Beer Money
Back during Season One we occasionally published a piece called CIMple Truths, which was a compilation of ridiculous claims and presentations we’d seen recently in deal teasers. I retired the template for Season Two because (1) the gag didn’t resonate like I thought it would and (2) we haven’t been seeing as much ridiculous stuff. (1) is on you guys because I thought they were hilarious, but (2), I think, is a product of higher interest rates and a more subdued dealmaking environment keeping weird stuff away from the market (Trump and Chamath and all of the other weirdos would never launch SPACs now).
But!
I am unretiring the format today because I have never seen anything as ridiculous as this:
I left out the numbers because they don’t even really matter, but what is the thought process behind presenting three different kinds of “contribution margin”? Because a business’ level of profitability before accounting for marketing and distribution costs is not only not a thing, it’s irrelevant!
The reason that’s so is because without marketing and fulfillment, there is no business.
I’m dating myself here, but I am old enough to remember Groupon and ACSOI. ACSOI was a measure of that company’s profitability if you didn’t include what it cost to acquire customers or what it paid employees in stock-based compensation. Again, no customers or employees, no business! There is no world where you should add back or adjust out critical functions. And don’t get me started on adding back hypothetical earnings from counterfactual “optimizations.”
This is why we measure the value of a business in terms of how much beer money it produces. You could also call this really free cash flow. This is the money, all of the accounting shenanigans and GAAP yada yadas aside, that you have leftover at the end of the day that you can withdraw from a bank account to buy beer with. And, if you have a lot of it, cheers.
– By Tim Hanson
