460 Apple Is Seven Years Late To The Fold And Takes 44% Of The Money | The Pirate Street Journal

0:00Thanks for pressing play and welcome to this very special episode of the Pirate Street Journal. My name is Christopher Lochhead and yes, I am also the host of Follow Your Different. And what you're about to hear is something that I've been dreaming of for quite some time and we got a lot of feedback that people wanted us to do it, so we're doing it. And so what the it is, is a regular look at kind of relevant business news through the category design lens. it's predicated on the crazy idea that, you know, the Wall Street Journal doesn't know how business works. And as outrageous as that sounds, it's true in the context of most business press is focused on companies, maybe products and technologies, but almost never market categories.

0:49And so what the Pirate Street Journal is, is we take three important business topics of the day, And Eddie, Bree, and I look at those topics through the category design lens and share them with you and in and out in 30 minutes. It's the Pirate Street Journal. It's a very different look at business, and I sure hope you enjoy it. And we're going to be releasing PSJs on a regular basis for the foreseeable future and drop our regular follow your difference that are either one-on-one with me or a conversation with a legendary guest. So without any further ado, this is the Pirate Street Journal on follow your different.

1:26Hey ho, let's go.

1:43Christopher Lochhead: Today's first topic, Apple has a new CEO and a$2 ,000 folding iPhone, and it just walked into a shrinking category and grabbed almost half the money anyways. Topic two, the SaaSpocalypse. Wall Street spent the year pricing in the end of corporate software and the software companies answered by beating the numbers. And topic three, Nike, more than$200 billion and market value gone. And later this month, it gets dropped from the S &P 100. One of the moves that got it there is Nike got rid of its categories. We are recording on Friday, September 11. Hey ho, let's go. Topic one, Apple held its most important product event in years on Wednesday with a new man on stage.

2:21Christopher Lochhead: John Ternus took over as CEO last week. He's only the third person to run Apple since Steve Jobs came back in 1997. For his first show, he got the first foldable iPhone ever, the iPhone Duo. Starting price,$1 ,999. Now let's move to the fine print. Memory chip costs are up five times since last fall, so the prices went up too. The iPhone 18 Pro is$1 ,199 and the Pro Max is$1 ,299, both up$100. And Apple skipped the base iPhone this year. So if you want a new iPhone this fall,$1 ,199 is the lowest price you're going to get one for. The Wall Street Journal buried the wildest number near the bottom.

3:03Christopher Lochhead: Foldables aren't new. Samsung launched one in 2019. And the category is stalling, with shipments down 15 % in the first half of this year. Apple is showing up seven years late to a shrinking category, and IDC says it'll still take 44 % of all foldable revenue in 2026. The duo doesn't even ship until October 23rd. Seven years late, 10 weeks on shelves, 44 % of the money. So Eddie, we have a new CEO kicking off with a new iPhone. What's the category lens on the next era of Apple? Well, Apple's done a few things great. And I think great start for John Ternus because the main thing is pricing. They knew that the memory pricing was going to impact their cost of goods and they would have to take pricing up.

3:47Christopher Lochhead: And what's the line that we always say? How do you sell a$10 ,000 watch? You put it next to a$100 ,000 watch. So a perfect time to launch a$2 ,000 to$3 ,000 iPhone because people are going to look at the price increases of$100 and be like, wow, this is a lot cheaper than$2 ,000 to$3 ,000. Pricing is all relative and it's very emotional. So this is a really good way if you have to deal with a price increase due to COGS, launch a super ding-dong offer, and you'll be able to skate by. Now, the second thing that Apple has done, it's related to pricing, is that kudos again to Cook and Ternus and Jobs.

4:24Christopher Lochhead: They are the living manifestation that the great Clay Christensen was not correct. Correct in the innovator's dilemma that that's the risk that incumbents get disrupted. But his theory was that they always get disrupted from the bottom, from cheaper competitors, and that therefore the prescription was to come in at the bottom and offer a cheap one. Remember when United offered TED to combat Southwest or Delta offered Song to combat the low-priced carriers? And it's been a disaster for the incumbents when they compete on price. And what Apple has proven over and over again, Brie, as you just said, even though they're late, they're not the first to create the category, but they are the first to cement it and take it mainstream.

