The Middle Mile, the Power of Donut Shops, and the Three-Minute Small Business Loan

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FINANCE

Can your bank do this? Jack Ma’s MYbank is revolutionizing small business loans in China, lending two trillion yuan to nearly 16 million small companies with a default rate of one percent: “Borrowers apply with a few taps on a smartphone and receive cash almost instantly if they’re approved. The whole process takes three minutes and involves zero human bankers. …

“As MYbank and its peers crunch reams of new data from payment systems, social media and other sources, they’re growing more comfortable with smaller borrowers that they previously shunned in favour of state-owned giants. For China’s $13 trillion economy, which expanded at its weakest pace since at least 1992 last quarter, the implications could be profound. Non-state firmsmostly small businessesaccount for about 60 percent of growth, employ 80 percent of workers, and have been disproportionately squeezed by a more than two-year government crackdown on shadow lenders.”

WORK-LIFE BALANCE

After his stroke, Stephen McDonnell changed his priorities: “Five and a half years ago, Stephen McDonnell, the founder of Applegate Farms, the company that made cured meats seem like health food, collapsed on a street in Florence, Italy. It was Christmas Eve, and he and his wife, Jill Kearney, their three daughters and other family members were on their way to midnight Mass when he suffered a catastrophic right-brain stroke. 

“Later that morning, as vascular surgeons performed the operation that would save his life, Ms. Kearney thought, among other despairing things, ‘I don’t know how to run a meat company.’ As it happened, she didn’t have to. Mr. McDonnell, a charismatic workaholic who had turned a tiny bacon smokehouse into a nitrate-free behemoth, spent the next six months rehabilitating his brain by doing SAT-like problems and puzzles every day. The next spring, he sold Applegate to Hormel for nearly $800 million. …

“Mr. McDonnell was a pioneer in working from home, spending just one day a week at Applegate’s offices. He was lauded as ‘The Remote Control CEO’ in ‘The 4-Hour Workweek,’ Timothy Ferris’s book about wealth and productivity, which described a bucolic scene: Mr. McDonnell in his flip-flops checking spreadsheets. What the book doesn’t portray, Mr. McDonnell said, is the ‘30 little fingers underneath my door.’ ‘It would have been less frustrating if he hadn’t been working from home,’ Ms. McDonnell said. ‘We had three kids under the age of four, and I felt abandoned a lot.’”

THE ECONOMY 

The Federal Reserve seems ready to take a big gamble by cutting interest rates even though unemployment has been at historic lows: “Many economists say the Fed is acting prudently to prolong the economic expansion, which this month became the longest in US history. Yet the support is far from unanimous. Some economists, Fed officials and people on Main Street say the Fed’s action will benefit the stock market more than the real economy. And they argue cutting rates would introduce risks that could worsen the next downturn. …

“The danger of acting too soon is that cheaper borrowing costs will spur even more risky lending that ultimately leads to a bubble bursting, similar to the dot-com era or the housing market crash. Corporate debt, much if fueled by high-risk leveraged lending, is already at a record high. Risky lending offers higher returns to investors, and can be even in more demand when interest rates are low in the economy. ‘The Fed feels the need to come in and save the day like Superman, but all the Fed is going to do is encourage more corporate debt,’ said Peter Boockvar, chief investment officer at Bleakley Advisory Group. ‘It’s not going to help, and then the Fed will keep cutting.’”

Here are some key indicators that may tell you a recession is on the way: “Temporary staffing levels: Temp workers are, by definition, flexible—companies hire them when they need help quickly and get rid of them when demand dries up. That makes them a good measure of business sentiment. As of June, temp staffing is near a record high, but it has pretty much stopped growing. 

“The quits rate: When workers are confident in the economy, they are more likely to quit voluntarily. The quits rate, a favorite indicator of Janet Yellen, the former Fed chair, bottomed out shortly after the Great Recession ended and rose steadily until leveling off in the middle of last year. 

“Residential building permits: The housing market has frequently led the economy both into and out of recessions. That has made building permits—which are generally issued several weeks before construction begins—one of the best historical indicators of economic activity. But construction has lagged since the last recession, and housing makes up a smaller share of the economy than in the past, so permits may not be as meaningful now.”

OXFORD STRATEGIC ADVISORY DEAL OF THE DAY  

Microsoft, a developer and licensor of consumer and enterprise software, has acquired BlueTalon, a data privacy and governance service that helps enterprises set policies for how its employees can access their data. “Unsurprisingly, the BlueTalon team will become part of the Azure Data Governance group, where the team will work on enhancing Microsoft’s capabilities around data privacy and governance.”

