My goal is to write one 'Pattern Recognition' a week. Just the top 3-4 stories that stayed under my skin. Here's what stuck this week:
- To make sense of J.C. Penney, look to Apple: What's the moral of the story at JCP, where same store sales are down 18.9%, the stock is off 26.5% year-to-date, and CEO Ron Johnson, who built Apple's massively successful retail stores, is suddenly no longer looking like a savior? I think that the moral is less mysterious than it may seem. It's that change is hard, mega-transformations take time and only those with the intestinal fortitude (and board support) to focus and see it through to the end, succeed. After all, JCP is trying to fix a broken brand that's been poorly packaged in a tired segment where a shocking 99.8% of all sales occur at below regular price. Moving to "Fair and Square" pricing may be the right approach, and it's certainly sensible enough to succeed (think: "Low Prices Everyday"), but success won't happen overnight. After all, it took Apple six years to reach the tipping point from which they'd never look back. Macs were dead. Apple's brand was tarnished. The iPod was hardly an overnight success and Apple stores to a while to find their footing. In fact, few remember that while Apple was a ~$5.50 stock when Steve Jobs became interim CEO in September, 1997, it nonetheless hit $6.56 in April, 2003. Now, don't get me wrong. I am not saying that Ron Johnson is Steve Jobs. Just that he's no shlub that has no idea what he's gotten himself into, nor a simpleton who doesn't understand the requisite details needed to come together for his company to succeed. Know this, though. Mega transformations take time, and he'll need it to reinvent JCP. I thought about this reading Herb Greenberg's quasi-defensive position on twitter. Two related takes: HERE and HERE.
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iOS Inside - App-Enabled Hardware Accessories: As a long time network hardware guy (I've built it, sold it, and created platforms to extend it), and one of the earliest 'bandwagon jumpers' on iOS as a platform play, I have been more than a little disappointed in the lack of hardware accessory businesses to grow out of the enormous success of iOS. After all, from 1994 to the crash of the dotcom bubble, there was a tremendous amount of network device innovation, the so-called Internet of things. Money flowed in, and cool products came out. But as the past 30 years teaches us, the marriage of software and hardware is a coupling that is incredibly hard to pull off. Software guys hate hardware guys, and vice-versa, and that's when they even talk the same language. That's one fundamental reason that there's Apple, and everyone else. Making software, simple web services and apps is a whole lot easier, and takes a lot less capital, so that's where the dollars and decisions flow. But, the ability to create entirely new categories of devices that are "app aware" and can take advantage of an iPhone or iPad as a proxy is a BIG idea - think watches, scales, fitness devices, home monitoring systems, thermostats, etc. That's why I was particularly excited to see Incident's gTar, a new fangled electric guitar that uses an iPhone as its brain, get honorable mention at the latest TechCrunch Disrupt. Subsequent to this, I was thrilled to see that Apple has created a category in their online store for such devices called App-Enabled Accessories. Between this, Apple's decision to resell the Nest Learning Thermostat, and the tremendous story of the Pebble smart watch project at Kickstarter, which raised over $10M and generated tens of thousands of orders, I am optimistic that a boom in hardware accessories that are "native to the post-pc era" are just around the corner.
- Thesis-Driven Investing ("Large Networks of engaged users.."): I will never forget the conversation that I had with a VC a few years back. In response to my assertions about the value of thesis-driven investing, the VC retorted, "Well, we pride ourselves in NOT being thesis-driven." That the fund is defunct, and the particular VC was never heard from again, is unsurprising, something that I thought about in reading Union Square Ventures' investment thesis in a post this week. USV is the fund led by Fred Wilson, who in addition to being in most of the smartest deals, is transparent about his approach (via his blog), engages his faithful community (myself included) in a conversation on same, and has enough battle scars from the dot-com bust to not take himself too seriously. No hubris here. Hence, I was more than a little piqued to read and digest their investment thesis, which is focused on: "Large networks of engaged users, differentiated through user experience, and defensible through network effects." Read the whole piece, as it's well articulated, but even better, think about codifying your own thesis.
