Why Being the Uber of ____ Failed.

Uber_of.jpg

Over the last 20 years, there have been signature companies that have completely transformed paradigms and platforms that redefine the way we consume products and services - three examples would be AAPL, AMZN and Uber. As other companies rise up and look to gain prominence, the natural tendency is to call themselves the AAPL of ____ or the AMZN of ____, and most recently, the Uber of ____ [Insert industry or geography]. An example of this 'phenomenon' would be the consumer electronics company, Xiaomi, which has effectively branded itself as the AAPL of China. Companies that have branded themselves as the "Uber of ____" have, in most cases, found that replicating the business model does not equate to replicating the success.

The business model can be replicated.

A company that calls itself the "Uber of ____" is effectively saying it is replicating Uber's labor-driven marketplace business that matches a very large supply base of drivers with a healthy demand of riders in an on-demand way and at a low price-point. This business model can certainly be replicated in other sectors beyond transportation such as food and product delivery (DoorDashPostmatesInstacart, etc.), assistance with everyday tasks (TaskRabbit), and house cleaning. These companies ("market-makers") all fundamentally rely on the ability to connect independent contractors, who can flip on their availability and desire to work at-will, to satisfy consumer demand for their services. Like any marketplace, the transaction price fluctuates based on the balance of supply and demand. The market-maker, for the most part, scrapes a small percentage fee off every transaction.

Scale:

Marketplace businesses require a huge amount of scale as each transaction yields a small % of the actual price paid by a customer. Most companies account for this on a net revenue basis where, for example, $100 million of transactions (volume) may only yield $15 - $20 million of net revenue and that's before accounting for any G&A costs.

Labor-driven marketplace businesses are unique in the sense that in order to build scale, they rely on BOTH healthy supply and demand, neither of which can be directly controlled by the market-maker. However, the market-maker can indirectly control supply and demand with incentives and promotions (e.g., incentive fees to the labor supply-side with higher % payouts and discount promotions to the demand side). This sounds great, but the reality is that these types of promotions that are required to get both sides of the market hooked to the service create a hugely unprofitable business initially, even at the net revenue level - essentially, you pay out more to your labor supply than you collect from the customer demand side. However, once you establish a healthy market, you can essentially 'flip-on' profitability by reducing subsidies to your labor and eliminating discounts to your customers. It doesn't happen overnight and both sides of your market tend to be fickle, especially if competing market-makers exist.

Capital:

Given the costs associated with investing in markets (through subsidies and discounts) to build scale, companies need an enormous amount of capital to stay afloat. Even those that can generate positive net revenue (customer collections minus labor payouts), still have to cover a lot of other costs (marketing, corporate salaries, servers, investments in new technology), etc.). These below-the-line costs inevitably create companies that blow through capital faster than it can be raised.

The Degradation of Writing

Ask a new hire to build you a financial model, and you will likely get exactly what you asked for– a fully functional and integrated tool with all the ‘bells and whistles’ that makes you think, “wow, this is amazing.”  Ask that same new hire to draft an email explaining what the model is and how it addresses a fundamental business problem, and you will likely get something back that makes you think, “wow, has this kid ever written an email before?”  It is not only embarrassing, it is also very sad.

We live in a society where communication is done 140 characters at a time.  It is a society that embraces expression through photos, emoji and messaging.  Interpersonal communication has been degraded to the point where we have removed the “personal” part to live within digital communities.  When was the last time you hand wrote a letter to somebody?  There is a generation that still embraces handwritten letters, personal emails, and general written communication.  Unfortunately, that generation is not the one that our future relies on.

It is all about efficiency.

The proliferation of social media through mobile has enabled an on-demand world where personal communication is “hashtagging” a photo, posting links to others' content, ‘liking’, re-tweeting, multimedia messaging, or SMS texting.  Terms like “LOL”, “OMW”, “NP”, “BRB”, and “IMO” are now common place at home, with friends, and even with coworkers.  Large corporate enterprises have also adopted internal messaging platforms that have replaced communication that used to be done exclusively through email.  This phenomenon continues to morph as we see more platforms embrace short-form and new types of communication.  The new communication paradigm is all about efficiency – saying more with the least amount of words, or in some cases, no words at all.

Efficiency comes at a cost, but also presents an opportunity.

So while the new communication paradigm offers us speed and efficiency, it also fundamentally degrades our ability to create and write.  Some say writing will fall into obsolescence in a similar way that texting has replaced phone calls.  I disagree.  Just like there is no replacement for hearing someone’s voice, there is nothing that will ever replace the ability to articulate thoughts, observations and ‘a message’ via a well-constructed, coherent piece of writing.  It may become less important, but it will never go away.  As short-form communication continues to overshadow traditional writing, the ability to actually write will become an increased area of differentiation in the workplace.  But, great writing (especially in business) needs to embrace the same type of efficiency that we have grown so accustomed to - it needs to be framed in a way that differentiates the 'truly important' from the 'merely interesting'.

Creativity on the decline.

Perhaps most disturbing is the fact that people are no longer creating original content; they are merely 'sharing' or 'liking' other peoples’ work.  A recent article indicated “original broadcast content” sharing on Facebook is down 21% year-over-year, a further decline from the 15% decline seen last year.  Just to be clear, original content is not defined strictly as long-form writing – it also includes one’s own pictures or other self-curated media.  However, this trend does point to a larger theme - the overall indifference of being original in today’s society.

There was a movie in 1995 called “Mr. Holland’s Opus” about a music teacher (Glenn Holland) who tries to get his students to embrace the arts through unorthodox teaching methods.  Towards the end, he receives news that the school has budget issues and will need to cut all curriculum around the arts.  As he tries to fight for his passion, he says:

"Well, I guess you can cut the arts as much as you want…Sooner or later, these kids aren’t going to have anything to read or write about."

It is an impressionable quote because the movie was made over 20 years ago, but it speaks to the very issue that embodies the troubling Facebook statistics – it is far easier to share somebody else’s work than create your own; it is far easier to text than to write….it is far harder to exercise that portion of the brain that values self-expression as a fundamental driver of personal identity.