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STARTUPS

Gatik, a robo-van startup, is looking to fill the niche of transporting goods from warehouses to stores, starting a pilot program with a Walmart location in Arkansas: “[Gatik] will run three of its modified Ford Transit Connect vans in this ‘middle mile’ logistics scheme, making up to 10 runs a day, seven days a week, during daylight. With human safety operators behind the wheel as backups, the vans will follow one of two routes between the stores: a roundabout five-mile (one-way) trip that avoids some tricky driving scenarios, or a more direct, uncompromising two-mile shot. ‘The main aim is to do that repeatedly, safely, without a safety driver on board,’ says Gatik CEO Gautam Narang. …”

Reali puts up the cash so that real estate buyers can make an all-cash offer: “Offers are 40 percent more likely to be accepted and often receive a two-percent discount off the home price when paying with cash, according to Reali. ‘With Reali Cash Offer, home buyers are now able to make stronger, non-contingent all-cash offers to better compete and win, particularly in tight housing markets where the competition can include investors, not just other home buyers,’ Reali said in unveiling the service in late June. So far, about a half dozen customers have taken advantage of Reali Cash Offer, which has no fee. Earlier this year, the company acquired San Francisco-based Lenda, an online mortgage lender, to create Reali Loans. Customers using Reali Cash Offer must be approved by Reali Loans for the mortgage beforehand, although customers are free to finance their home purchase with another lender. Reali gives up to 60 days for the cash to be repaid.”

Utah-based Recyclops is trying to make recycling convenient and practical for rural areas: “The company hires local independent contractors with pickup trucks, using a tech-driven smart routing app. Recyclops serves more than 3,500 homes and plans this year to more than double that number across 40 cities nationwide. Recyclops charges $10 a month for twice-monthly pickups. … The pickup trucker that hauls away the rural recyclables grosses $25 an hour. … [According to the CEO,] Recyclops conducted an independent survey that included an analysis of 1,000 towns and cities across the US and found that 34 million rural and peri-urban homes lack access to convenient affordable recycling.’”

HUMAN RESOURCES

An industrial region in France has been forced to slow production because there aren’t enough workers: “‘It’s a brake on competitiveness,’ said Gilles Pernoud, the president and chief executive of Groupe Pernoud, whose company makes injection molding for plastic parts for BMW and other automakers. He said he has turned away contracts worth nearly a million euros in the past two years because he couldn’t find skilled people here or anywhere in France who wanted a factory job. ‘We need more tech-savvy employees,’ Mr. Pernoud said, pointing to a glass-encased robotic machine on his factory floor programmed by a worker to produce a precision steel mold. ‘But not enough people are willing to take these jobs.’”

M&A

Private equity group HGGC acquired pioneer font-maker Monotype for $825 million to further its digital evolution: “Over the past few years, Monotype has acquired a string of companies—ranging from marketing firms to e-sticker startups … —to transition to a more digital future. Yet Monotype, which has been traded on the Nasdaq as ‘TYPE,’ has steadily lost value over the past five years. Now, under private ownership, Monotype has the chance to rearrange its letters without public oversight.”

AGRICULTURE

Williamsburg, Mich. is known as the cherry capital of America, but the region’s farms are now threatened by foreign imports: “‘If we don’t have luck with the tariffs, I don’t know how any of us can survive,’ [cherry farmer Dorrance] Amos said. The fight centers on the tart Montmorency cherries grown around nearby Traverse City … where it supplies two-thirds of the country’s supply of tart cherries. … Turkish imports of tart dried cherries have nearly doubled annually over the last three years to 1.5 million pounds in 2018, selling at 89 cents a pound. US processors sell the same product for about $4.60 a pound, according to data from USDA.”

MARKETING 

Online marketers are trying to game search results by buying expired URLs that have been linked to by prominent news websites and redirecting these domains to their clients’ sites: “Online marketers based in places such as India and Pakistan sell this service on Fiverr, an online marketplace rife with vendors pitching black hat SEO offerings. The link on the Hollywood Reporter obit [for Patricia Disney] was hijacked by a vendor with the handle ‘maryfarrow,’ who currently charges up to $215 for backlinks on The New York Times, the Independent, and Mashable. BuzzFeed News spoke with several of the vendors, some of whom charge upward of $500 for their services. The self-proclaimed SEO experts said they use a variety of methods to hunt for the dead links, including monitoring online auctions and deploying powerful link-crawling software.”

IMMIGRATION

For many in Los Angeles, the path to the American Dream has run through a donut shop: “You can always find a donut shop in LA, no matter which exit you take off the freeway. Donuts are the soul food of a place that is often accused of lacking a soul. They are the sticky, messy, waist-expanding ying to the yang of Southern California’s sun-kissed beaches and taut-and-tanned infatuation with wellness. They are the fruit of thousands of freeway entrance-ramp deep-fryers, eaten on the run by late-shift junkies and early risers with one hand on the steering wheel. …

“Donuts offer a key to understanding the city because each wave of newcomers has made themOkies from the American interior in the 1930s and 1940s, Vietnamese and Laotians in the 1970s and 1980s, and, to the present day, incomers from Mexico, Guatemala and El Salvador. The recipe is simple. The basic ingredients—yeast, milk, flour and sugarare mixed and then quick-fried in oil. Months of long, hot, stressful labor in donut shops turn migrants into Americans who, in their turn, modify the idea of America that is passed on to the next generation of strivers. Opening a donut shop is an affirmation of the belief that anyone can become an American, no matter where they come from or what language they speak. … According to a survey by the Los Angeles Times, by the mid-1990s there were 2,400 Cambodian-owned donut shops in California.”

And that’s what’s ahead.

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com

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