2020-12-02T10:39:27+00:00

The Future History of Meat

December 2, 2020December 2, 2020/fergusmck/Leave a comment

How our attitude to meat will change in the 21st century

Knowing how much Americans love kings and the French, Herbert Hoover looked to Henri IV for inspiration in his 1928 campaign to become president. A chicken for every pot was his promise. And though the electorate would soon revile him as one of the worst presidents in American history, he did go on to be president.

When Henri wanted to signal a change from the religious conflicts that had plagued his predecessors, he promised that every peasant would have meat for their Sunday dinner. His relatively peaceful two-decade reign and policies that benefited the everyday person made him one of France’s most loved kings. Bridging the 16th and 17th centuries, Henri bribed nobles instead of battling them, bringing peace to his war-wracked kingdom. The early revolutionaries of 1789 saw Henri as a model king for their desired constitutional monarchy. At least before it got to the head-chopping off phase.

Si Dieu me prête vie, je ferai qu’il n’y aura point de laboureur en mon royaume qui n’ait les moyens d’avoir le dimanche une poule dans son pot! — Henri IV

Despite a gap of centuries, and contrasting popular support, both Henri and Hoover recognised something that united common people across their ages. Meat meant wealth, prosperity and satisfaction.

Economics boasts very few universal predictions. But one fact held fast for centuries. As people got richer, they ate more meat. Hunter-gatherers valued the delicious, calorie-dense meat of the game they killed. There are relatively few such societies left. One is the Bushmen of the Kalahari. Here, hunters bringing back a freshly killed antelope or other prey are insulted and mocked. This is not because they are fiercely vegetarian. Rather, they recognised that the ability to provide meat could raise a person to power and undermine the egalitarianism they prized. Meat is status.

The Roast Beef of Old England

In the stratified world of Britain during the height of its empire, the meat on a family’s table showed what class there were in. Venison, available only to the landed nobility, sat at the top of this hierarchy. Next came beef, belonging to the middling class. Poultry, lamb and pork followed. As expansive deer parks gave way to pastureland, beef became more of a staple. Rearing cattle was an important way to make money. Beef, especially roast beef, quickly became a national symbol of Britain and one of its few culinary treasures.

In the 18th century, the agricultural revolution boosted yields of livestock and cereals. Through selective breeding animals became larger and fatter. New farming techniques grew enough extra feed to keep whole herds alive during the lean months of winter. In earlier times, pigs and fowl would have been slaughtered on St. Martin’s Day, 11 November, so as not to compete with humans for the winter’s stores.

The agricultural revolution changed all that. It was just in time too, as workers began to leave the land and head to the great industrialising cities of northern England. Not that their diet was great. Meat was still scarce. But it wasn’t as rare as it had been. When there was a joint of beef on the table it was the man of the house who had most of it.

This association between meat and masculinity still exists. The barbecue is often the domain of a man, while quotidian meals are cooked in the female kitchen. Society is moving beyond those traditional roles though. This attitude linking meat to masculinity is being eroded. Just like the one between meat and status.

Beating the Meat

Industrial-scale agriculture began to take hold near the beginning of the 20th century. The mechanisation of tools, the arrival of synthetic fertilisers and the discovery of antibiotics meant that food and animals could be raised in numbers that would have been impossible for earlier farmers. Battery farms caged chickens in the millions. Cattle herds did not have to graze and instead had all fodder delivered to them. This created economies of scale that brought cheap, processed meat to billions. It sparked the emergence of new industries, like fast food.

But the widespread availability of cheap beef, pork and chicken eroded its status. Healthy lifestyles, open to only those with the time and money to afford it, replaced a topside of beef on the dinner table as the marker of the middle class. Education levels are a consistent way to measure class. People who left school before 17 eat 25% more meat than those with university degrees. Obesity, once a mark of wealth and respect, is now an epidemic which is disproportionately harming working-class and poorer people. Driven by the stress of poverty and lacking in time, fast food and ready-made meals are an attractive option for many poorer households. Meat has other issues to contend with too.

Factory farms, with their massive cattle herds, produce a large part of the greenhouse gasses heating up the world. The conditions these creatures are in provokes much-deserved hostility from animal rights campaigners. Chickens in battery farms can live their entire lives in cages smaller than an A4 piece of paper. These squalid and cramped circumstances are a breeding ground for disease. The industrial use of antibiotics is reducing their efficacy, leading to a potential health crisis. Runoff from farms, including manure, pesticides and fertilisers, pollutes many vital water resources.

Meat eaters still defend their position. Humanity was propelled down its evolutionary path by being able to catch, cook and eat meat which freed calories to be used for thinking and socialising. And roast beef, with thick, rich gravy perched on a Yorkshire pudding accompanied by roast potatoes, is delicious.

That roast dinner remains a key part of British culture. One I can wholly buy into. Especially during winter and the second lockdown, I found myself looking forward to a high-welfare piece of beef on a Sunday. It becomes a ritual, an event. A focal point for days that can get too flabby without anything to do outside the kitchen or dining room. It was these roasts, with the full trimmings of course, which got me thinking about how we think and feel about meat. It is a stubborn tradition in a changing world. Plus, a good excuse to drink wine. It is already open for the gravy anyway. The cook’s reward for slaving over the oven.

Roast beef, medium, is not only a food. It is a philosophy. — Edna Ferber

The rise of vegetarianism and veganism is a good thing. We cannot afford a planet that feeds its over seven billion people on piles of beef, pork and poultry. Our bodies can’t either.

There is hope for meat-eaters. Lab-grown meat is an innovation nearly ready for the supermarket. Startups are racing to get their cultured meat on people’s tables and in their stomachs. Whoever wins will make a fortune and save the suffering of both animals and the planet. Companies like Mosa Meat, who have already debuted their cultured hamburger, or Israel’s SuperMeat, developing lab-grown chicken meat, might be the future. Today’s celebrated firms, like Impossible Food or Beyond Meat, might be supplanted very soon, their faux meat replaced by actual, though lab-grown, meat.

Meat’s back on the menu

These changes will shift our attitudes toward meat. Heritage and high welfare livestock breeding will return. Land will become cheaper as the commercial herds of cattle disappear, replaced by labs in big cities. Some of it will be used for rewilding efforts, attempts to bring back the biodiversity destroyed by the expansion of agriculture. But there will be space for a slower, older kind of farming. Wagyu and Kobe beef enjoys a distinguished reputation today. Cattle are raised humanely and with high welfare standards. The meat they produce is celebrated. Its luxury status is confirmed by its price. That might be the case for most traditional farms of the future.

Raising old-fashioned breeds of chicken, not designed for the battery farms that supply the pots or KFCs, is a popular pastime for some of Silicon Valley’s winners. Intensive farming may give way to more sustainable methods, increasing the price of meat. It may regain its place as a luxury, a status symbol, once again.

