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It is another snow day. Oh well!
Yesterday, my friend A. sent me a link to a story about the request to exhume the body of Joseph Cotten, in order to find out whether he is really dead or not. The whole tale of QuadrigaCX (possibly mis-spelled, sorry!) is hilarious and also tragic and it is probably wrong of me to find it hilarious, and this little addition just is the cherry on top of the tower of Not Good For Anyone to Consume. The opportunities to find Morals in this kitchen sink of wackitude are endless and I intend to resist every last one of them.
Anyway. I predicted that this request would show up in Matt Levine’s column later in the day. Because. And it did. Because. Also, there was a really interesting analysis in his column about WeWork and why people gave WeWork so much money.
https://www.bloomberg.com/opinion/articles/2019-12-16/we-kept-almost-making-money
The We’reDoingGreat heading at the top is what I am talking about, and it, in turn, draws heavily from an underlying piece at the WSJ, which I have not read.
“Also this is funny:
WeWork’s business model was to lease long-term and charge higher rates to short-term small-business clients. That meant revenue relatively quickly exceeded the costs of operating its spaces. This is relatively common in real estate, but it looked extraordinary compared with software and hardware companies, which typically require years of investment.
I don’t quite know what to make of that? “Tech investors are not used to companies that make more money than they spend, so they were bewitched by WeWork, which … didn’t”?”
What the WSJ piece is describing — I think, remember, I have not read the underlying WSJ piece — is positive cash flow. Lots of Uber era businesses do NOT have positive cash flow. WeWork apparently did. And wow, when an investor sees a business that throws off cash AND is growing rapidly AND has a large universe to play in — that is the fucking holy grail. That is why Amazon attracted such committed investment right from the beginning, in the face of unbelievably widespread mockery.
I said last night — before I realized this was describing positive cash flow, because I am slow — that WeWork and a host of other badly run current era businesses can be blamed squarely on Amazon’s rabid success. Amazon went public with a history of losing money, and promisees to lose more for the indefinite future. And they did. All the nay sayers exhausted themselves on the bookselling behemoth that then spawned the infrastructure that all these other businesses get started on. So now everyone sees positive cash flow, growth and a large universe and goes Yes! What Time Lambo! Or whatever. Lots of times, there is no positive cash flow (laughably so, in the case of that movie thing). But apparently WeWork actually had positive cash flow.
So what really did go wrong?
Once upon a time, after I quit because I do not need that much money, honestly, I really do not, and that is NOT sour grapes, because the grapes in my life are unbelievably sweet, you have no fucking idea how sweet the grapes in my life are and there are a lot of them, anyway, where was I? Oh, right, once upon a time, after I retired, my former boss took some time away from the beast he had created because his family was growing. And a new guy was brought in to run the show for a bit, not as CEO, but in some sort of weird hybrid arrangement, you know, never a good plan, always a bad sign, whatever, sometimes it works, and the new guy did not work out AT ALL. The new guy was obsessed with compensation and shown the door.
I bring this up because when you are running a sketchy operation — and be honest, both WeWork throughout its existence, and Amazon in the era I am referring to, were both pretty sketchy — and that sketchy operation produces a fuck ton of cash, the person helming that bucket of bolts had better make sure that cash gets funneled back into the business or the whole thing will sink.
It might sink — hell, it probably will sink — anyway. But if the cash flow is diverted to personal or familial compensation, or even just extra fancy stuff for the customers, clients, employees, etc., then For Sure the ship is going down.
The positive cash flow which Amazon threw off early on was an artifact of the order flow: cheap website, cheap employees in cheap square footage in a cheap town. Customer orders. Amazon orders. Amazon fulfills order. Amazon collects the money. All that happens in a matter of days — and Amazon does not have to pay the vendor for the item for weeks or months. (It does not work that way anymore — this was in the beginning.) But Amazon DID eventually have to pay the vendor. And there were all those other costs, even if they were comparatively low. We got stock compensation, but we also got paid — we were not working for cheese sandwiches. So if you spent all the revenue coming in on, I do not know, expensive townhouses, and vanity child care operations, then there would not be money to do the stuff that needed to be done.
I do not understand WeWork, but I would imagine that the positive cash flow going on over there had a lot of things that needed to be paid for to keep it rolling that the people running it relied upon new investment to cover. Which was a huge mistake on everyone’s part, and a mistake that El Jefe never made.
Also, do not buy your groceries on credit. I mean, special cases if you pay the card off every month. But still. Same principle. Do not borrow for operational costs.
