Is The Fall Of WeWork An End Of An Era For Startups?
The term “unicorn” has become one of the most inescapable buzzwords of recent times. Basketball pundits such as Bill Simmons have used it in reference to an emerging group of young players whose skill sets seemed like they could not have existed in the past, such as Joel Embiid and Giannis Antetokounmpo. In the world of tech and venture capital, it is used to refer to that most rare of startups, that which is valued at over $1billion while still being privately held, prior to an initial public offering (IPO). WeWork, the brainchild of founder Adam Neumann, was, not too long ago, considered one of the foremost unicorns, with its IPO an immensely anticipated future windfall for not only its investors but Neumann himself. But WeWork’s story did not follow the expected unicorn script, rather its story took a turn that would remind the observer of what a unicorn actually is- a creature out of myth, one that does not exist in the real world.
Neumann’s biography reads surprisingly in hindsight, when one considers what has now become of him and his company. Born in Tel Aviv, he (as all Israelis are required to do) spent time in military service, in his case the Israeli Navy, reaching the rank of captain. In 2009, he founded WeWork with, among others, his wife Rebekah, headquartering it in New York City rather than the West Coast’s Silicon Valley. WeWork’s mission was nothing short of titanic in its ambition, not only to remake the real estate industry in a 21st-century image, but also to provide a model of how to build community in a world where people have become increasingly isolated, atomized and cut off from those around them.
The Idea of WeWork was to provide shared offices where a wide variety of people and companies (ideally startups and entrepreneurs) could work together in a common space. As one former employee put it in a New Yorker piece about WeWork “ The idea was “this new ‘office of the future.’ That, if you make work an enjoyable place to come to, you can probably improve productivity.” The company’s New York offices and Neumann himself cultivated a New Age Messianic image; vegan milk lattes were served by an in-office barista, there were yoga classes for employees multiple times a week, and Neumann himself cultivated an image of a pot-smoking hippie turned CEO.
When asked about what the company’s mission was, Neumann didn’t mention real estate or even necessarily community building but rather that he hoped to “elevate the world’s consciousness.” This utopian feel is far from unique among well-funded startups, but WeWork would end up invoking the second (oft-overlooked) out of the two meanings of utopia- for the word in Greek means both “the good place” and “the place which cannot be.” As it turned out, Neumann had too often put the company’s quest for elevating consciousness above its fiscal health (though not, as it would turn out, his own bottom line).
In an in-depth article about the fall of WeWork, the Wall Street Journal detailed how, at meetings with the New York Stock Exchange and NASDAQ, both of whom wanted WeWork to list on their exchanges after going public, Neumann hoped to get them to ban plastic cafeteria products as well as serving meat in their offices, in the name of environmental sustainability. Little did anyone present at the meeting know that not long after this meeting, Neumann’s utopian vision would crumble into dust.
Over the past several decades, many founders have sold themselves as pitchmen for similar idealistic visions made flesh through their companies, from the famous (Steve Jobs), to the now infamous (Elizabeth Holmes). The HBO television series Silicon Valley lampooned this with the character of Gavin Belson, a ruthless tech CEO equally comfortable in a Tibetan monastery as in a boardroom, with an ever present “spiritual advisor” (a send-up of Deepak Chopra types) whispering sycophantic pseudo-profundities into his ear. I do not know if Neumann had a similar guru by his side, but if hd didn’t, he might as well have.
It was, in fact, the move towards an IPO itself that would end up bringing an end to the party for WeWork. The financial disclosures that WeWork was obligated to file began to bring to light problems that lay beneath the feel-good surface. Prospective investors who read the document described issues which included massive losses ($1.9 billion in 2018 alone), a byzantine corporate structure (which one analyst described as “tak[ing] the absurdity [to] an entirely different level” even by typically unorthodox startup standards), as well as Neumann’s appointing of dubiously qualified family members to key positions in the company. Prior to the release of these materials giving investors doubts, the company had been valued at a staggering $47 billion, this number would quickly drop as questions mounted, and in September 2019, WeWork’s IPO would be postponed indefinitely.