5:05Christopher Lochhead: and in particular the way that they do it is by making things more expensive and now this is an important part of consumer psychology with this is that consumers do not like the water torture of price increases three percent here two percent here for the same old same old super consumers actually welcome a big step change in price if you deliver a different outcome for them and transformation and that's essentially what apple is doing here now even though you know the foldables again, aren't new, just as you said, Bree, but what Apple does just so well, the design, the UX, the beautifulness of the product and the ecosystem, and the fact that they make it easy to kind of work with and deal with.

5:47Christopher Lochhead: So it's very, very clear that what Apple has done repeatedly is create new categories within the same one late, but really well done. They don't ship it until they are different enough to really make a difference and to command the pricing power that they need. Remember the OG iPhone. people were like, who's going to pay three, four, five hundred bucks for a cell phone that you can get for free from a carrier like AT &T? They created the Apple Watch. Who's going to pay a few hundred dollars for an electronic watch that where you're looking at Casios and whatnot? And now you have the Apple Duo.

6:23Christopher Lochhead: So, you know, really kudos to them. I think it's going to show that foldables, a small fraction of the unit in the smartphone category, it's going to immediately go up. Probably their first big hit where people will be waiting outside the store in quite some time. Well, I agree with much of what Eddie said, of course. And I want to shine a light on a couple things. So first of all, this week, earlier this week, I was with Ray Wong, the founder and chairman of Constellation Research, the world's number one tech analyst. And what he said to me about these folding smartphones, Samsung has had one for quite some time and others, is they break.

7:01And so they snap in half. And so when you got a$2 ,000 smartphone that snaps in half, not so much. He said, here's the other problem with them. They're heavy. So for Apple, this is their first generation. We'll see how many of them snap in half. They are heavy. It will be a niche product. But Eddie, to your point, this is exactly what happened when the iWatch came out, right? When the iWatch came out, limited functionality. They didn't really have a category designed for it. It made no sense to people. It started off very slow. And then over time, as apps became available and companies built entire businesses around it as a platform and so forth and so on.

7:47Now it's taken off. And of course, people love them. So we'll see what happens with the duo over time. There's something else that's important here, though. And that is the following. And I'm a big Apple fan. I really am. And I think Tim Cook, well, here's the other thing pisses me off. Tim Cook just completed the greatest 15-year run of any non-founder CEO in the history of earth. I looked. If you see coverage that says that, I would like you to send it to us, please. Send it to hello at categorypirates.com. The business media fails over and over and over again. Okay. What we have here is a man who took over from one of the greatest founders, most iconic founders of all time.

8:41Everybody thought Apple was effed after this happened and then Jobs died. What happened? Here's what happened. In 15 years, Tim Cook took over Apple. Their market cap was slightly below 400 billion. 15 years later, it is approximately 4.5 trillion He added an incremental$4 trillion worth of market cap in 15 years. That's legendary. And nobody is talking about it. It's insane. And there's one other thing I want to share about Tim Cook. I got into a big fight on LinkedIn recently about this. There was a post about some gal who was named the young female CEO of the something list or award or something like that.

9:29But it was all about her being a female CEO. And I made the following comment. And I forget her name, you'll excuse me. The comment I made was, won't it be great when Susie Brown is no longer referred to as a female CEO? And that comment got 100 ,000 views and a ton of discussion. Some people agreeing with me, a lot of people being upset. But here's my point. Tim Cook is the first openly gay S &P 500 CEO ever. And how often do you see him referred to as such? Almost never. And Jeannie Romanetti, when she became CEO of IBM, she did the same thing. They started to try to position her as a female CEO.

10:16They asked her about IBM sponsoring Augusta and women and all that stuff. She said, look, forget it. I'm not going there. My job is to be the CEO of IBM. And what Tim Cook said was, he's proud to be gay. I believe he's married, if I'm not mistaken. He participates in some gay community things and so forth and so on. It's not a secret. Everybody in Silicon Valley knew anyway. Nobody cared. Nobody cares. Nobody cares. That's the story. Because what matters is Tim Cook just completed the most legendary CEO run of a non-founder ever. And there's no asterisk. That's the point. So congratulations, Tim Cook.

