Ted Audio Collective.
Hello, Ben. Hi, everyone.
You're listening to After Hours.
I'm Naomi, and I'm here with Felix and me here.
Hey, guys. Coming at you from New York City.
Did you guys have a good day today?
I had a great day. I actually went and saw something that I recommend highly, which is we went to Hudson Yards.
Which is this massive new project that has opened up on.
Yeah, it is really something else.
It's the single biggest private investment in real estate in the history of the United States.
You go there, you think, oh my God, they built a new city in New York City.
It's crazy. It's amazing.
And the shopping mall just opened yesterday.
That's why you went.
Even in terms of the future, we've had these discussions about the future of retail.
And it was mobbed, completely mobbed.
It's a pretty mammoth project.
And it's just fantastic to see something that kind of came out of nothing.
In part of the city, which was...
If I go try to check it out early tomorrow morning, will I...
You will be mobbed.
Oh. And it will be great.
It will be fine. Wow.
It will be really fun.
Fantastic. It's funny how you get to reinvent the city every now and then.
Isn't it? You would think, oh, you can't really...
Not that often, though, right?
Not that often, but it's still...
Actually, I came in from San Francisco earlier today.
And I spent a little bit of time on the southern side, close to the port.
That area is completely transformed.
Oh, yeah. There are some historic buildings, I think, that are doing a good job preserving those.
But the rest will be...
It's almost like Hudson.
It will be a new city.
Yeah. It's kind of like, you know, Boston Seaport.
Yeah. Five years ago, you know, it looked completely different.
And now you blank. And it's like...
It's easy to become kind of nostalgic about what is getting displaced.
But I confess, when I see these things happen, they're so exciting.
Like, my general feeling about them is just always it's like the seaport, I think it's hugely exciting.
Yeah. Yeah. My favorite story about displacement for you in New York is Empire State Building.
No one can imagine New York without the Empire State Building.
What was there before?
A beautiful, beautiful hotel that people really regretted seeing torn down when they built Empire State Building.
Yeah. I didn't know that.
And so they created something amazing, even though what was there before was really very nice.
Wow. Okay. Well, we should probably talk about some...
Maybe. We could talk about this for a long time.
Or maybe we can just reminisce.
Exactly. So Felix, you brought in something to talk about.
I would love to talk about delivery, food delivery in particular.
There's a bit of a delivery war going on right now.
There's a war. There is...
I don't quite understand what it's all about.
And then I wanted to talk about crisis management in Boeing.
A very topical town.
Oh, okay. Yes. Fantastic.
Okay, Felix, delivery.
So let me begin just by asking you, do you do order delivery?
Do you do that personally?
I mean, it's Grubhub, but I do seamless.
Which is this Grubhub.
Yeah, I use Grubhub.
I use DoorDash. I use Goodreads.
I've tried a lot of categories.
Okay, my friends, you are the future.
At least according to some people who invest a lot of money in delivery.
Let me just throw out some numbers.
Venture capital alone this past year invested $5 billion.
That's a 400 % increase compared to what they did a year ago.
And the numbers look quite rosy if you believe the consulting report.
So restaurant takeout is about $25 billion today, it's going to grow to $60, $70 billion.
So the growth numbers look really great.
What's interesting about it is everyone is losing money.
No one can... The economics just do not work.
Help me. Like, what is going on?
I think you put your finger on it though, right?
Those two things are totally deeply connected, which is way too much capital chasing after way too few deals, resulting in a lot of capital being used to subsidize young me and my delivery services.
And so there's like a huge transfer of wealth from some Wisconsin pension fund that is funding some venture capital fund.
I mean, I think it's a huge transfer of wealth from there to like...
And I can't make sense of it otherwise.
Could it be that these investors see something that will change our preferences, change our habits?
And in the end, if prices go up and we have to pay the full cost of delivery, we'll just stick with what we've gotten used to.
No, the problem I have with economics is that there's just not enough money in a single delivery to spread between three parties, which is essentially what you have to do.
It's DoorDash, it's the driver and it's the restaurant.
So either the prices have to go up or you have to begin to eliminate some of the folks in that chain.
And it's not just that you have to share it between three.
