Opportunities in the time of COVID-19

So recently, almost all news is bad news regarding the economy and especially in certain industries.
Mass layoffs, huge losses, and request for government bail-outs to stop companies and their associated workers from going under.

I'll leave the government policy question to others, but instead ask, "Where are the new opportunities?"

New Opportunities:

I stress the world new, because we already know many of the businesses that are thriving in this environment: Zoom, Amazon, Instacart, Gojo (Purell), Retail flour, Peloton....

Instead, what are the new opportunities?  

Some of the largest and generally smartest buyers are private equity funds, and they have recently raised huge distressed funds:

- https://www.pehub.com/bain-capital-collects-2bn-for-distressed-fund-pe-firms-get-ready-to-host-summer-internships-remotely-podcast-finding-the-deal-flow-and-fund-term-amendments/

- https://www.institutionalinvestor.com/article/b1lfshg4k6bsn8/Apollo-Pivots-Buyout-Fund-Almost-Entirely-Into-Distressed-Mode

Some recent investments have included AirBnB and Expedia -- effectively a 'buy-low' of the best companies, betting that when travel recovers, the best will lead.

But, for those of us without billions of dollars to invest into these, what are we to look at?

So, here are some areas that I believe are ripe to explore:

- Retail real estate:  Many of the closed retailers will never re-open.  The retail apocalypse/mallpocalypse was already in motion, and my big names (J.C. Penney's, J. Crew) have already filed for bankruptcy.  So, what will happen to all this space in prime locations?  Well, there will soon be the deals of the century for people who can find alternative and profitable uses for the space.   

- The best of the public companies:  Follow the Silver Lake playbook, but go for the public companies which are depressed, but have models that allow them to greatly reduce costs at the moment.  For example, hotels brands are effectively OpCos, which revenue share with their landlords.  As travel dried up, they took a huge hit, but probably not as big as some people expect, because of their rev-share model, as opposed to being on the hook for a mortgage like many other companies.

- Technologies which were fringe, but now appear to be the new normal:  These need to be evaluated carefully.  Many products might have a temporary shortage (ventilators, toilet paper), but will either be too many, or overall usage is simply deferred as supply is stockpiled.  However, it does feel like a world where N95 masks and gloves will become more common.

- Go beyond demand, but try to think of any structural change to the economy which may be necessary to prepare for.  For example, if gig workers become more common, does that lead to car-sharing model where a pool of cars is used during the day by one group, and in the evening by another?  Or, does child care change in some fundamental way?  

Finally, what does this mean for our careers?  Are certain careers basically over?  And, if we do retrain, what areas are most promising?

Stay tuned.  This is moving fast.

Top 6 take aways from Agile for Automotive conference -- reminds me of 2007 and hearing from Nokia, RIM and Ericsson...

Last week, I had the privilege of keynoting the Agile for Automotive 2020 conference in Redwood Shores.  Please let me know if you would like me to share my slides.

I attended almost all the sessions and was able to speak with many of the attendees and exhibitors. 

I wanted to share my top 6 take-aways:
1.  Agile is still nascent and with few exceptions, not accepted within automotive.  The industry mindset is still on 'software as a part,' which should be finished and have pre-defined attributes.  Organizational support beyond this mindset is scattered and minimal.  I shared many of the quotes that I've heard in the industry of agile-haters, and got lots of nods and smiles.  Probably too many.

2.  Volvo (car/Geely part) is the leader in becoming agile in the industry.  They're pushing hard, though are in the middle, and as one of my business school professors said, "Everything looks like a failure in middle."  I hope they persist.

3.  Tesla's software prowess is ignored by major OEMs.  This is somewhat shocking to me considering their recent market cap rise.  They are incredibly mis-understood, especially on the product side by their competitors, especially on the software experience they have.  In silicon valley, we have an expression, "First they ignore you.  Then they try to copy you.  Then they lose."  Feels like middle-innings here for lots of OEMs.

4.  The tools and ecosystem are still lacking.  StackOverflow displayed a compelling, but generic tool.  I was surprised that there weren't more OEM/automotive focused solutions, as there are in strict waterfall methodology.  Feels like an opportunity for someone to pick up.