The feasts of history, resplendent with suckling pigs gagged with an apple or the little whole sparrows of Rome, may reappear. Trotters and other currently discarded parts of a butchered creature, evidence of a real, living animal, could become the height of luxury.

As how we grow our food changes, our attitude toward it does too. Lobsters, found in abundance, were once the food of the lowest of the low. Now it is a delicacy, prized for its rarity and price, if not its taste. Turkeys didn’t always rule the roost at Christmas. Goose and beef used to be the central, vital part of any Christmas feast.

Food and meat are the roots of culture. Our attitude toward it may seem permanent, fixed by venerated elders in some distant past. But it is not. As meat moves from the field to the pharma lab, how we feel about what is on our forks and what is says about us will too.

Dangerous metaphors

April 13, 2020/fergusmck/Leave a comment

Why talking about the war on coronavirus is causing harm

Metaphor is not merely a tool reserved for poets. It soaks our language from our everyday conversation to the most high-flying rhetoric. We understand the world through metaphors. It helps lend physicality and understanding to abstract concepts. George Lakoff, in Metaphors We Live By, even says that our entire conceptual model of reality is metaphorical. Metaphors are powerful. We need to use them to come to a better understanding of our world.

The coronavirus pandemic has prompted many commentators, journalists and politicians to liken it to a war. It is a battle against an invisible enemy. It requires sacrifice and bravery to overcome. It is an easy and, at first sight, apt metaphor to employ. The response to coronavirus requires a collective effort and will, a coming together of the whole community in a single-minded focus, and a suspension of normality that does resemble nations during wartime. It creates heroes and famous battles that inspire stiff upper lips and helps us shoulder the burden of onerous measures. But the sheer quantity of such analogies does create harm.

Metaphors are powerful because they transform the general into the specific. Big ideas are shrunk down to graspable things. Metaphors allow us to budget time and shine a light on an idea. Situations can be looking up or going downhill.

Arguments become battles which allows you to assault an opponent’s logical position. Professional outrage merchants on YouTube post videos where they ‘destroy’ someone and their thinking through argument. These verbal battles between opponents leave one side victorious and the other defeated. War is a powerful metaphor in this context because arguments do mimic the contours of armed conflict. It places two sides against one another.

With coronavirus that is not the case. There are no good guys or bad guys. There is humanity and then there is this little packet of proteins and genetic code. Coronavirus does not spy or strategise, it does not invade or invent terrible new weapons. There are no allies or axis, no central powers and no entente. But constant talk of war can leave us creating an enemy where there is none. It leads to President Trump tweeting and ranting about the ‘China virus’. It allows us to forget the very real human suffering and hardship faced by the citizens of Wuhan. It is there on Twitter when people, escaping small and squalid flats, walk in a park and get called traitors or collaborators conspiring with a foreign enemy. Collective action on a global scale is needed to overcome coronavirus. But by overusing the war metaphor it splits people and nations apart.

It goes beyond that too. The war metaphor makes it easy to ignore the death and destitution the virus causes. When battles are won with courage and bravery those who succumb to the virus must have lacked fight. People do not die because they are without a certain quality. They die because a virus attacks their lungs and makes it impossible to breathe. Delivery workers, shop staff and healthcare professionals are called heroes. This verbal admiration, echoed praise, is not backed up by material action though. Those stocking shelves and delivering food packages are not given hazard pay or sick leave. Those working in hospitals and care homes are not given the protection they need. But by recognising them as heroes we can be blinded to what they actually require. We can pat ourselves on the back after a weekly round of applause for the health service or talk about minting medals. This does not help and is only possible because we are employing the language of war when we talk about this healthcare crisis.

Weneed metaphors to help us make sense of the world. In First You Write a Sentence, Joe Moran says that ‘metaphor is how we nail the jelly of reality to the wall.’ War is not a reality for many of us in the west. We know it through movies and videogames. That creates a false impression of what must be done. It creates sides and divides people. It underplays the seriousness of things. The coronavirus pandemic is not a war but a healthcare crisis. It is an unneeded metaphor. Plague is as much a rider of the apocalypse as war is. When a metaphor gets repeated too often, when it becomes a runaway metaphor, it risks obfuscating the real nature of things more than it clarifies them. We have reached that point by now. We must see this pandemic as it really is and face it together with the understanding that gives us.

Writing in pencil

April 13, 2020April 13, 2020/fergusmck/Leave a comment

The pencil can be mightier than the pen

Writing tools exist in a hierarchy of prestige. Their place in executive offices, at high-profile public signings and as gifts that mark the stages of life make the fountain pen king. Below it come ballpoint and rollerballs, gel pens and biros. The pencil, humble and basic, looks down only on crayons – if those can even be called writing tools. The pencil is the first writing tool we use and the first abandoned. We graduate from tracing specimen letters and rubbing out our first wobbly attempts in trails of graphite early. Our scrawls, early efforts at cursive, are replaced by more masterful strokes drawn in ink. We go from the grey of our first pencils to the blue ink of the schoolroom before we are urged to match the seriousness of the adult world in sombre black. This progression has us leave behind an evocative and tactile tool. As I took up pencils again, as I started to write for pleasure, I have fallen in love.

My pencil case and desk drawers are full of three pencils. Yes, there are the strays, those branded pencils you forget where you picked them up, but I write with ones I have sought out and bought. The Ticonderoga is my workman. Its name recalls the woods of a newly settled America, a wild Thoreau-like landscape. It is familiar. Its yellow and green livery is more remembered from school off the television than any real-life experience though. It is for teasing out an idea, a thought, capturing it quickly before it disappears. It is a composer of first drafts. Robust and quotidian, it leaves behind a line more grey than black. The pressure needed to make your mark is not inconsequential; it feels like there is some work going into your writing. Essays and jottings are constructed rather than flow which matches my experience of writing out an idea more fully. It admits mistakes. Not full rewrites of final edits, but its crowning eraser, the only lasting innovation in the four century history of the modern pencil, does let you catch those better word or better phrases that pop into your head the instant you see an inadequate cousin on the page. The Ticonderoga implies that things are not yet done.

Things progress. Drafts are rewritten. Your text begins to come together. To help marshal ideas and expression I turn to my Tombow Mono 100s. It is a smoother writer than the Ticonderoga. It keeps its point longer and writes in a more authoritative black. Its purpose is picked out in gold on black. It is for ‘hi-precision DRAFTING’. It is serious. It tidies and straightens, evens out and tunes up.

Humans create personalities. Our tools and appliances each have their own quirks. We imbue them with character. How we found them, where we found them, their branding, context and our own experience inform this character. There is some shamanesque magic in tools. Maybe it is how it focuses the mind on different things, maybe it is just an overactive imagination, but I can’t help but feel it. It is why I enjoy using pencils, using different ones.

