Really? Really?

I have started nine companies and I am generously 3-4-2 (win-lose draw). In retrospect, and I think about this a lot, the only reliable prospective indicator of our company's success or failure was … the moment. Specifically, the part of the economic cycle in the foundation.

The companies we started in recessions found it easier to find talent, control costs and get immediate feedback on whether this worked when customers / consumers kept their portfolio chains closed. Then, armed with a value proposition proven in battle, when the recession ended, we enjoyed the confidence reserve to spend more and try new things. #disk.

In sparkling markets, it is easy to enter into a consensus hallucination, with investors and markets, that you are creating value. And it is easy to paper the shortcomings of the business with a bull market halcyon: cheap capital. WeWork has brought new meaning to the word wallpaper.

Read more: How WeWork paid Adam Neumann $ 5.9 million to use the name & # 39; We & # 39;

This is more reminiscent of the cheap marble panels you'll find in Mike Brady's home office, panels whose mucilaginous lining will dissipate at the first breath of a recession, revealing a family of raccoons or the mummified corpses of drug mules.

The characteristics of the comedy panels of the seventies:


The WeWork prospect has a dedication (no joke): "We dedicate this to the power of Us, bigger than any of us, but within each of us." I'm pretty sure Jim Jones had t-shirts printed with this inspiring missive.

Speaking of idolatry, "Adam" (as in Neumann) is mentioned 169 times, compared to an average of 25 mentions for founders / CEO in other unicorn prospects.

Uber CEO Dara Khosrowshahi is mentioned 29 times in his prospectus. Okay, "Adam" is a super dreamer, in a kind of Argentine polo player (he is Israeli). But he is not 6 times more dreamer than Dara, who has a whole "Omar Sharif, if he went to Brown" thing. But I digress. Our mission is to "raise the conscience of the world." Perhaps, but it is clear that the prospect's mission is to dampen our conscience before the show that is "The Story of Us: Us."

Mentions of founders-CEO.
Scott Galloway


Find the most popular sector and, if you don't have the information, intellectual property, genius, capital, code, skills, human capital or a clue, just borrow the words. SaaS companies are trading at a multiple of income (yay), compared to real estate companies, which are trading at a multiple of EBITDA (boo). Therefore, we are not a real estate company that rents desks, it is a Space as a Service (SAAS) company. I know, use the word "technology" over and over again, despite having little R&D, computers and so on, and voilà … we are Salesforce.

Today I froze the water and used this technology to reconfigure the environment encapsulating my Zacapa and Coca-Cola. So, I'm Bill Gates. Better yet, today I started calling my wife Gisele, which I am pretty sure means that I am the initial QB of the Pats.

At WeWTF, you are not a guest, but a member. The member has a more "recurring income" sound. Therefore, I plan to be a member tomorrow night at the Marriott in Boston, where I will gain membership in the TD Center so I can see a 21-year-old Canadian (Shawn Mendes) with my 8-year-old son. also a member of the Marriott and TD Center, for tomorrow at least.

Invented metrics

Did GAAP accounting standards depress you? No problem in WeWTF. We have begun to report the profitability of the "community-based EBITDA" before BITDA, but we are also eliminating expenses, including real estate, which comprise most of the cost required to provide the service. A more honest description of the metric would be "EBEE, earnings before everything else."

As someone who follows the actions and goes on television to pretend that I have some idea of ​​which direction a particular action is going, I would like to suggest some metrics to provide information about Us:

EBG, earnings before gluten EBBG, earnings before Big Dawg (tennis balls, pig ears, etc.) EBEPW, earnings before equal pay for women

Red flags

My goddaughter informed me that she is dating a club promoter, a red flag. Occasionally, the red flags marry each other, the Biebs and Hailey Baldwin, what could go wrong? So now, imagine red flags of the dimensions of Kansas. Seat belt:

– Adam Neumann has sold $ 700 million in shares. As founder, I have sold shares in a secondary offer to obtain some liquidity and diversify holdings. OK I understand. But 3/4 of a billion dollars? These are 700 million red flags that spell words on the field of a soccer field at halftime: "Get me out of these stocks, but YOU should buy some."

– Gross margins are a fairly decent indicator of how good or bad a business is. And this is a shit business:

WeWork income and losses.
Scott Galloway, no mercy / no malice

– Adam has several family members working in the business who earn "less than $ 200,000".

– The property structure table is similar to a hieroglyph in the wall of a cave on the survival of the species: harvest the crops when the sun is high on the horizon, do not venture through the hills, hostile tribes live there, and … do not buy this action WeWTF's corporate governance structure makes Chinese companies look pre-large and American technology.

We work

– The related parties section of this leaflet reads like the Trump administration. Adam owns 10 buildings, several that he leased to WeWTF with a good profit. Adam also owned the rights to the "We" trademark, which the company decided they should own and paid the founder / CEO $ 5.9 million for the rights. The rights to a name almost identical to the name of the company where he is the founder / CEO and the largest shareholder.


– Incompatible durations. The founder of Kohlberg Capital, Jim Kohlberg (total gangster), taught me how to close investment companies due to "mismatches." It involves raising short money (customers who can stop buying their product service soon / tomorrow) and invest long-term money (10-year lease agreements). WeWTF is a particularly risky business that goes into recession, when the ability to vary costs is limited, but the decrease in revenue is unlimited.

WeWTF has $ 47 billion in long-term obligations (leases) and will generate $ 3 billion in revenue this year. What can go wrong?

There are other businesses like this (real estate, Hertz), and they are good businesses. Companies that trade at, I don't know, 0.5 to 2x income. However, WeWTF states that it is not in this neighborhood, not even on the same planet. So, let's talk about valuation.

Insane. Seriously crazy. Ok, suppose WeWTF is in something better than your fellow IWG or Hertz. But is this company, which trades at 26x revenue, higher than Amazon, that quotes at 4x revenue?

There seems to be no scale effects, since losses have kept pace with revenue growth. There is little pricing power, since they are still a mole for the commercial real estate elephant. There is no defensible IP, no technology, no regulatory pits, no network effects, no flyer effect (auxiliary businesses are stupid, just stupid).

The last round of "valuation" of $ 47 billion is an illusion. SoftBank invested in this valuation with a "pref", which means that your money is the first money that comes out, which limits the disadvantage. Fools, idiots, CNBC viewers, great Americans and people who try to feel young again and buy at the first exchange, or later, do not have this protection down. Like the DJIA, the latest private valuations are harmful metrics that create the illusion of prosperity.

Bankers (JPM and Goldman) can register $ 122 million in fees that throw feces at retail investors visiting the unicorn zoo. Any capital analyst who supports these actions above a $ 10 billion valuation is a liar, stupid or both.

Adam's wife is Gwyneth Paltrow's cousin, which means that Adam is two degrees away from Goop, an assault on humanity.

Ms. Neumann created controversy when she joined CNBC and said: "A big part of being a woman is helping men [like Adam] they manifest their vocation in life. "

Ok, well … whatever works for you and Adam. But it is not the role of retail investors to help Adam realize his vocation: he should feel quite manifest with $ 700 million. The panels are attractive and fresh, but they begin to curl and the substance behind the wood veneer stinks. I mean, it stinks.

Scott Galloway is a marketing professor at the Stern School of Business at New York University and the best-selling author of "The Four" and "The Algebra of Happiness." He is a frequent commentator in the technology industry and founder of nine companies, including L2, Red Envelope and Prophet. This article originally appeared on Scott Galloway No Mercy / No Malice's blog. Follow Galloway on Twitter at @profgalloway. Republicated with permission.



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