Category Archives: Business Models

… Local

A few miles west of Chapel Hill, North Carolina, there is a raised wooden pavilion with tables and chairs, surrounded by acres of farmland. On these fields they grow berries, herbs, and even tea leaves, which are steeped and served at Honeysuckle Tea House, an establishment inside the breezy open-air structure.

Honeysuckle

The farm and Honeysuckle Tea House are part of a large ecosystem of corporate entities that work together to reinforce each other and enrich the local community.

EastWestHoneysuckle and the farm are owned by EastWest Organics, a farm management company that owns or leases 227 acres of farmland and food producing forest land in Orange County, NC. They produce agricultural products that are used in beverages, such as berries, nuts, tea leaves, and honey.

In addition to the farms, EastWest owns the aforementioned tea house, as well as the Looking Glass Café in Carrboro, NC and the Honeysuckle Meadery and Wine Bar, also in Carrboro. Looking Glass is a traditional coffee shop which is attached to the meadery’s tasting room. Here you can sample Honeysuckle’s meads as well as other local beverages, such as wines, ciders, beers, and fermented beverages like kombucha. The meadery makes Honeysuckle’s meads, with ingredients sourced from EastWest’s farms.

EastWest is 20% owned by Unique Places to Save, a local non-profit. Unique Places (“UP2Save”) conserves unique social, cultural, natural, and agricultural places around the United States, and has a lot of assets in North Carolina. One such is the Keith Arboretum and Forest, in Chapel Hill. The arboretum was founded by a University of North Carolina professor over 40 years ago, and now has more than 4,000 species from temperate forests around the world. The core arboretum is buffered by additional protected woodlands and the Keith family farmstead which is available for private rental.

Unique-Places-to-Save-1

UP2Save has allowed Bee Downtown, a local startup, to house their beehives at the arboretum. Bee Downtown places beehives on the premises of corporations and other institutions who pay to sponsor hives. In exchange, the corporations receive educational content, have a new method of engaging with their employees, and get the honey from the hives. Bee Downtown is a successful, growing company that is now expanding to Atlanta from the Research Triangle region of North Carolina. The arboretum is also one of the farms for EastWest Organics. The company cultivates botanics from the forests and fields and also uses the bees’ honey for its meads (Bee Downtown also has hives at the tea house location farm. The bees pollinate the plants at the farm which produce the crops, such as berries). Given the extreme biodiversity of the arboretum, the honey from these hives is arguably some of the most unique in the world!

bee-logo-orange-01The number of large corporations that Bee Downtown works with is remarkable. Just in the Research Triangle area they have hives at IBM, SAS, Murphy’s Naturals, North Carolina State University, and even Burt’s Bees. Although many of its customers are large companies, it partners with other local companies as well. They have designed t-shirts with Durham, NC-based apparel company Runaway. Local companies that sponsor hives can also take the honey they collect and sell it under their own brand name (as Runaway has done).

One of the interesting aspects of these strong ties between entities is that UP2Save is a non-profit. Nevertheless, it sits as an anchor and facilitates a lot of commercial activity. Another revenue generating activity for UP2Save (beyond the proceeds it receives from EastWest Organics) is mitigation banking. The US Army Corps of Engineers requires new developments to offset their impact on wetlands by purchasing mitigation credits. These credits are created by mitigation banks. The “banks” are conserved wetlands which conform to Army Corps of Engineers environmental standards. UP2Save is able to meet its conservation mission, generate revenue, and help facilitate the development of new properties in local communities.

Keith ArboAll of these interconnected activities also create educational opportunities. The various entities offer educational programs as well as have spaces for formal or informal educational events. Bee Downtown educates its corporate clients about the importance of bees to the world, and they also host school groups at the arboretum. The arboretum doubles as an educational and research laboratory, given the array of species that it houses. Honeysuckle’s beverages educate consumers about agricultural practices and beverages and wellness. Furthermore, the agritourism promoted by Honeysuckle Tea House, the arboretum, and Bee Downtown grow interest in conservation and agribusiness, and all of these entities offer internships and other practical experiences for students from all of the local universities.