Bringing it full circle.

The ability to build a financial model or another analytical tool is an extremely valuable skill.  However, for all the people that can build and automate those tools, there are few that can synthesize their value in written communication. The value today actually resides with the people who understand the tools and problems they try to solve - those that can "bridge the technical with the practical".  Clients don't care about your models; they care about solving problems.  After all, I have seen analytical tools become completely autonomous, but I have never seen the automation of interpersonal connection that explains the answers to the very questions that people ultimately care about. 

Writing is nothing more than the distillation of a lot of ideas to provide an informative perspective.  As social media continues to drive our communication, I think it is more important than ever that we not lose sight of the fact that even the most sophisticated emoji will never explain a perspective, nor will 'liking' somebody else's work ever be as valuable as sharing our own.  To enhance our digital and physical communities, we need more people to contribute their unique perspectives on the issues that they find most important.  Only then will we fully appreciate the importance of thoughtful and original communication in a digital world.

Lance Armstrong Still Matters, and Here's Why...

Lance Armstrong. You can love him. You can hate him. You can adore him. You can despise him. Armstrong mattered when he won the World Cycling Championship in 1993. He mattered when he won a stage at the Tour de France in 1995, just days after his Motorola teammate, Fabio Casartelli, was killed when he crashed on a mountain-top descent. He mattered on October 2, 1996, when he was diagnosed with metastatic testicular cancer. He mattered in July 1999 when he won his first Tour de France. He mattered in July 2005 when he won his 7th Tour de France. He mattered in January 2013 when he finally admitted that he deceived the world for nearly 15-years, and that he did, in-fact, use performance-enhancing drugs during all 7 of his Tour de France victories. He matters today...

Cancer:

Lance Armstrong was diagnosed with advanced metastatic testicular cancer on October 2, 1996 - a condition so advanced that it had invaded his abdomen, his lungs, and his brain. His doctors gave him a 20 - 50% chance of surviving - an optimistic estimate just to keep his hope alive. Miraculously, after a number of surgeries and numerous rounds of chemotherapy, Armstrong was declared cancer free and began his return to cycling in 1997. There was nothing fake about Armstrong's cancer - it was as bad as he said it was; he was as desolate as they said he was.

Armstrong was involved in cancer therapy trials at Indiana University, where he received the majority of his treatment - most of those trials were related to variants of chemotherapy that wouldn't scar his lungs so that if he did survive, he could have a chance of cycling again. But...he did not have access to many of the treatments that high-wealth individuals like Steve Jobs had. And you want to know why? He didn't have healthcare at the time. Most people don't know that the only way he got his cancer treatment was because one of his sponsors, Oakley Sunglasses, stepped in and covered the costs. It's the very reason that Armstrong remained so loyal to Oakley and its founder (Jim Jannard) throughout his career - Oakley would later cut all ties with Armstrong as detailed a bit below.

Post-Cancer Return:

He was a very different cyclist post-cancer - he lost 20 lbs. and the once-muscular triathlete-turned-cyclist was a very lean shadow of his former self. He did not perform well upon his return to pro cycling and was virtually ready to quit, until his friends convinced him to give it "one more go". Armstrong ended up changing his cycling style by increasing his cadence and using a lower gear - the once powerful cyclist was now using a much smaller gear, but was peddling at over 100 RPMs. The change in style allowed him to rely more on his aerobic endurance than on his muscular power - it made him a threat both in the time-trials and the mountain climbs. Hence, his increased aerobic dependence made EPO and blood transfusions the perfect method of cheating as both provided increased oxygen to the blood.

7X the Miracle:

And so the man once regarded as a threat to win single stages shocked the world by winning the Prologue (opening time trial) at the 1999 Tour de France, beating Alex Zulle by 8-seconds on the line - a large margin of defeat for such a short distance. Armstrong went on to win the 1999 Tour de France by over 7-minutes - to give you a sense of how big of a margin that is, most Tours are won by a minute or two. The great Greg LeMond won the second of his two Tour de France victories by just 8 seconds. And the rest as they say is...history. After the 1999 Tour, Armstrong went on to win the next 6 Tour de France's, eclipsing the record of five held by a number of cyclists. The closest victory he ever had was in 2003, when he won by a mere 62 seconds, a decent margin by most standards, but a razor-thin margin for Armstrong.

The Comeback and Fallout:

In 2009, Armstrong returned to the Tour de France believing that he could win the Tour "clean" - he eventually finished a very reputable 3rd place - a remarkable feat for a guy who had been out of pro competition for 4 years and was nearly 40 years old. He made one last run in 2010, which turned into a disaster due to a number of factors including a fall. And so many, including me, thought the Armstrong story was basically played out - cancer survivor turned 7x Tour de France winner turned philanthropist turned washed-up cyclist finally ready to settle into retirement. Armstrong had one problem - a guy named Floyd Landis. Landis was a former teammate who won the 2006 Tour de France only to be stripped of that title for testing positive for a banned substance and suspended from the sport for two-years. Upon his return, he sought out a position on Armstrong's Team Radio Shack, only to be told to effectively "take a hike". Landis turned out to be the grenade that exploded in Armstrong's face. Landis went on to tell his story to the press about the years of doping practices that took place on Armstrong's USPS team. But, then he went to the Federal Government, which opened an inquiry into the matter as Armstrong's main sponsor for the team was the USPS - a division of the Federal Government. Several inquiries and numerous depositions later, the United States Anti-Doping Agency (USADA) turned over its findings to the UCI, which found enough credence in the report to strip Armstrong of all 7 Tour de France victories. What transpired within a matter of weeks was an avalanche that completely buried Armstrong - all of his major sponsors left him (Nike, Oakley, Trek, Giro, FRS, etc.) - an event that Armstrong calls a "$75 million day" and then then the biggest hit came, Armstrong was effectively forced to resign from the Livestrong Foundation - the charitable organization that he started to provide support and research in the fight against cancer.

