A post has been making the rounds on the internet titled, “It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus Or Mark Zuckerberg’s Letter To Shareholders.“
I had to admit that I was on the people who hadn’t read it. Of course, why would I? I wasn’t going to be buying any Facebook shares.
I didn’t need the prospectus to know that the hype was not justified. No matter how I looked at it, I couldn’t find a rationale that supported the price.
Where do I start?
If you understand what is going on in the world of on-line advertising — if you did the slightest bit of homework — it would be obvious that it would have taken a small miracle for Facebook to deliver earnings that would justify the sale price. The only people who were going to make money on this deal were the original shareholders and those same people who gave you the mortgage backed securities debacle that nearly torpedoed the US economy.
Or even without understanding the industry, if you looked at the fundamentals alone — earnings versus share price — there was no possible support for the share price.
The only explanation I could find for the price? P. T. Barnum once said, ”There’s one born every minute.” I wasn’t going to be part of it. So I paid no attention.
And frankly, I wrote off Zuckerberg.
That, as it turns out, was a mistake. As this blogger points out so eloquently, there were very clear reasons why the share price of Facebook plummetted. Those reasons were explained by Zuckerberg himself just prior to the offering.
If you read Zuckerberg’s letter to shareholders just prior to the IP, he makes all of what happened not only clear and rational — but also inevitable.
When I read it, I was floored. I could not believe how clear the warning signs were even without the helpful annotation of the reviewer who circulated the letter.
I was also, I confess, amazed at Zuckerberg. My estimation of him went up enormously.
To be fair, all I really knew of Zuckerberg was what I’d read in blogs and news and of course of the trailers for the movie about him. I couldn’t bring myself to actually go to the movie. Call me a cynic, but I couldn’t believe for a second that any Hollywood version of the story would actually be true and frankly, just because someone is a billionaire doesn’t make him interesting to me.
What I didn’t see before I read this letter was the depth of Zuckerberg’s intelligence and integrity.
Despite the obvious benefit he would receive from selling his own shares, Zuckerberg was totally honest with all the investors. His assessment is clear, factual – and should have sent anyone - even someone with no expertise running from offering at the proposed share price.
How many CEO’s would say this as they moved forward on an IPO?
These days I think more and more people want to use services from companies that believe in something more than maximizing profits.
Do we really believe that Zuckerberg didn’t know what such an admission should do to the share price?
Actually I think he knew better than anyone what the effect would be. Nothing.
Why? Nobody reads this stuff. There is an enormous amount of legislation and regulation that insist on clear and accurate information for prospective shareholders. But does anyone really read it? No. Or if they do, they obviously don’t believe it. Why? Read the average information to shareholders. It’s either solid facts and figures or its full of of flowery junk about valuing employees, creating value or espousing a vision, building opportunity. This is the stuff you have to say – whether you believe it or not. It goes through lawyers, writers, PR hacks — and by the time they are done it is sanitized, legal and absolute nonsense.
But what if someone didn’t just say this stuff — what if they believed it? I don’t know if anyone has every considered this to be a possibility. Hence, the shareholders ignoring a very clear message.
As I read the letter, I was struck by this idea that Zuckerberg really might believe it. In fact, I thought he would delight in writing this poke (pun intended) in the the eye of any “investors” who saw the Facebook offering as a quick buck or short term speculative venture. I imagine him laughing all the way to the bank, along with that group of loyal employees and shareholders who would also make their fortune.
He kept his promise to those who stuck with him over the years and he put one over on the “vulture capitalists” who wanted to get a piece of the action. If you read the letter, that’s exactly what you should have expected. Why? He says so.
As I read his letter, I couldn’t shake the image of the end of one of those endearing old movies where a rag tag bunch of lovable crooks win out against all odds. They defeat the sophisticated impossible to beat security of the big bank and pull of that one last big “heist”.
We always root for these lovable crooks. Why? It’s not like they are stealing something valuable or precious from real people. No, the only victims are banks, not people. And they are only stealing money.
At our core, we understand that money is a thing– it doesn’t have any intrinsic value.
Okay. Great for a movie. But in real life, that’s not the way it works. Right?
In the real world of business, in the hard hitting world of finance — money is the be all and end all. Companies exist to make money for their shareholders. Full stop. No CEO in the world would question this.
