Thomas Jefferson, Anti-fragile Cities, and Starbucks
Thomas Jefferson, Anti-fragile Cities, and Starbucks
In which I write about the 3rd President of the United States
Hey everyone,
Greetings from New York City!
What the opposite of dead is, NYC can be described as that right now. It’s like a phoenix taking the first few confident flaps with its wings as it rises from its own ashes. It feels cathartic to visit my favorite spots in the city (Ivan Ramen, Jacob’s Pickles, various coffee shops) and discover new ones (McNally’s, Pisticci, and other various coffee shops). To take a stroll in Central Park, to look at a kid in the subway and make funny faces, or to speed through the crosswalks while almost getting hit by a car every single time. It feels good to see the critics be wrong.
In this issue of Sunday Snapshots, I want to explore:
The second half of American Sphinx by Joseph J. Ellis
When do cities become anti-fragile
How Starbucks is succeeding in the pandemic
Marc Andreessen, civilizational frameworks, and grocery habits
Book of the week
As I wrote about last week, Thomas Jefferson exists in the popular American imagination as a figure that can be co-opted for any needs — he was a fervent supporter of state’s rights while also believing that the Navy should provide around-the-clock protection for free trade to around the world in conjunction with its European allies. In both of those positions and many more, he was ahead of his time.
But what strikes out most about Jefferson compared to other figures from a similar era is how elusive his true thoughts are to put down. It’s clear that he thought that slavery was a moral abomination that had to be dealt with at some point (but by the next generation of leaders and not him) and yet he operated a mini-factory on his city on the hill, Monticello, where the only labor used was slave labor.
His posting to France as the first effective country’s ambassador put him in contact with the other two famous Americans of his time — John Adams and Benjamin Franklin. While Franklin’s swagger and Adam’s erudition were talks of the town, Jefferson had few carrots or sticks to create allies or trade relationships. America’s debt from the Revolutionary War was high and it’s credit rating was in the gutter. And more so, much of this debt was owed by individual states — and not the feral government — which meant that even though he was American’s chief diplomat, he couldn’t really be helpful. Ultimately, his cooperation with Alexander Hamilton to centralize the war debt to the federal government would form the genesis of the states rights v.s. the power of the federal government debate.
As a business owner, Jefferson was a disciplinarian and could be downright cruel. When a slave did not fulfill the required quota of nail production — Jefferson had a nail factory in Monticello — for the day, he “sold the chap to teach a lesson to the others.” Such chilling phrase underline the contradictions of this supposedly great man who wrote the words “All men are created equal.”
As President, Jefferson’s biggest contribution was the probably the Louisiana purchase which kicked the westward expansion of the United States into high gear. In his post-Presidency, Jefferson created the University of Virginia where students walk by his statue every day on the way to their classes.
American Sphinx is a pretty good read if you’re interested in Jefferson. It manages to walk the thin line between avoiding academic minutes despite being thoroughly sourced and being cognizant of important gaps in knowledge. I would definitely recommend it.
Long read of the week
Universal resilience patterns in labor markets
Taleb says "Become Antifragile, or die." But as Taleb also says, antifragility means different things at different scales. So while having unique skills might be a way for an individual to become anti fragile, it's unclear what it means for a town to be anti-fragile.
This paper aims to answer that question. Latest research from MIT shows that resiliency is a function of how interconnected the skills required for the major industries in a city are. Cities with many different employers that require similar skillsets thrive in sunny times, are more robust when recessions hit, and can come back stronger from them:
US cities with greater job connectivity experienced lower unemployment during the Great Recession. Further, cities that increase their job connectivity see increasing wage bills, and workers of embedded occupations enjoy higher wages than their peers elsewhere.
This is in contrast to centralized towns, where there is one major employer with very specific skill demands. Think a coal-powered electricity plant or an automotive factory. You only need to look at a city like Janesville to understand the impact of such dependency.
Business move of the week
I’ve always said that coffee shops are a great business — it’s tough to find better product-market fit than a drug that is an attention-driving stimulant and modern late stage capitalism. As one of the creators of the constant and casual coffee consumption on the continent, Starbucks continues to reap the benefits. Its latest annual report shows an unprecedented resiliency in its retail network.