10:57We live in an Apple world and that is a very good thing. Now, let's get back to this duo for a second. I think it's a big fail and here's why. I get nothing against the product. I think the emphasis is on the wrong syllable and that's the problem. Apple has failed. Let's just tell the truth, failed in AI. When I pick up my phone and I talk to Siri, I want to punch Siri in the face because Siri sucks. The voice recognition is not that good and she's not that smart. Why isn't Siri, chat GPT? Why isn't Siri as good as Claude? Why isn't Siri as good as Grok, et cetera, et cetera. Apple has a history of effing up in software.

11:40They do it. They've done it consistently. And so the new CEO is a hardware guy. And so I question this. I want to see what's going to happen because we have a hardware guy taking over at a time when we're in an AI software battle for supremacy and they are failing in software and specifically in AI. So that's my caution flag on Apple.

12:08Christopher Lochhead: It's a really Google famously paid them billions and billions of dollars of revenue to be the default search on the iPhone. And the part that I think will be the tell, I think Christopher is absolutely right. They have to get into the game in AI one way or another, whether it's through partner or Greenfield or who knows, right? But probably the partner side. Now, the part that is interesting for me from a form factor and use case perspective is the fact that you can have two apps open at the same time. because that's the one that kind of gets me intrigued of like, can you be looking at a text, composing an email, and have your Claude Gemini thing on the other side?

12:52Christopher Lochhead: Because that's probably the most likely use case. Now, it could be voice activated so that it's less of a dual screen dynamic. But I do think that, A, they have to kind of have the table stakes of AI. But B, there might be this kind of infusion of hardware and software from a UX where the fact that if they design the Duo to be where AI is your co-founder, is your co-smartphone user. That is a different experience than toggling back and forth between apps and the like. And so we'll see kind of how that shakes out. And here's the interesting thing, and I hope they get this. The big consumer app appears to be the new category for AI consumer is going to be the seeing, all seeing, all dancing, all helping AI partner, right?

13:44So the AI needs to now get plugged into everything, your calendar, your emails, everything you search, ultimately your healthcare data. And ultimately we are going to have an AI partner. Now, the number one issue with that, and there's some startups doing this, and they're doing a great job. The companies that can win here are Apple and Google. Those are the two big guys that can really win here. And Apple has won on trust. And so most of us, I'm not right now willing to trust some startup that I don't know with my life. That's why I didn't do 23andMe. They went bankrupt. I'll add a third company

14:23Christopher Lochhead: as a joke. The one company to watch for is Corning, who makes all the glass. All the glass. I think if this duo thing takes off, they are secretly going to crush. I mean, they're up 92 % year to date and 122 % year over year. but all I know is the duo is more glass. And if, if the duo provides a corning, most people don't realize, Brie, look up, how old is corning? I think they might be pushing 200 years old, but they're, they're over a hundred years old. I'm almost positive. And we wrote about them in play bigger. They invented gorilla glass long before there was an application for it. And so to your point, 175 years, 175.

15:02Christopher Lochhead: Yep. Yeah. Corning 175 years. And they just, arguably, at least as a potential, as category potential, doubled their category potential, doubled their TAM potential. And you know what's probably a one-on-one Venn diagram? A company whose age is in the same ballpark as their stock price appreciation. I don't think I've seen that before. No, Corning's a legendary company. Again, business media fail. Corning should be on the cover of everything all the time. Unbelievable company. Donkeys. Topic two. Earlier this year, Anthropic and OpenAI dropped AI coding tools that were way better than anyone expected.

15:39Christopher Lochhead: Investors panicked. Salesforce stock fell about 30%. Y Combinator said a quarter of its startups were already writing almost all their code with AI. The logic is if AI can build your software, why keep paying Salesforce? The internet called it the SaaSpocalypse. Then the software companies reported Salesforce beat and raised its outlook. ServiceNow Beat, Workday, and Snowflake came in strong and both credited AI. Even Sam Altman, whose company helped start the panic, says it's moving slower than he thought. His words, people keep doing the same things they're doing. They keep buying from the same company.