The final one I keep close at hand is the world’s most famous pencil. For people who see a pencil or pen just as what they are, who have the good sense not to create personalities or mythologies for what is merely graphite encased in wood, that may sound strange. But the Blackwing 602 is celebrated around the world. Authors and writers praise it. For good reason too. The 602 sings across the page. The gruff grit and grumble a pencil makes as you drag it along the page is tuned and smoothed by the 602. When you’re ready, after the thinking and rethinking, after the edits and drafts, the 602 is there. It flows. It adds flourish. It is eccentric. Its cuboid eraser is weird. Its boasting of ‘twice the speed, half the pressure’ is arrogant. Yet, with its wax and graphite mix, it can carry it off.

Pencils are humble but powerful. It is your path into the whole written world. Writing gives our thoughts an existence outside of ourselves. The connection between pencil and paper is closer than that with pens. It has a friction, a noise, a rough and bumpy physicality that is not matched with silky ink. Pencils mark our progress. They get dull; our minds need sharpening. Roald Dahl used to start each writing day with six freshly sharpened Ticonderogas. When they were worn and their points were dull and thick, the work must have been done. I still like to write with pens. But there is a permanence to ink that I am not ready for when I am journaling or setting out on a piece. A pencil, its smells and sound, its reflection of the work put in, its allowance for mistakes, is the perfect tool. A pencil gives its life for your writing. It gives it life.

Why we write

April 8, 2020/fergusmck/Leave a comment

And why it should be slow

Simple questions sometimes have simple answers. But it is rare. A child’s questioning can reveal complex gears at work beneath a seemingly simple surface. Simple questions often have many answers too. Answers vary not just based on who you ask, but when you ask someone and where.

The earliest writers lived in Sumer. They spoke a long-dead language. We can still hear their voices though. What they were saying, at first, was not particularly interesting. If asked why they wrote they would probably have said that writing is permanent. Across gaps of space and time, hundreds of miles, thousands of years, we can still read their land deeds and inventories. There’s are stories built of lists and legal contracts. They wrote to remember and be remembered.

Stories have always been with part of us. We can’t help telling them. We can’t help listening to them. They filled the air around the dusk lit campfires of our hunter-gatherer ancestors and they are with us still in the Netflix bathed sofas of 21st-century apartment blocks. We search for and fill our lives with stories.

It took a long time for storytellers to use the linguistic innovation of writing; to fasten breath in clay and ink. The oldest stories we can still read have all the hallmarks of a previous oral tradition. But we can only hear them now because of writing.

The answer the Sumerians might have given, the reason we can still hear the story of Gilgamesh, is the reason we write. We write because it is crystallised conversation, a lasting thought. But writing has also given us a mastery over our words and sentences. The rote phrases of Homer gave blind rhapsodes time to fill poems with their imagination, fitting their flourishes into metre and scheme. Writing allows us to edit. We can educate and train our sentences before we send them off into the world.

I write because it is easier to express myself in writing. The ‘likes’ and ‘umms’ of conversation are erased. There is no l’esprit d’escalier. I can snatch a fleeting thought and fix it still. I can poke and prod and mould it into a better version of itself. I take my time with my thoughts. I improve them. I turn them over, examine them, polish them and know my mind a little more fully.

Writing gives me time with my thoughts. I used to think this slow way of writing, with not a lot of published work, was a failure. I bought books, read articles, and watched tutorials that promised a better way. A faster way. But I could never write as quickly as they urged me to.

I have been able to build my life around words and sentences. I wanted to write more quickly because it would allow me to do more of what I loved. I have worked as an editor improving other people’s sentences. I have freelanced, writing copy and articles for blogs and businesses. I have written mass emails and marketing copy. In my spare time, I keep a journal, I have written private poetry and published my own articles on my blog and Medium. In all of these forms, I have rewritten, edited, polished and improved my initial thoughts. They have come out the better for it.

Online writing advice tells you to write every day, to publish every day. Build an audience and an income. I write every day. That is good advice. But I publish infrequently. Writing slowly allows you to know your thoughts better. It improves your thinking and your writing. Writing out my first few drafts in longhand with a pencil gives my sentences physicality. I can work them with my hands, slow and methodical, like a craftsman, an artisan, savouring the satisfaction of a well-made artefact. Writing becomes an act of defiance, against the world’s demands of always more, always faster and against my own stupidity.

There are many reasons to write. To inform, to educate, to entertain, to convince, to seduce. And we are all writers. Offices, universities, studies produce millions of sentences every day. Each email that pings into your inbox, each word on packaging and every advert tempting you to take your money out of your wallet has been placed there by a human hand. But we are not machines for pumping out word after dull word. There is a craft to writing that can’t be reproduced in the suffocating air of a sweatshop. Writing should revel in the telling, not just in what is told. It lets us build more beautiful sentences.

There are many reasons to write. Every person will have a different one. I write because it allows me to sound smarter than I am. It allows me to explore the lines of thought that crackle across the synapses of my brain, that fizz for an instant before they are gone. I can only do that by slowing down. I won’t ever be prolific. I won’t ever amass thousands of readers hanging on my every word. But I will develop my craft. That is something, however small, to prize.

The battle to deliver Britain’s food

January 14, 2020March 22, 2020/fergusmck/Leave a comment

Food delivery services are everywhere across the UK – but can one dominate?

The list of food wars in the UK is long and slightly mind boggling. You had the Ice Cream Wars, where Glaswegian drug-slinging ice cream van drivers fought a turf war across the Scottish city. There were the Cod Wars fought between Icelandic and UK fishermen. One person was killed, another injured and countless fish lost their lives in this conflict. There was the Bean War, when a shop ended up selling a tin of beans for minus 2 pence in a race to cut prices and attract shoppers.

Another food war is heating up in the United Kingdom. This time it isn’t centred on one type or meal. Instead, it is fought over who gets to deliver Britons their food. It is a three-way fight, with a native British start-up, an old dotcom style business, and a massive foreign invader. The stakes? Cornering a market that is already worth over £10bn already.

The British takeaway and food delivery market has a long history. It probably goes farther back that the traditional fish and chips, but that dish really kicked off the whole thing. From punters lining up, ordering their food and bringing it home with them, it evolved into the branded and fully integrated delivery system most obvious with institutions, however culinarily respectable, of Dominoes and Pizza Hut.

Up until only really a decade ago this was the way things were done. A customer would get a menu through their letterbox. They’d ring up the restaurant and order. The food would be delivered by someone employed by the restaurant. Straight forward and simple. This system kept people fed with countless curries, pizzas and chow meins.

The internet changed that.

Just Eat emerged in the 2001. It allowed small, independent restaurants to be found online. Just Eat wouldn’t deliver the food themselves but would provide the platform for online ordering. Though it came after the dotcom bubble, its ambitions were limited and never attracted the astronomical valuations that have characterised the current tech boom.

