Abstract
Entrepreneurship originated from the French word entreprende meaning ‘to undertake’. It first appeared in the middle of the eighteenth century. An entrepreneur is referred to as the risk-taker and is described as someone who provides a new product or service or someone who opens up new markets. Innovation has been an integral part of entrepreneurship. The twenty-first century has had a plethora of start-ups launched by entrepreneurs, powered by venture capital, most of them in tech-enabled space. Over 90% of these are said to fail, the majority blowing up in early stage. The survival rate in late-stage ones (that are five years old or more, having raised Series C or beyond) is higher as they have already identified an attractive opportunity and have amassed resources to capitalize on it. The story of WeWork is one of the most dazzling failures of a late-stage start-up that can qualify to be a blunder as it crashed having become the world’s most funded venture, valued at $47 billion at one point of time.
Billion Dollar Loser is authored by Reeves Wiedeman who has been a contributing editor of the New York magazine. Wiedeman has put together a fast-paced narrative, and his journalistic background has helped bring out a tight script, though at times, the tome gets closer to investigative journalism. The opening line of the book, ‘Either Adam will end up in Jail, or he’ll become a millionaire’, as quoted from Adam Neumann’s high school driving instructor, sets the tone. Awarded the prize of the Best Business Book of the Year by The Sunday Times, this chronicle has valuable lessons for management practitioners, founders, investors and researchers.
Based on the case study research methodology approach, the author has relied on the description of the situation as narrated during the over 200 interactions with employees, business associates and competitors. These accounts were captured after the collapse of the firm. An interview of the protagonist, Adam Neumann, taken on behalf of The New Yorker, before the empire crumbled, has been cited. Many published and unpublished reports and speeches have also been referred. This gives the impression of a longitudinal study, as in a typical research project. The book has 24 chapters focussed on the lifespan of WeWork, a venture touted to be a disruptor.
Starting from scratch and having tasted success early in their first venture, Green Desk, Neumann and his co-founder, Miguel McKelvey, set up WeWork as a flexible office space company in 2010. Their opposite but complementary nature has been highlighted, with Neumann being described as a dreamer and deal maker, and McKelvey being the one to focus on execution with his grounded personality. This interdependency comes out as an important takeaway for founders intending to setup a venture. The little-known third founder of WeWork, Schreiber, entered as an investor-founder who joined in the initial stage itself, wearing his hat of the real estate developer, by committing $15 million funding.
WeWork was projected as a ‘tech-enabled platform’, though the author’s description of the firm doesn’t suggest anything close to that. The brash founder in Neumann stopped short of putting himself in the league of Steve Jobs as he spoke of WeWorld, WeLive, WeGrow, WeWork to help transition the world from ‘I’ to ‘We’ in the pursuit to ‘elevate the world’s consciousness’ and ‘bend entire economies’. WeWork having become the biggest tenant of office space in New York City and the second largest in London gave it a steroidal boost. Its focus on ‘building a club with members’, and not tenants as in a traditional office space leasing business, was the selling point for WeWork, its flexible lease terms being the add-on. Workspaces designed to cater to the needs of the millennials was definitely a plus, as mentioned by the author. Neumann tom-tommed his dream to build a ‘capitalist Kibbutz’, a community for the young populace, inspired by his childhood spent in Israel.
