The Weekly: Edition #55 - July 24th, 2020
Big Bites, Chew Slowly
Nathan's Annual Hotdog Eating Championship is a sight unlike any other. The bites, the (lack of) chewing, the speed of attack - it's an iconic American experience. Competitors shamelessly take bites that rival most people's dinner portions, digesting them without so much as breathing. It's a race to cram down, and keep down, the most dogs.
This is small business in a nutshell.
Biting off more than you can chew, and hoping you can keep it down, is a regular practice in growing a small business. But, as the piece we higlight today illustrates, what often gets lost in this process is the line between your business's capacity and your business's capabilities. Two questions come to mind for reflection: how can you sell your business's product or services (capacity) while maintaining an honest dialogue about what you can or can't actually provide (capabilities)? And at what point does growth actually harm your business?
Growing a small business is about strategically selling up, over promising and over delivering. But there comes a point in time at which over-promising crosses the line from reality to an outright lie. This never fails to result in under-delivering to your customers, and the vicious cycle of losing customers, employees, and investors can compound quickly. So how do you balance growth, business capacity, and business capability?
A couple lessons from ScaleFactor's demise:
1) It's OK to oversell your capacity, but dangerous to oversell your capabilities.
The 'fake it til you make it' may work for a time, but eventually, you have to actually 'make it', or the chickens will come home to roost. Moving fast and breaking things only works if you learn early and at a small scale. Breaking things at scale doesn't normally work as a viable business strategy. ScaleFactor (no pun intended) sold its services ahead of where the technology actually was, anticipating that they would eventually be able to catch up - a white lie that unraveled the entire ball of yarn. As business owners, it is important to know where fact and fiction separate when you make promises to customers.
2) Validate your vendors' capabilities on a small scale before adding capacity.
ScaleFactor may have had the capacity to deliver on its promises for back-of-house accounting functions, but it vastly oversold its capabilities as an AI-driven accounting service for small businesess. Worse, they convinced business owners who knew how to run their financial operations to outsource their accounting to a company that didn't know how to run their accounting operations at all, resulting in costly errors. While outsourcing may free up time and resources, it offers no flexibility and often leads to greater resources being tied up if the outsourcing effort goes sideways. As the Russian proverb says, trust but verify.
As business owners, we understand how hard it is to turn down new opportunities that appear enticing at first glance. But there is a balance to strike between your employees' capacity, your business's capabilities, and your desire for profitable growth. If the desire for growth outstrips your capabilities, it is your reputation that will ultimately suffer. If you're going to take big bites, remember to chew slowly.
ScaleFactor Raised $100 Million In A Year Then Blamed Covid-19 For Its Demise. Employees Say It Had Much Bigger Problems. (Forbes)
+ "“Because evenings are for families, not finance,” ScaleFactor’s website proclaimed. But some of the startup founders and cafe owners who did take the night off soon regretted their decision to hire ScaleFactor: they didn’t get what they paid for. Instead of software producing financial statements, dozens of accountants did most of it manually from ScaleFactor’s Austin headquarters or from an outsourcing office in the Philippines, according to former employees. Some customers say they received books filled with errors, and were forced to re-hire accountants, or clean up the mess themselves."
How Shopify is keeping your neighborhood bakery afloat (The Hustle)
+ "When the pandemic hit, Shopify:
Signed up 62% more sellers between March 13 and April 24.
Extended its free trial from 2 weeks to 3 months.
Added $200m to its loan program for struggling businesses."
The economics of railcars is complex (Freight Waves)
+ "Changing market demand results in a high variance of cars built per annum. Railway freight traffic witnessed a volume growth spurt between 1980 and 2006. Then, with the Great Recession, railway cars available (market supply) far exceeded the market demand. Railcar investors were hurt. Badly. Car utilization rates declined. According to a March 2009 survey by Longbow Research, “as many as a half million cars went to storage.” Lease rates fell an average of 21 percent year-over-year in a Longbow Research report. Progressive Railroading’s March 18, 2009 outlook for new railcar deliveries in 2010 fell to fewer than 17,000 units. In contrast, 40,000 to 50,000 new railcars are delivered in “normal good years.”"
The story of Ross McLellan's financial crimes (Institutional Investor)
+ "McLellan has since been tried and convicted, lost an appeal, and, on July 7, said goodbye to his wife and four young children to report to federal prison in Ayers, Massachusetts, to serve out an 18-month sentence. The crimes he was convicted of — overcharging clients by millions as a young executive at State Street and conspiracy to do so — occurred nearly a decade ago. McLellan is inmate no. 99476-038."
Boom time for death planning (New York Times)
+ "Another new company, Lantern, which calls itself “the single source of guidance for navigating life before and after a death,” saw a 123 percent increase in users, most of them under 45. Lantern’s tone is soothing and earnest, but not everyone takes that tack. Cake skews playful. It features a tombstone generator and suggestions like “Viking funeral” and “shoot my ashes into outer space.” New Narrative, an event-planning company for funerals and memorials, introduces itself with a wink: “We’re not your grandma’s funeral (… unless it’s your grandma’s funeral).”
Airbnb was like a family, until the layoffs started (New York Times)
+ "“I have a deep feeling of love for all of you,” Mr. Chesky said, his voice cracking. “What we are about is belonging, and at the center of belonging is love.” Within a few hours, 1,900 employees — a quarter of Airbnb’s work force — were told they were out."
The pandemic is exposing more americans to remote work, and many are latching on to the practice (Morning Consult)
+ "Overall, 73 percent of U.S. adults who have careers where remote work is possible report that the pandemic has made them feel more positively about the prospect of remote work. And given the option, three quarters of these workers say they would like to work from home at least 1-2 days a week once the pandemic is under control."
The parrot king (Audobon)
+ "The organization operates a licensed zoo in Germany, and birds are also kept in the personal aviaries of ACTP’s members, who pay $1,100 to join. Surplus parrots that members and zoos don’t want are traded or sold to outside breeders. One ACTP representative, for instance, sells Hyacinth Macaw chicks at his pet shop that can go for around $18,000 apiece. How many birds are bred versus collected or sold nobody knows, because ACTP does not publicly disclose its finances or structure."
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