Drinking from the Firehose #124: 💪 Small, but mighty. 💪


Small business is the bedrock of the American economy.

Nearly half of all employed Americans work at one. The very smallest of these firms, with fewer than 20 employees, employ over 20 million Americans, with an average of less than 4 employees per firm. These "micro firms" are most common in industries like professional services, construction, healthcare/social assistance, retail, and food services.

Compared to larger enterprises, micro firms act more like consumers. The owner of a micro firm is the sole decision maker of the business. She also runs HR, finance, purchasing, IT, and every other "function" of her micro firm. In addition, she staffs the front office and interfaces with customers. In other words, she has all the functional distractions of a larger enterprise, but she also needs to provide impeccable service her customers.

Simply put, a micro firm owner doesn't have time to play around with complicated software. She expects anything she uses in her business to take work off her plate and allow her to focus on her customer and the service she provides. She is looking for products that feel more like Facebook, Uber, and the other consumer apps she's accustomed to. And, she really doesn't want to talk to a salesperson before using it.

The first software companies to embrace the micro firm were horizontal, providing a solution that scaled across different small business sectors. Websites (Wix, $7B), payments (Square, $26B), CMS (Shopify, $31B), and marketing automation (Mailchimp, $600M+ revs) are all good examples of horizontal technology that micro firms can easily access today.

As horizontal technology has become more common, micro firms are demanding vertical solutions that directly take on core functionality of the business itself. An early example that took hold a decade ago is online scheduling. OpenTable ($2.6B acquisition) pioneered this model in food services two decades ago. Mindbody ($1.9B acquisition) applied a similar playbook to boutique fitness.

In recent years, however, we've seen companies providing even deeper integrations into the core functionality of micro firms. In addition, these platforms bring customers, earning them a valuable cut of transactional revenue. At Lightspeed, we call these "business in a box" platforms, and we've invested in a few of them.

One example is OYO Rooms, which has built a hospitality platform starting in India, and now spanning 230+ cities. Its partner hotels are effectively franchisees of the OYO brand. OYO provides audited quality standards, markets the inventory online, and enables bookings and payments on its platform. Essentially, OYO provides everything a franchisee needs to run a small, professional hotel, including the customers!

ezCater is another example of a business in a box. Over 60,000 caterers rely on its platform to sell food to businesses who want to order meals to their offices. In addition to managing business customers, ezCater gives caterers a standalone website and menu, an ERP for managing orders, and programmatic connectivity to local delivery providers.

Faire is a business in a box for independent retail and artisan makers. It provides connectivity between both sides of the marketplace, as well as financing for retailers to purchase inventory. Micro firms tend to have little access to traditional sources of capital, but because Faire observes millions of transactions through its platform, it knows which maker is the best match for a given retailer. It uses this data to underwrite purchases and enable better marketplace liquidity. Like OYO and ezCater, Faire earns a take rate of the transactional revenue in its marketplace. I've written extensively about Faire on my blog.

I anticipate that we will see additional business in a box platforms for other categories of micro firms, including healthcare, construction, education, and professional services. If you're working on a business in this area, or know someone who is, we'd love to speak to you!



The deepest of value.

German grocer Aldi is ruthlessly attacking the U.S. market. 90% of its products are private label. It stocks only 1,400 items (vs. 40,000 in a typical supermarket) in a smaller, more efficient floor plan that drives faster shop times (12,000 vs. 145,000 sq ft for a Costco). Barcodes are supersized on packaging to make checkout move faster. Aldi even makes customers bag their own groceries in an area away from checkout. The most stunning consumer behavior hack, however, is the 25 cent deposit to use a shopping cart that a customer only gets back if she returns the cart herself!

All these innovations result in lower operating costs, which Aldi uses to drive down prices. Analysts estimate that, in the coming years, Aldi could be the 3rd largest U.S. grocer after Wal-mart and Kroger.

Why New York can’t have nice things.

As a native New Yorker, nothing is more depressing than watching the decay of my city's public transit infrastructure. It's one of those obvious problems that lacks a simple explanation. Everything's just too darn expensive. The 2nd Avenue subway line cost $4.5 billion to build. On a per mile basis, it's the most expensive subway line ever built.

This piece in New York Magazine delved into some of the details of the problem and compared New York's difficulties to those experienced by major transit projects around the world.


How to go viral (video).

Derek Muller of Veritasium usually makes pop science videos on YouTube. I've shared many of them in this newsletter. However, some of his most compelling content comes from when he speaks on the YouTube platform itself.

This clip shows an example of a video he recently made, why he decided to make it, and reveals the creative tensions he faces between making great content and striving for views/engagement. As YouTube changes its algorithms, he warns that content creators will in tandem change their content, not necessarily for the better.


Getting emotional.

Amazon filed a patent on a system that uses voice inputs to understand a consumer's emotional state. It could use these traits to better recommend products and services, and maybe even offer health interventions from time to time.

One advantage Amazon has in cracking more robust human emotional computation vs. Google or Apple is that the latter's training sets are entirely intentional speech, mostly driven by search. Alexa, on the other hand, is listening when I get frustrated that my son won't eat his vegetables, or when I get excited when the new Rick & Morty season drops (October!). It has way more surface area from which it can infer emotion and has a "right to win" in this space.


Fear vs. reality.

Americans are most often killed by heart disease and cancer, but if you watch the news media every night that's not the impression you'd get. Terrorism, homicide, and suicide account for nearly 70% of deaths covered by the media. In reality, these causes amount to <3% of deaths each year.


Disney dreams of Genie (video).

Disney's original Aladdin was one of the first animated movies to leverage star power as a promotional tool. Robin Williams, who famously lent his voice and persona to the Genie, was essential to marketing the movie, but Robin himself was against such blatant commercialism.

This video tells the story of how Robin created the Genie role, the ensuing fallout with Disney, and the legacy he created for the next decade of animated films.