I received great feedback on last week’s topic on NDA Aversion. I didn’t have time to organize it all for distribution this week, but I will have it done by next week.
Topic of the Week: Energy and Spirituality Metrics
A few days ago, the entire field of finance was disrupted. It will never be the same.
What am I talking about?
Adam Neumann, the CEO of WeWork, discovered a revolutionary new approach to valuing businesses.
Gone are the days where we use revenue and EBITDA multiples to value a company. There is now a more nuanced and accurate way to value a business.
Here’s Adam’s revelation:
“No one is investing in a co-working company worth $20 billion. That doesn’t exist,” Neumann says. “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.” See the original article from Forbes here.
This is revolutionary and must be discussed.
What Led to the Discovery?
WeWork’s last round of funding put a $20B price tag on the company. Some folks don’t quite understand the valuation. Here’s why:
WeWork has $1.3B in estimated revenue, 163 locations, and 2,900 employees. A $20B valuation equates to 15.4x revenue, $122M per location or $6.9M per employee.
While admittedly not a perfect comp for WeWork, Hilton has a similar business model (i.e., leasing small spaces to individuals or groups) and comparable valuation at $22B. Hilton has $11.6B in revenue, 570 locations, and 169,000 employees. Hilton’s valuation equates to a 1.9x revenue multiple, $39M per location, or $133k per employee.
Why does WeWork warrant such a premium valuation? It has something special that traditional valuation metrics can’t measure. Enter the need for a new way to value companies.
Energy and Spirituality Defined
Energy and Spirituality metrics are a new discovery. We don’t know much about these new metrics yet.
By using these articles, we can create a model to quantify energy and spirituality. Here’s a summary of the math:
Energy = Number of team building events + amount of positive feedback you give coworkers + number of new ideas – number of walls – number of organizational secrets.
Spirituality = Number of customers with a mission to “make the world a better place” + number of mindfulness breaks + number of coworkers who consider each other friends – number of times someone makes a negative remark.
Unfortunately, WeWork is a private company, so we can’t put real numbers to these models yet.
However, since Energy and Spirituality are crucial valuation metrics for WeWork, I’m sure there will be detailed stats in the S1 when they file for IPO.
Until then, we can all start to track these metrics in our own businesses. ROND’s are negative right now. I’ll start knocking down walls next week to remedy that.
Have a great weekend everyone!