Shifting Strategies in Modern Brand Building

Support for the show comes from Faragamo. This Father'say, Faragama presents there the thingsings I have learned from your collection becausecause a father's influence is reflected in the details, in the way they dress, in the appreciation of materials, and in making considered choices These elements build over time and become part of a shared identity. And Faragama wants to highlight the style, assertiveness, and poise that are naturally showcased with the everyday moments between a father and the ones they love Discover Farraagamo's Father's Day gifting selection at farargamo. com or in store Support for the show comes from Avan. Avan built the first home equity line of credit on a visa card. sameame swipe as a regular credit card, a fraction of the rate, saving you hundreds a month. Americans carry over a trillion dollars in credit card debt at rates north of twenty three percent While homeowners sit on the largest pool of untapped equity in US. history, Avan fixes at asymmetry four point nine stars on trust pilot from over eight thousand customers go to Aven. com stop over paying for capital. Avven Financial Inc NMLS number two zero four two three four five, cards issued pursuant to a license from BisaUSA Inc by Coastal Community Bank NMLS number four six two two eight nine member FDI SQL Housing lender subject to approval terms of apply, visit aven dot com for details Support for the show comes from Section. The recent joint ventures from openp AI and anthropic point to the same thing. Enterprises are not going to get value from AI by just rolling out licenses. If you're deploying AI and you want real ROI, You need to invest in changing how people work. If you want to do this fast with a team who actually knows what they're doing, You should talk to our company section. This is actually a paid ad, but it's a little bit weird. Full disclosure. I'm an investor in section is I feel that the part of AI that is most underinvested is what I call the adoption layer. and that is helping companies upskilled their employee base to better leverage AI Anyways, Section has helped Nike, AutodS, NASCAR, ABMBv and Pooubacy And a hundred other firms get value from AI. They can do it for you. Get in touch at sectionai. com That's Sc tio naI. com to learn more Welcome to Office Hours with Prop G. This is part of the show where we answer questions about business, big tech entrepreneship and from whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to offffice hours of Pptummedia. com Aain that's officeHours of Pptummedia. com or Post your question on the Scott Allalloway subreddit, and we just might feature it in our next episode plus You can now call or text us a question at two hundred one four seven two, three six, five, six. That's two hundred one four, seven, two, three, six, five, six. All right. let's get into it Our first question comes from Steve who emailed us. He asks. I'm a simpleton in investing who listens to proroperty regularly I know both are different sectors, but can someone explain how Walmart with revenues of approximately seven hundred thirteen billionllars and operating profit of around thirty billionars can have a lower valuation than anthropic, which has revenue of approximately seventy billion do and forecast a profit of around two point two billion doars Forecasting revenue of seventy million. Is that evidence of a bubble are investors simply pricing in much higher future growth and profitability for Anthropic. So Typically, a stock price is meant to be the asset value, so just the land underneath the retail or the intellectual property and owns plus the present value growth opportunity or cash flow. So all of these assets should be able to create an asset or a series of assets that create revenue that is greater than the inputs to produce that revenue. That's profits. and then Your growth or the multiple you get on those earnings, the PE ratio is a function usually of how fast that is growing or how stable and durable those cash flows are. And the reason why Space AX and anthropic and open AI are going out anywhere from thirty or forty times revenues to one hundred times revenues is that people look at the adjressable market and think, wow. If this company continues to grow in fairly short order, it could be the most valuable company in the world. And right now if you are buying in any of these three companies, there is you're betting in the nono probability that this could in fact be the most valuable company in the world because these companies are going out at anywhere between one and two trillion dollars, and the most valuable company in the world, I think it's around five or five and a half. I can't remember if it's Vvidia Apple. You do end up with companies that are low growth, not exciting, not in software, don't have the margins of technology. You know, the adjustable market for Walmall is pretty big. I think it has a ninecent or eleven percent share of retail. It's probably never going to get above twenty because Consumers like at some point differentiation and want to shop at different places regional Fiction, whatever might be But let's talk about Tam I think Anthropic is five or ten xing every year. So people look at that and think, wow, that could be an enormous company at some point and because it is in fact software at some point, When it hits breake even, a lot of those additional