A Complicated Legacy:

Whether you like it or not, Lance Armstrong raised $500 million for the Livestrong Foundation and provided hope to thousands of people who faced cancer - you can say it was a facade for his lying and cheating, but I know a lot of liars and cheaters who haven't raised a dime for anything good. And Armstrong was more involved in that organization and the cause itself than most would like to believe. He visited people; he sent text messages to people battling the disease; he recorded video messages; he showed up at events; he showed up at hospitals - he was an active member of the cancer community. Who am I to say whether it was genuine or not? But I do know this - he was there and he sent one of the most powerful messages that has ever come from a professional athlete or other public figure who has survived an illness as pervasive as cancer is: "Not only can you overcome the odds and beat the disease; you can actually be better than you were before." In a 2008 Livestrong blog post, Armstrong wrote to one of the many people battling cancer that he built a relationship with - a kid named Jimmy Fowkes. He wrote:

"Lastly, My thoughts and prayers go out to Jimmy Fowkes who is one of most amazing young men I have ever met. He is a survivor who is awaiting test results on a possible recurrence. He is an inspiring individual who has not only raised large sums of money for the LAF but who has taught so many people what it means to LIVESTRONG. Best wishes to his little sister Molly, and his parents Margo and Dan whom I have come to know well. They are truly part of the family and as I told Dan over the weekend, the entire LIVESTRONG Army stands ready to help."

Fowkes endured 4 recurrences of brain cancer and went on to raise $230,000 for the Livestrong Foundation. He went on to attend Stanford University. He remains the only four-time winner of the National Collegiate Cancer Foundation scholarship. Fowkes passed away from cancer in February-2014 and Armstrong sent out the following tweet:

To this day, he still sends private videos and notes (like the below) to people afflicted by cancer - there is no longer any media coverage. There isn't hoards of people lauding him anymore for being some hero. So I have no idea why he does it. But does it really matter? The act of it counts for something - it has to:

"Hi, Melody. I’m Lance Armstrong. I just wanted to send you a short video message to let you know that I’m thinking about you and I’m pulling for you. I understand you’ve had some up-and-down news when it comes to your health. Just hang in there and know there are brighter days ahead. If there’s anything I can ever do to help you, please let me know. In the meantime, keep kicking cancer’s ass. Best of luck."

So while it may sound like I'm a fan of this guy who ignores the fact that not only did he cheat and lie, he made life hell for anybody who posed a doubt (via lawsuits, taunting, etc.), I'm not. I'm fully aware of the brutal nature at which he treated anybody who doubted the credibility of his miraculous recovery. I think it's disgusting. In some ways, I think his actions in response to the allegations of wrongdoing were worse than the wrongdoings themselves.

Armstrong lives a quiet life now that he says is "thinning out". He is still facing a number of lawsuits that threaten any semblance of wealth that remains. He has five kids now, a gorgeous girlfriend / partner (who is also mother to one of his children), and frequently does interviews where he discusses the very things he's despised for. He says he's sorry, but nobody really knows if he's sorry for cheating -or- if he's sorry for getting caught for cheating.

I don't know what the future holds for Lance Armstrong, but for the vast majority of people that hope we never hear from him again, I'm not one of them. I think he still holds a lot of 'potential' to do good for two fights:

  1. The fight against cancer, and,
  2. The fight against that fine line that exists between 'winning' and leaving your character behind in the process. 

I'm not actually sure which is more significant or relevant in today's world. They're both afflictions that the new generation is constantly faced with - one of the afflictions (cancer) invades the body. The other affliction (the pressure to win even if you have to lie, cheat, and steal) invades the mind. Both awful; both pervasive.

And that's why Lance Armstrong still matters - he's been afflicted with both, and [I believe] he has much left to teach us about those fights - one of the fights [cancer] can teach us about the power of hope and courage; the other [lying, cheating  and stealing] can teach us about the power of deceit.

Our World: Ironic or Moronic?

For all the great advances that we have made in the world, whether it be progress in technology, evaluation of financial markets, social policy, and other areas of society, there are still some things that just boggle my mind. In some cases, these things are "ironic", in other cases, one could argue that they are "moronic". Here's a few thoughts to chew on - "Ironic" or "Moronic"?

  • The Defunct Steel Mill: In a 90-day period engulfed with one of the most challenging currency environments in recent memory, AAPL (the most valuable company in the world) produced $75.9 billion in revenue, sold 74.8 million smartphones at $691 per-phone, generated the highest quarterly profit ever ($18.4 billion), minted $305 million per-day in operating cash flow...and is still valued as a "steel mill on its way out of business". My take: Moronic.
     
  • You Can't Monetize Ubiquity: On the other hand, GOOG is lauded for its mobile operating system called Android (the most popular in the world by-far), but according to court testimony, the platform has ONLY generated $31 billion since its inception in 2008. Meanwhile, AAPL generated $175 billion from its smartphone business (phones + services) in its past fiscal year (FYE Sept-2015), and $58 billion in the last quarter (FQ Dec-2015). Hmmmm... My take: Both - Ironic that such a massive platform like Android brings in so little money (we all knew it was small - just not THAT small); Moronic that the market doesn't recognize that fact.
     
  • Valuations: In the holiday quarter, AAPL reported a profit ($18.4 billion) that was 38x that of AMZN's reported profits ($482 million), yet AAPL trades at a Price-to-Earnings (P/E) multiple of 10.2, while AMZN trades at a P/E multiple of 427.9 (43x that of AAPL). So in short, AAPL generates 38x more profit than AMZN (Q4-15 was actually one of AMZN's most profitable quarters), yet is valued 43x less (on a valuation multiple basis).

