Antifragile

This week, we detailed our thoughts on how COVID-19 would impact small businesses. From labor shortages to supply chain interruptions to financing needs, the impact of the coronavirus remains to be seen, but the cracks are beginning to show.

Some risks represent potential, quantifiable events (risk of losing a customer, financing risk, hiring and firing), but other types of risk live so far out on the probability curve (an asteroid, epidemics, and nuclear wars fit this bill) of possibilities as to be impossible to predict. 

But in boom times and in times of extreme uncertainty, the principles of durability remain the same. Playing conservative with probabilities is probably the best way to ensure your business lasts for multiple generations.

Maintain a fortress balance sheet. Sustain long-term thinking. Lean into partnerships. Maintain access to capital and liquidity. Lack of key-man risk. These are the building blocks of a strong small business.

We know that not all businesses are able to check each box. This is what makes small business so difficult - often you are your own financier, CEO, and CFO. You build AND run your business. But times of uncertainty offer opportunities to build new or develop deeper relationships by serving your customers, suppliers, and employees - by going the extra mile.

Planning and preparing provides an opportunity to act out of choice and not out of need. In these turbulent times, Permanent Equity is working closely with leadership at our family of companies and trying to be supportive in every way possible. As operators ourselves, we understand and share in the stress, anxiety, difficult decisions, and long hours. If we can help your business in any way, please do not hesitate to reach out.

Operating in limbo, investing as usual - notes on COVID-19 (Permanent Equity)
+ "Pandemics are not something small businesses plan for. As we have light-heartedly referred to in the past, most businesses are loosely-functioning disasters and small business operators are in a day-to-day knife fight. There is rarely time to contemplate what-if scenarios generally, let alone one as specific, uncontrollable, and seemingly unlikely as a global pandemic. Nobody could have expected the coronavirus or its widespread impact. In fact, to the contrary, based on market dynamics, and our discussions with sellers and those opting not to sell, there was an expectation that good times would keep rolling in 2020 and beyond."

Barnes & Noble’s New Plan Is to Act Like an Indie Bookseller (Bloomberg)
+ "The test will be whether each bookshop can be mindful enough of the community it’s attempting to sell to and curate a stock appealing enough to bring back readers. At the New York flagship, changes as small as displaying more softcover books than hardbacks, which are less practical for reading on the subway or in a nearby park, can drive sales. “I don’t want every Barnes & Noble to become a version of Union Square,” Daunt says. “I want Union Square to be the obvious store to have on Union Square, in New York City, where it becomes really sophisticated, metropolitan, urgent, vibrant, young, energetic, sharp-elbowed—because that’s what’s going on in the city out there.”"

How the Assoulines made their name on books to be seen (and occasionally read) (The Cut)
+ "The family looked to fashion and luxury for inspiration early on. Martine was the director of communications for the French fashion label Rochas; Prosper was running a creative agency specializing in advertising for luxury brands. “At the time, shoes were very important, and it was the beginning of Louboutin, et cetera,” Prosper says. “Everybody was crazy about it. And the price of the shoes was $600; it was huge.” Assouline saw that a book, properly made and marketed, could be sold the same way, in the same places, to the same clients."

What can be done in 100 days? (Grant Thornton)
+ "In surveying the PE community, it became clear that almost 90% of PE firms use the 100-day plan. And further, plans are most likely created during the diligence process by an array of people, including operating partners and fund team members. What’s more, during those key first 100 days of implementing the plan, PE firms usually make changes to financial operations and reporting systems, working capital lines, IT systems, supply chain and purchasing agreements"

Carlyle Group’s $1.4 billion folly: inside the biggest buyout loss In Washington, D.C. firm’s 33-year history (Forbes)
+ "The Acosta bankruptcy is a cautionary tale for today’s frothy private equity boom. America now hosts thousands of PE firms and, according to PitchBook, a quarter of their deals involve private equity firms on both sides of the transaction. So long as the U.S. economy grows and the stock market continues to rise, this precarious game of swapping companies among themselves, often at increasingly higher multiples, will persist. But eventually, the music will stop."

Why all the Warby Parker clones are now imploding (Marker Media)
+ "But for anyone familiar with the harsh realities of the DTC model, it’s affirmation of something much more fundamental: Once you get past all the shiny objects in the DTC category — the plump VC rounds, the sleek sans serif designs, the experiential storefronts in hot retail locations, the podcast ad blitzes — it turns out it’s extremely difficult to actually make the economics work. Ever since the godfather of the DTCs, Warby Parker, emerged on the startup scene in 2010, venture firms have funded hundreds of startups trying to mimic that model — from makers of hearing aids and strollers to paint and erectile dysfunction medication. According to eMarketer there are now more than 400 DTC brands. Since 2012, consumer brands have raised more than $3 billion, Digiday reported last year, with about half of that capital raised in 2018 alone."

Stripe teardown: how the $35B payments company plans to supercharge online retail (CB Insights)
+ "Stripe is focused on capturing a growing share of future payments volume in an increasingly internet-based economy. The global e-commerce market is currently estimated to be worth $4T in 2020, according to eMarketer. Stripe often states that less than 8% of total commerce occurs online, suggesting roughly $26T in global, omnichannel retail sales."

The universe's biggest gear reduction - one googol gear reduction (Daniel De Bruin)
+ "This machine has a gear reduction of 1 to 10 a hundred times. In order to get the last gear to turn once you'll need to spin the first one a googol amount around. Or better said you'll need more energy than the entire known universe has to do that."

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