revenues are going to flow to the bottom line. So What's the takeaway here? Let's look at the numbers. Fiscal twenty twenty five net sales of six hundred seventy five million doars Walmart, adjusted operating income of thirty billion do operating margin of four point four percent And the market cap as of late was one trillion dollars. So that's roughly one and a half times revenue or thirty four times operating income, which is actually pretty rich for a retailer. Walmart's operating margin has climbed from three point three percent in fiscal twenty twenty three to four point three percent Walmart is just a different business. Walmart operates on the notion that their scale and their operational excellence, they can pass the savings ono a consumer. So There are only three things that matter or lines that matter around shareholder value. There's the top line which is perceived value, the next line, the middle line is the price you charge and the line below that is the cost to deliver that service And all shareholder value is a function of the ratio between or relative relative distance between those lines. So Walmart is in the business of constantly pushing down the cost line And then once you do that, some wonderful things happen. if you can either pass along the savings and pull down the price line that you're charging consumers, which is what Walmart does And then the gap between the price you charge consumers and perceived value broadens and the value proposition goes up and you should expand share. And that's been Walmart's strategy the whole time is they don't, if they cut costs on operations such that they can ship a pallet of ginger ale to Arkansas more efficiently than someone else. they immediately pass those savings on to the consumer. And the value proposition of Walmart goes up. There's an old saying that Starting to shop at Walmart is like getting a promotion in terms of the change in the quality of your life because you can now afford to buy imported beer versus domestic beer. if's If that's what you want to do otherther companies such as a Tiffany or Hermes, their job they're on the they're on the job of pushing perceive value lineup as much as possible through innovation and scarcity and branding And then That's wonderful. because then the gap between the perceived value and the price they charge goes up which should expand share. But typically what they do is they p as they push the perceived value line up They raise the price. Eectively what you're doing in these companies is theyre trying to They're trying to push their perceived value up dramatically. They're also raising so much capital that they can offer these products And incredible value. So supposedly Cloud Pro or Cloud Max, it cost two hundred dollars a month Let's supposose right now it costs them five thousand dollars a month for the compute and the chips to offer you that service So they're trying to capture a ton of share. These companies are going incredibly fast and their total adjustable market seems almost infinite which results in just kind of what I' feel would be insane valuations. Let's talk about anthropics. So get this. The annual revenue trajectory was eighty seven million in january twenty twenty four, and it's one billion by twenty twenty four and nine billion by the end of twenty twenty five and thirty billion by april twenty twenty six. So as you can see, this company Yeah I mean, anthropic really is a miracle of American innovation. It was started five years ago. and if it was in Europe, it'd be one of the five most valuable companies. The current run rate is about forty billion do AR. according to people with knowledge to the company's financials, and the valuation was three hundred eighty billion doll post money at series G in February and now it's in talks to raise money Yeah had a nine hundred billion dollars pre money. Internal documents project a fourteen billion dollars loss of twenty twenty six, no positive free cash flow until twenty twenty eight at the earliest. By the way, I think that's a couple of years earlier than the projected positive free cash flow date for openpen AI. So at a nine hundred billion dollar valuation in forty five million do in AR, that's roughly twenty times stored revenues compared to Walmart's one and a half. They're just different businesses with different expectations U I would what's the answer here? You know, which is a better value? The answer is yes, and that is I think you want to invest in everything. I don't think you want to try and talk yourself into the illusion that you can find the needle in the haystack, buy the whole haystack, dollar cost in, low cost index funds so you don't pay fees for a lot of fees. So I do think there're is a real serious bubble question, The barr case Um Anthropic has taken roughly seventy two billion in funding and does not have free cash flow projected until twenty twenty eight and AI You know, at some point, AI is going to stop growing at the same pace. I think also, I think there's some existential threat from open way open way LLMs out of China regulatory concerns. I think the next big populist movement isn' immigration or affordability. It's AI regulation which has Fans on both sides of the aisle. So Are we in a bubble? probablyrobably, but it's really hard to tell when the bubble is going to pop It was obviously we were in a dot com bubble in nineteen ninety seven, and