Agility is only truly achieved through change...

Andre Iguodala - 3-Time NBA Champion, 2015 NBA Finals MVP, and 19-year NBA Veteran.

Andre Iguodala - 3-Time NBA Champion, 2015 NBA Finals MVP, and 19-year NBA Veteran.

I have been thinking a lot about the term ‘agility’ and how it is predicated on the ability to navigate change effectively. It can’t be simulated and it can be done by micro-dosing. To really become agile, you have to take the hard and soft skills you’ve been able to build and apply them in completely new situations. And that can rarely be done without major change. It spans change in those you report to, to those who report to you, and even the business paradigm that you work within. As a consultant / advisor, you are helping clients solve their problems. But, you never really get a feeling that you are ever building anything. The variety is there, but in the end, you are still providing a transactional service. And I think there is a lot of merit to going out and finding a place where you can build something - maybe not from the ground-up (I’m not into start-up syndrome), but perhaps a place that is ‘on the verge’. A place that has brand recognition, but is still finding its way. Is the grass always greener on the other side? Well, it depends what you’ve done with the grass on your side. If you’ve spent significant time building a career on your side, I’d say you’ve watered it.

The hunger and ambition that enables meaningful and significant change has a very short window and once it’s gone….it’s gone. You have to trust your gut and your instincts to take the bold and courageous act of making change, but that’s part of the point. It’s not about seeking out failure to reaffirm that where you were comfortable was in-fact the right place - it’s quite the opposite. It’s about finding a type of success that goes beyond delivering a service - a commitment to being somewhere that has no sense of ‘this is the way it’s always been done’. Culture and institutional values are important, but having influence in building them is far more interesting to me at this point.

So what the heck does Andre Iguodala have to do with any of this. Well, I watched Andre Iguodala play at the University of Arizona, and I have watched him constantly adapt the way he plays in so many ways to not only stay relevant, but be an extremely valuable component that every championship team is looking to add to their roster 19 years after he entered the league. He entered the league as an extremely athletic leaper who has stayed healthy, remained fit, and always seems to find a way to contribute in ways that are…invaluable. He didn’t get that way by doing the same thing year-after-year. He got that way by putting himself into new situations where he could apply his talent in different ways. Nobody remembers that he started as Allen Iverson’s sidekick in Philadelphia. He could have relied on just his athleticism and had an extremely productive NBA career…but he never would have been an NBA Finals MVP, nor would he have three rings. He’s the athletic personification of ‘agility’ driven by his willingness to change scenery, roles, etc. His longevity in-and-of-itself is remarkable. His success within that longevity is something to strive for. People don’t become expendable just because they get older; they become expendable because they become far-too-satisfied with the status quo. It can happen at 25, 30, or 60.

So, in a world full of Vince Carter’s and Tracy McGrady’s (both remarkable but one-dimensional players), there’s much to be said for a guy like Andre Iguodala who collects millions of dollars per year now to really play 15 - 20 games…that’s it. It is somewhat ironic that agility and change ultimately buy you the freedom to be content.

Lessons Learned: Business Travel During COVID-19

De-icing an Airbus A320 at Boston Logan Airport.

De-icing an Airbus A320 at Boston Logan Airport.

Since the beginning of October, I have been traveling again for business to assist a healthcare system through its bankruptcy filing and asset sales process. I think it is important to acknowledge that this travel was an ‘exception’ based on the needs of our client and the nature of our work - it required special permission from my employer’s leadership, and was done on a 100% voluntary basis. All that said, traveling again to serve clients in their darkest hours during our most vulnerable times has taught me many lessons that will hopefully live on after the COVID pandemic.

As a bit of background, I am a restructuring professional and my job is to lead teams to advise clients as they face financial hardship, structural issues with their businesses and potential insolvency. I would say that most of the executive teams of our clients have little-to-no experience facing this type of crisis. So unfortunately, they are facing an unknown crisis…within an unknown crisis and they are looking for quick guidance to navigate everything from day-to-day decisions, liquidity management, employee communication, and external stakeholder demands, to create a semblance of structure to enable prudent decision-making for the benefit of all involved.

  1. Zoom is an enhancement, not a replacement: There has been much talk and speculation that collaboration tools like Zoom will be the ‘new normal’ and that remote work is here to stay. That may be true for some industries and some jobs, but for my job, Zoom enhances my work, but it will never replace the essence of what I do. Both from an internal teaming standpoint and a client advisory lens, Zoom tries to replicate in-person interaction, but ends up creating a false sense of presence, fails to capture critical body language, often distorts the messaging, and enables very robotic habits that dilute productivity. On the flipside, I will say that when trying to solve a defined problem, the ability to get on a platform like Zoom, share an analysis and discuss the very issue at-hand, Zoom is a phenomenal tool that fills a void, which drives efficiency and clarity.

