Huawei, Luckin and the SMILE Marathon (Tech Strategy – Podcast 34)

In this class, I go into the increasing dimensions of operational marathons. I call these the SMILE marathon.

You can listen here or at iTunes, Google Podcasts and Himalaya.

SMILE Marathons. Competing every day on which dimensions?

  1. Scale, Scope, Efficiency and Effectiveness
  2. Machine Learning / AI Factories and Zero-Human Operations
  3. Innovation
  4. Rate of Learning
  5. Ecosystem Orchestration and Management

Related podcasts and articles:

  • #23: SMILE Marathon

Concepts for this class:

  • SMILE Marathon
  • SMILE Marathon Dimension 1: Scale, Scope, Efficiency and Effectiveness
  • SMILE Marathon Dimension 2: Machine Learning / AI Factories and Zero-Human Operations
  • SMILE Marathon Dimension 3: Sustained Innovation
  • SMILE Marathon Dimension 4: Rate of Learning
  • SMILE Marathon Dimension 5: Ecosystem Orchestration and Management

Companies for this class:

  • Huawei
  • Luckin Coffee


I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

——Trasncript below

Welcome, welcome everybody. My name is Jeff Towson and this is Tech Strategy. And the topic for today, Huawei, Luckin, Coffee, and the Secret of the Smile Marathon. Now that’s a pretty vague topic, but hopefully this talk today, which will be shorter, will maybe blow your mind a little bit. I’m gonna try and wrap up and pull together quite a few years of thinking about this subject into one sort of simple to use tool for how you fight and win in… more digitally focused businesses over time, and that’s something I call the Smile Marathon. But first, if you haven’t signed up for the class, please do so. You can go over to and sign up there. There’s a 30-day free trial. I am starting to recommend to people to use PayPal and Stripe and credit cards and not Alipay. We are having sort of ongoing issues with Alipay. in terms of subscriptions and other things. There’s just not a great technical solution to that yet as far as we can find. So the others are a bit better, but it’ll work out either way, but it’s a bit easier. Okay, now over the last 33 podcasts, I’ve covered a decent number of companies and I’ve sort of, I think, laid out enough of the foundation of theory that we can start to maybe pull a lot of it together and… Hopefully it’ll make a lot more sense after today’s talk. For those of you that are new, which is quite a few people, don’t worry about it. This is all a step-by-step process. Everybody starts at some point. For some people, this is all entirely new, so when you get started, a lot of this just doesn’t seem familiar, it makes sense for others. Okay, maybe you’ve thought about this before, you’ve got some background and so on. Everybody begins, everyone sort of goes step-by-step upwards and I will. keep recommending as you move up class by class, level by level, a lot is gonna sound familiar. So if some of what I’m doing today doesn’t make sense, don’t feel bad, because this is really gonna pull together a lot of the last talks, really over six months. Now broadly speaking, I’ve been laying out a series of concepts as a way of looking at these companies. I mean, when you look at any of these companies, the Alibaba’s, the Jingdong’s, whatever, one, they’re pretty complicated. And you kind of got to know what matters most because it’s so easy to look at any factor. You know, oh, the management’s good, or this was a bad move, or here’s the quarterly earnings. And you could take these things apart by 50 different factors and how do you weight them? What’s important? I’m trying to sort of give you a framework for thinking about business models where certain aspects Concepts are just more important and that’s my first past thinking For how to think about these companies. So if I say something like tik-tok Go in. Okay. What jumps to mind for me first is a couple things one. It’s a platform business model That’s very important. We’ve talked about that a lot to it has a network effect That’s a big deal too. That’s one of you know, sort of my two digital superpowers. I keep talking about Third one, it’s basically a zero human operation, an AI factory, which is another idea we’ve talked about. Those to me, and then like, so say the fourth thing I would think about is it’s just a very addictive product. They’re just very strong on the consumer side, on the product development side. Those four factors, I think, are the vast majority of what is going on and explains most of their success. Now, outside of that, we can talk about a whole bunch of other stuff. They’re spending a lot of money on ads. They’ve got some management issues. They’ve got some content curation issues. I mean, you know, this is the daily news you could read about ongoing and ongoing, but it’s kind of those four big factors that I look at. And I sort of make the call in my mind, okay, how powerful of a business model is this? How good of a strategy is this? And I’ve used different words for this. I’ve sort of said, oh, that’s the strategy, the business model. And then there’s a lot of operational day-to-day stuff. Okay, I could just as easily say, you know, that’s the horse, which is, you know, is this horse fast or slow? And then the management’s the jockey. Okay, that would be another breaking it down. I’ve been using a lot of different analogies for the same thing, but mostly what I’ve been talking about is sort of the big concepts that shape the business models and sort of give you the strategy for the company overall. And these things don’t change very much. So that’s why it kind of helps. You can, they make it more predictable. I can kind of figure out what Coca-Cola is gonna do three to five years from now, regardless of what management does, because I have a good sense of their business model and the competitive dynamics they have. And that gives it some degree of predictability, even if the quarter by quarter earnings and all that stuff bounces around, which they tend to do. So when I look at these companies, that’s sort of level one, where I’m looking for competitive advantages. I am looking for digital superpowers, platform business models, things like that, that are big structural features of the business. That’s level one to me. It’s always better