Scarcity 

In a time when business is good and capital is abundant, why write about scarcity? Well, take a look at our weekly links below, and you'll note five pieces which capture the essence of economics - scarcity. One story of a financial scam caused by perceived scarcity (Plantfluencers), two on inherently scarce resouces (Mount Everest and California groundwater), and two on the dangers of scarce leadership (Trivia HQ and Homepolish).

The business of scaling Mount Everest is simple yet interesting in the fact that there is only one Mount Everest. Only one peak can claim to be the tallest point on Earth. After the Nepalese government opened the mountain up to foreign expeditions, the demand for a trip to the summit completely outstripped supply. The scarcity of the experience allows trip guides and companies to charge upwards of $100,000 per person a journey to the top.

In a tale of crops, water, and drought, Mark Arax drives home the point that scarcity drives commodity markets and can be a real zero sum game at times. Make no mistake, the concept of scarcity applies in every industry, but in different ways. 

"He did learn one lesson. You can plant only so many acres on ground that has no groundwater. From now on, they’ll grow on land that offers a double protection against drought. “State or federal water isn’t enough. We want good groundwater, too.”"

The story of the plantfluencers is reminiscent of the tulip bulb mania of the 1600's, with similar maniacal demand for various horticulture specimens being driven by social media posts.

"Growers like Maloy can’t just dash off thousands of these plants at once—it takes time to propagate and grow them—which has driven their price up even more. The monstera oblique sold for $10 a decade ago. Now, it can sell for over $2,000, according to a report from the Toronto Star."

Homepolish and Trivia HQ were both businesses with a classic lack of leadership which resulted in ships without a direction (or captain). The importance of human capital at the top of an organization cannot be overstated, and the amount of quality labor for executive level positions is probably more scarce than most realize. 

"The founders could be “intimidating and scary” to the young employees who worked for them, says an early former employee. Santos frequently raised his voice and “would openly threaten people, saying, ‘If you don’t do this, we can replace all of you.’”

Scarcity creates the potential for both economic opportunity as well as economic pitfalls. Scarcity of a certain resource or relationship can be the reason you win in business (if you own it), or the reason you fail (if you lack it). And sometimes, scarcity can be avoided altogether through win-win partnerships. If you can locate where scarcity exists in your industry, this is most likely the best point to leverage your time and energy to compete effectively and avoid the creative destruction of capitalism.

Why you can't sell your business (Permanent Equity)
+ If you've ever wondered what the top hurdles to selling your business are, look no further.

A kingdom from dust (California Sunday Magazine)
+ "Stewart Resnick is the biggest farmer in the United States, a fact he has tried to keep hidden while he has shaped what we eat, transformed California’s landscape, and ruled entire towns."

Bain's global private equity in 2020 (Bain)
+ "Prices set all-time highs in the US and remained near record levels in Europe, raising the bar for investors looking to create value. Holding periods declined as investors attempted to take advantage of higher prices on the sell side and exit before any impending recession. Fund-raising remained healthy, but the market skewed to larger, more experienced investment firms. And, while returns were attractive, they continued to come under pressure as the industry matured and competition intensified."

Millenial women made LuLaRoe billions. Then they paid the price. (Buzzfeed)
+ "LuLaRoe is now facing a $49 million lawsuit from its old supplier (LuLaRoe countersued the supplier for $1 billion) and a class-action lawsuit from angry customers alleging they were sold defective clothing they couldn’t return. Another $4.5 million lawsuit was filed in California in November 2019 on behalf of a group of consultants, who are alleging LuLaRoe is running an illegal pyramid scheme. The state of Washington is also suing the company for operating a pyramid scheme. Last fall, the company laid off all 167 workers in their Corona, California, warehouse and permanently closed it. And according to both the company’s former chief merchandising officer and its former supplier, DeAnne’s husband, Mark Stidham, has threatened “multiple times” to ransack the company’s coffers and flee to the Bahamas rather than admit wrongdoing in court."

How Mount Everest became a multi-million dollar business (The Hustle)
+ "Realizing that there was a business opportunity in leading Western adventure seekers up Everest, climbers like Rob Hall (Adventure Consultants) and Scott Fischer (Mountain Madness) convinced Nepalese officials to expand foreign access. John Krakauer’s 1997 bestseller Into Thin Air, which chronicled the death of 8 climbers (including Hall and Fischer) on one of these early expeditions, only further stoked demand."

Meat trimmings are a health food now (The Atlantic)
+ "Over the past decade, the gospel of meat and spice has not only endured, but flourished into a shelf-stable-beef extravaganza. Slim Jim’s sales have nearly tripled since their 2010 dip, and new companies have sprung up to offer organic, grass-fed, or minimal-ingredient protein batons virtually everywhere: corner stores, airport newsstands, office snack deliveries, the ads slotted between Instagram Stories. To put a meat snack in every hand, snack purveyors have pulled off a trick that might have seemed impossible in the days of the Macho Man: They transformed surplus beef into health food."

The marketplace 100 index - the top 100 consumer-facing marketplaces (a16z)
+ This is a useful list of the top digital marketplaces for consumers.

Inside the seething boardroom drama that poisoned HQ Trivia (Bloomberg)
+ "Its most famous former employee, quiz show host Scott Rogowsky, tweeted a post-mortem for the company the day after it shut down. “HQ didn’t die of natural causes,” he wrote. “It was poisoned with a lethal cocktail of incompetence, arrogance, short-sightedness & sociopathic delusion.”"

The untold story of how Homepolish’s extremely Instagrammable house of cards came tumbling down (Marker)
+ "But behind the company’s glossy Instagram feed was a much messier reality, according to Marker’s interviews with some two dozen employees and contracted designers — most of whom requested anonymity due to nondisclosure agreements or fear of having their reputations tarnished by association. They say Santos was an inexperienced CEO whose obsession with image led him to alienate his employees, his designers, and his customers. Instead of building a design juggernaut, the founder constructed something much more precarious — a fear-based culture where sound strategy couldn’t flourish, and where the pressure to grow led to reckless decision-making."

The Princess, the Plantfluencers, and the Pink Congo Scam (Wired)
+ "In the past three years, houseplant sales have grown by 50 percent, according to the National Gardening Association. It’s now a billion-dollar industry, and an increasing share takes place online. Plants that weren’t rare before are now in high demand. Growers like Maloy can’t just dash off thousands of these plants at once—it takes time to propagate and grow them—which has driven their price up even more. The monstera oblique sold for $10 a decade ago. Now, it can sell for over $2,000, according to a report from the Toronto Star."

We'd love your help.

If you stumble across something great, send it to weekly@permanentequity.com.

If you know an owner, operator, or someone who works with SMB's, please give us the highest compliment and send them our way. You can find previous The Weekly issues here.