Local business is not an ideal in and of itself. The economics of local and small business is more nuanced than money staying in communities. However, local businesses that offer unique and superior value are worthy of our praise and patronage and can certainly strengthen communities all around the United States. Ecosystems of local businesses, such as the one highlighted here centered around UP2Save, promote culture, provide sustainable products for consumption, offer employment for individuals of varying levels of skill, and integrate with the society and education system. Importantly, they also offer partnerships and platforms for new local businesses to start up and grow. Perhaps the best argument for supporting local is that strong local business promotes income equality, whereas big box retail continues to consolidate wealth in the hands of a few wealthy individuals.

ROMRStrong local economic ecosystems also enhance service companies, and tech and platform companies. Many of the logos above were designed by a local creative agency called The Splinter Group. ROMR, a local tech company that allows individuals to book recreational access to private land (kind of like the AirBnB for conservation), has the Honeysuckle farm and the Keith Arboretum on its platform. However, these local economic ecosystems also rely on one-to-many companies for a variety of critical business services, and I continue to believe that one-to-many companies have an important role to play in the national economy and our local economies.

Splinter Group

Splinter Group’s work

For instance, all of these local companies and non-profits have websites, so they hosting and domain name registration services from companies like GoDaddy and Digital Ocean (I use these providers for my company). Splinter Group probably relies on Adobe for its design software. Nearly all of the companies promote themselves on a combination of Facebook, Twitter, Instagram, and Pinterest. Some also use LinkedIn for certain services. In addition, the local companies use payment services like Square or Clover to take payments and keep track of their finances. Companies that cheaply provide important business services to many companies will continue to play an outsize role in our economy. However, they need to proactively support the country’s economic values, or they run the risk of becoming vilified by the country, as we have recently seen with Facebook and other large tech companies.

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… My Favorite Entrepreneur

MomofukuOver my years (well, year and a half) at business school, I’ve been asked a handful of times, in formal interviews and informal settings, who my favorite entrepreneur is. I didn’t have an answer. However, over the last few months I’ve become increasingly impressed by David Chang. I’m now prepared to formally declare him my favorite entrepreneur.

David is a restauranteur. He opened Momofuku Noodle Bar in the East Village of New York City in 2004. It served Asian buns and noodle bowls. It gained a reputation for serving tasty food, and David opened another restaurant nearby. It did not take on quite as well, and was at risk of closing. David and his team scrapped the kooky Korean dishes for a more inventive late-night menu, and people began to show up in droves. He also fostered a friendship with a New York Times food writer, Peter Meehan, and in 2009 they published a cookbook inspired by Momofuku.

The cookbook was not David’s last foray into media. With Peter, he started a magazine called Lucky Peach (it recently published its last edition), and they have a new show on Netflix called Ugly Delicious. David’s restaurant business has proliferated into an empire, with approximately 13 properties around the world. In addition to the restaurants, he has a fast-casual fried chicken sandwich chain called Fuku and co-owns a chain of soft serve ice cream and cookie joints known as Milk Bar.  David is also prolific on Instagram, with far north of one million followers across his personal and professional accounts. He has made #uglydelicious one of my favorite hashtags. He was just in South Korea (David is a first-generation Korean-American) working with NBC on the Winter Olympics.

David’s work has always had a hint of the digital to it. Momofuku Ko is David’s two Michelin star restaurant. You can dine there by online reservation only, and it only has a tasting menu. Reservations become available 30 days prior to the day of service. David extended this online-only idea into a food delivery concept in New York called Ando. It was a delivery only company that aimed to use technology to revolutionize the food delivery space. It received millions of dollars in funding, but always had rocky business fortunes. In January, Uber Eats acquired Ando and will be integrating Ando and its technologies into the Uber Eats platform.

David did not stop at food service, media, or technology. He has also dived into food research. This has sparked a line of packaged food products that take seemingly off-kilter approaches to traditional Asian staples. David sells a miso made from chickpeas, sunflowers, or pistachios that he calls hozon and a grain-based soy-type sauce called bonji. I think my friend Dave (not Chang) even had a bonji Old Fashioned at Momofuku Má Pêche when we went there back in November. That meal remains my only Momofuku dining experience (although I did get a Compost Cookie at Milk Bar upstairs after the meal).

