The Magic Bike Company

Example Companies

In this Chapter we examine companies that think and act differently. Shake Shack, a rapidly growing fine casual restaurant chain delivering great food and wonderful service. Bureo, a small company that is partialy funded by Patagonia in their quest to clean the ocean's waters. Krochet Kids a company that trains and provides jobs for women in Chile and Uganda. Warby Parker the company that donates a pair of glasses for each one sold, Fitbit, the activity tracking company. And Blue Apron, who creates boxes that include cooking instructions for meals and suggested wine parings—shiitake mushroom burgers with a Santa Barbara Highlands Vineyard Grenache. The raw ingredients, which include such exotica as romanesco cauliflower and fairy tale eggplants, are sourced from family farms and artisans. Then they're sorted, chopped and packaged in giant fulfillment centers and delivered to homes around the country.

Shake Shack logo
Shake Shack founder and powerhouse restaurateur Danny Meyer has spent a lot of effort making sure his customers can get the same level of food, hospitality, and service at each of the burger chain’s 63 locations. His rapt focus on quality control explains why it took nearly five years to open a second Shake Shack location.
Meyer's Union Square Hospitality Group, which owns fine dining restaurants like Union Square Café and Gramercy Tavern, famously operated the first iteration of Shake Shack in New York City's Madison Square Park as a summer hot dog cart from 2001 to 2003. After USHG opened the first permanent Shake Shack as a kiosk in the park in 2004, Meyer’s team spent years refining the craft: serving better-quality burgers, hot dogs, shakes, and fries; treating guests with a level of hospitality more often found in restaurants than fast-food joints; and making its cultish following of customers happy enough to endure those infamously long lines.
When a customer says, "Thank you," staff at Danny Meyer’s restaurants might respond with "My pleasure," or "Glad I could help." But never, "No problem." Why? Because it is two negative words in a row. That small detail is indicative of Meyer’s overall approach to hospitality, the source of his success. According to Susan Reilly Salgado, founder and managing partner at Hospitality Quotient, a consultancy that operates under the broader banner of Meyer’s Union Square Hospitality Group, "the most critical skill is empathy" when it comes to delivering great hospitality, or customer service more generally. Reference: FastCompamy

Then, Shake Shack started to grow.

 

In 2011, Shake Shack had seven locations in two U.S. cities. In under five years, it has expanded to 63 locations in nine countries and has close to 1,700 employees. Last month the chain spun off from USHG and debuted on the New York Stock Exchange as a public company, with Meyer as chairman of the board. According to the company’s prospectus, Shake Shack will open 10 new domestic, company-operated locations per year. That means we could eventually see as many as 450 Shake Shacks in the U.S. alone (currently, there are just 31 company-operated American locations). The company’s expansion plans have left some wondering if Meyer and Shake Shack CEO Randy Garutti can continue to inspire the same kind of frenzied demand that fuels regular, hour-long waits for what is, on the surface, just a burger.
Consider the differences between lower-end restaurant chains and premium dining establishments. Both are in the restaurant business, but their competitive logic is quite different. Chains compete on the basis of highly scalable capabilities—generally in marketing and operations—that can be applied to many locations. Premium restaurants compete on the basis of higher-quality ingredients, specialized menus that change from day to day, and more personalized service. Successful premium restaurants often have strong, distinctive capabilities, which they need to attract customers, but these tend to be hard to scale across multiple locations. This lack of scalability inhibits the emergence of supercompetitors among premium restaurants, while they thrive as lower-priced chains. Reference: The New Supercompetitors a strategy+business article by Thomas N. Hubbard, Paul Leinwand, and Cesare Mainardi.

From Fast Food to “Fine Casual”

 

Shake Shack in Chicago
What makes Shake Shack an interesting brand to follow is the challenge facing Danny Meyer to sucessfully combine the two cultures. But Meyer and Garutti are selling more than just burgers. With each new Shake Shack they open, they’re trying to sell the world on a new kind of fast-food restaurant, one that they refer to as “fine casual.” A fine casual restaurant, they write, “couples the ease, value and convenience of fast casual concepts with the high standards of excellence in thoughtful ingredient sourcing, preparation, hospitality and quality grounded in fine dining.” In other words, the actual food at Shake Shack might look pretty similar to what you can find at any “better burger” chain out there, such as Five Guys and Smashburger. But Meyer and Garutti’s emphasis on hospitality and good service is what will keep you coming back to Shake Shack over its competitors—at least, that’s the hope.
With Meyer’s team, you start to think they truly believe that better service plus better hospitality equals a superior fast food experience. In phone interviews with Bon Appétit, Meyer and Garutti talked about Shake Shack’s role in turning the world on to better fast food, and the new rules they’re pioneering along the way. Mr. Meyer says that Shake Shack is also an example of how dining is increasingly heading into what he calls “fine casual”. He expects to see more casual chains and restaurants focused on good food and service. “What Shake Shack taught me was that you can actually do something more than once and have all sorts of creativity.”

Treat Your Employees Like Owners

 

Invest in a good team, and your employees will treat your company (and your guests) like their own. This has been a cornerstone of the USHG management philosophy since the company’s beginnings, but it’s paramount in a company like Shake Shack. Shake Shack is the only restaurant from USHG’s portfolio that has been extensively replicated. “Whether you’re a winemaker or a chef or a leader, your recipe is never going to taste any better than the worst ingredient you put into it,” Meyer says. “If you look at your team as the ingredients you put into the recipe, obviously you want the best.”

Assume Your Customers Are Experts

 

Shake Shack, along with similar fast casual restaurants like Chipotle, Panera, and Noodles & Company, is catering to a consumer who is looking for an upgrade. Today’s consumer is less likely to eat traditional fast food, drinks less soda, and will pay a premium for higher-quality food at fast casual joints. “There’s a huge group of people today who understand food, and they require more from their food every day,” Garutti says. “My kids aren’t going to grow up eating fast food, but they do love burgers.” Garutti’s goal is to make Shake Shack simultaneously feel like a trade-up—a step above your average fast food burger—and a trade-down, delivering the same pleasure of dining out at a fancier restaurant, but at more affordable prices. “I think everyone at every level has said, ‘If I’m going out, I want it to be good, and I want to be able to tell my friends about it,’” he says. “We’re doing that with the greatest mass-appeal product in the country.”

