Nimbl Makes My Head Hurt

A friend recently posted an article about a startup that provides an on-demand ATM service called Nimbl.

Now for those of you who know me, you know that I am deeply pessimistic about most startups, but Nimbl stuck out because it struck me as particularly unviable.

Here's the pitch: ATMs are annoying, because sometimes you need cash, but you don't have it on you.

What if there was a service that could make that cash appear, immediately? Enter Nimbl, a solution for a problem that uses magical cash-delivering unicorns that are both free and instant. But without the unicorns. So mostly just people on bikes who deliver cash with relatively high latency and decently high cost.

Rules of the Game

In general, Nimbl and ATMs are competing as consumers attempt to minimize the cost of accessing cash. In my model, I've used a simple world where the cost of an ATM is equal to the ATM Fee plus a variable opportunity cost that is unique for every consumer and represents the value of his or her time. Nimbl's value proposition is that in exchange for a higher fee ($5), it will reduce the opportunity cost that I have to pay to get cash.

With opportunity cost modeled as a multiplicative function of lost time and the amount I value my time, Nimbl can either reduce the time I need to spend getting money or make that time more pleasant. A great Nimbl, the one that has instantaneous cash delivery machines, delivers cash immediately, such that the opportunity cost goes to zero (no waiting).

There are two main scenarios where one might imagine Nimbl to be particularly useful:

• You need cash in the future, and you want to get it delivered to you without having to spend time getting it (an asynchronous cash request). 
• You need cash immediately, and Nimbl can provide it faster than you can walk to an ATM and back.

The Playing Field

It's pretty clear that Nimbl would struggle to work outside a large metropolitan area (the delivery time would be high, drivers would have higher transit costs, and request density would be low). As such, I've constrained my rudimentary analysis to the two markets where Nimbl exists currently, San Francisco and New York. 

Let's run through these two settings. There are about 370,000 ATMs nationally, or 1 ATM per 300 people. In Manhattan, with a population density of more than 70,000 per square mile, that means that there are more than 200 ATMs per square mile. Distributed evenly, that means that there should be less than 400 feet between you and the closest ATM at any given point in the city.For San Francisco, with just 18,000 people per square mile, there are only 60 ATMs per square mile.

As an aside, I'd be surprised if these Fermi calculations weren't slightly low given the fact that urban areas probably have more ATMs per capita than rural areas.

In any case, you'd probably only have to walk a couple of blocks to find the closest ATM (while you may have to walk further to find one that is in network and doesn't charge a fee, if you're worrying about fees, you shouldn't be paying $5 to get cash delivered to you).

Scenario 1: Future Cash

Let's say that this walk takes 15 minutes (worst case). In both SF and NYC, the median hourly wage is around $30, which means that the cost of this ATM trip is something like a $2 fee and $7.50 in lost time. And Nimbl charges $5, which means that in this scenario, it could compete reasonably well with an ATM. Go Nimbl!

If I value my time at $100 per hour, all of the sudden Nimbl is worth $27, which is starting to be some real value, and could offer a wedge into the market for ATM withdrawals.

Scenario 2: Immediate Cash

In the case where you need cash immediately, Nimbl is strictly less valuable. In this scenario, you are blocked from doing an activity until you obtain cash. Your opportunity cost accumulates linearly with time, so you want to minimize the time spent waiting. In this case, you pick the faster choice, which is almost certainly going to be the closest ATM (I don't think that it's reasonable to imagine Nimbl delivering cash more quickly than this).

The Catch

Unfortunately, in the case where you can plan ahead to get cash, you aren't constrained to choosing Nimbl. Instead, you can be more efficient and schedule an ATM stop while you're on the way to somewhere you have to go anyway. You can batch this with other errands or just stop by an ATM on your way home from work. By doing this, you can reduce the total ATM cost to something that asymptotically approaches the ATM fee, and you can do this on a sliding scale. Because of the high ATM density in a typical city, actually locating and using an ATM is relatively low-cost as long as you don't make a trip specifically for that purpose. 

Building a Business in the Real World

Finally, there are real world constraints that will hamper Nimbl's ability to grow sustainably. Firstly, all of their employees are going to be cash-rich targets, ripe for theft. Nimbl couriers are walking into each delivery with hundreds of dollars in cash based on a request from an iPhone app. It seems like Nimbl has forgotten about basic employee security in their rush to market.