  2. Trust is earned in-person, not by-screen: Trust, that virtue by which all great intentions are gained or lost, is important in all types of work, but none more so than in work where the very livelihood of thousands of employees rests on each critical decision made (or not made). But, trust is also essential within teams - we are relying on people we’ve never met, never actually seen, nor sat and talked with face-to-face. The trust I speak of is not about deception, it is about truth, comfort and reliance. Being able to physically sit with your team (at least 6 feet apart) and discuss critical issues, key items to get done, and answer questions establishes and bridges that gap to establish trust far better than any high-def camera or 5G cellular connection could ever dream of.
    Physical presence enables you to see when people truly understand what you are saying, but it also allows you a window into situations that require more discussion. It is so easy to end a Zoom call because you have another one scheduled right after, or because you don’t want to hold everybody up. But, there is so much to be gained when someone can pull you aside and say, “you know what, I’m really not comfortable with what we just discussed” or “I really didn’t understand the implications of the decision we are contemplating here, can you explain it in further detail?”. It is those moments, as small or large as they may be, which creates trust and comfort during times of great stress. And we don’t ever acknowledge the tremendous value of those types of ‘little situations’ until we are no longer afforded them.

    But business travel during COVID also creates another need for trust that is not something many of us are used to - you rely on your colleagues to tell you that they were with someone that just tested positive for COVID and therefore, it is best that they not travel for the next 14 days. You rely on them to tell you that they were at a bachelor party and it is best not to put the team at-risk by coming back to the client site the next week. But when you build connections with people, it bridges the mindset of "better safe than sorry”, which has become so critical during COVID.

  3. Business travel is an addiction: I am a business travel addict. Admitting the problem is the first step to recovery. As someone that averaged ~200 nights of business travel a year pre-COVID, I can tell you that going from that torrent pace to 0 nights was excruciating painful - that was not ‘tapering’ that was quitting ‘cold turkey’. Traveling for work is a ‘double-edge sword’ - one one hand, it creates this huge issue between balancing your work and personal life, but on the other hand, it creates a sense of energy and an elevated purpose that sitting in front of a camera all day never can replicate. As I have told many people, 200 nights per year on the road was not a good path, but neither is 0. I think business travel during COVID has created a better equilibrium for someone like myself that needs a healthy dose of ‘on-the-go’ work, but also needs to slow down a bit to find better balance. I know I am not the only addict out there and I hold great empathy for those who are struggling as I was, sitting at home in front of a camera every. single. day.

  4. Personal accountability for your lifestyle habits, prioritization of well-being and acknowledgement of mental health disorders are more important than ever: Business travel during COVID has definitely created habits to enhance personal well-being - whether that’s being more vigilant when it comes to not putting yourself in situations where the chance of contracting COVID is unnecessarily high, or acknowledging that things like sleep, hydration, and exercise are important to establishing a stronger immune system. Business travel during COVID has created a greater sense of ownership and responsibility that my behaviors can have a real (negative) impact on others. And that is one aspect in all of this that I hope becomes a lasting focus of personal accountability…pandemic or no pandemic.

    People love to play ‘Monday Morning Quarterback’ now about all they would / could have done to curb the impact of COVID-19 in the United States, but one thing is indisputable - Americans that have pre-existing health conditions (most which are linked to obesity, high blood pressure, diabetes, etc.) are more pre-disposed to dying from COVID. No policy could have changed the fact that living unhealthy lives pre-COVID made the impact of COVID worse - we eat too much, we drink too much, we are very sedentary, we don’t exercise enough and we don’t get enough sleep. Additionally, mental illness has been treated as a ‘taboo’ subject with connotations that link it to words like “crazy”, “psychopath”, “psycho”, etc. - which does nothing but isolate those who suffer from mental disorders and pushes them to internalize the symptoms, which prevents them from getting the treatment they need. It’s sad to think that it would take a pandemic for us to recognize mental disorders like any other disease process, but I do think a byproduct of being ‘couped up’ with people is making it harder to disguise these diseases. It’s time we give permission for these people to seek the help they need without demonizing them as monsters.