The question then becomes how sensitive are people to price increases, which we don't know yet.
But I mean, my instinct young me is like yours, which is, we're not talking about a $2 surcharge.
You know, we're talking about $5, $10 surcharges to make the economics work on some of these orders.
And at that point, I think people do...
I mean, there's always going to be an audience for it.
But in terms of it really becoming large, it's a little more questionable, I think.
And the other thing is, is that all of the growth projections are based upon current demand.
Demand today. Yeah.
And subsidized prices.
But we don't know what true demand looks like because right now we're all getting discounted.
And it's very possible that demand will taper off as the true pricing structure starts to emerge.
Look, it creates so much value to have food brought to your house.
Yes, agreed. And because of that, I do believe it's going to be a huge market.
But my intuition is that it's going to be one of those markets where it's always hard to make money.
Like grocery, to begin with, right?
Exactly. Like groceries.
Margins, essentially non -existing.
Ridesharing is so different because it really is a two party platform.
This is a three party platform and that creates so much more inefficiency.
But at the same time, young me, I think your instinct is like mine, which is something like this has to happen.
It has to happen. It creates far too much value.
And so to me, the most high potential models are the ones, you know, Uber, for example, where it's just one piece of a larger business model that is not just food delivery, but is ridesharing and many other things.
And where you can have different parts of the business subsidize the food delivery piece.
But as a standalone.
I think the other way you might argue, and that might explain why there's this rush now.
So once someone starts to invest and you saw it in Grubhub's number, they were profitable for quite some time.
Now they have to have such high marketing spending that sure enough, they're losing money.
But one argument might be is that the cost that we're thinking about today.
So we're not only taking demand as given, which may or may not be right, we're also taking costs as given, which may or may not be right.
So cost, I think that, of course, critically depends on economics of density.
If I get it to a place where I can stop two times or three times on the same block, then those costs look very different.
There are true network effects, true economies of density where costs go down.
If in fact you can have lots and lots of customers, that will be a more attractive platform.
But what's the evidence in the grocery market?
I mean, this has been going on in groceries for a long time, right?
I mean, Fresh Direct and P -Pod have been doing it for at least 10 plus years, right?
The obvious difference, though, between groceries and restaurant delivery is with groceries, it's one to many.
With restaurants, it's many to many.
So you have to create efficiencies on the pickup and on the drop -off side in order for it to really...
Which is way more complicated.
Which is much more complicated.
But, I mean, if it's literally true that even at scale you need to cross -subsidize massively, then why be in that business, right?
So if the function of scale is it drives up utilization rates of my drivers, and I can either do that by combining traditional Uber and Uber Eats, or I can do that if I'm some other service by being really big in a particular market set where I have like 70, 80 % market share.
And so that keeps my drivers free, also.
In that version, I can sort of see that it's an okay business.
If it's cross -subsidies continuously over time, I think you'd just be better off not doing that portion.
But I think that's how Uber's thinking about it, though, right?
My guess is that they're thinking about it in terms of, number one, cross -subsidies.
Two, ghost kitchens, as a possible way of creating efficiency on the backend.
And then three, I do think there is a belief that willingness to pay is going to continue to be robust.
In other words, that they'll be able to kind of creep up and massage those service fees.
And it's an interesting dynamic.
It's kind of like I would analogize it to what Amazon does with its marketplace.
There are some players that it just starts to squeeze on the backend in order to get the economics out.
So if you're a long -tail retailer selling your stuff on Amazon, you're really screwed because Amazon will just squeeze those margins out of you.
And you have no leverage in that relationship.
If you're just Joe Schmo's pizza joint, that's the same thing that's going to happen to you in this model.
If you're part of that long tail of restaurants, you're just going to get squeezed, squeezed, squeezed.
But to your original point, there are so few margins to squeeze, right?
And there's just not a lot of economics to squeeze out.
I tend to view this more cynically in the sense of a lot of these venture capital players pouring money into an area.
This reminds me of kind of 992000.
I don't know if you remember that.
Oh, there was this company that had a fridge, right?
Well, there was a company called Urban Fetch, and then there was Cosmo.
And you could literally call up the corner deli and get a Snickers bar delivered to you.