Embrace Your Off Days

 

Like any restaurant, Shake Shack has its off days. In 2012, when New York Times restaurant critic Pete Wells reviewed Shake Shack, one of his main gripes after more than a dozen visits was the burger chain’s lack of product consistency. “Shake Shack wasn’t even consistently inconsistent,” Wells wrote. “Once when I ordered a double burger, one patty was browned all the way through while the other was the color of a ripe watermelon inside.” Meyer doesn’t point out specific examples of times when something has felt off at a given Shake Shack location. But he does concede that things have the potential to go wrong. “It either smells right or it doesn’t. It sounds right or it doesn’t,” Meyer says. “Does it happen 100% of the time at all of our restaurants? Absolutely not. We’re absolutely capable of having an off day just like the team that wins the Super Bowl championship doesn’t win every game of the season—they just have the best record.”

Don’t Try to Protect Your Existing Culture

When I ask Meyer how he’ll try to protect Shake Shack’s existing culture as the company grows, it’s clear he’s not looking to a single magic formula for the chain’s expansion. “You don’t protect. If you play a game of trying to protect culture, you will kill culture,” he says. “It took me a long time to figure this out with all of our restaurants. Instead of asking, ‘How do we prevent our growth from harming our culture?’ we switch the question to, ‘How do we use our growth to advance our culture?’” At Shake Shack, a big part of “advancing culture” goes back to that idea of instilling employees with a sense of ownership, which is critical in a business often characterized by high turnover. Feeling ownership means feeling trusted, which is why Shake Shack doesn’t use a “secret shopper” system to make sure people are doing their jobs correctly, even though the chain faces consistency issues from time to time. The idea is to troubleshoot guests’ complaints as they arise, not scaring employees into not making mistakes in the first place. “We try to instill a culture of people catching each other doing something right,” Meyer says. “It’s something we do in all of our businesses.” It seems to working pretty well so far. retrieved from bon appétit
Shake Shack went public with a huge splash in late January. It priced 5.75 million shares at $21 a share, raising $121 million. The stock promptly doubled on its first day of trading, giving the 63-unit chain a valuation of nearly $1.7 billion. While the stock has since slipped a bit, it still boasts an impressive valuation.
Shake Shack has evolved into a global business, and it is approaching ubiquity in the New York region. (There’s one in the Connecticut town where I live, and my kids vastly prefer it to McDonald’s, or to Five Guys, whose use of peanut oil makes it a no-go zone for the allergic’s in my household.) Truth be told, Shake Shack’s burgers are good. But they’re hardly transcendent.
So what makes Shake Shack shimmy? The difference lies in the design of the business—it simply does things a little better than people expect, given how much they are paying. That has been Danny Meyer’s stock-in-trade since he launched the Union Square Café in the 1980s. Meyer’s expanding empire of restaurants—Gramercy Tavern, Blue Smoke, Maialino—are never at the top of the market, in price or unctuous service. But they dish out excellent meals made with fresh ingredients at a fair price. And all in an environment where customers are treated with a greater sense of hospitality than is absolutely necessary.
The business proposition rests less on gastronomic or financial engineering than on an appreciation of human emotion. Meyer’s memoir, Setting the Table, paints an image of the restaurateur as a mensch, not a slick player. “Our team is trained to understand and practice the values of Enlightened Hospitality: caring for each other, caring for our guests, caring for our community, caring for our suppliers and caring for our investors, ” as Shake Shack’s prospectus notes.
The business model also extends to the treatment and pay of its workers. Fast food and quick-service restaurants are a famously—and often, controversially—low-paying service industry. The largest players in it have for a very long time built their business around the minimum wages, or low wages. Viewing labor as an input like any other input (paper, beef, potatoes), they work fiercely to keep a lid on its cost.
Here, however, Shake Shack takes a different approach. It chooses to pay more than it is legally required, and probably more than the slack labor market requires it to do. Workers start at $10 an hour in New York (where the minimum wage is $8.75), and $9.50 an hour in other locations, as ThinkProgress.org reported. There’s more: Full-time workers get health benefits (the company picks up 70 percent of premiums), paid time off, and 401(k) matching contributions. Through a program called “Shack Bucks, ” employees receive a sliver of total sales—not profits.
This menu may not be gold-plated compensation by any means. But it is significantly better than the industry standard. And it clearly doesn’t hurt margins. Shake Shack doesn’t stint on real estate, ingredients, or labor. It has found that doing so enables you to build businesses that can move a lot of product in a highly efficient and customer-friendly way. As the company notes in its prospectus, a typical Shake Shack does $5 million in revenues. Those in Manhattan rack up $7.4 million in sales and gaudy 30 percent operating profit margins, while those outside New York ring up $3.8 million in sales and operating profits margins of 22 percent. All those figures compare favorably with the industry at large.
Shake Shack may find it difficult to maintain such numbers as it scales up. But its higher-than-necessary cost architecture is likely to help it weather looming stresses.
Designing a business to run on a thin margin while paying the lowest possible wages makes a lot of sense if the minimum wage doesn’t rise and the labor market is perpetually slack. One of the outstanding characteristics of the expansion that began in July 2009 has been the disconnect between rising wages and profits on one hand, and stagnant wages on the other.
If Shake Shack is going to expand the underlying business into its lofty public-market valuation, it will need to maintain its excellence while opening a substantial number of new outlets. The strategy will likely rise and fall on the ability of its team members to deliver. And it’s much easier to attract new workers and retain existing ones if your business is designed to pay workers above the going rate. Danny Meyer’s shtick on hospitality and caring may occasionally come off as corny. But the cold, hard facts of Shake Shack’s financial performance thus far show that valuing workers as much as the products you sell and the customers you serve can be good business. from strategy + business

 

How do you bring a high-end dining experience to fast food?