In addition to the packaged foods, David has partnered with a food lab called Booker and Dax to sell kitchen appliances. They have a special blowtorch for food, a food centrifuge, and a special tumbler for cocktail shakers. Booker and Dax is now also a bar inside one of David’s restaurants.

So why is he my favorite entrepreneur?

Sure, he is successful, but there are plenty of successful entrepreneurs, even more so than David. What I admire about David is that he has used different types of business to ever-expand his empire further outward, but has always kept a connection to his roots. It’s all food related, and shares similar themes of experimentation, and even the melding of the culinary and the technological. I value narrative as a high art form, and David seems to always have a narrative – whether it be literally telling stories on television shows or speaking about Asian gastronomy through his dishes.

I’m also excited to see how David can use his knowledge, experience, and funding, to make a positive impact on the world. He talks about improving the quality of life for food service employees. Booker and Dax is about finding solutions to food problems. Ando was about innovation in food delivery, and Ugly Delicious tackles issues of culture, politics, and place in the world. I hope that David, his team, and his posse expand the empire a little bit further and strive to make a persistent, positive impact that uses good business sense and a positive narrative to leave the world better off.

… Writing & Technology

In a past life, I had a job as a Credit Analytics consultant with Ernst & Young. I whipped up more than my fair share of spreadsheets and coded up a few SAS analyses here and there for the banks I worked with. However, the most important part of my work was the documents I wrote. Distilled into one sentence, my job as a consultant was to synthesize analytical work into model validation reports and model methodology documentation. At one bank I wrote over 500 pages of text, and over my more than two years with EY I produced more than 1,000 pages of analytical documentation.

However, my true love for writing and a passion for technology both blossomed while I was a Volunteer in the Peace Corps.

Writing seems like something that naturally goes with Peace Corps service. Volunteers have tons of meaningful experiences and tons of time for reflection. That lends itself to writing. I did plenty of writing, mostly on my two blogs, both of which I continue writing on to this day. However, technology is more of a non-sequitur with Peace Corps service. I did not have much access to technology, so how did I become so interested in it?

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Me being Nicaraguan

Along with time to write, Peace Corps service gave me a lot of time to read. I had to tell my mom to stop sending me links to articles. I had inevitably already read them. I read most of the NY Times on a daily basis, and my parents got me a digital subscription to The Economist. I also devoured much of Wired, and whatever else popped up around the internet and on my Facebook feed.

Digesting all of this information led me to realize that technology could go a long way to solve many of the problems that Nicaragua and other lesser-developed countries around the world face. Even more so than ‘technology,’ which is a word typically associated with something tangible or engineered, there is a thirst for innovation in lesser-developed countries. New ideas, new ways of doing things, and connecting disparate ideas to come up with novel solutions to problems can all be used to solve the problems of international development. Even a staid and old idea in one culture might be embraced as new and promising in another.

When I completed my Peace Corps service I entered business school intent on learning about global business, operations management, entrepreneurship, and technology and innovation.

Midway through business school, during the height of my summer internship with UPS, I felt confident that I had the skills to try to tackle some of the problems I encountered in Nicaragua. I founded a startup in July 2017 called ChickenBus. It is a socially minded tech startup dedicated to improving access to public transportation in lesser developed countries. The MVP is under development, and I hope to ship in Q1 2018.

Read the continuation here on my other blog, Incidents of Travel

… One-to-Many

Think back forty years to how businesses used to operate and grow. Someone would cook up a good idea for a product. A company would be formed around that idea to manufacturer it, warehouse it, and then distribute it. Supporting these functions were a sales, marketing, and finance workforce. If you invented something, you then had to get machinery to manufacture it and hire a sales force to get it into the hands of customers. There were few other options.

Since then, businesses have evolved considerably. If someone has a good idea for a product they design it and market it. That’s it. Manufacturing is outsourced, often offshore. Sales are facilitated through e-commerce marketplaces. Fewer and fewer companies are bothering to have their very own websites, let alone a brick-and-mortar store. Logistics are handled by third-party logistics providers. Going asset-lite is the way to go. That lets you rapidly scale scale scale if you want to.

