been suppressed during the pandemic."

And there is more to come as more people are inoculated with the vaccine.

Sure, some of these data points are exacerbated by policy responses to the coronavirus pandemic and shifting demand from one industry to another. But the root cause of another roaring '20's won't be economic - it will be psychological. Social distancing has been encouraged everywhere and mandated in almost all states for a year at this point, and just like the law of gravity, humans tend to gravitate towards one another psychologically as well. If there is one prediction we'll make, it is this: the depressing isolation of coronavirus will be replaced with a manic flight to socialization at scale (e.g. Miami Beach Spring Break).

Perhaps we will see a roaring 20's. Perhaps we are in for more of a bumpy ride. Either way, we aren't banking on constant wind in the sails or sunshine forever. But we wouldn't be disappointed if history rhymed again.

After drought, disease, and now COVID, old-world winemakers adapt as only ancient businesses can (Fortune)
+ "With restaurants and bars mostly closed across Italy and in most of the rest of Europe, attention turned to non-traditional export markets where the virus has been under control—most notably in Asia. Online wine sales have also boomed. Nomisma, an Italian consultancy, reported in February that more than 8 million new customer accounts had been created with online sellers in the previous year. Internet searches in Italy for the term “vino online” doubled in a year, Nomisma said. According to Gianni Gagliardo, owner of the well-regarded and eponymous Barolo-producing wine estate in Piedmont, some of the changes the industry is experiencing will be long-lasting. The labor situation, he said, will return to normal. But the emphasis on Asian export markets is here to stay."

The distributed service sector: WFH will increase productivity growth (Noahpinion)
+ "This shift to remote working has got to improve productivity because we’re getting the same amount of output without commuting, without office buildings, and without all the goods and services associated with that. We can produce output at home and transmit it to the rest of the economy electronically, whether it’s an insurance claim or medical consultation. We’re producing what people really care about with a lot less input of things like office buildings and transportation. In a profound sense, the movement to working from home is going to make everyone who is capable of working from home more productive…It’s very possible that the transition to working from home – once we get the rest of the economy sorted out – will give us a sizeable jump in the annual growth of productivity."

Existing-home sales descend 6.6% in February (NAR)
+ "Existing-home sales fell 6.6% in February to a seasonally-adjusted annual rate of 6.22 million, but sales are still 9.1% higher than last year. The median existing-home sales price rose to $313,000, 15.8% higher from one year ago, with all regions posting double-digit price gains. As of the end of February, housing inventory remained at a record-low of 1.03 million units, down by 29.5% year-over-year – a record decline. Properties typically sold in 20 days, also a record low."

People bought boats like crazy last year (The Hustle)
+ "According to a report by the National Marine Manufacturers Association (NMMA), sales of boats and related marine gear hit $47B in 2020 — a 9% bump from 2019, and a 13-year high.

Per Boating Industry, all types of big-boy water toys saw a bump in 2020:

Freshwater fishing boats and pontoons: 143k units (+12%)
Personal watercraft (Jet Ski, Sea Doo): 82k units (+8%)
Wake boats: 13k units (+20%)"

What has covid-19 taught us about remote work? (Matt Clancy)
+ "While productivity has been, on average, unchanged or even improved by the shift to remote work, there are some signs that maintaining productivity and innovation in the long run faces additional challenges. One of the critiques of fully remote work has always been that it deprives workers of the social environment of the office which allows for clearer communication, the growth and maintenance of social networks, and serendipity."

What a Year of WFH Has Done to Our Relationships at Work (Harvard Business Review)
+ "One of the biggest and most worrisome changes we saw across these studies was the significant impact that a year of full-time remote work had on organizational connections — the fundamental basis of social capital. People consistently report feeling disconnected, and in studying anonymized collaboration trends between billions of Outlook emails and Microsoft Teams meetings, we saw a clear trend: the shift to remote work shrunk people’s networks."

Spain is going to trial a 4-Day work week. Could the idea go mainstream post-pandemic?
+ "It wasn’t long after her company switched to a four-day workweek that Pilar Meseguer began noticing the benefits. Absenteeism fell nearly 30% at Delsol, the software firm in southern Spain where Meseguer is deputy director, and satisfaction rates among both her co-workers and their customers rose. But there were also some smaller, more personal gains. “I could go to the supermarket on Friday instead of Saturday when it’s packed with people,” Meseguer says. “It’s a simple thing, but it makes a big difference.”"

Amazon briefing: private equity is zeroing in on the Amazon ecosystem (Modern Retail)
+ "Over the past year, the pandemic has fueled a boom in third-party businesses on Amazon, which spawned the first set of Amazon-native IPOs and a soaring average sale price of e-commerce business. Now, established players — like boutique private equity firms — are increasingly investing in Amazon businesses."

How to operate an airport in Antarctica (Flight Radar 24)
+ "The original construction of the runway was done over two years and accomplished using a laser cutter to level the blue ice near the station, which is located 250 kilometers from the ice shelf at -72.011, 2.52. Completed in 2005, the finished runway is 3000 meters long by 60 meters wide."

Kelie Morgan 3/19/21 Kelie Morgan 3/19/21

The Weekly: Edition #89 - March 19th, 2021

Incentives

"Show me the incentives and I will show you the outcome." - Charlie Munger

A strong incentive program can often be the difference between a good business and a truly great business. The best companies throughout history have taken different routes to industry domination, but it isn't a coincidence that many of the best developed an internal culture of ownership through employee incentives that linked individual performance with the organization's.

This week, we wanted to share our thoughts around building incentive programs into your organization. Incentive programs done right often boost employee motivation, morale, and performance. But when they are designed haphazardly, watch out! Incentives are like guns: aim them in the right direction and make sure they don't misfire, backfire, or cause friendly fire!

When building your employee incentive program, here are a few thoughts to consider:

1. Clearly state your goal for the program.

It sounds silly, but if you don't have clarity around your goal, your program could take you anywhere but where you want to go. Is it better employee engagement? Higher productivity? Higher quality service? More positive reviews? Employee retention? Whatever the ultimate goal for a particular bonus or reward program, ensure that it aligns with the reward structure and the overall goals of the organization.

2. Explore all options when building out your incentive program.

Will your program be one time and discretionary in nature (annual bonuses) or ongoing (performance bonuses, sales commissions, etc.) or a combination? Will there be both monetary and non-monetary rewards involved? It's best practice to explore a combination of all of the above, but not all employees will be interested in the options on the table. Solicit feedback when building out your incentive options so that they don't fall flat with employees. Pick the incentives that are most attractive to your employees, are fair for all parties involved, and align with corporate goals.

3. Keep things simple.

When building out your incentive program, the simpler it is to understand, the easier employees will grasp the program and buy into it. In general, the simpler the program, the better. But bear in mind, there are often drawbacks to over-simplified arbitrary incentive systems - either they are not robust and can't adapt to changing business conditions, or they encourage gaming the system. For example in booming economic times, arbitrary incentives may be so easy to achieve, the extra incentive to continue to outperform diminishes. Similarly, in lean economic times, a badly designed incentive program could become so far out of reach that employees become disheartened or worse - they encourage unethical behavior for the sake of maintaining performance at all costs.

