Sometimes a bad deal can make sustainable finance sense in the long run, or even the short. Steve Jobs has been working very hard for a guy who makes a dollar a year, flogging the I-pad, shrugging off the tampon jokes, convincing the analysts he's not dead yet. Why not take a real salary? When Ben & Jerry's was raising capital, it sold stock only to Vermonters. Wouldn't the price have been higher with a whole nation full of potential buyers? When Google went public with a computerized auction it certainly got the best price from the participants (who writes an algorithm better than Sergei?) but how many would-be buyers were not participating because they weren't familiar with the process?
They had their reasons. That dollar a year salary is part of the Mac mystique, and Mr. Jobs already owns enough Apple stock so that the compensation he forgoes is returned many times over when the enhanced Apple brand is reflected in a higher stock price. Ben & Jerry's has branded its Vermont hippy image, and what says hippy better than screw Wall Street, when I'm raising capital I'm selling to my neighbors. Take that Haagen-Daz. Google too, built it's master of tech brand at the expense of Wall Street tradition.
Prof. Victor Fleischer included these cases in a rigorous and insightful look at deals that seem to accept less than optimal results for the sake of building a brand long term. Brand building works for me, but in these particular cases the actual short term sacrifice might have been fairly limited. An odd deal is a gimmick, a special event that creates its own publicity and enthusiasm. A thousand really excited Vermonters may have allowed the underwriters to set Ben & Jerry's stock price up almost as high as a nation full of profit maximizing bargain hunters. When Google was raising capital, it's computerized auction probably did chase some buyers away, but how many first time buyers jumped in because something different was happening? Mr. Job's foregone compensation might be returned as stock appreciation, even in the short run. In other words, if the “bad” deal is interesting and well publicized, maybe we can use it to build that brand long term with out much short term pain.
Why doesn't this happen more often? Did Lloyd Blankfein really need to take Goldman through a public mea culpa, or did he just need to take a dollar a year? If I'm Tesla Motors, struggling with the fact that my electric cars will cost an awful lot to make until I can move to high volume production, what should I do? Build five hundred cars on spec, then auction them off? That's a start, but let's make it a little more interesting. Paint all the cars a special, unique shade of green. Open the auction only to bidders who are members in good standing of an environmental organization. Now you are really generating (sorry, couldn't resist) some publicity and those special green cars might even become the kind of status symbol that produces fevered bidding.
What are your ideas for a “bad” deal that doesn't really hurt because it creates short term buzz and builds a brand long term?
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Despite what the company is up to now the initial financing seems to be a major part in creating the brand for these companies. Steve is still seen AS Apple's only employee, after retaining a huge portion of stock. Ben & Jerry IS Vermont (despite being owned by a euro conglomerate) . Google's dutch auction made them an innovative company, despite most of their products improving on other ideas (yahoo,hotmail,iphone,mapquest). If these were gimmicks, they worked.
ReplyDeleteRaise all capital through craigslist. It would create a lot of blog buzz & $0 underwriting cost.
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