Another month, another book about a spectacular big-tech flameout. After Bad Blood, which exposed Elizabeth Holmes’s blood-testing start-up Theranos as a fraud, and Super Pumped, the take-down of Uber’s Travis Kalanick, comes the cautionary tale of WeWork and its founder, Adam Neumann.
His shared-office-space start-up was going to transform the way we work, just as Airbnb has revolutionised the way we travel. Instead of leasing vast, sterile office blocks for 10-15 years, companies would use Neumann’s platform to rent desks on short leases in fashionable, plug’n’play WeWork offices, expanding and contracting as required. The “community” model would save firms money and help them to attract a generation of young creative workers who loved the idea of the sharing economy. Or so he said.
There were a few problems: first, Neumann’s business plan was hopelessly flawed; second, he was too greedy for his own or his firm’s good; and, third, he was bonkers.
This book is a warning for any investor dazzled by the cult of the founder — the book’s title is apt. Neumann had a messiah complex. He believed he could bend anyone and anything to his will by force of personality, including the laws of economics. For a while it worked brilliantly. Over nine years he attracted more than $10 billion in funding from the so-called masters of the universe — among them Goldman Sachs, JP Morgan Chase, Masayoshi Son (the chairman of Japan’s SoftBank), Alibaba’s Jack Ma and Harvard University.
They were all taken with him and the idea that his “global physical platform” selling “space as a service” would grow exponentially. So what if it was not making much money? Neither had Airbnb when it started and look at it now.
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But WeWork’s disciples were using flawed analysis, at best, or succumbing to wilful delusion at worst, as the authors, Eliot Brown and Maureen Farrell, both Wall Street Journal writers, show. Neumann’s creation was not a platform, physical or otherwise, far less a disruptive tech company, in spite of all the snazzy sofas and macchiato stations. It was a real estate firm.
Unlike Airbnb, which rented other people’s homes, WeWork had to rent or buy buildings and install desks to operate. That cost money — lots of it. Those fixed costs meant that, unlike Airbnb, it could never be wildly profitable or, in Silicon Valley parlance, “scale” rapidly. The only difference between WeWork and other shared office providers was that it called rent “membership fees”.
The authors recount in excruciating detail how all the warning signs were there “in plain view” but were missed or ignored. Neumann talked business woo-woo. His firm’s mission was “to elevate the world’s consciousness” and its valuation was “much more based on our energy and spirituality than a multiple of revenue”. He described his office developments as “physical Facebook” and mused that one day the success of “We” would make him the world’s first trillionaire and then “president of the world”.
But this was nothing compared with his personal flaws. He flat-out lied to reporters who asked awkward questions about the firm’s finances. He cooked the books, claiming 30-40 per cent profit margins when he knew the real figure was less than 10 per cent — on a good day. In reality the firm lost on average $3,000 a minute. He was very fond of alcohol and smoked cannabis on the firm’s private jet on the way to business meetings — once so much that the crew had to don the oxygen masks.
While publicly embracing the concept of “We”, “community” and “sharing”, he privately enriched himself. He cut side deals for himself during investment rounds and registered a trademark on commercial use of the word “We” and then charged his own company $5.9 million for the right to use it in its branding. The laws of business gravity finally caught up with him in 2019 when the scrutiny of an IPO (flotation) exposed the business as a house of cards and he was forced out. WeWork soldiers on, a shadow of what it once hoped to be.
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The approach Brown and Farrell take is more meticulous than flashy, which means the book will appeal to business readers rather than regular folk. There aren’t many jokes. But their attention to detail is second to none. They reveal that Neumann and his wife, Rebekah, bought eight houses when the investors’ dollars were flowing, two in the Hamptons — one facing the land, the other the ocean. During the summer they rented three more houses close by for the three nannies they hired to look after their five children, and assorted other staff, including yoga instructors and a jet-ski driver who towed Neumann out to find the best surf waves so he did not have to paddle. This didn’t stop them describing themselves as living an “asset-light lifestyle”.
The question most readers start asking, even in the early chapters, is: why did investors buy Neumann’s fantasy? The answer is the same one that lies behind every boom and bust. Because they wanted to. They did not want to miss their chance to board what could be the next Silicon Valley rocket ship to riches. “Smart minds were bent” by “a toxic brew of confirmation bias, fuzzy math and hubris”, the authors write.
After Bad Blood, Super Pumped and this book, it’s tempting to believe an epic big-tech flameout couldn’t happen again. But you only have to look at Tesla and the cult of Elon Musk to see that history might repeat itself in electric cars. Brown and Farrell are probably already working on that book.
The Cult of We: WeWork and the Great Start-Up Delusion by Eliot Brown and Maureen Farrell
Mudlark £20 pp464