 

Shacks are built to feel more modern and grown-up than the cartoony, red-and-yellow-decorated junk-food joints that hawk value meals and 40-ounce sodas. You see it in the quiet color scheme (green and black); the slick graphic design (the brand’s clean, modern signage and logo were created by Pentagram’s Paula Scher); the room layout (an open kitchen up front rather than hidden in the back); and the way each outlet is localized to some degree (the Newbury Street store’s reclaimed-wood walls are made out of materials from an old Boys & Girls Club in nearby Watertown).
From — FastCompany “At the center of Shake Shack’s mission is Danny Meyer’s philosophy of 'enlightened hospitality.' In essence, it’s a set of priorities: the idea is to create a welcoming atmosphere first for employees, next for customers, and then for the outside community, suppliers, and, finally, investors. The notion echoes Johnson & Johnson’s 1943 mission statement, which espoused the same priorities and was at the time a groundbreaking corporate credo that led to decades of earnings and dividends growth.”
Quote Icon The first four gifts of hospitality we all got within seconds of being born were eye contact, a smile, a hug, and some pretty good food. With any transaction, people want to know that you see them. The surest line between your heart and the next person’s heart is eye contact. I just don’t want stuff getting in the way of that. Quote Icon Danny Meyers quoted in Fast Company

 

“Since opening the Union Square Cafe in New York in 1985, Meyer has perfected a brand of relaxed but highly polished service. Still, applying that concept to a spot that offers cheese fries in cardboard boxes rather than $120 tasting menus is a big leap. 'Business, like life, is about how you make people feel,' Meyer writes in his 2006 book, Setting the Table. 'It’s that simple, and it’s that hard.' Shake Shack has taken advantage of the burger industry’s traditional emphasis on speed over customer care. 'You go to a fast-food restaurant, your expectation is generally low,' says Garutti. 'You are almost always dreading what’s going to happen. So, cool, thank you for creating such a low bar for us. We’re going to go way above that. We’re going to make it so that everybody who walks out is saying, ‘I can’t believe what that guy did at Shake Shack!’ ”
The gleaming metal heart of the whole Shake Shack operation lies behind a pair of swinging red doors inside an immaculately clean, 35,000-square-foot facility not far from the Lincoln Tunnel in northern New Jersey. This is the headquarters of Pat LaFrieda Meat Purveyors, New York’s premier wholesale vendor of fine-dining beef.
When Shake Shack started, Meyer and Garutti tapped LaFrieda to create a blend specifically tailored to their unusual cooking method, which involves caramelizing thin patties on a flat top rather than grilling or broiling them. Much like the Coca-Cola formula, the secret recipe is only known to a handful of Shack executives. LaFrieda’s custom-built patty-shaping machine—there are three of them, with two on reserve in case of malfunction—is roughly the size of a small Zamboni. Meat goes in the top and perfectly formed pucks come out the side, ready to be boxed up and shipped out, unfrozen, to Shacks from D.C. to Boston. The machine cranks out about 80,000 of them every night. Shake Shack’s beef is at the center of its identity, both because of how the burgers taste and because of their pedigree: humanely raised, antibiotic and hormone free, ground fresh from full-muscle cuts rather than scraps or what has become known as—shudder—pink slime. “I don’t know anyone who’s ever taken a patty out of a McDonald’s burger and said, ‘Wow, this meat is great,’” says LaFrieda, sitting in a lounge area above the warehouse.
Shack Shack Hot Dog
“You could certainly do that at Shake Shack. We’re making beef fresh every night. It’s going to the restaurant the next day. There’s no better experience that you could possibly have.” Increasingly, a segment of American diners, especially those between the ages of 18 and 34, is looking to spend its dining-out dollars at restaurants that focus on natural ingredients and sustainability. “ Whether it’s Whole Foods or other companies like [ours], we are creating an expectation of excellence, transparency, sustainability,” Garutti says. In keeping with these principles, Shake Shack has worked with its bun supplier to omit genetically modified organisms and has removed corn syrup from its burger sauce and custard.
“The younger generation is not all of a sudden going to say, ‘I want less quality food, I want to know less about my food like my parents did,’” says Garutti. 'No way.' Nowhere is this mandate more imperative than with the meat inside that GMO–free bun. But there’s a problem: The supply of humanely raised, drug-free beef remains limited. Making sure Shake Shack doesn’t run out of beef is a big part of Jeff Amoscato’s job. As VP of supply chain and menu innovation, he’s responsible for sourcing the company’s meat—along with its bacon, buns, pickled cherry peppers, and every other ingredient that goes into its offerings.
One of his biggest challenges is ensuring the Shacks never encounter the sort of shortages that have plagued Chipotle. Earlier this year, the burrito purveyor stopped selling pork in around a third of its stores after it decided a major supplier wasn’t meeting its standards. When Garutti heard about the situation, he asked Amoscato and culinary director Mark Rosati to talk. He was just like, “By the way, guys, where are we at with this stuff?’ Rosati says. Amoscato has developed relationships with both ranchers and large natural-meat processors, such as Kansas-based Creekstone Farms. 'I’ll get in the truck with their cattle buyer and go around to some of the ranchers.” says the former manager of Meyer’s restaurant The Modern, who looks like he’d be far more at home sipping Rioja than roping steer. “We get to understand what they’re doing. We’re working to convince more farmers that this is a better way of growing cattle.”


EXPERIENCE PATAGONIA

Quote Icon I am probably here four or five months a year, 'Chouinard says later. “When I'm here, I work hard. But when I'm gone, I am out of here. I don't call in every day.” It is a style that has been in place at Patagonia since the day it opened. “Even when we started I was gone -- climbing -- more than four months of the year. One of the advantages of starting a company is that you can do what you want to do. Quote Icon

 

Patagonia Catalog

 

'I'm Sorry, Yvon's Out Surfing'

For 33 years Patagonia has had an on-site child care center that bears little resemblance to what anyone might imagine corporate on-site child care looks like. It is run by teachers, some of whom are bilingual and trained in child development. Learning takes place outdoors as much as in. Parents often eat lunch with their kids, take them to the farmer’s market or pick vegetables with them in the “secret” garden. When Yvon Chouinard, Patagonia’s iconic founder, and his wife Malinda started the company, their employees were friends and family and they wanted to support them as they worked, and started their families. “It lets you be the kind of parent you want to be.” The solution was not to fix a problem, but to respond to what humans need, including a place to nurse newborns, and later, to provide safe and stimulating child care.
The results three decades later are not surprising: 100% of the women who have had children at Patagonia over the past five years have returned to work, significantly higher than the 79% average in the US. About 50% of managers are women, and 50% of the company’s senior leaders are women.
Patagonia’s $20 Million & Change fund was launched in 2013 to help innovative, like-minded startups bring about solutions to the environmental crisis and other positive change through business. Or, in Yvon’s words, to help entrepreneurs and innovators succeed in “working with nature rather than using it up.” Today, we’re introducing you to one of those companies, Bureo, a B Corporation and member of 1% for the Planet.