    Who has the Monopoly?: So you can justify that by saying AMZN is a monopoly and reinvests all of its profits back in its business, right?  Well, it was reported in Nov-15 that AAPL captured 94% of the profits of the enormous smartphone market while only shipping 14.5% of the total volume. I don't think AMZN is capturing 94% of profits in any of its business segments and I would bet its market share far exceeds 14.5% in most of its core business lines.  Even true monopolies don't have 94% profit share! So even if AAPL loses profit share, its gross profit in terms of total dollars (a function of market share) still has some runway - even in the smaller market for premium handsets (>$500). My take: Moronic.
     
  • Cable Service: I can get car service in 2-minutes with the touch of a screen, food delivered in 10 - 15 minutes with an app, yet if I need my cable fixed, I am told that a service technician will arrive anywhere between 8AM and 4PM. My take: Moronic.
     
  • Let Me Pull a "Fast One" on You (Maybe): Taxi drivers still think the "cash-only, let me take you on a tour of the city" tactics are going to work with far-more sophisticated consumers that can simply use an app like Waze to tell them exactly how long it should take to get somewhere (traffic, accidents, etc. - all included in the estimate). My take: Moronic.
     
  • Can You Explain it to a 10-Year Old? Business executives throw around terms like IoTBlockchainExponentials & Big Data (just to name a few) like they're going out of style. But my guess is that 80% of them (conservatively-speaking) could not explain to a 10-year old what those terms mean, why they're important, how they're going to shape the future, and most importantly, how they'll leverage them for profit & shareholder valueMy take: Ironic.
     
  • A "Natural" Sponsor: Amgen was one of the original developers of a synthetic form of Erythropoietin, aka EPO, a hormone used to create a drug that stimulates red blood cell production to treat anemia. EPO became the Performance-Enhancing Drug (PED) of choice for endurance athletes - mainly cyclists and most notably, Lance Armstrong. Get this: Amgen has been the title sponsor for America's largest cycling race, the Amgen Tour of California, since its inaugural race in 2006. My take: Ironic.
     
  • YHOO - 3 ironies:
    • YHOO owns a 16.3% stake (384 million shares) in China's BABA, equating to a "pre-tax" value of $27.2 billion; YHOO's market cap is about $28.4 billion, and it employs over 10,000 people. So essentially, the market is valuing YHOO (ex-BABA) and the work of its 10,000 employs at a mere $1.2 billionMy take: Moronic (if YHOO is merely a holding company for BABA stock, as the market appears to believe, why the need for 10,000 employees?)
       
    • YHOO bought a 40% stake in BABA in 2005 for just $1 billion - had it held on to that investment in-full, it would be worth approximately $66 billion today, about 132% more than the market currently values the entire company. My take: Neutral.
       
    • While many believe YHOO has mismanaged its own finances and strategy, its most lucrative platform is no other than Yahoo! Finance, which is said to command the highest ad prices of any of its other platforms. My take: Ironic.
       
  • We Can Do Your Taxes, But Our Own...? H&R Block, the largest provider of consumer tax preparation services in the world, announced in 2006 that it had failed to correctly calculate its own state income taxes and owed over $30 million in back taxes. My take: Ironic.
     
  • AAPL investments - 2 big-time divestitures:
    • Upon his return to AAPL, one of Jobs' first priorities was to stabilize the company. One way he did that was by securing a $150 million investment by MSFT in 1997 - in the form of non-voting preferred convertible stock. It was a paltry amount for the software giant and was seen by many as another tactic to keep anti-trust regulators off of MSFT's back (Keep AAPL alive - there's still competition!). Those shares eventually converted to common stock (253 million shares by most estimates - split-adjusted). Ballmer unloaded the entire position by 2003. Even at today's "depressed prices", that stake would be worth ~$24.3 billion - about 6% of MSFT's market value. My take: Moronic.
       
    • The 'silent' 3rd founder of AAPL, Ron Wayne, received a 10% equity stake in the company in April-1976, but sold it back for $800 less than two-weeks later. Today, a 10% stake in AAPL would be worth $52.2 billion. Today, that net worth would make him the 3rd wealthiest American today, and would far exceed the $19.1 billion that Jobs' estate is valued at (now controlled by his widow). After he left AAPL, Wayne was a stamp and coin dealer who never owned an AAPL product until he was gifted an iPad 2 in 2011. To his defense, nobody knew what AAPL would become in 1997, let alone 1976. My take: Neutral.
       
  • "Naw, we'll pass": Blockbuster, the now-defunct movie rental retailer, was effectively 'disrupted' and bankrupted by a company (Netflix) that it was offered, and decided against, buying for $50 million in 2000My take: Moronic.
     
  • We Really Know Irregularities: Huron Consulting, a mid-size, publicly-traded consultancy borne out of the collapse of Andersen (related to Enron's 'creative accounting'), announced in 2009 that it had significant "accounting irregularities" requiring a restatement of 3-years of its financial statements - its stock dropped 70% upon the announcement. My take: Ironic.
     
  • A Holy Sinful War: In college football, the rivalry between Utah and BYU is known as the "Holy War". In December-2015, the teams played the "Holy War" in Las Vegas (of all places). LOL. My take: Ironic.
     
  • Ghost Dating: Investment bankers from 'prominent firms' used "ghost names and email addresses" to engage with other traders on popular finance blog sites, but used their corporate email addresses to register with Ashley Madison's "service". My take: Moronic.

Employee Loyalty: Emphasize Growth Over Shiny Perks

Is the grass greener because it's better, or did you not take the time to water your side?

Is the grass greener because it's better, or did you not take the time to water your side?

Everyone talks about building a relationship with your customer. I think you build one with your employees first.
— Angela Ahrendts, SVP - Apple Retail - Apple, Inc.

I started with my current firm right out of college on September 13, 2004 – 4,219 days ago, which makes me, well “ancient”. It is the only company I have ever known, but it is NOT the only job I have ever known – a very important distinction.  We live in a day-in-age where ‘loyalty’ is defined by anything longer than 3 years (so sad, but true).  Some call it a “generational” issue, others merely say that “professional growth” is inherently self-limited by staying in the same place too long – the idea that you reach a plateau if you are not consistently putting yourself in new situations with new people.

