WeWork, once valued at $47 billion and touted as the future of modern workspaces, has been drastically reduced to a $5 billion valuation and is now in the middle of negotiations regarding a buyout with the Japanese conglomerate SoftBank. Amidst the company’s shocking descent, the controversy around former CEO Adam Neumannhas continued to grow. Medina Bardhi, Neumann’s former chief of staff, came forward with several complaints stating that Neumann discriminated against her because of her pregnancy. This allegation is just the latestturn in the bizarre story of WeWork. The acclaim that surrounded the company, once seen as a revolutionizing force in the coworking office-space and lifestyle industry, has now turned to scorn. Neumann was ridiculed and criticized for his unrealistic business plan and referred to as “the quintessential person who doesn’t know what they don’t know,” by executives who have worked with him, but has seemingly struck the deal of all deals in his negotiations with WeWork’s largest outside shareholder, SoftBank. Neumann could potentially pocket $1 billion from selling his shares and earn an additional $185 million consulting fee, though the exact details on Neumann’s profits are up in the air, in part due to recent public outrage from WeWork employees. Neumann’s early success, driven by his stratospheric aspirations and his alluring persona, demonstrates a perfect storm of problematic cultural conditions: the serious consequences of the ‘fake it ‘til you make it’ mentality in Silicon Valley startups and the cult-like status built around enigmatic leaders, which contributes to a troubling lack of skepticism around ideas that might be far too crazy to work.
WeWork’s failings relate to a problematic theme within tech-startups: a purposeful adherence to fraudulence in the advanced pursuit of acclaim, fanfare, and inflated valuations. In a piece for Fortune, Erin Griffith profiles an array of startups that have been revealed to have been scams in one sense or another. She writes about companies like the infamous Theranos, Zenefits, Lending Club, ScoreBig, Faraday Future, Hyperloop One, and more companies that have been exposed for their shady underbellies. These companies, like WeWork, often conflate their exciting and ambitious plans with legitimacy in a way that dismisses the need for detailed measures of where large amounts of money accrued was headed. Griffith writes that “Silicon Valley has always seen itself as the virtuous outlier, a place where altruistic nerds tolerate capitalism in order to make the world a better place. Suddenly, the Valley looks as crooked and greedy as the rest of the business world.” Griffith points to the start-up admiration toward rule breaking as a contributing factor towards their shady nature in general. She says that founders tend to romanticize questionable decisions as part of the “move fast and break things” ideology behind startup culture. The ‘move fast’ phrase, originally coined by Mark Zuckerberg to be the defining motto of Facebook, encapsulates all that is wrong with startup culture, where fraudulent behavior and decisions are disguised as revolutionary. In an article for Quartz, Alison Griswold describes how startups that have moved too fast, encouraged by “return-hungry venture capitalists and their companion motto, growth at any cost,” and have prioritized dramatic growth and return on investment over establishing sustainable and long-term models and practices, which leads to bigger problems down the line. Startups engaging in this behavior have defrauded investors (Theranos), come under fire from the SEC (Tesla), been implicated in allegations of sexual harassment (Uber), and been forced to have founders testify in front of Congress (Facebook). That founders are able to tap into this culture and to scam investors shows how tech companies are given far too much leeway in initial operations. This trend of impropriety is harmful, as it lets founders like Neumann break the rules and ultimately profit from doing so.
Adam Neumann’s enigmatic personality only fueled the cloud of fanfare and mystery that surrounded WeWork. This mythology is, at least in part, what allowed for a lack of accountability throughout WeWork’s unscrupulous dealings. As Matt Levine describes in his column MoneyStuff, “at the personal level, the market seemed fond of idiosyncratic, visionary founders who kept absolute permanent control of their companies and talked a lot about how they didn’t care about profits or shareholder value because they were pursuing some higher mission.” Neumann embodies this idiosyncratic founder, refusing to prioritize grounding in reality in favor of exciting talk of unrealistic revolution. His personality traits, partnered with WeWork’s rapid growth, allowed analysts to be fooled into buying into WeWork’s tech label, with clearly problematic consequences. Neumann’s financial success, despite the eventual failure of his brand, speaks to the strength of the WeWork mythology, which was built almost entirely around fascinations regarding the mysterious and intriguing Neumann, profiled to be a leader with a “an inexplicably persuasive charisma and a taste for risk.”