And you knew they were going to go out of business, and so you just would use them because you knew they would be gone tomorrow.
Exactly. Or more recently, it's a little like Blue Apron, right?
Yeah. Like this meal kit idea was everywhere.
Now, the IPO at $10, they're at the dollar now.
And in fact, one of the only ones that's really surviving is actually connected to supermarkets.
But again, as a pure play, it's just very difficult.
It's really hard. Can I ask you one other interesting question?
Suppose we make this work somehow.
Who knows exactly how this is going to work?
But let's say there is a food restaurant, food delivery business.
Right now, it's about a third of restaurant meals in the United States are consumed at home.
Let's say it goes up to 50 percent because we have fabulous delivery.
What does this mean if you run a restaurant?
I think you're just going to start, and I think you're already starting to see a real divide between two types of restaurants.
One, the long tail of restaurants that are easily exchangeable, that sort of commodity pizza joints and places where you can get burgers.
And then on the other side, restaurants that have their own brand attraction, real brand pull.
So for example, Starbucks, they recently announced a deal with Uber Eats.
And so if you think about the economics of that deal, Uber really wants that deal because Starbucks is a high -frequency purchase.
It's just such a perfect match, right?
So if I'm Starbucks and I'm negotiating that deal with Uber and I'm creating a bidding war with DoorDash and with Grubhub, which you know they did, these are the things that are on the table.
Number one, what's the commission?
And so most restaurants will pay 30 percent of the restaurant bill.
The food bill will go to DoorDash.
My guess is with Starbucks, it's much closer to 10 percent.
The second thing is the delivery charge.
So when you order something from DoorDash, sometimes you pay two bucks for delivery plus a service charge.
Sometimes it's five bucks.
You know, it's really variable.
That's completely negotiable.
So if you're Starbucks, you're going in and you're negotiating hard to bring that down so that your customers have a very low delivery cost.
The third thing is you're negotiating marketing spend.
So you say, I'm going to do this, but I need 10 million dollars worth of marketing spend, where I am front and center on the app when people open it up between these hours and you're pushing my restaurant.
And then the fourth thing you're negotiating very hard is the data share.
Yes, that's a big issue, right?
So there will be a group of restaurants that can go in and do these negotiations.
And then there'll be a group of restaurants that absolutely cannot.
And the ones that cannot are, you know, like I said, the pizza joints and the ones that are easily exchangeable and their economics are going to look completely different.
So I see a real divide.
But does that lead to kind of a lot more concentration in the restaurant industry?
I mean, are you going to see that kind of fragmentation go away because this is going to drive people towards concentration?
The thing that happens with these platform players, on the one hand, they're making life harder for the long tail.
But on the other hand, they're making it easier for you to enter the market.
This is what Amazon does.
It makes it easier for you to be a vendor.
And so in many ways they create this endless churn of vendors coming in, in this case restaurants coming in and opening restaurants and closing restaurants.
I mean, the fascinating thing to me about that is there's already so much inefficient entry in restaurants, right?
And there's already so many people pursuing a pipe dream of, I've always wanted to be in the food business.
But if Uber says, look, we've got these ghost kitchens over here, you're all set to go, you just need to walk in, start to cook, we'll take care of everything else, then there are a lot of people who are going to give it a go, right?
You know, one of the funny things about this conversation is I never ever order food out.
Are you kidding? And I never, I have not.
Wait, you don't have meals delivered?
No. It's like, I know this is a conversation.
It's my conversation in my family.
I can't believe this.
For me, the whole point of maybe being in a city, I just love going to restaurants.
For a change, I'm the dinosaur here.
And you can do both, but you can do both.
Yeah, I don't know.
This is when his real European side comes out to me.
Yeah, there you go.
So I wanted to talk about Boeing specifically in crisis management more generally.
So the catalyst for this conversation, of course, is the two plane crashes.
So I think it might be helpful to actually recount the chronology of what's happened over the past few months.
The first plane crash was Lion Air.
Took off from Indonesia.
It crashed shortly after takeoff.
That was back in October.
The second one earlier this month was Ethiopian Airlines.
Again, crashed shortly after takeoff.
In both of these cases, the accident happened within minutes.
In both of these cases, the captains were both very experienced.
