Episode 57: Founder Mode, OnlyFans Extreme Profits, Step One Delivers, Waymo and Cettire's Wild Week
The OnlyFans profit machine, the Founder Mode debate, how autonomous driving could be the most impactful tech in two decades, how Step One is one of the highest-margin businesses, and Cettire.
The Contrarians catchup
The guys feel the wave is about to break on autonomous vehicles after Adir has seen an increase in LinkedIn contacts raving about Waymo’s service around San Francisco. Adam has always been bullish on self-driving cars and rattles off statistics about their safety and cost-effectiveness for consumers.
Adir: “Tesla might be a footnote in history”. In the company’s last financial report, earnings were down 40% and the numbers were inflated by their battery business, not their cars. Adir doesn’t think you could short Tesla, though, because “there is still there is still a religious component to it”.
In what is now a tradition whenever dissecting a business, Adam and Adir view it through the “7 Powers” lens (a book by Hamilton W. Helmer): scale economics, switching costs, cornered resource, counter positioning, branding, network effects, and process.
Adir: “What would be different in the world if there was teleporting? I often think about that. And one thing that would certainly be different is every assumption about real estate would be out the window, right? And so I think proximity to a centre is what drives a lot of our society and maybe flying cars would change that.”
Adam was in a bad mood because Luxury Escapes had fitness week at work and he lost the situp competition because others were doing “unsanctioned situps” and he was going to “twice the depth”.
Adam believes hotels are much cheaper in London when travelling with his family, while Adir’s Airbnb tip is to choose a place that has at least one positive review, but no official star rating yet, because it will be 35% cheaper.
Two quick things in the world of quick service
Adir pointed out two big pieces of news in the world of quick service that you might’ve missed:
In late 2023, 7-Eleven Australia became a subsidiary of 7-Eleven International, which is operated by Seven & I Holdings, a Japanese diversified retail holdings company. 7-Eleven Australia continues to be headquartered in and managed from Melbourne. Alimentation Couche-Tard (a Canadian multinational operator of convenience stores with brands Couche-Tard, Circle K, and On the Run) is attempting to purchase Seven & I Holdings, essentially creating a monopoly of convenience stores.
Adir: “My dream… I mean, it’s not my primary dream in life, but one of my dreams would be for Seven & I to bring the Japanese 7-Eleven to 7-Eleven. Although there are no slurpees.”
Red Lobster, an American casual dining restaurant chain, lost $7.5M in a quarter by letting customers eat as much shrimp as they want for $20. But Adam said the deal wasn’t as dumb as it sounds because Red Lobster is owned by Thai Union Group, a global supplier of shrimp of which Red Lobster was a customer.
Founder mode activated
Paul Graham, co-founder of startup accelerator and seed capital firm Y Combinator, went viral last week for his essay about “Founder mode”. The concept was inspired by a speech given by Airbnb founder, Brian Chesky, who said their “Manager mode” approach early on led to disastrous results.
Paul Graham: “Hire good people and give them room to do their jobs. Sounds great when it's described that way, doesn't it? Except in practice, judging from the report of founder after founder, what this often turns out to mean is: hire professional fakers and let them drive the company into the ground.”
Adir: “But it is a double-edged sword. I was guilty of this with my companies. When you start saying ‘when I was the person on the phone I did this’. Yeah, that's great. But there were eight people, not 800 people. And sometimes processes need to change as they always do as companies evolve. And so I think a lot of the trick is understanding as a founder, what are the most fundamental things that should not change. And there's only a few of them. And then letting the other things change and evolve as the business grows. I do think hiring great people and giving them space is the right thing to do.”
Adam: “You look at the job of a CEO and it has three main jobs: one job is capital allocation, which I think managers are great at. Founders need to be good at if you want to be good at the role Second is hiring and retaining great talent. Both need to be great at that. And the third thing I think founders have that managers may not have is this great product, customer understanding. Managers generally don't have that luxury of having built the products, they came in after the product was built.”
A brief update on Step One
Step One is a direct-to-consumer online retailer of underwear known for high-quality, organically grown and certified, sustainable, and ethically manufactured underwear that suits a broad range of body types.
The company’s share price has risen from 33c last June to $1.68 last week, giving the Aussie business a market cap of more than $300M.
Total sales were up 30% to $84M, its international business is flying, with its US market growing 261% (albeit off a very small base) and UK was up 33%. Advertising spend was higher but well controlled, with the company gaining a large portion of customers from word of mouth.
Adir: “How fast could this business grow and still be profitable is kind of the question. And we'll maybe not say profitable. Let's say how fast could it grow and still keep generating free cash, notwithstanding inventory sell downs and other ways to generate cash. So what I thought is, I reckon that the one third of customers that are buying for the first time, it's probably likely that at least three quarters of the CAC is being spent on them.”
Adam: “To me, this could be a billion dollar business.”
Cettire's Wild Week
Adam: “So, about two weeks ago, Cettire fell to a dollar a share after they announced their audit hasn’t been signed off because it's actually having some sort of argument with its auditor, Grant Thornton, about revenue recognition. It then shut up to $1.60 when it was announced the founder had bought about $15 million worth of shares, the most you can buy under the Corp's act, then fell back down. And then the last couple days, it's rocketed to $1.70 a share. This is literally all over the shop.”
OnlyFans Extreme Profits
Adir wonders how many businesses Adam knows that make 50% profit before tax margins. Skipping the guesses (Nvidia, Microsoft etc.) because the answer is in the headline, OnlyFans announced that creatirs cleaned up last financial year, combining for $5.32B in payouts. There was also a 29% annual increase in people getting in front of the camera, up to 4.12M creators.
Adir: “The interesting thing about this platform is that the majority of what’s on there is porn in variety or another. But half of the top 10 creators are not porn-related. Similar to Apple, they keep 20% of all creator revenue. How is a company of this size, with this level of profitability, able to keep 20%? How are there not competitors piling in?
Adam: “It’s just a classic network business.”
Five other stories worth following:
American singer, actress, producer, and businesswoman, Selena Gomez, became a billionaire. The 32-year-old celeb is one of the youngest self-made billionaires in the US, with an estimated net worth of $1.3B.
A North Carolina man faces fraud charges for allegedly using AI to create hundreds of thousands of songs, then programming bots to stream said songs billions of times. He netted $10m+ before the law caught up with him.
The US Consumer Product Safety Commission warned against using “universal” ebike and escooter chargers, having received 156 related fire and thermal incident reports between January 2023 and May 2024.
Starbucks’ new CEO is set to start today. Brian Niccol will be the coffee company’s fourth chief exec in two years after leaving Chipotle, where he rebuilt the burrito biz following multiple E. coli outbreaks. During his six years there, Chipotle’s stock gained 800%.
Boeing’s Starliner spacecraft touched down in New Mexico, completing a successful test flight. The only problem? It was empty — its two astronauts remain at the International Space station, for now.