The fact that WeWork turned losses, even significant losses, is in and of itself hardly notable in the history of startups turned corporate behemoths. Most famously, Amazon operated in the red for nearly twenty decades after its I.P.O in 1997, though it has since in fact become a profit-maker in recent years. In spite of its losses, Amazon and its CEO Jeff Bezos’ focus on growth was single-minded, emphasizing expansion over all else. This succeeded in the sense that Amazon has achieved monopoly status in the online retail space, as well as expanding strategically into sectors that would contribute to its eventually making its way into the black, such as its Prime subscription service and, perhaps most crucially, its Amazon Web Services cloud hosting provider, which now generates tens of billions in revenue.
For all of Neumann’s high-minded stylings, his dreams of corporate dominance were certainly worthy of Jeff Bezos- in addition to wanting to elevate consciousness, he confessed a desire to become the world’s first trillionaire. In his mind, WeWork’s future would surely see it dominate and revolutionize commercial real estate, just as Amazon had done for retail.
Of course, the company changing the world in its own progressive image through its financial success was part of the plan too. As his and the company’s stature grew, so did the audacity of Neumann’s claims about the social impact that it (and by extension he) would have on the planet. Around the time that Saudi Arabia’s Vision Fund (a key sovereign wealth fund for the Islamic kingdom) took a $4.4 billion dollar stake in WeWork, Neumann would begin to opine about how he had persuaded Saudi Crown Prince Mohammed bin Salman to open coding classes for women in his country (where until 2018 it had been illegal for women to drive a car, and where crimes such as adultery still carry the death penalty.
While this may have been a calculated attempt to justify such a “progressive” company taking money from a brutally despotic regime, other Neumann claims only upped the ante in their strangeness- at one point he claimed that JP Morgan CEO Jamie Dimon was his “personal banker,” and that he had convinced then-Chicago mayor Rahm Emanuel to run for President in 2020 to promote the “WeWork agenda.” Emanuel never entered the presidential race, nor did Dimon leave his post at JP Morgan to run the Neumann family investment fund. Journalists might have a hard time getting into Saudi Arabia to discover the truth about whether or not there are coding classes for women currently being offered there, but one imagines that if they are, far less than $4.4 billion is being spent on them.
Rather than strategic opportunities to build an empire, much of WeWork’s loss-making expenditures went towards accentuating the company’s progressive, “capitalist kibbutz” (a term coined by Neumann) atmosphere, especially at headquarters. Much of the losses may also simply have been going into Neumann’s own pockets, as one of the areas unclear in the company’s prospectus was Neumann’s exact compensation, ownership stake, and role he had in the company’s compensation committee that determined his own pay. The massive expenditures in this area were not really necessary to grow WeWork’s core business, since, as pointed out by the Wall Street Journal, competitors to WeWork such as IWG were valued at nearly one tenth of WeWork’s bloated figure despite IWG actually being a profitable business.
With the I.P.O. canceled, it became readily apparent that Neumann would not last long at the helm of WeWork. In late October 2019, as the company running out of cash appeared to be an increasingly certain proposition, Japanese financial titan SoftBank, one of WeWork’s key early backers, made moves to preserve its investment. WeWork was given an emergency infusion of capital which resulted in SoftBank taking over corporate operations, and Neumann was forced to step down. The new CEO, SoftBank executive Marcelo Claure, immediately promised “bumpy roads” ahead for the company, and he did not fail to disappoint. First to be cut back where employee perks (only one free employee yoga class a week, rather than three), then the employees themselves. On November 21, the company announced layoffs of over 2,400 people, and to add insult to injury, Claure subsequently took heat in the press for going out to a wildly expensive restaurant for dinner the next evening and posting the menu on his Instagram.