The other side of the coin is the companies that are providing all of these support functions. Since they have to own the assets – whether they be warehouses, vehicles, servers, machines, or financial capital, they have an incentive to be very large companies. Scale is their friend. In fact, it is imperative for success.

What has emerged is a dumbbell economy: On one side, you have many small weights that all add up to a hefty load of economic activity. There is a bar connecting these weights to the other side, which is comprised of a few heavy weights. Summed together, the few heavy weights equal the weight of the smaller weights on the other side, but there are far fewer heavy weights than there are small ones.

The dumbbell economy can be best illustrated through these two graphs. While companies with 1,000 or more employees make up just 0.21% of all companies in the United States, nearly 40% of all privately employed workers in the United States work for one of these companies.

Source: https://www.bls.gov/bdm/bdmfirmsize.htm

I’m not the only person to have made this observation about the shape of the economy. The Economist reported on it in 2016. Deutsche Bank also wrote a report on the matter.

In this dumbbell economy, the few heavy weights represent large service corporations that provide services and other knowledge-economy goods to other companies. These include Microsoft, Dell, IBM, Amazon, the Big 4 accounting firms, UPS and FedEx, Google, Maersk, Delta, Caterpillar, John Deere, and Salesforce.com. The many smaller weights represent small and medium businesses. These include mom and pops and specialty stores, but they are not only brick and mortar. Growing online brands, artists, and many other private companies are on the lightweight side of the economic dumbbell. To complete the metaphor, the bar connecting the two sides of weights represents infrastructure. Roads, airports, cables, and public utilities, which are essential for commerce to be able to function. Government is the arm that curls the dumbbell and makes it move. If the government is not exercising then iron won’t get pumped – the economy will not function properly and grow.

The heavyweight companies invest in assets and then sell them as a service to the lightweights. Without the heavyweights, the lightweights would not be able to grow as fast and expand their reach as wide. The most successful heavyweights are those that are most valuable to the lightweights. Those that can help the smaller, growing companies the most while pinching the lightweights’ bank accounts the least will find themselves with the most demand, as well as investors willing to provide cash to allow them to invest and grow.

While the dumbbell is a useful analogy to understand this phenomenon, I think that it is most appropriate to call this one-to-many. One company can support activity for many others.

It may be best to provide a hypothetical example. For the sake of illustrating my point, I will bold all of the heavyweight companies that I mention in my narrative:

Imagine that I am an engineer, and with the assistance of Autodesk design software I invent a great new device that I want to start selling. I’ve drummed up a lot of support for my nascent product by creating an Instagram account for the device, but I do not have any capital to start production, so I start a crowdfunding campaign on Indiegogo. I raise enough money to begin production, and I hire a contract manufacturer in Asia to begin batch producing the device. I pay FedEx as my freight forwarder to get the batches from Asia to the United States, where I will offer the device for sale. My primary sales channel is Amazon.com, although I store the units in my home and ship them upon receiving an order using UPS and the US Postal Service.

I do have a website which is hosted by GoDaddy.com. It’s basically just a landing page for people who find the device through Indiegogo. It forwards them to the Amazon product page so they can make purchases. However, as sales continue to grow, I continue to design, and support grows for my ideas, I raise some additional money from a venture capital firm. With this money, I hire some employees, and we move into an old industrial area in my city that has been repurposed as a business campus. It’s perfect for my small business that needs a lot of space for industrial design work.

As we launch new products and have a steadier flow of inventory crossing the ocean from Asia, we make a concerted effort to strengthen our brand and diversify our sales channels away from Amazon.com. We build out our website and hire a third-party logistics provider to warehouse our inventory. We want to be able to take orders online and receive payments so we pay for some third-party software plugins and also work with Paypal. We also use some third-party digital marketing software services and pay for adds on websites like Google and Facebook.