to play on level one. You eliminate your competition. You’re competing against two companies instead of 200. which is better and it tends to determine your profitability for a lot, you know, to a large degree. So that’s kind of most of what we’ve been talking about. Okay, but there’s another level, which is what I call the operational marathon. Let’s say at the first level, let’s say you have a competitive advantage, you have a network of facts, you have some switching costs, you have a share of the consumer mind, and you have some combination of those such that you’re competing against three, four, five companies but not a hundred of them. Alibaba is competing against a handful of companies. Coca-Cola is competing against a handful of companies. But your average restaurant’s competing against thousands of them. And those are sort of the two levels. If you have that sort of competitive structure, over time, I sort of, the phrase I use in my head is giants and dwarfs. That the industry, that part of the business is defined by a couple giant players and a bunch of small players. And then usually the giants can do well or… Sometimes they don’t do well, but that’s generally a favorable environment to be in if you’re one of the giants. If you’re not in that world, if you have no competitive advantages, if it’s just a free-for-all, you’re a restaurant, I’m a restaurant, you have a little dress shop, I have a little dress shop, that’s what I’ve, in the past, I’ve called operational marathon. which is, when I talk about this in class, I put a big picture up on the screen, of a marathon where you have, if you ever see a marathon, it’s thousands of people running in a huge pack down the street. Well, in that business, you’re one of those people in the pack. And your job in a marathon is to run as fast as you can every single day, day after day, in the pack. And you’re pretty much doing the same thing everyone else is doing. you have any real advantages, you’re all just kind of running. Now maybe the way you win that if you can, is maybe you run a little bit faster than the pack, than the other people, you work harder, your management team is a little better, you execute better. And over time, maybe you start to slowly pull away from the pack day after day, month after month, year after year, and you look back five or 10 years later, and your KFC, Well, in the case of KFC, it was really 10, 20, 30 years. After 30 years of running like crazy, the management of Yum China, they had eight or 9,000 restaurants where the number two player McDonald’s had about 5,000, something like that, and all the other players had 1,000. They basically ran and pulled away from the pack over 30 years. That’s how KFC became KFC, but they didn’t have any real advantages per se. They had some strengths for sure. Their brand was pretty good, their menu was pretty good, they had some capital, now they had strengths, but they didn’t have any structural advantages. And that sort of operational marathon is just how, that’s what you do day to day. In pretty much every business, you have to do that. It’s just in others, you have structural advantages that limit your competition. And if you’re just in a pure operational marathon, it’s just whoever’s working harder, and that’s the game. And if you do well and you run hard, You know, you improve your menu, you increase your stores, you refurbish your stores, you optimize your supply chain, you train your management, you source your food, you do all the things right. That’s the operational marathon and it never ends. That’s why I call it a marathon. You just run and run and run. And if you ever fall down, if you ever slow down, if you screw up, people can catch up to you. So KFC was doing great for 30 years, pulled ahead, pulled ahead, pulled ahead. And then they had a bit of a food scandal and they lost about 10% of their business in a couple months. And competitors started to catch up. So you never win the marathon, you just run it forever. And that’s the nature of the game. Now ideally you don’t wanna play a pure operational marathon, you wanna, you want a structural advantage, you want some competitive advantages, and then you also wanna be a really fast runner. That’s your best scenario. And that’s a company like, I don’t know, Tesla, Apple, Nvidia, even Coca-Cola. Like, you know, they have structural advantages for sure, but they’re also very, very fast runners. Alibaba is incredibly quick as a business. Very innovative, very rapid, but they’ve also got massive advantages on the competitive level. So you ideally want both, but most businesses are in a pure operational marathon. That’s just the name of the game. Another way you can think about it is, you know, the competitive advantage, the structural stuff, that’s the stuff you’ve built as a company, maybe with a six-year, sorry, a six-month, one-year, two-year plan. The operational marathon is what you do every day of the week. When you get up running your business on Tuesday, these are the things you think about. Let’s just do everything faster, get a little bigger, be a little more efficient, be a little more effective. That’s the operational level. Now we get to the so what of today’s class, because most of the, that story I just told you is not a digital story, that’s just a traditional strategy way of thinking about business. But for the past 32-ish lectures, I’ve talked a lot about how digital changes that first level, level one of competitive advantage structure, business model. A lot of thinking about how in some cases, digital tools and technologies are destroying traditional strengths, like, print newspapers got absolutely destroyed. Their very strong competitive strengths got wiped out by digital technology. But in other cases, new digital tools are creating new types of structures and advantages like Google. Google, there’s nothing similar about Google to a traditional business, but it has very powerful competitive strengths that are all digital in nature. So we’re seeing digital tools, technologies, use cases, business models. wipe out a lot of the traditional competitive advantages and create new ones. That’s pretty cool. And that’s what I spend most of my time thinking about. However, I haven’t really