Take more time than necessary up front when formulating the program's performance hurdles because once you offer incentives to your team, employees don't like to see the goal posts constantly changing. Here are a few questions to consider when building your program:

- How easy or difficult are the hurdles to attain?
- Are there clear metrics on which to judge employees to prevent disagreements?
- How much control over metrics do employees have?
- Are the incentives robust in different economic climates?
- Are they flexible or arbitrary in nature?
- Have you protected the right to revisit the program as business conditions require?

4. Commit to incentives based on resources available.

Build a budget around what types of rewards your business can afford. Incentive programs aren't a zero sum game and the best ones create more business over the long-run. But often, there are upfront investments required when building in new commissions, discretionary bonuses, and employee perks.

5. Determine what cadence for rewards and bonuses makes the most sense.

When considering what incentives to offer to employees, it is important to keep in mind as the operator how much time you are able and willing to dedicate to tracking and administering bonus and incentive programs. Weekly bonuses are great for keeping incentives top of mind for employees, but come with a real drawback - the time invested in tracking each employee's performance. Annual bonuses are much easier to manage, but have two clear drawbacks: a growing sense of entitlement each year they are given and the lack of constant feedback for employee's performance. Different industries have different standards - e.g. blue collar trades sometimes award weekly or monthly bonuses as well as project-based bonuses where as bonuses in white collar professions tend to be awarded on a quarterly or annual basis.

6. Adapt as needed.

The goal of an incentive program is to roll it out without needing to retract or change it constantly. Constant changes create more employee frustration than motivation and are best avoided. But, all incentive programs must be refreshed, simplified, or flat out overhauled at times due to changing market conditions, a failure to bring about desired results, or unforeseen second-order effects. Make sure you retain your right as the owner to do so if conditions require it.

In summary, incentives drive human behavior, and behavior drives outcomes. We hope these thoughts will help you think more critically when implementing incentive programs in your organization.

We would love to hear from you: what incentives have worked best in your business and why?

A comprehensive list of low code and no code tools for operators (Link by Pietro Invernizzi & Ben Tossell)
+ A great list of low / no code tools for everything from website builders to app builders to payments to spreadsheets on steroids and more.

DoorDash: re-inventing last-mile logistics (Secret Capital)
+ "The DoorDash of today isn’t the end state DoorDash. DoorDash is aggregating consumers, Dashers and merchants on its platform and adding great value to each party. This paves the path for the company to one day dominate last-mile logistics and upsell their customers with higher-margin products and services."

The infinite dial: a survey of American digital media in 2021 (Edison Research)
+ The average weekly podcast listener in the US averaged just over 5 shows per week and represents the single largest growth opportunity in content.

Global healthcare private equity and M&A report 2021 (Bain Capital)
+ "Pressures on healthcare providers and the shift toward alternative sites of care helped support healthcare IT growth and activity in 2020. Especially active areas were healthcare IT assets that promote care management across alternate sites, or innovative healthcare payment platforms and payer models that modernize obsolescent administrative operations or help patients understand and navigate coverage options. Further, companies that support modernization of activities across the value chain, from clinical trials virtualization to telehealth, also attracted greater interest."

The end of Silicon Valley as we know it (O'Reilly)
+ "Understanding four trends that may shape the future of Silicon Valley is also a road map to some of the biggest technology-enabled opportunities of the next decades:

Consumer internet entrepreneurs lack many of the skills needed for the life sciences revolution.
Internet regulation is upon us.
Climate response is capital intensive, and inherently local.
The end of the betting economy."

When CEOs really think we’ll come back to work (Wall Street Journal)
+ "“I certainly imagine everyone back in [the office]. I do think from a cultural point of view—apprenticeship, the sense of belonging—you are better together.”

—Jane Fraser, chief executive officer, Citigroup Inc."

The secret of adaptable organizations is trust (Harvard Business Review)
+ "How can you know if you’re currently doing too much, getting overly involved in the nitty-gritty of operations? Here’s a quick exercise I often use with clients that will show you whether you’re holding the reins too tight and failing to allow emergence to work its magic. Count the number of decisions you make in the course of a day. If you’re constantly making decisions, chances are you’re not giving your company the freedom it needs to self-organize. If this is you, the single most effective task you can perform is to reduce the number of decisions you need to make every day."

Why entrepreneurs should consider a programmatic acquisition strategy (A.J. Wasserstein, Yale SOM)
+ "This note explores why emerging firms (i.e., those with less than $10 million in EBITDA*) should carefully evaluate their potential to drive growth inorganically. It focuses on a very specific type of inorganic growth referred to as a programmatic acquisition strategy (PAS). A firm engages in a PAS when it purchases businesses on a consistent and serial basis, as opposed to sporadically making a single, transformative acquisition."

Pipe it! Platforms, funding, and the future (Alex Danco)
+ "If you have real revenue and real cash flow coming in, and you want to grow your business by pulling that revenue forward, don’t sell debt, or a WBS; don’t sell a claim on the black box of your entire business. Sell the smallest unit possible. Sell the thing itself: your revenue. And the purest way to represent that - the atomic, tradable unit of the subscription economy - is the revenue contract."

The horse meat vigilante (Bloomberg)
+ "From his secret compound, Richard Couto stages undercover buys to bring down unlicensed slaughterhouses. Police say they’d be happy to work with him, if only he’d follow the rules."

Kelie Morgan 3/12/21 Kelie Morgan 3/12/21

The Weekly: Edition #88 - March 12th, 2021

Shopify vs. Amazon

In 2014, Shopify took in $105M in revenue. In 2020, it took in over $120B - that's billion, with a B!

How did they do it? By coming in through the back door - Amazon's back door - and "arming the rebels".

This week, Benedict Evans published a short but thoughtful piece explaining Shopify's rise in the e-commerce space. We believe the lessons from the competitive relationship between Shopify and Amazon are broadly applicable to any industry at any time and are worth noting.

The rise of Shopify is best explained by the confluence of two macro trends in the consumer retail space:

1. Customers increasingly demand convenience

Sure, e-commerce stores and tools have been around since the beginning of the internet. But they were difficult to implement and available only to the most tech-forward. Shopify's breakthrough was offering a convenient way for anyone to set up, manage, and grow an online store in a few clicks.

2. Direct to consumer

Big brands and small brands alike are having a harder time standing out in the digital age as shelf space becomes effectively infinite online - especially on Amazon's marketplace. Shopify is addressing some of these concerns by giving brands the tools to easily start selling directly to consumers where the only shelf space available on the site is dedicated to their brand.

While the macro trends are important, Shopify's customer strategy is the crucial piece to the puzzle.

They don't compete directly with Amazon. And why would they?

Amazon sells goods to consumers. Third party sellers sell through their marketplace (the toll booth). Often, there are conflicts of interest between Amazon and third party sellers.

Shopify on the other hand sells tools to retailers. They 'arm the rebels' to sell direct to consumers.

The difference between Amazon and Shopify is what part of the retail value chain they address. In choosing to serve retailers, Shopify is staking out real estate further up the retail value chain (the retailer) and is chipping away at Amazon's downstream (consumer) hegemony.

When evaluating the competitive strategy of your organization, study the value chain from suppliers to manufacturers to wholesalers to retailers to consumers. If there are parts of chain that are underserved, these represent opportunities to compete indirectly by serving a different customer a la Shopify (sell the tools) vs. Amazon (the retail toll road).

In summary, we'll leave you with four questions to reflect on:

1. What are the broad trends affecting your industry?
2. How are these trends affecting the value chain in your industry?
3. Which points along the value chain are in need of better solutions?
4. How would your competitive position improve if you chose to address these particular nodes in the value chain?