Except perhaps, Zuckerberg. He says:
Simply put: we don’t build services to make money; we make money to build better services. And we think this is a good way to build something.
Wait a minute. Did I read what that right? He’s trying to build an organization whose purpose is more important than it’s profit.
There’s a great scene at the end of the old Jack Nicholson movie, Chinatown. At the end, Nicholson confronts the villain, a very rich man who has cheated, stolen and even victimized his own children. He has done all of this to pull off a large business deal which will make him not just a millionaire, but a multi-millionaire. Nicholson demands to know the reason why this businessman has been willing to lie, cheat and damage everyone in his path purely for additional money.
Nicholson’s character pleads with the villain. ”Will you eat any better? Will you buy another car?” (Pretty accurate but I’m paraphrasing just so you get the point).
That scene has haunted me for years. There is a point beyond which the accumulation of money just doesn’t make sense. When we have all we want and need, why would we want to take more at the expense of others?
Why? There can only be one reason. Because it’s a game. A perverse game, but a game nonetheless. In this game, money is how we keep score.
Except life isn’t a game. In a game, the “losers” go home feeling downtrodden and sad. In the real world the “losers” end up without homes to go to. Lives are ruined, dreams are dashed, children go hungry. There are real consequences that affect real people in real ways.
When you shut down a factory, people can’t feed their families or pay their bills. When you take a financial system to the brink of disaster many people’s lives are devastated.
This is not a game. Games have rules. Games should be fair.
This one is not fair. In the recent crisis, companies that made bad decisions got bailed out. Executives who made bad decisions got their salaries and even in many cases got bonuses. How can that be?
Who suffered? The people who had trusted them, who bought their investments, who took out mortgages suffered. Even people who did nothing but work hard were forced to pay the penalty. They lost their jobs. The lost their retirement savings at a time in their lives where they could not ever hope to recover. They lost their homes.
No. It’s not a game. Nor is this the “free market” that we like to pretend it is. Let’s get real, shall we? We live in a world where the powerful are protected and the vulnerable suffer. If that’s the game, it’s not a fair game. And all that stuff you’ve been told about working hard and getting ahead? Statistically, at least, that’s a crock.
That’s not philosophy — that’s just the facts. Before you dismiss this as the ravings of some socialist zealot, let me tell you where I got those facts.
A non-partisan committee of the US Congress reported:
The share of the nation’s wealth held by the less affluent half of American households dropped precipitously after the financial crisis, to 1.1 percent, according to new calculations by Congress’s nonpartisan research service.
By contrast, the share of total net worth held by the weathiest 1 percent of American households continued rising, hitting 34.5 percent in 2010. The top 10 percent’s share was 74.5 percent.
This is where you have to admire Zuckerberg. He doesn’t pretend it’s not happening. In his letter to shareholders he says:
Over time, we expect governments will become more responsive to issues and concerns raised directly by all their people rather than through intermediaries controlled by a select few.
In a world where the income gap between rich and poor is growing at an alarming rate, where the middle class is being eliminated and where a very select few people control most of the wealth and power, this simple sentence is a very radical vision.
Over the years, many people has said the same thing. Most were dismissed as idealistic, utopian or as socialistic. They were dreamers who had never built a company. They were jealous. But what if the person making such as statement had the money, the power and the wherewithal to not just believe this, but to actually make this work in the real world. That would be a different story.
Zuckerberg is not just proposing, he claims to be living and that his company is in the process of helping build the most egalitarian culture in the past century. He talks about the “hacker culture”.
Most people – especially those most responsible for the financial mess that the US and the world economy are still attempting to recover from — have no clue what he’s talking about. To them hackers are vandals who get their kicks breaking into computer systems. Some of us know that’s not at all what Zuckerberg was talking about.
He was talking about a culture that is emerging – one that made Facebook what it is today.
Hackers – for the uninitiated, is a term that represents nothing less than a totally new way of seeing work and work culture. It is vastly different from the current culture that drives our economy.
In the hacker culture, what you can do — and more important, what you actually do are what count. You have to deliver something of value. Read Zuckerberg’s full text to get a great description of this. Its what he means when he says, “code wins arguments”. It’s not what you say, it’s what you do — what you accomplish that defines the value of your opinion and the power that you have.
