The Knife Fight

Edition #1

July 12th, 2019


Here at Adventur.es, we're in the business of helping small to mid-sized business owners run, grow, and transition ownership of their business more effectively. With that goal in mind, we are proud to announce The Knife Fight, a weekly newsletter for operators in the trenches.


FOOD FOR THOUGHT

How Costco gained a cult following by breaking every rule in retail (The Hustle)
There are two great customer-centric lessons to take away from this piece that are applicable to all businesses.

1. Instead of finding opportunities to grow margins, Costco passes savings on to customers, building up massive amounts of goodwill that can be monetized later.

This sounds counter-intuitive for a business not to maximize revenues and therefore profits on a short-term basis. But when a subscription business like Costco chooses to pass on savings to consumers, they are building a brand. In the hyper-competitive retail market, Costco knew that creating a brand based around serving their customers would yield massive long term results. Sound familiar? Amazon has used this strategy since day 1 to solve the 'retail search' problem, but based their approach around the limitless space on the internet (read Zack Kanter's notes on 'What is Amazon' below). Ironically, this has led Amazon to stocking an infinite amount of SKU's on their marketplace, leading to a paradox of choice for consumers. Costco took the opposite approach.

2. Costco is obsessed with what their customers want, and knows how to give them exactly what they're looking for.

"The average warehouse stocks just 3,700 SKUs at any given time, less than 1/10th of most supermarkets’ 40,000 to 50,000 items, and not much more than the average corner store. Often, Costco provides only one or two brands in a given category... In doing so, Costco solves the paradox of choice — a conundrum consumers encounter when an abundance of options causes stress and delays decision-making."

To compete with Amazon, sometimes less is more. Costco got to know its customers' needs intimately enough that they were able to focus their supply in bulk, thus reducing supply costs and passing these savings on to their customers. The positive feedback loop of knowing their customers' needs, stocking it in bulk, and passing savings on built the brand that we all know and love today.

The messy story of a bitter sibling rivalry at Knight Oil Tools (New York Magazine)
This piece isn't for the faint of heart, but certainly reflects the messiness of every day family business when relationships and family dynamics break down. There are three lessons we can conclude from this story:

1. Succession planning is crucial.
2. Corporate governance matters.
3. Pride poisons everything.

Even when things go sideways with family relationships, having a plan in place for generational transition and a strong corporate governance structure can guide the hairiest of situations to a soft landing. #1 and #2 don't totally negate #3, but can certainly go a long way in turning a situation like the one above from disastrous to manageable.


OPERATIONS

What is Amazon? (Zack Kanter)
+ Long read but thoughtful description of Amazon vs. Walmart as competing algorithms that are solving the "retail search" problem.

Amazon - the new king of shipping? (Axios)
+ "Researchers found that nearly half (48%) of Amazon packages are delivered by the company itself." Take note of how Amazon is operating: going from partner to competitor overnight.

Ocean Spray uses Uber Freight based on the balance of cost and service (Freight Waves)
+ Don't count out Uber as an on-demand logistics solution!

Fastenal's SmartStore Vending program (Fastenal)
+ If you are an operator in the industrial space, this might be a good option for on-demand inventory from Fastenal.


MONEY

Subway got too big. Franchisees paid the price. (New York Times)
+ This is the tragic but not uncommon effect of misaligned incentives in franchises: competitive forces can wreak havoc on an owner-operator when franchisees are forced to compete with one another.


DEMAND

Rethinking LTV and CAC metrics for Saas Businesses (Loomly)
+ For recurring revenue businesses, lifetime customer value and customer acquisition costs are key levers for success. Depending on the margins and nature of your business, your LTV/CAC metrics will look different.

Conversion: The Most Important Internet Metric of All (Bill Gurley)
+ This is an oldie, but a goodie. Gurley makes the case that optimizing conversion may be the single biggest ROI for an operator with an internet presence.


HUMAN RESOURCES

How a 216-word email pitch turned into a $2.6B acquisition (First Round Review)
+ Worth noting: as a founder and CEO, it takes a lot of humility to step down and put another CEO at the helm, even if it is the most rational decision.


WEIRD

In Montreal, 70,000 households move on the same day (City Lab)
+ This is an incredible situation of how demand and supply can be manipulated to the extremes through policy and cultural norms.


We'd love your help.

If you stumble across something great, send it to knifefight@adventur.es.

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 Knife Fight issues here.