The rise of Shopify (Benedict Evans)
+ "Shopify isn’t doing what Amazon does - it isn’t competing directly and it wouldn’t fit inside a competition lawyer’s market definition (I wrote more about the market definition challenge here). But it challenges Amazon at a very basic point of leverage by doing something different, but relevant. This is very often what competitive threats look like in technology. In markets with strong network effects or winner-takes-most effects, it’s very hard to displace a new incumbent directly, but pretty common to address an underlying customer need in another way."

The era of audio creators has arrived (New York Times)
+ "Audio creators are a new kind of influencer, born of the meteoric rise of the audio-only chat app Clubhouse. Together, they are pulling in millions of weekly listeners and building online followings. Now, with Clubhouse booming and other social apps, like Twitter, taking cues from its success, they are banding together and working with big brands."

Chaos strikes global shipping (New York Times)
+ "Viewed broadly, the volume of global trade dipped by only 1 percent in 2020 compared with the previous year. But that doesn’t reflect how the year unfolded — with a plunge of more than 12 percent in April and May, followed by an equally dramatic reversal. The system could not adjust, leaving containers in the wrong places, and pushing shipping prices to extraordinary heights."

Is the 4 day work week coming? (Bloomberg)
+ "Jobs website ZipRecruiter says the share of postings that mention a four-day week has tripled in the past three years, to 62 per 10,000. Consumer-goods giant Unilever Plc in December started a yearlong trial of the idea for its New Zealand staff. Spain’s government is considering a proposal to subsidize companies that offer a four-day week. And even in notoriously busy Japan, whose language includes the word karoshi—death from overwork—lawmakers are discussing a proposal to grant employees a day off every week to protect their well-being."

Selection criteria to consider when acquiring a business (Yale School of Management)
+ "We are drawn to businesses with very specific economic characteristics, and we do not care what the company does, as long as it is legal and ethical. We care intensely about the business’s economic underpinnings and how it works and makes money. This is frequently the opposite approach of budding entrepreneurs, who seek a product-market fit for their conceptual idea (in other words, they have an answer and then seek a question). Our contrary approach starts with a question – the specific economic characteristics – and then seeks an answer: a business that satisfies those selection criteria."

Worldwide estate and inheritance tax guide 2020 (EY)
+ "The Worldwide Estate and Inheritance Tax Guide 2020 (WEITG) is published by the EY Private Client Services network, which comprises professionals from EY member firms. The 2020 edition summarizes the gift, estate and inheritance tax systems and describes wealth transfer planning considerations in 42 jurisdictions and territories."

Software 2021: The rise of the cloud (Battery Ventures)
+ "Averages are misleading! The best companies are shifting their dashboards from tracking “average XYZ” to measuring strictly defined cohorts in order to figure out which of their customer segments are healthiest and which customer-acquisition motions are worth prioritizing."

A guide to potential tax law changes under the Biden administration (Wealthmanagement.com)
+ This piece gives an overview of what is being considered under the new administration's tax policy and how to plan accordingly.

A history of the art market in 35 record-breaking sales (Yale School of Management)
+ "When Pablo Picasso’s “Les Femmes d’Alger (Version O)” sold at Christie’s in New York for $179 million dollars in May 2015, it was only the 36th time in the past 315 years that a world auction record had been set, and the sale raised questions well beyond the art world. How could a single painting be worth so much? Why is art so important to wealthy households? What economic and social factors could lead to enshrining Picasso’s colourful near-abstract portrait as the most valuable picture in the history of the modern world?"

Kelie Morgan 3/5/21 Kelie Morgan 3/5/21

The Weekly: Edition #87 - March 5th, 2021

Building the Machine

"Chefs create tremendous value for the world with their inventions. But a lot of times, what you really need is a recipe. I need to make dinner tonight. I don't have time to invent something. I just need a recipe that will taste good. That's a standard operating procedure." - Maxwell Anderson

Some business owners prefer standard operating procedures and running a tight ship. Some business owners prefer a more entrepreneurial, creative culture and worry that standard procedures will hamper their product. Two questions often arise at the opposite ends of the spectrum:

- For businesses that are more repetitive in nature (e.g. manufacturing), how can you introduce a more entrepreneurial culture without reducing the quality of output?

- For creative businesses (e.g. creative agencies), how can you introduce more standard operating procedures to reduce repetitive work while maintaining a creative (less standardized) overall process?

The answer lies in the business function - is it a process where the result needs to be consistent? If so, it's probably best to write out an SOP. What if it is a process that, by nature, produces a different product each time? In this case, it's best to make room for innovation.

Regardless of what type of business you work in, all businesses require some degree of standardization. The degree to which your business may need more (or less) SOP's can be answered by asking a simple question: do you control your business (as the owner) or does your business control you (a job)? Depending on your answer, it may be time to start documenting processes that generate the most headaches in the form of standard operating procedures.

After all, business owners want to work on their business, not just in their business. Establishing SOP's can help you move in this direction. In general, SOP's have four main benefits:

1. Writing out SOPs clarifies your ultimate goal for the process and the method by which it will be accomplished for all employees.

2. SOP's save everyone time by reducing confusion and redundant work between teams.

3. SOP's establish a yardstick for performance.

4. SOP's empower employees to create their own standard processes, which leads to an organization that is self-sustaining in nature.

Businesses are just loosely functioning groups of people working through a loosely defined process to produce a product that serves a need. In general, the more well-defined the process, the better the product will turn out. Great people can't produce great products without a great process. For a solid framework on creating SOPs for your business, we highly recommend the piece by Zapier below in the OPERATIONS section.

All articles in OPERATIONS are from the most recent edition of The Weekend Reader by Maxwell Anderson.

How standard operating procedures can help you grow your business (Zapier)
+ "In training the new hires for my nail bar, I went with the show-and-tell method. I hoped the recruit would learn by doing exactly what I did. Great, if I could remember everything off the top of my head—and hope they didn't forget either. But that's not how brains work. It ended in self-manufactured chaos."

The indispensable document for the modern manager (First Round Review)
+ "After consecutive year-long searches for his Head of Product and Head of Operations, he didn’t want to squander that investment because he couldn’t figure out how to work with them. So what did Desai do? He penned a user guide — similar to the kind that’d accompany a rice cooker or bassinet — but this one deconstructed how he operated optimally, when he might malfunction, and how others could use him to their greatest success. To create and the compile the guide took a intense self-reflection, drawing both from his early management mistakes at leading PatientPing and a career in finance (Parthenon Capital, Lehman Brothers) and healthcare (Centers for Medicare & Medicaid Services, CVS Health).

Charting the economic recovery (Dr. Aaron Hedlund, Guest of Permanent Equity)
+ This essay by Dr. Aaron Hedlund, Associate Professor of Economics at the University of Missouri, is the first in a series of collaborations we’re calling Friends of the Firm.

The world's largest database of cell towers (Alcinar)
+ "OpenCelliD is the world's largest open database of cell towers with a license CC BY-SA 4.0"

Vanity metrics and why they are a waste of time (Julian Shapiro)
+ "We chase vanity metrics because they’re visible and easy. Vanity metrics are intermediary goals that occur before the fulfilling goals that matter. Because vanity metrics occur sooner, they require fewer steps to accomplish. This makes them easier. Further, we rarely recognize when we’re focused on vanity metrics—because society normalizes them. When everyone’s showing off how many books they’ve read, we internalize this as a worthy goal for ourselves. In short, we inherit society’s most visible goals then we don’t challenge them."