5.  Agile is not an industry priority.  Most attendees are still mid-level.  Though, almost every other major priority (connectivity, autonomy, improved safety, sharing) is incredibly software-based, somehow, the lack of software expertise is not yet a high-level industry concern.  It's viewed similarly to, "making our interior better," and had a large view that 1 or 2 suppliers would just solve it.  Good luck with that. 

6.  Software is viewed as an inconvenience by most people in the industry.  Everyone was aware of Volkswagen's recent struggles with their ID.   This was viewed as a failure from the software group within VW, and not as some sort of wider critique on how the car is made.  The basic view was, "They should get better people."  The academic/industrial/experience that software problems always happen with linear/waterfall development was entirely ignored vs. the simpler story of a group performance problem.  Good luck with that too. 

Overall, I came away realizing the opportunity is bigger than ever to bring great software to automotive, and the established players do not yet view their, 'lunch as being eaten' like the pre-iPhone phone OEMs, even though Tesla is surging. 

Any bets on how this plays out differently from the great phone OEMs of the early 2000s:  Nokia, RIM, Ericsson....

Forbes: My interview with Katina Stefanova

Reprint from:https://www.forbes.com/sites/katinastefanova/2020/02/26/the-economy-strikes-back-against-coronavirus-interview-with-noah-kindler-former-executive-at-canoo-and-knotel/#3811cbd27ab7

Thank you Katina for the opportunity to connect on this.

The Economy Strikes Back Against Coronavirus: Interview With Noah Kindler, Former Executive At Canoo And Knotel

Katina StefanovaContributor 

Markets

GETTY

The increased probability that the coronavirus has spread beyond China to become a global pandemic halted equities’ seemingly unstoppable rally. In the last couple of days the S&P 500 fell by 6.5%, the largest loss since August 2019. The first line of defense supporting risky assets such as equities is “Helicopter money”, with both the government of Hong Kong and the government of Singapore recently announcing that they will give out cash to their citizens to assuage market concerns related to the coronavirus.

However, investors have concerns whether the global economy will be able to quickly recover from the impact of coronavirus. Below, I interview Noah Kindler, an expert in innovation and entrepreneurship to explore his views of whether the global economy is resilient enough to withstand the impact of coronavirus.  

Noah Kindler is an experienced entrepreneur and innovator.  He has founded and led product innovation at companies in both the consumer and enterprise markets including for Canoo and Knotel, which are both unicorns. He has a BS in Computer Science from Stanford and an MBA from Harvard. 

Today In: Money

Stefanova: Noah, it is a pleasure to talk to you. Please tell me, what do you believe will be the long term economic reaction from the coronavirus? Can you draw some historical parallels to predict the types of innovation that could potentially arise as a result of coronavirus?

Kindler: I am optimistic about the global economy’s ability to adapt to the coronavirus threat. The combined power of innovation and entrepreneurship can not only halt the advancement of the coronavirus, but also create a global economy far more resilient to future pandemics. Such optimism is grounded in history.

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Just as 20 years ago after September 11th, out of fear and sadness, the US and global economy emerged stronger than ever. We saw industry create a whole new class of services and technologies, which were desperately needed to address the threat of terrorism: security screening, identity and intelligence products. Arguably, some of the most impactful technologies such as AI, data analytics, face recognition, voice recognition were propelled forward by government research and venture capital specifically as a result of the rising threat of terrorism.  The impact of the coronavirus is similar in its ability to incentivize innovation. Today, with the risk of global pandemics on the forefront of both governments and business, we’re seeing a need for rapid innovation to help patients and care providers; to address business continuity, and government security — and many of these just do not yet exist.

Stefanova: Noah, based on your entrepreneurship and Venture Capital experience, what areas specifically are you looking at as potential emerging business models to protect the world from the risk of pandemic? As a result, which public and private companies should investors look to invest into.

Kindler: I see five areas which are simply needed now, more than ever, and will be needed even more in the future with increasing internationalization.

New treatments: Vaccines and medications to treat pandemics and quickly tweak and distribute optimized formulations as required, like for the flu every year. This will boost pharmaceutical research and increase government investment in the area. Also the ability to produce such treatments on demand and in large quantities as well as transport them efficiently to wherever in the world infection spreads will create an opportunity for new and creative medical companies. The innovation has already begun with companies such as Gilead (70.10 USD), Inovio (3.74 USD), Moderna (23.76 USD) leading the way. For example, Gilead came up with a drug that can help treat coronavirus symptoms, and Inovio and Moderna started to develop coronavirus vaccines.