 


 

THE KROCHET KIDS

Today, over 150 people in Uganda and Peru are working, receiving education, and being mentored toward a brighter future in creating gifts that give back. The products created abroad have been well received here at home and the collaboration of our staff and beneficiaries around the globe has created a sustainable cycle of employment and empowerment. Krochet Kids is know for their products that include a tag attached with the signature of the person who made it.
Meet the ladies that made your product. Krochet Ladies

The Krochet Kids quickly grew beyond us...

 

College found us three friends at different schools. Although there were brief resurgences of the crochet craze amongst new friends, we ultimately began exploring new opportunities — surfing, traveling. During our summer breaks we volunteered in various developing nations, hoping to gain a better understanding of the global community in which we lived. It wasn’t long before we came to realize how blessed we had been growing up. The desire was planted within us to help. To reach out in love. To make a difference. This is their story.
Through a unique model Krochet Kids are empowering the women of Northern Uganda and Peru with the assets, skills, and knowledge to lift themselves and their families out of poverty. The result is long lasting and sustainable change. We provide a job so that women can meet the present needs of their families. We educate them so that they develop beyond the need for outside aid. We provide mentorship to help each lady plan a unique and sustainable career path for the future. Learn more about Krochet Kids


 

WARBY PARKER

Almost one billion people worldwide lack access to glasses, which means that 15% of the world’s population cannot effectively learn or work. To help address this problem, Warby Parker partners with non-profits like VisionSpring to ensure that for every pair of glasses sold, a pair is distributed to someone in need.

 

    Warby Parker ground rules:
  • Treat customers the way we’d like to be treated.
  • Create an environment where employees can think big, have fun, and do good.
  • Get out there.
  • Green is good.
At both Harry's and Warby Parker, our teams sweat every little detail. Our product design and the look and feel of both brands communicate quality, establish our perspective on the world, and reinforce our purpose in the eyes of our customers. We never cut corners. Everything we create should be exactly the way we want it, from the physical design to the words published on our website – we want to make sure that the brand experience is consistently simple and delightful. We believe you only have one chance to make a first impression on someone, so we sweat the details to make that first impression as good as it can be. Jeffrey Raider, Co-Founder of Warby Parker and Harry's in a Pulse interview.
Their message. Our customers, employees, community and environment are our stakeholders. We consider them in every decision that we make. Learn more at Warby Parker


 

Fitbit logo

Get fit in style with new Fitbit Blaze™ – the smartest, most motivating, most stylish fitness tracker yet. This versatile timepiece fits seamlessly into your life with a sleek design, an enhanced fitness experience with advanced coaching, easily interchangeable accessories, and the smart features you need to stay connected.
Fitbit was founded in early 2007 by James Park and Eric Friedman, who saw the potential for using sensors in small, wearable devices. They raised $400,000 but soon realized that that wasn't enough, so they did the rounds of potential investors with little more than a circuit board in a wooden box. But the idea was good, and when Fitbit addressed the TechCrunch 50 conference in 2008, Park and Friedman hoped to get 50 pre-orders, although Eric suspected the actual number would be nearer five. In fact, in one day, they took 2,000 pre-orders.
Getting orders orders turned out to be the easy part. Neither Park nor Friedman had any manufacturing experience. As Park recalled in an interview with Jeff Clavier at the Computer History Museum: “Several times, we were pretty close to being dead. We probably spent about three months in Asia looking at suppliers, bringing up production lines.”
There were also problems with their design, the antenna wasn't working properly. “In my hotel room I was thinking this is it,” Park said. “We're done. We literally took a piece of foam and put it on the circuit board to fix an antenna problem.”
Fitbit launched its tracker at the end of 2009, shipping around 5,000 units with a further 20,000 orders on the books. Because Fitbit was selling its product directly to customers, those 5,000 units were sold with "pretty darn good" profit margins - but Park and Friedman knew that to ship big numbers, they'd need big partners. They raised more money from venture capitalist Brad Field, teamed up with Best Buy to reach four, then 40, then 650 Best Buy stores. Fitbits are now sold in thousands of retail outlets worldwide.
One of the reasons for Fitbit's ongoing success is its investment in new models. The first tracker was pretty good, but in 2011 Fitbit improved it by adding an altimeter, a digital clock and a stopwatch. That was the Ultra.
Fitbit logo
From the very beginning, one of Fitbit's strengths was its website: you'd upload information from your Fitbit device to the web so you could analyze your performance and share it with other Fitbit users.
In 2011, however, that caused a little bit of a problem: it turned out that users who recorded their sexual activity (in terms of time spent, not what they spent the time doing) were unwittingly sharing that information with the world, and with Google. Fitbit realized that "share all my stuff with everyone" wasn't the best default option, and it changed its site so that user information would be private by default.
One of the problems of being an innovator is that you can end up at the forefront of issues you might not have considered, and in the case of Fitbit one of those issues is privacy. Health data recorded by Fitbit isn't legally protected in the way normal medical records are, and that means Fitbit's data can be subpoenaed by the relevant authorities. reference: wareable
Fitbit announced on 2/21/2014 that it would recall its new Force model, after users complained of rashes and burns while wearing it. Fitbit CEO James Park says the recall was motivated by “an abundance of caution.”
Quote Icon They're very generous on their replacements. I remember when I washed my Ultra, they sent me the new One model for free. I'm now on my 3rd Fitbit One, and I only paid for the Ultra once.Quote Icon Internet blogger

 