Leaders need “User Manuals” – and what I learned by writing mine (Abby Falik)
+ "My User Manual is one of the ways I practice leading out loud. It’s a living document that describes my innate wiring and my growing edge, while putting it out to the world that I know I am – and aim to always be -- a work-in-progress."

Global private equity report 2021 (Bain Capital)
+ "Having rebounded impressively from a dismal second-quarter performance (North American deal value alone was off 85% from the same quarter a year earlier), the global industry sprinted to the finish in 2020, generating $592 billion in buyout deal value. That was an 8% jump from 2019’s performance and 7% higher than the five-year average of $555 billion (see Figure 6). A full $410 billion of that total came in the third and fourth quarters as GPs raced to put money to work. Confidence reigned that central bank stimulus would prop up the global economy long enough for the worst of the Covid-19 pandemic to pass. Covid did have a pronounced negative impact on global deal count, as the number of buyouts fell 24% to around 3,100 in 2020, from 4,100 in 2019. With the exception of the technology and telecom sectors, the number of deals slumped across the business landscape compared with the five-year average. The retail, consumer, and media and entertainment sectors were among those taking the biggest hits."

A COVID reckoning: American households have big bills coming due (Insights from Stanford Business)
+ "By the end of March 2021, the researchers predict, 60 million people will be $70 billion behind on their payments. Most of those looming bills are tied to home mortgages ($3,200 on average, as of last fall), car loans ($430 on average), and student loans ($140 on average)."

Lumber prices are soaring. Why are tree growers miserable? (Wall Street Journal)
+ "Timber growers across the U.S. South, where much of the nation’s logs are harvested, have gained nothing from the run-up in prices for finished lumber. It is the region’s sawmills, including many that have been bought up by Canadian firms, that are harvesting the profits."

Kelie Morgan 2/25/21 Kelie Morgan 2/25/21

The Weekly: Edition #86 - February 26th, 2021

Resilience

This week, our thoughts and prayers go out to all those affected by the Texas winter storm. If there is one lesson we've learned (over and over) during the last year, it is the importance of optimizing for resilience.

Optimizing for resilience is hard because it grates against every fiber of our being. Why not lever up when times are good? Why build that extra supplier relationship when the current vendors are just fine? Why have any slack in the system when the organization is running at peak performance? After all, what is average is normal. What is normal is expected. What is expected is what is modeled. But what isn't expected is what breaks the model.

Optimizing for resilience requires us to invert and ask the question - what could break the model? Resilient organizations consider non-average events as equally important as the status quo and thus willingly reduce current 'performance' in order to survive the most adverse circumstances. In Nassim Taleb's words, they are anti-fragile.

The Texas grid, by no fault of any person in particular, isn't set up to maintain power when every house in the state is running its heating system at full blast. It isn't designed for this kind of stress, because it isn't normal, and frankly prior to last week wasn’t thought to be possible.

We have written at length about our preference for the long-term over the short-term - in capital, in relationships, and in decision-making. For example, optimizing for longevity by using low levels of debt relative to the overall private equity industry may have cost us our share of deals and reduced our short-term returns. But we built our model around long-term resilience so that we would be able to absorb shocks, many of which we have experienced over the past year. And, because survival is a prerequisite, staying in the game and having flexibility is fertile soil for higher long-term returns.

Maintaining some contingency in mission critical systems - liquidity, debt, employee capacity, inventory, suppliers, and the list goes on - lowers the overall risk of organizational death, but will cost you in the short-term. Are you optimizing for the long-term (and thus resilience) or for the short-term (and thus expedience)? It is this question that politicians and owners alike have to continue asking to build a resilient system that will last well into the future.

How beloved Texas grocer H-E-B became the ultimate catastrophe brand (Marker Media)
+ "H-E-B’s vaunted status — perhaps especially as a kind of catastrophe brand — seems to boil down to something quite apart from the romance of place: raw logistical prowess. It turns out this isn’t the first time in recent years that H-E-B has stood out for its response to a disaster. Back in 2017, Texas Monthly compared the chain’s efforts in responding to Hurricane Harvey to those of the Red Cross and similar first responders, noting that it employs a full-time director of emergency preparedness and had several “relief units,” including three mobile kitchens, a disaster relief unit, and a pair of water tankers. “Even the staunchest H-E-B enthusiast might have been surprised,” the magazine observed, “to see the convoys of trucks, mobile kitchens, and other relief units branded with the store’s logos making their way to the affected areas” in Harvey’s wake."

How Gary V built his marketing empire - a case study (Better Marketing)
+ "To communicate, influence, or sell anything to a customer, you first need their attention. Without their attention, your business or ideas are guaranteed to fail no matter how good they are."

Blue-collar jobs boom as covid-19 boosts housing, e-commerce demand (Wall Street Journal)
+ "Nationally, employment in residential construction, package delivery and warehousing now exceeds pre-pandemic levels. Manufacturers have steadily added back jobs after slashing payrolls last spring, though employment remains down about 5% from February 2020, according to Labor Department data. Job openings in many blue-collar occupations broke above pre-virus levels last summer and remain significantly elevated, figures from the online job site Indeed show."

Warehousing, trucking, and technology: the future of work in logistics (Frank Levy, Arshia Mehta)
+ "Between 2000 and 2019, the output of the general freight trucking industry (as measured by the U.S. Bureau of Labor Statistics) increased by roughly 20%. One-quarter of the increase came from more drivers: 1.62 million in 2000 compared with 1.75 million in 2019. Threequarters of the increase represented a more efficient use of trucks—for example, fewer long distance deliveries where the truck would make the return trip empty, less time spent waiting at a loading dock to pick up an order, and so on."

From exec roles to board seats — lessons for the startup C-suite from Zendesk, Guru, eBay, & more (First Round Review)
+ "The most successful executives are adaptable — meaning that they’re successful in multiple places and multiple settings, not just at one brand-name company. They stay curious and while they might have a ton of amazing applicable experience, they don’t come into a situation trying to apply a playbook."

What went wrong with Texas’s main electric grid and could it have been prevented? (Texas Monthly)
+ "Our electricity system is built around meeting our summer peak demand: the hot August afternoons when everyone wants air conditioning. Why are we able to keep the air conditioners on but not able to keep the heaters on? On the hottest summer day you can imagine, say it’s 105 degrees outside, and you’re trying to keep your home at 75 degrees. That’s a 30-degree difference. If it’s 10 degrees outside and you’re trying to keep your home at 70 degrees, that’s a 60-degree difference. While homes that are built up north are designed to hold heat in, our homes are basically designed to keep heat out and get it out as fast as we can. So, we’re not designed for this."

Kelie Morgan 2/19/21 Kelie Morgan 2/19/21

The Weekly: Edition #85 - February 19th, 2021

Convenience

"It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible." - Jeff Bezos

Most weeks we like to share our thoughts on a particular topic or article. But on rare occasions, there are broad themes that show up in multiple articles that are too significant to pass over. This week is one of those weeks.

If you don't remember anything else from this edition, remember this: the modern consumer generally optimizes their life for convenience.

Simply put:

"People buy 4 things and 4 things only. Ever. Those 4 things are time, money, sex, and approval/peace of mind. If you try selling something other than those 4 things' you will fail."

