Book Review: Billion Dollar Loser (Adam Neuman and WeWork)
Over the holiday, I finished reading Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork. I’ve read stories here and there about the WeWork saga, but it was good to get a chronological account with more details. Here are a few takeaways:
- Pitch – Adam wasn’t good at a lot of things (he didn’t even manage his own emails), but he was a great storyteller and pitchman. WeWork wasn’t a tech company, but venture capital funds specializing in tech invested in Adam. Their thinking was that he was the best salesperson they’d ever met, so they wanted to bet on him. They wanted to be along for the ride, wherever it took them.
- Softbank – Adam and Masayoshi Son bonded over their shared ability to think bigger and be more ambitious than everyone else. That bond served them well at first, and Softbank invested a gargantuan amount of money (almost $17 billion in debt and equity) at eye-popping valuations. Ultimately, WeWork became detached from reality. The relationship changed when WeWork came crashing back to earth after its IPO failed and it was in danger of running out of cash.
- Profitability – WeWork escaped having to be a profitable company for many years, but when the day of reckoning came, it wasn’t pretty. Companies can’t be unprofitable forever.
- Culture – The tone is set at the top. WeWork had a bad culture that began with Adam. It was a Game of Thrones environment where people burned out after 18 months or so.
- Husband/wife – This story is a cautionary tale of what can go wrong when there are no clear boundaries between spouses at work.
- Accountability – Adam’s accountability was minimal, which enabled him to do many of the things he did.
- Hypergrowth – The company was focused on growth and tried to achieve it at all costs. The end result was a ridiculous amount of capital burned to fuel expansion.
This was a great read. It’s such a crazy story that it’s hard to believe it’s true—but it is. It’s a cautionary tale of what can go wrong when too much capital is put in the wrong hands. WeWork is now a public company. I’m curious to see how the company will progress with its new CEO.
Is the World Changing Faster Than Your Company?
I read a quote this weekend that stuck with me:
"If the rate of change on the outside exceeds the rate of change on the inside, the end is near."
~ Jack Welch
Simple but powerful. I’m not sure if I agree about the end being near, but it’s not an ideal position to be in.
Founders should always have a finger on the pulse of their company and be pushing the company to improve. But they should also spend time understanding what’s going on outside the company. What’s happening in the world? What’s happening in their industry? If the company isn’t, at a minimum, keeping pace with the change that’s happening externally, they could become less competitive and ultimately slide into a decline.
There are many cases of companies that had built great businesses but were out of touch with change. One great example is Blackberry. It was the dominant cell phone maker at one point. When Apple introduced the iPhone and the App Store, the landscape changed, and Blackberry didn’t change quickly enough. Blackberry survived, but it’s much smaller than it was when the iPhone was released.
Look for Accountability and You’ll Find A Players
Hiring is one the hardest things founders—especially early founders—have to do. Building a pipeline of candidates is one thing, and it’s not easy; narrowing it down to the right person is even more difficult. For most people, it’s both an art and a science. One thing I’ve seen repeatedly is a lack of intentionality in the screening process, which results in hiring subpar candidates. Said differently, if you’re not intentional in your process, your team will comprise mediocre performers or worse. To help drive an intentional process, interview for certain attributes.
One attribute I consistently see in A players is a desire for accountability. High-performing people like to be held accountable. They want to do what they’ve committed to and have others ask them about it. If you think about it, it makes a lot of sense. You don’t become an A player by not doing what you said you would. People who aren’t A players tend to avoid accountability. They may commit to something, but they don’t want people to ask them about it. They want to do (or not do) what they want, when they want. These people can frustrate team members, cause friction in organizations, and impede work getting done.
If you’re building a team, don’t hire for people you’re comfortable with or who are similar to you. Instead, execute an intentional process that zeros in on attributes that matter, like accountability!
Weekly Reflection: Week One Hundred Thirteen
Today marks the end of my one-hundred-thirteenth week of working from home (mostly). Here are my takeaways from week one hundred thirteen:
- Networks – I’ve been thinking about networks in VC. I shared some of my thoughts in yesterday’s post. Changing how we think about networks and incentivizing venture investors to build broader networks to meet founders where they already are could have a huge entrepreneurial impact. How exactly to do that is the question.
- High-velocity hustler- Velocity matters more than speed. Being a high-velocity hustler is a great founder attribute. These folks are shaking trees to see what falls but picking up only the things that align with the destination they have in mind. Hustlers are flexible and can adapt to what’s thrown at them, and the good ones don’t waste time on shiny things. They stay focused on the goal.
- Holiday – I always think of Memorial Day as the start of my summer. I’m looking forward to the holiday weekend and an uninhibited summer.
Week one hundred thirteen brought me several insights. I’m looking forward to the holiday downtime.