yet the NASDAQ I think tripled. So it's very hard to time the market And I think what you want to do is just always be in the market, always continue to save money and invest in the market and be diversified in low cost indx funds such so you don't have to try and figure out if Walmart or anthropic Here's the better value. The honest answer is, I don't know. That's the bad news. The good news is noor does anybody else? Yeah. Is it a bubble? Or are these companies going to go up because of the incredible tAM I think the answer is yes. Question number two Hi, Scot This is Mark from Dallas My daughter is heading to college this fall as an advertising major She's looking at a career in brand or events management But I listen to the pod. And I hear your warnings You've made it clear that Don Draper's version of advertising is dead. Brand era is over. and that AI is coming for the creative class My question is addvertising degrees still a viable path to a high earning career Or is it a waste of tuition in twenty twenty six If this were your daughter Would you tell her to pivot now? Or is there a way to AI proof a career in this field Thanks for everything you do Thanks to the question. I get this question a lot So I think a lot of it is words. I think that they should change the name of the degree of marketing or customer acquisition, or I don't know something that feels a little bit more toaged because advertising when people hear advertising, they think of a sixty second spock telling you have opio induced constipation ads in the middle of CBS newews The broadcast advertising business is just in structural decline. It just is. and probably the I would argue the kind of pivot moment that illuminated it was that Steve Jobs decided to take six billion dollars out of broadcast advertising and go further down the stack and open five hundred and fifty temples to the brand. and that was Apple Stores. So he invested in distribution as opposed to pre purchase branding Effectively the way you built brands from kind of nineteen forty five to nineteen ninety five was there Americans were sitting in front of a TV five hours a day and watching one or three channels. so you could literally reach the entire public with two or three nights of advertising. That has obviously fragmented. There are now hundreds of channels and hundreds of other options where vying for your attention. In addition, The cost to advertise on the Academy Awards has gone up fivefold despite the fact the audience has declined by two thirds So one of two things has happened. either broadcast advertising is a terrible value now Or back when I was growing up, it was an unbelievable value And the reality is is mostly the latter. and that is you could have a shitty shoe, a shitty car, a shitty salty snack, a shitty suugary beverage And if you created these associations of European elegance or American masculinity or paternal love or maternal love, choosing momums, choose Jif You could put out a mediocre market, capture All of the emotions of the majority of the nation on a fairly limited You know advertising budget and then sell thirty to twenty cents of peanut butter paste for two bucks So that was the kind of the algorithm for creating shareholder value. And then with Google and weapons of mass diligence that came out from SRp Advisor to AI You've seen a vast migration of capital out of advertising into distribution, see above Apple or post purchase branding, which is either influencer or social media warranties, customer service, CRM, all that good stuff So I don't like the term advertising, but marketing or whatever you would call it custom customer engagement, customer RI, we need better terms Um I do think it's a decent education, learning how to communicate with people And actually communication is a better word and try to create a motion that results in margin. And that is brand is kind of Latin for margin or emotion. And what you want is irrational margins from consumers. So I want to drive something with a stallian logo on the hood of my car, a Ferrari, I don't know a car actually because it says something about me it says I' Masculine, successful, European grace, have the money to buy Ferrari, please have sex with me. And I think the majority of really high margin brands are doing one or two things, making you feel closer to God or giving you the sense that you'd be more attractive to a broader selection set of maids But I think that the skills you get in communications is a strong one how to figure out a market, how to figure out what moves people, figure out distribution, figure out technology, different channels to reach them. So I think that you have I think this is what I call it's not the default career path it used to be But You know, it is, it does teach, I think really strong skills. So The ad model, when I was coming out of business school, the Titans of industry were Maurice Levy Martin Serrel, John Ran so IPG Omnicom WPP. And these companies are kind of meaningless now. When I go to Cann Lions, they used to be the masters of the universe. Now it's Google, Meta, Pinterest, Spotify. and these guys are basically like running Irish bars and hosting ten or twelve people. You know, it's just not if you're under the age of forty, I would sugg just not going or getting out of the ad supported ecosystem. I just think that system is getting harder and harder every year and the oxygen continues