This is a world where effort and ability get results. It’s a value based model espoused and practiced by somebody who has learned the lessons of the “real world” of rough and tumble business. He says:
I’ve developed a deep appreciation for how building a strong company with a strong economic engine and strong growth can be the best way to align many people to solve important problems.
This is not someone who is naive. This is someone who understands the free enterprise system all too well. And to prove it, he showed he could use that system more effectively than anyone. He convinced Wall Street to fund these rewards and used their own system to raise it.
Rob from the rich and give to the hacker.
But doesn’t that make Zuckerberg the same type of snake oil salesman as those who pumped out the mortgage backed securities and brought the US economy to its knees? Nope. The difference with Zuckerberg is he didn’t try to fool anyone. He said it all in his letter to shareholders. Clearly and in simple language.
He identified the revenue challenges. He told people where his true loyalty was.
So you can’t fault Zuckerberg. You might want to admire his honesty. Many of us hope his vision wins the day. And it just might.
Get out and experience the hacker culture he talks about. You will realize that there really is a growing culture in which “code wins arguments”. There are some places where it’s not the size of your wealth but the power of your ideas that count. But remember, it’s more than ideas — that’s why they say, “code counts”. Your value comes from producing value.
One interesting point arose when they were interviewing someone at a place where Zuckerberg stayed in Europe. Apparently, he didn’t tip or if he did it wasn’t what was expected. Cheap? Nope. Welcome to the hacker culture. You get based on what you give.
Can this actually succeed? Can the hacker culture defeat the entrenched power base of our current financial system. It just might. Not only did the hackers win this round, but they are winning others. Look at the Google’s of this world. Look at hundreds of smaller, emerging enterprises that are embracing and living the “hacker culture”.
It’s real and it’s driving the growth of “new economy”enterprises.
Interesting term, this “new economy”. To me, it sounds like what the old economy was supposed to be. It sounds a lot like what used to be called the “American Dream”. It sounds like a place where anyone, regardless of who they are, who their parents are, how much money they had — where they would be judged on what they did — how much value they add.
It this new economy is a game, the game just got a lot fairer.
The real difference between this new “hacker culture” and the old “American Dream” ? This time it might not be the BS and “spin” that we hear in corporate reports or in political speeches.
I can hear the alarm bells now. ”Warning! Warning! Someone is actually “walking the talk“!” You can say this stuff. You’re not actually supposed to really do it.
I don’t know about you, but I am so ready for a world where corporate leaders do what they say. A world where real effort and results are rewarded. A world — dare we say it — where purpose is at least as important as profit.
For those of us who really do what a “free enterprise” system where everyone has an equal opportunity, Zuckerberg’s letter was a message of hope.
We might not be at the “tipping point” that Zuckerberg talks about. But it’s comforting to know that not only is there a growing culture out there wrestling for control of the new economy — but that it can win a round or two. It’s great to know that this new “hacker culture” is a force to be reckoned with.
Make no mistake. Whether my hopeful vision of Zuckerberg as a new general or not, there is a war being fought. It’s a war for a new way of thinking that permeates every aspect of our lives. Zuckerberg again:
We hope to change how people relate to their governments and social institutions. We believe building tools to help people share can bring a more honest and transparent dialogue around government that could lead to more direct empowerment of people, more accountability for officials and better solutions to some of the biggest problems of our time.
Just for once, the creation of a new billionaire might be something to celebrate. It might be a vision of hope. If it is, it’s the first one that we’ve had in a long, long time. If Zuckerberg is true to what he says — we’ll see — then he has the resources to continue to drive not just for profit, but for purpose — to solve problems and to spread wealth to those who work for it.
I don’t know about you, but I haven’t seen a really hopeful sign in a long, long time. I might even start to dream again. What would this world be like — one where more and more of us go to work believing that what we did has real value? What forces could be unleashed? What would it be like if employees felt they weren’t just trading hours of their lives for money? What could be produced in a culture where position, money and power were irrelevant — where what counted was what you produced?
What would we do if we worked for companies whose only goal was to maximize profits? What would we do if the real goal was to achieve a purpose?
I don’t know. But I’d sure like to find out.
So for the first time, I’m considering buying Facebook shares. Go figure.