Blog – Move Fresh

Bella and Duke in The Sunday Times

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There’s a nice article about our investment in today’s Sunday Times.

A Scottish dog food brand has collared £300,000 of seed investment to fuel growth.

The company was founded by neighbours Mark Scott and Tony Ottley after their dogs — Morph, a collie, and Barney, a golden retriever — died from cancer. “We realised highly processed dog food could have been the cause,” Scott said.

Bella & Duke, an internet- based subscription service, is on course for sales of more than £3m in its first full year, Scott said. It employs 10 people at its base in Blairgowrie, Perthshire.

The full article is here:

The Sunday Times | Dog food maker Bella & Duke wins investment

Bella & Duke Investment

We are excited to have closed our a significant seed investment in Bella and Duke (www.bellaandduke.com)  one of the UK’s leading raw pet nutrition businesses.

We have tracked pet nutrition as an interesting area for a number of years, but believe that Bella and Duke have some very interesting defensible qualities and fit with our focus areas of nutrition and food tech.

Bella and Duke (www.bellaandduke.com) founded by friend Mark Scott and Tony Ottley, who were frustrated at the lack of quality meals for their own pets.

We hope to help the team manage the growth by investing in logistics, web and customer recruitment.

We are also very excited to be supporting a business that has come through the Scottish EDGE program.

Dewar’s whisky: Victorian punks

I started my marketing career with Dewar’s whisky. Dewar’s is fairly unknown in its Scottish home but is the number one selling whisky blend in the USA.

The brand started in 1846 and within 50 years was the market leader, largely down to Tommy Dewar who was an incredibly colourful character, to put it mildly. This blog is not a suitable place to record all of his personal indiscretions.

He constantly caused outrage in the business world, was involved in regular publicity stunts (such as sending a case of Dewar’s to the President of the United States during prohibition) and adopted new technology including the first ever cinema advert for any product.

Over a century later Martin Dickie and James Watt at BrewDog have a very similar style with #DontMakeUsDoThis and their punk beer.

Of course nowadays Dewar’s advertising is very far from punk. As it should be, a nearly 200 year old business which is the biggest blended whisky brand in the biggest market in the world should not be behaving like BrewDog.

But for those of us starting out, it’s good to remember that today’s corporate brands with their multimillion dollar campaigns and everything focus grouped to death, began in a very different way.

Move Fresh update Q1 2018

When we bought back Diet Chef from Piper Private Equity (who are a great investor!) in 2015 we did this to leverage the massive investment we had made in systems and infrastructure (see Andrew’s post on this).

It took us a little longer to move Diet Chef into a couple of adjacent categories and optimise our marketing but we are very pleased with the 2017 financial results which have exceeded our expectations and generated around £1m of EBITDA.

Our growth strategy wasn’t simply focused on generating cash from Diet Chef but more to invest this cash flow in adjacent categories that our infrastructure can serve.

In 2017 we invested and launched Parsley Box (www.parsleybox.com) a reimagined elderly nutrition brand that is growing very strongly against a stagnant revenue comparison of our two larger competitors.

We have achieved this by letting the management team focus almost 100% of their time on customer recruitment and building the team. Move Fresh has provided the logistics and supply chain to allow the scaling of the marketing at a rate most startups would fail to keep operational efficiency at.

So as we get into 2018 we plan to invest in other adjacent areas and to reach the consumer in different channels, one of the reasons we appointed Henrik Pade to our board of directors.

We will both look at doing this organically and through acquisitions if we can find the right ones. Let us know if you think you can help us on this journey, either as an experienced startup founder or if your company would be interested in joining our journey – its going to be fun!

Removing emotion (and gut) from Marketing

We spend a lot of money every day on customer recruitment and marketing.

Sometimes I pinch myself and look at the marketing investment we are making and look at the amount we spend – then I think about mistakes we made over the year (quite a lot!).

Cost per thousand (CPT) is the single best way to evaluate the media investment. How much will it cost me to reach 1,000 consumers – something that we forget about.