The visionary in Neumann laid the goal of a hundred WeWork centres and building a hundred-billion-dollar enterprise, equivalent to the next Google, even before it had just three centres. The motivator and inspirational leader in him managed to get acquaintances as well as friends to join WeWork after agreeing to a cut in wages. WeWork on-boarded make-shift employees, often hired unpaid interns. In spite of being paid a pittance, the employees were driven with the promise of getting stock ownership in the company. The author seems to be a bit critical of this practice, which is not uncommon across early-stage ventures. The author has described Neumann’s character as someone who ‘celebrates nepotism’. With his ability to sell the dreams to investors, Neumann was able to raise a staggering $20 billion for WeWork in multiple venture funding rounds, starting from a humble beginning, with the first million dollars coming from his wife Rebekkah. She had key role to play in WeWork’s branding followed by expansion into WeGrow, its venture in the schooling of children. The author critically analysed her role of being an influencer in important decisions. This included the appointment of Adam’s successor as and when there’s a need, which became a point of conflict with investors and got scrapped during the company’s plans to launch its initial public offer (IPO) in 2019. On several counts, the author took pains to vividly describe personal details of the duo and their upbringing, and even going up to their move towards spirituality through Kabballah. A business book in true sense need not capture these details, but some of these do help get a perspective of the risk-taking adventurous side of an entrepreneur. The particular incident of Neumann walking on the rampart of the 57th floor of a New York skyscraper lacking any guardrail, therefore, comes in context.
The bubble in WeWork valuation surprised its own fundraising team and investors. Even though many of them acknowledged it as a ‘stupid number’, investors played ball with Neumann who projected ‘unlimited growth environment, dependent only on the capital’ put in by the investors. The delusion that venture capitalists and private equities continue to chase while driving the ventures towards a B number (billion) is quite evident. The system of towering but notional valuation and expansive cash burn to drive ‘growth at all costs’ created a complex system difficult for WeWork to get out of. Following the $4.4 billion funding from Masayoshi Son of Softbank, it tripled the marketing spend to unleash predatory tactics for seeking business. This included huge discounts to tenants, and 100% brokerage, an industry first. As a result, WeWork successfully opened its 200th centre in Singapore in December 2017, within one year of opening the 100th one in Berlin.
The continued need for cash infusion by new-age start-ups in chasing growth has been brought into perspective. The trend towards start-ups staying private came to fore—the average age of companies going public became three times to 12 years from that in the late 1990s. The multiple rounds of funding by WeWork going up to Series G have been compared with the likes of Amazon, which raised funding through just one Series A round. When the funding from all sources dried up, Neumann is mentioned to have hesitantly agreed for an IPO. The subsequent failed IPO in the year 2019 led to extensive restructuring of WeWork, the exit of founder-CEO Neumann and members of his coterie. A new professional CEO took over and brought in the sacking of a large workforce, along with other belt-tightening measures. The COVID-19 pandemic in the early 2020 was the proverbial last straw and this, along with the downturn in fortunes of WeWork, led SoftBank to mark down the valuation of its investee company to a new low of $3 billion in early part of 2020, nearly one-seventeenth of that a year earlier, indicating the extremities of start-up valuation.
After reading the book, one is left with the thought that everything was wrong with the venture—from the ‘original sin’ of valuing the company at $45 million to the way it hired people and the way it developed business and managed operations. The business model of WeWork has been doubted by the investors and the expansion strategy is questionable, and the same has been flagged by this book too. The author seems to have found fault with Neumann’s personal (five children) and professional life alike. It would have been very interesting to understand a little more in detail about the way start-ups are valued. The theoretical context is missing, but it is not expected from a journalistic piece of popular literature. The author has showcased the dark side of entrepreneurship, wherein some founders get rich by the ‘new money’. The author has underlined that hubris of entrepreneurs often leads to plaguing a sensible growth environment; compulsion to raise funds lead to desperate steps to bring about growth and vice versa. At certain instances, it comes out that the author has been excessively critical and misses out on positives by being overly scathing. The author could have done better by reaching out to the protagonist to address the issues raised and giving him a chance to explain the rationale behind taking certain decisions. An appreciation of the entrepreneur who puts his everything behind the dream and the surrounding pressure to make it work would have made the book a more balanced affair. There have been certain things like the ‘Thank God it’s Monday’ (TGiM) rallies that could have helped pep up the momentum, but the appreciation of those seems to be lacking in the book. In spite of the occasional weak link, it’s a gripping read for anybody and everybody associated with entrepreneurial-ism, drawing on lessons from the rise and fall of one of the poster boys of start-ups.