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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:

  • There is on demand scalability. We can multiply up servers when we need them and drop them hours later. This alone is a six figure saving for a seasonal business like ours.
  • Day to day systems administration is largely automated. As a result we no longer employ Systems Administrators and instead just have DevOps.

Secondly, we reckon to save a seven figure sum through 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.

Bean to Door launches

We have had a pretty busy year at Move Fresh, our latest brand to launch is Bean to Door (www.beantodoor.co.uk), a subscription fresh coffee company.

Fine Coffee Club has gone from strength to strength over the last few years but customers have kept asking us about ground and bean coffee. Bean to Door is a separate brand (due to the subscription requirements) and offers freshly roasted coffee directly to your door from £3.95.

In FMCG we believe that price elasticity of demand is clear within all sectors – so we are positioning ourselves closer to supermarket coffee prices with the freshness that only e-commerce can give you.

We soft launched this weekend and already the response has been great. Get your first bag for 50% off using our Move Fresh Discount Code

Trip volume in retail

ID 42098187 © Retro Clipart

You might not have noticed but our shopping habits in the UK have changed quite a bit recently.

We used to go to superstores (large stores with lots of choice and SKUs) usually once per week, usually at the weekend and “did the weekly shop”.

This was a major innovation over our parents and grandparents who used to shop in their local community and make frequent trips to shop.

We have now seen our shopping habits further change with the introduction of the discounters (Aldi & Lidl) who have a limited selection of SKUs and a large percentage of own-label items. We are both shopping more frequently in these locations and they are also enticing new customers (Aldi wine is acceptable at dinner parties!) to this retail category.

This means that emerging FMCG brands have limited ability to gain consumer trial due to limited space within discount retailers (frequently using short-term promotional space). So how do you launch a challenger brand in this landscape?

We strongly believe that direct to consumer can fill this gap, building strong consumer relationships on lower cost models, encouraging trial and investing marketing spend directly in customer recruitment rather than “brand marketing”

Perhaps use online to test product/market fit and look at retail to deliver the mass market consumer once your brand is well established.

 

2017 in review

As 2017 draws to a close and we wait for 2018, I think it’s a great time to reflect on our performance and goals in 2017.

When we bought Diet Chef back in 2015 we planned to make it more of a lifestyle business, but we have really grown to appreciate the expertise, infrastructure and knowledge we have within the group.

We have accelerated the brand creation in 2017 and we are particularly excited about partnering with entrepreneurs at an early stage to provide our infrastructure, knowledge and technology platform to remove some of the hurdles in the early stages of business.

We would love to do more of this in 2018, along with equity investment in FMCG related ideas that have a strong direct to consumer model.

So in 2018, we are considering launching a more formal program for this if this would be of interest to you let us know.

In the meantime, enjoy the festive period.

Parsley Box Hits the Big Screen

Using the extensive experience in DRTV within Move Fresh we helped the Parsley Box team on making their very first TV ad

Take a look

Why I wouldn’t invest in meal kit companies

Over the last week or so Hello Fresh became a public company on the Frankfurt stock exchange. This follows Blue Apron listing on Nasdaq earlier in the summer. Both companies (along with Gousto in the UK) have raised many. many millions of investment, mainly pumped into customer recruitment.

I do agree that FMCG will move – more and more online – as consumer habits change from large central supermarket purchases to more local smaller retailers (such as Sainsbury’s Local or Tesco Metro) but  I don’t agree that any of these companies have yet grown into their current (and sagging) valuations.

Customer recruitment costs continue to increase with stiff competition and poor retention and margin statistics does not suggest that growth will continue.

There is a business here, but I think trying to force growth with more discounted offers and higher recruitment cost is only good for new customers – not for shareholders.

Some consolidation may well happen to remove duplication over geographies and headcount – but until then I will stick to shopping for myself either online or at my local store.

If you need to know more check this video out on marketing as a percentage of sales

Update from Parsley Box

We launched our latest brand Parsley Box around 8 weeks ago.  In this age of digital media and engagement we have seen a lack of digital channels that work for this demographic but have rejoiced in moving back into traditional media (print, direct mail, catalogues!).

Today most digital media talks about response rate, click through rate and conversion rate – all skills that have been prevalent in traditional direct response for many years before it was taken over by digital.

Having recruited more than 1,000 customers in this short period we are using old mechanics like the catalogue to engage in the same way that we use email in many of our other brands.

The majority of our orders are taken on the telephone and we are hearing great stories from our customers that we plan to use in future media.

Finally, TV is going to play a part – and next week we plan to shoot our first TV ad for Parsley Box.

While recipe box companies pile into competitive areas hankering after the aloof millennial we are sticky to the knitting and using direct marketing techniques to broaden our customer base.

Stay tuned for our latest advert once it’s complete in the next few weeks

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