BUSINESS BREAKDOWNSHOSTED BYCOLOSSUS | INVESTING & BUSINESS PODCASTS
Learn how companies work from the people who know them best. We do deep research and interview industry veterans, investment professionals, and corporate executives to explain the inner workings of public stocks and private businesses. For each company, we break down their history, business model, financial statements, secret sauce, and bull/bear case. We believe every business has lessons to teach us and Breakdowns is here to highlight them. Learn more and stay up to date at www.joincolossus.com.
We believe every business has lessons and secrets that investors and operators can learn from. And we are here to bring them to you. To find more episodes of breakdowns, check out join colossus.com. All opinions expressed by hosts and podcast guests are solely their own opinions. Hosts, podcast guests, their employers, or affiliates may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Welcome back to business breakdowns. Today, we explore a major player in the reseller economy that is Winmark. You're likely familiar with some of Winmark's brands like Plato's closet or played against sports. But together, when Mark operates 5 brands through a franchising model. Our guest to break down win mark is the current CEO, Brett Heffais. Now we listen to our audience, and we try to be cognizant of the guest we invite. The overwhelming majority of our audience prefers investors to management teams. So why did we explore this episode with Brett? Well, Winmark doesn't host conference calls, and their investor relations are generally limited to financial reports, some very basic management commentary and some rare public appearances. That alone was intriguing to us, but I'd add when we talked to Brett, was very clear this was not an investor relations exercise. So during our conversation, we get into the broader reseller economy, the dynamics of managing those brands and different franchise brands and how Winmark approaches this and thinks about growth. In the back half of the conversation, I also made sure to talk to Brett about thoughts on capital allocation, focusing the business, and yes, on investor communication. When Mark has been a very interesting business to me if you're looking to learn more on top of the episode, don't hesitate to reach out, send me a message, email, social media, whatever you prefer.
Production of 50 seat aircraft, almost everyone. What replaces them? And the default answer is you bump up to Embraer's smallest aircraft, which is the e 175, 75 seats or so. And they're starting to do pretty well with that. It's not an ideal solution, but it's the only game in town. When you say it's not an ideal solution, I assume it's because the 50 seat planes are made for aircrafts that are lucky to get 50 people on them for those flights. Is that basically categorized it? Yeah. That's right. People do like frequency and regional operations. Having said that, there's a seat mile cost reduction the more you go up, and that's always been the problem with regional aircraft. Now Embraer saw all of this coming. They've got really good planning capabilities, and that's why they diversified. The 175 is a true regional. The 19, 195, really are not. No one's gonna use it to feed a hub. They're meant to be point to point aircraft. The problem is it's also neither here nor there. It's not a regional, but it's not really a true major. It's doing well enough. You're talking 30, 40 planes a year. So that raises the question of what they do next. Of course, part of their diversification strategy was also business jets, and that's done very well for them. But from their regional origins, they have done a really good job of expanding out. In those early days, you mentioned it was a breakthrough to be able to fly on a jet to do one of those shorter routes or less dense routes. I'm just curious when it comes to the players like Boeing and Airbus, was that just not an attractive opportunity? Was it actually a technological breakthrough for Embraer, or was it something that the larger players maybe just ignoring because of the profit opportunity? Yeah. For Airbus and Boeing, these were margin destroyers. The regional jet marketplace was regarded as this, how to put it gently, just distorted data.