to get sucked out by Google and Ma. If you're already doing well in one of those businesses, it's still You know agencies aren't in the advertising business anymore and they're in the kind of client management business, helping them navigate a very complex world and helping them do good media buys What your daughter is talking about where I think there's huge growth is events. and that is activations. And so I speak at a lot of these events. And I just spoke at RBC in Vancouver, Canada They usually spend two or three million dollars on a thirty six hour event for their most important clients. I'll speak at Dreamfce Yeah, they probably spend ten million I just got off a live tour for Property Markets. There were six people managing the venues, the events, the lighting, the guests You know, that I think activations and people wanting to get out and touch grass, if you will, and events Netflix will do a pop up at Can Lons featuring their latest shows and they'll spend a ton of time and money and energy so we' Snap will have something really cool. They'll take over a big chalet. So I think that If you're organized, creative, a good manager, I think event marketing is going to boom, if you will, but traditional advertising Wow, watch out below. And by the way, what I would tell my daughter is don't follow your talent. I wouldn't be like, o just do what makes you happy. I would say, find something you're really good at. That's your job And going to college, just find subject material you think you're great at. takeake a bunch of classes you otherwise wouldn't take to see if something surprises you. try and throw in some stem I would very much try and figure out a way to take classes that force you to write English or communication because I think that's the basis of all storytelling, which I still think is an enduring skill. The boss let's be honest, we can tell our daughters whatever we want. They're gonna to do what they want. but If your daughter, these are good problems. If your daughter's headed to college, you're obviously an engaged father You know, I think that's kind of ninety percent of success right there. Thanks for the question. We'll be right back after a quick break I'm pretty confident talking into a mic. Hey, I'm doing it right now But home projects, I second guess everything Is that noise normal? Is that water damage? And who should I even call? That's where Thumbtat comes in. Uload a photo or voice notote, and their AI powered search helps diagnose the issue and match you with the right top rated local pro. Instead of second guessing or searching for hours, you get clarity and can hire the right pro with confidence For your next home project, try Thumb Tack. They know homes. Hire the right pro today Support for the show comes from Co hereere, As AI advances, one thing matters more than ever, staying in control Most AI comes with strings attached, like sharing your data and infrastructure or compromising your independence With Cohere, you don't have to give up control to gain capability. You can have both Cohere started seven years ago with a bold mission. scale entnerprise intelligence without sacrificing sovereignty. Their solution AI that leaves you in charge of your data and infrastructure allow you to maintain your competitive edge It's designed for enterprises, governments, and organizations that refuse to give up control in pursuit of innovation From frontier models to out of the box tools, Cohere gives you everything you need to build and deploy secure, scalable AI that drives growth and delivers results Their platform is designed around your business with models that can be customized and trained on your proprietary data so the solutions are uniquely yours And contontrol doesn't stop a customization. Cohere is built with multil layered protections, access and industry certified security standards that help safeguard your data while supporting privacy, compliance and other requirements. As AI continues to transform every industry, Cohere gives you the power to put it to work today on your terms. Take charge of your AI with Cohere. too learn more, visit coohere. com slash Vox Support for the show comes from Odu Running a business is hard enough So why make it harder? with a dozen different apps that don't talk to each other Introducing Odu It's the only business software you'll ever need. It's an all in one fully integrated platform that makes your work easier CRM, accounting, inventory, e commerce and more And the best part, OdDu replaces multiple expensive platforms for a fraction of the cost That's why over thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo. com That's O d oo d. com Welcome back, Qion number three Hey Scott, my name's Seth I just turned forty. have a one year old daughter Baby boy on the way And maybe one more kid after that I love being a dad and a more family oriented than work centric But careers still really important to me And I want to move from middle management to executive leadership this decade As I enter my prime earning years with my kids in diapers I wonder if I'm at a career disadvantage compompared to fathers who had started their families at thirty versus forty life pushed things back. Career setbacks, finding the right partner, years of IVF. But here I am I feel I need to be more present with my kids now, not less but this may limit my professional growth Having had your first son at forty