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Resources for Pet Parents and Veterinary Professionals

Check out the awesome new content at VetVet here!

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Understanding great entrepreneurs from history can help make us better founders, investors, employees and partners. While there are many…

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Recruit users manually and give them an overwhelmingly good experience

Paul Graham (http://paulgraham.com/ds.html)

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Historically, all rockets have been expensive, so therefore, in the future, all rockets will be expensive. But actually that’s not true. If you say, what is a rocket made of? It’s made of aluminum, titanium, copper, carbon fiber. And you can break it down and say, what is the raw material cost of all these components? And if you have them stacked on the floor and could wave a magic wand so that the cost of rearranging the atoms was zero, then what would the cost of the rocket be? And I was like, wow, okay, it’s really small—it’s like 2% of what a rocket costs. So clearly it would be in how the atoms are arranged—so you’ve got to figure out how can we get the atoms in the right shape much more efficiently. And so I had a series of meetings on Saturdays with people, some of whom were still working at the big aerospace companies, just to try to figure out if there’s some catch here that I’m not appreciating. And I couldn’t figure it out. There doesn’t seem to be any catch. So I started SpaceX Elon Musk

http://waitbutwhy.com/2015/11/the-cook-and-the-chef-musks-secret-sauce.html#1

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Thoughts on Burger King's Acquisition of Tim Hortons

Recently Burger King announced that it was acquiring Canadian coffee and doughnut chain Tim Hortons.

I am a very big fan of Daniel Schwartz, the 34 year-old CEO of Burger King and Alex Behring, the co-founder of 3G Capital and Chairman of Burger King. I have a lot of faith in their decision to partner with the Canadian group and what the future holds for the pair.

The key benefit of this partnership will be their combined strength as they enter or expand in emerging markets. A secondary benefit includes potential tax savings through an inversion.

Emerging markets

As emerging markets continue to follow the well-worn paths of their more developed counterparts, production capabilities will continue to follow suit and with that of course so will consumption among its citizens.

Growing GDP Per Capita in South East Asia, Africa, the Middle East and South America has resulted in a consumption boom in a wide range of products and services. Among which of course is increased purchases at Quick Service Restaurants (QSRs). At the same time, sales at QSRs in the US and Western Europe have plateaued or begun to decline in most markets - mainly as a result of market saturation and health concerns.  This has driven QSRs to move away from more traditional Western markets and into emerging markets.

Both McDonalds and Yum! Brands (Pizza Hut, Taco Bell and KFC) have shifted a large portion of their focus towards emerging markets and have benefited from growth there. Burger King however, still generates around two-thirds of its revenue in North America, whereas McDonalds for example, generated about two-thirds of its revenue outside of the territory in 2013. 

Tim Hortons existing focus on western markets is far more extreme than Burger Kings. The brand has the bulk of its nearly 5,000 restaurants in the U.S. and Canada. International locations amount to only 38 restaurants, all located in the Gulf Cooperation Council.

Both Tim Hortons and Burger King have a lot of room for growth outside of their home markets and are positioned well to do so.

Under Schwartz’s leadership, Burger King has reduced restaurant costs dramatically and has shifted its focus to a more franchisee centric model (they have almost reached their goal of having a 100% franchisee model). This approach allows for the freeing up of capital and a more flexible decision-making process, as decisions can now made by people who are actually living and serving customers locally versus from a distant command center. With this model now proven at home, Burger King is ready to start implementing this approach abroad.

Tim Hortons will benefit from Burger King’s existing framework of international locations, thinly dispersed among 98 countries. These existing footholds will provide a starting point for Tim Hortons to begin expansion outside of its existing three markets.

Additionally, the duo has the option of either sharing adjacent storefronts or to combine to form single stores that can offer complimentary products in locations around the world. In a single store format, the combined Burger King-Tim Hortons will be able to offer coffee and donuts to compliment the hamburgers and fries that Burger King is famous for. From a competitive standpoint, coffee, will better allow Burger King to challenge McDonalds in one of its fastest growing segments and diversify its product offering.

A combined Burger King-Tim Hortons will have the ability to charge potential franchisees a premium versus each could individually. Several questions do of course remain. What happens with existing agreements? Will existing franchisees have the option of purchasing additional rights to add the “other” brand to their existing agreements? What will happen in the GCC, Canada and the US, which already have both businesses operating?

Tax

Canada will become the largest market for the combined group, and therefore I believe an inversion makes sense. Burger King has been criticized for moving its headquarters out of the US, but I believe in this case it makes sense, as it is moving to a country where it will in fact generate a significant amount of its revenue.