Time is the only one of the four that no one can buy more of, so the more you can create built-in convenience for your stakeholders, the better off your business will be. This week, we couldn't help but notice how convenience is powering the biggest businesses in America to next-level growth and upending entire industries overnight.

Let's start with Netflix. In this wonderful HBR piece, Bill Taylor explains how the company is using its troves of data to more efficiently deliver best-in-class entertainment to customers and save them time in identifying what to watch - all from their couch! Convenience in entertainment, at scale.

Next, there's the rise of semi or full-scale ghost kitchens. Chipotle, Chick-Fil-A, and the rise of ghost kitchens has proven that something has fundamentally changed in the food and beverage industry. Using efficient drive-in and ghost kitchen operations, these organizations are able to give the customers what they want. Convenience in food, at scale.

Then there's the struggling events industry, determined to reinvent itself in a digital-only world until the pandemic blows over. As it turns out, convention centers and event planning businesses are the best equipped to provide a convenient option for large scale covid-19 vaccination rollouts. Empty spaces that allow for social distancing and efficient logistics operations are all useful in the vaccination effort and allow for meaningful work during a dark period for the industry. Convenience in healthcare, at scale.

Indeed, even remote work offers a lesson in convenience as it applies to employees. The partially remote option is a wonderful option for great employees that have no plans to move across the world to work, love where they live, but desire a little more flexibility and a little less commute time each week. Allowing for a more flexible work environment will help retain employees while maintaining a physical connection to the organization.

As Jeff Bezos intuitively understood, people are never satisfied and will always expect more as the boundary of what is possible is pushed. The more your business can optimize for quick, convenient service or optimize your product for ease-of-use, the more your business will grow.

The question we are asking ourselves this week is this: how can we use our organization's resources to make life more convenient for our stakeholders?

To see the future of competition, look at Netflix (Harvard Business Review)
+ "Big data is powerful, but big data plus big ideas is transformational. Netflix is a technology juggernaut whose analytics, algorithms, and digital-streaming innovations have changed how customers watch movies and TV shows. But this technology has always been in service of a unique point of view — building a platform that shapes what customers watch, not just how they watch. The company has vast amounts of data on the viewing habits of its 125 million subscribers, from which movies and TV shows they liked or disliked to how long they watched an individual episode or how much they binged a new series. This powerful data system creates a rich social system that influences the movies and shows members see, based in part on which shows they’ve liked in the past what other subscribers see and like."

How a shadow army of ghost kitchens took over America’s restaurants (Marker Media)
+ "On a recent winter afternoon, I trekked an hour north of New York City to see it for myself. From the outset, it was more or less what you’d expect at a Chipotle. Those familiar concrete floors and that minimalist steel-and-plywood design aesthetic, plus pop music overhead and the smell of grilled onions and peppers. One major difference, of course, is that it was eerily devoid of actual customers jamming themselves into small communal tables and lurking near seats that might open up. That this newfangled, online-only Chipotle didn’t even have a bathroom truly drove home the grab-and-go motif a little more forcefully than I would have liked, especially after a long drive. Still, the fact that this store debuted after a quarter in which Chipotle saw its digital sales triple from the previous year clearly demonstrates that something fundamental has changed."

The story of a Boston events business during coronavirus (Boston Globe)
+ "She frets about what seem to her to be haphazard restrictions that allow shopping malls to remain open but cut off trade shows and similar corporate events. By one industry estimate, 50,000 people in Massachusetts’ business events workforce have been laid off and $250 million a month is being drained from the state’s economy. A nationwide study found that nearly 40 percent of business-events companies are at risk of going under."

The battery is ready to power the world (Wall Street Journal)
+ "Rechargeable lithium-ion batteries were first commercially used in hand-held camcorders in 1991. Laptops soon followed. A decade later, batteries enabled the rise of tech titans such as Apple Inc. by powering smartphones and wearable devices, then made their way into electric vehicles. The basic technology throughout remained pretty much the same: Lithium ions move through a liquid from the cathode to the anode, and back again. This, however, was just the beginning. After a decade of rapidly falling costs, the battery has reached a tipping point. No longer just for consumer products, it is poised to transform the way the world uses power."

To plug a pension gap, this city rented its streets. To itself. (New York Times)
+ "It works like this: The city creates a dummy corporation to hold assets and then rents them. The corporation then issues bonds and sends the proceeds back to the city, which sends the cash to its pension fund to cover its shortfall. These bonds attract investors — who are desperate for yield in a world of near-zero interest rates — by offering a rate of return that’s slightly higher than similar financial assets. In turn, the pension fund invests the money raised by those bonds in other assets that are expected to generate a higher return over time. If they can pull off the strategy, cities issuing these bonds can reduce their pension bills by an amount that’s the difference between what they earn and what they pay out. But as with any strategy based on long-term assumptions, there is risk."

Why the $1.1 trillion live events industry is pivoting to vaccine logistics (Marker Media)
+ "Look more closely and you’ll see logos showing that the site is being operated by a company called CIC, which usually manages co-working spaces. Another company, DMSE Sports, which normally directs running events including the Boston Marathon, is handling the logistics. DMSE’s involvement makes sense, said founder Dave McGillivray, because the vaccination process “is like a race.” He gestures around the busy scene: “There’s the parking, there’s the course they go through, there’s the finish.” A clock normally used to show runners their pace is keeping time for people waiting to make sure they don’t have side effects."

The state of remote work (Owl Labs)
+ "Despite difficult circumstances for working remotely, 77% of respondents agree that after COVID-19, having the option to work from home would make them happier. Leaders and managers: 80% of full-time workers expect to work from home at least three times per week after COVID-19 guidelines are lifted and companies and workspaces are able to re-open."

Natural gas skyrockets again to $500 as blackouts spread in U.S. (Bloomberg)
+ "Natural gas for physical delivery in the U.S. was trading for as much as $500 per million British thermal units on Monday as demand for the heating and power plant fuel soared amid a deep freeze. Gas at two hubs in the U.S. Midcontinent was trading at $500 per mmBtu and went for $240 at a third on Monday, according to traders. Spot gas has been trading for hundreds of dollars across the central U.S. since Thursday with a surge in heating demand triggering widespread blackouts and sending electricity prices soaring. The fuel normally trades in the region for less than $3 per mmBtu."

Kelie Morgan 2/12/21 Kelie Morgan 2/12/21

The Weekly: Edition #84 - February 12th, 2021

Hiring Executives

Hiring executives is always a big step forward (and in the short run can be a step backwards, financially) for owners in the SMB space. Whether you are a startup founder or an owner of a 100-year-old family business, hiring at the executive level is quite possibly the most important, and potentially difficult, puzzle piece to growing your business. As we noted last week, it involves getting the right people in the right seats rowing in the right direction.

This week we would like to highlight Elad Gil's recent piece focusing on when to hire executives at startups in the midst of "product-market-fit" growth (i.e. 20-40% per month). Companies with different growth trajectories require executives with different skillsets, but the broader principles of hiring execs apply almost universally across the spectrum from startups to operating companies.

To use a bit of Thiel-ian language, startups require creators by nature with the ability to take a company from "0 to 1". Operating companies require strategic executives that understand how to scale an organization from "1 to n". Holding companies require capital allocators (with experience as operators) to scale a portfolio of businesses from "n to nn." Again, different executives are required for each scenario, but hiring principles remain roughly the same:

- Hire before its necessary.
- Hire repeat performers.
- Hire for character and culture fit first.
- Hire to delegate and elevate.