The Network Problem in VC
I was chatting with a founder this week, and he was asking me how to approach fundraising. Specifically, he was asking how to connect with investors via a warm intro when his circles don’t overlap with theirs. He doesn’t have relationships with people who know venture capital investors.
In the past few months, I’ve reviewed a number of fundraising decks for venture capital firms looking to raise money from limited partners (LPs). One of the things they consistently highlight to LPs is how great their network is. The better the network, the better your deal flow. The better your deal flow, the more likely you are to see a great investment opportunity—or so the logic goes. When you dig a bit, you realize that most examples used to demonstrate a great network are exclusive organizations (think elite schools and companies). So, investors are communicating to potential LPs that they run in exclusive circles that give them access to great founders whose companies would be worthwhile investments.
Lots of investors believe (admittedly or not) that founders should get a warm intro to them. Founders can always send emails directly or use other cold outreach methods, but the warm intro is what most investors value most. This dings founders who aren’t part of exclusive groups that attract venture investors. Investors are communicating to founders: Find a way into my circle. Come meet me where I am.
There’s a network problem in venture capital. Investors expect founders to find their way into exclusive (i.e., narrow) circles to seek investment. LPs view such access as a positive attribute and an indication of potential investment success. To me, it seems it should be the other way around. Investors should have broad networks that allow them to meet founders of all backgrounds where they already are and to see the world from different perspectives. LPs should view broad networks as a positive attribute that could lead to overlooked investments that offer outsize returns.
The network problem in VC is waiting to be solved. When it is, the impact on entrepreneurship is likely to be major!
Velocity Matters More Than Speed
I had a debate with someone about speed of execution and its impact on entrepreneurial success. Oversimplifying, he believes that speed of execution increases founders’ chances of success. People who move fast and get a ton of stuff done will be more successful—or so he believes.
Getting stuff done matters a lot in companies of all stages. If you can’t execute, you’re dead in the water. But what you get done matters more than how fast you move. I like this analogy: Two people are rowing a boat. Imagine that Person A is rowing south toward their destination, but Person B is rowing north as fast and hard as possible. Not only does B negate A’s effort (they’re at a standstill), but B could take them in the opposite direction of where they intended to be. Ideally, partners will agree on a destination and row, in sync, in that direction. Rowing in the right direction is more important than how fast you row. You should row (a) as fast as you can (b) in the right direction.
"Velocity is different from speed. Velocity has a direction. You have to know where you’re going. Sometimes going really really fast is negative velocity, because you’re going the wrong way."
The people who have outsize success focus on velocity, not speed.
Low Valuations Make Acquisition Targets Out of Great Companies
Today I was looking at a few tech companies in the public stock market. The market capitalizations (i.e., valuation) on some have been drastically reduced. I’d imagine it’s a big distraction to the leadership and employees. I was thinking that some of these companies could benefit from being part of a larger organization where they could execute on their strategy without worrying about market gyrations or scrutiny.
Nonfinancial companies issued $1.7 trillion in bonds in 2020. That was a record. Partly it was due to the uncertainty at the time, but it was also driven by interest rates reaching record lows. It was cheap to borrow, so companies borrowed.
Many great companies are valued at a fraction of what they were, yet the fundamentals of the underlying business remain solid. I’m sure this fact hasn’t gone unnoticed by the leaders and M&A teams at companies flush with cash. If valuations keep going down, I suspect we’ll see some of these companies putting that cash to work in acquisitions.
Can’t Be Unprofitable Forever
A few years back I chatted with someone at a corporation about a company it had acquired but later divested (i.e., sold) for a loss. I asked why they sold it and was told that “the business looked great on the surface, but we later realized there wasn’t a path to profitability.” I recently read something about the company they divested. It never reached profitability and has since been sold again. A few years into ownership, the most recent owners couldn’t get it to profitability either and opted to sell it for a loss.
I’m not sure what’s in store for this company, but I imagine the day of reckoning is coming. A company exists to solve a problem in a way that’s profitable and creates value for shareholders (as well as for customers). Sure, for a while, you may be investing ahead of growth, which will make the company unprofitable, but the goal should always be profitability. If a company can’t provide its product or service in a profitable manner, it’s essentially subsidizing the cost of the solution to customers, which isn’t a sustainable long-term business model.
Valuation’s Impact on Psychology
I talked to a friend today who joked about how much her stock portfolio is down and how she’s adjusting accordingly. Another friend said something similar yesterday. Both are invested for the long term, but recent market activity has had an impact on their psychology. They’re thinking about things differently and changing their behavior.
These conversations were a reminder to me of how short-term movements in valuations can impact psychology and motivation. I can’t imagine what public companies that have seen their valuations slashed are dealing with. Morale must be—or at least it will become—a concern for these companies if pay packages have heavy stock components.
I’m curious to watch how public and private company CEOs navigate in this environment. Will we see material changes in things like compensation and publicity around new fundraising rounds?