WeWork and the dangers of founder ego

Adam Neumann's fall from grace shows what can happen when a CEO becomes too powerful.

by Stephen Jones
Last Updated: 25 Sep 2019

‘We don’t want to work with you anymore’ was the resounding message from WeWork’s investors to the shared office space provider's contentious founder Adam Neumann, following the collapse of the company’s much anticipated IPO this month. 

Neumann, who has faced mounting pressure over the company’s profitability and frosty market reception, has now stepped down as CEO with immediate effect but will remain as non-executive chairman. His story provides a lesson in the dangers of what can happen when a founder becomes too powerful.

A serial entrepreneur whose previous ventures involved selling women’s shoes with collapsible heels and baby grows with knee pads, Neumann was clearly the person to get the company off the ground and persuade investors (notably SoftBank’s Masayoshi Son) to come onboard. 

But, despite airy notions of "the power of we", WeWork seems to have become a vehicle for Neumann’s ego. 

According to the FT,  Neumann’s voting shares had 20 times the weight of regular shares. The fact that he charged his own company nearly $6m in stock for the rights to use the word "We" further compounds this impression. (Neumann has subsequently repaid the fee.)

Indeed, Neumann’s outsized role has been credited as one of the reasons why investors were reluctant to meet the hoped $47bn IPO valuation.  

There comes a time in every business when the needs of the organisation outgrow the skills of the founder. Growing a global reach from scratch takes one skillset; embedding a healthy culture and streamlining operations to become profitable takes another.

There are very few leaders who are suited to all stages of a business. No matter how successful you’ve been, at some point every CEO must be prepared to ask themselves whether they are still the right person for the job. Judging by the market’s reaction, Neumann clearly wasn’t. 

So what now for WeWork? Temporarily finance chief Artie Minson will take over as co-chief executive with vice-chair Sebastian Gunningham. The company is yet to turn a profit, which in itself is not uncommon for high-growth, investment-led unicorns - look to the likes of Tesla, Deliveroo and for a long time Spotify - and there are rumours that it is planning on cutting staff numbers

WeWork’s biggest challenge is that it is not the tech disruptor it likes to think it is, but instead a brick-and-mortar business operating in an increasingly saturated market.

This is compounded by the fact that, unlike a lot of its competitors, it sublets many of its sites, which means that it is bogged down by heavy rental costs, which are passed on to tenants. (One founder remarked to a Management Today member of staff that they have to drink a lot of beer to get their money’s worth.) 

There is no doubt that work is evolving, with many demanding a more flexible, ‘purpose- driven’ workplace. WeWork’s meteoric rise occurred because it appealed and will continue to appeal to this demand. 

It might not be worth the $47bn valuation that Softbank bet on in its last funding round, but with Neumann unseated, WeWork in a better position than ever to get its office in order. 

Image credit: Michael Kovac / Contributor via Getty Images

 

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