As an operator in the SMB space, if growth is your ultimate goal, then building an executive team is the only way forward. When considering hiring an executive team, here are a few thoughts you might consider:

1. Take into consideration your rate of growth. 15% top line growth per year may seem like growth you can handle with your current staff, but in 5 years, your company will have almost doubled in size. You will need to hire more people in operations and finance which will require more management time. Can your current schedule handle this? If not, it may be time to think about hiring at the executive level in preparation for each doubling in size.

2. Take into consideration the style of business you are operating. Are you operating a lifestyle business but want to transition into a more growth-oriented approach? This will require a step back financially to take two or more steps forward. You can optimize your business for cash flow or for growth, but often there are tradeoffs between the two.

3. Take into consideration where your business is weakest. Are these weak areas hindering growth? Are there workstreams that could be done more efficiently by an executive or team that could free your time up to work on areas where your strengths lie? It may be time to bite the bullet and hire where your business is weakest.

4. Hire top down, not bottom up. If growing your business means building a team around a specific business function, don't hire more junior roles when you could hire a single executive to build a team around a business function. Hiring junior roles will require more management time from you that could be put to better use on other strategic initiatives.

5. Hire repeat performers at the executive level and develop first-timers internally for promotion. The experienced executives can train the internal talent and groom them for the next level so you don't have to.

If you are interested in a more in depth conversation on our hiring process for various executive level functions at Permanent Equity, we are hosting a live Zoom Q&A on hiring at Permanent Equity on February 25th at 11 AM CT. We hope you will consider joining us!

Expectations: entering due diligence (Permanent Equity)
+ "Signing a letter of intent and kicking off due diligence is a big step and requires trust. Although nothing is consummated, you’re getting business-engaged and promising to be exclusive. But let’s be honest, due diligence is not designed for fun. It’s full of tough conversations, thorough reviews of financial, legal, and historical documents you may have long since forgotten, and negotiation around who’s responsible for what. With that said, it’s kind of like eating your veggies -- make the best of it and be healthier because of it."

How to build an invention machine — 6 lessons that powered Amazon’s success (First Round Review)
+ ""Just think of a business as a process. It can be a complicated process, but essentially, it spits up outputs like revenue and profit, numbers of customers, and growth rates. To be a good operator, you can't just focus on those output metrics — you need to identify the controllable input metrics. A lot of people say that Amazon doesn't really care about profit or growth. I think that the data say otherwise, but what is true is that the main focus is on those input metrics," says Bryar."

Retail, rent and things that don't scale (Benedict Evans)
+ "Part of the promise of the internet is that you can take things that only worked in big cities and scale them everywhere. In the off-line world, you could never take that unique store in London or Milan and scale it nationally or globally - you couldn’t get the staff, and there wasn’t the density of the right kind of customer (and that’s setting aside the problem that scaling it might make people less interested anyway). But as the saying goes, ‘the internet is the densest city on earth’, so theoretically, any kind of ‘unscalable’ market should be able to find a place on the internet. Everyone can find their tribe."

Superstar cities are in trouble (Derek Thompson)
+ "As a general rule of human civilization, we’ve lived where we work. More than 90 percent of Americans drive to work, and their average commute is about 27 minutes. This tether between home and office is the basis of urban economics. But remote work weakens it; in many cases, it severs the link entirely, replacing spatial proximity with cloud-based connectivity. What knock-on changes will this new industrial revolution bring? The best argument against the remote-work experiment having a durable impact on our lives beyond the pandemic is an appeal to human inertia: For decades, the internet was a thing and remote work wasn’t, and after the pandemic, it’ll just feel like 2019 again. But the impediment to widespread remote work in 2019 and before wasn’t technological. It was social."

Why branch banking is dying in America (Visual Capitalist)
+ "In the last decade, 27,943 bank branches have closed in the U.S. The increasing prominence of mobile and digital banking is leading to lighter demand for in-person banking services."

Small business optimism wanes in January (Horan Capital Advisors)
+ "Today's Small Business Optimism Report by the National Federation of Independent Business (NFIB) shows continued deterioration in business owners optimism in January. The Index fell .9 points to 95.0 versus December's reading and taking it below the 47-year average of 98. The quarter over quarter absolute change is a minus 9 points and is the largest change since the -13.4 and -10.1 point change in April and May of 2020."

On the nature of long-term holds (AJ Wasserstein)
+ "To teach inquisitive students how to build a business while considering holding periods and exits, we often play a simple game of questions. We start by asking where the student is from. This game works in most U.S. locations. We then ask who the wealthiest people in that community are. Everyone can answer the “where are you from?” question correctly, and we hear a wide range of perfectly livable and wonderful tier 1, tier 2, and tier 3 cities. Most students pause at the second question, thinking for a few minutes before responding. When they respond, a clear theme emerges: the wealthy people they recall are all owners of businesses."

The shocking meltdown of Ample Hills — Brooklyn’s hottest ice cream company (Marker)
+ "What happened to the ice cream company the New York Times dubbed “Brooklyn’s Most Beloved”? The bankruptcy filings tell a straightforward story: “In practical terms, Ample Hills built out a factory in order to increase volume and lower costs, but the opposite happened, and the losses have mounted.” But Smith acknowledges to Marker that while the factory was “probably the financial decision that ultimately led to the bankruptcy, in a way it’s too simple a hook to hang your hat on.” Interviews with Smith and Cuscuna, along with more than a dozen employees, from scoopers to executives, reveal the perils of what can happen when a hot startup puts growth ahead of business fundamentals.As Smith tells Marker, having Disney behind them fueled much of the co-founders’ overconfidence, encouraging them to think they could become the next Ben & Jerry’s. Disney’s interest also helped the company attract investors, he says, which created “a runaway train of raising and raising and growth and growth.”"

Hiring executives and bad advice (Elad Gil)
+ "During break-out growth the following things start to happen:

"The More More Moment": the pace of everything at the company accelerates. More customers, more support, more interest, more partnership offers - more more more more.
Complexity goes up dramatically. You need to manage an ever expanding org with many new functions, geographies, products etc.
You need to hire, retain, and communicate with more multiples of people. Going from 5 to 15 people feels like roughly the same company. Going from 15 to 30 means a new layer of management but still doesn't feel like *that* big of a shift. However going from 15 to 100 means three or 4 more new organizational layers. How you communicate, recruit (internal recruiter now needed as well as paid executive search) and retain people shifts.
Bottle-necks & breaks emerge everywhere. Things will start breaking all at once - your backend servers will melt down, your managers' capabilities will hit their limits, your customer NPS will drop, your ability to be in every meeting stops."

The man who invented the Zamboni (The Hustle)
+ "As the great sage Charlie Brown once said: “There are 3 things in life that people like to stare at: a flowing stream, a crackling fire, and a Zamboni clearing the ice.” Watching one of these machines glide across a skating rink, restoring carved-up ice to glassy perfection, is efficiency in motion. A job that once required 1.5 hours of manual labor can be done by a Zamboni in just a few minutes. Technically, these contraptions are called ice resurfacers. But the company that originally invented them in 1950 — Frank J. Zamboni & Co., Inc. — has become so dominant in the niche market that even competing ice resurfacers are sometimes incorrectly called “Zambonis.”"

