Jake LaCaze

wework

my home sit-stand desk #essays #books #WeWork #business

If you had to sum up in only a few sentences the WeWork debacle to someone unfamiliar with the situation, how would you do so? The following quote from The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion by Eliot Brown and Maureen Farrell would be my candidate.

But prior to the prospectus becoming public, bankers and other advisers had continued to shower [Adam] Neumann with praise—giving him criticism too infrequently and too meekly. These advisers either ignored or danced around the company's obvious warts and red flags.

Now, at the eleventh hour, they finally spoke up. But the IPO was already on life support.

If you have any interest in investing time reading about business train wrecks rather than investing your money into them, then pick up a copy of The Cult of We. Throughout the book, I often found myself shaking my head in disbelief, amazed at how many smart and successful people overlooked what should have been obvious red flags, such as CEO Adam Neumann's selling too many shares too soon, Neumann's constant power grabs, a private company buying a $63 million private jet even though it was hemorrhaging cash despite having had plenty time to find a path to profitability—the list goes on.

WeWork's business model was simple. They leased up office buildings, prettied the spaces up to attract Millennials, and subleased the space at a premium. Their plan was hardly unique, as Regus had done the same a couple decades earlier. No matter how you cut it, WeWork was a real estate company. Yet many viewed it as a tech company, which justified the crazy valuations it had received before its IPO. WeWork would not have been valued so high if it were seen as a real estate company, since real estate companies are unable to scale as well as tech companies. It was the era of the visionary founder, and if the founder said WeWork was a tech company, then it must be a tech company.

Neumann and Masayoshi Son, the head of SoftBank, had convinced themselves that WeWork was a $10 trillion company, basically because they dared to dream so. The authors point out that, in 2018, the entire value of the U.S. stock market was $30 trillion. (Take a moment to let that sink in.)

Neumann and Son laid out a plan to reach the ambitious valuation while never acknowledging all the obstacles they would face. Neumann believed he could change the world in myriad ways: from how people work and live to how they educate their children.

Neumann and his wife Rebeka had convinced themselves they were environmentalists despite riding freely on the aforementioned private jet and even taking an abundance of WeWork's unused couches to landfills. Rebeka had described the family as minimalists despite having at one time owned at least eight homes.

In summary, the delusions ran far and wide.

The story was a reminder of a crucial life lesson: Don't be afraid to question the herd; just because the herd buys into the same narrative doesn't mean they're right. And you're not wrong to question the herd.

The story also reminded me of similar moments I've experienced in thirteen years as a petroleum landman.

The first such moment came early in my career, when I was working in Dallas-Fort Worth's Barnett Shale play. In the shadow of the Great Recession, the natural gas play was a bright spot and a boost to the local economy. Everyone involved in the industry was in high spirits, some even claiming the boom times could last 20 years. I remember raising an eyebrow at that declaration. I couldn't make a convincing case for why the boom wouldn't last 20 years, other than a feeling in my gut that such good times are unlikely to last so long. Within 13 months, my employer had closed its Fort Worth office and most of the former occupants were looking for jobs, as natural gas crashed from all-time highs and is only now, over a decade later, showing signs of significant recovery.

The second such moment came when I moved to West Texas in 2012. The Permian Basin is no stranger to boom-and-bust cycles, so the narrative wasn't exactly the same as the Barnett Shale in 2008-2009. Instead, the collective wisdom was: This boom is different, whatever that meant. While the Permian Basin does not appear to be at risk of going the way of the Barnett, the area has still seen fluctuations in the near-decade since. The cycle of booms and busts is more frequent than in past decades, but the cycle still exists.

The Cult of We is not just a business book or a biography of a company that went from rising star to laughing stock in the blink of an eye. The book is also a warning: Never underestimate someone's ability to be out of touch with reality.