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On December 14, 2015, Rafiq commented on Netflix: Harnessing Human Capital to Evolve :

Really enjoyed this post, Snigdha! It’s quite interesting how Netflix’s approach to employment and eliminating barriers to cancellation/leaving the company mirrors the consumer experience with the Netflix product itself. I had never thought of it that way. Netflix’s employee policy is famous, and different companies in Silicon Valley use it as a model of the gold standard or an approach to avoid at all costs. While Netflix’s employee policy has contributed to their effective evolution as a company, do you think they lose out on people with diverse perspectives and talent who are turned off by Netflix’s “over-engineered” approach?

On December 14, 2015, Rafiq commented on Dafen Village: Factory of Fine Art :

Amazing post, Tina! Reading about Dafen Village, I thought about a combination of the BYD and Threadless Tees cases. Not only is Dafen Village utilizing the abundance of labor and minimizing process variance, but they are also holding competitions to source and train new talent. Do you think the operating model Dafen Village has developed for hand-painting can be transferred to other types of art (pottery, ceramics, metalwork, etc.) or to other industries?

I wonder how Dafen’s management model fits into the village’s further development. What is the turnover of Dafen’s workers/artists? How does a worker/artist advance or get promoted at Dafen?

Great point, Ko! I think it will be very interesting to see if Blue Bottle can use its current core competencies quality and innovation to build the processes operations that can allow it to expand while still maintaining its current value proposition.

Thanks, Jean – this is a really good point about Blue Bottle’s governance and how well the company is equipped to maintain their current business and operating model alignment. An interesting part of Blue Bottle’s leadership structure is that Freeman, the visionary founder, is the CEO of the company but not the Chairman of the Board. The Executive Chairman is Bryan Meehan, an investor and entrepreneur behind Fresh & Wild, the London-based organic market chain that was acquired by Whole Foods in 2004. He provides some of that expertise in quality supply chain management, but I think that Blue Bottle would definitely benefit from expertise in supply chain operations and expansion.

Blue Bottle’s investors have stated that there is huge potential even if Blue Bottle takes just a sliver of Starbuck’s market share to become the national leader of the craft coffee segment. I think that in the short-term, growth will be predicated on ready-to-drink and Blue Bottle at Home, but medium to long-term retail expansion will definitely be critical. It will be interesting to see if/how the company changes in the process.

Thanks, Ben! I think this is definitely the primary challenge for Blue Bottle as they scale. It will be interesting to see if the company feels comfortable shifting away from the 48 hour time between roast and consumption. In the short-term, I think they are looking to continue a deliberate expansion strategy with roasteries/retail in high potential markets (SF, LA, NYC, Tokyo, etc.) and expand geographic coverage through their ready-to-drink coffee lines and subscription service.

However, with Blue Bottle’s new investors looking for sizable growth and returns, I would not be surprised if Blue Bottle moves toward a broader customer promise of an “end-to-end high quality craft coffee experience” as opposed to Freeman’s current 48 hour philosophy.

On December 14, 2015, Rafiq commented on Chipotle Nation :

Really enjoyed reading this, Michael! I’ve been a big fan of the Chipotle’s food and management philosophy.

As Ben mentioned above, Chipotle has been suffering significant negative press from outbreaks of food poisoning in multiple locations across the U.S. Chipotle has really differentiated itself from its competition through its commitment to “Food with Integrity” and non-GMO food options. The recent outbreaks make me wonder what exactly Chipotle’s quality control standards are. Do you think Chipotle’s supply chain has overemphasized the origins of the food (non-GMO and local) and supplier relationships over their actual processes and operations?

I liked your emphasis on how the store environment and workplace culture set Chipotle apart from others in fast casual. I found the following article to be a really interesting perspective on Chipotle’s management style: http://qz.com/183224/how-chipotle-transformed-itself-by-upending-its-approach-to-management/. They have created a company with minimal employee turnover in an industry known for turnover by encouraging internal advancement and adding specific manager compensation incentives based on the number of direct reports who have been promoted. Do you think this unique approach to company culture is effective and sustainable? Or could this be an example of style over substance – similar to what critics say might be happening with Chipotle’s supply chain right now?