16:15Christopher Lochhead: Look at what sent Salesforce stock up in 22 % a single day, a deal to plug Anthropics Cloud into Salesforce. One analyst points out Anthropics already brings in more revenue than Salesforce. So the incumbents' big AI defense is partnering with the company that is already bigger than it is. And Salesforce trades at 16 times earnings against a 10-year average of 43. So, Christopher, did the incumbents survive the SaaSpocalypse or did they just rent some time from the company that started it? So this is another example of business media complete total failure, lack of understanding of what the hell is going on here.

16:53Okay, so let me break it down. So on one hand, it is true that when there are major category platform shifts like this, many companies miss the shift. This was true with client server in the old days. This was true with the internet, the cloud, mobile, et cetera. And it's a chance for startups to take down incumbents as the category gets redesigned and the incumbents don't get there. So there's some of that happening for sure. Move that to the side. Here's the aha. blah. There's, and this is a radical oversimplification, but let me go there. For AI to work, there's got to be two seminal components.

17:32There's the data, right? That the LLMs are being trained on. And then there's the harness, the context layer. Some people call it the ontology. Okay. And what it is, is just think about yourself, right? There's data that you have in your head, but you have meaning around the data. So you know, one plus one equals one. And you know, when you look at something, how to apply meaning to that, right? Because in the abstract, it's just data. And so where we get AI slop is lack of context. All right. So now what's the asset enterprise SaaS vendors really have? What's the asset? 25, 30, 40 years of what?

18:22Intellectual capital. They know how to serve customers. They know how to take care of customers. They know what the processes need to be. And they have all the data and all the learnings. So guess what? When you take that data, even if you anonymize it, which I think hopefully most of them do, and you then build your context layer around that data, what you now have is meaning for that data. And so here's the thing that everybody missed. Every legendary career and every legendary company throughout time is built on highly valuable, different intellectual capital. So many of these SaaS companies are sitting on a treasure trove of intellectual capital data that can be applied to AI with meaning, with context.

19:15So if they can make that shift, that is to say they can move to AI and then they can use the richness of their intellectual capital to create a context layer that allows the AI to be materially smarter, which is what we want. We want this thing that is now being called trusted outcomes. We get outcomes from AI, but most of the time they're wrong. Claude doesn't know what day it is most days. Okay. So the context layer is what matters. That's the asset. That's the first thing. And then the second thing is why aren't people switching? I'll tell you why. Because if you recode Salesforce with a couple of geniuses who build agents, who build more agents and who build more agents and agents and agents, and then there's a problem.

19:55Who do you call? There's nobody there. There's the four dudes who have to dig through the agents. And so when an enterprise buys from a company, what they're buying is the company will get me to the results, the trusted outcomes that I want. And I want one throat to choke. I want one team. I want them to come in and help me. And so A, I need a trusted partner. That's really valuable. independent of the software itself. Somebody that I know is going to help me make this thing work and get that trusted outcomes I want, especially as we go more and more autonomous, right? Especially with applications that face customers.

20:35And so the reality is we are buying trust. We are buying support. We are buying help. And most importantly, we're buying radically valuable, differentiated intellectual capital that can be monetized through software and AI. That's the asset that the enterprise apps companies have. And that's the story that the vast majority of the donkeys in the business media missed yet again.

21:02Christopher Lochhead: I took away three things from what you said that was really interesting to me. Actually, it's a triple D is what I got from it is the data, the decision, and then the damage control, right? Because I love the throat to choke. One throat to choke is perfect, right? And that what is kind of being played out here is no matter how good OpenAI and Anthropic get, that the vast majority of their value add is going to be around the data. And in some situations, you can outsource the decision. If it's like an autopilot decision, low stakes, you've made the same decision over and over again, then you can trust in AI to make that kind of a decision.