And then, of course, most importantly, in both cases, the plane involved was the Boeing 737 MAX 8.
So shortly after the second crash, Ethiopia grounded that specific model of plane.
Shortly after that, China grounded that specific model of plane.
Even at this early stage, there was a pattern in how these planes crashed.
So the first crash, from satellite imagery as well as air traffic control imagery, what they could see was that before the plane crashed, the plane went up and down and up and down, almost as if something about the plane was pushing it down to the ocean.
The pilot was battling almost the tug of war with the plane to bring it back up.
This happened more than 20 times until the pilot lost the battle, essentially, and the plane crashed.
In the case of the second crash, it became immediately apparent that there was that same up and down pattern, which China gave as the reason for why it was grounding these planes.
China is the biggest customer of this particular model of plane.
That was followed by the UK.
They grounded the planes.
Ireland, France, Germany, Canada.
Meanwhile, the U .S.
was doing nothing. Boeing and the Federal Aviation Administration, the FAA, the only communication that was coming out was that they continued to have full confidence in the safety of the plane, and they saw no reason to ground the plane.
A couple of days after that, President Trump essentially surprised everyone, including folks in the FAA as well as at Boeing, and grounded the planes in the U .S.
as well. Since then, the only real communication that's come out of Boeing about this was, number one, that some kind of software update is going to be coming out on these planes sometime in the next couple months, and that the company continues to have confidence in the safety of its aircraft.
So I'm going to start out with the following question.
How would you grade Boeing's response to this particular crisis, and what could they have done differently, or what should they have done differently?
What do you think? From everything that I can tell, it feels like a case study in bad crisis management.
It feels like the usual pitfalls we see, which is, you know, delay, kind of deflect, deny, and hope for the best.
And obviously there's a lot of information we don't know, but the question to me becomes almost, why do companies have such a hard time learning what is the usual typical playbook that everyone recommends in these situations, which is get ahead of the story?
And so when I was watching this thing happen at Boeing, it was almost like, what is the pathology of decision making, which leads people to kind of just ignore what is the common sense advice?
I mean, their performance has just been dismal.
I mean, even, you know, days and days after the crash, the CEO is basically absent.
I mean, there's a single tweet where he says, you know, thoughts and prayers, like the usual.
And even that is like so formulaic.
There's not a hint of personal involvement.
And then he adds Boeing is providing technical assistance.
And that's all. And then it's silence for days and days and days.
So I agree with you, Mihir.
I'm just astounded.
And I think the core, I think, is a misunderstanding of what is it that is being managed in these situations.
And I think companies often assume what we have to manage is the substantive issue.
So we need to know, is it really the software or is it really the training of the pilot?
And that's not what you're managing.
The crisis is a crisis of confidence and trust in the company.
And what you need to manage is the confidence and the trust of the public.
I mean, the software team will work in the background.
But what we want to hear from the CEO is, why is it that in this particular situation, we should continue to trust that Boeing has our best interests at heart?
Then they say, oh, we're not quite sure.
We don't know yet. We don't have all the data that creates this paralysis when, in fact, no, you have all the data that is required to manage the public trust.
I'm a little more cynical than that, which is I think they're mismanaging because they think they're managing liability.
Like underneath it is somehow that they're thinking about liability more.
They're not worried about the software fix.
I think what gets confusing to the CEO is, wait a second.
What's our liability?
How do we think about that as opposed to thinking about how do we get ahead of this and how do we actually communicate that we care about this outcome?
What confounds me is so this is an industry where the safety record has just improved just so magnificently over time.
We really take it for granted, but there are so few air fatalities now.
I think last year there was one fatality per 3 million flights.
I mean, it's insanely safe, and the reason the industry got there was by prioritizing safety.
Boeing, in its mission statement, in the very first sentence, there's the word safety, and I have to believe they mean it.
The stakes are too high for their business.
No doubt. I mean, if I'm in the business of building planes, safety has to be one of my top priorities.
But I think this is the very reason why these corporate crises, why they become so telling.
Of course, I know that Boeing invests in safety because there is no Boeing business if they don't.
And so then the crisis comes along, and in the crisis, the interests of the company and the interests of the flying public are misaligned.