In addition, Nimbl is fighting against a significant macro trend as consumers utilize credit cards more heavily and begin embracing new POS technologies like Square and Apple Pay. Both of these options eliminate the need for cash at all, and as they gain market adoption, Nimbl will lose its value. While they may factor heavily in Nimbl's overall worldview, the fact is that cash-only merchants represent a very tiny segment of the overall retail industry. 

Pivot!

If I haven't been clear yet, I think that Nimbl is predicated on a bad idea. I don't think it will be successful, and I wouldn't work there or invest in it. That being said, I also think that it could be made into something more interesting with a little bit of pivoting.

Switching from a centralized system with couriers employed by Nimbl to a decentralized system where users could choose to be either an ATM or a client would be a relatively innovative decision. In this system, cash-rich individuals could charge fees to other people who wanted to get cash quickly. Of course, security might be harder in this case, but I think there's at least something interesting here.

Overall, though, I really can't believe that this is a thing.

Economist Redux #2

In keeping with the spirit of the new blog, I wanted to circle back on some of the more interesting stories from last week.

• While the article about gay marriage was a bit heavy on self-congratulation, a lot of the statistics about gay marriage, and how quickly the public's opinions have changed on the matter, were pretty incredible. In three decades, the opinion polls have gone from ~75% of the country opposing gay marriage to ~75% supporting it. Obviously there are still many areas where members of the LGBT community still face discrimination, but reading about the turnaround in historical context was pretty incredible. 
• Buttonwood's piece about aging populations was pretty absurd. It's incredible to think that pensions used to be an expected part of working, and how the rise of the 401k is really such a modern development. There were some interesting facts, generally around how people generally get paid more as they age regardless of their productivity, but the core insight of the piece was that in a world where life expectancy is rising, it's possible that many retirees just have not saved enough money to survive. Finally, there was an interesting aside about nursing and taking care of very old people that was fairly interesting.
• Finally, the piece on China's stalling growth was interesting from a macroeconomic perspective; I just finished Peter Thiel's treatise on innovation, and the article resonated quite well in that context. Basically, China's game of catchup is starting to slow down as they get caught up. In particular, the Economist article cites some interesting studies about productivity growth. The crux of the thesis is that China has been growing primarily by expanding the funnel (adding labor and capital to the economy) rather than increasing the productivity of the workforce. In Thiel's ideology, this is not unexpected. China, as a "pessimistic and determinate" country, will likely struggle to improve productivity, as there is an element of innovative spark that isn't dramatically incentivized by their style of government. I don't agree wholeheartedly with Thiel, and I have no professional experience here, but it sounds like there's something here that supports his theory.

In general, it was a fine, although not particularly wonderful week in the world of the Economist!

Medical students could do with an infusion

I have a lot of friends in medical school. Personally, I think that it sounds hard. Not deeply unpleasant all of the time, but certainly hard. Medical school also isn't free. Tuition is somewhere around $50,000, with a bit more on top for living expenses. Let's say $60,000 per year.

Now, despite a lot of articles talking about how doctors are going to be commoditized, disrupted, or completely eliminated over the course of the next century, the facts on the ground are that doctors are still the highest paid professionals in the US. For context, that's more than CEOs. There are plenty of other factors to consider here: lost wages, long hours, low pay during residency and fellowships, but salary is a good measure for compensation. And eventually, after a generous 20 years of post-secondary education, doctors can pretty easily clear $170,000 (the average salary of a primary care physician).

And yet, despite these facts, medical students feel poor. Constrained on time, many medical students ignore basic consumption smoothing principles and artificially constrain their purchasing power. What I find even more interesting, though, is that they could choose to finance a more expensive lifestyle with very little trouble. Simply taking out an additional $20,000 of annual debt would enable them to join gyms, take taxis, buy better food, and quite frankly, enjoy what little free time they have. Amortized with their lifetime earnings, it's a no-brainer. And yet many medical students don't take on this additional debt.

Economically, this is crazy. In exchange for increasing their debt burden from $240,000 to $320,000, med students could essentially spend as profligately as they could imagine throughout medical school. Given an 80 hour work week and 8 hours of sleep per night, this is the equivalent of ~$12/hour of additional spending money, an amount that could reasonably be exchanged for high-utility activities like eating dinner with friends or going to movies.

In terms of lifetime earnings, having 30% more debt would have a marginal impact on overall lifestyle (assuming 30 years of work before retiring as a doctor, it's still less than $3,000/year, or ~2% of a primary care physician's annual income).