21:43Christopher Lochhead: But there are some decisions that need the harness, that need the ontology layer, that We need to have context for, I don't want to make this decision at this time. And that is something that AI is not going to be able to do for, I don't know, quite some time with it. And on the damage control front, I don't know actually what happens in that situation, right? Because there's not going to be, you know, if you think about the companies that are Salesforce's clients, I'm sure it's a wide spectrum, small companies, but the law of large numbers suggests that the largest of the large companies are their biggest super consumers.

22:13Christopher Lochhead: And these are not people who are entrepreneurs. These are not risk takers. These are people who do not want to own the decision, but they max out on the damage control. It's the same old adage. No one ever got fired for hiring McKinsey, although we'll talk about that in the next topic. But it is the whole thing about this idea where AI, when I use FSD, I use it for the vast majority of my driving. when I drive on the same route at the same time that does not require any thinking or there's no context to it. It's an autopilot truly situation. However, that same drive, if I go to the gym at three o 'clock when school gets out, timeout, I don't want to take that route because it's going to pass by a school that's going to have all the parents waiting for it.

23:01Christopher Lochhead: And maybe AI will get there at some point, but not now. And so the decision-making process is something that is not always going to be outsourceable to AI. And I think in a large company context, let's take it out of the personal one. You know, I had one of the best kind of bakery executives that I met. You know, you didn't think about bread when it comes to SaaS, right? But the bakery business is one of the worst businesses I've ever seen. Low single-digit margins, extremely expensive capex. You got bakeries that cost a lot of money. You got big trucks for direct store delivery, DSD systems. It's people, it's a sucky business.

23:39Christopher Lochhead: Do not enter the bakery business at all. And one of the things I learned was there's a whole concept called out of stock. Hey, you know, you want the direct store delivery so that you can have enough bread so that when Bree or Christopher comes to go buy it, that you're actually there. Because if you are out of stock, that means that Christopher went to go buy his sourdough bread and it wasn't there and you lost the sale. And so the superficial thinking is never be out of stock. And then this one executive said, Not always. Sometimes it's a good thing to be out of stock so that I know where the demand lever actually sits.

24:12Christopher Lochhead: And that when some of my stores, when I know when I'm out of stock, I can figure out what the demand curve actually looks like. Because guess what? Here's some weird data for you. Back in the day, we did some, this is like 20 plus years ago. Out of the 30 ,000 grocery stores that carried Ben & Jerry's, Cherry Garcia, their number one SKU, there were 3 ,000 stores that did over half the sales unit volume of Cherry Garcia. Who knew? So in those 3 ,000 stores, you do not want to be out of stock at all. But in the other 27 ,000, it was actually a useful data point to know, oh, there's the line. I can now estimate my demand planning better.

24:46Christopher Lochhead: And that's not a decision-making process that every AI will be able to do. And so that's the important part, is that the data AI is going to dominate. And that could be a threat to the sales forces of the world. But Mark Benioff is a smart dude. He's built out a great sales force. The sales force, they have the decision-making process. They have been there and seen that. And they provide the one throat to choke on the damage control front. So until that the Anthropics and the OpenAI can solve for all three Ds, like it's going to be a slow going process. But here's the other thing that's going on.

25:19And this has been true for the entire life cycle of the category of enterprise applications. Purpose built, niche down focused versus broad based. And here's the aha. wow, the general broad-based LLMs are legendary. And all you have to do is compare Claude or Grok or OpenAI to the Eddie bot or the Christopher bot on category design. Well, guess what? They can't touch us. Why? Because we have all the intellectual capital and we purpose-built our AIs that are available to our super consumers so that that's all they've got. Now, if you ask the Christopher bot, you know, tell me about the weather in Botswana, I don't know how well it does on that.

26:05But what I do know, because everybody tells us and we built them on purpose this way, is that our proprietary bots, which are trained on our intellectual capital, produce materially improved outcomes if you're focusing on category design. That's the point. And so when you're, you know, one of my favorite companies to hate, the donkeys at SAP. Well, in fairness to SAP, they've got 40 years rough and tough of intellectual capital on how to do legendary ERP. There is no way a broad-based generic AI can compete from a, how do we take valuable intellectual capital and turn it into business, trusted business outcomes perspective in the domain of ERP?

26:55There's no way today, let me say it that way, that Anthropik can compete with that. And so.