The fear of plateauing and the associated pay raises often more-than-offset the ‘tangible’ transition costs of moving jobs.  So it is no shock that the average Millennial with 10-years of work experience likely has had three-plus different employers.  Unfortunately for employers, employee churn is incredibly expensive – not only are there hard costs, but there are other costs (like culture) that are very relevant but can never actually be quantified no matter how cool the chart in the PowerPoint deck looks that gives you some ‘magical number’.  Culture is one of those intangibles that suffers the most within the ever-present ‘revolving-door’ of today’s workforce.

Let me be clear, the journey of my 4,219 days has not been all ‘rainbows and unicorns’.  There have been many times where I have questioned my own sanity for staying-the-course as I have watched a lot of incredibly talented colleagues and friends take their skills to the ‘greener’ side of the fence.

I subscribe to the idea of ‘FLEXIBILITY’ as a fundamental principle to build employee loyalty.  When I say ‘flexibility’, I am not referring to the ability to telecommute, unlimited PTO, or any of the work-life balance items that are table-stakes for many companies today and win you a spot on Fortune's Best Whatever List.  I am actually talking about flexibility in the context of encouraging, allowing, and supporting employees to explore new avenues without actually leaving.  Here are 4 examples of ‘flexibility’ that I believe have kept my 4,219-day clock ticking:

  • The Value in Versatility: I have spent significant time working across at least 8 different market offerings – all 8 may have leveraged similar skill-sets, but they all provided exposure to different applications. I am a strong believer that the understanding of ways similar skill-sets can be leveraged to solve an array of vastly different problems is incredibly valuable.
     
  • The Need to Prove Yourself Time-and-Again: I have switched groups 4 times now. With each change came the need to build new relationships, the challenge to prove myself to people who had no idea of my capabilities (or lack thereof), and the chance to find new mentors and champions to enhance my overall progression.  But when an employee transitions to a new group, it is upon him / her to bridge the connections - value is gained by increasing (not replacing) your internal network with each move.
     
  • Paid Sabbatical...Say What? I was afforded the opportunity to take a paid sabbatical to help build a non-profit organization in 2010 / 2011. It was a once-in-a-lifetime opportunity to help build something that was meaningful to me without sacrificing my livelihood.  The best part of that experience was the ability to utilize skills and identify personal / professional weaknesses that I never would have found in my day job.  That is the value of sabbaticals - if you structure them with no accountability, they become 'boondoggles'.  Make people prove what they plan to do with a sabbatical is value-add to the person's professional progression, which inherently benefits the organization.  If you make things like sabbaticals structured with accountability, then people should never (as I wasn't) be penalized for embarking on what can be such a valuable experience.
     
  • Exposure is Everything: Today, I am taking part in a 2-year rotational development program focused on a specific industry vertical. I have, once again, been put in a position of having to build new relationships and utilize skill-sets beyond the day-in / day-out of client-service.  It has been a great opportunity to see how the ‘sausage is made’, enabled a broader perspective of the entire organization and has helped me understand the dynamics of reaching the peak (or maybe more importantly, understanding the reasons why others top out at 'base camp').

I am not here to say I am the “poster-child” of loyalty, but I am here to tell you what has enabled my loyalty.  I believe that people leave organizations for many reasons, but I do not think money is the key driver of churn.  I think people leave organizations because they get bored and they find what appear to be better opportunities.  There is excitement in change and the grass ALWAYS looks greener on the other side.  However, as the old adage goes, make sure you are watering the grass on your side of the fence before jumping over it - a dual-sided challenge. 

So while Fortune touts "perks" as being the drivers of the best companies to work for.  I say that a better title for that list would be, "The best companies that get employees in the door".  That list is all about perks, which are not necessarily correlated with retention because they exist everywhere.  I say the better list is, "The best companies that keep employees in the door."  I have often said, "Don't ask me why I came...ask me why I stayed".  I am not devaluing Fortune's list - I am simply emphasizing that many of the items it points out are not drivers of loyalty.  If you ever take a look at large companies where the C-Suite is dominated by 20+ year veterans, you will find a couple themes: 1) The organizations have a strong culture of organic promotion where each member of the leadership team has spent time in multiple areas of the business; and, 2) They are not highly-ranked on Fortune's list.

Ultimately, both the employer and the employee need to commit to the idea of FLEXIBILITY through internal opportunities as a fundamental tool to empower loyalty and upward mobility.  The employee needs to look beyond the here-and-now to understand the opportunities that exist within his / her current organization which will help reconcile the value of the internal network (it's not just dollars and cents). On the flip-side, the employer needs to embrace a culture where new opportunities through internal movement create the growth opportunities that are vital to professional progression and elimination of self-limitation - these opportunities should not be advertised as ‘perks’ of the job, but essential enablers of growth - both for the individual and for the organization through the preservation of its core values through employee continuity.  

*Originally posted on LinkedIn here.

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**DISCLAIMER: The thoughts expressed in this post are strictly mine and do not represent the opinions of anybody but me.  The above should not be mistaken as career advice or anything more than an opinion. Please consult your career guru before making any drastic changes.  Additionally, if you have changed jobs every 2 years and have never regretted it - more power to you!   

Understanding FitBit's Missteps

On February 22nd, the wearable health and fitness-tracking device maker, Fitbit ($FIT) reported EPS of $0.35 on $712 million of revenue - easily topping consensus that expected EPS of $0.25 on $648 million of revenue.  However, the company's shares plunged 15% in after-hours trading after its Q1-2016 revenue guidance range of $420 million to $440 million fell short of the Street, which expected $484 million.  It now trades at just 20% above its all-time low, and 72% under its all-time high.

Fitbit - Defying the odds?