Diagnostic equipment: Diagnostics equipment that is effective and inexpensive, can be used by non-medical professionals such as airport personal or self administered simply does not exist. Investors should look for companies that are developing screening equipment to quickly discover people who may be ill or carrying a virus, and should be isolated from groups: first level, secondary, etc. These technologies can be customized for their environments, be it a hospital, airport, church or even at home.

Spread reduction technologies: As we’ve seen on cruise ships, their ventilation systems are woefully inadequate to contain and isolate infections. Various air filtration and other protective equipment is needed urgently. This equipment may have the ability to quickly upgrade protective capabilities as needed.

Inventory stockpiling and pre-positioning: In 2001, when the anthrax scare was at its peak, people were stockpiling the antibiotic Cipro. And, recently, we saw China urgently build a large isolation hospital in under a week. I imagine a word where stockpiles of such inventory are built up and maintained as needed. New types of logistics and storage companies may arise as a result.

Financial products: I’ve watched my 401k drop almost 10% as a result of the coronavirus. I hear of hedge funds changing their trades based upon this. It turns out that I, like almost everyone, was long ‘no-pandemic.’ While the people who are sick are the true tragedy, we shouldn’t overlook that this virus has wreaked havoc on people’s retirement security. Additionally, airlines are predicted to lose $30B and other industries like cruises and conferences are sure to suffer. Even Apple’s stock has lost $50B of market cap from this virus. As such, individuals and industries will want to diversify, to varying extents with targeted financial products.

Stefanova: What specific financial products should investors add to their portfolio? 

Kindler: I see a need for adding assets to investor portfolios that provide protection in case of pandemic. The simplest way for retail investors in this environment is to reduce volatility by selling some of their equity exposure and adding gold ETFs (SPDR Gold Trust, iShares Gold Trust, Aberdeen Standard Physical Swiss Gold Shares ETF). Katina you have written about precious metals and unlevered real assets recommending to investors to add those to their portfolios as one of the core macro themes for 2020. Additionally, you predicted that gold will outperform both equities and bonds as early as April 2019 (3 Reasons Why Gold Will Outperform Equities and Bonds). It is not too late for investors to buy gold even now.

MARTO RESEARCH

Stefanova: Noah, are you seeing entrepreneurs start to look at these areas?

Kindler: It’s early, but I’m starting to hear of various bits and pieces here. I would expect to hear more over the next 18 months, especially depending on whether the coronavirus becomes a pandemic.  There for the time for investors to adjust their portfolio is now.

Stefanova: Can you share any other thoughts on the coronavirus?

Kindler: It’s a tragedy foremost. My heart goes out to those affected. The front line workers are heroes and do not get enough credit. I hope in the future that patients and workers have even better opportunities and outcomes. However, I am an optimist and we have seen over and over the global economy adapting to quickly to respond to new threats again and again through the power of technology innovation and entrepreneurship. This time it is no different.

---

Katina Stefanova

Katina Stefanova is the CEO and CIO of Marto Capital, a global, systematic absolute return strategy that trades in many diversified markets including FX, rates, equities and commodities. Katina frequently speaks at many conferences and events across the globe on topics including investing, technology, and entrepreneurship and is a thought leader on disruption in the asset management industry. Prior to founding Marto Capital, Katina spent over 9 years at Bridgewater Associates as a Senior Executive. She began her career there as a Senior Investment Associate. Katina then became a Management Committee Advisor, where she held leadership roles overseeing various areas of the firm. Prior to Bridgewater, Katina was a senior leader in the financial services and technology space, including serving as a Director of Business Strategy at IBM. She is also the co-founder of AcordIQ, which delivers state of the art portfolio intelligence and governance solutions with expert consulting services to asset managers and institutional investors. Katina holds an MBA from Harvard Business School and a BA in International Relations from Brigham Young University.

