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The DL - An inside view into Pacific Northwest Tech

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Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.
 
November 25 · Issue #23 · View online
The DL
Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.

This week’s issue digs into America’s new CEO factory, the economics of some of Seattle’s most successful non-tech businesses, and a cool AI stock photo website.

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America’s CEO Factory?
There was a good article in the WSJ last week examining how Amazon has become an executive training ground. According to CEO recruiters, “like GE in its heyday, Amazon is viewed as a so-called ‘academy company’ where leaders are groomed.”

Amazon obviously has a strong culture that drills managers on its leadership principles, and this is one of the reasons the WSJ ranked Amazon as the #1 best-managed company in the US (Microsoft was #2!). Companies today want executives with tech expertise, data-driven thinking, and the ability to be a disrupter, so Amazon is the perfect place to search for executive talent.

However, one thing I noticed in the WSJ’s list of Amazon alums was most of the alums left Amazon to take executive roles, rather than starting new companies. Ideas on why? Hit reply, and give me your thoughts!

Financials of Sea-Tac Businesses
Every business that wants to lease space at Sea-Tac Airport has to respond to a public RFP, and Sea-Tac also publishes the results of their audits online. It’s pretty fun to see the economics of an airport business and how these companies present themselves in an RFP.

The website doesn’t work very well (surprise), so the best way to find things is to just type the names of businesses directly into the search bar. But in case that’s too much work, here are a few highlights:

  • In FY16, the three duty free stores at Sea-Tac generated ~$20M
  • All airport leases are based on a percentage of revenue - for the restaurants, they pay ~10% of their revenue to Sea-Tac as rent. But for Dufry, it’s 36% of revenue! Talk about value capture!

  • Floret is forecasting ~$4.1M of revenue for 2019, and that should generate ~$300K in EBITDA

  • Their tiny 350 sqft bakery in Pike Place did over $3.1M in annual sales in 2015 (wonder what it is now)
  • They have 80%+ gross margins and ~25% operating margins

  • The MOD Pizzas at Seattle Center and Issaquah have annual revenue of $1.5M+ and sell more than $10K of pizza on peak days
  • MOD expects a ~12% EBITDA margin per store at steady-state

  • Sales in 2017 were $6.9M, almost double 2014 sales of $3.7M
  • At the airport, Beecher’s is not allowed to charge prices that exceed “Street Prices,“ defined as "prices commonly recognized by the public”

  • The Starbucks Urban Market store at the airport expects to make $7-8M per year and generate $700-800K of EBITDA
  • Starbucks has the prettiest presentation (good template to pitch the airport on a new business!)

  • Wow - lounges are profit machines! In FY16, The Club at SEA brought in $2.2M of revenue and generated $1.6M of net income (73% margin). Better than SaaS!

  • Gross revenue for FY19 was $20.1M! Location is so important - great to have that big spot in the middle of the airport

Cyber Monday Picks
Any recommendations for DL readers? Please send me ideas for next week’s issue! (Bonus points for products from PNW companies)

Other stuff Dan's talking about
check out this demo to see how you can sub in different model's faces for each photo
📸 Generative.photos - Good domain name and very cool AI product that uses AI to generate realistic stock photos, and they’re free (for now)
👯 Improve Your Social Skills - This site was at the top of Hacker News last week. Sounds like a parody, but actually it’s a bunch of articles on how to build social skills from someone with Asperger’s Syndrome who had to methodically learn how to be social step by step. Interesting read
📖 The Dark Forest and Death’s End - Thanks to Philip S for these recs! If you read The Three Body Problem (China’s most popular scifi book) and thought it was good or even meh, please finish the trilogy! It’s SO GOOD!
😘 Dating market thesis - Here’s what you get when a hedge fund dude analyzes the online dating market for shifts in market dynamics and optimal dating strategies

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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