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On December 14, 2015, BM commented on EOG Resources: More Oil, Quicker Oil, Cheaper Oil :

Very interesting post Jeff, especially given the current oil price environment.

One thing that jumped out at me was the apparent misalignment between the company’s core business model goal of being a pure-play E&P producer with a focus on high return on capital versus the company’s investments in infrastructure such as railroads and sand mines. While in hindsight, these investments had huge payoffs to EOG given supply constraints in both railroad shipping and frac-sand as U.S. unconventional drilling and production exploded, I wonder whether this large capital outlay in non-core assets is really in keeping with the company’s core competencies — in particular given the fact that these assets should have a lower cost of capital than an independent E&P producer and thus the market may be undervaluing them as part of the broader company.

In the current environment, with significant oversupply of frac-sand (company’s like U.S. Silica and FMSA are getting crushed in the public markets), and now that railcar capacity has been built out and significantly outstrips demand — do you still think these elements of the company’s operating model are aligned with the business model, or do you think they actually reduce agility and burden the business with unnecessary non-core assets? Do you think these could and should be spun-out similar to how many independent’s have been spinning out their non-core midstream assets to raise cash necessary to continue funding their ongoing drilling programs?

Interesting — I wouldn’t call myself a craft beer connoisseur, but I certainly enjoy the good ones and had never heard of this.

It seems from your post that one of the key drivers of the products value proposition is its exclusivity. Now that the craft beer market in general has begun to mature, I wonder whether the company’s current approach towards exclusivity is prudent. When the market was in its infancy, the process of discovering new beers became a point of pride amongst aficionados — however, now many of those beers are marketed nationally, and there appears to be a handful of clear winners in that category (abita, floyds, dogfish head, Goose Island and flying dog come to mind). The differentiators for these businesses appears to be quality of product, marketing success and broad distribution. As the market for craft beers becomes more mainstream and the beer-snob mentality becomes more of a caricature within the culture zeitgeist, do you think that the elements of heady topper’s business model that have lead to its sucess to-date, as well as the key element of its operating model (controlled and small distribution), are appropriate to drive the company forward?

On December 14, 2015, BM commented on Soylent – Winning your heart with your stomach :

Thanks for the insight on what to me is a pretty novel company. A few questions about the business model and operating model.

– It seems to me that the real value created by the company is in creating a sense of community and uniqueness amongst consumers. While the marketing of the product itself is focused on the minimalist functionality of the product, I think it is fair to say that there is no real functional superiority in this product in achieving basic and hassle-free nutritional requirements for users, relative to a plethora of other basic nutritional options — this is essentially carbs, protein and a multi-vitamin. Customers could easily eat cereal, a protein shake and a multi-vitamin every day and achieve the same nutritional outcome for an even lower cost. Thus, I think the real appeal right now is in targeting a specific demographic (the archetype to me appears to be young tech entrepreneurs) and making them feel unique and counter-culture by using the product. Given this potentially fad-like root of the value proposition, I worry about the long-term sustainability

– In terms of the operating model, if the company does wish to portray itself and the product as a one-stop solution to all nutritional needs, I worry about whether the company has the resources and expertise necessary to credibly play that role. The founders are essentially young tech entrepreneurs, not nutritional experts — the science of Soylent being all one needs to survive is basically taken from existing and potentially incomplete nutritional research, and anecdote (e.g. the founder living off of the product for a long period of time). Many nutritional experts are highly skeptical of the product. Additionally, the company doesn’t currently manufacture it’s own product in-house, which would seem to be a necessary capability if the company wants to tout itself as an expert in the field and a provider of the highest quality nutritional products.

On December 14, 2015, BM commented on Lululemon: From Niche Market Pioneer to Apparel Ubiquity :

Thanks all for the comments — a few responses on some of the key issues raised (which I think are absolutely the right top of mind concerns)

Quality – Agree that this has been a huge risk for the company. It’s difficult to externally comment on the underlying reasons for the quality issues that have occurred, but when the problems occurred, the company took proactive measures to make recalls and correct the issues. It’s clear that this a key focus for the company and given their internal focus on quality and design and the operating model they have established, it would be my belief that they are well positioned to correct these issues, avoid them in the future and continue to provide high quality product. Moreover, their innovation in the space continues to lead the market and they have released several performance fabrics that differentiate them from competitors (the silver mesh fabric mentioned in my post is a great example).

Culture & Community — The board clearly recognized the negative PR attracted by Wilson time and again, and was able to get him out of the company, with his entire stake in the company being sold to Private Equity firm Advent International. While this may seem like an easy thing to accomplish — getting a vocal founder to peacefully leave the business without creating any public PR issues was a big success. On the culture issues raised about employee happiness — think this is the double-edged sword of having such a strong culture. In reading many of the employee accounts of time spent at Lulu, it seems clear that for every 1 disgruntled and uncomfortable employee, there are many more strong advocates. I believe this could be an unfortunate but unavoidable outcome of the strong culture that made the company successful in the first place.

Competition & Expansion — As acknowledged in my post, competition will continue to be a key concern, but the company has thus far undeniably owned the space to date. International expansion should be a focus for the company, but at least in developed markets, I see know reason the company cannot manage a successful expansion. In 2009, the business was still a relatively small Canadian focused company but managed a scaled expansion into the U.S. very successfully.