27:00Christopher Lochhead: You know what you said that was really interesting? The Christopher bot is so, it solves a triple D problem. I hadn't thought about it until you just said it, is that we train it not just on our books, our data, but we train it on the transcripts of our sparring sessions and our dojo. These are all decisions that have good things and bad things that happen from it. And that kind of decision data set training and the fact that it's the Christopher bot and the Eddie bot means that there is damage control. There is one throw. You know, if you don't like the response from the Eddie bot, you can come and say no.

27:35about the difference, right? So the Eddie bot has things that the Christopher bot doesn't, right? So the Christopher bot is trained on all the scripts or all the transcripts from all the podcasts that I've done. Well, that means two things. A, the Christopher bot is going to have a lot more of my personality had it not been trained on that. And B, it's going to have an entirely different corpus of intellectual capital than the Eddie bot because it's got all the guests, right? And then the Eddie bot is going to be a lot deeper on super consumers and weird data and all that legendary Eddie stuff, right?

28:06And the Christopher Bile will have some of that, but in many cases, it'll have none of it. And this is exactly the point. It's why we have two bots. We are the reason, we are the case study for this, right? And the only difference is the scale. And so the point is, people forget this is about buying valuable, differentiated intellectual capital that can be turned into consistent, enduring, trusted outcomes, business results. People pay for business results. They don't buy drills, right? They buy holes.

28:43Christopher Lochhead: Topic three, remember ServiceNow from topic two? Well, hold on to that for a second. In November of 2021, Nike was worth more than$260 billion. Today, it's about$57 billion, with the stock at a 12-year low. That's a 78 % drop and more than$200 billion gone. After almost 18 years, Nike comes out of the S &P 100. Four tech companies move in. In 2020, Nike's new CEO was John Donahoe, who had just been running ServiceNow. With McKinsey advising, Nike got rid of its categories. Running, basketball, soccer, gone. Everything became men, women, and kids. A lot of 20-year category experts were let go. Nike cut hundreds of retail partners to sell direct and roughly 10 % of sales Nike spent on brand advertising shifted to digital ads chasing people who already buy Nike.

29:37Christopher Lochhead: Direct sales went from under 30 % of the business to 44%. Vival verdicts state that billions were spent on something less effective but easier to be measured, quote unquote. Nike He quietly brought the categories back at the end of 2023, and this year, direct sales fell 6 % and Hulsue grew 6%. The company that turned running a basketball into culture took the word category off of its own org chart. So, Eddie, was erasing the categories the original sin, or was the bigger mistake betting billions on what was easy to measure? Well, look, there's a lot to be said about. I mean, Nike is just one of the great companies and iconic category creators that we've had in the history.

30:20Christopher Lochhead: And so this is, one, it's just a sad thing. But two, as somebody who had built their career in consulting, this is the consultant's curse, is that the vast majority of consulting, this is not a McKinsey thing. I mean, John Donahoe is a Bain guy as well, too. So you pick the firm, it's kind of rinse and replete. No matter what the firm is, the vast majority of their expertise is in cost cutting. these are not companies that are good at growth in general right now m &a for sure right divestors for sure right but what they focus on is the controllables and what this story is is a story about controlling the cost and taking what is masquerading as strategy but really is just cost cutting and damage control because you don't get rid of your distributors for the sake of like hey hey, I'm going to make the category bigger because guess what?

31:13Christopher Lochhead: Distributors matter. Footlocker matters, right? They have a retail footprint. They have sales reps. They carry inventory. Like you might think that they add no value to the value chain, but this, the direct to consumer move, to me was a cost-cutting move. It was not a, hey, the category is going to get bigger. We're going to get a bigger share of the profit pool. The marketing spend thing, you know, this is also something that the big firms are not good at. They can help you minimize their costs. They can help you take it down. But the vast majority of marketing is not good and that in a world where you hire kind of monkey, see monkey, do consultants, it is not a dig.

