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The DL - An inside view into Pacific Northwest Tech

Welcome to The DL, a weekly newsletter-as-a-service about tech, startups, and investing in the Pacifi
October 28 · Issue #19 · View online
The DL
Welcome to The DL, a weekly newsletter-as-a-service about tech, startups, and investing in the Pacific Northwest.

This week’s issue has a summary of the three different types of AI companies, stories of retail family dynasties, and photos from Portland’s annual giant pumpkin regatta.

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Three types of AI companies
Example robotic process automation (RPA) workflow
Example robotic process automation (RPA) workflow
Intelligent applications are one of Madrona’s core investment themes, and this week Soma and I wrote an article on the three types of intelligent applications that VCs want to invest in.

Overall, whether a company calls their technology “AI,” “machine learning,” or automation, we are looking for companies that can bring 10x improvements to processes and outcomes by being one of these three things:

  1. ⚙️ Automators - Take a well-defined process with manageable complexity and exceptions, and automate it using technology (example: using RPA to automate invoice processing and payment approvals)
  2. 👩‍💻 Augmentors - Take a human-driven process with lots of complexity and use AI to guide, advise, and coach human decision making (example: help people write better marketing copy)
  3. 🤖 Avante-Garde - Use AI to create net new products and workflows that would not be possible without ML technology (example: enable cashierless checkout at different retailers)

If you want more detail and examples of each, check out our full post on Geekwire, and let me know what you think.

Shoutout to Tualatin 🎃
from u/batdaaddy on r/portland
from u/batdaaddy on r/portland
Of course there is an annual West Coast Giant Pumpkin Regatta in Portland every year. 😂 More photos here!

A tale of two retailers 🛍️
The Nordstrom family and the Chang family
The Nordstrom family and the Chang family
The New York Times had a fascinating pair of stories about family-run retailers this week - one about Nordstrom and one about Forever 21. There are a bunch of great stories and anecdotes in both, so go read them!
But in case you don’t have time, here are some of the highlights:

Forever 21
  • The Chang family immigrated to the US from South Korea in 1981 and started Forever 21 in 1984
  • Do Won and Jin Sook are the husband and wife cofounders, and their daughters are both executives at the company
  • At its peak, Forever 21 reached $4B+ in annual sales
  • The Changs never took any investment and own 99% of the company
  • Last month, Forever 21 filed for bankruptcy
  • As the business expanded, the Changs hired experts to run parts of the business but then distrusted and ignored their recommendations
  • The problems that led to bankruptcy were long-term leases for massive stores, unprofitable international expansion, and merchandising errors
  • Through the bankruptcy, the company will be expanding the board and hiring new executives, cutting costs, and expanding ecommerce sales

  • In the 90s, Nordstrom was struggling. Then, Blake Nordstrom took over in 2000, guided the company back to its core value of customer service, and the company began to grow again
  • Today, Nordstrom is run by Peter and Erik Nordstrom, who are the fourth generation of Nordstroms to run the company
  • Nordstrom has done well with “onmichannel” retail – a third of its sales are online, and financial analysts see their new “Nordstrom Local” stores as the future of the business
  • This month, Nordstrom also opened a $500M-$1B New York flagship store (estimated) as a big bet on the future of physical retail
  • In recent years, Nordstrom has hired its first Chief Merchandising Officer, a VP of Creative Projects, and a VP of Men’s Fashion, and they believe these folks are the future of the company
  • Peter and Erik think they’ll be the last generation of Nordstroms to run the company and are ready to hand over the reins to new leaders

After reading these articles, I did some more research on family-run businesses, so here are some closing stats from BCG and Credit Suisse on how important family businesses are to the global economy:
  • 33% of US companies with $1B+ in revenue are family-run businesses
  • In Italy, the Agnelli family controls 10.4% of the Italian stock market. In Hong Kong, 15 families control assets worth 84% of GDP
  • Family-owned firms outperform the broader equity markets in all regions and sectors by 4% per year
  • Only 12% of family firms make it to a 3rd generation

Other stuff Dan's talking about
🇺🇸 The American Dream - In the 1940s, 90% of children in the US grew up to earn more money than their parents; by the 1980s, this number dropped to 50%. The US is getting richer, but wealth isn’t distributed equally
👚 Stop buying clothes? - Morgan Stanley says that “consumers have reached peak happiness with clothing” because they already own too many clothes (the average person buys 65 clothing items per year)
💸 Speaking of family businesses… - Last week, Eric Tse (24 years old) became the world’s newest billionaire after his parents gifted him $3.9B of company shares. Check out his Instagram in this Daily Mail post
📚 Red Notice - A guy from Chicago becomes the largest private investor in Russia and gets on Putin’s bad side. It’s a true story that reads like a crime thriller. Definitely recommend!

Please hit reply! (Or subscribe or forward!)
About me: I work as an investor at Madrona Venture Group, a Seattle-based venture capital firm that has been early partners with companies like Amazon, Smartsheet, Apptio, and Redfin.

If you have thoughts, questions, or comments, hit reply!

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