Why Food Is Tougher than Tech, When Startups Work and Live Together, Why Splitting With China Isn’t Feasible

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President Trump asserted on Saturday that he really does have the authority to tell American businesses to get out of China, “citing a national security law that has been used mainly to target terrorists, drug traffickers and pariah states like Iran, Syria and North Korea. As he arrived in France for the annual meeting of the Group of 7 powers, Mr. Trump posted a message on Twitter citing the International Emergency Economic Powers Act of 1977, a law originally meant to enable a president to isolate criminal regimes, not sever economic ties with a major trading partner over a tariff dispute. ‘For all of the Fake News Reporters that don’t have a clue as to what the law is relative to Presidential powers, China, etc., try looking at the Emergency Economic Powers Act of 1977,’ Mr. Trump wrote. ‘Case closed!’”

Is it feasible for US businesses to sever ties with China? “At least in the short term, it’s not. American business is deeply intertwined with China, and untangling it would be messy and potentially destructive for the global economy. … Efficient factories aren’t China’s only draw. Although the Chinese economy—the second-largest after the United States—has begun to slow, its consumer market is growing. By some estimates, there are more middle-class consumers in China than people in the United States. China’s growing consumer class accounts for a huge proportion of global sales of iPhones, Nike shoes, and Starbucks lattes. It buys Chevrolets and Fords, though they are largely made in China. Its increasingly adventurous tourists create demand for Boeing planes. Increasingly affluent Chinese consumers have a taste for American steak, and they want more pork from pigs that eat American soybeans. …  ‘Business is pretty numb about all of this,’ said Rufus Yerxa, the president of the National Foreign Trade Council, a Washington-based business group. ‘They’re in shock about how badly this has all started to go.’”


The American manufacturing sector shrunk for the first time since the financial crisis: “The IHS Markit manufacturing Purchasing Managers’ Index slipped to 49.9 from a final July reading of 50.4, according to a preliminary August report Thursday that trailed all estimates in Bloomberg’s survey of economists. Factory employment stagnated on the heels of weaker orders and subdued output. A reading of 50 is the threshold between expansion and contraction, and the August figure adds to growing evidence that the American industrial sector is losing momentum amid tepid global economies and uncertainty about trade policy.” 


LittleBits, a developer of an easy-to-use electronic building blocks platform tailored to children inventors, was acquired by Sphero, a developer of phone-controlled gaming devices. “The deal will help Sphero expand its office footprint into New York.”


43 percent of online shoppers are more inclined to buy from a retailer offering some form of online chat, a report shows: “25 percent of online retail customers reported they had used chat at least three separate times when placing an online order over the past 12 months, and 43 percent are more likely to purchase from a retailer when that retailer provides a live chat option. Retailers must be careful, though. Solutions that attempt to provide chatbots instead of professional agents can backfire and cause customer frustration. The report shows that customers who use chat and have some or all of that interaction with a chatbot are eight percent less satisfied, four percent less loyal, and three percent less likely to recommend the retailer compared to the average customer who contacts retail customer service.”


The growth of Amazon Go cashierless stores has been inspiring other retailers to develop cashierless payment systems of their own: “As a result, technology companies are rushing to meet demand among retailers that want to implement their own checkout-free experiences. This month, Wirecard entered the race with its own cashierless checkout product suite. Although the company declined to discuss potential customers of its checkout-free technology, it noted that it’s in talks with several retailers.

“The implementation method will vary by retail partner, but it typically will involve some kind of sign-in to an app when the customer enters the store, after which point the customer will pick up products off shelves and leave, with payments happening automatically using stored card details. ‘There are a lot of cameras and sensors in the shop,’ said Susanne Steidl, chief product officer at Wirecard. ‘They automatically check and become aware of the consumer either taking [the items] from the shelf or putting it back into the shelf. Customers don’t want to queue, and [they want] an easy experience.’”


Lemonade, an insurance startup, is building an in-house marketing team: “While it won’t be a large team—the company is looking to add between 10 and 15 creatives total, according to co-founder and chief Lemonade maker, Shai Wininger—the hope is that the in-house team will help the company be nimble and make creative content efficiently. … Young companies, especially digitally native startups, are more likely to use in-house teams rather than agencies. Typically, the DTC brands are set to disrupt a category, and with that mindset, they would rather handle marketing internally rather than using the traditional marketing relationship of agencies.”


Morning Report reader Dom Cassone doesn’t feel sorry for the companies we noted last week  that will need to fire employees who don’t have proper identification: “I have no sympathy for the restaurant owners. Simple, obey the law and hire legal residents of the United States. Then you won’t have this problem. Don’t add to the problem of illegal immigration by knowingly hiring illegals. Not checking and looking the other way, is just as bad. ICE has a job to do and I am proud of the men and women who do their part to enforce our immigration laws. Shame on the restaurant owners!”

Let us know what you think of today’s stories by sending your comments to mattg@oxfordcenter.com


In college dorms, there’s been a shift from tech startups to food startups: “‘Starting a food company actually is much harder than creating, say, an app, because students learn how to program in school and can test a beta version with potential customers,’ said Ricardo San Martin, a professor at the University of California, Berkeley, who leads a new program focusing on creating meat and seafood alternatives. ‘But in the food space, students need to find a place to produce their product, find a backer and meet both state and federal regulations,’ he said. ‘And they need to find distribution channels and, above all, convince people to eat a new food that might be foreign to what they’re accustomed to.’”