And that's why the crisis provides so much information.
For the first time, there's not a real trade -off.
Are you thinking about your bottom line and liability and all of those kinds of things, or are you really thinking about me?
That's why it's so revelatory.
Like, I can see something that I can never see in a crisis.
You know the phrase crisis reveals character.
But, OK, let's play out the business case.
So this particular model of aircraft represents something like a third of the company's profits.
So it's a big deal, for sure.
On the other hand, if you look at their financial health right now, they've got $12 billion in cash right now.
This is easily a crisis they could absorb if they were to get out in front of it, take the financial hit, ground the planes, figure out what's wrong, do the fix, the stock will rebound, as it always does.
So if you just play out the business case, there's no reason not to get out in front of it.
They're a strong company right now.
Well, especially Boeing, right?
Of all the players.
I think the only way I can think about the pathology is it's like an extreme case of myopia, which is there's this short term hit that we all have to take, and somehow that feels so costly relative to the longer term benefits.
Honestly, I come down to what you said, which is this is about character.
I mean, these are the moments which really tell us who people are.
And yet it's just a very difficult thing to do in the moment.
The most telling is what you mentioned, Felix, about where is Dennis Muhlenberg?
Yeah. He's the CEO of Boeing.
And he's absent. I think most Americans don't even know what he looks like.
He's been nowhere. He's been completely invisible.
Where's the leadership?
How can that be? And how can that be the right thing, even in a narrow sense?
How could he be thinking this is the right thing to do?
It just doesn't make sense in any level.
This isn't the sense in which I just don't get the pathology so deep, right?
How is it so hard to do what seems so obviously the right thing to do?
I think that to me is what is happening here because the experts look back and they see this long history of testing these products.
Can you imagine before they came out with that product and even that particular software feature, just the amount of diligent work that goes into it is astounding.
And so their frame of mind is so different.
I never even heard of this Max thing.
And I definitely never heard about the software that is supposed to solve a problem that I didn't even know existed.
And so we are just like totally clueless.
But as a result, our response to these kinds of things and then their response is just like a total mismatch.
They live in a completely different world.
But it has to be an exceptional bubble.
It shouldn't be this complicated.
It really shouldn't.
To come out and say, look, we don't know what caused these two terrible accidents.
Out of an abundance of caution, we are going to unilaterally recommend that we ground these planes until we figure it out.
I mean, it's not, you know, we have confidence in our engineers.
If there is a problem, we will be all over it.
We will fix it quickly.
Our job is to restore trust.
I mean, it's not that complicated.
But I think this is, the two things that I think are lacking here is one is, I think this reveals a reflexive defensiveness.
It's just so reflexively defensive to say it's not us.
And there's something else, we've got to figure it out.
And the second thing is, it's so hard for somebody who has risen to the tops of a large corporation to say, we don't know.
Like that is a hard thing to say.
And to say to the world, we don't know.
And, you know, if you think back about the classic cases, you have to just be able to say, we don't know.
That's what's going on.
We're trying to figure it out.
And that is almost an impossible thing to say for many people.
When I think about crisis management, the ingredients that come to mind, for me, number one, leadership.
You want to see the leadership of the company being leaders and being visible.
The second is you want to see real actions being taken, both public facing actions as well as behind the scenes.
So there should be a lot of activity around the particular crisis.
The third is obviously the communications.
And the fourth is sort of the aftermath.
In other words, not in the immediate days following the crisis, but months later, do you see real changes in the operating behavior of the company?
And do you see the learnings absorbed into how the company operates on an ongoing basis?
Would you add anything to that mix?
And can you think of any examples of companies that in recent years have done this well?
When we talk about crisis management in our classrooms, we talk about Tylenol.
Which was decades ago.
The only one that comes to mind that is not necessarily that great and not really comparable, I mean, the Starbucks incidents, I think the details of it were they were two African American customers who were asked to leave.
I thought that was good.
The CEO did a kind of webcast from his home office and he just went out there and he took responsibility.
Now it's hard to compare that.
But they closed all the stores for half a day for training.
For training, yeah.
And of course, in a way, it's hard to compare because when planes fall out of the sky, it's very complicated.