Fitbit Inc. is an American company headquartered in San Francisco, California. Founded and managed by James Park and Eric Friedman, the company is known for its products of the same name, which are activity trackers, wireless-enabled wearable technology devices that measure data such as the number of steps walked, heart rate, quality of sleep, steps climbed, and other personal metrics. The first of these was the Fitbit Tracker.
On May 7, 2015, Fitbit announced it had filed for an initial public offering (IPO) with a NYSE listing. The IPO was filed for $358 million. The company's stock began trading with the symbol “FIT” on June 18, 2015.
CEO James Park is a serial entrepreneur with a passion for creating great products and companies. Fitbit is the third startup that he has founded. Previously, James was a Director of Product Development at CNET Networks, where he led product management, engineering, and design for Webshots. Before CNET, James was a co-founder of Windup Labs, which was acquired by CNET in 2005, and prior to Windup Labs, he was the co-founder and CTO of Epesi Technologies. James also worked at Morgan Stanley, where he helped develop trading strategies and software for a quantitative trading fund. James never quite finished his computer science degree at Harvard College. reference: Fortune
“While Fitbit is clearly the overall leader compared to the other fitness bands such as Jawbone, Garmin and Misfit, a lead that is continuing to grow even over the last month, in the overall wearables category where smartwatches come into play, fitness bands in general are dropping as a share of the market,” said John Feland, CEO and founder, Argus Insights. Fitbit is losing out as a part of this comprehensive wearables category with a mindshare ranking of far less than the 68-percent market share disclosed in the S-1. Says Feland, “Fitbit will need to differentiate itself more as almost any smartwatch and other wearable product out there will tell you how many steps you took and lets you share that information with your friends.”
“Fitness bands stop being useful and people lose their fitness momentum – all similar reasons as to why people quit going to the gym," Feland said. “For Fitbit to continuously grow, they will need to keep users engaged and give them reasons to buy new versions of the products. Right now our data indicate that other more comprehensive devices are taking over for fitness trackers.” Argus Insights also expects the number of “white label” fitness bands to increase in six months – just as white label tablets proliferated. “ Learn more on white-labeling. It won’t matter that the generic fitness band does not have the brand identity. It will definitely be cheaper and work almost exactly the same way.” For example visit this Alibaba site for fitness-trackers.

When a company "white-labels," it simply means that another company will be rebranding one of its products or services to make it appear as the purchasing company's own.

“To sum up,” says Feland, “we think Quarter 2, 2016 is looking weak for Fitbit compared to the other brands globally. They are especially impacted by slack demand for their smartwatch which was introduced in December. We recommend a wait and see attitude when it comes to Fitbit and their future.”
The Fitbit Surge, Fitbit’s smartwatch, had a rocky launch over the holidays when users’ reactions were extremely negative, and Fitbit is only now recovering. Improved strength with Fitbit’s watch is very important if the company wants to compete with the Apple Watch and myriad other smartwatches now on the market.
One other area where competitive pressures may come to bear, according to Feland, is in the growth of cheaper, while still adequate, white label fitness bands enabled by motion sensor suppliers like Invensense and its Sharkband fitness band reference platform. For more information about the Argus Insights Fitbit Demand Report, visit Argus Fitbit Insights
“We operate in a highly competitive market. If we do not compete effectively, our prospects, operating results, and financial condition could be adversely affected. The connected health and fitness devices market is highly competitive, with companies offering a variety of competitive products and services. We expect competition in our market to intensify in the future as new and existing competitors introduce new or enhanced products and services that are potentially more competitive than our products and services. The connected health and fitness devices market has a multitude of participants, including specialized consumer electronics companies, such as Garmin, Jawbone, and Misfit, and traditional health and fitness companies, such as adidas and Under Armour.
In addition, many large, broad-based consumer electronics companies either compete in our market or adjacent markets or have announced plans to do so, including Apple, Google, LG, Microsoft, and Samsung. For example, Apple has recently introduced the Apple Watch smartwatch, with broad-based functionalities, including some health and fitness tracking capabilities. We also compete with a wide range of stand-alone health and fitness-related mobile apps that can be purchased or downloaded through mobile app stores. We believe many of our competitors and potential competitors have significant competitive advantages, including longer operating histories, ability to leverage their sales efforts and marketing expenditures across a broader portfolio of products and services, larger and broader customer bases, more established relationships with a larger number of suppliers, contract manufacturers, and channel partners, greater brand recognition, ability to leverage app stores which they may operate, and greater financial, research and development, marketing, distribution, and other resources than we do.
Our competitors and potential competitors may also be able to develop products or services that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do. Some of our competitors may aggressively discount their products and services in order to gain market share, which could result in pricing pressures, reduced profit margins, lost market share, or a failure to grow market share for us. If we are not able to compete effectively against our current or potential competitors, our prospects, operating results, and financial condition could be adversely affected.” From public documents submitted to the SEC and accessed on the Edgar data base.
Fitbit relied on its popular Fitbit Charge and Fitbit Surge models to maintain its leadership in the worldwide wearables market, and also saw continued growth within the Asia/Pacific and Europe, Middle East, and Africa (EMEA) markets. Equally noteworthy has been its fast-growing Corporate Wellness strategy during the quarter, which added North American retailer Target and its order of 335,000 fitness trackers for its employees. Target joins Bank of America, Time Warner, and more than 70 other Fortune 500 companies to deploy Fitbit devices to its employees.
The big picture for Fitbit, Woody Scal Fitbit’s chief business officer said, is its evolution into a digital monitoring platform to discover and prevent health problems. Fitbit has teamed up with corporations that offer wellness programs for employees. BP, for example, offers Fitbits to more than 23,000 employees, partly to ensure they are getting enough sleep before they work on oil rigs. Mr. Scal said the data from sleep monitoring, a feature built in to all Fitbit devices, could lead to new health revelations.
Fitbit’s mission is to help people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals. They design their products primarily in California and outsource the production of their devices to contract manufacturers, which are responsible for procuring most of the components used in the manufacturing of our products from third-party suppliers. They also outsource packaging and fulfillment to third-party logistics providers around the world.
Fitbit generates substantially all of it’s revenue from sales of their connected health and fitness devices. They sell their products in over 50,000 retail stores and in 63 countries, through their retailers' websites, through their online store at Fitbit.com, and as part of their corporate wellness offering. They seek to build global brand awareness, increase product adoption, and drive sales through their sales and marketing efforts. They intend to continue to significantly invest in these sales and marketing efforts in the future.