The employees of Fiveable Inc., a social learning platform out of Milwaukee that serves students in 3,000 schools and every state, all live together and their home is also the HQ: “They found the three-bedroom, two-bathroom apartment with in-unit laundry and were sold. They moved into the apartment in Milwaukee in June—the same day the team pitched at Summerfest Tech, earning second place in the startup competition and the attention of CNBC star Marcus Lemonis. ‘You become more efficient and effective as you develop those bonds,’ [Lisa] Pook said. ‘It’s a good thing if you can speed up the process.’ It also means that there is little ability to disengage from work, she said. Or that little annoyances could build up quicker. ‘You’re engaging with an individual at a whole different level,’ she said. ‘If I’m just interacting with you at work that means that to some extent I can put up with whatever you do. I know that I have at-home time where I don’t have to engage with you.’

“There aren’t really typical days for the startup. Ho wakes up first. All three usually find their way to the office room by 11 a.m. But they’re essentially working all the time. ‘When I wake up and when I decide to go to bed—that’s when I’m working,’ [Claire] McHale said. [Tan] Ho does most of the cooking for the team, who all grocery shop together. Rent for the $1,500 a month apartment and grocery bills are paid for by Fiveable outside of the small salaries the team members earn.”

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How did the Australian company F45 become the fastest-growing boutique fitness franchise? “[Members] endure 45-minute HIIT workouts composed of functional movements, cardio, and weight training—in a community-driven, ‘experiential’ format. (The brand’s name is shorthand for functional 45 minutes.) Coaches encourage attendees to meet and high-five one another; one wall completely opens up to the street, inviting the public to peek in; and competitive events connect members outside of sessions. The brand even puts on festivals and hosts brunches at local restaurants outside of workout hours. F45 founder and CEO Rob Deutsch, a former equities sales trader, centered the brand around Millennials’ increasing desire to connect IRL [in real life]. … 

“Last month, F45 broke its own franchise sales record with 84 studios signed in just one month. The fitness brand now counts 44 countries with plans to further expand in Europe and South America. As for the States, Deutsch harbors an ambitious goal of growing to 5,000-7,0000 studios. In addition, F45 is playing with new formats and programs, including a workout program for adolescents that focuses on self-confidence.”


While Shake Shack is one of the fastest-growing fast-food chains in the world, it’s still trying to operate like a startup: “As it continues to grow, Shake Shack has chosen to adhere to an axiom many startups can relate to: ‘The bigger you get, the smaller you have to act.’ Its new Innovation Kitchen is central to this effort, allowing the company to experiment with reckless abandon, iterate quickly, and let customers directly guide its menu. … Last year, in an effort to stay true to its roots, Shake Shake opened an underground food laboratory that allows the company to rapidly create, test, iterate, and roll out new items. Headed by Shake Shack’s Culinary Director, Mark Rosati, the Innovation Kitchen was born out of a desire to ‘keep a small business mindset’ in the face of corporate growth. … In the kitchen, a staff of five brainstorms and tests out menu items it plans to roll out regionally or nationally. The team might devote a week to formulating black sesame milkshakes for an opening in Japan, or ‘spend a whole day tasting cuts of bacon.’ Every week, they test out these new creations in the restaurant directly upstairs.”


Companies are adjusting their language to expand applicant pools: “The Chicago startup Rise Science wanted to fill an open position recently, so it did something unconventional: It published a job posting as a 1,600-word letter from the company’s CEO. The missive, ‘A letter to our future design lead,’ begins with a line rarely seen in a traditional career ad: ‘This role isn’t for everyone.’ It then describes what the company does, how the job may shift over time and even why an applicant may dislike the position. ‘We don’t have all the answers,’ says the letter, written by Rise’s chief executive, Jeff Kahn. ‘If you’re not comfortable iterating on the same problem space for a long time you won’t enjoy this.’ … 

“Some companies now outline specific salary ranges and describe what a week in the role is likely to include. A number explain the downsides of a job, such as required on-call hours or a high volume of emails. … Even small tweaks to language in job postings can determine who applies for them, companies have found. Phrases such as ‘digital native’ and a ‘passion for social media’ in job postings can discourage older applicants from applying, according to a white paper released earlier this year by the Association of Talent Acquisition Professionals. … The tone of listings also matters. Expedia found that ads written with gender-neutral language attract higher-quality candidates and fill five days faster, Mr. Bader says. Another company found that when it emphasized its desire for candidates to possess a love of learning and analytical skills, more women applied, says Textio’s Ms. Snyder.”


David H. Koch, an industrialist who amassed a multibillion-dollar fortune with his brother Charles: “David and his brothers—Frederick, seven years older; Charles, five years older, and David’s twin, William—grew up in Wichita under the discipline of an emotionally distant father, who taught them to fight and compete with one another. That spirit carried into adulthood, engendering feuds and lawsuits that became public displays of avarice and fraternal malice.

“Fred Koch made millions in the 1920s and ’30s by inventing a process to extract more gasoline from crude oil and by building refineries in the Soviet Union, Nazi Germany and elsewhere in Europe and the Middle East. Fiercely anti-Communist, he co-founded the right-wing John Birch Society and created the Wichita company that became Koch Industries. After Fred Koch’s death in 1967, his sons inherited significant stakes in the company. Charles became chairman, chief executive and the strategist behind its expansion into chemicals, pipelines and consumer goods, eventually making Koch Industries the nation’s second-largest private conglomerate, with interests in 60 countries, more than 100,000 employees and annual revenue of more than $100 billion.”

And that’s what’s ahead.

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