talked much about how digital changes the operational marathon. I’ve just kind of alluded to it sort of generally with like, hey, you’re running a restaurant, now you gotta open more, you gotta be more efficient. Okay, but digital is impacting that level as well. And that’s the point of today. My little framework for thinking about this is what I call the smile marathon, where traditionally the operational marathon was mostly about scale, effectiveness, and efficiency. So you could call it the C marathon, the S-E-E marathon. If you’re running a restaurant, your traditional operational marathon is to get bigger. That’s scale. Because as I’ve talked about, there’s a lot of advantages that come from scale, not just economies of scale, which is a subset of that. Overall sale, you get bigger, you can buy stuff cheaper, you get more staff, you’re more stable, you have more predictable cash flow. There is just a lot of advantages to having scale, and there are also some disadvantages to scale, which I’ve talked about, and those tend to balance out. But, okay, that’s sort of traditional. So let’s say operational scale. operational efficiency, you get cheaper if you have a factory, you try and make a bigger factory, you try and go from two factories to three factories, then you move one of your factories from China to Vietnam because that’s cheaper, so that’s an efficiency move, productivity move probably, and then you try and be more effective, you try to be more productive. Okay, so you’re always sort of like operational scale, operational efficiency, operational effectiveness. That is a standard definition of the operational marathon. But I’m saying that’s no longer the way to look at it. The phrase I use is the smile marathon, which basically, S-M-I-L-E, it’s an acronym. It stands for five dimensions that you can compete on operationally in a marathon in businesses that have digital aspects to it. It’s almost like the traditional game of an operational marathon. has added four new dimensions that you may have to compete on that you didn’t have to compete on because they didn’t exist. And there’s five different dimensions, S-M-I-L-E, smile. And depending what business you’re in, you really wanna focus your operational marathon on winning on one or two of those dimensions. You’re not gonna win on all five, but you wanna know as a restaurant business. that you’re in a daily operational marathon on dimensions one and three. You’re on, actually in that case it would be one and five. I haven’t told you what they are. Be one and five. If you are Tesla, you’re competing on dimension three mostly, right? There’s five different dimensions to the operational marathon that correspond to Smile. And depending how impacted your business is by various digital technologies, you’re gonna focus on different. ones and you can’t do all of them well. So you got to know what your game plan is and I’ll give you my acronym. So number one smile is well S just stands for scale. So that’s scale efficiency and effectiveness which is the traditional one I just mentioned. And of those scale is really the big one in most businesses a lot of businesses if they’re digitally infused or if they’re just restaurants shopping malls banks. factories, scale efficiency and effectiveness, that is gonna be one of your big dimensions to your operational marathon. You always wanna be bigger as a factory, you wanna get your distribution more efficient, all this stuff. And that tends to mean operational stuff, like hiring people, factory lines, trucks moving back and forth, it tends to be real world operational activities with human beings. and goods moving around the world that are physical and made of molecules, not things that are made of bits and bytes, ones and zeros. Although scale in a digital operation is important as well. So I don’t think that’s anything new because I’ve already talked about it twice today, but you know, okay. And within that, you can have certain types of competitive advantages, but you know, that’s dimension one, simple. Smile, S stands for scale, efficiency, effectiveness, and this will be in the show notes. You don’t have to write this stuff down. Okay, dimension two, which is the M, smile, SM. The M is machine learning, AI factories, and human-free operations. Now I gave a talk about this, which one was it? It was podcast 33 about AI and also when I talked about Ant Financial, which was podcast 28. And I teed up this idea that certain businesses are becoming zero human operations, was the phrase I used, where the core processes, the core operations of the business don’t have people involved in them anymore. So that would be TikTok. The core product of TikTok, you go online, go in and you click on videos and you swipe videos and you share this one and you like that one and you turn around and make a video yourself and you share it. That is a purely AI driven software operation. There’s no human beings involved in that. And certain businesses are clearly moving in that direction because once you can get to zero humans, a zero human operation, a lot of the limitations that businesses have always had start to go away. So scale would be one. There is no limit to how big TikTok can scale. 1,000 people can watch TikTok videos, 1 million people can watch. It’s the same, because software has no problem with that. It can be 50 different videos, it can be 500 million different videos, because AI software has no problem with complexity. Connectivity, scalability, complexity, complexity, sorry. Those have been traditional limits to… operations with humans involved. A movie studio, a television studio, they would make a certain number of shows. They would film them, they would green light them, they would finance them, they would design them, they would put them on the air. There’d be development executives, there’d be talent, there’d be producers, there’d be directors, then they would go to the movies. There’d be a lot of humans involved, so most movie theaters, movie studios, they might make 30 movies a year. They might try to make 100 TV shows per year, pilot season, they might get down to 10 or 20, but they can’t scale that up till we’re gonna make 10,000 movies every year. It’s not possible. They can’t make 