Opinion

Give WeWork's Adam Neumann Credit for Making Landlords Sexy

Now goat of the year, he saw the future of office work and acted on it. A pity that the business of renting office space is no more glamorous than it was in the past

Adam Neumann, co-founder and CEO of WeWork
Mark Lennihan,AP

As potentially fascinating as it might be, the truth about the real Adam Neumann, the currently disgraced founder of WeWork, will almost certainly remain a mystery to the general public. On the other hand, the truth about the company and whether its business model of icy-cool shared office space is the future of work, or a passing fad, we’ll probably know soon enough.

Even taking into account the pace at which social media destroys reputations, Neumann’s fall was fast and furious. It took just five weeks from the from the time WeWork’s parent company filed for an initial public offering in mid-August until he was ousted as CEO on Tuesday. In that short time, his image morphed from billionaire visionary into borderline personality unworthy of running the company he had built.

It started with the IPO itself and the serious questions it raised about corporate governance. But in short order, the media began to document Neumann’s alleged quirks and misbehavior.

As ridiculous as some of the stories seem, it’s hard to shrug off so many eyewitness accounts. Even if some of them are exaggerated or taken out of context, as a group, they add up to a pretty damning indictment of his personality.

There have certainly been cases where smart money has been mesmerized by smooth talk and little or no substance. Elizabeth Holmes, Theranos and its fictitious blood-testing technology is the prime example. Silicon Valley is prone to falling into the vision trap because by nature, startups are peddling a piece of the future to investors, rather than a humdrum presentation of return on capital and market share.

Thus, Neumann’s widely acknowledged charismatic self-confidence certainly was a factor in WeWork’s rise but the business itself had to have been a factor, too. Softbank and Goldman Sachs don’t lavish money on every fast-talking entrepreneur that comes their way.

Still, you can’t escape the fact that whatever his issues are, Neumann did build WeWork from scratch. Neumann created a new workplace zeitgeist, convinced some of the world’s smartest investors and bankers to give or lend WeWork billions of dollars, and turned the company into the biggest commercial tenant in New York.

Neumann is staying on at WeWork as non-executive chairman. Meanwhile authors are no doubt negotiating contracts for a best-selling hatchet job on him and the WeWork debacle as you read this. After all, no one wants to read a tell-all about Neumann the nice guy. But WeWork the company is still with us and remains important, not only because one day it may be a publicly traded company but also because what it says about the world of work.

Industry disruption

The conventional view is that WeWork is nothing more than a humdrum commercial real estate company gussied up to look like a high-tech startup. That is more or less true, but it was a property company run according to a high-tech business model: disrupt an industry (office rentals), create a story that captures the Silicon Valley worldview (community work spaces), raise piles of money ($13.4 billion) and convince investors you should have a brilliant future as the next Facebook or Apple (read WeWork’s prospectus).

It that respect, WeWork is like a lot of gig economy startups, most famously Uber. The strategy is: Profits be damned. We need to expand quickly before any rivals can emerge and become the default option for our customers.

Uber’s problem, which is why it’s still losing huge amounts of money,  is that the strategy can easily fail. In Uber’s case, its service is easily replicable and the bad behavior of founder Travis Kalanick put off many customers.

Neumann’s alleged sins probably aren’t going to hurt WeWork the same way, but its prodigious spending to expand quickly is a real danger.

A typical startup spends heavily in the early stages on research and development and marketing, with the understanding that as the business matures, it can cut back on them. WeWork is doing much the same, not only in R&D but in acquiring long-term leases and fitting out office space.

Elizabeth Holmes, CEO of Theranos, attends a panel discussion during the Clinton Global Initiative's annual meeting in New York, September 29, 2015. She wears a black turtleneck.
Brendan McDermid / Reuters

But nine years into its business, WeWork’s spending on developing and marketing new sites has been growing as a percentage of revenue. Its cost of operating existing facilities has been falling, though not by much. It barely earns a gross profit. It's hard to see WeWork's way out of the red ink. And that’s before it encounters its first recession.

Like Uber and its leader Kalanick, WeWork and Neumann were onto something about the future: Uber on how we go from point A to point B, and WeWork about what kind of place we want Point B to be. The problem is that the Silicon Valley junkyard is filled with visionary startups that got there first and were crushed – Netscape, Myspace, Yahoo, and Nokia, to name a few.

Even if WeWork gets its finances in order, it will still be a landlord and supplier of office services. Neither business is glamorous, particularly profitable or protected from competition. At best, WeWork’s future is fated to be pretty dull.