  5. Perspective is worthy of a reset every now-and-then: Business travel during COVID has been challenging, but it has enabled many good things, including a reset on perspective. As people around the world, and those within our own communities, continue to struggle with the realities of COVID - whether that be challenges related to health, job security, or all the unknowns that exist as to ‘what’s next?’, being able to take a hands-on role in helping a company (and more importantly, its employees) through the struggles of a financial crisis has brought more meaning to my work. I found it very easy to get caught up in financial analyses, powerpoint decks, and status updates (all of which have their place), but it is so easy to lose sight of what your work really means. I am not a frontline healthcare worker who risks his / her life on a daily basis trying to save the lives of those with COVID, and this should not be interpreted without an acknowledgement for that distinction. However, COVID has, and will continue to put financial burdens on companies and their employees long after everybody is vaccinated. Having the ability to collaborate in-person with our team and see firsthand the positive impact that your work can have, has been a rewarding experience that could never truly be obtained through a camera. We all seek to find a true purpose and positive meaning in what we do and it is so easy to get lost in all the distractions that cloud the results of what we do - if COVID has any positive lasting effect on our world, my hope is that it brings a greater sense of purpose and recognition of how our individual actions and contributions affect our communities, it drives a greater appreciation for those who sacrifice their well-being on a daily basis for the benefit of others, and it instills a greater appreciation for living holistic lifestyles with increased focus on physical and mental health.

The best way to stay safe is to stay at home. Traveling for business as I have described was due to some very unique circumstances and the perspectives provided should not be interpreted that working from home is not valuable, nor that it is a barrier to creating value through your work. I have simply provided a handful of lessons that traveling during these challenging times has taught me that will hopefully enhance my ability to lead teams and serve clients in a more effective way going-forward, regardless of whether it is in-person or through the lens of a camera.

Lululemon and the Monopoly of 'Athleisure'

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People say that Lululemon is nothing more than overpriced 'Athleisure' wear with a good brand and will be a fast-fad, much like many of the high-end fashion brands that have proceeded it.  I haven't done a deep dive into the financials of $LULU, but I do know what I see - that damn horseshoe is everywhere.  And its been around for a while...so what has it done that other high-flyer niche fashion companies have not?

There's a lot in Lululemon's marketing that strikes a chord with the consumer. Lululemon has really taken the idea of 'lifestyle marketing' to a whole new level. The company offers yoga classes and really promotes a lifestyle that people connect with. As this country goes through this whole 'health-and-wellness' phase, there is a lot of appeal for a company that promotes wellness and 'zen' as a part of everyday life - not a radical change to the way a person lives, but a perception of brand-promise.

The damn bags:

So you have to start with the damn red bags. Yes, they're bold and confusing - nobody could ever tell you what they say, but it's likely something very 'zen'. However, they're recognizable & reusable. In a day where most companies are still selling product in disposable bags, the idea of a reusable bag as a marketing tool is brilliant. And yes, you see the horseshoe, which has significant brand connotation now.

Wear it. Be it (sort of):

I'm not sure if most of the people walking around with that horseshoe logo on their clothes actually do any type of yoga or physical exercise. In fact, I'm quite certain that some of them don't. However, the logo provides a feeling of empowerment - an image of "I'm hip AND healthy". There is something very clever about how the company has spun its lifestyle image to empower people who have no clue what fitness is. I'm no branding expert, but when you can convince somebody that wearing a particular brand (at a premium price) will project an image of health and wellness - that's incredible.

Did I just see that?

So...you're in a mall and you happen to see a bunch of people huddling around a red banner and you get curious about what the heck is going on [ref: pic above]. You get a little closer and you see two people (a male and female) doing crazy yoga poses.You think to yourself, "wow, that's odd."  But then you look around and there are a whole bunch of people watching. What the heck are they watching? Well first, they're watching some crazy yoga poses. But second, they're watching a company market itself. It's bold; it's a bit odd; but, it gets peoples' attention. Is that not what marketing is all about? Creating initiatives that get people interested and eventually find their ways into your stores?

I'm quite amazed. I'm quite confused. I'm quite impressed.

AAPL's Wearables and Services Juggernaut

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In Walter Isaacson’s biography of Steve Jobs launched shortly after his death, there was apparently some concern from Jobs that Tim Cook wasn’t exactly a “product guy”. That may be true, but Cook has proven to be a "money guy”. The way that Cook has strategically guided the company to focus on developing other products and services that complement the company’s most lucrative product and further ‘trap’ people within the AAPL ecosystem has been nothing short of amazing. This was no more apparent than commentary that the company provided on its Fiscal Q3 (June-2019) earnings call in July highlighting the growth and scale of its Services and Wearables businesses. Key commentary:

Services: $11.5B (+13% / +15% if excluding one-time item from FY18)

  • Geographic diversity: Double-digit services revenue growth in all 5 geographic segments

  • Paid subscriptions: >420 million paid subscriptions

  • Apple TV: Apple TV App Viewership (+40% YOY)

  • Apple Pay: ~1 billion transactions per month (2x a year ago) – 47 markets

    • Apple Pay v. PayPal: Apple Pay is adding more users on a monthly basis than PayPal and monthly transaction volume is growing at 4x the rate of PayPal.