Kelie Morgan 2/5/21 Kelie Morgan 2/5/21

The Weekly: Edition #83 - February 5th, 2021

Right People, Right Seats, Right Direction

Gino Wickman, author of Traction: Get a Grip on Your Business, produced a wonderful framework for ensuring that every person in an organization is maximizing their talents for the good of the company. There are two pieces to the framework: right people, right seats.

By right people, Wickman means people who share your organization's core values as an owner, better known as a 'cultural fit'. This looks different for each organization as every company has its own combination of core values, written (and unwritten) policies, and standard operating procedures. For example, there are companies where all employees are remote, asynchronous, and use Slack as the only means of communication. There are others that expect butts in seats at 8 AM until 5 PM - no more and no less. There is no right or wrong set of core values for your business. There are only people who fit or don't.

By right seats, Wickman means that each person is employed in a role that they are capable of fulfilling and have the capacity to perform. Capacity can be defined as intellect, energy, time, and skillset. Wickman's framework for defining an employee's ability relative to the role is simplified to 'GWC': – Gets It, Wants it, and has the Capacity for it. When you have the wrong person in the right seat, often the company culture and customer experience suffers because they are not living up to your company values and are not communicating your brand's values to the market. This should be easy feedback to give. The harder situation arises when you have the right person in the wrong seat. Letting someone go who is a company fit, but can't perform a role to minimum expectations is difficult for any leader. But it is better for the company and for the employee's career in the long-term. Action must be swift but respectful, and with their long-term interests in mind. As we've written before, empathy is an extremely valuable skill for any leader.

This two part framework simplifies the process of utilizing the talent in your organization most efficiently, but it doesn't address retaining that talent. To that end, we would suggest adding one more piece to the framework - ensuring you have the right people in the right seats going in the right direction.

By right direction, we simply mean that every employee is crystal clear what their role is, and why it is important to the organization's performance as a whole. This gives their role clear boundaries and a sense of purpose within the larger mission. Compensation, feedback, and a path to promotion all matter immensely in retaining employees, but the importance of having clarity about one's role and purpose within an organization cannot be understated. As a leader, it isn't enough to hire the right people and put them in the right roles - you must provide a clear direction for their role, the resources to complete the job, and then get out of the way. As Wickman says, the way to grow your business is to constantly 'delegate, then elevate'. Put the right people in the right seats going in the right direction.

Sounds simple, but if it were, business wouldn't be so messy.

The outsider: how CEO-for-hire Frank Slootman turned Snowflake into Software’s biggest-ever IPO (Forbes)
+ "Slootman likes to say that he doesn’t have a formula, even after having pulled off similar magic at both Data Domain and ServiceNow. Talk to him at length, though, and watch the patterns, and you can see that’s not true. The former sailor runs pre-IPO companies like a tightly rigged high-performance watercraft, a captain with extreme confidence who will throw overboard anyone who shows the mildest mutinous inclination. “When I was a younger man, I was more tolerant; I always thought I could coach people to a place where they would be great,” Slootman says. “And 99 times out of 100, you’re wrong on that, which is the reason I [now] pull triggers much faster. I still don’t think I’ve ever taken anybody out of a job too soon. It’s [always] been too late.""

How Tesla’s charging stations left other manufacturers in the dust (Harvard Business Review)
+ "Over the past five years, the major auto companies have invested massively in electric vehicles (EVs). The Volkswagen Group in 2017 announced that they would offer 80 new electric vehicles across their brands by 2025 and electric versions of every one of its models by 2030. In the same year GM went public with plans to put at least 20 new electric models on the road by 2023. They are not alone; Bloomberg New Energy Finance predicts that 500 different EV models will be available globally by 2022. Yet, despite investments that add up to many billions of dollars, none of the major incumbent automakers seems to pose much of a threat to market leader Tesla, which has become nearly synonymous with EVs."

An introduction to intermodal rail (CSX)
+ "As over-the-road capacity tightens in specific markets, use of intermodal rail can help shippers diversify modal options and gain access to additional capacity. By double stacking containers, an intermodal train can transport the equivalent of 280 truckloads. The efficiencies of double-stacked rail transportation provide shippers a scalable shipping solution that can flex to meet seasonal surges as well as changes in demand."

The great unbundling (Benedict Evans)
+ "20 trillion dollars of retail, brands, TV and advertising is being overturned, and software is remaking everything from cars to pharma. Meanwhile, China has more smartphone users than Europe and the USA combined, and India is close behind - technology and innovation will be much more widely spread. For that and lots of other reasons, tech is becoming a regulated industry, but if we step over the slogans, what does that actually mean?"

Running a successful membership / subscription program (Craig Duncan)
+ "If you’re membership-curious — that is, a masochist, thinking about starting a paid newsletter (2020: the year “Substack” entered the realm of “Kleenex”) or launching a Patreon community or GitHub Sponsorship or, like me, rolling your own Memberful-driven jumble of offerings — then read on. I’ll try to relay my experience with the hope of demystifying the work and stresses of setting off on your own through the creative wilds of the world."

No one knows how much the government can borrow (Noahpinion)
+ "You might think that with the U.S. federal debt having surged to over 125% of GDP as a result of COVID relief spending — up from around 60% of GDP before the 2008 financial crisis, it might be time to think about borrowing constraints. And you might think that with Biden planning far more deficit spending in the coming years, it might be time to think about borrowing constraints. But in fact, we don’t actually know if it’s time to think about borrowing constraints! It might be that we’re heading into the danger zone, or it might be that the danger zone is still so far away that we could do a CARES Act every month and not run into trouble for decades."

What to know about music’s copyright gold rush (Pitchfork)
+ "Last month, news broke that Bob Dylan sold his songwriting catalog to Universal’s publishing arm in a deal reportedly worth more than $300 million. Although the singer-songwriter has been a renowned harbinger of epochal shifts for nearly 50 years, the move was merely the most illustrious in an ongoing frenzy of music copyright acquisitions. In the weeks since Dylan’s announcement, the likes of Neil Young, Lindsey Buckingham, and Shakira have sold the rights to their songs to a relatively new buyer on the scene: Hipgnosis Songs Fund, an investment company founded in 2018 by former artist manager and label head Merck Mercuriadis."

The secrets of Sovereign: how Richard and Christopher Chandler's transformed a $10 million family fortune into a cool $5 billion (Institutional Investor)
+ "By going into uncharted territory where most investors don't dare to tread, the Chandler brothers have, in the space of 20 years, grown a family fortune of $10 million into a cool $5 billion -- and they're still in their mid-40s. Along the way they have made waves by being among the first and biggest investors in such emerging markets as Brazil, the Czech Republic and Russia and playing an instrumental -- and controversial -- role in advocating economic reform and better corporate governance. They have waged, directly and by proxy, several bruising governance battles, most notably in Russia, where their militancy helped get the first independent director appointed at state-controlled gas giant Gazprom, and in South Korea, where their two-year campaign at refiner SK Corp. to oust chairman and CEO Chey Tae Won, who had been convicted of fraud, ended in failure last year."

He was facing life in prison. Now, he’s the CEO of the ‘Instagram for the Incarcerated.’ (The Hustle)
+ "In 2012, Bullock came up with the idea of a platform where families could easily communicate with their imprisoned loved ones by sending postcards and messages. He called it Flikshop.