Next on the scene were the delivery firms. They would provide the same platform as a Just Eat or Hungry House but would also process and deliver orders. With a fleet of underemployed cyclists or scooter drivers, their logos can be seen all over London. Deliveroo was the brainchild of an American transplant in England. It was created in 2013 and is one of the few European unicorns that can rival its US counterparts.

Those US counterparts eventually arrived in the UK too. Uber Eats is the third of our cast to launch. In 2016, the ride-hailing app launched its related food delivery service. These competitors have cornered the market in Britain. They have expanded without hurting each other too much. Now, though, the scene is set for a showdown between them all.

Who will win?

The tactics are the same as other business wars that have been fought out in Silicon Valley. Out raise your opponents, grow rapidly while burning through cash and hope you’re the last one standing. Uber Eats has experience in this type of knock-down drag-out fight. Its parent company is skilled at losing tons of money in the hopes of future dominance. Uber’s core business is yet to turn a profit yet it enjoys a market capitalisation of $45bn.

It is skilled at raising money. Before it went public in early 2019, it had wrung out nearly $25bn in private funding. Those deep pockets will need to be employed against Deliveroo, which has also raised barely believable amounts of money. After rebuffing a takeover attempt by none other than Uber, Deliveroo managed to raise $575m from Amazon.

It needs it too. In 2018 Deliveroo lost £232m. Uber Eat’s own losses aren’t separated out from its parent company. It is safe to assume that it isn’t profitable though, even if it makes more of a return than Uber’s ride hailing service.

The outlier here is Just Eat. Already an old horse, at least when considering the small timescales of tech companies (it is three years older than Facebook), it was born in a time when investors were actually looking for a business to make money. Rather than just burn.

Just Eat had a net income of £101.7m in 2018. But that is down from 2016’s £115bn. That squeeze on profits is also being felt by its European competitor takeaway.com. Those two are in talks to merge, creating a company that can go toe-to-toe with Uber Eats and Deliveroo.

That points to Just Eat as being the eventual winner. It already is a winner. It makes money. Even after it moved closer to its competitors, by offering food delivery fulfilment in 2017. That’s a notoriously hard place to make money in, as attested to by Deliveroo’s results as well as by Grubhub, a US service similar to Just Eat:

[We] don’t believe now, that a company can generate significant profits on just the logistics component of the business.

Things are, alas, more complicated than that.

Uber Eats and Deliveroo can outspend and undercut Just Eat. They can strike exclusive deals with major brands keeping diners locked into one platform for, say, McDonald’s. Uber already fulfils 10% of UK McDonald’s orders.

Just Eat has enjoyed a long relationship with small, independent restaurants. That could be its competitive edge, but Deliveroo is also crowding into the market. All these firms are becoming increasingly similar to one another. Deliveroo is acting as a platform, similar to Just Eat’s early days. Pick-up options, where diners go and collect their own food, is offered on all services now. That means the platforms still make commission without having to pay those pesky delivery people.

What’s next?

Virtual brands and dark kitchens are the current trends taking over the industry. Virtual brands are ones which live entirely online. They don’t have physical locations. They can be set up easily, cheaply and quickly in markets that might be missing a certain cuisine.

The real power of data is shown here. If there is a location with a lot of people searching for sushi dishes but there isn’t a sushi restaurant able to serve them, then a virtual brand could be created.

They would be placed in dark kitchens. These are kitchens that cater solely for the delivery market. Different styles of food and brands would be located in a place not available to the general public. They save on rents, by not needing to be located in high footfall areas and make it more efficient for couriers to collect and deliver food. Travis Kalanick set up a business providing dark kitchens when he was booted as Uber’s CEO.

Dark kitchens and virtual brands are just two efficiencies these firms can make. They have a stable of couriers working for them, but their busy periods are all clustered around the same time. Dinner is the most active time, as you can imagine, with some spike of orders around lunch. Apart from that they aren’t earning money for either themselves or for the company.

So why not deliver other things? Uber Eats and Deliveroo are expanding into grocery deliveries. Maybe they could become the new milkmen as well. Or deliver purchases from shops to customers within a short period of time.

That’s because, at the heart of it, Uber Eats, Deliveroo and Just Eat aren’t food delivery companies. They are marketplaces with point-to-point logistics divisions. The winner will be the one who can expand quickest, get the most customers and harvest their data most effectively. That data is the key.

It can be used to provide a new virtual brand to an area where it will be successful. It can be used to predict flurries of activity or forecast future demand. Sell that data to the restaurants they work with and they can build up relationships which act as moats to their competitors.

Right now, Deliveroo is in last place. It is a UK-based company, making it harder for them to reach the willing rich investors of US VCs. It is operating in the same way to Uber Eats without the support its competitor enjoys. If Amazon continues to support it, though, and build out its food delivery service into a broader delivery business, it may just come out on top. But then it won’t be Deliveroo, it would be Amazon Delivery.

Just Eat is the most interesting of the three. An older company, already profitable, but willing to try new things, it may just be my favourite to come out on top. The merger with takeaway.com is a smart move. They can share expertise, explore new markets and raise money better as a larger company.

Just Eat also has a much better reputation than either Deliveroo or Uber Eats. They aren’t in the press often. They don’t have news stories about underpaid workers or data privacy concerns. They don’t have to run adverts about how safe their service is (as Uber have to do).

So, who will win the food delivery war? My bet is on Just Eat.

What happens now?

January 14, 2020January 14, 2020/fergusmck/Leave a comment

What’s in store for British politics following the election result

Originally written: 19/12/19

After a five-week campaign with politics and politicians taking up every nook and cranny they can squeeze themselves into on your television, radio or smartphone, polling day gave us all a respite. Broadcasters in the UK are barred from reporting on campaigning details during polling day. From just after midnight until the polls closed at 10 PM, we had a welcome break from politics.

But that brief reprieve was only very brief.

The first real indication of what result the election may have brought was the exit poll. On the strike of 10 PM, as polling stations closed around the country, the exit poll revealed a surprising Tory majority.

It wasn’t close either.

Predictions have the Tories winning around 360 seats. Labour slumped to below 200.

Boris Johnson has been returned to 10 Downing Street with a strong majority

So, what happens now?

Brexit

The issue which dominated and defined this elections was Brexit. The Tories won with their simple message of ‘Get Brexit done’. Labour floundered with their renegotiate, referendum, remain position, while voters saw the Liberal Democrat’s position of revoke as undemocratic.

Mr Johnson now has the majority he needs to deliver his version of Brexit. This has already passed the last Parliament, but the withdrawal agreement, similar to Theresa May’s apart from the fact that there will be a customs border between Great Britain and Northern Ireland, will be fast-tracked through the House of Commons.

Legislation that will take the UK out of the EU will be submitted to the House this week for its second reading. This process will be a lot smoother than the previous editions. First, John Bercow, willing to let backbenchers and the opposition control the business of the House, is no longer Speaker and even if he was, the government has enough MPs to control the House’s timetable.