two and raising young men while you're in your sixties Do you wish you had kids earlier How did becoming a father in your forties shape your ambitions and relationship with work Thanks, Scott, and thank you for helping shape a healthier public discourse on being a man and father so thanks for the question and congrats. If I could go back, it would be to when I had little kids and You know, those are the saladays for me. I think I'll look back and the happiest time in my life and I'll be one Our kids used to bomb into our room on a Sunday morning and jump into bed with us Look, there's no right way. There's your way. and that is There's no such thing as balance There's just tradeoffs. And I can't stand it when thought leaders or people giving advice or whatever say,, you know, always prioritize family. You won't regret it. Yeah, maybe Um, we live in a capitalist society and Money is not only freedom and optionality, it's health. Pe in the upper descile of income earning homes live seven to ten years longer than people in the lowest descile And so I think you just have to get alignment with your partner and recognize there is no balanceces There's a trade offff. So you might decide that you want to move to a lower cost part of the world manage your finances tightly and you and your wife decide that you're going to prioritize family and you're going to work forty hours a week and coach literallyague and go to church. be a good American and have a really nice life and a lot of people do that and are happy and move to a place where they can buy a house for three hundred thousand dollars Um, so that is u, you know, there's a lot of People are very happy living that life. I didn't want to live that life. I wanted more money. I wanted to live in New York. I wanted to be more what the terms I'est say call it more relevant, but I wanted more curb success, if you will And've always been very insecure about money So I made the decision for that trade off and that is I got alignment with my partner and I said there's going to be times when I'm on the road for two or three weeks. I used to Allan was running a company called L two, which helped luxury brands benchmark their digital confidence and Luxury Mans happen to be located a lot in Paris or Milan or You know, I would travel to Seoul to meet with Samsung and then to Englstad, Germany to meet withoutudi. And I remember coming home a few times after being on the road for two or three weeks and I'd look in peure my head into my kids room when they were your age, and I'd notice they physically had grown since I left. I' theyd get all bummed out. But me and my partner decided that we wanted the optionality later in life that money affords you. I have a I have a tremendous amount of balance right now You know, I'm going to I'm going to I can fly home whenever I want in New York and then I'm going to go spend some time with my kids One of my kids is in the dollomites hiking with his mom and then we're all You know, we're going to World Cup and we just get to do these amazing have these amazing experiences and we I'm boasting now, but it came at a cost. I don't I have so much optionality now and funun things in my life because Boss, I was working like fourteen hours a day when they were babies and even kids, I missed a lot I don't want to I missed a lot. Now for me, it was worth it. And there's always a risk you worked that hard and you don't get there. and then you're like, that's really a bummer But I decided the one thing I could control was how hard I worked. And I made that sacrifice. And most importantly, I had alignment with my partner that that's what we were going to do. And she was very supportive of that But it comes at a cost. I think you just gott to sit out with your partner establish what is really important to you recognizing the realities of capitalist society where There's a lot of things that are going to be easier for you and your kids if you have a certain amount of economic security That comes at a in order to achieve that, it requires real sacrifice and real trade offs. I just think you have to have sober conversation. And what I find a little bit disheartening sometimes when I talking to young people ' I asked them How much money they expect to be making in thirty or thirty five? And some of this is proximity bias because the kids I'm around are very ambitious at a business school But I'd say eighty percent of them expect to be in the top ten percent if not the top one percent. And then they use the word balance. Bitch unless you were smart enough to be born smmart enough to rich parents get over that I don't know anyone who gets to the top ten percent much less the top one percent. Without making a huge sacrifice in their relationships, their health, their quality of life, their mental well being, shit is hard and work is really there's a lot of there's What is it? the average income per capita globally is sixteen or eighteen thousand dollars? So if you want more than that, you're going to have to be more innovative or work harder or be born in a better place than those people So I just think it requires a sober conversation about the trade offffs And then to get alignment, decide where you want to be on that spectrum of trade off And then to have an honest conversation and get alignment with your partner. Bud boss, I don't I can't tell you which way to go I think it's a very personal decision