The beauty of the one-to-many economy is that it allows new ideas for products and services to be born, grow, and be distributed to consumers who find them appealing and valuable. The problem, some may say, is that we continue to feed the “heavyweights” and cede more and more economic power to them as a result.

One-to-many supports a vast number of growing small and medium businesses, but it also necessitates the existence of a few large third-party providers – the heavyweights. Many people dislike the control of these large companies. In the wake of Amazon’s acquisition of Whole Foods some people said that there were anti-trust concerns. Goldman Sachs has been described as rather tentacular. The EU just slammed Google with a multi-billion Euro fine.

“[Goldman Sachs is a] great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”Matt Taibbi, “The Great American Bubble Machine,” Rolling Stone, July 9-23, 2009

To ease some of the discomfort that we have with the heavyweights having more and more control over the economy, we have to think about ways that we can leverage the one-to-many economy to nurture the economic activity that we most value. Use the heavyweights to make the lightweights as attractive as possible.

What exactly are the elements of capitalism that we value, particularly in the United States?

  • Creativity and art
  • Entrepreneurship (and equality of opportunity)
  • Diversity and inclusion
  • Equality
  • Innovation
  • Distribution of income and wealth
  • Family business
  • Sustainability
  • Poverty alleviation

The heavyweights need to proactively ensure that they are not hindering the attainment of any of these values. They may also go a long way in earning widespread public support if they are proactively supporting these values. Aligning themselves with these values may also strengthen their businesses. However, just creating a foundation and donating to community causes is not enough when it comes to the heavyweights. Their core business functions need to keep these values in mind.

My hypothesis here is far from original. Michael Porter, Harvard professor of Porter’s five forces fame, called this concept, “creating shared value,” in his 2011 HBR article with Mark Kramer. I’ve simply contextualized it here using some new data and appended my proposals to the “shared value” idea.

Here are some examples of companies that I think are going a good job:

3dp_fusion360_autodesk_logo

Autodesk, which creates and sells software for design (AutoCAD is one of their hallmark products, but they have countless other programs which are used in 3D design and printing, animation, architecture, and more fields), has heavily invested in education (primary through university), entrepreneurship, sustainability, and medical innovation. Students, entrepreneurs, and teachers actually receive free access to Autodesk software. They figure that by advancing these fields they will build goodwill, train practitioners that will in the future become loyal customers, and the company may even position itself to capture a lot of business in emerging fields, such as Internet of Things and augmented reality/virtual reality.

UPS has gone one step further and has come up with a way to help the customers of their customers. Rio Grande (whose parent company is Berkshire Hathaway) is a manufacturer of speciality jewelry equipment. They ship with UPS. This year, Rio Grande created a membership program for their customers called Rio Pro. UPS became a partner with Rio Pro and offers discounted shipping services to Rio Pro members. In this relationship structure, everyone wins. Rio Grande’s customers are pleased because they get access to discounted shipping. Rio Grande wins because their customers are more satisfied and more successful. UPS wins by bolstering its relationship with Rio Grande as well as building a trusted relationship with a number of growing small businesses.

RioPro

DHL, one of UPS’s main competitors, particularly outside of the United States, is creating an online marketplace for brick and mortar retailers in its headquarters city of Bonn, Germany. The marketplace is called Allyouneedcity, and I highly doubt that DHL is doing this just altruistically. They certainly hope that it will help support the retailers, but it also opens up opportunities for them. For example, they could use this marketplace to launch a pilot of same-day delivery, or they could expand the marketplace to compete with increasingly powerful e-retailers and expand DHL’s own revenue channels.

Amazon launched an interesting program this year, in which families on government assistance (SNAP and TANF) can receive a discounted membership to Amazon Prime. Prime is a large sales channel for retailers selling on Amazon’s marketplace (third-party e-commerce sales are actually growing faster than traditional e-commerce), so this will give those retailers more access to lower-income earners. On the face of things it might just seem like Amazon is shooting across the bow of Walmart, or even that they are trying to exploit lower-income individuals. With Amazon forging more and more into e-groceries, different kinds of merchandise, and value-added services, this discounted Prime service may actually improve access of lower-income individuals to products that they need for their health, nutrition, well-being, and income generating activities. Access, particularly in areas known as “food deserts” where there are no nearby grocery stores, is a serious problem for lower-income individuals. Amazon’s new service may be beneficial to its bottom line and help its customers as well.

