How the best companies are innovating at scale

💡JC’s Newsletter #146

Jean-Charles Samuelian-Werve

Nov 22

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Dear friends,

In JC’s Newsletter, I share the articles, documentaries, and books that I enjoyed the most in the last week, with some comments on how we relate to them at Alan. I do not endorse all the articles I share, they are up for debate.

I’m doing it because a) I love reading, it is the way that I get most of my ideas, b) I’m already sharing those ideas with my team, and c) I would love to get your perspective on those.

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🔎 Some topics we will cover this week

Building an Anti-Conglomerate
Jeff Bezos on time horizons
Why creatives should lead companies
Turn your majors costs into sources of revenues
And more …

👉 Joey Levin (CEO of IAC) - Building an Anti-Conglomerate (Join Colossus)

❓ Why am I sharing this article?

I found this interview of the CEO of IAC (Match, Tinder and many others) interesting on how to allocate capital, to test new ideas, to make them compete.
I felt there could be some product inspirations for us too.

There is no one formula to company building. Everything is idiosyncratic and requires its own best decisions.
Centralisation vs. decentralisation:
When we can save on an accountant or a centralized function, we like to. But I would much rather be a little bit inefficient there for the ability of the business and the business leader to have absolute accountability, and be able to go for the biggest upside in their business.
We philosophically don't really believe in optimizing the centralization as much as we believe in optimizing the business where it's cleanest, and clearest, and most accountable path forward.

➡️ does not apply to us directly, but the question is how much shared resources, processes you share between Units.

Embracing change:
So embracing change can mean a lot of things. It can mean, for example, challenging your own businesses, competing with yourself.
That's something that we've done multiple times.
We believe in a category, we have a bet in a category of business that we're backing, and we might also back a direct competitor to that, because we know the category's going to work.

➡️ should we staff multiple teams on a similar problem and see which ones get to the solution? I don’t think we have the scale now, and that it is necessarily the healthiest culture, but we could do it in a way that maximises innovation, while making competition “healthy” because not cut throat.

In fact, Tinder was built in an incubator in IAC, not even an incubator in Match. The goal of the incubator was to build multiple businesses in mobile, and one of them happened to be this, and then eventually it moved into Match, which made sense. Building it outside of there was really helpful to its early success.
The most important is the ability to change. The ability to keep adapting. The ability to keep looking bigger, looking for bigger opportunities, and the ability to keep changing with the market, as necessary, or changing with the product, as necessary.
Business ideas:
What is now the fastest growing solution is one where somebody says, here's what's wrong with my house.
And we say, okay, it costs $250 to fix that.
They say, okay, here's the credit card, and you've figured out from there.
And that, so far, the highest customer satisfaction product we've ever seen in the category by an order of magnitude.
You realize that some homeowners want to negotiate, want to make sure they've looked somebody in the eyes or whatever, but many say, if you're going to stand behind this, and you're going to make sure it gets done, then you just get it done for me and find the one person.

➡️ ”I want a hip procedure, Alan figures it out.” I think people would be ready to pay for this.

Marketing:
Being early on the new platforms to understand those, to make sure that you're staying ahead of the game there.

➡️ Facebook, Instagram are saturated already. What is the next big platform?

The great ones aren't siloed in the marketing function. They're willing to bleed into product, into sales, into other parts of the organization to solve the problem.

➡️ It is so important that marketing is not an isolated function, but deeply embedded in the team.

Capital allocation:
Capital allocation is the most important thing that we do. And it is every week we are sitting down and talking about that.
We're not getting deep into the numbers until we've made, I'd say, the qualitative decision.
Not to say the numbers aren't relevant, because they're in our heads and we're thinking about them for sure.
But we're not running a model until we're pretty far along in the decision, or until we think we have a strategy that we think makes sense, and then we're looking at the numbers to verify and challenge and see whether that'll make sense or not.
The way that we're thinking about acquisitions and businesses that we want to buy, we're rigorous on price, and we fight for the last dollar. But in the end, no deal we've ever done the successes on whether we've spent 10 or 20 or 30% more or less on the price. It's qualitatively, do we think this has a huge future? Are we right about this huge future? And if we are, then that difference in price isn't ultimately going to make the difference.

➡️ I don’t think we could make changes to capital allocation weekly as it creates a lot of instability, and we want to be able to think long-term.

👉 Jeff Bezos on time horizons.

❓ Why am I sharing this article?

How to keep thinking very long-term and when we have a strong conviction allocate capital on bets that are going to deliver only if we invest multi-year?
Of course, it is an arbitrage, a question of allocation capital and we can kill projects earlier, but for a few select ones, being very patient is an asset.

Jeff Bezos similarly lamented that 3 years was too short to make strategic bets and 10 years too long before deciding on 7 years being the right duration for a company to make conviction bets and see if they have worked.
The similarities are simple, namely the ability to wait and very few are afforded this amount of time. If most investors missed a quarter or a year of hyper returns they would be under pressure.
Amazon has been a story of patience. Bezos’s Amazon prime showed no signs of working for over 5 years, it negatively impacted margins and the public market response was negative at the outset.
Yet...the company told a story and executed on it, and with prime they now have a 200m consumer end market that is portable as it moves into different categories and effectively a stick subscription based weapon of disruption.
The point here is that the public markets seem to have a mandate vs duration mismatch. Analysts have been painting scenarios 2 to 5 years out and investing with a view to the outer years.
In reality the long term is made up of a series of short terms and we have shifted back to quarters not years and with daily mark to markets as driving forces of behaviour, investments and portfolio construction.

👉 Why more creatives should lead major companies: The story of Airbnb as told by cofounder & CEO Brian Chesky (Fast Company)

❓ Why am I sharing this article?

