The
Sour Taste of Lemonade's IPO Filing
The insurance business is centuries old and
seems ripe for disruption. And it has been. But startups who think that an app
and some storytelling will allow them to grab market share could be in for a
bitter ending .
WeWork still owns the
current, unchallenged record for the worst written, most navel-gazing, and
surprisingly self-immolating S-1 of the last decade. In fact, for a while
there, I thought that the WeWork clowns had come pretty close to retiring the
world title. I was pretty sure that only the team from Theranos could have really given WeWork a run for
the money in the "too much is not enough" department. Elizabeth
Holmes could lie with the very best of them and never break a sweat in the
process, even with real people's lives hanging in the balance.
But now comes the team
from Lemonade, who have mastered the art of turning a "beverage" that
they condescendingly call their "cup of tea" and a "cocktail of
delightful experience" into an unpalatable S-1 for the public
to swallow. Lemonade is a B-Corp (a public benefit corporation, which
means it need not prioritize shareholder value) that sells renters and
homeowners insurance to millennials via monthly subscriptions, then
reinsures the coverage with grown-up insurance companies. Lemonade says that
its ultimate plan and "social mission" is to give back any excess
funds to the charities’ customers choose. Who keeps score and decides what gets
given back and when are just a couple of the questions that come to mind.
But if there were a
buzzword face-off between these Lemonaders and Adam Neumann and his team, I'd
have to give the edge to team citrus. It's heartening to see the revised
regurgitation of such pithy turns of a phrase as: "the greater good,"
"doing right," "socially impactful,"
"self-actualization," and my personal favorites: "making
insurance more delightful" and, oxymoronically, creating "the
world's most loved insurance company."
This sad offering
actually has a chance to succeed in these crazy times. The market is nuts,
and about a million bored and home-bound novices have opened new brokerage
accounts and become "day traders." A Lemonade IPO will make the
stinky CDOs (collateralized debt obligations) that helped collapse the real
estate market look like cotton candy. Although, just when you think it
can't get uglier, the bankrupt Hertz (or "Hurts" perhaps more
accurately) comes along with sucker bait-- a huge stock offering right out of
the warped imagination of its advisors, which is the absolute height of
shamelessness. Honestly, I shouldn't care that much because anyone stupid
enough to get in bed with Lemonade, or buy any Hertz stock in the midst of its
Chapter 11 filing and invest in these over-the-top fairy tales deserves every
bit of what they don't get.
Still, in the interest
of some sanity, before we enter another crazy dot-com-ish period of IPOs based
on completely insane storytelling, someone has to call BS on this again-rampant
idea that every business, every industry and every marketplace is ripe for
immediate disruption by a bunch of eager young people without the slightest
industry-specific experience. Serious change in industries that have been
around for centuries, like insurance, doesn't happen quickly or easily. You can
rise above many things and overcome all sorts of obstacles, but the basic laws
of inertia and gravity still apply, with a vengeance.
For startup
entrepreneurs, ignorance can sometimes be a competitive advantage because they
don't know what they can't do and, as a result, they might just get it done.
But simply printing all this stuff, making up your own metrics, and mouthing
all the right words doesn't get you very far down the road. I said a while ago
that not every vertical market was
just waiting to be Uber-ized and it's even more true today.
For sure, there are
things that can and should be changed in any industry, but change doesn't
happen by fiat or by itself. Change takes patience, persistence and a concrete
plan that looks beyond the near term where novelty, noise, and novice customers
can get you some early numbers and momentum. Bragging about scale without
demonstrating any substance or staying power means squat. Eventually even the
most outrageous and energetic attitude surrenders to reality.
The ultimate name of
the game in insurance is long-term customer retention and lifetime value.
Lemonade has mediocre retention numbers at best, which look even worse when you
subtract all the customers they have "fired" in the short time
they've been around. I'm not adverse to firing customers who don't make sense for the business,
but you can't do it blindly. Refusing to look at unpleasant facts doesn't make
the facts go away. You can't build a long-term sustainable business if you
have a steady stream of customers disappearing, for whatever reason, out the
back door.
Equally foolish and
misleading is the argument that all it takes is a whiff of technology to
reshape and revolutionize any industry. Years ago, this particular line of
delusion started with Groupon, which was a technology façade spread over an old fashioned
boiler room with hundreds of worker bees spending their days on the phone
begging restaurants to buy into a really bad deal for their businesses. A
company that claims to be tech-centric, but which spends only a very
modest fraction of its total expenses on development isn't likely to be
building anything but a bubble waiting to burst.
It gives the whole
disruptive innovation business a bad name when upstarts without a clue start
claiming that they're the "next" whatever - just you wait and
see - but give me your money in the meantime while I try to figure things out.
If the dream is big enough, I guess the facts just don't matter.
Lemonade's tech story
seems like another strained attempt to wrap an old business story in some new
shiny "digital substrate" strategy based on "exploiting a
secular shift." If that last sentence sounds like a load, all I can say is
that it's taken from Lemonade's S-1 document and just as confused and
non-sensical there. It feels overall like someone suggesting that, if you just
accept a couple of my insane assumptions, everything else that follows will
seem eminently reasonable. They're selling you Lemonade. But to me it
looks like lemons.
The opinions expressed here by Inc.com columnists are their own,
not those of Inc.com.
PUBLISHED ON: JUN 23, 2020
