Learnings for 12/13/2020
Interesting bits and bytes
Subscription Food
Panera offers unlimited subscription coffee and has 500k monthly subscribers. And they are making money. Business model innovation!
In this vein of subscribing to food, I’d love to see restaurants allow for subscription takeout — for example 2, 3 or 5 meals a week — that can be picked up in person and paid for in advance on a monthly basis. The benefit to the restaurant is guaranteeing a minimum amount of revenue — or if we invert our thinking — allowing a restaurant to always be profitable — by scaling their operations (i.e. costs) directly inline with their subscribers.
Here is my thinking
I want to subscribe to certain local restaurants.
Subscribe? I mean pre-pay them for 10, 15, 20 meals per month on a use it or lose it basis.
In return, I want the restaurant to give me a discount.
Why is this good for restaurants?
Explicitly they would have the cash in hand — pre-payment for each month.
They know order volume - so they can very accurately know how much food to buy. Thereby saving $$$ on wastage/spoilage AND be more environmentally friendly.
They know the number of hours of work needed — no more “slow” shifts — you come work to produce the food required (pre-subscribed) and done.
Works great in a take-out/pick-up/delivery only world (i.e. the rest of this winter). And can work great in the future DoorDash is betting on (that we all order more food for delivery).
Current observations:
In the past 6 months, I’ve seen multiple new food sole proprietors launch with no store front. They gather an audience on Instagram, Twitter, NextDoor — and weekly they email/Tweet/Gram their followers with what is for sale this week. Orders come in and then are picked up later that week at existing cafes around the Bay Area. Frankly, their business model seems excellent — they sell out each week, they use a “ghost” kitchen to create their food (bagels, pies, cakes, dinners) and then they use existing infrastructure (eg a local cafe) as distribution points.
Cafes seem to like it as this drives business to their location and you are highly encouraged to buy something
While the 3-4 new pop-ups that I know manage to sell out most weeks — I would think they AND their customers would appreciate an ability to subscribe. That way, as a customer, I KNOW they will have a nice sourdough country loaf waiting for me — because I paid ahead, subscribed ahead and didn’t need to look for the email or Tweet and click the link at just the right time.
Opportunity: Create Shopify for Food:
What is Shopify for Food: A set of software services that help restaurants turn customers into subscribers. And, unlike MealPal - allow the restaurant to own the relationship with the customer and set their own prices.
Today, MealPal offers subscribing to food. MealPal partners with tens of restaurants in various cities to offer lunch at a significant discount. The original benefits:
Restaurants: Pre-make meals in the morning when the restaurant isn’t busy — and each restaurant gets to set the meal of the day that they are offering.
Consumers: Save 20-40% on lunch by pre-paying for meals across multiple restaurants. Downside: Each day you pick between whatever meals the restaurants want to offer.
With the pandemic, MealPal’s value to restaurants has significantly declined. There is no more lunch rush — so shifting the work to “slow” times has little value AND I’m sure restaurants would prefer to charge full price for each customer. Further, MealPal offers no guarantees of order volume — something a direct, monthly subscription would provide.
Meta: I am fortunate to have been given an early copy of this book and to get to speak with the authors Colin and Bill. I would highly recommend this book — while I wanted even MORE detail about how Amazon works — it is a great and fast read (I read it on my laptop as a PDF — which is a high bar to clear).
Quotes and notes:
“Good intentions don’t work, Mechanisms do.”
Amazon’s compensation: Top cash compensation of ~165K and additional compensation in equity. It seems this is a hard sell for many candidates (low cash compensation) — but those that bite stick around and share the same incentives (long term thinking, long term value creation).
Interviewing: 4-5 people will interview each candidate. What’s different about Amazon: Each interviewer must write-up and internally post their review in 24 hrs AND then the group of 4-5 interviewers must hold a debrief meeting together: “The Amazon debrief meeting is an opportunity for each interviewer to learn from others and to develop their ability to assess talent.” Reading this — it is an excellent mechanism and solution to how do you build great interviewers but in my time interviewing at Google — we never did this. First, we shadowed someone else interviewing a couple of times, and then we were set free to interview and write-up feedback. The feedback loop of other interviewers sharing their feedback and assessments would clearly allow each interviewer to grow and improve.
