It isn’t enough for people to buy your product, they also need to feel good about it.
Have you ever suffered from buyers remorse? It’s the sense of regret you sometimes get after making a purchase: the very expensive watch that you thought might always be a family heirloom that turned out to just be a watch; the bottle of expensive wine that tasted little better than your normal supermarket plonk; or the aftershave that didn’t, in the end, make you any more attractive to women. It’s driven by cognitive dissonance, those conflicting thoughts, emotions, and uncertainties about actually needing the thing you have bought, or whether you have been tricked into paying too much for it. HP’s “remorse” over the purchase of Autonomy in 2011, for a mere $11.1bn, is still evident. It is still chasing the guys in Autonomy who, allegedly, sold them a pup, and other investors are suing HP for consequential losses arising from the surprisingly large discrepancy between what they now think Autonomy was actually worth at the time and what they paid for it.
As HP are suing Mike Lynch and Sushovan Hussain in the UK courts for $5.1bn it seems that they think they paid quite a premium. How could they do that? Is the true value, particularly of sexy high profile businesses, like Autonomy in 2011, so hard to determine? I think it is. In fact, I’d go as far as to say that not only is there no such thing as a universal truth in life, one that everyone would agree on, there is no such thing as an easily justifiable valuation of this sort of business. Rather, value is very much in the eye of the beholder and there are economic, synergistic, perspective specific, and emotional dimensions that often distort the view.
Whilst at some fundamental level the value of a trading asset is a function of its likely future cash flows, there is no saying what the future has in store for us: it is uncertain and that means we really don’t know – we can only guess. However, in market bubbles, like the new networked era bubble we are in now, the future always looks rosy – business valuations, dreams, and aspirations seem to be more certain somehow and that leads to disappointment and eventual remorse for greedy folk who were sure the future would go a certain way. There is no doubt that many leadership decisions have to be taken in the face of uncertainly, but they are very often just thinly disguised guesses made in a cloud of testosterone driven over-excitement and guesses are often wrong.
All this got me thinking about what anything is really worth. Isn’t all marketing, of anything other than a commodity, a bit of a value illusion? Whilst someone buying a $50 bottle of perfume might think it is worth every penny, others may think that as it only cost a few pounds to make it is in fact a rip-off, that they have been misled, or defrauded in some way. With many purchases there is a huge gap between price and intrinsic value: if there wasn’t a gap there wouldn’t be a business, but too big a gap and you have too much remorse and a fundamentally less successful business. For a one-off deal like Autonomy it doesn’t matter much but if it’s your sales proposition it does. The best businesses offer a meaningful difference that people can’t get anywhere else, which they value so much that buyer’s remorse is minimised. If everyone who buys your products or services feels bad about it, your brand will suffer. Hype is never a satisfactory substitute for value
What something is worth to me isn’t necessarily what it is going to be worth to you and that applies as much to a bottle of perfume as it does to Autonomy. The fact that the new management don’t now think it is worth what the old management paid for it is hardly surprising, but the scale of the difference is intriguing. It will be interesting to see who blinks first in this high stakes legal standoff.