But that strikes me as the only recent example that I can think of, it's real.
Richard Branson, I think is another example.
When the Virgin train collided in London, outside London, he was on vacation with his family, immediately ended his vacations, jumped on a plane, went to the crash.
And he did this really interesting mix of really conveying and you could see his empathy for the people who got hurt, but also there was the driver of the train.
The outcome could have been so much worse if it wasn't for this person.
And so it was this interesting mix between just showering this one brave employee with admiration and calling him a hero, but at the same time visiting the victims in the hospital.
And so many of the elements that you mentioned, Young Me, like just the boss is visible at all times.
This is his issue and he's going to do everything.
And I think he did that really well.
The interesting thing is there's such a strong business case to be made that if you manage it well, the affections that the public feels and the trust that they feel for you is actually greater than it was before the incident.
But you've got to make that, you've got to get over the myopia of like this short -term hit and you've got to believe that it's going to happen that way.
Yeah. The last thing I guess I'll say is that what particularly disturbs me about this case is that we are already at a point where there's so much mistrust between the public and corporate America.
And this just exacerbates it.
And so every time I see something like it's actually a time for corporate America to show it, you know, the better side of itself, and so when there's a failure, it's very disappointing.
Anyway, thanks, guys.
Okay, recommendations, guys.
I have one that actually is related to the conversation that we just had.
There's a book by Daniel Diermeier.
He's a political scientist and economist at the University of Chicago, and he's written this book called Reputation Rules, and it touches on so many of the issues that we just talked about.
This puzzle, why really smart, really capable people fail repeatedly at this task of managing corporate crises.
And then he has a little framework that he uses that sort of provides guidance.
And I think if he listens, I don't know if he listens to our podcast, but he would see that like many of the recommendations that we just made actually are very consistent with his research of what really makes for good crisis management.
That sounds great. Okay, so mine is also somewhat thematic.
My recommendation is a book by William Langerweis.
He is a Vanity Fair correspondent.
He was a pilot before he became a writer, and he wrote a book called Aloft, Thoughts on the Experience of Flight.
And I read it a while ago, and I pulled it out again after this incident occurred, and it not only captures the beauty of flight, the evolution of flight, but also how the industry has historically responded to disaster.
So some of the essays actually deconstruct some very specific disasters that created real inflection points for the entire industry and how the industry kind of operates.
So I would highly recommend it.
He is an amazing journalist.
He's also written other books.
He wrote the book about Sully, Fly by Wire.
He wrote American Ground, which was about 9 -11, so he's an amazing writer.
But this one is called Aloft by William Langerweis.
So that's my recommendation.
Me here. So first I wanted to just double down on your afterlife with Ricky Gervais, which you mentioned last week, which is fantastic.
The first couple episodes I wasn't sure, and then it was really great.
So I wanted to double down on that.
It's very short. It's very short.
It could have been a movie.
It could have been a movie.
It could have been like a two -hour movie.
It's going to come back for another season, right?
I don't know. Feel as you got to watch it.
Okay. It's also surprisingly idyllic.
I mean, like everything is shot in this really spartan way.
It's super interesting.
It's very interesting, isn't it?
It's almost, I know what you mean.
It's almost like it was like an other world or something.
Yeah, yes. And it's also this beautiful town.
Anyway, it was really good.
But my recommendation, you know, in my effort to not be...
We love you right here.
No, I'm just doubling down on yours.
That doesn't count.
So in my effort... Variations on a theme.
In my effort not to be a Luddite, since you guys are so more tech forward than I am.
I've been paying attention to this website.
He also has a newsletter.
His name is Ben Thompson and it's called Strattery .com.
Stratecory. Is it? Stratecory.
Stratecory. See, now you're proving I'm a Luddite again.
Thank you very much.
I thought I was so hip on me and then you have to do this and just...
But you're trying. I'm trying.
Do you know this website?
I do. I mean, he's very tech obsessed.
So it's largely about tech.
And I find him actually to be really thoughtful.
And so I thought I was going to be telling you guys something you didn't know.
But there you go. Stratecory is what it's called and it's Ben Thompson.
Well done. Thank you very much.
I'm catching up. Okay.
Thanks everyone for listening.
This is After Hours.
