Gracy Fernandez, the founder of car rental platform Graventure—a startup backed by Manny Pacquiao, believes that technology company founders have a lot to learn from Swedish firm IKEA which is not just a product innovator but also a supply chain innovator. Here is Fernandez’s take on the issue.
IKEA started way back in 1943, in Sweden at the height of World War II’s shadow over Europe. The founder was only 17 then, and he grew the mail-order business into the big-box furniture retailer known as IKEA today until his resignation from the board in 2013. It is now characterized by its labyrinth of showrooms, its unique taxonomy for Swedish product names – rugs take their namesake from real cities in Sweden or Denmark, while bookshelves are personified with common boy names or occupations and its affordable, everyday prices.
So what relevance does IKEA, ostensibly a furniture company, have to modern founders in software or hardware? The answer lies in what IKEA is not. At first glance, IKEA may seem like a product business. IKEA, after all, maintains an expansive, ever-changing catalogue of everything from office desks and lamps to living room couches and armchairs, that consumers cannot seem to get enough of – in 2016, the company posted revenue of 35.074 billion euros.
“Yet to think that IKEA is only a furniture company, albeit an especially innovative one, is a misconception, one on the order of believing McDonalds is only a fast food chain, even though it derives most of its revenue from leasing properties from its global real estate portfolio to franchisees.
IKEA is not a product innovator—it’s a supply chain innovator, a fact evident in the company’s DNA. The first products that IKEA sold were general merchandise that could be bought from many other stores, such as table runners, fountain pens, and encyclopedias. And even if IKEA developed a distinct charm in its products over the last 75 years, no one would argue that they are product innovations, even in the staid world of furniture. Any one of the office desks from IKEA was sleek and durable, but at the end of the day, it still consists of four legs and a flat-top surface like any other.
“In other words, IKEA did not reinvent the wheel—instead, the company found ways for it to go much, much faster. To this end, IKEA kept the number of suppliers it uses to a minimum in order to reduce transportation costs; popularized flat packing of furniture, which could be self-assembled at home with simple directions; and encouraged self-service in-store, even for the loading of larger items onto the customer’s cart. By optimizing IKEA’s supply chain, the company’s leaders made its exquisitely designed products accessible to a much broader range of people, who otherwise may have had to settle for inferior wares.
IKEA’s obsession over its supply chain should be an inspiration to all founders in the tech world.
The idea that only new products can solve problems is severely limiting—it keeps a whole host of issues from improving because entrepreneurs are stuck chasing their fulfillment in invention rather than optimization. Yet the latter is every bit as necessary as the former, if not more so. For every Musk that pioneers mass market electric vehicles, there needs to be a slew of other entrepreneurs competing to make the production of similar technology more efficient and therefore accessible to more people. Innovation should always end in inclusion.
Opportunities
Foodtech recently grabbed headlines with Travis Kalanick’s $400 million fundraise for CloudKitchens, in a wider industry projected to be worth $700 billion in just over a decade. CloudKitchens is challenging the supremacy of brick-and-mortar restaurants by allowing delivery-only restaurants to serve consumers from their turnkey cloud kitchens. This is a major supply chain innovation. Now people across the country, and not just those located in busy metros, can enjoy food on-demand; these businesses can find more customers, and in turn, more revenue.
If CloudKitchens is innovating the back-end of the food business, there are a plethora of other companies addressing other parts of the supply chain. Some are disintermediating the middlemen and creating farm-to-table mechanisms and networks for farmers, such as Sharky’s in Myanmar. Others are helping food operators maximize unutilized capacity by bringing in more foot traffic through digital content, like KFC and their Ole Ole Hour campaign in Malaysia. And still others are replacing waitstaff, cashiers, and traditional registers with more automated solutions and robo-staff, like Sushiro in Japan.
Next frontier
When the popular online trading and investment platform eToro launched its “foodtech portfolio”, it essentially hailed the industry as the next frontier, not only for financial investment, not only for startup innovation, but for the earth and human civilization’s sustainability itself.
With the pretty much irreversible surge in population, world food demand will increase by as much as 60 percent, putting the onus on foodtech including many of those in the eToro portfolio to respond with innovations in kind, many of them in supply chain.
In fact, the new foodtech investment portfolio includes a diverse range of innovators and established players. There’s big brand Danone which invests in foodtech disruptors and newer companies like Beyond Meat whose stock value quadrupled in three months following its IPO earlier this year.
eToro’s ready-made portfolio’s allows private individuals to readily participate in the otherwise complex (and prohibitive) investment opportunities in whole industries. Industries whose movement and growth are made up of many individual company performances in turn influenced by very diverse factors.
But as major frontiers go, early investments in the foodtech today may reap for the participants immense benefits in time and in the very same way that forward-thinking founders are placing big bets on the industry.
Mission-critical
I’ll be the first to admit that supply chain innovation is not necessarily as sexy as product innovation, in large part because it’s so abstract. It’s easy to dream up something you want to create – we do it all the time, hardwired as we are to daydream during the slightest period of inactivity. It’s comparatively much harder to look at things that already exist and think of how you might optimize its path to the consumer.
The supply chain innovations that the foodtech industry has so far produced have come through continual, painstaking review of all legacy processes, but the result is worth it for consumers and businesses. Because there are many more spheres that would benefit from supply chain innovation, founders need to mentally disassemble products and rethink how each of its component parts can be delivered or supplied more quickly, efficiently, cheaply, or in a mission-critical manner if you like, to save humankind.