Fitbit stock performance
Fitbit's stock performance

Fitbit has spent heavily to drive its sales growth and future product launches. Operating costs nearly tripled in 2016, causing profit to plunge 77% to 5 cents a share after the payout of preferred dividends. As a result, shares dropped about 12% in after-hours trading. “Our hope is to accelerate the pace of development that we have on the product side, and also lower the time frame in which we launch products,” said Fitbit Chief Executive James Park. Fitbit Sales Climb, but Expenses Eat Into Profit - WSJ May 4,2016
Full-year and second-quarter 2016 guidance continues to reflect the company’s planned higher investments in research and development to accelerate the pace of innovation to deepen its competitive moat; investments in sales and marketing to drive revenue from new products in 2016; and investments in consumer engagement features to accelerate the network effect of the company’s large user community, to strengthen consumers’ brand preference.
On May 19, 2016 it was reported that Coin, a startup was going out of business. Fitbit is moving to add a mobile payments feature to its market-leading line of activity trackers, but slowly. The company purchased wearable payments technology from startup Coin last week, but won’t integrate the feature into new bands until at least next year, CEO James Park told Fortune. The deal also includes intellectual property and key engineering and sales personnel from Coin, but doesn’t involve the company’s mobile wallet. reference; Fortune
tech–crunch reported on 12/1/2016 “ It looks consolidation is acoming to the wearables space with Fitbit set to acquire smartwatch maker and multi-million-dollar Kickstarter-darling Pebble, according to a report from The Information. Pebble released the newest version of its smartwatch in October, but the past year or so has been a challenging period. Fitbit, too, has experienced its own challenges. The company priced its shares at $50 when it listed on the New York Stock Exchange in 2015, but today it is trading at $8.40. That depression is largely due to less-than-impressive financial results. Some may cite the emergence of Apple and the Apple Watch as a competitor, but analyst reports have noted that smartwatch sales are tanking as initial consumer interest in wearable devices has waned.“ The problem might be that once you have one you don't need another. And, everyone who wanted one has one! Added 12/1/2016

Fitbit's Financial Results 2015 and 1st Quarter 2016

 

Income Statements/ Statements of operations show the companies performance over a period of time.

 

View here: Fitbit's three months results for the first quarter 2016

 

Balance Sheets are a company's snapshot at a moment in time. View Fitbit's Balance Sheet for 2015 here: FIT Balance sheet 2015
From Bloomberg “Fitbit Inc. will eliminate about 110 jobs, or 6 percent of its workforce, and said fourth-quarter results won’t meet analysts’ estimates amid declining demand for its fitness trackers. Fitbit expects to report that it sold 6.5 million devices in the quarter ended Dec. 31 2016, with revenue of $572 million to $580 million, the company said in a statement Monday. Analysts were expecting $736.4 million, on average. Fitbit forecasts revenue in 2017 of $1.5 billion to $1.7 billion. Analysts had estimated $2.38 billion. Official results are due to be released Feb. 22.” “That is a brutal miss, following on last quarter's brutal miss. As I noted then, Fitbit is in a pretty untenable position: Apple will take the high end wearable market, while Chinese competitors will take the low-end. The company's fundamental flaw has always been that wearables as accessories leaves no room for a non-Apple branded offering, but neither Fitbit nor the state of technology was in a state to create wearables that were standalone devices, at least not yet. That was compounded by the upgrade problem: if you already have a Fitbit, why would you buy another one? Clearly most people didn't.” reference - stratechery, 2/1/2017.