50,000 TV shows every year at Warner Brothers, it’s not possible. TikTok can do that. TikTok doesn’t have limitations on scale or complexity. So when you remove the last human, hence zero human operations, the business is then able to do things we haven’t seen before. And I think if you’re in certain types of businesses, hey, we’re in an operational marathon. If you’re a bank today and you’re saying, all right, we’re a bank, we’re ICBC Bank of China. What are the operational dimensions of our marathon? And you might say, well, number one, S, smile. scale, efficiency, and effectiveness. That’s probably what they’ve been focused on forever. We open more branches, we train more managers, we hire more people. ICBC has like 430,000 employees across China. Okay, that would be a traditional operational marathon dimension for ICBC. But then you have WeBank and you have Ant Financial come in and Ant Financial very openly says our motto is 310. You know, you can do an application in three minutes, it will approve it in one second, and the zero of 310 is there are zero humans involved in the process. Because everything is purely digital, it’s an AI factory, it’s a machine learning AI factory with zero humans involved, they can do things that ICBs could never dream of doing. They can offer 10 loans a day, they can offer 10 million loans a day, they are not limited by number. No bank can do that. It’s not possible. They can offer 10 products, consumer loan, retail loan, car loan, credit card, wealth management product, insurance this, insurance that. A bank can offer 20, 30, 50 products and financial could offer 100,000 different products because software has no problem with that. So when I would look at a company like ICBC, I’d be like, dude, you better be competing along machine learning AI factory. That better be one of your core things you’re operationally focused on every day of the week is moving towards that dimension. Cause that is clearly a marathon you are in whether you know it or not. If you get your competitors like Ant Financial, if they pull ahead of you further and further in their ability to do zero human operations, machine learning, you are not gonna be able to compete with them anymore. They’re gonna do things you can’t even fathom of being able to do. You’ve got to be running fast on that dimension every single day. So that’s the M, which is machine learning, AI factories and zero human operations. And I suggest to you, if you think about certain businesses, you can clearly see that certain businesses have to be in an operational marathon against that dimension. That that’s clearly where the future is, banks, financial services, a lot of healthcare. media and entertainment, things like that, with infinite scalability, infinite variety, an immense scope of products and services, because they’ve removed the last human from the daily operations of the product or service. All right, let’s move on to the I, so smile, SMI. I is basically innovation. Certain businesses, you are competing in your rate of innovation every day. That’s Tesla. There was a funny sort of, I’ve mentioned this before, there’s a funny little fight online on Twitter between Elon Musk and Warren Buffett where Elon Musk said, hey, you know, going for a competitive advantage and oligopoly, that’s ridiculous. That doesn’t exist anymore. The rate of technology advancement is too fast. The only competitive advantage strength you have in this world is how fast you can innovate. which is really what Elon Musk does. Every day he builds better rockets and cars that can do things that other cars can’t do and rockets that can do things that others, and others are following him. He is just always staying ahead of them. He’s further down, he’s away from the pack of runners, and he’s always a good kilometer ahead of everyone in what he’s doing, and he just focuses on staying ahead, knowing that they’re gonna catch up, that their rockets are gonna be able to land like his does soon enough. that their cars are gonna be able to do with his Tesla. And he’s just, his whole team is just engineers who invent new stuff with a significant technical component all the time. So I would say that’s a good one to think of for innovation. Some businesses, look, if you’re not advancing the technology of your business, a lot of automotive, a lot of industrial companies like this. I find Elon Musk to be a good person to remember for this one. That’s clearly the dimension he has to compete his daily operations on. Right. So that’s number three, innovation. Uh, number four, which is the L S M I L the L is learning. So it’s rate of learning. And I talked about this previously. It was a podcast nine, I believe, where I was talking about a Boston consulting group, they have some good thinking on learning, uh, paper that they had done about like, look, Certain organizations, the key skill you need to have is how quickly you learn as an organization. That’s really the dynamic you compete against. And their paper, I’m paraphrasing it, I don’t remember the exact title, was something like, rate of learning is the new scale. That you don’t want to compete on being bigger anymore. You want to compete on learning faster as an organization. And that integrating digital tools, helps you learn faster because you can do machine learning. You can have a lot of data analytics that feed into your people. So your people are getting smarter. So your products are always addressing new trends faster than others. Apple would be a good example of this. Apple under Steve Jobs, I would say is characterized by a very rapid rate of learning. Like one, they could do things more and more efficiently, you become cheaper. But they were always inventing new things. that Steve Jobs was always sort of studying where the market was going based on technology changes. And he was introducing new products and services every six months or a year. Because I would argue his company was very good, not, yes, they were good at product development too. Innovation and rate of learning kind of tie together a lot. But he was very good at understanding where the market was going and how the consumer behavior was changing, mostly as a result of technology. So he invents, you know, the iPod, and