I have founded nine companies and am generously 3-4-2 (Victory Defeat). In retrospect, and I think a lot about it, the only reliable indicator of the success or failure of our company was … the timing. Specifically, the part of the business cycle at the foundation.
The companies we created in recessions have found it easier to find talent, control costs, and get immediate feedback on whether this works when customers / consumers keep their wallets closed. Armed with a battle-tested value proposition, at the end of the recession we enjoyed the afterburner of confidence in spending more and trying new things. #Disco.
In frothy markets, it is easy to enter into a mutual hallucination with investors and markets that you create value. And it's easy to cover up the shortcomings of the business with the motto of a bull market: cheap capital. WeWork has given the word wallpaper a new meaning.
Read: How WeWork Adam Neumann spent $ 5.9 million on the name & # 39; We & # 39; paid disguises whose slimy coating disintegrates at the first approach of a recession, revealing a family of raccoons or the mummified corpses of drug mules.
The features of the seventies sitcom disguise:
The WeWork prospectus contains a dedication (no joke): "We dedicate these to the power of We ̵
In terms of idol worship, "Adam" (as in Neumann) is mentioned 169 times, compared to an average of 25 mentions for founders / CEOs in other unicorn leaflets.
Uber's CEO, Dara Khosrowshahi, is mentioned 29 times in her prospectus. Admittedly, "Adam" is super dreamy, like an Argentine polo player (he is Israeli). But he is not 6x more dreamy than Dara, who has a whole "Omar Sharif, if he went to Brown" thing. But I digress. We have the mission to "raise the consciousness of the world". Perhaps, but it is clear that the mission of the prospectus is to dampen our awareness of the show called "The History of Us: We."
Find the hottest sector, and if you do not have the insight, intellectual property, genius, capital, code, skills, human capital, or a hint, then just borrow the words. SaaS companies trade at a multiple of yay compared to real estate companies that trade multiples of EBITDA (boo). So we are not a real estate company renting desks, but a SAAS company (Space as a Service). I know, using the word "technology" over and over again, although there is little R & D and computer and stuff, and voila … we are Salesforce.
Today I've frozen water and used this technology to reconfigure the environment that includes Zacapa and Coke. Well, I'm Bill Gates. Better still, today I started calling my wife Gisele, which pretty much means I'm the starting QB for the Pats.
At WeWTF you are not a guest but a member. The member has a more "recurring revenue" sound. I plan to become a member of the Marriott in Boston tomorrow evening, where I will become a member of the TD Center so that I can see a 21-year-old Canadian (Shawn Mendes) with my 8-year-old son – also a member of the Marriott and TD Centers , at least for tomorrow.
The GAAP accounting standards have embarrassed you? No problem with WeWTF. We've started reporting "community-based EBITDA," pre-BITDA profitability, but we also incur expenses, including real estate, that make up the majority of the costs required to deliver the service. A more honest description of the metric would be "EBEE, result above all else".
As someone who tracks stocks and acts on television as if I have an idea of where a particular stock goes, I would like to propose some metrics to get a glimpse of We:
EBG, Earnings Before Gluten EBBG, Revenues before the Big Dawg (tennis balls, pig ears, etc.) EBEPW, Revenue before Equal Pay for Women
My goddaughter told me that she was with a club promoter, a red Flag, goes out. Occasionally red flags marry, the Biebs and Hailey Baldwin – what could go wrong? Imagine, you would mark the dimensions of Kansas with red flags. Buckle up:
– Adam Neumann sold $ 700 million in stock. As a founder, I sold shares in a second offer in order to get some liquidity and to diversify holdings. Ok I understand. But a quarter of a billion dollars? That's 700 million red flags that say at half-time in the field of a soccer field words: "Get me to hell from this stock, but YOU should buy some."
– Gross margins are a pretty decent indicator of how good or bad a company is. And that's a small thing:
– Adam has several family members working in the industry earn less than $ 200,000.
– The property structure diagram resembles a hieroglyph on a cave wall about the survival of the species: Harvest the harvest, when the sun is high on the horizon, do not venture over the hills, there live hostile tribes and … do not buy this stock. The corporate governance structure of WeWTF makes Chinese companies look like American pre-big-tech companies.
– The Related Parties section of this leaflet reads like the Trump administration. Adam owns 10 buildings, some of which he leased to WeWTF with considerable profits. Adam also owned the rights to the "We" brand owned by the company and paid $ 5.9 million to the founder / CEO for the rights. The rights to a name are almost identical to the name of the company in which he is the founder / CEO and the largest shareholder.
YOU. TILT. DO. THESE. SH * T. TOP.
– Mismatched duration. The founder of Kohlberg Capital, Jim Kohlberg (totally gangster), told me that investment firms are closing down because of "inappropriate maturities". The aim is to raise money at short notice (customers who can stop their product service soon / tomorrow) and to invest money over the long term (leases over 10 years). WeWTF is a particularly risky business that is going into recession when the possibility of cost variability is limited, but the decline in revenue is unlimited.
WeWTF has long-term commitments (leases) of $ 47 billion and will generate $ 3 billion in revenue this year. What could go wrong?
There are other companies like this (Immobilien, Hertz), and they are good companies. I do not know companies that trade between 0.5 and 2 times the turnover. However, WeWTF claims that it is not in this neighborhood or even on the same planet. So let's talk about the rating.
madness. Seriously loco. Ok, let's say WeWTF is on something better than Peer IWG or Hertz. But is this company that trades at 26 times sales superior to Amazon, which handles 4 times the sales?
There seems to be no economies of scale as losses have kept pace with revenue growth. There is little pricing power as they are still a mole on the elephants of commercial real estate. There is no defensible IP, no technology, no regulatory constraints, no network effects and no flywheel effect (the back-end business is stupid, just stupid).
The final round of the $ 47 billion "valuation" is an illusion. SoftBank invested in this review with a pref pref, which means that their money is the first money that comes out and limits the downside. The idiots, idiots, CNBC viewers, great Americans, and people trying to feel young again, buying on the first trade or after, do not have this disclaimer. Similar to the DJIA, private ratings in the final round are harmful metrics that create the illusion of wealth.
Bankers (JPM and Goldman) will charge fees of $ 122 million to private investors visiting the Unicorn Zoo. Any stock analyst who approves this stock with a valuation in excess of $ 10 billion is lying, stupid, or both.
Adam's wife is Gwyneth Paltrow's cousin, which means that Adam is two degrees from Goop, an attack on humanity.
wife. Neumann caused controversy when she went to CNBC and said, "Much of the womanhood is to help men [like Adam] manifest their vocation in life."
Okay, well … whatever works for you and Adam. But it is not the job of private investors to help Adam achieve his vocation – he should feel fairly manifest at $ 700 million. The paneling is appealing and cool, but it starts to curl and the substance behind the wood veneer stinks. I mean, stinks.
Scott Galloway is Professor of Marketing at NYU's Stern School of Business and Bestselling Author of The Four and The Algebra of Happiness. He is a frequent commentator on the tech industry and founder of nine companies, including L2, Red Envelope and Prophet. This article originally appeared in Scott Galloway's blog No Mercy / No Malice. Follow Galloway on Twitter at @profgalloway . Released with permission.