That of WeWork was a fantastic story; the idea of turning empty – often iconic - buildings into shared working spaces an inspired and inspiring move. Yet, as the fallout of their recent filing for bankruptcy starts to settle down, the realities and fictions of that story are beginning to emerge.
Perhaps the key factor in the company’s downfall was the grow at all costs mentality that founder Adam Neumann insisted on and which saddled the company with leases that it couldn’t justify. Whilst it is easy to blame Neumann – and with good reason – his strategy was actively encouraged by the market that rewarded startups who were growing regardless of what happened to profits.
What I find even more fascinating, however, is what has happened to Neumann since he left WeWork in 2019. To refresh memories, that departure came after the company’s highly anticipated IPO had to be postponed once investors began digging into their financial performance and the losses that they had stacked up. Whilst VCs had been blinded by Neumann’s charisma, his leadership style came under heavy scrutiny and criticism once the truth began to emerge.
Still Neumann did better than most from his exit. Whilst thousands of employees were laid off in the desperate and ultimately futile attempt to make the company attractive, he received a $200 million cash payout and was allowed to sell off company stock. As Charles Elson - the expert in corporate governance at the University of Delaware - observed when talking to the Guardian “The captain rammed the ship into a bridge and then was given the value of the ship to leave. The question is, should you reward someone who showed problematic conduct? Evidently that is what happened here.”
Yet there’s more. To extend Elson’s analogy, not only was Neumann rewarded for what he did but he has also been given a brand-new ship to captain. Flow, his follow up venture, is already being valued at $1 billion and received the early backing of Andreessen Horowitz.
“That of judging founders is seen as an ‘art rather than a science’ where the ability to tell a story and get people to trust you is a vital skill that trumps most others.”
To understand why they’ve done so it is illustrative to read through the release announcing the investment. “Adam is a visionary leader who revolutionized the second largest asset class in the world — commercial real estate — by bringing community and brand to an industry in which neither existed before. Adam, and the story of WeWork, have been exhaustively chronicled, analyzed, and fictionalized – sometimes accurately. For all the energy put into covering the story, it’s often underappreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam Neumann.”
Essentially, they’re dancing around the key issues over the problematic exit and subsequent fallout, focusing instead on his ability to build a huge business.
And yet, one can see where they’re coming from for theirs is an attitude prevalent in the VC world. That of judging founders is seen as an ‘art rather than a science’ where the ability to tell a story and get people to trust you is a vital skill that trumps most others. There are many investors who talk of ‘having a good feeling’ about someone or of listening to their gut instinct when they are making an investment.
Of course, there are many more layers and checks that go into an investment but when it comes to judging founders it is often a matter of ‘vibes’. And, given that that an investment in a startup is essentially an investment in the founder, this does not seem particularly comforting.
It is also a problematic one. Not simply because it means that billions are invested each year on the basis of impressions but because of what it means for those who cannot generate a positive reaction on a human level. This is not merely a reference to those who are introverted but those who come from different backgrounds than most investors; people for whom it is hard to make a connection.
“What makes a great founder? That is the question at the heart of most startup investment decisions and yet one that most people struggle to provide a clear answer to beyond ‘I know it when I see it’”
Strangely, it seems that the issue of founders as a group has not been widely studied. What we have are the stories of the most successful of founders but whilst entertaining and educational, these tell us little about what makes a great founder; they are often sanitised and finely curated narratives where hindsight plays a dominant role. Not to mention that, from a statistical point of view, they are often the outliers who have little bearing on the rest.
We are left with a conundrum. What makes a great founder? That is the question at the heart of most startup investment decisions and yet one that most people struggle to provide a clear answer to beyond ‘I know it when I see it’.
Surely, however, that is not good enough.
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