then a couple years later, it’s boom, it’s iPad and iPhone and ITV. You know, Apple under Steve Jobs, I would characterize as a very fast learner in terms of the market. And that sort of ability to learn quickly as an organization is very helpful when you’re dealing with industries with a lot of uncertainty and rapid change. Where you can’t just do the same thing, oh, we made Coca-Cola last year, we’ll make Coca-Cola this year. No, you always have to be reassessing the market and the landscape. because it’s like the ground you’re playing on is always shifting. So you’re constantly reassessing and pivoting and executing against where things are going. So I’d say Apple was sort of a rate of learning and BCG would describe that as a rate of learning type two. Rate of learning type one is like Henry Ford making the Model T car. And the more cars he made, the cheaper he got at making the car. That was a different type of organizational learning that sort of. Type one, type two is more like you’re innovating and creating new types of products for changing markets and changing situations. That would be type two. Type three would be like you start integrating data analysis and data analytics and software into combining that with your people who are then much smarter about what’s going on all the time. So there’s this whole thinking of how do you compete as a learning organization? An example, a better example, would maybe be IBM or McKinsey. You know, McKinsey is not an AI company and it’s not really even a scale company. It’s what McKinsey is pitching is we have a bunch of senior partners, associates, vice presidents, or job managers, whatever they call them. And we send them into vice presidents and CEOs of major companies like Ford and Microsoft and Coca-Cola. And our people are so knowledgeable about what’s happening in the world and how to adapt to changes that they can tell people who have worked in their industry for 30 years stuff that they don’t know and are willing to pay for. That’s actually kind of a hard thing to do, to sit down with the CEO of Ford and tell him or her something about cars that they don’t know about. So, you know, they always have to be sort of on the edge of understanding the new trends in business and how to create strategies against them. and how to do well. So, I mean, their organization is always about learning, learning, learning, and then their core asset is actually people who they hire out of MBAs and then they systematically train them. So, you know, they are learning both in the market, but they’re also having their staff get smarter and smarter at every level all the time systematically, because that’s their main thing. I would say IBM, Accenture, these other companies that do more software-based critical process consulting. are in the same game. That’s really, I think, the dimension that they are competing on in terms of this operational marathon. I’d put M&A bankers in the same area. I’d probably put hedge funds in that area too. I think that’s the dimension that matters a lot more than, hey, we’re bigger than the other company. So that’s number four, rate of learning, L. And the last one would be E, S-M-I-L-E. Last one is ecosystem. managing and shaping, or ecosystem management and shaping. A couple of these, I’ve pulled, these are not all my ideas. Some of them are mine, some of them I pull from other groups, like one or two of these is from BCG, others is from other groups. So I don’t want, if this sounds familiar to you, and I’m not saying these are all my ideas, a lot of this is pulled from other places. But E, ecosystem management and shaping, that’s kind of this idea that the world is becoming more connected. consumers are more connected than they used to. I gave you a talk about the China Digital Consumer Network, that you wanna view Chinese consumers as a connected network, more than a demographic. What your customers say to each other is probably more important than what you say to them as a business. If they like you, it’s shared, it’s viral. If they don’t like you, they share that too. If you have a business that is more network focused, like a platform business model, you can take advantage of the linkages between your customers. That’s TikTok. TikTok is focused on the interactions between their customers more than anything. Zoom, PayPal, Alipay, these are all network-based products and services that take advantage of the network. And my standard argument is like, you know, China has three to four times as many consumers as the US, but if you view them as a network, they have 17 times more connections. Because the number of connections in a network goes up exponentially more or less with the number of nodes. Okay, so if you’re in a business where it is becoming more and more connected, where platform business models like Alibaba, Amazon, Facebook, Google, are increasingly changing the nature of your business. then one of the dimensions you are gonna have to compete on and run operationally in your marathon on is how do you manage that ecosystem and your place in it? And maybe do you have an ability to actually shape it? And a handful of businesses do do that. Alibaba actively shapes the ecosystem of retail in China, no doubt. TikTok is starting to shape consumer attention. and media. So certain players are so powerful in these increasingly connected ecosystems that they actually shape them, usually to their benefit. Most of us don’t have that opportunity. Most of us are in industries, like God like me, who is a content creator. I am very much competing along the realm of, along the dimension of, how do I manage the relationship with Facebook, with LinkedIn? with YouTube because that has a lot to do with how I interact with people who read or follow my stuff. So ecosystem management and ecosystem shaping, if you can, are an incredibly important dimension for anyone in retail. CPG brands, if you’re Budweiser, you are, or you’re let’s say Coca-Cola, when Alibaba has its singles day on 11-11. You will have a team of people upstairs in the Alibaba Shishi campus in Hanjo, actively managing how well you’re doing on singles day. I sat down with this group last November. They were sitting up there on, I don’t know, like the 10th floor of