One Step Up Issue #13
This week, we look at Amazon's 3P business, software + investing, how companies are building on Shopify, when Frito-Lays' janitor came up with a billion dollar idea, on trying too hard + more
The Investment Paradox of Software
A value investors’ natural preference for cheaper P/E stocks partly reflects an unstated assumption of a world characterized by diminishing returns to scale.
Maybe the correct answer exists somewhere in-between: investors must incorporate the myriad of additional SaaS (software-as-a-service) data available in determining the intrinsic value of businesses.
Faster Than Fast: SMB Retailers Move to Shopify
Amy then heads to Shopify’s app store and adds some bells and whistles to take her customer experience to the next level. She downloads Loox so customers can add photos to their reviews, Malomo for a better shipment tracking experience, Loop Returns to automate any customer returns or exchanges globally, and Klaviyo to communicate with her customers over email, SMS, and other web apps. Interestingly, these services, which Shopify calls apps, are not owned or built by Shopify. Instead, separate companies build their businesses on top of Shopify’s platform to improve the experience for both Shopify merchants and their customers. With these apps, Amy gets more control over her customers’ end-to-end experience, something she never had with Amazon.
Amazon's new grocery store sites: What can we learn from evaluating the locations?
How a janitor at Frito-Lay invented Flamin' Hot Cheetos
Richard Montañez went from cleaning toilets to being one of the most respected execs in the food industry. He had a 4th-grade-level education, and couldn’t read or write.
Montañez was a janitor. But he was a janitor with an idea — an idea that would make the company billions of dollars and become one of history’s most celebrated and iconic snack foods: Flamin’ Hot Cheetos.
Trying Too Hard - Dean Williams, Batterymarch Financial Management
Owner-operators often enjoy strategic flexibility to choose capital structures that enhance returns and manage risk. They are willing to take on risks to invest in their businesses, including employing leverage as appropriate. Because of their established history of shrewd decision-making and good returns-on-capital, they benefit from access to capital that some less proven managers might not. They have developed a reputation and a network over their career that provides them with an information advantage—their record of success makes them desirable partners, and companies looking for an investor, a strategic partner, or a buyer may bring an idea to them before shopping it to other companies. They are not afraid to take a contrarian view, and typically maintain liquid balance sheets to take advantage of economically uncertain times and pursue investment opportunities when others are unwilling to do so. Often they are able to do so at fire-sale prices.
A broader point that applies to everyone is that the biggest innovations rarely occur when everyone’s happy and safe, or when the future looks bright. They happen when people are a little panicked, worried, and when the consequences of not acting quickly are too painful to bear. That’s when the magic happens.
Till next time.
Hi Jay, the curation is brilliant as always