So get an accurate number of the audience (readership, viewers, impressions) and then look at how much this costs. Don’t be fooled by online and offline – who cares – I want or reach an audience – how much?

We offer everyone that joins marketing this simple training and test:

Compare the following (real numbers!):

  • An exhibition visited by 1,000 people at £500 + 20% VAT
  • A TV advert reaching 10,000 people for £2.50 Cost per Thousand.
  • £10 CPM + VAT for a magazine with 20,000 readers.
  • 30,000 PD inserts at £40 per thousand.
  • £1200 for online advertising at £6 CPM.

Calculate which would be the best and show workings.

Which would be the worst?

Answers on a postcard (it costs around 30p for a postcard delivered at volume) so what’s the CPT?

Where it all began?

It is 10 years this month since we started Diet Chef with £100 of equity investment and some contacts in the food industry.

We have done quite a lot over the last 10 years and also spoken to a large number of other food tech businesses.

The history of why two guys from the technology industry got into food is a very interesting one (worth chatting over a beer about) but the seismic shift of the UK grocery retail landscape was pretty obvious to us 10 years ago.

UK shopping habits in grocery have changed dramatically in that period. We have moved away from “multiple” large box retailers (Tesco and Sainsbury’s) into buying from discounters (Aldi & Lidl) and convenience stores (Sainsbury’s local & Tesco Metro).

This is partly driven by convenience – a large number of smaller stores have popped up in every town in the UK. We therefore don’t tend to do a “weekly shop” (if we do it tends to come by Tesco.com) and pick some items up locally and more often.

Diet Chef was born pretty much out of this phenomenon – it just happened in diet earlier. We used to buy specialist diet products in store, but multiple retailers couldn’t stock over 100 items in 300-400 stores they could stock 5-10 perhaps.

Consumers have therefore used online to fill this gap, and in speciality grocery it’s a great place to do it.

There are lots of great successes over the last 10 years in FMCG direct to consumer but they all tend to be in own brand speciality grocery – definitely where we are focusing.

How we did FoodTech for just £3 million

Up until quite recently food has been a technology backwater. Now we are awash with FoodTech companies but at Move Fresh we have been a technology company long before that portmanteau was coined.

We have spent about £3 million developing our software systems. I am very pleased about how cheaply we’ve managed to do it. Many of our competitors have spent an order of magnitude more to get similar systems. Some of our ideas have been quite obvious, other less so. Here’s the top six:

First, to cover offer the most obvious is that we used Amazon Web Services. There’s two big ways that this saves money:

Secondly, we reckon to save a seven figure sum through http://tomtwomeyseries.org/wp-json/oembed/1.0/embed?url=http://tomtwomeyseries.org/the-library/library-slide-2/ developing in-house rather than using consultants. Our view is that software development is absolutely core to an e-commerce company so it’s something we would want to do ourselves.

The third saving is also fairly obvious which is just to have a very efficient development process. We use a Kaizen process and have automated deployments and a high level of automated testing. There’s more to it than that, but basically we made a big up front investment which is now resulting in massively increased productivity.

We love hosted services which has been our fourth saving. We replaced all of our development servers with a GitHub subscription. Address entry is through PCA Predict. Many thousands of items a day are printed through PrintNode which costs us just $99 a month! We save a six figure sum every year through using the free token system from Braintree Payments and we also save on PCI compliance too. We also use many other hosted services for development and management of our marketing.

We are now getting onto less obvious stuff. Saving five is to avoid enterprise software. We have migrated from extremely expensive enterprise software onto either open source or simple hosted services. For example, on our ERP system we have saved around 92% by moving to Odoo. We also saved over 90% on our move from an enterprise email service provider to MailChimp. We saved 98% by moving from corporate DNS to Amazon. In all three cases, these are direct savings but we made more savings through the improved functionality by dumping the enterprise software. There’s been a further saving through not having to constantly have lunch with account managers.