the Alibaba headquarters. You walk down the hallway and every single room of the headquarters is like, that’s the Budweiser room. That’s the Coca-Cola room. That’s the Gucci room. And all these brands have teams that are deployed literally in the campus. to manage the performance of their initiatives during singles day in real time. And it’s usually their head of digital is there, their head of e-commerce. I met like the head of e-commerce for Coca-Cola, just randomly, I just knocked on the door and kind of walked in. That’s an operational focus on ecosystem management that they have to engage in as a company, they have no choice. And transportation, I think that’s a thing. If you’re a taxi company, How you are dealing with Grab or Didi or Uber. Dude, you are in the ecosystem management business whether you want to be or not. Media, communications, retail, CPG, anything with a major fashion brand. Gucci, Prada, all of these companies have jumped into this world in the last couple years because they realize if we’re gonna reach Chinese consumers the only way to do that is through their smartphones. So we need to start understanding Weibo and WeChat and Douyin and… you know, Secco and all these companies. So I think that’s a hugely important dimension. And I think a lot more businesses are gonna become digitally connected, digitally infused. You’re gonna see major platform players increasingly shape those industries. So ecosystem management is a core operational dimension for a lot of companies. And that’s kind of my fifth one. And I gave you a couple of examples of that. So that’s SMILE, S-M-I-L-E. five dimensions of the new operational marathon. I call it the smile marathon or the smile operational marathon. Yeah, I ask companies this all the time. Okay, day-to-day operations, not your big strategy stuff, M&A and all that, but day-to-day operations, what two dimensions are you competing on within the smile marathon? And you can’t do everything well. You have to pick one or two. and really be measuring that every single day. And if you don’t have those capabilities, you better start building them. I find that’s a pretty useful way of thinking about it. All right, that was a bit of theory. So let’s do a couple cases, which we’ll talk about Luckin and Huawei. I won’t talk about this much. It’s gonna be a short talk for today. Shorter talk for today. Okay, Luckin, Luckin Coffee. There’s a lot going on with this company, a lot of focus. What really got my attention on Luckin was year one of Luckin, which was 2018. Because, you know, they came out of the gates so fast and so aggressive, which is, hey, we’re a coffee company you’ve never heard of. We’ve raised a ton of money. We’re opening outlets, not outlets like Starbucks, but, you know, there was some rest, relaxed locations, and then there was much of these order and pick up locations. but they grew incredibly quickly. I mean, doesn’t mean they grew their revenue, but operationally they deployed a lot of assets and a lot of, you know, sort of a big footprint very, very quickly. So when I look at them, I say, okay, do they have any competitive advantages, digital superpowers, such that I think this company is gonna lock up the market and have some structural strengths? Now, are they gonna be a giants and a dwarfs situation or not? And my working answer for the first year was, I don’t see it. It looks like a typical FNB to me, food and beverage outlet. You can open a store, sell some coffee. Now I kept watching for them maybe to build in some switching costs for their consumers, but none of the things I was interested in, economies of scale, any of this stuff, switching costs, network effects, I didn’t see any big strengths, I didn’t see any competitive advantages. So it looked to me like, okay. They’re in an operational marathon in serving retail coffee. Nothing wrong with that. A lot of companies are that way. Haiti, I like Haiti. I don’t see a lot of structural advantages. I don’t see any of that stuff. I see them in an operational marathon, but they have a very popular product. People seem to like them. They seem to execute quite well. They’re growing from 100 to 200 outlets slowly, which is more or less the way Starbucks grew. At a certain point when they get big enough, they will have some scale advantages and some other things, but when you’re at 100 to 200 outlets, nah, you don’t have any real major stuff. Anyone can open one of those stores. Okay, so you’re in an operational marathon. No problem. How good are you? Okay, let’s just, okay, there’s a lot of businesses like this, insurance, hedge funds, you don’t have any structural advantages. It’s like how good is your management? How good did they execute in this operational marathon? How fast do you run versus everybody else? That’s all I wanna know. And I look at them, I say, okay, fine. They look like they run really fast. It looks like the management team is incredibly aggressive in year one. Now, who knows what games they were doing underneath in year one, but they were executing. They were opening on average something like two to three outlets per day. You know, to open 2,000 outlets in a year, I mean, in that case, you’re talking about five or six outlets per day that they were opening. That’s really fast, you know, finding the locations, contracting, building it out, getting the coffee and they’re staffing it up. I mean, if you’re working four, five, six outlets per day, even if they’re small ones, from an operational perspective, that’s really fast running. And I thought that was kind of how I saw them in year one. And then I kept asking, okay, you’re building out quickly, but is anyone showing up? And turns out the answer’s no. All right, what would be under smile, what would be the dimensions that they need to run on? What are their key operational dimensions for the smile marathon? I’d say it’s number one S for sure, which is, okay, they’re going for scale, effectiveness, and efficiency. Fine, that’s what every restaurant does. I’ve opened a couple of restaurants or. I help someone do it. That’s pretty much what you do. You hire people, you train people, you find the locations, you refurbish it, you buy the food, blah, blah, blah, blah, blah. Fine. That’s pretty