Abstract
The Narrative
Entrepreneurship is the fuel that has continuously fired the global economy. There have been many innovators like Henry Ford, Thomas Edison who not just redefined the industry landscape but created a successful business enterprise too. The twenty-first century has seen a wave of ventures (most of them tech-based) created by founders powered by venture capital, While some of these reach a substantial scale and become successful, giving handsome returns to the investors, many of these burn out in initial and subsequent phases (Pride, 2018). Billion Dollar Loser is a fast-paced narrative of WeWork, and its charismatic founder, Adam Neumann. An American commercial real estate company in the business of flexible shared workspaces, WeWork crashed after becoming the world’s most funded start-up, having reached a peak valuation of $47 billion. Authored by Reeves Wiedemann, a contributing editor at New York magazine, this book addresses the various dimensions of management study, especially on things not to do and highlights the role that the board needs to play in these new age entrepreneurial organizations.
The book is a very well researched treatise, based on nearly 200 interviews of current and former employees of WeWork, its competitors, as well as industry watchers, and captures even the minutest details including things like the challah bread baked by Adam for Indian Prime Minister, Narendra Modi being refused by Modi’s security. It is divided into 24 chapters, each set around the stage of WeWork, a so-called new economy disruptor, which intended to ‘bend entire economies’ while aspiring to ‘elevate the world’s consciousness’. The founder Adam talked of leading the transition of the world from ‘I’ to ‘We’, that is, from the world of iOS, iPad, iPhone, iWatch (developed by Steve Jobs) to WeWorld, WeLive, WeGrow, WeWork, after having become New York City’s biggest office space tenant and second-largest in London after Her Majesty’s Government.
The author sets the context by describing Adam’s difficult childhood between Israel and United States, his divorced parents and early attempts to entrepreneurship—from getting into the business of high-heeled women shoes to baby clothes. He envisioned creating a ‘Capitalist Kibbutz’ by community development. Miguel McKelvey, the co-founder was in similar circumstances, being the son of a single mother and having tried a few unrelated ventures after completing his degree in architecture, finally landing in New York for a job. Their opposite personality traits have been highlighted by the author (‘one red bull, other chamomile tea’)—the former being brash, and a dreamer, deal maker and negotiator, while the latter being a grounded, nuts and bolts kind of person. This helped them gel well all these years. Though the author does not explicitly mention, but this complementary nature of founders is actually an essential requirement of successful ventures (at the same time, there are many examples of thriving businesses established by lone founder). The two co-founders started with their first venture Green Desk which became an instant hit, and then WeWork which came up in 2010. WeWork got a third investor-founder in the initial stage itself when a young real estate developer, Schreiber committed to $15 million funding valuing the firm (without any business) at $45 million, the ‘original sin’ in the words of the author.
The distinctiveness of WeWork was not just in a thoughtful design catering to the needs of the millennials, flexible lease terms but more importantly, focusing on building a club or a community, hence referred to tenants as ‘members’. It was not the cheapest, nor was the first in the market, but these features helped it get a foothold in the young population, offering ‘more than an office space to the American dream’.
Early on with only the third location underway, the dreamer in Adam had the vision of hundred locations, building a $100 billion company, the next Google. He got friends and acquaintances to join WeWork with a pay cut, on-board make-shift employees (information technology director being a 16-year-old, high school student) often hiring unpaid interns. The employees were paid a pittance but a promise of getting ownership/equity in the company as is common across start-ups. For WeWork, the first million-dollar funding came from Adam’s wife Rebekkah, who thereby continued to play important roles in WeWork—from the branding to its expansion in elementary schooling (WeGrow). The author critically analyses her role as she ended up being a decision-maker in even deciding Adam’s successor should there be a situation. This became a point of contention and had to be scrapped during the company’s initial public offer (IPO) process. The author vividly describes personal details of Adam and Rebekkah, their upbringing, challenges and their move towards spirituality through Kaballah. Though some of these need not necessarily appear in a business book, some of these details do help understand the adventurous side of an entrepreneur who is essentially a risk-taker, for example, walking on the ledge of 57th floor bereft of any guardrail ‘when he was on the top of New York city’s skyline’.
