WeWork – the co-working space rental startup – had both its best and worst year in history in 2019. And all signs point to this being the result of the "extravagances" and stubbornness of its (now former) CEO, Adam Neumann.
If you're not familiar with what's been happening around this story, or why WeWork is in such troubled waters, take a look at this timeline from distrito.me covering its highs and lows:
— In January of this year, the company's valuation stood at 47 billion dollars;
— In July, IPO rumors led players such as Morgan Stanley to claim WeWork could be worth 104 billion dollars, massively overvaluing the company;
— In September, information about financial losses, questions over whether the WeWork model was sustainable, and criticism of the CEO's practices ultimately led to his removal from the position;
— In October, the company abandoned its IPO and Softbank (its investor) allocated an additional 8 billion dollars to the company (5 billion in direct investment plus 3 billion in share purchases), taking control of 80 percent of the company.
If WeWork were to open its IPO today, its market value would be at most 10 billion dollars – a 1,000 percent devaluation in just 3 months.
So how did the fourth most valuable startup on the planet (source: CBInsights) turn its mega IPO to dust — thanks to its (former) CEO?
According to CNBC, Softbank had already grown frustrated with Neumann's tendency to ignore its advice and make unilateral decisions — from pressing ahead with the IPO to using phrases at major events claiming WeWork would "elevate the world's consciousness" — something Softbank repeatedly urged Neumann to remove from his speeches, without success.
To make matters worse, the startup began accumulating losses that were difficult to sustain. According to Exame, in 2018 alone the company racked up 1.6 billion dollars in losses (double the figure from 2017 — already a bad year). And Neumann was unable to show investors a path to recovering from this shortfall.
This drew the market's attention, which began scrutinizing the company's business model more closely — one that proved unsustainable in the long run.
Further compounding the situation, still according to Exame, the former CEO's management style also came under fire after several stories broke in the press:
— Neumann received nearly 6 million dollars for the use of the word we when WeWork rebranded to The We Company. The "We" trademark belonged to Adam's own company. Once this was revealed, the payment was reversed;
— He also built and leased buildings to be used by the startup itself, earning more than 12 million dollars between 2012 and 2013 through this scheme;
— He harbored ambitions of becoming President of the United States, lobbying to amend the American constitution so he could run for office, given that he is Israeli;
— Arbitrary dismissals and a policy of firing 20 percent of the company every year;
— Finally, he required all employees to attend the company's annual multi-day retreat, which former employees described as nothing more than "a round-the-clock party with no limits."
All of this demonstrates that poor decisions made by a CEO can indeed drag an entire company — with thousands of employees — into ruin.
The WeWork case gained so much notoriety for two reasons:
— it exposed behaviors and decisions that no CEO should ever exhibit; and
— it illustrated the impact that poor management and a lack of business vision can have across every dimension of a company.
Indeed, the responsibilities of the role are immense — and they appear to have grown even weightier in light of the current climate of uncertainty in which we find ourselves.
Amid so many new business models and technologies that may be pure hype or unnecessary indulgence… what direction should a CEO take to steer their company onto the right path with greater confidence?
There could only be one outcome: Adam Neumann was fired from his own company. After raising billions of dollars in investment and expanding the company to 29 countries, he fell.
There are issues related to conflicts of interest, the lack of a sustainable business model, and much more. But the question that remains is: why does a founder get fired from the company they built?
The most famous and emblematic case of this is Apple.
Steve Jobs was fired from the company in 1985. As everyone knows, the company nearly went bankrupt in the years that followed, until Jobs was invited to return in 1997.
But beyond the cases of Jobs and Adam Neumann, other founders of well-known companies have gone through the same experience:
Jack Dorsey, of Twitter, was fired just over 2 years after the company's founding. "It felt like a punch to the gut," he said at the time.
During his time away, Dorsey founded the fintech Square, today valued at 3 billion dollars. He then made a comeback in 2015, when he was invited to return to Twitter as CEO.
Jerry Yang founded Yahoo! in 1995. It reigned as one of the world's greatest technology companies until the rise of Google.
In 2008, amid a full-blown crisis, Jerry turned down a 45-billion-dollar takeover offer from Microsoft for control of Yahoo!
The shareholders were not pleased and fired Jerry. Today he serves on the board of Chinese giant Alibaba.
Uber was founded in 2009 by Travis Kalanick. He took the company to new heights and turned it into the world's most valuable startup. But success brought controversy in its wake.
Accusations of harassment, disputes with investors… at the end of 2017 Travis was removed from his role as CEO of Uber and today dedicates himself to his investment fund.
Reading through numerous interviews with these entrepreneurs, it becomes clear that the main sources of friction were difficulty in managing relationships with investors, misalignment in company culture over time, and an inflated ego born from building something truly significant.
Steve Jobs himself said, in one of those interviews, that his dismissal was fair. "The medicine was bitter, but the patient was truly ill."
When the efforts of some become the benefit of only one, there is a clear misalignment. When a single person believes they alone are responsible for the company's success, it is a disservice to everyone else.
The great challenge for companies is to create productive work environments, foster alignment of interests, respect individual differences, and practice management by context — not by control.