standard for FNB. Okay, what about the other dimensions, which are more, that’s traditional. Are there more digital aspects here that you’re gonna have to compete on? And my argument basically is that like, as the world goes more digital, we’re gonna shift from this traditional operational marathon. to more of these other four dimensions I’ve just laid out. Okay, M, smile, SM, machine learning, AI factories, and zero human operations. They could have, I suppose, you know, if they had outlets like vending machines, vending machines are kind of zero human. You order on your phone, you go pay, but you got to stock them. It doesn’t strike me as that’s a major dimension for them. Not really. I mean, there are these like, you know, Alibaba has got these new robotic bartenders in their fly zoo hotel and you go and you order with your food and the little robot arm makes your latte or makes your you know, Jack and Coke and whatever. Okay, I mean, I guess that’s, you could have some of that. It doesn’t strike me as a sort of the killer dimension you have to win on. When I look at a bank, that’s the one though it’s like, dude, you have to be doing this if you’re running a bank. You can’t not be focused on zero human operations if you’re running a bank. Clearly that’s gonna be a major term and I don’t really get that sense for coffee. So I’d say, nah, not number two. I, innovation. That’s the eye and smile. Nah, it’s coffee. I don’t think you’re, now, Haytee to their credit is very good at coming up with new products. I think this is one of their strengths is they keep coming up with new products. I wouldn’t call that innovation. I would just call that good product development. It’s not like Elon Musk making rockets and stuff. Okay, number four, learning, rate of learning, that’s the L. Nah, you don’t need a learning organization to be competitive. 5e ecosystem, ecosystem management and shaping. Maybe a little bit. If they’re doing most of their sales through Ulema or Meituan, where that’s like 50% of their sales are not coming from their own app, but they’re getting lots of them because they’ve posted their stuff on Ulema and that’s where the consumers, so you’re selling through a platform business model, a marketplace for services, Ulema, Meituan. Okay, I could see that that’s part of their dimension, but looking at them in year one, I’d put them… I’d put them 75% in the scale, efficiency, and effectiveness game, and maybe 20% in the ecosystem management and shaping game. I think that’s where I’d wanna see them. Every day I’d sit down with the team and I’d be like, what are we doing on these two dimensions? What are we measuring? What are our key metrics operationally so that I know we’re getting stronger on each of these two relative to our competitors every day? And you could say ecosystem shaping, you could talk about, maybe we’re not selling through Meituan or Ulema, but we’re marketing through WeChat. Okay, you could see like marketing and outreach, we could probably be doing a lot of that through the ecosystem. That’s probably where I’d put it, 75% on the first, 20% on the 20, 25% on ecosystem shaping. That’s how I’d view Luckin. And I think they ran very, very quickly and I was… reasonably impressed with both of them on those dimensions. Certainly they were better than any other retail company we saw. If you compare them to Starbucks, I would say Starbucks was better at the scale game. You know, scale, efficiency, effectiveness. They were better, they were good at opening stores. But I would have said that Luckin was better at the ecosystem management and shaping game. I mean, back when Luckin popped into the market, you couldn’t get delivery from Starbucks. Their app was terrible. You know, they were very weak on that. dimension. Now they fixed that pretty quick, but that’s how I would kind of see them. They didn’t go digital fast enough so they were weak on that fifth dimension and Luckin forced them to do it. That would be sort of my operational marathon take on Luckin Coffee versus Starbucks. Something like that. Now there’s a lot of other factors. I could list 10 other factors, but those will be the two that bubble up to the surface. I think that’s most of what I should be watching here. Okay. Last one. Now Huawei is much more complicated. And they’ve got two core businesses that everyone talks about. They got their carrier business. They have their smart devices, which is mostly smartphones business. Oh, if you’re curious, I’m putting in the show notes. Podcast number three, I had a little one, what should Starbucks do about luck in? We talked about luck in, but this was one of the first podcasts where the audit quality’s not awesome. So sorry about that. It’s not one of the best podcasts. And podcast number 24 is when I did an interview with Huawei about their financial results a couple of months ago. So if you wanna know more about Huawei, listen to podcast 24. If you wanna know more about Luckin Podcast 3, I’ll put the links in the show notes to both of those. But if we look at Huawei’s carrier business, okay. Carrier business, I’d say they’re in the S, so that’s scale, efficiency, and effectiveness for sure. I mean, they’re building machines, they’re a manufacturer, they’re deploying these things all over the world, they’re putting in base stations, they’re advancing technology, if they got a massive supply chain, I mean, they’re a big industrial company because that really was their background for a long time. They were a manufacturing and industrial powerhouse long before they became a tech leader. That’s what they did. And they went from being a major manufacturer to then being one of the largest sources of R&D and tech in the world. So… They’re an S, that’s their traditional business. They’re all about scale in manufacturing and scale in R&D. I would say that then they’ve sort of shifted in the last 10 years into more of an R&D leader. So I would call that innovation, which is the third dimension, the I, innovation. Definitely they’ve been using their strength as a manufacturer in scale to flood money. into R&D, which is basically the innovation dimension. That’s kind of how I view their carrier business. And they’ve been flooding 15, 20% of their overall revenue into