Mr Johnson will want to deliver on his promise of Brexit by January 31. There will then be a year’s worth of negotiating during the transition period, before the UK formally leaves the trading bloc and Brexit is done.

Scotland

As the UK comes out of one union, another could be under threat. The Act of Union was signed in 1707, uniting the kingdoms of England and Scotland. After over three centuries it could be close to its end.

When Hadrian set the northern limits of the Roman Empire, he chose a boundary close near to what would become the border between Scotland and England. England was then very much part of a wider Europe; Scotland was locked out. Into the Middle Ages, though, Scotland would appeal to the continent, the Auld alliance with France, to secure its independence from its more powerful and prosperous southern neighbour.

Scotland being locked out of the EU was one of the major reasons to preserve the union during the 2015 independence referendum. But now with the UK set to finally leave the EU, Scottish nationalists are once again using the ability to keep close ties with Europe as a major argument for independence.

The Scottish National Party won 48 of 59 seats in Scotland. With the strong support for the European Union in the northern kingdom (62% supported remaining in the EU at the 2016 referendum) there will be another push for an independence referendum. Nicola Sturgeon, the SNP’s leader, has also been focusing on the Conservative’s policies and the damage they could do to Scotland.

Another referendum has been rejected by Mr Johnson, but it is a battle that will continue and intensify over the coming weeks and months. How the government deals with the push for another vote will be a major theme of this parliament. One thing is certain though; Mr Johnson does not want the union to dissolve under his leadership. With opinion polls in Scotland balanced on a knife edge between independence and keeping the union, however, it is something that may be beyond his control.

Cabinet reshuffle

A new majority will allow Mr Johnson to shape his cabinet in his image more so than he was capable of in the last parliament. There are already a few positions he has to fill. Nicky Morgan stepped down as an MP, vacating her role as culture secretary. Alun Cairns will also have to be replaced as Welsh secretary and Zac Goldsmith, who lost his seat in Richmond Park, has left the role of environment secretary empty. These positions will be filled in the coming days before a larger reshuffle takes place in February.

So far, only Sajid Javid, the Chancellor, has been assured of his position. Five members of the cabinet have already been identified as under risk of losing their positions. These include Thérèse Coffey, the work and pensions secretary, Andrea Leadsom, the business secretary, Liz Truss, who runs the international trade department, Jacob Rees-Mogg, the leader of the House of Commons, and Julian Smith, Northern Ireland secretary.

Several departments could also be folded into other ones. The Department for Exiting the EU could become part of the Department for Trade while the Department for International Development could be subsumed by the Foreign and Commonwealth Office.

One person being touted for a return to the Cabinet is Penny Mordaunt. She was fired from her position as defence secretary when Boris Johnson became prime minister. But now her loyalty from the backbenches could be rewarded with a return to the big table. Michael Gove is also set to get a bigger role.

Budget

Finally, a budget is expected in February to help deliver on the non-Brexit related campaign promises of the Conservatives. The NHS is set to receive increased funding, to the tune of £34bn, while cuts in the number of police officers are set to be reversed. Austerity meant an axing of 20,000 officers but the new budget may start a recruitment drive to bring those 20,000 back. A pledge to retain and recruit 50,000 nurses will also have to be funded.

A tax cut, by raising the threshold at which people start paying National Insurance, was also a key pledge of Mr Johnson on the campaign trial. The February budget is also predicted to include that. Social care will be funded by an additional £1bn and education investment is set to increase with Mr Johnson having promised to increase the minimum funding per pupil.

MPs return to Westminster on Monday. They will enter a very different parliament than they left. A Conservative majority, the largest since the 80s, will mean that Boris Johnson has a lot more room to manoeuvre. Now, it is up to him to deliver on his election promises.

Where are all the European unicorns?

September 1, 2019September 1, 2019/fergusmck/Leave a comment

And does it matter there aren’t that many?

“The problem with the French is that they don’t have a word for entrepreneur.” — President George W. Bush

Smartphones make our lives easier. The whole world is shown to us and mediate through the shiny screens that nearly all of us carry around. Ordering a taxi, discovering new music, staying in touch with friends or colleagues, and booking your next holiday is done quickly with a few taps. And a lot of money has been made making life easier.

The companies behind these technologies have become massive. They have grown from small start-up teams with only a good idea to private firms worth over $1bn. These are the unicorns. Some have become public and are now worth tens, if not hundreds, of billions of dollars.

Uber, Facebook, and Amazon all emerged in the age of the internet and are now worth over $1.5trn together. The smallest of that trio, Uber, alone is worth $55bn.

One thing, though, stands out. In the unicorn stable, only a few were bred in Europe.

Companies founded in the US since 2000 are now worth $1.37trn; in China, they’re worth $675bn. In Europe, that figure is only $240bn.

Europe is as large a market as both the US and China. There are more people in Europe than in the US and nearly as much money. It is not as simple as size. The true causes are historic and cultural as well as prosaic and regulatory.

One theory for the lack of European unicorns is that Europeans are just not as entrepreneurial as Americans or Chinese. They don’t have the ambition to create massive companies. That viewpoint is summed up by that famous (though probably fake) quote of President Bush. And it is a viewpoint that is wrong.

There are plenty of ambitious and talented people in Europe. It has traditionally been the birthplace of many big companies. On the Fortune 500, the list of the largest companies in the world, 160 were founded in Europe. Only 132 were American born. Traditionally, then, Europe hasn’t had a problem with producing ambitious individuals.

University campuses across the continent are full of students dreaming of founding great companies, shaping the world, making a difference. From Israel to Ireland there are entrepreneurs-in-waiting, fantasising of making it big, becoming the next Bill Gates or Elon Musk.

Musk himself isn’t even American. Many unicorn founders aren’t. Adam Neumann, the founder of WeWork, was born in Tel Aviv, Israel. Patrick and Joe Collison of Stripe came from Tipperary in Ireland. That’s only three. There is Russian Sergey Brin of Google, Ukrainian Jan Koum who set up WhatsApp, France’s Renaud Laplanche founded Lending Club, Mikkel Svane moved Zendesk from Denmark to the US after early funding gave it the money to do so. Zendesk is now an American unicorn, despite its start in Europe.

Silicon Valley attracts startups, whether they’re European or American. It has the conditions that founders are looking for. These founders don’t leave their countries to make it big somewhere else just because. They are coming to Silicon Valley for something.

Part of that is that many startups have found success there. It is where people with the skills that founders need gravitate to. It is a black hole, sucking in all those of building a unicorn. The talent pool is massive and it makes sense to start there. Success breeds success.

There are other reasons Silicon Valley provides a good environment for start-ups beyond the plentiful talent. There is a support structure for when things get tough, with lots of mentorship and advice from those that have gone through it before. That type of knowledge, concentrated in one area, is powerful.