31:46Christopher Lochhead: It is just the reason, it is the truth of how these big firms work. They all have practices. They all share best practices. They do benchmarking and everything is follow the leader, follow the lemming, and sometimes follow the lemming off the cliff. And that's kind of what happened here because what you see, the great sin for sure is a category one. I'll get to that in a second. But it is, remember, the top 25 most valuable brands are B to B to C companies. 60 % of them. 90 % if you go to the top 10. They understand the value of the B to B. It reduces your cost on marketing. That's how you get word of mouth and how you get better innovation because you have fewer people to design for.

32:26Christopher Lochhead: And that Nike, whether you call it Foot Locker as the B to B or the Michael Jordans of the world or the pro athlete at the end of it, you need that nuance, It's designed for the very, very best who have different needs than the average weekend warrior does. And so you have kind of the marketing and the sales benefits of the B2B that were gone when they went B2C. So that is a business model fail. That was kind of the big one that the McKinsey's of the world should know better on. And the second one is a category flaw. And the category sin is the belief that categories don't matter. Now, you can believe what you want about category design, but you better believe that basketball is not the same as running, is not the same as soccer.

33:03Christopher Lochhead: And like, I don't understand why men, women, and kids ever enter the conversation, but I'll give you an example that's way far afield of this. And this is what superficial consultants and executives get wrong all the time. So take hot dogs and sausages. Seem like the same category. They're cased meat in a cylinder shape. You eat it on a bun. You grill them all good, right? And if you increase the cost of goods to buy higher quality beef in a sausage, you will fail. because that's not what consumers are paying for. Consumers want the spice. They want the bite. They could care less if it's Angus beef or Wagyu beef or whatever else it is.

33:41Christopher Lochhead: All you are doing is adding to the cost of goods and your P &L is going to suck. However, on the hot dog side, you better believe that consumers will pay up for a higher quality hot dog beef, right? So you have Angus beef, which we launched at Ballpark Hot Dogs, Carl Gerlach and Steve Clapp, doubled the business there in five years. And then of course, you have the Hebrew nationals of the world where you have kosher beef that command an extreme price premium. Two categories that look the same, but have wildly different willingness to pay dynamics from a consumer perspective. And if you make the wrong decision in the wrong context, you're going to blow up the P &L.

34:14Christopher Lochhead: And it's exactly what happened here. It's like, I just do not understand how you could ever mistake the idea that the needs of an extreme athlete runner are anywhere close to the same as a different sport. And even one of these things is just, it's so wildly offensive at some level that you could do this, that it is just striking and it just makes me sad. And it is one of those, we made a joke before about you never got fired for hiring McKinsey, which is the big COIA thing. Oh, it's a big brand and this and that. Probably the upgrade to that is you don't get fired for hiring McKinsey immediately, but it might catch up to you very shortly after here.

34:52Okay, so I'm just checking something here because I want to make sure I completely understand the timeline. So there's a different aspect of this that I want to go into. Phil Knight, founder of, or co-founder of Nike, retired a decade ago in 2026, or excuse me, 2016, when he was 78 years old. He's now 88 years old. He's not the chairman. He's not on the board. He's been out of the company, only holding the title of Chairman Emeritus for the last decade. There is a tell there, because most companies drift after the founders are gone. So going away from categories, fucking insane. The category makes the company, you donkeys.

35:41It's the market and the people who frame the market, the people who design the market are the ones that win. It's all about the categories. And here's the other stupid thing. Read Eddie's book, Super Consumers. A super of one is a super of nine. And so a super of shoes is a super of nine other things. And some of those other things have adjacencies to shoes that are in product categories that Nike is in and winning in. So that whole thing is absolutely insane. The founder drift is insane. This is one of the worst CEO succession moves in modern history. Probably the worst. I haven't triple checked this so you could check me.

36:25But the worst is Jeff Imo who took over for Jack Welsh at GE because he destroyed the company. But this one's not too far behind. The one other thing that must be mentioned here, which is there's this phrase that upsets certain people. And the phrase goes like this. go woke and go broke. Nike got overly political. Nike's in Portland, one of the most left cities in America. And they, like Budweiser, went all in on a lot of that stuff. And it turns out it backfired. And so is it important for companies to take stands on certain issues? It is. However, However, they forgot the famous words of Michael Jordan when he was asked why he doesn't take a political stance, particularly in this case from somebody who is a Democrat.