Saving six is that we constantly market test our technology. We do this in two ways:

  • We regularly test outsourcing to compare with delivering in-house; a recent example was the Bean to Door website where our internal team absolutely smashed Shopify.
  • We also sell our services to external companies and indeed for 2018 Q1 about a quarter of the transactions on our platform have been for third parties. Selling your service to other companies is proof that you really are market leading.

Our development team is very clearly a technology company that happens to embedded in a food business. Indeed, we employ more software engineers than some software startups.

So that’s a very brief overview of how we developed a £20 million plus system for just £3 million.

If you’d like to catch up with us the Move Fresh technology team we will be attending DjangoCon Europe 2018 in Heidelberg, Germany, May 23-25 and EuroPython 2018 in Edinburgh, Scotland, July 23-29.

Book Review: The Black Swan

I finally got round to reading The Black Swan by Nassim Nicholas Taleb. This is continuing my habit of reading business books about a decade after everyone else.

A “Black Swan” is a highly improbable event that happens much more often than would be expected.

The first thing that struck me is that Taleb and I seem to have read almost exactly the same books over the last couple of decades. I felt that I was experiencing a Black Swan event myself as I turned page after page and came across book after book that had also influenced me.

There’s certainly plenty of things that I would agree with Taleb about. Regular readers of this blog will know that I’m not a fan of using statistical models to drive investing. To paraphrase Joseph Goebbels, “When I hear R-squared I reach for my revolver”. However it’s quite a leap to decide to ignore statistics completely.

I think Taleb goes way off base when he begins to suggest practical advice based on his philosophy. For example: his suggestion to hold bonds over equities. There is enormous historic evidence that equities outperform bonds. It’s also entirely false to view bonds as low risk: virtually all bonds are exposed to the risk of inflation and most bonds are exposed to default. Other than people who are about to experience a short term need for liquidity, bonds are highly unlikely to be a good investment*. It’s a classic case of heads I win (growth goes to equity holders and bonds may be called if they end up delivering good value) and tails you lose (business failure will result in wipeout of bondholders) proposition.

Equally, his suggestion to focus on good Black Swans (i.e. very high growth businesses) is a very poor recommendation for the average investor. It is true that Diet Chef returned 89,999,900% over three years but it’s hardly good advice to suggest most investors should look for these opportunities. It’s not reasonable to expect most investors to identify these start ups in advance. It is however a very high risk area that is likely to result in destruction of hard earned savings.

A much better way to look at investing is that it is multi modal. You need to understand the industry, accountancy, classical economics, behavioural economics, marketing, psychology, statistics, software and other areas too.

It’s massively flawed to adopt a single criteria and Taleb does an excellent job of demolishing the case for an entirely statistical based approach. But he goes too far by suggesting statistics are completely without value.

As is so often the case, truth lies in a middle ground. Statistics are very important but can’t be relied on exclusively.

I think a big problem business books have is that it’s very hard to write a book saying that investing is a huge grey area that is best tackled using dozens of techniques but not relying on anything exclusively and accepting that you will make mistakes. People want a simple certainty in their business books.

Classical statistics are a bit like my sat nav. It’s not 100% accurate so I wouldn’t want to rely on it completely but neither would I completely ignore it.

The Black Swan would have been a better book if Taleb had done his takedown of statistical models but then said that they are a useful datapoint but should not be relied on exclusively, rather than saying that they are completely useless.

* The £1.5 million issue of Move Fresh bonds are obviously the exception that proves the rule with their exceptional 7% yield. I bought some myself.

Just Behave: How to make money by doing the right thing

There’s an enormous amount of research on behaviour that results in better investment performance and, indeed, Robert Thaler won the Nobel Prize for Economics 2017 for his insights and other behavioural economists such as Daniel Kahneman and Amos Tversky have produced valuable research.