The importance of remaining yourself through the process of growing
How they focused on having a stronger brand
I love that notion of feature marketing and how to align the entire organisation with two big releases events.

Here’s where the second chapter of Airbnb’s story starts. In its push to IPO, Airbnb began to model itself after companies like Amazon. “We had this pressure of going public on the horizon. So I did probably the opposite of what I should have done. Instead of leaning into what made us different, we started becoming a fairly conventional company,” Chesky says.
The result was a company saddled by 10-plus departments, each with its own subdivisions and each heading somewhere different. “We had leadership issues, process issues, and people were complaining about how it was really hard to get work done,” Chesky says.
Taking a cue from Apple’s storied near-bankruptcy moment back in 1997, Chesky returned to his roots as a designer and redesigned Airbnb into the much smaller company it is now. He took its 10 divisions and shuttered almost all of them, bringing the business back to a functional organization with one marketing department and 40% fewer staff due to layoffs and attrition.
“We took a billion dollars of marketing—primarily performance marketing—and we turned it off, and you know what happened? Almost nothing. And we realized our brand is stronger and more differentiated, and we’re gonna lean into our differentiation. We’re gonna do fewer things. We’re gonna be totally functional,” he says. “And we became an entirely creatively led company.”
He put the entire company on one single roadmap and stopped running things off of metric. Now, software releases happen twice a year and they emphasize feature marketing, as opposed to brand marketing or performance marketing. Strong ideas benefit from the backing of the entire organization.

👉 Zuckerberg burns the boats (Platformer)

❓ Why am I sharing this article?

I really believe that the future is owned by the ones who decide to shape it and build it. Having strong convictions and being relentless at building them is how you win, even if you are misunderstood from a period of time.
I want that spirit to be everywhere at Alan!

Focus on what matters with mission-driven people:
On Friday, Meta told employees they would be eliminating some office perks, including laundry and dry cleaning service.
Zuckerberg said, “It's the job of the leader to say, hey, no no, we need to keep on moving forward with our full energy. ... Even though it's maybe not the biggest part of the business today, or the biggest part of what people are using, we just we kind of need to commit to that.”
Interesting lesson on external vs. internal communication:
Zuckerberg also said that he gives interviews on the subject in part to sell the company’s metaverse ambitions to internal skeptics.
“When you're running a company like this, a lot of the external communication that you do is actually to rally the people inside the company,”
How to build the future:
“The future tends to come sooner than you think, when you bet on it,” Zuckerberg told John. “You tend to start getting glimpses, or proof points, or a sense that, yeah, things are really going to go in this direction. ... Something that you might think is five years out, or seven years out — it'll actually be the case that once you put your flag in the ground and say, we're going to go do this, it's actually 18 months later, a couple years later, that it's actually pretty clear that this is going to work.”
“One lesson that I feel like I've learned a lot is that just believing in things and having a very strong conviction is one of your most powerful tools as an entrepreneur,” Zuckerberg said.
“At some level, the future belongs to the people who believe in it more than others. ... If we succeed at this, it will be because we care more about that problem.
And believe in it more deeply than all the other folks who maybe have decades more experience doing this kind of thing than we do.”

👉 Mark Zuckerberg: Could Facebook move faster? (2012) (Internal Tech Emails)

❓ Why am I sharing this article?

It is always a good question to ask ourselves: how can we move faster? Build more things even if not perfect, and iterate?

I spent some time with the Renren founders today and Robin Li from Baidu earlier in the week and wanted to pass along a few things:
In China there is this strong culture of cloning things quickly and building lots of different products instead of just focusing on one thing at a time.
This allows them to plant lots of seeds, and although it yields lower quality products in the short term as they're cloning and the markets are growing quickly, as markets mature there seems to be less of a gap between the clones and the originals.
Renren has also built their own games and they have 6 of the top 10 Chinese games in the iOS app store.
Overall, seeing all this and the pace that new mobile apps seem to be coming out from other companies makes me think we're moving very slowly. If we were moving faster, then we might be able to build out more of the social use cases ourselves and prevent our competitors from getting footholds.

👉 An Interview with Nvidia CEO Jensen Huang about Manufacturing Intelligence (Stratechery)

❓ Why am I sharing this article?

I found the discussion about naming a new product interesting.
It also raised a good question: What part of our business is going to become commoditized? I’d love your view.

Once GPU took off and we started adding more and more capabilities to it, it was just senseless to rename it.
There were lots of ideas. Do we call it GPGPU? Do we call it an XPU? Do we call it a VPU?
I just decided that it wasn’t worth playing that game, and what we ought to do is assume that people who buy these things are smart enough to figure out what they do, and we’ll be clever enough to help people understand what the benefits are, and we’ll get through all the naming part.
So at some point, the logical assumption is that graphics would be sufficiently fast for anybody’s chip and we would be commoditized.
Well, it turns out that that assessment is absolutely true, and the reason for that is because you see integrated graphics with good enough graphics integrated for free all day long today.
So that assessment, that prediction that someday, if we don’t reinvent computer graphics, if we don’t reinvent ourselves, and we don’t open the canvas for the things that we can do on this processor, we will be commoditized out of existence, that assessment was spot on.
The challenge, of course, is to figure out when do you take action, as you mentioned, how do you find the courage to take action to put something into your processor, into your chip that was somehow programmable?

👉 Starbucks: Howard Schultz Memo (PDF)

❓ Why am I sharing this article?

Scalability should not be at the expense of delight.
The examples he shares are all good decisions locally but that hurts the brand and the product globally. That is why remaining “delightful always” is key to our profitability plan.

Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.
Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces.
The decision and the need for flavor locked packaging.
Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost?
The loss of aroma—perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage?
Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store.
In fact, I am not sure people today even know we are roasting coffee. You certainly can’t get the message from being in our stores.