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Gwyneth Paltrow: Will Fake Pills Drive Out Real Cash for Goop Investors?

Chasing snake oil and fad gurus is harmless until your journey of personal discovery becomes a platform for prescribing therapies to complete strangers. Any reasonably diligent venture capital partner should be weighing the risks.

Gwyneth Paltrow’s lifestyle newsletter “Goop” has absorbed its share of derision over the nine years since she famously started collecting recipes and wellness tips for her friends.

As the publication evolved, Paltrow and company have obsessed over the health of their pelvic floors, preached against corn and tomato seeds as toxic and sold $25-an-ounce edible herbal “sex dust” to all and sundry.

It’s that last bit that’s feeding the latest wave of backlash. Goop promotes a lot of products that make quasi-medical claims, while ringing the catalog with sometimes unorthodox commentary from favored physicians.

If the business were one or the other — fringe education channel or hardcore vitamin store — it would ironically have an easier time because medical watchdogs would know how to classify it. But when the diet pills come under attack, the doctors get defensive and blur the lines.

That’s a problem, because criticism of the products tempts the doctors to stretch the protective coverage of their reputations to cover ice age civilizations, nonsensical nutrition and obscure herbal additives.

If we were simply looking at another wealthy amateur using a hobby business to popularize favorite theories, the rules would be different.

Gwyneth took at least $20 million from outside investors to turn her humble newsletter into the next hot lifestyle brand, though. That means amateur hour should have ended years ago.

And that should have the alarm bells ringing for her advisors as well as serious investors.

Meet the new boss

Start at the top of the org chart. All day-to-day decisions currently stop with Gwyneth herself, which is only a good thing for the investors once she backs off to let her people make money.

With successful personality-driven media ventures, the principal always steps back sooner or later. Oprah and Martha Stewart keep an eye on their branded activities, for example, but they stopped baking every pie decades ago.

At their most involved, they serve as internal critics, vetting ideas that staff members generate and occasionally weighing in for the readers with a brief glimpse into their aspirational lives.

Gwyneth was on that route for years. She started Goop when her kids were preschoolers, but that initial hands-on role receded as they got a little older and her Hollywood calendar filled up. By 2011, she’d already delegated the CEO role to a friend, only to lose him in her 2014 divorce.

At the time, it looked like she was eager to keep Goop at arms length, hiring away Martha Stewart’s CEO  to turn the company into a real cutthroat media empire. We’ll talk more about that chapter later.

However you slice it, Gwyneth is back in charge now. She calls all the shots.

While she claims that “the board of directors” pushed her into the top spot, the fact is that none of the venture capitalists who bought into the company are bragging about a seat at that table.

The closest relationship to Goop any of them claim is “advisor.” Unless one would like to step forward, I’m not seeing any evidence at all that the company has had any outside directors since leaving London back in 2014.

In that scenario, this could be a classic founder return because no suitable new CEO candidates stepped up. Otherwise, the investors seem confident enough.

But as far as I can tell, a lot of other key talent has left in the last few years and not been replaced. Goop used to have a chief financial officer, chief revenue officer and other people to wear mission-critical hats.

They’re gone now, leaving the masthead top-heavy with creative and light on business. Gwyneth leans toward the creative end. She comes up with ideas, sets the tone and now there’s no one in a position to push back.

I’ve known my share of people wealthy enough to inhabit a bubble of comfort far from middle-class realities. Right or wrong, their ideas got pretty far out there.

Granted, Gwyneth may be the most down-to-earth, no-nonsense, hard-nosed manager on the planet. Even if she isn’t, an extra helping of dream science isn’t even necessarily a bad thing — as long as Goop can still connect with its subscribers and get them to pay into its high-end lifestyle options.

That’s what the investors nominally signed up for. If they don’t get it, this may simply be one of those corners of the portfolio that doesn’t deliver.

Due diligence and dedication

After leaving the CEO chair open nearly a year, Gwyneth came back in March. Three months later, she announced that she’ll be walking away from Hollywood for awhile because “Goop really requires almost all of my time.”

While that’s a healthy start-up attitude, it’s a step back for the company and her personally. Goop turns 10 in 14 months, the decade anniversary of the Lehman Brothers crash. Over that time, it’s had plenty of chances to build on its brand.