Here are some thoughts for how an imaginary online stock broking firm could work if it was trying to use behavioural economics to improve the performance of investors using the platform:

1. Ensuring adequate research

The most basic rule of investing is to ensure that before buying a share the investor has properly researched both the company and the management team.

The investment platform should ask six questions before allowing the user to buy a stock in a new company that they have not invested in before. For each question they get wrong they should be banned from buying the stock for that many months.

2. Preventing over trading

Most stock trading platforms charge a lower fee the more an investor trades. This rewards behaviour that is destructive to creating wealth. A much better approach is for the first trade to be free and subsequent trades to become progressively more expensive as volume increases.

In other words a behavioural platform should have the opposite charging structure of all current stockbrokers.

3. Benchmark investors against their peers

Every investor on the platform should be notified of what performance quintile they are in compared with the other investors.

They should also be shown the behaviours of the top investors and how their behaviour differs.

4. Ensuring sensible diversification

Most platforms report on diversification in terms of category and country. This is very crude.

I’m not aware of any platform that shows portfolio diversification by date of founding of the business or by business stage (loss making, high growth or profitable, stable). Also it would be sensible to split by market capitalisation.

Incidentally, all platforms I’ve looked at show diversification by country based on the registered office of the company. It really should be on the basis of revenue split.

I also think the platform should warn against over diversification. No more than one new stock should be allowed per 6 months.

5. Financial metrics

It’s a very tricky thing to try to come up with a magic formula for investing. A very recent example would Carillion whose huge dividend yield resulted in private investors piling in before their bankruptcy. Institutions meanwhile are busy putting funds into “smart beta” products which sound too good to be true.

The central thing to understand is how good the company is at investing cash. Most publicly traded companies are profitable. The real winners understand how to invest their profits (or other cash flows) to make even more profit in the future. This is the reason I love companies like Amazon and Berkshire Hathaway.

Debt is also a metric that’s worth looking at properly. Debt in itself is not a bad thing but it is concerning if debt is being used to fund dividends or if equity is being replaced with debt during a period of historically low interest rates. However in a company going through growth where debt is rising to fund capital expenditure, increasing debt would be a positive.

My fantasy investment platform would try to show how effective the business was at investing and whether the debt was good or bad.

Valuation is of course the most widely viewed metric. I’m not sure I have a simple answer to this. Everyone wants to buy cheap and sell high but most investors fail to do this.

There have been brilliant investments that have always had a high valuation (such as ASOS or Netflix). However my view would be to avoid overly expensive investments, of course this will result in the investor missing some opportunities but overall it’s a better behaviour to buy at fair to low prices (so-called value investing).

6. Beta blocking

Traditional investment theory is very tied up with volatility (R-squared value in terms of a benchmark). It’s the basis of the Capital Asset Pricing Model (CAPM) which gives a view on what return is required for a given level of risk.

It is however complete bollocks for the great majority of investors (the exception being investors who are just about to need liquidity such as people just about to buy an annuity or with children about to start University).

Very few homeowners would get an independent valuation on their house done every month yet owners of stocks will obsessively check their valuations even more frequently. Indeed, we even have some stock brokers showing realtime valuations.

The ideal behavioural platform would only update stock valuations once per quarter to try to prevent this sort of behaviour.

Investors should entirely ignore short term ups and downs. The valuation that matters is in the distant future when a stock is sold. There is substantial empirical evidence that investors outperform when they check share prices less frequently.

7. Fund managers

Purchasing funds can be a good investment and there is a lot of evidence that the lower the fee the better the performance of the investment.

Most fund supermarkets promote more expensive funds. In the institutional world the equivalent would be hedge funds who have been a huge destructor of investment value.

The behavioural platform should list funds from the cheapest to the most expensive and fees should be lower for investing in cheaper funds and higher to put investors off investing in more expensive funds.

Of course the problem with these seven rules is that they would result in a transfer of wealth from the financial services industry to the investor. It’s therefore highly unlikely that anyone will create a stockbroker following this advice as the profits would all be with the clients.

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