Wearables: Accelerating growth exceeding well over 50% YOY (now bigger than 60% of companies in Fortune 500)

  • Apple Watch: new June revenue record

  • New to Apple Watch: >75% of Apple Watch buyers in June quarter were buying their first Apple Watch.

  • AirPods: Continued phenomenal demand - “cultural phenomenon”.

If you step back [and] consider Wearables and Services together, two areas where we have strategically invested in the last several years, they now approach the size of a Fortune 50 company.

Just to put that in perspective, based on Fortune’s 2019 ‘Fortune 500’ rankings, the 50th ranked company was Prudential Financial with annual revenue of ~$63 billion. A few other notable companies that AAPL’s Wearables + Services business now outrank in annual revenue:

  • Walt Disney (#53)

  • HP (#55)

  • Facebook (#57)

  • Goldman Sachs Group (#62)

  • Cisco Systems (#64)

Why Being the Uber of ____ Failed.

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Over the last 20 years, there have been signature companies that have completely transformed paradigms and platforms that redefine the way we consume products and services - three examples would be AAPL, AMZN and Uber. As other companies rise up and look to gain prominence, the natural tendency is to call themselves the AAPL of ____ or the AMZN of ____, and most recently, the Uber of ____ [Insert industry or geography]. An example of this 'phenomenon' would be the consumer electronics company, Xiaomi, which has effectively branded itself as the AAPL of China. Companies that have branded themselves as the "Uber of ____" have, in most cases, found that replicating the business model does not equate to replicating the success.

The business model can be replicated.

A company that calls itself the "Uber of ____" is effectively saying it is replicating Uber's labor-driven marketplace business that matches a very large supply base of drivers with a healthy demand of riders in an on-demand way and at a low price-point. This business model can certainly be replicated in other sectors beyond transportation such as food and product delivery (DoorDashPostmatesInstacart, etc.), assistance with everyday tasks (TaskRabbit), and house cleaning. These companies ("market-makers") all fundamentally rely on the ability to connect independent contractors, who can flip on their availability and desire to work at-will, to satisfy consumer demand for their services. Like any marketplace, the transaction price fluctuates based on the balance of supply and demand. The market-maker, for the most part, scrapes a small percentage fee off every transaction.

Scale:

Marketplace businesses require a huge amount of scale as each transaction yields a small % of the actual price paid by a customer. Most companies account for this on a net revenue basis where, for example, $100 million of transactions (volume) may only yield $15 - $20 million of net revenue and that's before accounting for any G&A costs.

Labor-driven marketplace businesses are unique in the sense that in order to build scale, they rely on BOTH healthy supply and demand, neither of which can be directly controlled by the market-maker. However, the market-maker can indirectly control supply and demand with incentives and promotions (e.g., incentive fees to the labor supply-side with higher % payouts and discount promotions to the demand side). This sounds great, but the reality is that these types of promotions that are required to get both sides of the market hooked to the service create a hugely unprofitable business initially, even at the net revenue level - essentially, you pay out more to your labor supply than you collect from the customer demand side. However, once you establish a healthy market, you can essentially 'flip-on' profitability by reducing subsidies to your labor and eliminating discounts to your customers. It doesn't happen overnight and both sides of your market tend to be fickle, especially if competing market-makers exist.

Capital:

Given the costs associated with investing in markets (through subsidies and discounts) to build scale, companies need an enormous amount of capital to stay afloat. Even those that can generate positive net revenue (customer collections minus labor payouts), still have to cover a lot of other costs (marketing, corporate salaries, servers, investments in new technology), etc.). These below-the-line costs inevitably create companies that blow through capital faster than it can be raised.

Understanding FitBit's Missteps

On February 22nd, the wearable health and fitness-tracking device maker, Fitbit ($FIT) reported EPS of $0.35 on $712 million of revenue - easily topping consensus that expected EPS of $0.25 on $648 million of revenue.  However, the company's shares plunged 15% in after-hours trading after its Q1-2016 revenue guidance range of $420 million to $440 million fell short of the Street, which expected $484 million.  It now trades at just 20% above its all-time low, and 72% under its all-time high.