In general, I think a lot of this is rooted in a deeply moral approach to debt; we accept student debt as an acceptable expense, and tend to consider it in terms of an investment, while taking on debt to travel or eat fancy food is seen as deeply irresponsible. For many people, this is probably good - taking on debt to improve short-term happiness generally comes at the cost of long-term indebtedness. But for doctors, and many other people in school, it's probably worth it. And as doctors begin to approach more of medicine through the lens of quality-adjusted life-years more seriously, its acolytes could stand to apply the same logic to their own lives.

Economist Redux #1

In general, I try to at least skim The Economist every week. Although I read the print version, I'm trying something out here where I post some quick thoughts about my favorite articles each week:

• In general, it's hard to be a politically literate and not have a strong aversion to mandatory minimum sentencing and the current state of the U.S. criminal justice system. These two articles, about overpowered prosecutors and their surprisingly coercive tactics when dealing with co-operators, reinforce this general theme.
• One of the smartest people I knew in college was a phenomenal orator who had studied the classics with a rigor that I found exceptional. We always used to joke that he was perfectly suited to be a philosopher king, and fortunately for him, it sounds like philosophy and classics may be the path towards being a better manager, at least according to Schumpeter this week. This is the second such article in as many months, so it sounds like someone on the staff is trying to incept us all with the idea that our liberal arts education was worthwhile anyhow.
• How do we reverse inequality in a world where fixed transit costs make computers, robots, and cell phones cheaper than the cheapest labor? Ah, I just love these special reports. They are never particularly ground-breaking, but they lay things out so succinctly. Specifically, the section about housing prices in high-demand urban areas was quite good. The most interesting section, though, ran through some fun facts about ICT (Information and Communications Technology). It sounds like there are a couple of economists at MIT (Autor and Acemoglu) who I should be reading about; they are doing some interesting work around classifying multidimensional complexity of specific jobs, and I should probably read a bit more about this; it's likely that their work will point towards a number of different areas for technology to displace people, and continue the inexorable trend of capital replacing labor (uh oh!). Many fun opaque references to Picketty were also funny, given their recent lambasting of Capital.

Overall, this was fun. Hopefully I can maintain this section, I think it will be helpful for me to remember fun facts, like the fact that the market is currently valuing Yahoo at roughly 20% of WhatsApp when you take away Alibaba, Yahoo Japan and its cash holdings.

Consumption Smoothing for the Masses

According to an old aphorism, there is a conservation law that regulates the distribution of health, wealth, and time. Young people are be poor, but they make up for that with good health and plenty of time. As we age, we slowly exchange time for the almighty dollar, and finally, once we have enough money to retire, we have limitless time but no longer have the physical constitution to make the most of it.

While there's a zen-like beauty to the progression and the inevitability of it all, in an age of Soylent, Flappy Bird and Cow Clicker, shouldn't we expect more from ourselves? Shouldn't we push forward and demand a world in which money, time, and health can all be maximized, where we finally find a loophole around the law that holds them in such strict equality?

Fortunately, the hero of freshwater economics, Milton Friedman, left behind an academic legacy peppered with some basic tricks to get around this problem. Read on for more!

Consumption smoothing, as it's name suggests, borrows heavily from both the medical study of tuberculosis and my personal experience with a pumice stone trying to fix my feet after hiking through three days of mud and water on the Appalachian Trail.

Just kidding.

In actuality, consumption smoothing is a fairly intuitive concept. According to a model that assumes perfectly smooth consumption, your spending should track your permanent income, not your current income. Boom. Fancy economics, complete. But what does this mean...for you?

If you were guaranteed to earn a salary of $50,000 every year for your whole life, it's fairly obvious how much you should spend. We can quibble about the specifics, but if it were actually impossible to raise your income above $50,000, no matter how good you were at stocks, you probably shouldn't spend more than $50,000 each year.

Unfortunately, however, we have not yet encountered any Borg-like race that would be able to ensure this level of consistency. In the real world, we face tremendous uncertainty and risk when predicting the future, making it very rational to save for rainy days and old age. Saving is good.

But in my experience, many people could do with a slightly smoother lifestyle. The fact of the matter is that in a number of very particular circumstances, I think that consumption smoothing can be a prescriptive, rather than descriptive, concept. It can enable a more liberated life, one free from artificial financial constraint and with the ability to take control of your free time. While this may sound too good to be true (and in the worst case encourages a life of hedonistic excess) there is a particular group of people who could stand to learn a basic lesson in consumption smoothing.

Next week, we'll take a closer look at medical students and their frustratingly irrational inability to effectively finance their present spending by taking out loans against their future income.