The astonishing buying/investing power of SoftBank has altered much of the world’s way of thinking … [+]
Is it just me, or has the reduction in WeWork’s ostensible value from $47B to $8B caused a frisson of schadenfreude in the business world? Could it be a sign that moving fast and breaking things, attacking and cannibalizing the competition, might NOT always be the best methodology? In recent years, in business as in global politics, it seems that bullying and behaving with the droit du seigneur of an 800lb gorilla has not only been sanctioned but also admired. My new least favorite word in the English language, “disruption,” has been passionately embraced by the business community; my second least favorite, “scalability,“ is almost as popular. But to paraphrase the late Duchess of Windsor, you CAN be too rich and too big.
The astonishing buying/investing power of SoftBank has altered much of the world’s way of thinking about businesses. On the one hand, in the absence of other metrics, valuing a business at a multiple of what people are willing to pay for it makes sense. That’s how WeWork came to have a $47 billion valuation. But in the absence of profitability, or a clear business model leading to profitability, what does that even mean? Those who know about these things tell me that rapid growth (the dreaded “scalability”) has a lot to do with this enormous valuation. To my old-fashioned way of thinking, the fact that a Japanese bank funded with Saudi money gives you hundreds of millions of dollars to spend should not impress the market simply because you actually go out and spend it! Surely the new $8 billion valuation of WeWork, approximately one-sixth of the amount at which the start-up anticipated going public only weeks ago, should be read as a cautionary tale acknowledging this as well as the weight of all its long term leases and management irregularities.
Then of course there is the question of profitability. The now-departed COO of another SoftBank company, this one in the real estate industry, commented recently that “we aren’t concerned about profitability” at this time. Huh? Isn’t that why we are all in business? Not just to spend money but actually to make some?
Time and again, the CEOs of these larger-than-life startups, when questioned about the huge losses they sustain year after year, point to Amazon as the lodestar example of how this “new economy” works. Yes, Amazon lost money, but it was a drop in the bucket compared to what many of the “disruptors” of today are losing, and for a considerably shorter period of time. Amazon also genuinely disrupted the retail world, first with books, then with everything else. WeWork, although clever and tapping into a very real market, is a middleman: it rents space long-term from landlords, then renovates it, marks it up, and rents it short-term to clients. It recognized the market for short-term space, a reality in the new gig economy in which every 19-year-old wants to start a company, and capitalized on it. But for WeWork, and I would argue for a number of similar companies, the SoftBank money proved to be more curse than blessing. It permitted a pace of growth with which the internal structures of these young companies could not keep up. It empowered a CEO to be so confident about himself and his vision that everyone else had to agree or depart. And in the end, the Emperor just didn’t have quite enough clothes.
There is still a lot to be said for growing a company organically. For one thing, it allows the executive team to actually manage the pace of growth, which they control based on revenues and capabilities, not fantasies and a “great story.” Growth occurs in manageable increments which bring the C-suite team together rather than throwing them apart with centrifugal force. Best of all, it keeps everyone humble as they tackle real-world problems together. Remember humility?