keurig coffee

Keurig /ˈkjʊərɪɡ/, is a beverage brewing system for home and commercial use. It is manufactured by the American company Keurig Green Mountain, which is headquartered in Waterbury, Vermont. The main Keurig products are: K-Cup pods, which are single-serve coffee containers; other beverage pods; and the proprietary machines that brew the beverages in these pods.
Keurig coffee maker
“From Keurig’s founding in 1992 until their departure in 1997, Sylvan and Dragone hacked together prototype after prototype, working in small offices in Waltham and doing most of the taste-testing themselves. For the first few years, they drew no salary and were turned down for funding by scores of venture capitalists.” retrieved from: Boston Globe - The Buzz Machine Author, Daniel McGinn (August 7, 2011)
It launched its first brewers and K-Cup pods in 1998, targeting the office market. As the single-cup brewing system gained popularity, brewers for home use were added in 2004. In 2006 the publicly traded Vermont-based specialty-coffee company Green Mountain Coffee Roasters acquired Keurig, sparking rapid growth for both companies. In 2012 Keurig's main patent on its K-Cup pods expired, leading to new product launches, including brewer models that only accept pods from Keurig brands. Keurig has also entered the cold-beverage market with Brew Over Ice, and with Keurig Kold, which launched in September 2015; and it entered the soup market with a line of Campbell's Soup K-Cups which also launched in September 2015.
From 2006 to 2014 Keurig, Inc. was a wholly owned subsidiary of Green Mountain Coffee Roasters. When Green Mountain Coffee Roasters changed its name to Keurig Green Mountain in March 2014, Keurig ceased to be a separate business unit and subsidiary, and instead became Keurig Green Mountain's main brand. In December 2015 it was announced that Keurig Green Mountain would be sold to an investor group led by private-equity firm JAB Holding Company for nearly $14 billion; the acquisition was completed in March 2016.
Keurig founders John Sylvan and Peter Dragone had been college roommates at Colby College in Maine in the late 1970s. In the early 1990s Sylvan, a tinkerer, had quit his tech job in Massachusetts, and wanted to solve the commonplace problem of office coffee – a full pot of brewed coffee which sits and grows bitter, dense, and stale – by creating a single-serving pod of coffee grounds and a machine that would brew it. Living in Greater Boston, he went through extensive trial and error trying to create a pod and a brewing machine. By 1992, to help create a business plan, he brought in Dragone, then working as director of finance for Chiquita, as a partner. They founded the company in 1992, calling it Keurig; Sylvan later said that the name came from his having "looked up the word excellence in Dutch”.
Keurig coffee maker
By 1993 Sylvan and Dragone were still making the pods by hand, and brought in manufacturing consultant Dick Sweeney to serve as co-founder and to automate the manufacturing process. The prototype brewing machines were also a work in progress and unreliable, and the company needed funds for development. That year, they approached what was then Green Mountain Coffee Roasters, and the specialty coffee company first invested in Keurig at that time. Keurig needed sizeable venture capital; and after pitching to numerous potential investors the three partners finally obtained $50,000 from Minneapolis-based investor Food Fund in 1994, and later the Cambridge-based fund MDT Advisers contributed $1,000,000. In 1995 Larry Kernan, a principal at MDT Advisers, became Chairman of Keurig, a position he retained through 2002. Sylvan did not work well with the new investors, and in 1997 he was forced out, selling his stake in the company for $50,000. Dragone left a few months later but decided to retain his stake. Sweeney stayed on as the company’s vice president of engineering.
In 1997, Green Mountain Coffee Roasters became the first roaster to offer its coffee in the Keurig "K-Cup" pod for the newly market-ready Keurig Single-Cup Brewing System, and in 1998 Keurig delivered its first brewing system, the B2000, designed for offices. Distribution began in New York and New England. The target market at that time was still office use, and Keurig hoped to capture some of Starbucks' market. To satisfy brand loyalty and individual tastes, Keurig found and enlisted a variety of regionally known coffee brands that catered to various flavor preferences. The first of these was Green Mountain Coffee Roasters. Keurig also partnered with a variety of established national U.S. coffee brands for K-Cup varieties, and in 2000 the company also branched out the beverage offerings in its K-Cup pods to include hot chocolate and a variety of teas. The brewing machines were large, and hooked up to an office's water supply; Keurig sold them to local coffee distributors, who installed them in offices for little or no money, relying on the K-Cups for profits.
In 2002, Keurig sold 10,000 commercial brewers. Consumer demand for a home-use brewer version increased, but manufacturing a model small enough to fit on a kitchen counter, and making them inexpensively enough to be affordable to consumers, took time. Office models were profitable because the profits came from the high-margin K-Cups, and one office might go through up to hundreds of those a day.
By 2004, Keurig had a prototype ready for home use, but so did large corporate competitors like Salton, Sara Lee, and Procter & Gamble, which introduced their own single-serve brewers and pods. Keurig capitalized on the increased awareness of the concept, and sent representatives into stores to do live demonstrations of its B100 home brewer and give out free samples. Keurig and K-Cups quickly became the dominant brand of home brewers and single-serve pods.

Product - Keurig K-Cup brewing systems

The company's flagship products, Keurig K-Cup brewing systems, are designed to brew a single cup of coffee, tea, hot chocolate, or other hot beverage. The grounds are in a single-serve coffee container, called a "K-Cup" pod, consisting of a plastic cup, aluminum lid, and filter. Each K-Cup pod is filled with coffee grounds, tea leaves, cocoa powder, fruit powder, or other contents, and is nitrogen flushed, sealed for freshness, and impermeable to oxygen, light, and moisture. The machines brew the K-Cup beverage by piercing the foil seal with a spray nozzle, while piercing the bottom of the plastic pod with a discharge nozzle. Grounds contained inside the K-Cup pod are in a paper filter. Hot water is forced under pressure through the K-Cup pod, passing through the grounds and through the filter. A brewing temperature of 192 °F (89 °C) is the default setting, with some models permitting users to adjust the temperature downward by five degrees.

Information on Keurig retrieved from: Wikipedia 6/7/2016

“Keurig Green Mountain Inc. is pulling the plug on its countertop soda machine after launching it amid great fanfare last year but failing to win over consumers.”
“On Tuesday, the maker of coffee machines and K-cups said it is discontinuing Kold, its pod-based appliance that allowed users to make chilled Coca-Cola, Dr Pepper and other carbonated beverages at home. Keurig had high hopes of making Kold a kitchen fixture—much like its popular coffee makers that took American households by storm the last decade. Coca-Cola Co. Chief Executive Muhtar Kent called Kold “a real game-changing’’ innovation in early 2014, when the soda giant took a minority stake in Keurig and agreed to make its brands available. Instead, Waterbury, Vt.-based Keurig sold only a few thousand machines after launching Kold in the U.S. last September. A store rollout faltered and in April the company said the machines would only be sold online. Many consumers balked at the price of the machine, which initially cost $369. The pods also were pricey, costing $1.25 to make an 8-ounce drink. And the machine took up a lot of counter space and about 60 seconds to make a single serving—much longer than it takes to grab a ready-made bottle or can of Coke from the fridge.”
“Underscoring Kold’s struggles, Keurig recently offered the machines for as little as $199 and slashed the price of pods to 50 cents, to no avail. “While it delivered a great-tasting cold beverage, the initial execution didn’t fully deliver on consumer expectations, especially around size, speed and value,’’ said Suzanne DuLong, a Keurig spokeswoman.”
“ ‘People today, even though they talk about make my own, if it takes 45 seconds to make a Pepsi at home as opposed to three seconds to pop open a can, they think that’s 42 seconds wasted,’ PepsiCo Chief Executive Indra Nooyi told a soda-industry conference in late 2014.”

