Published Last Week

Physical Book Release

Last week, we shared details of our upcoming limited edition clothbound hardback book. We've curated a number of our favourite interviews that share timeless insights about how industries and businesses work. Each interview is with an operator with a minimum of 25 years experience in their field. 

As a reminder, you may pre-order here if you're shipping to the following countries:

Only these countries are available via Amazon Multi-Channel Fulfilment if we take orders directly. Amazon MCF allows companies to take orders on their website and use Amazon's network to fulfil the order. This reduces Amazon's take rate to ~20% of the order value as it doesn't earn a 10% listing fee. We can't offer worldwide shipping via Amazon until we have a certain amount of inventory in FBA. Offering MCF to retailers is a core part of Amazon's strategy to become the core backend of e-commerce without forcing retailers to list product on Amazon.com.

We previously discussed the 2022 launch of Amazon MCF and "Buy with Prime", the payment and front-end conversion tool offered by AMZN to 3P retailers selling DTC. We plan to share our learnings selling on Amazon whilst we study Global-E in parallel to compare costs and experience.

For those interested in a copy outside of the countries above, you will be able to order on Amazon.com in December when the books are within the FBA network.

CCC vs Mitchell: Collision Repair Estimation Software

Founded in 1980, CCC is a mission-critical cog in the P&C insurance value chain. The company offers total and repairable loss estimation software for insurers and repair shops across the US. More importantly, it has the lion share of an oligopoly with Mitchell and Audatex. With over $270bn of US claims cost per year, CCC estimates a $10bn software opportunity to help insurers improve efficiency. 

On the surface, CCC fits our criteria of vertical market software companies we find attractive: 

  1. A niche vertical 
  2. Mission critical for the value chain to function 
  3. The cost of the software is a fraction of the total claims cost for insurers 
  4. Net dollar retention is >100%
  5. And runway to digitize more customer workflows 

Although retention is high, we plan to explore the true switching costs of moving from CCC to Mitchell. Another factor that particularly attracted us to CCC was its $1trn of historical repair estimate and image data. This asset could become a critical ingredient to fully automate the estimation process.

This interview is the first in our CCC series and focuses on the repair product and how insurers run Direct Repair Programs (DRP). We plan to cover CCCs portfolio and competition with Mitchell in detail over the coming weeks. 

I've managed body shops since 2012 and have used every estimating system, including Audatex, Mitchell, CCC, Web-Est. Most insurance companies use CCC. Having CCC provides a direct line with the insurance company if they send you an estimate through File Share. This makes it easier to communicate with pictures and supplement your estimates. You supplement your estimates, send pictures, and justify what you're asking for through images. It's a good system because you can send it, they receive it, and send it back with their responses. They inform you of any changes through the system, which is better than sending an email and waiting for a response. Some insurance companies use Mitchell instead of CCC. Most body shops I've worked at use CCC for production scheduling and payroll too. CCC functions like QuickBooks or an accounting tool for body shops. It manages everything going on in a body shop. - Former General Manager at Service King Collision

Danaher Business System: PSP, Kaizen, & Six Sigma

This interview provides an insight into how Danaher deploys DBS tools across an organisation. One core principle it follows across all divisions is "Go to Gemba". Before making any decision, go and observe, learn, and understand how the operation is working at the source. Observe how things work. This is true for a manufacturing process or a customer inbound sales journey.

Why is Go to Gemba so important?

Because Danaher seems to believe we all warp our perception of how things really work:

The main issue is that people are often guided by their experience, which is critical. [But intuition] wouldn't hold up. I can tell you, I've managed around 100 Kaizen events or more in my business life. What I've seen is that during discussions with engineers, they explain how the system works and why we have a problem. I always stop the discussion and say, "Let's go to the place and observe the process." For example, if there are process issues, in 95% of cases, it's different from what the engineers think. - Former Danaher Executive

This interview goes on to explore how a Kaizen event is run, when to use lean and six sigma, and challenges deploying DBS at scale.

Melrose Industries: GKN Aerospace

Melrose Industries is a UK-listed company that owns GKN Aerospace, a leading tier-1 aerospace supplier. The company went through extensive restructurings over the past years and have focused on GKN's engines and structures businesses. 

This tilts more focus to its higher-margin, revenue sharing programs on the top engine programs like CFM56 and GTF.

A former GKN Aerospace executive explains why the GTF partnership is different from older platforms. 

"The good news for GKN is their new risk and revenue sharing partnerships on the gear turbofan. I'm unsure if they still have one with GE, but the partnerships with Pratt are substantial and solid. The turbine exhaust cases are designed, engineered, and built by GKN in Sweden, and sometimes in Norway. These have significant IP, including the turbine rear frames on the gear turbofan engine. Even under RRSP, the IP, building methods, and material selections were developed by GKN. This is different from their first generation of risk and revenue sharing partnerships, where they had less engineering and manufacturing capability, established 30 years ago. - Former GKN Aerospace Executive

Veeva Vault vs Medidata Solutions: Clinical Trial Data Software

In this interview, a former Director of Product at Veeva Systems explains how the company's Vault product differs from Medidata's offering:

Medidata offers a comprehensive solution, but it's a legacy platform. They've struggled in recent years, particularly the past five years, with siloed systems and processes. Previously, everything was its own platform, requiring physical integrations. They're slowly building integrations, which causes performance issues. They underwent serious refactoring and optimization to remain competitive, but this increases costs, and they charge a premium. - Former Director at Veeva Systems

Belron, Boyd & the Auto Glass Repair Market: Vertical Integration Threat

Auto glass repair was initially outsourced to specialized shops like Carglass, Boyd, and Safelite because it represented a small portion of total car repair revenue. It wasn't economical for franchise dealers to repair a <$500 windshield. This enabled body shops to focus on repair jobs that paid higher dollars. The situation is changing today. As cars are becoming more complex with ADAS technologies, rendering glass repair and recalibration a larger and more lucrative activity.

