Whats the Right Flavor of Crazy?
WeWork(Wrong), Adam Neumann(Wrong), Masa Son(Wrong) and Birmingham Bound(Right)
“Smile really big, honey, they don’t know that we’re losing billions of dollars every year”
I’m talking WeWork this week and to be honest, writing about WeWork feels like kicking a dead cow at this point. I'm also a bit under the weather this and traveling home, so this week’s edition will read brief and to the point.
Everyone knows that the once-darling unicorn WeWork has gone through some tough times recently. Their CEO is out and all of the companies they acquired in the past 24 months have been sold back to their founders (who sold them to WeWork in the first place).
Masa Son, supreme leader of Softbank and the Vision Fund, is under constant scrutiny for not doing better due diligence on WeWork from the start -- it seemed he fell in love with Adam Neumann before the first date and then encouraged Mr. Neumann to be “crazier.”
Yet, just two years ago, Adam Neumann was the bell of the ball. The “right kind of crazy” founder who took big bets and attracted big money. This to me begs the question: what is the right flavor of crazy in founders?
The Macro
How crazy is too crazy? Adam Neumann dreamed big and worked hard to build his coworking space empire. An immigrant to New York by way of Israel, Neumann was bound to make it as an entrepreneur. One of his first startups was a baby brand called Krawlers, which made baby clothes that had pads sewn in to protect babies’ knees. It was a spectacular failure. After this failure, Neumann steered his ship toward a new venture: coworking. And now, as we all know, it ended up being a huge hit.
Like many successful entrepreneurs, Neumann had the ability to both tell and sell a great story. As a result, he was able to raise billions of dollars (to date, WeWork has raised $21 billion in debt and equity). He was the American dream: a hardworking and persistent immigrant who never gave up on his entrepreneurial dreams and became a self-made billionaire in the process. He was one of the “crazy ones” that Steve Jobs so often is quoted as saying will change the world.
To give credit where credit is due, he did change the world -- he enabled thousands of small businesses and individuals to work in a nice, affordable office. His coworking spaces have no doubt allowed people to formalize their businesses, make connections with other entrepreneurs and collaborate with others in their industries. There is good in what he created, no doubt.
But in America, for the most part, capitalism lets us not care about what you spend your money on if you’re successful, but it does let us care if you’re spending millions of dollars as your company loses billions more. You have to be crazy to start a business, yet how much of Neumann’s actions were enabled because of the financiers who gave him billions of dollars to be “crazier?”
The Wall Street Journal writer (and future author on the book on WeWork’s downfall) Eliot Brown explores this idea in his latest article about the financiers who enabled Neumann to reach new levels of crazy.
Opinion: If there is ever a modern example of the story of Icarus, the Greek who flew too close to the sun, it is Adam Neumann. A man with Mr. Neumann’s story shouldn’t have ended up like this. His crazy should’ve let him build WeWork into the realm of public markets and into a real estate empire with a brand recognizable by anyone. That won’t ever happen now, he accepted a $1.7 billion buyout from Softbank who has taken control of WeWork.
He seemed to believe that raising a lot of money equaled success. It showed. He spent $90 million on homes around the country. When he should’ve been at board meetings, he was taking surfing trips. Instead of flying commercial, he made WeWork buy a private jet for $60 million. Not satisfied with his school for his children, he and his wife opened their own called WeGrow (it has since closed). You get the picture… he lived by his own credo of crazy. He lied consistently about the financial health of the company, as shown in the graphs below. Not only did he miss his projections, he didn’t even make it out the front door.
WeWork was valued as a software company. In this league, gross margins are routinely in the 70%-88% range. In reality, WeWork should’ve been valued closer to its nearest competitor, IWG, with a 16% gross margin and EV (enterprise value) of $1.16 Billion.
He is not totally to blame for what happened. It’s his financier’s fault (mostly Softbank’s), his executive team’s fault and even his friends’ and families' fault. They probably could’ve stopped this but they didn’t, because at the end of the day, growth is cheap and governance is not. I heard a great quote recently on the TechCrunch Equity Podcast saying that in today’s world of tech, “unicorns aren’t dying from starvation as they did during the tech bubble, they’re dying from indigestion.”
Takeaway: Just because your start-up raises a lot of money doesn’t mean you or your product is successful. So to me, crazy is too crazy when success is equated to raising a lot of money.
The Micro
Let’s talk about something that’s going right with the world: Birmingham Bound. Birmingham Bound is a local initiative right here in Birmingham that is working to grow our tech ecosystem. They’re working to bring more tech companies to Birmingham while making sure existing tech companies have the necessary resources to continue to succeed and develop. So why would one want to move their company to Birmingham? Let’s look at the numbers:
-16% more affordable workforce on average than the top 100 metros in tech
-$21 per square foot, that’s the cost to have a full-service office space in the city center
-Lowest Cost of Living in the Southeast, at 90% of the national average, you can raise a family here and not break the bank working at a small tech company
-We’re home to five award-winning breweries, four James Beard Awarded Restaurants and home to the best bar in the country (GQ Magazine)
And here’s a taste of some of the great companies they have helped find homes in Birmingham:
Leasequery- Lease accounting software for accountants. They’re based in Atlanta and opened a Biz Dev Office in Birmingham. They’ve raised $40 million from the likes of Goldman Sachs.
Suzy- A tech platform delivering real-time customer insights. Opened a second office in Birmingham and have raised $26 million from Foundry Group and Kevin Durant’s Thirty Five Ventures.
Integrate- Demand orchestration software enables marketers to automate top-of-funnel demand. Opened an office in Birmingham and have raised money from Foundry Group and Boulder Ventures.
All of these companies are hiring too, so tell a friend!
Shout-Out: The Birmingham Bound team of Britney Summerville, Clare Ubersax and Joanne Patterson for all their hard work and dedication to growing our budding tech ecosystem. They’re helping to make Birmingham a new home for tech companies.
Takeaway: Birmingham is working hard every day to make the transition from steel to start-ups. In the court of public opinion, Alabama can get a bad rep, but in reality, it's a place of builders who can succeed at starting a business while not breaking the bank while raising a family. Birmingham might not be on your radar yet as a place where technology can thrive, but there really is no reason why it shouldn't be.
Interested in learning more or checking out available check jobs? Head to the Birmingham Bound Website here.
Must-Reads This Week
First Round Capital’s 5th Annual State of Start-Ups Report. Legendary seed-firm, First Round Capital’s annual report is a trove of excellent insights from founders and companies. My personal favorite portion of the report? Their survey of founders on which industries are overhyped and which are underhyped(shout out construction tech!).
Give it a Read Here
That’s all for this week, thanks for reading. Enjoy your holidays with your family and friends, because that’s exactly what I’ll be doing.
Thanks for reading, and don’t forget to share!
Feedback or questions? Just reply to this email or follow me on Twitter
Happy Learning!