#1 — Ben and Jerry’s vs. Amazon, WeWork Schadenfreude, and In Praise of Dissent
Hello and welcome to Weekend Reading Volume 1. A few things covered this week: Chunky Monkey, lessons from WeWork, and praising dissenters.
Strategy Letter I: Ben and Jerry’s vs. Amazon (Joel on Software)
Know thyself. A lot of recent pain in the business world has come from companies pursuing the Amazon model: “Building a company? You’ve got one very important decision to make, because it affects everything else you do…You absolutely must figure out which camp you’re in, and gear everything you do accordingly, or you’re going to have a disaster on your hands. The decision? Whether to grow slowly, organically, and profitably, or whether to have a big bang with very fast growth and lots of capital. The organic model [the Ben and Jerry’s model] is to start small, with limited goals, and slowly build a business over a long period of time…The other model [the Amazon model]…requires you to raise a lot of capital, and work as quickly as possible to get big fast without concern for profitability…The trouble with the Amazon model is that all anybody thinks about is Amazon. And there’s only one Amazon. You have to think of the other 95% of companies which spend an astonishing amount of venture capital and then simply fail because nobody wants to buy their product…The worst thing you can do is fail to decide whether you’re going to be a Ben and Jerry’s company or an Amazon company…Both models work, but you’ve got to pick one and stick to it, or you’ll find things mysteriously going wrong and you won’t quite know why.”
‘At What Point Does Malfeasance Become Fraud?’: NYU Biz-School Professor Scott Galloway on WeWork (NY Mag)
WeWork is an example of a company that chose the Amazon model and didn’t quite make it. This happens to most companies who go this route. But was that the best model (BIG caveat here, hindsight is 20/20)? Established competitors? Yes, for both shared office space and elevating consciousness. Network effects? No. Capital requirements? Heavy. Importance of corporate culture? There’s a mismatch here between WeWork’s cultural aspirations and its growth aspirations. Could business model/growth profile paper over problems? No: “The lines between vision, bullsh*t, and fraud are pretty narrow…I speak from some experience as a CEO in the ’90s in the internet days: If you tell a 30-year-old male he’s Jesus Christ, he’s inclined to believe you…There’s going to be a lot of fallout here, but one of the things, there’s going to be an overdue immune reaction. We’ve decided the narrative has superseded numbers. I think that’s going to change. It’s already changed. Basically Uber started the decline and WeWork has massively increased the momentum.”
SoftBank’s WeWork Bailout Draws Investor Concern (WSJ $)
While the WeWork bashing above is made possible with the benefit of hindsight, this article provides a good opportunity to apply the Ben and Jerry’s vs. Amazon framework prospectively. Softbank wrote large checks and told companies to follow the Amazon model. Now it’s telling them they should be a little more like Ben and Jerry’s. As Joel Spolsky mentions above, “the worst thing you can do is fail to decide whether you’re going to be a Ben and Jerry’s company or an Amazon company,” We should be expecting a few more bumps in the road from Vision Fund companies: “Masayoshi Son, SoftBank’s chief executive officer, has been trying to lower the risk and improve governance at the fund and the companies it has invested in, while pushing those startups to focus on profits. At a Vision Fund meeting in September that brought together its investors and portfolio companies, Mr. Son repeatedly told attendees that the fund now views the ability to make money as important as increasing revenue or market share.”
In praise of dissenters (The Economist)
So, how to choose the right business model and avoid becoming the next WeWork? This post from The Economist suggests that considering a diversity of viewpoints helps. This is one reason why it’s helpful to use multiple models to triangulate whenever possible: “In the modern world, with all its complexity, cooperation is essential if breakthroughs are to be made…There are two elements to selecting a good team. First, assemble people with diverse viewpoints. Second, ensure that those viewpoints are heard and respected. That may not happen if those in charge are overbearing. A study of over 300 projects by the Rotterdam School of Management found that those led by junior managers were more likely to succeed than those led by senior managers — maybe because other team members were less intimidated about pointing out potential pitfalls to someone lower down the pecking order…Increasing the number and range of ideas on offer (within reason) may be the secret of success. As Mr Syed writes, the willingness to share knowledge pays off in a world of complexity.”