Some drivers of success that I think are worth pointing out:
Store-operated companies: Contrary to other large chains, most of Starbucks’ stores are owned by the company itself instead of being franchise stores. This allows them to rapidly experiment with new initiatives and centralize decisions for the entire chain. It also means that any new edge discovered in one part of the country or world can then be rapidly distributed to the entire network. It reminds of Uber’s nimbleness and how interoperable its city teams across the world were, while creating customized solutions for each market.
International growth: In countries like China and India, drinking coffee (and definitely $5 coffee) is still a status signal. With a large demographic base and low costs of production, any incremental penetration into the markets will be worth hundreds of millions and potentially billions of dollars.
Loyalty Program and Store Value Card: I’ve written about this before, but the Starbucks App is the best loyalty program I have used created for the mass market:
From the September 20th, 2020 issue of Snapshots:
If you’ve been a Snapshots reader for a while, you’ll know that I have a bit of a hobby of following merchant-specific rewards programs. Uber Rewards has particularly received a lot of attention from me. But my favorite is the Starbucks rewards program.
Why?
Because there is no other program that is so tightly integrated with the broader business strategy.
Here’s an example of this that I noticed this week:
When you log into the Starbucks app, you see that rewards, not purchases are at the center of the Starbucks app. This is driven by the intuition that app purchases are driven by repeat customers so they will be willingly to go through a couple of taps to make a purchase. It also offers them the chance to highlight the most important things – this week, this was how the rewards program is changing.
They are changing the program so that pre-loading a card gives you 2x the reward points for purchases compared to 1x for all other payment methods. Incentivizing customers to preload a card to pay for their daily coffee by offering 2x baseline rewards seems like a win for customers with no upside for Starbucks. But according to their 2019 annual report, they hold $1.6 billion in these cards with an average of 10% breakage – that’s value that will never be redeemed. So effectively, Starbucks is borrowing from its customers at a -10% interest rate.
Odds and ends of the week
Three articles this week:
⌛️ Tomorrow’s Advance Man: This profile of Marc Andreessen and his venture capital firm a16z was a pretty good read. In a post about the future, it foreshadowed a lot of a16z’s success through creating a services base for its portfolio companies to use and its skill in crafting media narratives.
👀 I Know What You Think of Me: The article is worth reading for this paragraph alone:
I’ve often thought that the single most devastating cyberattack a diabolical and anarchic mind could design would not be on the military or financial sector but simply to simultaneously make every e-mail and text ever sent universally public. It would be like suddenly subtracting the strong nuclear force from the universe; the fabric of society would instantly evaporate, every marriage, friendship and business partnership dissolved. Civilization, which is held together by a fragile web of tactful phrasing, polite omissions and white lies, would collapse in an apocalypse of bitter recriminations and weeping, breakups and fistfights, divorces and bankruptcies, scandals and resignations, blood feuds, litigation, wholesale slaughter in the streets and lingering ill will.
🛒 Bigger hauls, fewer choices: A deeply researched article on how the pandemic changed grocery shopping behavior for families. It’ll be interesting to track which habits stick and which don’t. What’s of particular interest to me is how abundance is shifting to the internet from the aisles of Walmart and yet it re-enforces a kind of sameness:
“If you go stand in the salty-snack aisle of Kroger, there is probably a sampling station. You pick up a bag, read the nutritional panel,” he says. “Whereas on Amazon, you’re typing in ‘Heinz ketchup.’ You’re not going to discover Sir Kensington. People that buy groceries online tend to buy the brands that they know, the brands that have highest unprompted awareness. Seventy-five percent of repeat online shoppers start shopping in their previous basket, so if you’re a new brand it’s hard.”
That wraps up this week’s newsletter. You can check out the previous issues here.
If you want to discuss any of the ideas mentioned above or have any books/papers/links you think would be interesting to share on a future edition of Sunday Snapshots, please reach out to me by replying to this email or sending me a direct message on Twitter at @sidharthajha.
Until next Sunday,
Sid