R&D of Telco, which is like $18 billion last year, which is absolutely insane. It makes them the third largest, well, third or fourth largest spender of R&D of any company on the planet. And their R&D spending is gonna surpass all of Ericsson’s revenue in the next year or two. So they are clearly competing on that first dimension of scale and on the third dimension of innovation. Let’s make a lot of money as a manufacturer based on our superior scale. We will be cheaper and bigger and we will flood money into R&D and we will become a better innovator time over time. And suddenly they’re a 5G leader, which they were never a 4G leader. Now they’re a 5G leader. So I’d say they’re competing mostly on those two dimensions. There is a little bit of a question of are they an ecosystem shaper? Are they setting industry standards for 5G? Are they trying to control all the key patents? Yeah, I think there’s some stuff going on there, but that’s more complicated. I think it’s yeah, it’s it’s s It’s I and it’s a little bit of e that’s how I view their carrier business simplest simplest way of looking at it Smartphone business I would say it’s pretty much the same thing. It’s They’re big They’re huge, they flood money into R&D, and that they make phones that are a little bit better every year, up until the big US Entity List shock. You know, they were getting better and better before they sort of got cut off from some of the US tech, but I would have argued last year that their smartphones are now superior to Samsung or the iPhone. I mean, their high-end Huawei phones were better phones. than Samsung or iPhone, or they were really right there. And now the whole political aspect is, that’s been a pretty brutal thing because they can’t get the best tech anymore for the supply chain, which makes it hard to make the biggest, hard to make the best iPhones or smartphones in the world if you can’t get the best semiconductors in the world. Yeah, but I would view them as pretty much the same way. They’re basically in an operational marathon for scale efficiency effectiveness with then equal focus on innovation. You know, these are simplifications, but I think that’s directionally pretty close to the truth. And then on top of that, we can debate whatever happened last week and all the various factors that come and go. But those are kind of the key numbers I watch. How good are they in terms of scale and in terms of innovation? Those two operational marathon dynamics, how good are they versus Ericsson? And it looks to me like they’re whooping Ericsson on both of those dimensions. and Nokia. And it looks to me like they have pulled way ahead of the pack and that they are quite a long distance ahead of both of their main carrier competitors on those two dimensions. I mean, that is really how they kind of look to me. And now maybe if they get cut off from tech and other things, that gap could shrink. That’s the whole thing about an operational marathon. You never win. You just keep running fast, fast, fast. you open up the gap between you and the pack, but if you fall down, the pack can catch you. The same way when KFC had some food scandal issues, you know, they lost 10, 15% of their business, and some of their competitors closed the gap between them. Ericsson and Nokia could close the gap with Huawei in these two dimensions. We haven’t seen it, but that’s kind of what I’m keeping my eye out for. Anyways, that’s basically it for today. So for those of you who are subscribers, This all goes under learning goal 23, which is in level five. And this is really sort of drawing together a lot of the stuff over the last, you know, 30 podcasts that we’ve talked about a lot of the ideas. They all kind of fit under this bucket, but within learning goal 23, which is the smile marathon, you know, there’s, I basically laid out five ideas for you, five concepts, scale efficiency and effectiveness, machine learning, AI factories and human free operations, innovation. rate of learning and ecosystem management and shaping. Those are the five dimensions of the operational marathon of a digital age as opposed to a more traditional industrial age from my point of view. You know, I’ve always kind of joked when I explain what I do, I always say, well, it’s competition meets digital. So it’s Michael Porter meets Jack Ma. And that’s pretty much what I’ve been laying out is my version of Michael Porter for a digital first world as opposed to an industrial age, which I think the models are well known. And Michael Porter, I think was the key guy, one of the key guys in thinking about that stuff. And now we’re sort of halfway between the industrial age and the digital age. And yeah, that’s one of my key frameworks I go through in class is this sort of how to rethink an operational marathon in a digital infused world, how to rethink competition in a digital infused world, either at the operational marathon level or at the competitive advantage level. And I basically have frameworks for both of those and this is one of them. but I’ll keep laying them out as we go week by week through all of this. And that is it for today. I am all done here in Bangkok. I was finishing up a class, which I’m done with, and I’m just trying to get down to the islands because the trains weren’t open for foreigners, which was strange. They’ve reopened domestic travel here in the last week or two, which is great, but there’s a little bureaucratic fluke where it doesn’t apply to foreigners. So… you weren’t able to really take buses or trains or even think airplanes if you didn’t have a Thai ID so there was a little bureaucratic snafu but I think it has all been fixed as of today so in theory I should be able to hop on a bus or a ferry down to the islands here in the next day. We’ll see if I get rejected or not at the at the station. That’ll be fun. But otherwise that’s it and thank you so much for listening. For those of you who aren’t subscribers, please go over to and sign up there. There is a 30-day free trial. Alley pay is probably not the best way to sign up if you’re looking for the options there. But that’s it. I hope everyone is doing well, and thank you for listening. I will talk to you next week.

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