The popularity of $FIT's wearable trackers is a phenomenon in-and-of-itself.  At first glance, it appeared that $FIT was doomed when Apple ($AAPL) began shipping its new Watch wearable last April.  After all, $AAPL has grown to dominate profit-share in nearly every hardware category that it plays in, including smartphones, tablets, computers (both laptops and desktops) and now smartwatches.  The mistake that might have been made is assuming that $FIT's products would be subsumed by these more expensive smartwatches.  As the category continues to mature, smartwatches are proving to be much less focused on fitness, and much more focused on everything else (email / text / social media notifications, payments, airline boarding passes, etc.).

As the smartwatch category has begun to see the end of its infancy, there have been very few surprises.  Although $AAPL is not reporting unit sales of its watch, it is safe to say that it's by-far the most popular smartwatch on the planet.  But, what's interesting in the growth of this category is that $FIT has remained relevant and continues to be a very popular accessory even for people that are wearing an Apple Watch.  In the holiday quarter, $FIT shipped 8.2 million of its health and fitness wearables, up from 5.3 million in the year ago period (+55%).  That inherently creates an interesting dynamic as the company attempts to maintain its stellar growth trajectory.

What's Maintaining Fitbit's Pace?

If you actually talk to people that wear these $FIT devices, most of them will tell you something very interesting, and something I find truly unique in this wearable 'frenzy'.  They say that their $FIT bands are "motivators of activity" rather than just being "trackers of activity".  Meaning, $FIT wearers will actually adjust their behavior based on the number of steps that they've accrued throughout the day.  If wearers are lagging in steps, they might take the stairs instead of the elevator, or they might walk somewhere where they normally would have driven or 'hailed' a ride.  The fact that $FIT devices are able to dictate behavior (as opposed to just measuring it) is something that very few wearable trackers have been able to achieve.  I would argue it might be the only wearable that actually drives user behavior when it comes to physical activity.  Sure, the Apple Watch may give you a tap to stand-up every 50-minutes, but I have found very few people who see it as a fitness device.

Additionally, $FIT has incorporated 'gamification' into its companion app where wearers can join groups of friends, colleagues, or the-like to compete on overall physical activity (as measured in steps).  Gamification is not a new concept in wearables, the now-defunct Nike ($NKE) Fuelband and Jawbone Up all had / have some form of gamification embedded in their products. But unlike $NKE and Jawbone, $FIT has succeeded in making gamification a core part of the experience, which is also part of its unique behavior-driving appeal.

So What's the Problem?

Based on Fitbit's full-year 2016 outlook, which includes a mid-point revenue guide of $2.45B, it appears that the company is running into a similar problem as $GPRO - once you have one, there's little need to buy another as the functionality is not improving enough to warrant a replacement purchase.  The decelerating revenue is dramatic, going from nearly 150% growth in 2015, to a projected 32% for 2016:

So while Fitbit might be succeeding with its low-end trackers and associated user-engagement, its revenue growth strategy is akin to restaurants - "menu expansion" (as shown in the picture below).  In its 8-K filing for its FY15 results, the company said it would be incurring additional expenses as it continues the roll out of two of its new products in Q1-2016: 1) Alta - a Fitbit tracker with a more fashion-focused appearance ($129.99) and, 2) Blaze - a smartwatch with additional functionality such as a heart rate tracker and connected GPS ($199.99):

Source: Fitbit.com

The problem that $FIT will likely run into with these new products is two-fold.  With regards to Alta, the fashion appeal falls short of the critical standard of, "is this reason-enough to buy another Fitbit tracker at a $30 premium?". As for the Blaze, it is now attempting to compete with the dominant player in the space - Apple Watch, especially as $AAPL lowered the entry-level price for its Sport Watch to $299 (38mm) and $349 (42mm) on March 21st.  Unfortunately for $FIT, while the Blaze may carry the novel step-tracker of its predecessors, it falls well short of the Apple Watch when it comes to overall functionality which is enabled by $AAPL's phenomenal app ecosystem - it's the very reason you see many people wearing an Apple Watch on one wrist and a $FIT band (likely the Flex) on the other.

$FIT would likely be well-served by focusing on improving the functionality by expanding the capabilities of the very product that made the company (its Flex bands).  That focus would enable the company to help answer the one question that nearly every company in niche technology hardware is struggling with ($GPRO, Nest, etc.) - how can I get my user base to upgrade their devices?

The GoPro Problem

GoPro announced its Q4-2015 and full-year 2015 results on Feb-3, and the corresponding data was not pretty. GoPro announced revenues of $1.6 Billion and Net Income of $179.3 Million, which represented growth of 16.2% and 40.0%, respectively - a drastic deceleration on both measures.  But perhaps the most troubling data was the Q4-2015 results - Like most consumer electronics companies, the 4th quarter should be its strongest due to the holiday season. For its Q4-2015 quarter, GoPro reported revenue of $436.6 Million and a Net Loss of $41.3M, representing contraction of 31.1% and 133.8%, respectively, compared to the Q4-2014 quarter:

Source: GoPro's SEC Filings

Source: GoPro's SEC Filings

So what happened in Q4-2015? Here is what the company said in its press release:

  • "...growth slowed in the second half of the year and we recognize the need to develop software solutions that make it easier for our customers to offload, access and edit their GoPro content." [Emphasis added]
     
  • "Fourth quarter revenue includes a $21 million reduction for price protection related charges resulting from the HERO4 Session repricing in December. Full year revenue also reflected charges of approximately $40 million for price protection related charges issued in connection with reductions of the HERO4 Session selling price in September and December." [Emphasis added]
     
  • "Fourth quarter and full year non-GAAP gross margin was impacted by a charge of approximately $57 million to cost of revenue for excess purchase order commitments, excess inventory and obsolete tooling resulting from the Company's decision to discontinue production of the HERO cameras. This charge is greater than the $30 million to $35 million that was previously estimated in our announcement of preliminary fourth quarter results on January 13, 2016 due to our subsequent decision to simplify GoPro's product offering to consist of HERO4 Black, HERO4 Silver, and HERO4 Session." [Emphasis added]

As a result, GoPro's stock closed near its 52-week low at $9.78 on February 4th (the trading day following the announcement of its results). In August-2015, the company's stock traded all the way up to $64.74, representing a loss of 85% in a span of about 6-months.