37:26He said the following. Republicans buy shoes, too. And so this is the issue. Is it important for companies to take some stands? Yes, it is. and if you are going to get way forward on your skis on social issues and you want to make your company about that, which is absolutely, you're right. You have to be ready to face the consequences. And that's part of what happened here. And even people who agree with some of the more woke leanings, we're sick of hearing it. We're enough. And we certainly don't want it from our companies. We want, listen, I just ordered the new pair of San Francisco 49er Nikes.

38:05They're incredible. They fit great. They look incredible. They're red and gold and they got the swoosh and the logo. I mean, these guys know how to make legendary shit, even fashion shit. And so that's what I want. I want to be able to buy my, you know, San Francisco 49er Nikes. I don't want to be lectured to about politics or social issues. We got enough of that in our world. And I think they're suffering some of the consequences of that.

38:33Christopher Lochhead: Well, you know what's interesting about this is that you talked about founder drift. There's also kind of decision drift. Because if I dig deeper, and this might be dangerous territory, but when you niche down in the woke stuff, right? I do think there's a difference between, call it Muhammad Ali taking a stance of like, I don't want to fight the Viet Cong to the Jordan, hey, my shoes are banned by the NBA, but I'm going to wear them anyway. It's not quite a woke kind of thing. and then to Colin Kaepernick, you know, who was an elite football player, quarterback, right? Made it to the Super Bowl.

39:08Christopher Lochhead: I do think supporting an athlete, a high-performance athlete with shoes who has a controversial stance, slightly different than a rando, non-athlete, woke stance. Like, I do think there's an interesting nuance there. I don't know where the line was crossed with it. I do think for Nike, if the Venn diagram, you go completely political in a non-athlete context, that makes completely no sense. supporting an elite athlete who has a controversial stance, that's probably somewhere in there is a line. And exactly to your point, Christopher, you need kind of the founder to know where the line is because that's the soul of the company to know, hey, this is what we stand for.

39:45Christopher Lochhead: This is what I believe. But it's not a matter of going full political and in any one direction if it doesn't come with an athlete stance to it. So I don't know if that's an interesting. Well, yeah. And also, if you're going to do that, which is fine, then you should support athletes in their stances across the board. There's a number of high-profile women. I'm blanking on her name right now. There's a super high-profile star in the WNBA who's come out and said that the W means women and we don't want biological males in women's sport. Well, there's been massive backlash against that, and it's a huge issue in the WNBA.

40:22As you saw, a couple of former male players from the NBA who or retired or applying to the WNBA, et cetera, et cetera, et cetera. So my point is this, if you're going to do some of that, then I think you have to not look ideological. You could back an athlete who's taking a stand on an issue here and an athlete who's taking a very different stand over here if you wanted to do that.

40:45Christopher Lochhead: Well, and the POV is interesting, right? Because if you go back to the Muhammad Ali example, it goes back to what you said about Tim Cook. If you are the greatest of all time at what you do and i support that person taking a stand that is a very different thing than taking an average person and supporting like that's correct how what like he's saying outcomes matter in that stance and that is very much in the brain and you need to decide and you need to take your lumps listen over the last you know half decade or so i have gotten more politically outspoken than i ever was before um that comes with some backlash i believe that that business leaders, if they so choose, have a right to step into social and political discussions.

41:26And I want to hear from those people. It's one of the main reasons I love long form podcasts. I want to hear what Elon Musk thinks. I want to hear what Mark Andreessen thinks. I want to hear what Sarah Blakely thinks. And if they're willing to speak on topics beyond their business, I'm curious about that. Now, it comes with real ramifications. You guys might get mad at me sometimes when I say things politically that you don't like or might even piss off some of our customers. It does come, you know, our subscribers. It does come with some cost if you're going to do it. I've chosen to do it for a bunch of reasons we could talk about.

41:59But you've got to realize when you do it, you're going to piss some people off. And in this case, they pissed off a lot of people.

42:09Christopher Lochhead: We'll see you next week, Pirates.