In this interview, a former Collision Repair Manager at Tesla helps us understand what it would take for franchised dealerships and OEMs to do in-house glass repair, which would potentially hurt the volumes of specialized glass repair shops.

"I pay out $9,000 to $10,000 monthly to a glass company, making only about 10% profit due to these limitations. A lot of our work is warranty work and warranties, we can't mark up any sublets. So anything that we sublet to another company, Toyota doesn't allow us to mark it up. So I make zero on it. So I'm paying out a ton of money on these. Whereas, if we handled glass work in-house, we could make 67% to 68% on labor. For instance, on a Prius, glass work might take 12 to 13 hours at $62 an hour. Currently, I pay around $700 with zero markup, which isn't sustainable... Look, it's kind of a hot topic right now. I would say a lot of shops are looking into, into bringing their glass in-house - Former Collision Repair Manager at Tesla

LVMH & the North American Luxury Market

A Former Chairman of LVMH NA explores LVMH culture and differences in European and American mentality around luxury goods:

The way most Americans perceive what they want to spend their money on, what is highly desirable, is quite different from Europeans. We assume people in Asia are different because they look different, but the French struggled with cracking this market. They assumed they understood America because they spoke good English and traveled to places like Madison Avenue and Rodeo Drive. I always said, that's not America. There are pockets of wealth in places like Dallas, but also hidden in the center of the country. If you don't understand that mentality, you won't understand why someone in Italy would spend $1,200 on fine shoes without flinching, while here, they might prefer Coach or a more modestly priced brand, yet still want a Mercedes or a fancy truck with embellishments. It's about perceived value. Americans, compared to Europeans, are a big market but underpenetrated for luxury. For example, in automotive luxury, the US historically accounts for close to 40% of the global market. In terms of ultra-high-net-worth individuals, 35% to 40% are based in North America. However, for personal luxury goods like fashion, handbags, and jewelry, penetration in the US is under 20% - Former Chairman LVMH, North America

Kinsale Capital: Coverage, Claims & Commissions

Kinsale Capital mentions its technology as a source of cost advantage compared to other E&S insurers. An E&S broker working with Kinsale discusses how their technology and approach to underwriting might make them able to underwrite cheaper.

They rely heavily on their technology, which they claim is revolutionary. I might be exaggerating, but they talk about how their process allows them to have less human capital and be more nimble. Their issue, though, is that they offer incredibly poor coverage and very low commissions to the market. They are not known for being the best at paying claims. This doesn't mean they're on a do-not-place list, but we view them as a market of last resort. If we have to place a piece of business with Kinsale, it's partly because they have a very young underwriting team. They are constantly running through a very junior team. If you look down the chart at their underwriters, they have limited experience. They all move on, and they bring in a new batch of very young folks. Again, not necessarily a problem, but they're all relying on the system. - E&S Broker to Kinsale

Wise: Licensing & Bank Integration Process

An interview last week compared Wise to the Swift network. This interview with a former Wise executive explores the licensing & integration process with banks, local payment systems and authorities. Wise has made integration with banks easier by communicating with the Swift format for banks that can't make custom formats.

"What Wise has done is connect via API while respecting and speaking in the same format that the bank systems recognize. So the bank no longer has to worry about Wise requiring a different format. They can use whatever files their system produces automatically for relaying onto the Swift platform. Instead of going via the Swift machine, they go via API connection to Wise. Wise can respond back in the same format, such as the Swift 103 message for instructions and the 900 message for confirmation of a debit or credit. - Former Wise Director

Builders FirstSource: Scale Advantage & Capital Allocation

In this interview, a former Executive VP of Strategic Accounts at Builders FirstSource explains how the company's acquisitive strategy helped create a relative cost advantage as well as the management team's approach to capital allocation.

"The cost savings come from delivering from the nearest location to the job site. There were headcount synergies, which were captured and relayed in the releases following those acquisitions. Since BFS merged with BMC, there were several hundred million in cost synergies. The next step was operational excellence, which continues to evolve every year. - Former Executive VP of Strategic Accounts at Builders FirstSource

Triveni Turbine: Indian Steam Turbine Market

Triveni Turbine is a family-led Indian manufacturer of steam turbines, competing with Siemens Energy primarily. A former sales executive at the company describes how the local market is dominated by a few players and Triveni's advantages in the smaller turbine segment.

Apart from these two companies, they control almost 85% to 90% of the market in India. The remaining 10% is divided among various players, whether it's a smaller company or Shin Nippon, etc. In any given year in India, either Triveni is number one and Shin Nippon is number two, or they switch places. Therefore, the margins are very good because there are only two notable players. Sometimes, customers do not have much of a choice. - Former Sales Executive at Triveni Turbine

Westwing Online Furniture: Shop vs Club, Pricing & Conflicts of Interests

In this interview, a former Senior Executive at Westwing sheds light on the potential conflicts of interest between Westwing and its supplier base, arising from the company's growing focus on holding its inventory.

"Within the Club, avoiding a conflict of interest is challenging. There is always some overlap. For example, a basic private label table might look similar to a branded or third-party table, but not an iconic design. Brands accept this because it's not a trademark piece. - Former Senior Executive at Westwing