My Take:

  • Demand has slowed dramatically: The numbers show that demand has slowed dramatically, but the commentary really validates it.  When companies use terms like "price protection", "excess purchase order commitments" and "excess inventory", it means that 1) Retailers cannot sell the products they currently have in the channel and their agreements with GoPro allow them to move them at a reduced prices and recover the difference from GoPro, and 2) "Excess Purchase Order Commitments" and "Excess Demand" means that they cannot move current product or product already being manufactured either through direct channels (e.g., GoPro's online store) or its distribution channel (3rd party retailers).
     
  • GoPro's are like iPad but worse: The steep demand fall for GoPro's products reminds me of the slowdown in the growth of AAPL's iPad, but I actually think its worse, as the GoPro is much more of a niche product. The iPad has proven to have a much longer upgrade cycle than previously thought, thus its growth has contracted after shooting out of the gates in 2010. I don't even know if a GoPro has an upgrade cycle. The company's entry-level HERO4 Session is $199.99 (not exactly cheap) and shoots 1080P at 60fps. Its highest-end model, the HERO4 Black is $499.99 and shoots 4K video. So like the iPad, once you have one of these devices, what's going to incite you to upgrade? At least with the iPad, there is a software component (iOS) with annual upgrade features that are only available on the latest models (e.g., TouchID, Split-Screen mode, etc.) GoPro cameras are also like iPads in the sense that people are far more likely to share them, thus reducing the need to buy multiple devices within a household.
     
  • GoPro is a pure hardware company: The Company's remarks about the need to develop a software component to pair with its hardware goes to show it has no ecosystem. My guess is that people are uploading most of their content to popular platforms like YouTube, Vimeo, or even embedding their footage directly into their websites, etc. At this point, I'm not sure that they could even create an integrated product (hardware + differentiated software) that would change its results - meaning, I don't think GoPro having a software component would incite people who weren't thinking of buying a GoPro to go out and buy one, nor do I think they could monetize the software.
     
  • Smartphone cameras are good enough: The latest cameras being introduced on smartphones are good enough for the average consumer - Both the iPhone 6S and iPhone 6S+ shoot 4K video and both have a 12MP shooter. Other offerings from the likes of Samsung and LG have the same capability. So unless you're a hardcore snowboarder, skier, skydiver or surfer, the use-case for a GoPro over a smartphone is marginal at-best. Additionally, products like the iPhone are already tied to a software ecosystem that makes editing and sharing of pictures and video media much more seamless - you can send media (including photos and videos) over iMessage (an SMS platform) up to 100MB in size. You can also share media over the iCloud platform with other iOS users.

GoPro was supposed to be the next-gen Flip cam that actually proved to be a sustainable business - Cisco bought Pure Digital for $590 million in 2009 for its Flip cam product line, only to shut it down two-years later in 2011. What people don't fully grasp is that the Flip cam actually gained pretty good market penetration, becoming the #1 best-selling camcorder on Amazon and obtaining 35% of the total camcorder market.

So why did Cisco shut it down? Some would say that it was because the company wanted to focus on enterprise solutions rather than consumer hardware, but most believe they knew the product was doomed by the rise of smartphones - at the time that the product was shut down, the iPhone 4 was already out. Well, if that's true, fast-forward four-and-a-half years - smartphones are ubiquitous, the cameras have improved dramatically (both for photos and video), and they all have some form of software embedded in them.

GoPro has had the benefit of amazing branding - something that the Flip cam never had, yet it faces the same challenges that Cisco faced with the Flip cam in 2011. I think an acquisition may be the only way out at this point. But who might be interested? 

  • Google (or Alphabet) - Maybe. Google has shown a desire to build out, or buy hardware platforms (e.g., Nest and Dropcam via Nest acquisition) to supplement all of its software and internet products. Another interesting piece about Google is the fact that they own YouTube. There could be a natural synergy to create an ecosystem between GoPro's hardware and YouTube's content distribution platform.
     
  • AAPL - Highly unlikely. AAPL tends to be an 'integrated buyer', meaning they buy companies that can be integrated to improve their current products (e.g., PA Semi was used to help develop its own smartphone SoCs, and AuthenTec was used to develop TouchID). I believe its Beats acquisition was a one-off exception and even that company is slowly being more integrated into AAPL's current hardware and software.
     
  • MSFT - Maybe. MSFT could be a buyer as they continue their foray into hardware (e.g., Surface lineup, MSFT Band fitness trackers, and long-standing XBox products). But when you compare MSFT and Google, it's seems like a 'no-brainer' that Google would have a much more strategic use for the company.
     
  • AMZN - Not a chance. AMZN seems content in building sub-par hardware that is just 'good enough' that can be sold at break-even prices, or even losses, to help drive its other businesses.

Whoever might be 'kicking the tires' on GoPro needs what the company doesn't have - a software solution and content distribution platform to create an ecosystem out of its hardware..

No 'Room' for Corporate Culture

There has been a trend in Corporate America that is understandable in one sense, and somewhat troubling in another - the reduction of corporate real estate footprints. Nearly every major company is looking to reduce costs right now - it's just the name of the game, reduce costs to boost profits - it's not rocket science. As a result, companies are reducing both the number of real estate leases that they hold, and shrinking the size of their current leases (6 floors go to 4; 4 floors go to 2, etc.).  Fair enough.  I guess that's just called 'enterprise cost reduction'.

But on the other hand, companies are wondering why it's so tough to create a little thing called 'culture' these days - that glue that builds loyalty - the things that make people think twice about taking that other job for a 10% raise. So what's the connection here?  As companies reduce their corporate real estate footprints, they are moving to more open-space communal offices where people "hotel", nobody has designated offices, and you feel exactly what the term "hotel" represents - transient. Employees are nothing more than nomadic dwellers who search daily for a decent workstation where they can take calls without disturbing others, have access to confidential files, and feel like they actually 'belong' to something.

