#40 Inventing Villains
How many times do we have to get burned, so we learn to avoid the hype? I thought WeWork taught us those lessons? No? What about Theranos…
This is post #40 of my #365 day series.
Peloton CEO Barry McCarthy's first all-hands meeting cut short after laid off employees crash it
Peloton held a virtual all-hands meeting Wednesday that was meant to introduce its new CEO, Barry McCarthy. Instead, a…
www.cnbc.com
How many times do we have to get burned, so we learn to avoid the hype? I thought WeWork taught us those lessons? No? What about Theranos. Not relevant enough because they were dealing with blood? Nikola Motors? Let me guess, the big rig coasting downhill without an actual electric drive-train convinced you around the potential of the technology. That’s what they mean by “potential energy” right? What do we have to do and how much do others have to fail and suffer that we understand that when you get hype in the market it’s more than likely not going to live up to the hype?
In the case of WeWork, there were so many signals both internally and externally to investors. It is the cult of personality that sold the investors and employees to join, so they can’t be blamed for falling victim to a fraudster. I had a bad feeling about WeWork when I heard the How I Built This podcast with the co-founder, Miguel McKelvey:
WeWork: Miguel McKelvey : How I Built This with Guy Raz
In 2007, architect Miguel McKelvey convinced his friend Adam Neumann to share an office space in Brooklyn. That was the…
www.npr.org
There’s one quote that stuck with me from the podcast. I’ll paraphrase this a bit but McKelvey said something along the lines of “I met Adam and he seemed like someone who just had to be successful.” That’s not a good sign. That’s a sign that someone will do anything, say anything in order to be successful. And that’s what the investors got. A man who figured out a way to finagle his way into billions of dollars worth of funding (from SoftBank no less) and getting tens (if not hundreds) of professionals from banks to sign off on the underwriting for a company that was losing money hand over fist. How crazy is it that no one said a word during that entire time? All the way until the pre-IPO valuation ballooned to 60bn+ dollars. And all the while, without a strategy to get to profitability.
That reminds me of the time I was talking to a startup about their business model. I told them “By my back of the napkin math, the business makes no sense. You’re losing tens of millions of dollars with no path to tangible revenue or profitability.” Their response? “Tony, you underestimate how deep our pockets are.” They went out of business 9 months later.
So in the case of Peloton, who is to blame? There’s no single point of failure, but how is a finance team off by orders of hundreds of millions of dollars when it comes to near term projections? So much so that they have millions in excess inventory and SG&A. I don’t think we should cleanse the management team of their sins, but I will say, having been on many boards with institutional investors, peer pressure definitely played a part. A ridiculous statement right? Take a look at the Blackwells presentation on recommendations for Peloton.
Activist Blackwells pushes for more action at Peloton after executive reshuffle
BOSTON, Feb 8 (Reuters) - The activist investment firm pushing for a sale of Peloton Interactive Inc (PTON.O) on…
www.reuters.com
One thing is clear, many investors bought into the hype based on personalities and opinions, not numbers. So much so that they needed the company to grow exponentially in order to support the market cap. And we know what happens when people absolutely need something to happen.