 

from reference: WSJ Keurig-discontinues-cold-drink-carbonation-machine-after-sales-fizzle Author, Daniel McGinn August 7, 2011
One of the issues face by Keurig is recycling the pods. Keurig Green Mountain is secretive about how many K-Cups the company actually puts into the world every year. The best estimates say the Keurig pods buried in 2014 would actually circle the Earth not 10.5 times, but more than 12. reference: The Atlantic

 

Video retrieved from Protein Journal article
A new coffee pod brand launched in the U.K., with, at the heart of its strategy, a direct “ J’accuse” of existing producers in the market, in particular, the Europe-dominant Nespresso. Halo, a super-premium coffee in a totally biodegradable pod, has drawn considerable interest in the days following its debut. Nils Leonard says, “ First of all, if there were just a premium pod, a pod that has exquisite coffee, because the coffee as it stands in the majority of pods is very average. Deeply middle of the road. But then you start looking at the problems in the category and we thought if we did that in a way that wasn’t shit for the world then that would be great.” retreved from Fastcocreate.com

Blue Apron

Blue Apron food photo Image from the Blue Apron website.
Our food system–the way in which food is grown and distributed–is complicated, and making good choices for your family can be difficult. Blue Apron is changing that: by partnering with farmers to raise the highest-quality ingredients, by creating a distribution system that delivers ingredients at a better value and by investing in the things that matter most—our environment and our communities. They predict that it will be a decades–long effort, but with each Blue Apron home chef, together with us they can build a better food system. To learn how Blue Apron built their business and how they intend to grow the business and create the new food system visit this article by Jing Cao published by Bloomberg. To explain their complicated food system Blue Apron has created a wonderful graphic that scrolls a naritive on their website home page to make the process easy to understand. Check it out here: Blue Apron
The company filed for an initial public offering in the U.S. Thursday, after reportedly delaying listing preparations while it worked to improve financials. While revenue more than doubled last year, Blue Apron is still losing money as it fights to win customers from competitors such as HelloFresh AG and Sun Basket Inc. as well as publicly listed giants like Amazon.com Inc. Indeed the threat from Amazon materialized quickly when Amazon agreed June 16, 2017 to buy Whole Foods. Gaining share in the busy U.S. food-delivery market is expensive: Blue Apron spent $144 million on marketing last year, or about 17 percent of its total operational spending. The company has been working to reduce the cost of acquiring customers, aligning that outlay more closely with the value of long-term subscribers, a person familiar with the matter said last year. retrieved from: Bloomberg
One of the clouds hanging over Blue Apron since its IPO has been the looming threat of what an Amazon-Whole Foods combination could mean for its business. But when Blue Apron’s stock got hammered on 8/10/2017, falling more than 17 percent by day’s end, that had nothing to do with it; it was the company’s disappointing financial forecast for the back half of the year that was the culprit. The company is in the midst of a vicious cycle that goes something like this: Blue Apron is experiencing warehouse issues that are causing customer satisfaction issues that are causing retention issues that are causing marketing issues that are causing revenue issues. The company is in the midst of a vicious cycle that goes something like this: Blue Apron is experiencing warehouse issues that are causing customer satisfaction issues that are causing retention issues that are causing marketing issues that are causing revenue issues.
Blue Apron’s market share declined 17 percentage points in September 2017 from 57.5 percent a year earlier, while most other meal kit services gained market share in the $5 billion U.S. meal kit market. Their market share as of September 2017 was 40.3%. Blue Apron doesn’t retain customers as well as some of their smaller competitors, leading people to spend less with the companies over time. A year after the Blue Apron’s customer’s first purchase, they held on to 15 percent of its customers. Blue Apron reported an annual decline in average revenue per customer in its 2017 second-quarter filings. The company reported that in order to offset new plant startup expenses they would reduce marketing spending.
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“There is ... cost associated with that training of people who are not doing day-to-day proactive work while they're being trained,”he added, “as well as impact from people who are doing work who are just early in their life cycle of being trained.” The result has been mistakes that are hurting Blue Apron’s OTIF rates — that is, the percentage of orders that arrive on time and with all the correct ingredients (in full), the company said. retrieved from recode article “Perishable food isn’t a widget, right?” dated 8/11/2017.
The lifetime value (LTV) of a customer is pretty straightforward to understand: how much revenue will you earn from a customer for the duration of the time they are a customer, minus how much it will cost to serve them, discounted by the cost of capital. Why discount? Because there’s one more piece of the LTV equation: how much it costs to acquire that customer, and that cost is borne today, while revenue isn’t realized until the future (and future revenue is worth less than cash paid for customer acquisition today). See discounted cash flow article on Wikipedia.
While the company is benefiting from scale (the company’s gross margins are decreasing as the customer base grows), there are no network effects or other means by which Blue Apron is becoming more valuable to marginal customers. That means that, outside of cutting prices, the only way to grow is to spend more money on customer acquisition, and that is a very good way to make the lifetime value of a customer negative. Ben Thompson Blue Apron sought to sell shares between $15 and $17 apiece, which would have valued the company at $3 billion at the midpoint of the range. However, the startup struggled to find buyers at those prices. Investors who considered the IPO expressed concern about Blue Apron’s marketing costs and customer turnover, according to fund managers and analysts.
Blue Apron stock price

The onsen

Onsen photo Image from the Offscreen website.
A number of years ago I discovered food pouches at Starbuck. Their unique packaging that provided nutritional snacks led me to Shazi Visram and the Happy Family company. In 2011, founder and CEO Shazi Visram earned the title of Ernst & Young's Entrepreneur of the Year for New York. While studing for her MBA at Columbia University she put together the basics of a business plan and began networking in the food industry. That business plan included an exit plan. An exit plan as part of a business plan stuck in my mind and when I saw an article titled An Exist Strategy published in the Off Screen blog I was drawn to it.
An onsen is a Japanese hot spring and the bathing facilities and inns frequently situated around them. The onsen in this story has been in existence since 705 AD. “The staff are hardworking, courteous, and committed to exemplary service. They embody omotenashi: the spirit of selfless service and humble hospitality. With an understanding that each of those they serve has different needs, there is a desire to put their patrons first, personalise their experience, and exceed expectations. The staff are dedicated not to reaching the top of the corporate ladder, but instead to protecting the onsen, to help it thrive and preserve it for years to come. The meals served aim to 'balance taste, texture, appearance, and the season'. Fresh, seasonal ingredients are used, foraged and caught in the nearby mountains and rivers.”
The onsen has stayed small. They know what they do, and they do what they know. Their focus on service is relentless. They are a team united in its mission to protect, to nurture, to tend to, to keep alive – a delicate balance of continuation, innovation, and dedication that has endured for hundreds and hundreds of years.
A hat tip to Natasha Lampard for this wonderful story An Exist Strategy