Fitbit - Defying the odds?

The popularity of $FIT's wearable trackers is a phenomenon in-and-of-itself.  At first glance, it appeared that $FIT was doomed when Apple ($AAPL) began shipping its new Watch wearable last April.  After all, $AAPL has grown to dominate profit-share in nearly every hardware category that it plays in, including smartphones, tablets, computers (both laptops and desktops) and now smartwatches.  The mistake that might have been made is assuming that $FIT's products would be subsumed by these more expensive smartwatches.  As the category continues to mature, smartwatches are proving to be much less focused on fitness, and much more focused on everything else (email / text / social media notifications, payments, airline boarding passes, etc.).

As the smartwatch category has begun to see the end of its infancy, there have been very few surprises.  Although $AAPL is not reporting unit sales of its watch, it is safe to say that it's by-far the most popular smartwatch on the planet.  But, what's interesting in the growth of this category is that $FIT has remained relevant and continues to be a very popular accessory even for people that are wearing an Apple Watch.  In the holiday quarter, $FIT shipped 8.2 million of its health and fitness wearables, up from 5.3 million in the year ago period (+55%).  That inherently creates an interesting dynamic as the company attempts to maintain its stellar growth trajectory.

What's Maintaining Fitbit's Pace?

If you actually talk to people that wear these $FIT devices, most of them will tell you something very interesting, and something I find truly unique in this wearable 'frenzy'.  They say that their $FIT bands are "motivators of activity" rather than just being "trackers of activity".  Meaning, $FIT wearers will actually adjust their behavior based on the number of steps that they've accrued throughout the day.  If wearers are lagging in steps, they might take the stairs instead of the elevator, or they might walk somewhere where they normally would have driven or 'hailed' a ride.  The fact that $FIT devices are able to dictate behavior (as opposed to just measuring it) is something that very few wearable trackers have been able to achieve.  I would argue it might be the only wearable that actually drives user behavior when it comes to physical activity.  Sure, the Apple Watch may give you a tap to stand-up every 50-minutes, but I have found very few people who see it as a fitness device.

Additionally, $FIT has incorporated 'gamification' into its companion app where wearers can join groups of friends, colleagues, or the-like to compete on overall physical activity (as measured in steps).  Gamification is not a new concept in wearables, the now-defunct Nike ($NKE) Fuelband and Jawbone Up all had / have some form of gamification embedded in their products. But unlike $NKE and Jawbone, $FIT has succeeded in making gamification a core part of the experience, which is also part of its unique behavior-driving appeal.

So What's the Problem?

Based on Fitbit's full-year 2016 outlook, which includes a mid-point revenue guide of $2.45B, it appears that the company is running into a similar problem as $GPRO - once you have one, there's little need to buy another as the functionality is not improving enough to warrant a replacement purchase.  The decelerating revenue is dramatic, going from nearly 150% growth in 2015, to a projected 32% for 2016:

So while Fitbit might be succeeding with its low-end trackers and associated user-engagement, its revenue growth strategy is akin to restaurants - "menu expansion" (as shown in the picture below).  In its 8-K filing for its FY15 results, the company said it would be incurring additional expenses as it continues the roll out of two of its new products in Q1-2016: 1) Alta - a Fitbit tracker with a more fashion-focused appearance ($129.99) and, 2) Blaze - a smartwatch with additional functionality such as a heart rate tracker and connected GPS ($199.99):

Source: Fitbit.com

The problem that $FIT will likely run into with these new products is two-fold.  With regards to Alta, the fashion appeal falls short of the critical standard of, "is this reason-enough to buy another Fitbit tracker at a $30 premium?". As for the Blaze, it is now attempting to compete with the dominant player in the space - Apple Watch, especially as $AAPL lowered the entry-level price for its Sport Watch to $299 (38mm) and $349 (42mm) on March 21st.  Unfortunately for $FIT, while the Blaze may carry the novel step-tracker of its predecessors, it falls well short of the Apple Watch when it comes to overall functionality which is enabled by $AAPL's phenomenal app ecosystem - it's the very reason you see many people wearing an Apple Watch on one wrist and a $FIT band (likely the Flex) on the other.

$FIT would likely be well-served by focusing on improving the functionality by expanding the capabilities of the very product that made the company (its Flex bands).  That focus would enable the company to help answer the one question that nearly every company in niche technology hardware is struggling with ($GPRO, Nest, etc.) - how can I get my user base to upgrade their devices?