In my opinion, Facebook may be the heavyweight that is most struggling with its vaunted position. It grew to prominence by facilitating a kind of social interaction that had never been conducted before. However, these sharings are increasingly being pushed to other platforms in the Facebook ecosystem, such as Messenger, Instagram, and WhatsApp. That’s left Facebook with a free speech billboard. At its most benign, people would say that Facebook is just a dumping ground for useless videos, blurry photos, and pitiful updates on people’s lives. At its worst, it’s a hate-littered echo chamber that is being used to manipulate people into believing things that are patently false.

Facebook is far from doomed. It remains a very successful company, and I believe that it offers a lot of value to society, despites the criticisms. However, to remain relevant, it needs to start focusing more on economic values. For instance, I could imagine Facebook launching an AI assistant (a la Siri or Alexa – it’s so in vogue these days) that focuses on social connections (I’m partial to the name Joffrey, but that’s up to Mark).

“Joffrey … when was the last time I talked to George?’

“It’s been six years since you last heard from George. Would you like to contact him now?”

“No, that’s alright, he’s probably busy.”

Meanwhile, in George’s house:

“George, I see it’s been awhile since you spoke with your friend. Would you like to contact her?”

“Yes, I would.”

“How would you like to contact her?”

“By e-mail.”

“Would you like a summary of your friend’s activity since the last time you spoke to her before we write an e-mail?”

“Yes I would Joffrey.”

There are various permutations of how Joffrey could facilitate meaningful interpersonal interactions around the world, and help with networking, friendships, tourism, mental health, and education. Facebook would benefit as well, because the more activity that takes place within their network, the more opportunities it has to monetize the activity.

There are countless more examples of how heavyweights can focus on economic values. Imagine if AT&T offered a comprehensive telecommunication plan for refugees arriving to the United States. Even more so, they could offer a special plan to refugees starting new businesses. AT&T would make great strides in facilitating communal integration for some of the neediest people in the world and helping them become successful members of society. If AT&T could expand this plan to include additional social support services, educational and NGO partners, as well as language assistance (Rosetta Stone or DuoLingo) then even more value could be created, and at little additional cost to AT&T (I only choose AT&T because it is one of the largest telecommunication companies in the country).

In coming years, one-to-one many businesses will continue to not only shape, but shake markets. Much has been said about the impending doom of brick-and-mortar retail. However, emergent one-to-many type companies are already nipping at the heels of e-retail juggernauts like Amazon. Instagram, owned by Facebook, has a retail team. Their goal is to let users make purchases without ever leaving the app. Amazon has already taken steps to respond to this emerging threat by introducing Spark, its own social media platform for product discovery.
Even being an established one-to-many titan for many years no longer guarantees the continuation of a business model.

For instance, banks

, credit card companies, and other financial one-to-many companies need to make plans to integrate with these the new heavyweights of commerce or they may find themselves cut off from what were once reliable and steady revenue streams. Other one-to-many companies can partner up behind your back and uproot your market position. UPS and FedEx should heed this warning and consider new one-to-many retail patterns. Transportation and logistics upstarts, such as Uber RUSH and Deliv (which, granted, UPS has invested in) are already directly integrating with large retailers as well as payment processing companies such as Clover.

As one-to-many companies begin to support more and more smaller businesses, and the connections among firms become more and more complex, I begin to see the economy less traditionally, with individual companies making one-off transactions of goods or services. Instead, I see an economic mesh. Every transaction is distributed among many different firms in the economy, and these transaction could not be successfully completed without all of the firms working together. The heavyweights may continue to grow, and some people may get very rich as a result, but so long as they are supporting opportunity for millions of other people and in-line with our economic values then it is a win-win outcome.

Joffrey: “Catelyn, I noticed that your sister Lisa just posted a photo on Instagram from near you. Would you like to send her a message?”

Catelyn: “No Joffrey, that’s ok, thank you.”

… Shipping Packages

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