London is the most successful startup hub in Europe. Of the roughly 70 European unicorns, 17 can be found in London, more than in any other one place. Many of the big ones, such as Monzo, Revolut, and TrasferWise, specialise in financial technology.

They are disrupting how money is stored, used, and moved around the globe. The talent they need to do this could only be found in London, one of the biggest financial centres in the world. Talent attracts talent.

Talent also attracts money. An investor looking at two different companies, everything else being equal, would lean to the one better placed to use its money. Unicorns chase growth, they burn money to grab a large part of the market and depend on scale for profitability. With the talent pool already in place in Silicon Valley, then they are better placed to burn that cash to reach a profit-making scale in Silicon Valley.

Investors want to be close to their investments. It makes more sense to base yourself in Silicon Valley or America than in Europe. The constant gossip of the Valley helps them find new startups to back. Flying to Europe all the time to hunt for new opportunities, to keep an eye or offer advice to a startup isn’t feasible. The money stays in Silicon Valley and is worked hard.

There is more money looking to invest in American startups as well. The success of previous unicorns has made some investors bolder, wanting to get on the next big thing before it takes off. Compared to a more conservative investing market in Europe, the US has around 14x the capital looking for a tech startup to invest in, according to Siraj Khaliq of Atomico, a European venture capital fund set up by Niklas Zennstrom, one of the co-founders of Skype.

With a much tighter financing market, European companies must focus on earning revenue quicker than their American counterparts. There isn’t as much money going around, and they have to make the most of what they have. Growth and potential are behind much of the valuation of US companies, but it can’t be such a focus for European ones.

This allows US competitors to snap up European companies before they can make it to the truly big time. Shazam was acquired by Apple in 2017 for $400m and has incorporated it as a key part of Apple Music.

Alphabet has gobbled up Belarussian AIMatter, which built a product that allowed users to transform images and videos in real-time. Booking.com, a Dutch startup, might have been worth around $50bn today, but it was acquired by Priceline, another American company, for $113m before it had the chance.

Supercell, the Finnish games company behind Clash of Clans, is owned by Chinese giant Tencent. Supercell was first acquired by SoftBank, the Japanese venture fund, for $1.5bn. After only three years, in 2016, it was sold to Tencent for $10.2bn.

European startups can make it big. Just it isn’t often throughout Europe. While the European Union has done a lot to bring the continent together, such as harmonise banking regulations that have made it easier for fintech firms like Revolut to access a large market, there are still national divides.

Zalando is a German online shopping platform worth more than $14bn. It is mainly active in the German-speaking part of Europe, Germany (of course), Switzerland and Austria. It has hardly made a mark outside its home territory.

A US company is just American, a Chinese firm is only Chinese, but a European one can be British, French, German or dozens of other nationalities. All countries that have historically not got along. National pride still acts as a barrier after regulations have been torn down.

There is one more factor to consider. What if American unicorns are being valued far higher than they should? That would mean that the sober European investors are better at pricing a company and not getting overhyped about a good idea that might not pan out.

There is some evidence for this. The recent IPOs of Uber and Lyft show that some valuations are overly optimistic. Uber went public in May with a share price of $45. It has slid to $32. It is a similar story with Lyft. It debuted at $72 and has declined to $50. The public markets are valuing these companies below what private investors were.

Even Slack, which had a well-received IPO, has taken a hit. Shares are trading at around $30, instead of the $38.50 they started at. Investors want to back the next Facebook or Google. They can fool themselves into thinking that the hyped private tech firm could be it. Each of these unicorns is unique — they are often the only big company with a similar idea (except for Lyft and Uber). If an investor thinks it is a good one, can work at scale and earn massive amounts of money, they are more likely to get involved. A look at the numbers behind a brand may dim that initial enthusiasm though. That’s could be what’s happening in a more risk-averse European market.

Europe has plenty of problems, though building unicorns isn’t one of them. There are plenty of exciting tech companies in the Old World, but the unbridled enthusiasm of the States is not present. There may be less eye-catching headlines, but it makes for a more stable market. There are as many European unicorns as there should be.

Should Amazon spin-off AWS?

August 26, 2019September 1, 2019/fergusmck/Leave a comment

A breakdown of why some people think Amazon should spin-off AWS — and why some say it shouldn’t.

Amazon is two companies. The first is the one we all know about. It is the marketplace, the place to go to buy and sell on the internet. Buying a Prime membership gives you access to a lot; free shipping, exclusive savings, deals, and streaming video and music services.

The last of these, the streaming services, gives us a glimpse at the other business that makes up Amazon. It takes advantage of Amazon’s logistics expertise. This is one of Amazon’s main competitive advantages, as noted even by its leadership.

Amazon uses a lot of bandwidth. But it doesn’t use it all the time. It was better and cheaper for Amazon to build data centres. So, what could it do with that infrastructure when it was not being used?

The answer was simple; make money by renting it out. This was the beginning of Amazon Web Services (AWS). It began in 2006, and since then it has exploded. It is now the largest cloud computing provider in the world.

AWS provides the backbone for some of the biggest online firms in the world. It lets you binge-watch terrible movies and engrossing series on Netflix. It enables you to watch as streamers play games on Twitch. AWS helps you book your next holiday on Airbnb. That focus on selling to enterprises, rather than consumers, is one of the significant differences between AWS and Amazon.

Another came in 2015. It began reporting its financial results separately from the rest of Amazon. That gave us a glimpse at how much Amazon relies on AWS.

During the second quarter of 2019, AWS took in $8.38bn. That only represents an eighth of Amazon’s revenue of $62.4bn during the same period. But its operating income of $2.1bn was over two-thirds of Amazon’s $3.1bn.

Amazon without AWS wouldn’t be as big or valuable as it is today. That has led many to ask: shouldn’t AWS be its own company?

Some influential people in the industry think that Amazon should spin off AWS into its own firm. Number one among them is Scott Galloway, a professor at NYU and a tech industry analyst. Another is Mark May at Citi Research.

There are plenty of good reasons why it is a good idea.

Regulators are looking at Amazon. Right now, there are three significant investigations in the US looking at the tech industry giants. One was launched by the Federal Trade Commission, another by the Department of Justice and a final one by attorneys-general of around twenty US states.

Spinning off AWS might take the heat off Amazon. It wouldn’t have as much power in the market. It wouldn’t be the dominant player in two massive sectors, e-commerce and cloud computing. It could save Amazon billions of dollars in fines or restructuring costs. It might be forced to do it anyway, so why not do it now?

AWS dominates cloud computing. The other two big players in the industry are Microsoft’s Azure platform and Google Cloud. None are separate companies. Investors have nowhere to put their money if they want to bet on only cloud computing.

If you don’t think digital advertising, e-commerce or operating systems will grow as much as cloud computing, tough luck; you’re saddled to an investment you only half believe it.