Yesterday, my friend A. sent me a link to a story about the request to exhume the body of Joseph Cotten, in order to find out whether he is really dead or not. The whole tale of QuadrigaCX (possibly mis-spelled, sorry!) is hilarious and also tragic and it is probably wrong of me to find it hilarious, and this little addition just is the cherry on top of the tower of Not Good For Anyone to Consume. The opportunities to find Morals in this kitchen sink of wackitude are endless and I intend to resist every last one of them.
Anyway. I predicted that this request would show up in Matt Levine’s column later in the day. Because. And it did. Because. Also, there was a really interesting analysis in his column about WeWork and why people gave WeWork so much money.
https://www.bloomberg.com/opinion/articles/2019-12-16/we-kept-almost-making-money
The We’reDoingGreat heading at the top is what I am talking about, and it, in turn, draws heavily from an underlying piece at the WSJ, which I have not read.
“Also this is funny:
WeWork’s business model was to lease long-term and charge higher rates to short-term small-business clients. That meant revenue relatively quickly exceeded the costs of operating its spaces. This is relatively common in real estate, but it looked extraordinary compared with software and hardware companies, which typically require years of investment.
I don’t quite know what to make of that? “Tech investors are not used to companies that make more money than they spend, so they were bewitched by WeWork, which … didn’t”?”
What the WSJ piece is describing — I think, remember, I have not read the underlying WSJ piece — is positive cash flow. Lots of Uber era businesses do NOT have positive cash flow. WeWork apparently did. And wow, when an investor sees a business that throws off cash AND is growing rapidly AND has a large universe to play in — that is the fucking holy grail. That is why Amazon attracted such committed investment right from the beginning, in the face of unbelievably widespread mockery.
I said last night — before I realized this was describing positive cash flow, because I am slow — that WeWork and a host of other badly run current era businesses can be blamed squarely on Amazon’s rabid success. Amazon went public with a history of losing money, and promisees to lose more for the indefinite future. And they did. All the nay sayers exhausted themselves on the bookselling behemoth that then spawned the infrastructure that all these other businesses get started on. So now everyone sees positive cash flow, growth and a large universe and goes Yes! What Time Lambo! Or whatever. Lots of times, there is no positive cash flow (laughably so, in the case of that movie thing). But apparently WeWork actually had positive cash flow.
So what really did go wrong?
Once upon a time, after I quit because I do not need that much money, honestly, I really do not, and that is NOT sour grapes, because the grapes in my life are unbelievably sweet, you have no fucking idea how sweet the grapes in my life are and there are a lot of them, anyway, where was I? Oh, right, once upon a time, after I retired, my former boss took some time away from the beast he had created because his family was growing. And a new guy was brought in to run the show for a bit, not as CEO, but in some sort of weird hybrid arrangement, you know, never a good plan, always a bad sign, whatever, sometimes it works, and the new guy did not work out AT ALL. The new guy was obsessed with compensation and shown the door.
I bring this up because when you are running a sketchy operation — and be honest, both WeWork throughout its existence, and Amazon in the era I am referring to, were both pretty sketchy — and that sketchy operation produces a fuck ton of cash, the person helming that bucket of bolts had better make sure that cash gets funneled back into the business or the whole thing will sink.
It might sink — hell, it probably will sink — anyway. But if the cash flow is diverted to personal or familial compensation, or even just extra fancy stuff for the customers, clients, employees, etc., then For Sure the ship is going down.
The positive cash flow which Amazon threw off early on was an artifact of the order flow: cheap website, cheap employees in cheap square footage in a cheap town. Customer orders. Amazon orders. Amazon fulfills order. Amazon collects the money. All that happens in a matter of days — and Amazon does not have to pay the vendor for the item for weeks or months. (It does not work that way anymore — this was in the beginning.) But Amazon DID eventually have to pay the vendor. And there were all those other costs, even if they were comparatively low. We got stock compensation, but we also got paid — we were not working for cheese sandwiches. So if you spent all the revenue coming in on, I do not know, expensive townhouses, and vanity child care operations, then there would not be money to do the stuff that needed to be done.
I do not understand WeWork, but I would imagine that the positive cash flow going on over there had a lot of things that needed to be paid for to keep it rolling that the people running it relied upon new investment to cover. Which was a huge mistake on everyone’s part, and a mistake that El Jefe never made.
Also, do not buy your groceries on credit. I mean, special cases if you pay the card off every month. But still. Same principle. Do not borrow for operational costs.