Maybe the upcoming Goop Magazine from Conde Nast — arguably an upscale revival of Lucky — will make that happen at last. Otherwise, if venture capital had bought in at the beginning, they would have demanded a profitable exit years ago.

And as for Gwyneth personally, unless she sees Martha Stewart billions at the end of the rainbow, her advisors have got to be hoping that she’ll stay open to opportunities to let other people write the paychecks.

Speaking of “checks,” it’s up to the advisors to bring the reality check with cold hard numbers when and if the client gets too far out there.

Sweat equity is great when it’s your only shot at the big leagues. But when a few commercials a year for Hugo Boss and Max Factor can lead $9 million in outside income, Gwyneth really doesn’t need to sweat unless she really has the ambition to build an empire.

The vitamins and the wacky endorsements could be leading indicators of that ambition finally coming true. If so, stir enough feel-good speculation about “wellness” into the shopping cart and the cash starts flowing.

The doctors provide a cushion of credibility while raising aspirations as well as fears that the call to action — buying a bottle of supplements or Sex Dust — can soothe. Whether it’s real alternative medicine, a placebo or simply taking money from impressionable and unhappy people is really a moot question on that level.

Where it matters is the long-term goodwill wrapped up in the brand. If Goop becomes ridiculous, it gets harder to retain subscriber interest much less sell into that audience. Push too far, and the profit window closes forever.

Gwyneth can walk away. She’s already wealthy and fabulous, with Hollywood ready to keep her working no matter where her lifestyle journey takes her. They’ve seen stranger things.

The doctors risk their reputation. Their practices may not suffer, but it’s hard to keep justifying the herbal diets to colleagues and other scientific peers.

Untested claims are risky. Even if nothing ever crosses the FDA lines, you need to show results sooner or later or word of mouth turns against you — when that happens, you’ve ridden a fad up and now face the ride back down.

And the investors swallow that risk. Goop may have a gold-tipped mailing list but public gauges of site traffic have wobbled around 1.5-1.9 million users a month, which isn’t really a mass-market blockbuster.

If that’s worth $20 million in outside funding, I guess the VC firms did all their homework. From outside, I see a few too many red flags that anyone less famous than Gwyneth Paltrow would need to answer.

What happened to the previous CEOs, both of whom came with exquisite pedigrees and flamed out in a matter of 2-3 years? What’s the succession plan now?

Who’s handled the finances since the old CFO quit back in October? Is there a concrete business development plan?

Why has the company never had a separate headquarters since moving from London back in 2014? The mailing address on the site used to point to Gwyneth’s entertainment management firm. Now it points to a pay-by-the-month office sharing space overlooking New York’s flagship Apple store.

Is this a real business or a toy? Either answer is OK, but I’d want to know before I write a check for $1-2 million and then justify the decision to partners and shareholders.

Will playing fast and loose with medical consensus backfire? I think of Herbalife.

Presumably the investors also got recent financials showing a healthy revenue ramp. Back in London, when the company was a true hobby, the numbers told a different story.

Ultimately, I get the feeling that Goop makes a wonderful hobby, a pioneering mode of self-expression and self-exploration with a great staff who gets paid extremely well to do what they love.

That’s a great story. Getting to profit is a very different one.

Gwyneth Paltrow: Will Fake Pills Drive Out Real Cash for Goop Investors? - overview

Summary: Chasing snake oil and fad gurus is harmless until your journey of personal discovery becomes a platform for prescribing therapies to complete strangers. Any reasonably diligent venture capital partner should be weighing the risks.

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Scott Martin
Scott Martin

Senior Editor | Scott is occasionally considered “the greatest secret in the wealth management business,” having tracked developments since 2001 for publications like Research, Buyside and Institutional Investor. An advocate for the trust industry, he has testified to the Nevada Senate Committee on Commerce, Labor and Energy on issues of national competition.

  • Christopher Hickie

    I don’t much give a crap about her investors, but as a physician I will say that any physician dumb and greedy enough to endorse women putting goops’ jade eggs up their vaginas ought to lose their license for incompetence.