The Amazon S Team (leadership team) focuses on execution that moves controllable input metrics
They focus on leading indicators - “*controllable input metrics*” rather than lagging indicators “*output metrics*”
Input metrics track things like selection, price, or convenience—factors that Amazon can control through actions such as adding items to the catalog, lowering cost so prices can be lowered, or positioning inventory to facilitate faster delivery to customers.
“Define, Measure, Analyze THEN Improve. That way you know what to improve that will actually move the needle”
“If you decide that the long-term success and survival of your company, like any company at a crossroads, is predicated on having a specific capability that you do not currently have, then the company must have a plan to build or buy it.”
Talking about the decision to build the Kindle and focus on digital goods:
Jeff’s first action was not a “what” decision, it was a “who” and “how” decision. This is an incredibly important difference. Jeff did not jump straight to focusing on what product to build, which seems like the straightest line from A to B. Instead, the choices he made suggest he believed that the scale of the opportunity was large and that the scope of the work required to achieve success was equally large and complex. He focused first on /how/to organize the team and /who/was the right leader to achieve the right result.
Focus on the point of differentiation with the customer. Invent when you are creating a key point of differentiation.
In the company’s early days, the hardware that powered Amazon’s data centers was not the point of differentiation with the customer—creating a compelling book-buying online experience was. Whereas with Kindle, as we will describe in chapter seven, others were selling e-books, so there was real value in owning and controlling the creation of an outstanding device for our customers to read them on. Differentiation with customers is often one of the key reasons to invent.
Conversely, if you can take on the “undifferentiated heavy lifting” for a host of customers — that can be a great business (that is/was the bet of AWS).
the tasks that we could do for companies that would enable them to focus on what made them unique. This was an opportunity.
Netflix Streaming and Amazon Prime video - were both ‘oh-by-the-way’ offerings — as in included for free in what you were already paying for — which allowed for the necessary adoption while the products were not sufficiently compelling to be paid upfront.
There is a difficult chicken-and-egg problem with a subscription service. You need to have a great offering to attract paying subscribers. To be able to afford a great offering, you need a lot of paying subscribers. It’s a challenging cold-start problem that generally requires a large up-front investment, which you can hopefully pay back with subscriber growth in future years. Jeff argued that even if we offered streaming videos to Prime members at no additional cost, the business could still be profitable in the long run. (Long-term thinking = /being Amazonian/.)
This mode of launching products seems excellent — your underserving solution can still get usage and feedback before being forced to pay for itself.
“Customers are divinely discontented, and “yesterday’s ‘wow’ quickly becomes today’s ‘ordinary”
A few follow-up questions:
QUESTION: How do you know a project is worth while — for what is today Prime Video / Streaming video — how did you know it was worthy when the early attempts — according to the book — seem to have been not very good? What was the conviction to continue? And, for example, why did the Fire Phone end up being a 1 and Done — why was this a “1 way door”?
Answer:
1. Investment in Prime Video was quite manageable vs costs of investing in FirePhone
2. Prime Video was making 100M in revenue quickly.
3. Video — knew you had to make digital video work. They had to find a way to make it work because the physical products were such a big part of the company and digital was going to disrupt/displace physical.
4. Amazon didn’t need a phone. We don’t have to have a phone. [WFerrell: I do not agree with this point of view — if phones become critical infrastructure (edge servers) being able to bake in special hardware and software to enable the future seems critical. I think the mistake was aiming at a high-end phone rather than aiming at a very inexpensive android — one that they could slowly build up over time with special hardware to solve new customer problems. Of course, they can always re-enter the phone business — so maybe this wasn’t a “1 way door” — though they refer to it as such in the book.]
QUESTION: How did you determine that Amazon should focus on building AWS — when presumably these key executives and excellent engineers could have accelerated or raised the bar on the core Amazon offering? Clearly it was just a decision — but how do you know you can fork off rather than remaining focused on the key offering (selling physical+digital products)
Answer: When to stop vs when to continue is very difficult.
For AWS: They were getting early signal saying — there is a business to be built here — developers were aggressively adopting the Amazon API for product listings (an AdSense like product). Importantly, if this bet did not work out, due to their culture it was not going to be a career ender for Andy (CEO of AWS).
They provided another example which was in 2000/2001 Bezos tried to push a product that put sold ads on Amazon webpages (called Slots) — but the timing just didn’t work — they didn’t have the volume. Now Ads on Amazon is a very significant business (last I heard it is 8-10B/year).
Good stuff, enjoyed the book notes, sounds like a good read. Cheers! 💚 🥃