The premise was simple:

Loved ones would download the app and choose a photo
They’d “send” it to an inmate
Flikshop would deliver their message on a postcard for $0.99

The venture was self-funded. In fact, Bullock says he didn’t even know what an angel investor was up until a few years ago."

Bowlus’s newest luxury trailer comes with built-in pet food bowls and a custom bed for pets (Robb Report)
+ "The California-based luxury travel trailer manufacturer has just unveiled its latest model, the limited-edition Terra Firma, which understands Fido’s important place in the family. The trailer comes with built-in food bowls, a personalized pet bed and a remote temperature control and monitoring system. That last feature may prove to be the most essential for pet owners, as it helps ensure the trailer is at a comfortable and safe temperature no matter how punishing the conditions may be outside."

Kelie Morgan 1/29/21 Kelie Morgan 1/29/21

The Weekly: Edition #82 - January 29th, 2021

Reciprocity

This week, we wanted to share a wonderful example (h/t Michael Arrieta) of how one thoughtful SMB owner is making a positive impact on all stakeholders of his business from his employees to his community at large. Jeff Rice is the CEO of Jackson Whole Grocer and wrote a heart-warming piece describing his efforts to ensure his employees are paid well, fed well, and treated with dignity. All of these efforts represent clear costs to his bottom line, but will certainly result in a more stable and productive organization over the long-term. His op-ed is a great reminder that SMB's impact on local economies can be tremendous and that the law of reciprocity is alive and well.

The law of reciprocity is universal in its application to business and negotiations. It is the fundamental principle that the more you give, the more likely a responding party is to reciprocate your action. Of course, balancing the amount given with the amount reasonably expected in return is where business is more art than science. For example, short-term thinking focuses on how raising employee's pay negatively impacts your bottom line today. But long-term thinking acknowledges how higher wages can create a better work culture, lower turnover, and happier, more productive associates. The effects of reciprocity are also clear in customer service, pricing, and employee interactions.

There's a reason "My Pleasure" has such a long-lasting effect on Chick-Fil-A customers.

There's a reason that passing lower costs to customers has created a flywheel effect for Amazon's business.

There's a reason that paying employees higher wages with full benefits has resulted in record low turnover among Costco employees.

And there's a reason why winning an argument with an employee today with a scorched-earth approach may damage your ability to lead your employees tomorrow.

In principle:
- what you allow, you encourage.
- what you do, you ask for in return.

Practically:
- how you treat employees is how they will treat your customers.
- how you treat suppliers is how they will treat you as a customer.
- how you treat your community is how your reputatation is established.

Reciprocity works in both virtuous and vicious cycles. The framework of reciprocity explains why certain situations lead to either win-win outcomes or tit-for-tat escalations. It isn't always easy for SMB owners to go out on a limb to raise wages, give more to their community, or pass savings on to customers because in small business, every dollar counts. Not all stakeholders are apt to respond in kind, but oftentimes, generosity has a funny way of coming back around in due time.

Can America make EV batteries at home? (The Hustle)
+ "Per the WSJ, China pretty much owns the industry from start to finish. The country controls:

Chemical processing: lithium (57% share of total worldwide production) and graphite (100%)
Anode/cathode production: anode (86%) and cathode (70%)
Manufacturing: battery cells (75%)

Industry execs say if the US wants its tech to keep up and costs to stay down, it’ll have to produce more batteries stateside."

How Amazon's complex shipping system works (Wendover Productions)
+ "About 13 million times per day someone clicks the order button on Amazon.com... but what happens in between?"

Yale survey on SMB owner challenges (Yale)
+ If you are an SMB owner and willing to contribute 3-5 minutes of your time to this Yale survey, we would greatly appreciate your input.

2020 migration trends: U-Haul ranks 50 states by migration growth (U-Haul)
+ "U-Haul customers made Texas and Florida their top two destinations from 2016-19. Texas had the largest net gain of one-way U-Haul trucks for three consecutive years before Florida flipped the order and became No. 1 last year. Texas is second for growth, and Florida third, for 2020. Ohio, Arizona, Colorado, Missouri, Nevada, North Carolina and Georgia round out the top 10 states for 2020 growth as self-movers continue to migrate to the Southeast, as well as markets in the Southwest, Midwest and Rocky Mountain regions."

DATA: Post-Pandemic Silicon Valley Isn’t A Place (Initialized)
+ "The meme right now is that the pandemic has finally kicked the Bay Area off its pedestal. Rents are down 24 percent year-over-year, according to Zumper. Local sales tax collections are also down by more than 40 percent. But the reality for us and our portfolio is that the Bay Area’s share of companies in our portfolio has been declining for seven years. The percentage of companies in our portfolio based in the Bay Area topped out in the 2014 fund at a little more than three-quarters. Following the 2008 financial crash, the region was both substantially cheaper and had a strong corps of technical talent. But by the mid-2010s, the stresses and pressures of the rising cost of living became widely known, it became much harder to compete against Big Tech companies on recruiting and so this trend began reversing as companies began spreading out. By 2018, fewer than half of our companies in the fund beginning that year were based in Northern California."

How the most hyped U.S. oil merger in a decade went bust (Texas Monthly)
+ "Forgiveness has long been the wildcatter’s elixir. As one retired oilman dryly noted of Hollub’s on-the-job training, “It’s tough to do big deals when your first big deal is as CEO.” Despite Oxy’s execrable stock price and Moody’s downgrade of Oxy’s debt rating to near-junk status, Hollub was a keynote speaker at a prestigious international oil conference last November, and in the same month she aced a fluffy interview with energy guru Daniel Yergin. In 2020 she was in position number 50 on Forbes’s list of the World’s Most Powerful Women, just slightly behind her 2019 ranking of 47—maybe because she’s proved that a woman can fail as spectacularly as a man, then move on. And, going forward, she can still lean on the advice of her childhood spirit guide. “If you never lose, you won’t know how to act,” Bear Bryant once said. “If you lose with humility, you can come back.”"

How Jackson Whole Grocery built a winning team (Jeff Rice, CEO of Jackson Whole Grocery)
+ "Beyond a love for food—my wife and I are passionate natural foodies—I knew nothing about the grocery industry when I learned the business was for sale. But I saw the opportunity to dig into something that had enough size and scale to be interesting, with close ties to the community we loved. Ten years later, the number of employees and revenue have doubled, and the business has become a community hub. As we grow, we keep the focus on People First front and center. We are committed to impacting our employees and our community members in a positive way."

How to build a culture of ownership, and other engineering leadership tips from Plaid & Dropbox (First Round Review)
+ "The easiest way to get clarity on impact is to have a KPI where it’s easy for people to understand how their work lines up to the KPI."

GameStop mania reveals power shift on Wall Street—and the pros are reeling (Wall Street Journal)
+ "Long-held strategies such as evaluating company fundamentals have gone out the window in favor of momentum. War has broken out between professionals losing billions and the individual investors jeering at them on social media. Meanwhile, the frenzy of activity is stirring regulatory and legal concerns, as well as the attention of the Biden administration. The White House press secretary said on Wednesday that its economic team, including Treasury Secretary Janet Yellen, is monitoring the situation. The newbie investors are gathering on platforms such as Reddit, Discord, Facebook and Twitter . They are encouraging each other to pile into stocks, bragging about their gains and, at times, intentionally banding together to intensify losses among professional traders, who protest that social-media hordes are conspiring to move stock prices."