If AWS goes its own way, it will hoover up all those investors who believe in cloud computing above everything else. This would boost the value of AWS beyond the hit Amazon would take by losing it. An AWS unshackled from Amazon could focus on cloud computing and dominate the market to an even greater extent.

AWS, right now, subsidises the rest of Amazon. It could use that money instead to invest in itself or pay dividends to shareholders. AWS’s operating margins, how much money is leftover from a sale after the costs of goods sold and operating expenses, since 2013 is 23%. For the rest of Amazon it’s 1.5%.

Amazon uses that reliable money sitting in the bank to fund research. Between 2001 and 2009, covering a period when AWS wasn’t even a thing, Amazon’s research budget grew by around 19% each year. From 2010 to 2018, that figure was 42%.

New products, some of them failures, are continually emerging. The Kindle, Fire phone, Alexa and others are, in effect, paid for by AWS. If they fail, it is no big deal. Unlock that money and AWS would be one of the ten biggest companies in the world.

That’s what Scott Galloway believes. He has form when it comes to predicting what Amazon will do. He called them buying Whole Foods, and he predicted where their new headquarters would be. Scott knows Amazon.

But others aren’t as convinced.

All those subsidises leaving Amazon would hit it hard. Those small margins from its retail business would stop Amazon doing what it wants to do: investing cash flow into growth rather than giving back money to investors as dividends.

A recession will hit Amazon, as a consumer-facing business, hard. If people have less money, then they have less money to buy on non-essentials which they shop on Amazon. Enterprise customers, which rely on AWS as the backbone of its product, can’t stop buying from AWS. Their costs are for essentials. Keeping AWS will limit Amazon’s exposure to any volatility in the market.

AWS also enjoys the cheap money Amazon can generate. Setting up a modern server farm is expensive. In the second quarter of 2019, AWS had a capital expenditure of $3.31bn. Amazon issued a 3-year bond in 2017, which yields 2.53%. China’s 3-year government bond has a yield of 2.8%.

When you can borrow money cheaper than China, you’re a business in a good place. AWS wouldn’t be able to raise capital at such a cheap rate. That would make its large capital expenditures a lot more expensive. This handbrake on growth would limit its chances at dominating the sector.

There are good arguments on both sides. But what will happen? What is the hot take?

The answer lies in Jeff Bezos’s philosophy.

He has set up Amazon to chase long-term growth rather than short term profitability. If he wanted a quick buck, then AWS might well be spun off. But that isn’t the case. For the foreseeable future, AWS will remain part of Amazon.

When Bezos wants to cash out and rake in the piles of dollars that are waiting for him, AWS will become its own firm. It won’t happen before that. When it does happen, buying things on Amazon, then, will become a lot more expensive.

Reimagining the Western canon

August 21, 2019September 1, 2019/fergusmck/2 Comments

Do we even need a canon?

The great books are those ones that we must read. They form the foundation of your appreciation of what great literature is. In the Western world, we have inherited centuries, millennia even, of literature. Some of this makes the cut. Some of this outlasts fads and fashions. It transcends the boundaries of time. This is the Western canon. All that’s good, and great, and true.

An educated person must tick several boxes. One of these, the most important, is to have read the great books.

Shakespeare, Kafka, Eliot, Woolf, Milton, Joyce all find themselves on this list of worthy literature. I’ve read some of them — but not all.

Does that disqualify me from talking about literature? Does that stop me from being able to enjoy the books I do read?

There is a problem with the canon. It is unwieldy. Collections of the traditional canon, for this I’m using the Great Books of the Western World as a guide, run to dozens of volumes (there are others out there, such as Harold Bloom’s list). Hundreds of books and plays. Once we learn to read, to really read, this pile is dumped in our laps. It comes with a sign: read this or else.

Collections of the canon cost around £1,000 on Amazon. It is expensive, intimidating, and even though it stretches to what must hundreds of thousands of pages, it includes both too much and not enough.

The idea of a canon emerged in the Western world. That original canon was not one we would recognise today. Medieval students studied the ancient masters. Cicero, Aristotle, Euclid, Sophocles and Thucydides made up their education. The contemporary and vernacular was at best second rate if not dismissed entirely.

That began to change in England in the late 17th century. It was the beginning of English global power and the emergence of the idea of the nation-state. That idea spawned another.

National culture and cultural identity were becoming increasingly noticeable. The educated middle class was emerging and growing, though without as much Latin or Greek as previous generations. They wanted to read something worthy and English.

Great essayists, the forerunners of blogs, were making their mark. The most famous of these was Richard Steele, who wrote and published The Spectatorand The Tatler. In The Spectator, Steele compared Milton’s Paradise Lost to the ancient epics.

While he found some faults in the poem, he ranked it on the same level as Homer and Virgil. For a culture that had before appreciated only the venerable, the literature that had emerged from the enormous gap of time with its reputation still intact, to praise the (relatively) modern was a break. The fact that it was a Christian poem, as opposed to the paganism of the past, no doubt helped elevate it to forming the first part of the nascent English canon. Shakespeare, of course, was also added to this small list. The ancients still reigned but there was now the possibility of new entrants.

The canon grew over the centuries. More books were added. Names such as Pope, Swift, Sterne and Fielding joined the ancient Greeks and Romans, as well as a growing number of English speakers. Years past and the canon grew. It stretched beyond the British Isles to take in French, America, Russian and German writers.

Still, they all had something in common. They were all white men. In the more inclusive culture after the Second World War, that began to change. Slowly there were rebels, dissenting voices that said more voices should be added. Woolf, Murdoch, Walcott, McCullers, Baldwin, Naipaul, Tagore, Marquez got the recognition their writing deserved.

After reading some of these masters, their voice and experience add new ways of understanding, thinking about and appreciating the whole breadth of human life. The canon is now more representative of the world we live in. That is a good thing. But it stretches and strains to try and cover every aspect of life. It has attempted to become an exhaustive list, rather than a core.

The list is huge. No one can read all of it. No one can take in all of it (except for Harold Bloom). It has become a checklist, one that can never be completed, and that size means it is failing to do its job.

Would it be better to abandon the idea of a canon? No. There are many benefits to having a recognised core of texts we should all be familiar with.

The Irish poet W. B. Yeats is definitely part of the canon. But it wasn’t until I had read some of his poems, most notably The Second Coming and Sailing to Byzantium, that I understood the influence he had. And what having a canon does for a culture.

I could see homages, little quotes, built into the titles and body of other works. Joan Didion’s collection of essays Slouching toward Bethlehem¸ steals its title from The Second Coming. Knowing that coloured my whole reading of that book.

Having a canon allows those books in it to act as the body language of literature. Not enough to be noticed all the time, but noticeable by its absence.

Slouching toward Bethlehem as a title told me enough to understand what Didion was trying to do with her work. It served as a three-word introduction to the collection. It was neat and elegant. It served its purpose perfectly.