It has gotten to the point of "why bother coming in anymore? - I don't see anyone I know. Nobody knows who I am. Nobody cares if I'm even here. It's far more convenient to work from home."  That's the troubling part - nobody feels like they belong anymore - it's far easier to leave something when there is no sense of belonging - office culture was one of the lasting strings that kept that sense of belonging alive. It's leaving corporate America along with the small semblance of loyalty that still existed with a Millennial generation that everybody believes to be so fickle anyways.

I'm not in charge of a P&L and therefore I can't tell you how significant the savings are that are derived from reducing a company's corporate real estate footprint...but what I can tell you is that it's not a dollar-for-dollar savings. There is an offset to those savings - a loss of culture and belonging. At some point, you have to wonder if you're shaving fat or just cutting into muscle.

...And WeWork is laughing all the way to the bank.

Overused Consulting Speak

Over the years, I've heard a lot of 'consulting speak' - some of it comes and goes; most of it stays around. Everybody is guilty of using it, some more than others. In the end, people need to become more articulate in their language rather than reverting back to the typical terms that become so cliche that they sometimes lose all meaning.  Here are some of my favorites decoded: 

  • Ping me: No not pong. A phrase used as a request to text, email, or message someone. 
  • Low-Hanging Fruit: This one has been around forever - if it's so low-hanging, why hasn't somebody grabbed it?
  • Open the Kimono: A vivid image that really means..."show me your cards" - a poker reference.
  • Full Court Press: A lovely basketball analogy that means that every important resource available will be committed to the task.
  • Hanging Around the Hoop: The act of staying close enough to something without actively pursuing anything with the hopes of a fortuitous rebound.
  • Cluster-F: The act or state of making something so congested and complicated with so many people that nobody knows what's going on.
  • Game Face: The state of bringing your very best to a particular task.
  • Playbook: Another sports reference that just means 'strategy'.
  • Deck: Fancy word for a massive PowerPoint presentation that some poor junior resource will sweat to no-end over and may never be used...for anything.
  • Loss-Leader: A good excuse for throwing investment (usually in the form of resources) at a target with no visibility of any ROI.
  • 'The Bob's': A reference to the movie 'Office Space' and the two Bob's, who are responsible for interviewing people and ultimately assess where to 'cut the fat'.
  • Straw-Man: An outline for a deck.
  • High-Burn: Code for 'you won't have a life'.
  • Strategy: A default term to describe any way of working at a problem.
  • Thrown Under the Bus: A figurative saying for somebody getting blamed for somebody else's mess.
  • It is what it is: An easy way to say "it's no longer my problem" or "I don't care".
  • Take it offline: An easy way to tell someone that their discussion points are not worthy enough for anybody to listen to.
  • Boil the ocean: The act of trying to do everything at once and accomplishing nothing.
  • Let's circle back: The act of essentially telling someone - "prove to me that it will make me money and then I might listen"
  • Think outside the box: "I can't think of anything good so come up with something better - just don't replicate my idea."
  • Limited bandwidth: "I may have time, but I will try to look very busy to show you I don't"
  • Out-of-Pocket: "I'm doing something more worthy of my time than anything you have, so don't bother me"
  • Unplug: The act of pretending you have work / life balance.
  • Move the Needle: Will this make us any money, if not, can it?
  • Drink the Kool Aid: The act of convincing somebody to do something that they have no idea what the purpose is, or what the potential ramifications is.
  • Go-to-Bat: A baseball analogy where a senior leader exercises his / her power to positively influence the performance of a more junior resource.
  • What Keeps You up at Night? Lack of Ambien? No. A question asked to executives about their foremost business problems, as if the list is not long enough.
  • I needed that yesterday: Code for you: 'You better move a$$ to get this done ASAP'.
  • Dashboard: No - not that thing in your car that tells you how fast your going and when you're about to run out of gas. A high level data output cover sheet that simply masks more data.

The Enduring Legacy of the B-757

As major airlines are in the midst of one of the largest fleet modernization programs in history, the B-757 continues to be a very popular aircraft even with the delivery of brand new planes to service similar routes.  The 757 was in production from 1981 to 2004, with approximately 1,000 deliveries over that time period.  The plane was designed with two variants - the 200 and 300 models (max capacities of 240 and 290 people in one-class configurations, respectively).  The 200 model also had two variants (the SF and PF), which were both designed as cargo-only planes.  

A Massive Power Plant:

The general longevity of these aircraft is likely hidden right below the wings.  The 757 was outfitted with either a set of P&W-2037 or RR-RB211 engines.  The P&W variant is slightly less powerful than the RR version, putting out roughly 38,400lbs of maximum thrust.  The RR version has a maximum thrust output of a whopping 40,100lbs.  In any case, both engine variants make the 757 the most powerful commercial aircraft in the world, in terms of power-to-weight ratio.  It has been rumored that a fully-loaded 757-200 (cargo, passengers, and fuel) can take off with less than 5,000 feet of runway.  This is quite remarkable when compared to a B-777-200ER, which at full-capacity, needs approximately 8,000 feet of runway - about 60% more asphalt than the 757.

Due to its power, the 757 rarely (if ever) uses the engines' full capacity - leading to greater fuel efficiency and less maintenance.  Additionally, whereas other aircraft like the 737 can be grounded by hot weather and weight restrictions, the 757 does not face any such constraints based on its ability to climb off the runway like a rocket-ship (literally). 

Additionally, the range of the 757 also contributes to its unique value to a fleet with the 200 variant maxing out at a range of 3,900 nautical miles, which converts to approximately 4,500 miles.  This range makes it one of the only non wide-body commercial aircraft capable of transatlantic flights. Although after a flight from New York to Ireland on a 757 in coach, I will be the first to say that it's not a comfortable experience.  

The 757 is still going strong 32 years after the first deliveries were made.  It continues to be a mainstay within the fleets of all of the major U.S. airlines.  The unique engineering and design decisions have brought a greater appreciation to this iconic aircraft.