On December 14, 2015, Rafiq commented on LSE’s model :

Very interesting post, Vincent – learned a lot about what goes on behind the scenes in a securities trade! Your discussion of the LSE’s open system vs. the closed system of CME has a lot of parallels in other industries (i.e. Google’s open source approach for Android development compared to Apple’s closed system for the iPhone).

It looks like LSE’s open access approach has allowed them to rapidly gain market share as a derivatives clearinghouse. How have their competitors responded to this approach? Have exchanges since shifted in terms of pricing or operating models? In the Google vs. Apple example for mobile development, Apple may have a closed model but still has many avenues to differentiate and innovate (quality of developer tools, user experience, hardware, etc.). With exchange operations, it seems like cost and speed are the two factors that matter the most. Are there other ways for exchanges to differentiate themselves and have CME and/or Deutsche Börse been effective in doing so?

On December 14, 2015, Rafiq commented on ClassPass: Serving a Two-Sided Marketplace with Class(Pass) :

Really loved the post, Jean – especially with the added insights from ClassPass’s former Director of Operations! The challenges ClassPass faces as it scales its two-sided marketplace reminded me of my experiences working at HotelTonight (in addition to having the same naming convention!) – on the hotel/supplier side, very similar concerns to the fitness studios about cannibalization and customer value, and on the customer side, questions about the value and variety of options on the platform, especially outside of major metro areas.

Since studios manage the inventory they make available to ClassPass users, Bridget and Vitali have pointed out the risk of not enough quality studios offering classes or only offering their least popular classes. This could put a lot of pressure on ClassPass’s current operating model, which seems to rely on direct one-on-one relationships with studio partners. How do you think this sales/customer service structure might change as ClassPass continues to expand? For example, might there be larger-scale or channel partnership opportunities in the works that ClassPass could pursue in order to grow (perhaps partnerships with reservation system companies themselves)?

Alternatively, you mentioned that ClassPass has created value as a “thought leader” in fitness management. When thinking about the company’s core competencies, I think that this could be very powerful. How have they been a thought leader so far? If the company and the brand gain enough strength, perhaps ClassPass could simply develop its own fitness brand with special ClassPass classes and brick and mortar studios. Do you think this would be a viable strategy or would that destroy the value it has created with an online fitness marketplace?

Thanks, Vitali – really interesting question. Some of Blue Bottle’s investors definitely feel the same way (Fidelity recently cut its market valuation on the Blue Bottle investment large due to concerns over the move away from wholesale business). However, I think Blue Bottle views the wholesale and direct-to-consumer wholesale business as fundamentally different in terms of its control of the customer experience and impact on brand equity and therefore, Blue Bottle’s ability to capture a premium price for their products.

For the wholesale business, the concerns start even before the coffee is made – it starts with customer service issues Blue Bottle management observed at retailers serving Blue Bottle they didn’t feel they could effectively screen for. Also, if a consumer at a retail coffee shop that brews with Blue Bottle beans did not like his coffee, there is a strong chance he would assign blame to the quality of the product – the Blue Bottle beans (probably highlighted on a big sign in the store) – rather than take issue with how the coffee was made.

However, with the subscription business, Blue Bottle has made a significant investment, particularly through the acquisition of the e-commerce service Tonx, to design an immersive e-commerce experience that differentiates itself from its competitors (more details in this video: https://library.gv.com/blue-bottle-at-home-30f428eaf7f4#.cd8jczlqc). As a result, Blue Bottle believes it has created a service that adds to the brand’s reputation for high quality and technological expertise that resonates with the home brewer. You do have a good point that the home brewer cannot replicate the in-store coffee they had at Blue Bottle, but the expectations for the cup of coffee and the impact on the Blue Bottle brand are not the same as when that same customer goes to the coffee shop.

While Blue Bottle is clearly sacrificing a sizable part of its current business, I think the narrower focus on Blue Bottle’s directly-owned retail cafes, e-commerce subscription business, and ready-to-drink lines, actually do create a more effective alignment between its business and operating models centered around product quality and deeper control of the customer experience.