Which is anywhere near as inhospitable to the product. So a rocket will wait for good weather, perfect pristine weather. And the airplane will fly in terrible weather and be serviced by people whose salaries range anywhere from minimum wage all the way through $300,000 or $400,000 a year. That's just the normal process of having an airplane in service. So what it does, it requires just so much more robustness in how it's taken through its operation. And so to coordinate all of the suppliers, you're talking with thousands of suppliers. Those suppliers have suppliers. And those suppliers have suppliers. And those suppliers have suppliers. And those suppliers have supply. I mean, you're talking about a chain that in some cases is 4, 5, 6 levels deep, especially when you talk about raw materials like titanium and the specialized metals that are required for jet engines. I mean, it's really an amazing process to manage all of that. And by the way, every single step has to work. There's no fudging it. And so the amount of coordination that's required there is truly one of the arts of this business to then build it, have it meet your specifications across millions of parts. By the way, then you're doing it several hundred times a year, maybe as many 5 or 6, 700 times a year. That is an incredibly, incredibly challenging thing. And it requires an unbelievable amount of institutional knowledge for how you do that and how you do that in a way that is repeatable, safe, and oh, by the way, did I mention profitable? To do all these things together is just unbelievably challenging when you're talking about a margin in the single digits. Before we get to some more recent history, it seems that Boeing's merger with McDonnell Douglas in the late 19 nineties is worth spending a bit more time on. Why was that important from your perspective in explaining how the business is situated today? The merger between Boeing and McDonnell Douglas in 19 97 was a huge moment. And number 1, it represented the exit of McDonnell Douglas from the commercial world and
And one of the most interesting things about this business is its founder and the founding story. So I wanna get into that. If we could share that right off the top. I think the history here, it's not a long history, but the founder has quite the interesting past. So maybe you could share a bit on that. I always find Diorlingo's founding story fascinating, and it all started with the founder CEO, Louis Vuonan. He grew up in Guatemala, which is a poor country in Central America. And he was fortunate to be born in an upper middle class family and was given the best education by his parents. And that made him really appreciate the importance of education in improving people's lives. But at the same time, he always felt that education could be among the principal sources of inequality. The most privileged people can get the best education in the world, but the poor may not even get the basic schooling. So he believes that people should have an equal access to education regardless of their wealth. And his profile is nothing short of impressive. He came to the US for an undergraduate degree in math at Duke University, and later a PhD in computer science at Carnegie Mellon. And before Duolingo, he was actually famous for his genius inventions of CAPTCHA, which I'm sure the audience here know very well about, which is the annoying task that distinguishes between the humans and bot that pop up when you lock in an Internet website. And interestingly that although CAPTCHA was really popular and was really useful, he started thinking that it actually wasted a lot of people's time, and his estimation mounted to something like 500,000 hours a day that people wasted on typing those letters. So he reinvented recaptcha with the same role, but with a twist to turn those hours into something useful. The letters
Against Taiwan. It's sort of a test and an exhibition of what they capable of, but it's starting to look like it'll be a profound embarrassment. They have an army, but no navy. And the government was relying on a steamship company called YJK that they had built in partnership with some wealthy families to transport its army to Taiwan. But YJK gets cold feet and declines to support the government in this mission. Enter mister Rywasaki, he had just listened to the talk of a small shipping firm. He wins his government contract mostly because the government is desperate. And using this one contract as a base, he renames the firm, calls it Mitsubishi Steamship Company. Mitsubishi literally means 3 diamond shapes or 3 water chestnuts, which is the crest of Mitsubishi that we all know. And he builds this into the premier shipping company in Japan at that time. Within a year or so, he takes on the US and British rivals in shipping, gets into a price war with them, and forces them to abandon the key Yokohama Shanghai shipping route. And that's huge because just a few years earlier, the Japanese were completely dependent on the US and British ships for commercial shipping lanes. So that is the origin. And from then on, you see these powerful families take off. They're called Zaibatsus. As the government realizes you need scale to build industry, they start selectively favoring a few wealthy families. Zaibatsu really means family wealth. And you end up with 4 big families. So there's Mitsui, Mitsubishi, Sumitomo, and Yasuda. And I think they become so dominant at one point that 60% of the market cap in the stock exchange. And they continue to prosper. You get to 1st World War. Of course, the Europeans are out of business, so these Japanese companies benefit even more. And then all the way to the 2nd World War, given that link with the government and given the fact that the government is becoming increasingly militarized, they play a big role in the war. Mitsubishi in particular, Japan's biggest battleships, the