 

The economy strikes back against coronavirus

My take with Katina Stefanova on Coronavirus and how silicon valley can step up here.

https://www.forbes.com/sites/katinastefanova/2020/02/26/the-economy-strikes-back-against-coronavirus-interview-with-noah-kindler-former-executive-at-canoo-and-knotel/

#coronavirus #coronaviruschina #innovation #venturecapital #startups

Automotive hates agile: Phased delivery and governance

I want to thank my fantastic (twice) former colleague Amin Ariana for much of framework here.

I experienced huge frustration here, and wanted to share thoughts on why.

Two accepted principles of almost any automotive product development are: Phased delivery and governance.

Typically, powerful parts of the organization, that control significant resources will manage both of these, in the name of, "coordination," and "watching the money."

Phased delivery:  Programs are divided into phases, with various interim milestones before full production: alpha car, beta car, pre-production, low-volume, etc.  For each phase, there are a set of requirements, which become more complete overtime. 

This naturally appeals to people because each milestone allows for judgment on what is 'ready' and what is 'behind.'  It also forces decisions (vendors, engineering trade-offs) that otherwise might end up in paralysis or continually pushing for a better deal.

Governance:  By its nature, this is a group of functions that track progress, are involved and often approve major decisions, and apply countermeasures and involvement when they perceive need.  Two of the most common ones in automotive are: 1) vendor approval, and 2) budget/internal hiring.

Effectively, to get access to resources, such as hiring contractors, hiring internally or using other vendor products, someone outside your group needs to be convinced.  While this in theory provides an important counter to 'going rouge' or lack of accountability -- in practice, it gives a ton of power and input to non-experts, who typically set up a process for non-software parts of the business, and then demand compliance in the name of, "I watch the money carefully," or, "I want to make sure it all comes together," and force non-agile into the system.

The challenge here is that automotive is just not set up for agile.  Even if a sub-culture can work this way, there are lots of functions that simply don't care, and gate resources.  They block agile, slow down quick decisions and force large requirements, which are inevitably pulled up at a later date for, "where are we on this?  You gave this to me..."

So, what to do:

Often, when stuck in this trap, people try to work around it.  Thinking, well, I'll just fill out the form, but we can all shake our head in agreement when we say we're agile.  Good luck.

Instead, explicitly opt out of this at the beginning, but propose an alternative.  Include the vendor, governance and other such teams in sprint planning sessions.  Bring them into the tent.  Make sure that the person/people involved is sufficiently senior to actually approve, and not just a token person tracking progress. 

Agile is tough in this environment.  The system rejects it.  There are teams built to reject it.  We naturally want to please people and try to be helpful for their "board presentation on what we're delivering over the next 9 months.  "Just a few bullets."  "Now, a bit more detail, like everyone else has."

Just say no.  Half measure lead to full failure.  Agile means agile.  Set up the whole company for success, or don't bother and accept bad software, just like everyone else in this industry.  And, don't listen to McKinsey here either (per my previous post). 

Agile and automotive: McKinsey's take is wrong

McKinsey recently published an article on software in Automotive: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/mastering-automotive-software-launch-excellence?cid=soc-web

Here's what they say about it:

The McKinsey Center for Future Mobility just released the article "Mastering automotive software-launch excellence". In the article, we provide an overview of the escalating role of software in the growing launch problems, analyzing its root causes and providing two solution approaches following the launch excellence framework. We, then, dive further into how automotive players can crack the code on superior launch performance by reducing complexity and increasing robustness in embedded software development. More of our latest thinking on www.mckinsey.com/mcfm.


My take:
Frankly, I think McKinsey missed it here and their analysis here is a bit dated, misses the major challenges, and will never make automotive software of the quality or experience people expect from their computer and phone.

There is a whole cultural and values based analysis of automotive delivery, throughout the ecosystem, that reminds me of many other industries pre-agile (15-20 years ago) and stands in the way of the necessary changes. They have a way of working around negotiation specs and delivery - and view software as a part or sub-system, with a whole organization behind this (finance, program, manufacturing, design, etc). Software isn't 'isolation' or treated as a part, that needs to be spec'd and finished, but an agile mindset of delivery. 

Until these barriers come down, software in cars will continue to be the worst part of the user experience, and the few that master it (I'd put Tesla in the lead) will delight their users and find that software is not 'just another part of the car' but one of the key elements of the mobility experience and delivery

Software has never done with half measures, and these recommendations are even less.