Although Neumann, too, had lost his job, he would have no cause to complain about pricy dinners, as the terms of his own exit would be able to buy dinner for every single laid off employee and then some. The total value of Neumann’s exit package was valued at over $1.7 billion, one that immediately drew heat for being an extravagant golden parachute for an executive who had done nothing whatsoever to earn such largesse. Becoming the first trillionaire in the world now seems to be well and truly out of reach for Adam Neumann, but it is likely that merely being counted among the world’s billionaires will make for an adequate consolation prize.
Neumann may not have committed any criminal offenses, such as those that Theranos’ Elizabeth Holmes has been charged with, and will face trial for early next year. But nonetheless, he did in many ways sell both his employees and investors a bill of goods. They both carefully cultivated different types of rock-star founder images, Holmes with her Steve Jobs-esque black turtlenecks, Adam Neumann with the air of the barefoot, pot-smoking eco-hippie.
Both of these images concealed the deep flaws that lay at the heart of both of their companies.Through self-promotion and image-building, he convinced them to put untold amounts of money and time into a company that ultimately seemed to have the goal of benefitting Adam Neumann alone rather than (as he claimed) the world as a whole, or even the company itself. It may very well be that Neumann truly believed in what he was selling the outside world about the positive impact his company would have on the planet, that it was through his initiative that Saudi girls would, in fact, finally learn to code. But, as his trillionaire comments and others would indicate, massive personal gains for himself were always part of the equation, too, and that, in the abscence of changing the world, he could always just take the money and run.
But the story of WeWork is about more than just the foibles of one man, or even just his company, for that matter. It may mark the end of a particular Gold Rush for startup founders and the capitalists who would help them become billionaires. One of the main business stories of 2019 has been disappointing unicorn I.P.O.’s, several of which have been helmed by larger than life personalities in the vein of Neumann, as well as a similarly messianic image of do-gooder capitalism that is starting to be shown to be illusory.
Rideshare titan Uber, which followed the Amazon model of turning a massive loss for years in order to subsidize expansion, saw its stock price go down by 7.2 percent on the first day of its I.P.O. this May, with still further decreases over the following days. Its lightning rod of a founder, Travis Kalanick, had already been forced to step down amid several controversies in 2017. Fitness company Peloton, which had hoped to ride its trendy buzz among affluent urbanites to a windfall for shareholders, saw its stock go down 11 percent on its first day of trading.
The point of this is not to pit the “good guys” of traditional, established business against the “bad guys” like Adam Neumann. As we saw with Marcelo Claure, the traditional executive who took over WeWork thought nothing of laying off thousands over a plate of hundred dollar pasta. But the trend overall is clear, that no matter how charismatic, charming, or as compelling a “personal brand” as a startup founder may have, if they lack the substance behind it, both Wall Street and the public are becoming wiser to their act.
This is especially true if these founders are attempting to “disrupt” businesses and markets with a sweeping vision while not understanding (or willfully ignoring) how these fields actually work. Elizabeth Holmes had a vision of a small box that would eliminate the need for traditional lab testing and diagnostics, what did it matter that her product as she imagined it literally defied the laws of physics? Adam Neumann had a vision of reinventing the way that people worked and interacted with each other, what did it matter that he had (it now seems) little idea of how to run a functional commercial real estate business, which is at the end of the day what his company really was?
Dating back to Steve Jobs in the 1970s and continuing on to today, startup founders and tech C.E.O’s have at their core attempted to turn the image of the billionaire executive on its head. These were not robber barons a la Rockefeller or Henry Ford, these were change agents, revolutionaries challenging the power structure. The French philosopher Michel Clouscard, still little known in the English-speaking world, wrote that one of the main impacts of the 1960s was that, ever since, capitalism infused itself with a revolutionary ethos and image in its further quest for profits. The truth of this observation can be brought out over the decades since then, from Apple’s 1984 ad to the startup founders of today. We see it not only in Adam Neumann, would-be creator of the “capitalist kibbutz,” but in the likes of Elon Musk, who has described himself as a socialist and “utopian anarchist.” There will be other “unicorn” startups after WeWork, but if one is hoping to work at or invest in them, it might be wise to be more skeptical when being sold a vision of “fully automated luxury communism” achieved via a billion dollar I.P.O.