Timeless business lessons from the tire king 

If you’ve spent any time in the Pacific Northwest, you’re probably familiar with Les Schwab Tires, a prolific tire retail chain in the region. While waiting to get a tire repaired this week, I pulled up this extraordinary 1997 profile of the man behind the name. I learned that Les Schwab, who died in 2007, was a true poster-child of American hustle: He was born dirt poor in a two-room shack outside Bend, Oregon, orphaned at 15, and went on to build a $3 billion tire empire that was entirely family-owned—and debt free.

I’ve long believed there are consistent hallmarks of what makes a great business—and a great investment—across industries. This profile hits on many of those traits: An obsession with the customer, a relentless focus on product, the motivation of employees, growth without too much leverage, the ability to endure multiple market cycles, and much more. 

After waiting roughly an hour for my tire to get patched up by a couple service techs, I went up to the cashier with my credit card out and asked how much for the repair. “It’s free,” the cashier told me with a smile. “That’s Les Schwab… Come back when you need new tires.” Smart. I realized the company views minor service repair as the cost of acquiring new lifetime customers. (And acquire a new customer they did…)

“On an effective level the company has no employees, only partners,’ says Robert Harris, a University of Washington history professor who retired to Prineville and wrote a research paper on the Schwab phenomenon. ‘There is no room in this pattern for the idler because his indolence cuts the income of his fellow employees.’… During his lifetime, that philosophy has helped transform Schwab from an impoverished orphan to one of the wealthiest men in America. Yet just glancing at him or his home, you’d never guess he’s the tycoon that he is.”

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“In a world of abundance it is discovery that matters most”

This week, Ben Thompson at Stratechery offered a solid analysis of the core differences between Spotify and Netflix, and how the long tail of value accrues (and doesn’t accrue) to platforms over time. If you’re unfamiliar with Thompson’s seminal 2015 essay, Aggregation Theory, it’s probably worth revisiting. In it, Thompson lays out a framework for winner-take-all business models in a post-Internet era.

In this week’s piece, Thompson makes the case that it is Spotify, not Netflix, that is the true Aggregator. “Spotify has, for the most part, acted like an Aggregator: the company has fought exclusives in the music business, kept its subscription prices as low as possible, and in the case of podcasts ensured its Anchor platform supports all podcast players,” he writes. “Netflix has not: the company has invested heavily in its own content, steadily increases its prices, and is now embarking on a campaign to make sure its best customers pay more for sharing access.”

“Notice how this business — in its mechanics, if not its financial numbers — looks more like a Google or a Facebook than a Netflix: Spotify isn’t earning money by making margin on its content spend; rather, it is seeking to enable more content than ever, confident that it controls the best means to surface the content users want. Those means can then be sold to the highest bidder, with all of the margin going to Spotify. Spotify calls this promotion — it certainly looks a lot like the old radio model of pay-to-play — but that’s really just another word for advertising. Moreover, this isn’t Spotify’s only advertising business: the company has long been building an ad-supported music business, and is now heavily investing in doing the same for podcasting (which has always clearly been an aggregation strategy.)”

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Betting on the now vs. betting on the future

Nir Zicherman, founder of Anchor, wrote a short essay this week on what he calls “The Startup Uncertainty Principle.” The essay riffs on the notion that founders (and investors) must grapple with how to make significant bets on ideas that work today vs. reserving resources and capital for unproven ideas that could have significant payoffs in the future. “There is always a compromise to be made between knowledge of the now (position) and knowledge of the future (direction),” he writes. He continues:

“The same is true in the world of startups. I’ve spent my career building consumer products and features, all of which started out not quite right. Some of them found their audience and succeeded. Many of them never really worked and subsequently failed. Yet all of them went through a very common, very tricky journey, the journey of navigating the Startup Uncertainty Principle. Early in a product’s lifecycle, the team developing it makes certain assumptions about their customer needs, their competition, user perception, the forces of the broader market, etc. And just by virtue of statistical improbability, most of these assumptions turn out to be wrong. Yet it’s not always obvious how they’re wrong, and whether those false assumptions require a minor tweak or a grand pivot.”

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A few more links I enjoyed:  

Tesla is killing off coal and gas plants with its giant battery projects– via Quartz (H/T Andy Parker)
“Tesla’s pace of utility-scale battery construction increased nearly 10-fold in 2021, according to the Tesla Megapack Tracker, an independent database run by software engineer Lorenz Gruber, who monitors battery projects with at least five megawatt-hours of storage capacity. If Tesla’s Hawaii and New Mexico battery projects come online later this year as expected, Tesla will break last year’s installation record by at least 50%.”
A leopard can’t change its…values? – via James Revell, TDM Growth Partners
“Values are the principles that define culture; if culture is a living, breathing organism, then values are the DNA. On the surface this sounds straightforward, but dig a bit deeper and you discover that they’re a bit of a self-contradiction — elusive and intangible, yet the bedrock of culture and behavioural norms. In the many strategy processes that we have facilitated or observed, values often prove to be the hardest to pin down, but for those that manage it successfully, one of the most powerful and enduring outputs for delivering on the company’s purpose.”

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