Part of WeWork’s fanfare, according to Amy Chozick of New York Times, was its perfect fit in the minds of its target demographic. Chozick writes that “WeWork’s rebranding of the office as an expansion of one’s personality made sense to a generation of the intermittently employed.” Neumann’s spiritual, highly aspirational rebranding of the workspace industry was palatable to millennials who wanted to buy into his vision. Neumann spoke about WeWork in terms of an all-out revolution. His eccentricities, such as walking around the office barefoot or encouraging employees to take shots of expensive tequila during the workday, were branded as exemplary of his odd, but ultimately groundbreaking, mindset. The grandiosity he sold, including plans of a WeLive residential community and orphanage center, enabled WeWork’s sudden characterization as a tech-startup. Many start-ups “are known to have nearly messianic mission statements,” according to Chozick, which points toward the tendency of tech-startups to form around cults of personalities. Neumann’s eccentricities bring to mind characteristics of other criticized entrepreneurs, from Elizabeth Holmes to Billy MacFarland, whose grandiosities were exposed to be ultimately lacking in necessary substance.
According to Vijay Govindarajan and Anup Srivastava of the Harvard Business Review, WeWork should not be considered a tech company, as the start-up fails to meet a long list of necessary conditions, such as low variable costs, low capital investments, and an ecosystem that boosts expansion with little costs. Instead, the two characterize WeWork as a disruptive real estate company, and assert that its self-depiction as a tech-startup contributed to its ability to conduct fraudulent dealings. WeWork benefited from its romanticized unicorn status, but, unlike legitimate tech-startups, “does not meet any of the qualifications that enable a modern tech company to achieve exponential growth as well as winner-take-all profits,” say Govindarajan and Srivastava. The two ultimately say that WeWork did not possess the necessary characteristics to receive the lofty, tech-type valuation that it did. They claim that, in the case of WeWork, more important aspects such as profits, return on investments, and dividend-paying potential were ignored in favor of fanfare, which allowed Neumann to take advantage of those who believed in his brand. When a disruptive company is billed as tech because of its disruption alone, the company is allowed general latitude in pursuing initial practices that may be harmful down the line. For example, though WeWork’s early growth was certainly noteworthy, to sustain this growth, the company will need to continue to accrue massive investments. As Govindarajan and Srivastava observe, “this growth will not exponentially grow profits as it might for a digital firm, for which any revenue growth after breaking even adds to profits and dividend-paying potential.” WeWork’s actual incompatibility with the tech label has had (and may continue to have) serious repercussions when put in direct conflict with the model that WeWork seeks to employ.
When Neumann resigned from his post at WeWork and the company submitted a request to withdraw its S-1, effectively ending its IPO, the company’s ongoing problems (such as growing losses, lenient corporate governance, and a potentially elevated valuation) were revealed to be too insurmountable to overcome. WeWork’s failings elucidate a trend within tech-culture that allows for a lack of accountability and an elevation of quick-moving, haphazard progress, often led by a charismatic leader. When charming CEOs like Neumann are given the space to effectively swindle shareholders, employees, and the public at large, by a wide culture of permissive startup behavior, this type of scam seems inevitable. When these scams happen, investors, customers, employees, and vendors have little space for recourse and are often forced to bear the brunt of the fallout, while flimflamming grifters like Neumann can walk away with more than $1 billion in profit. Marcelo Claure, executive chairman of WeWork, recently announced that the company is planning to lay off at least 4,000 people, in a move that has been referred to the “human cost of a remarkable reversal in WeWork’s fortunes.” However, this devastating outcome is not merely some arbitrary flip of fate: these consequences stem directly from the irresponsible behavior of Neumann. In a letter in response to this most recent development, WeWork employees profess, “We are not the Adam Neumanns of this world–we are a diverse workforce with rents to pay, households to support and children to raise.” The true losers of Adam Neumann’s actions are these employees who have no choice but to suffer the consequences.
Photo: Image from public domain