The ace dealmaker in Adam managed to raise funding one after another in quick succession totalling over $20 billion. This led to an accelerated growth path from 10 buildings under development in 2013 to over a hundred in 2014, the physical expansion often being compared to conquering of empires in past; cities across the world now were vying to get WeWork (Agnihotri & Bhattacharya, 2020). Its winning formula lay in being able to timely complete projects while keeping costs in check, a strategy that was not successful all the time.
The continued bubble in WeWork valuation was largely driven by a ‘certain suspension of disbelief’. The members of WeWork’s own fundraising team investors called it a ‘stupid number’. The investors, some of whom critiqued the oversized valuations, but continued to dance to the tunes of Adam who would paint the picture of ‘unlimited growth, purely dependent on the capital’. This shows the chasm that venture capitalists and private equities of the capital market continued to chase seeking a B number (billion) in the company. The book showcases the system of lofty paper valuations, increased burn rates leading to the need for more cash infusion, creating a complex system difficult to get out of.
WeWork continued its attempts to build the facade of a technology company, positioning itself as a ‘physical social network’, not a real estate player, and a community builder, not a landlord. Nudged by its investors, it hired experienced professionals from Amazon, Uber, Time Warner, AOL, JP Morgan, Starwood before which all key positions were held by friends and family members of Adam; the author actually paints Adam’s character as the one who would ‘celebrate nepotism’, giving it the feel of a family business.
Plagued by problems brought in by aggressive growth, the company got on a cost rationalisation drive and even laid off people in 2016. Experts started questioning the business model ‘just because a company can raise money from a handful of investors at a very high price, it does not guarantee that everything is going well’.
The author diligently gives the background of Masayoshi Son (Masa), the Japanese founder of SoftBank, his aggression and ability to take bets, having earned and lost billions in the process. The $4.4 billion funding from Masa turned out to be a lifesaver for WeWork as its need to go public was somehow put off. The latest fund infusion along with the advice from his new mentor, Masa, brought the culture of ‘growth at all costs’, leading WeWork to unleash predatory tactics on competitors by enhancing (tripling) marketing spend, offering huge discounts to tenants and never heard 100% brokerage. No doubt, in December 2017, WeWork opened its 200th centre in Singapore, just a year after opening its 100th in Berlin.
The book also brings to perspective, the constant cringing for cash infusion by new-age start-ups in pursuit of growth. The start-ups were staying private much longer than their peers a decade before, with the median age of companies going public, having tripled to 12 years from four in the late 1990s. The author notes that Amazon had raised just one series A round before going public, Facebook went to series E while WeWork raised series G from SoftBank, to put it in perspective.
After years of dilly-dallying, WeWork announced in April 2019, that it’s preparing for an IPO, as the funding required for growth from other sources dried up and the cash position of the company started to dwindle. The subsequent failed IPO over the next few months led to massive restructuring including the departure of Adam, his protégées, massive lay-offs and other cost-cutting measures; a new professional chief executive officer took over thereafter. Towards the end of 2019, Adam packed up from the United States and went back to Israel with his family; the author symbolically brings in the kibbutz in Israel where he started from. The unveiling of pandemic COVID-19 in early 2020 along with the decline in fortunes of WeWork let SoftBank to mark down its investment to a new low of $3 billion, just 6% of its valuation a year earlier (Pendergraft, 2021)
Conclusion and Discussion
The author tends to show the dark side of entrepreneur-driven organisations made rich by ‘new money’, and how ballooning private markets have been detrimental to public investors. The book underlines that governance issues along with hubris of entrepreneurs can plague a sensible growth environment. It highlights the cycle of continued cash-burn and subsequent pressure to raise funding leads to desperate measures to achieve growth, driving the firm into a spiral of ‘valuation game’. The failure of WeWork’s board in monitoring its financial management and virtually sleeping over its grey financial arrangements, including the founder’s practice of privately purchasing real estate and leasing it to the company, have clearly been among the lapses. Besides, the new age enterprise missed out on environment, social and governance norms which are increasingly being looked as an investment strategy and has worked very well for investors in the last few years. At some places, it appears that the author has been overly critical and misses out on positives in the culture. In spite of a few weak spots, this book rated as the 2020 Sunday Times Best Business Book, is a page-turner for everybody associated with entrepreneurship and governance, drawing on lessons that can be drawn from the rise and fall of WeWork.
