Build a Supportable Product

My espresso setup

A few years ago a friend of mine experienced some issues with his espresso machine, a Rancilio Silvia model. It’s a reliable machine for the home, makes a good espresso, and it is relatively inexpensive. It also has an interesting history. And as he went to package it up for the servicing he accidentally blew up the boiler.

He was faced with a choice of getting the repairs, costing him about $300 in parts plus labor, or buying a new machine. He decided to upgrade to a better machine and gifted the broken machine to me. I am pretty sure the Rancilio Silvia that I was gifted was purchased from Seattle Coffee Gear, and they also added the aftermarket PID seen above.

The Rancilio Silvia is a wonderful machine to work on. The parts are readily available and they are generally backwards compatible. Rancilio has released over six versions of the Sylvia, which means that the parts have improved over time. Lastly, there are dozens of videos and tutorials available from a vast army of enthusiasts.

In addition to replacing the boiler with a new and improved model, I replaced the over-pressure valve gasket, which was the original source of concern. The replacement gasket is an improved design. I have made a number of other repairs over the years, including replacing the group head cover, replacing the on/off switch, and replacing the pump. I’ve also made some of my own enhancements to the machine, like lining the interior with heat-resistant sound insulation foam.

I use a coffee bean grinder (Breville BCG600SIL Dose Control Pro) that I purchased in 2016. In many ways the Breville Dose Control Pro poses a stark contrast to the Rancilio Sylvia. It’s made of plastic, whereas the Sylvia has a lot of sheet metal and brass. It’s difficult to work on. For example the Sylvia has exposed screws while the Breville’s screws are located under plastic tabs and impossible to access unless you know what you are looking for. And lastly, repair parts are not available.

To my dismay, the Breville unit stopped working entirely after 3.5 years of use. I was able to repair it, but it required me to buy a 3d printed part online, bought from an entrepreneur looking to take advantage of the lack of available parts. Furthermore, I had to change the grind settings internally which was a stressful ordeal that required me to assemble/disassemble the unit several times to be correct.

I have several takeaways on products from my experiences repairing these machines.

Think about repairability during the purchasing process and have a strong preference to purchase items that can be repaired. I made this mistake with a set of desktop speakers I purchased too. When they stopped working I realized the unit was sealed at the factory and consequently there is no way to troubleshoot.

Repairability scores should be more commonplace. These should go well beyond automobiles and cellphones, in the future. And they should absolutely be affixed to coffee machines, coffee grinders, vacuum cleaners, and everything else. Extending the lifespan of the machines that we use helps reduce our carbon footprint.

Repairability and supportability should also be considered as part of the product for software. Customer support, self-support tools, and customer triage issues are often overlooked features. They can add a tremendous amount of value in the form of improved customer experience. For buyers of software, it is an important and overlooked consideration.

The gifted espresso machine has given me years of satisfactory Italian-style espresso shots. It has given me several hours of enjoyment since I enjoy the restoration process. Most importantly, it has forced me to think about repairability and the importance of building in these features, from the beginning, in my own work.

Some Concerns About SPACs

Special Purpose Acquisition Companies (SPACs) were popular in 2020 and they are still hot. 2020 saw more than double the number of IPOs than 2019.1 Because many of these companies have 18-24 month timelines to close their acquisitions, we have not reached the end of this mania.

Prior to the start of the SPAC boom there was serious concern about the number of unicorns and their future prospects. SPACs offer these companies a method to tap into public markets. And the public markets need for these companies to be brought to market since they have seen a decline in overall volume in recent years.2 Given the declines in trading volume, share repurchases, and the widening of bid-ask prices, the stock markets can use all the listings, shares and excitement that SPACs bring.

SPACs are a risky bet for the average person since they do not know what they are buying. For this reason it is more truthful to say that SPACs are a gamble for an individual than it is to say that they are an investment. The valuation of a SPAC is difficult since the expected future value is such a broad range. SPACs valuations have also risen because of excess liquidity in the market and the willingness of people to assume risk.

There are three structural issues with SPACs that make them poor investments.

First, SPAC sponsors typically receive 20% of the final merged company. This is sometimes referred to as the “promote”. Contrast this with the 3.5% – 7.0% underwriting fees for underwriters of IPOs. There is some evidence that the “promote” has been declining recently, though undoubtably it remains higher than underwriting fees or more expensive than a direct listing.3

Secondly, SPACs also often use Private Investment in Public Equity (PIPE) financing.4 This investment is used to provide immediate liquidity to the target, but it is also dilutive to SPAC shareholders and the price of that equity is often lower than what SPAC shareholders receive.

Thirdly, SPAC sponsors are not incentivized to act in the shareholder’s best interest. The sponsors have two years to find a target or risk absorbing the legal and administrative fees incurred for the SPAC. Given that choice, the sponsors will overpay for a target or worse, acquire an immature company.

It is unclear how this will end. There is over a $100B in SPAC capital seeking targets.5 In the next year or two this money could be an accelerant to M&A. Alternatively, there could be a slow wind down of operations and the return of capital. Given the incentives and motivations of those involved in this boom, a risk-averse person would bet on the former.

References:
1 https://www.statista.com/statistics/270290/number-of-ipos-in-the-us-since-1999/
2 https://www.marketwatch.com/story/as-stock-market-trading-volumes-decline-liquidity-concerns-rise-2019-10-21
3 https://www.reuters.com/article/us-spac-compensation-idUKKBN28J1I9 
4 https://www.investopedia.com/terms/p/pipe.asp
5 https://finance.yahoo.com/news/spacs-700-billion-market-2021-goldman-sachs-morning-brief-110126053.html

Hello world!

I used to read a lot. I used to write too. Most of my writing was posted on a personal blog. This was before social media. Like everyone else I switched to those. But the lustre wore off around 2016.

My posts on social media were varied across a dozen subjects since I have many hobbies that I am not very good at. I never really captured an audience on those platforms. I realized then that social media stresses me out.

I kept my LinkedIn account because I feel like I need it for work. But now that I have spent several years away from most social media I am trying something different, but familiar.