The canon represents the critical and influential books of society. It provides the cultural foundation on which others can build. A canon is necessary, even just for university reading lists. Exploring the great works of the past allows people to build on it, enhances their reading of contemporary work, and allows people to talk with one another with a common understanding. A canon is needed.

The canon we have inherited is bloated. It tries to represent all our current culture rather than the main texts. To take even the field of literature and poetry, leaving alone film, music, and nonfiction, the time needed to get caught up, to even arrive at the conversation, is too much.

There are two ways of building a canon. You can make a reading list out of books that can’t, under any circumstances, be left out or you can create one based on what could be included, what is worthy to sit beside the other titles. We have been building our canon using the second definition. We should keep that. These are the masterpieces. But we should also make one using the first.

I don’t have the background to put that together. No one person does. It involves a conversation. Nor do I want it to be a project that returns the canon to its old unrepresentative roots. If nothing else, it wouldn’t be doing its job of allowing us to have a conversation.

A lot of discourse today revolves around oppression and exploitation. To talk about these things properly, we need Baldwin and Morrison. We need Rushdie and Naipaul.

The first book, though, will have to be the Bible. Even in an increasingly secular world, the Bible has informed so much of the cultural output of the past, of the language we use and how we think about morality. It is a given.

Selected works of Shakespeare are added to the list too. Not all of him, I don’t think reading Cymbeline adds much, but the significant plays. Romeo and Juliet, Hamlet, Macbeth and A Midsummer Night’s Dream, should be enough to get people familiar with much of Shakespeare’s influence on our world.

Yeats, of course, would be part of it too. He allowed me to hear what Joan Didion was saying. Those three little words carried with the weight of allusion and influence. They spoke to me and made me listen with a true ear. That is the power of the canon.

Now it must regain that power. We must look at the canon we have constructed and see it is no longer fit for purpose. We must reduce it to something an inspired reader can get through. We must allow it to regain the power that it once had.

Thanks for reading, I’d love to hear what you think are the books that people have to read are, as well as if you disagree with any of my limited choices.

Why WeWork’s IPO will be a failure

August 19, 2019August 20, 2019/fergusmck/Leave a comment

WeWork’s recently released IPO prospectus should have sent investors running. The office and hot desk rental company, after SoftBank pulled out of a $16bn investment, is looking to raise up to $3bn from the public market. It won’t be getting a dollar from me.

WeWork’s business model is simple. It leases property from landlords, does them up, and sells spaces to self-employed workers, start-ups and larger enterprises. It typically leases a location for 15 years and sells desk space on a monthly basis. It thinks that it should be worth $47bn.

It is, instead, likely to join the other big unicorns who launched their IPOs this year in stumbling to a much lower valuation. Think of Uber and Lyft.

Why won’t WeWorks model work?

They take on long-term obligations and only require short commitments from their members. They have $47bn in lease obligations, and that figure will only grow as they open more locations. They pump loads of money into their sites, making them fit for a hip, millennial freelancer or start-up. That’s where a lot of their losses come from, but that high up-front cost must be recouped over more than a decade. It would be risky in a stable, growing economy. Right now, we’re headed into the first recession for over a decade.

Will the coming recession hit WeWork hard?

The UK and Germany both announced that their economies were shrinking last week. The stock market took a considerable hit from the news. All around the globe, people are expecting a recession sooner rather than later. Trade wars, Brexit, and a mature business cycle all contribute to that feeling. Yield curves have inverted. Such an inversion has preceded every recession for the past fifty years. Only once have yields inverted without a recession happening.

The S&P 500 peaks within 3 to 22 months of a yield curve inversion. We could have two years before a downturn hits, but it may happen a lot quicker than that.

What is a yield curve inversion?

Government’s sell bonds to finance their running costs. These are very secure, not many countries default on their debt. But things are always more secure in the short term when we know more of the risks an economy might run into. This means that usually long-term bonds give better returns than short term ones as there is more risk involved. When a yield curve inverts, markets believe that short term risks are greater than the long-term ones and want to protect their money. In other words, bad times are coming sooner rather than later.

Recessions are bad for all parts of the economy, so why should you be more concerned about the effect one will have on WeWork in particular?

WeWork’s customers are mostly small teams, freelancers and the self-employed. Renting a hot desk in a WeWork location in London costs around £600 per month. When a recession hits, it hits those small businesses and freelancers hardest. An easy cost to cut is that hot desk. Someone is £600 richer and can just work from the kitchen table. Not as lovely as the kombucha, microbrew offerings of a WeWork, but you’ve got to save money. And it is a natural expense to get rid of. These memberships are done on a monthly rolling basis.

WeWork recognises this problem and has been trying to attract more enterprise customers. In their IPO prospectus, however, they have redefined what enterprise customers are, from businesses with 1,000 employees down to those with 500. Even then, they only make up 29% of WeWork’s business.

When the next recession hits, there will be a lot of space in WeWork locations.

Is WeWork overvalued?

The company’s sky-high valuation, around twenty-six times revenue, is based on its reputation. It brands itself as a tech company, in the same field as Facebook, Google or Amazon. ‘Technology’ is mentioned 93 times in their prospectus. But it isn’t a tech company. It rents office space. It might rent the most beautiful office space on the market, but it is still renting office space.

The brand of WeWork is doing a lot of heavy lifting. It calls customers ‘members’, its mission is to ‘elevate the world’s consciousness’, and it opens its IPO prospectus with the lofty declaration that ‘[w]e dedicate this to the energy of we — greater than any one of us but inside each of us’. That is a whole lot of bullshit. It rents office space.

IWG, which rents office space out, has revenues of over $3.25bn, much more than WeWork’s. Yet it is only valued less than $5bn. It doesn’t have the explosive growth of WeWork, but that growth is risky in risky economic circumstances.

Are there any signs of optimism?

In 2018 WeWork brought in $1.54bn. That’s nearly double the $764m it did in 2017. That’s stupendous growth and would auger well for a lot of companies. The losses, though, are on a similar trajectory. In 2017 it lost $900m, in 2018 that was $1.9bn. It costs WeWork $2 to make $1.

That could change in the future. High up-front costs recouped over decades unless a recession hits, can be sustainable. But even WeWork doesn’t think this is likely:

“We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level… for the foreseeable future.”

Adam Neuman, CEO and founder of WeWork, doesn’t even believe in the company. He has sold $700m of his stock already, and the prospectus even says ‘there can be no assurance that Adam will continue to work for us or serve our interests in any capacity’.

WeWork is a lousy bet. Its fundamentals are lacking, it’s facing a tight market, and it will be found out. Can a successful business be built of its model? Yes, but IWG has already done it. It’s not sexy or hip. But it works. The problem is that it has a value less than a tenth of WeWork’s.

When WeWork IPOs, it will be the early investors and backers who make money. The rest of us will soon be held WeWork shares that are plunging in value. Its backers have pumped the company up; now they’re ready to dump the stock before it falls.

Originally published on Medium

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