A Conversation with Eliot Brown on The Cult of We: WeWork and the Great Start-Up Delusion

A Conversation with Eliot Brown on The Cult of We: WeWork and the Great Start-Up Delusion

In 2001, Adam Neumann arrived in New York after five years as a conscript in the Israeli navy. Just over fifteen years later, he had transformed himself into the charismatic CEO of a company worth $47 billion. With his long hair and feel-good mantras, the six-foot-five Neumann looked the part of a messianic Silicon Valley entrepreneur. The vision he offered was mesmerizing: a radical reimagining of workspace for a new generation. He called it WeWork.

As billions of funding dollars poured in, Neumann’s ambitions grew limitless. WeWork wasn’t just an office space provider; it would build schools, create cities, even colonize Mars. In pursuit of its founder’s vision, the company spent money faster than it could bring it in. From his private jet, sometimes clouded with marijuana smoke, the CEO scoured the globe for more capital but in late 2019, just weeks before WeWork’s highly publicized IPO, everything fell apart. Neumann was ousted from his company, but still was poised to walk away a billionaire.

In this interview, I speak to Wall Street Journal reporter Eliot Brown on The Cult of We: WeWork and the Great Start-Up Delusion. We discuss WeWork’s extraordinary rise and staggering implosion, why some of the biggest names in banking and venture capital bought the hype and what the future holds for Silicon Valley ‘unicorns.

Q:  What are the consequences of founder worship culture?

[Eliot Brown]: Silicon Valley tends to take small, very successful, sample sizes and extrapolate them across the entire industry. People look at Steve Jobs (at least a caricature of what he was), Jeff Bezos and say, ‘well, these guys were founders, they had a vision and made the biggest companies earth so therefore everyone has to be like that…’

What’s become rather pernicious is the handing over of control to the founders. Investors in the past would say, ‘Well, Steve Jobs, you work for Apple… if you do a bad job… we will fire you…’ – and they did, they fired him when he was doing a bad job, and he came back and did a good job! Today, that’s gone. Investors will turn over the keys to the CEO and let them run amok as they see fit, because they have control over the company.

[Vikas: How are founders able to negotiate such mismatched terms with investors?]

[Eliot Brown]: It’s about supply and demand. With WeWork, it was 2015, and the founder Adam Neumann was putting together funding round. There was a lot of people who wanted to be in the round and his position was simple, here are the terms, take it or leave it. He then went to his board of directors and was like, ‘I raised all this money, and by the way, it has conditions that mean I get more control…’ – there was an argument of course, but in the end, they ended up passing it.

Q:  Are there any personality types you see consistently amongst founders like Adam Neumann?

[Eliot Brown]: Investors have broadly decided that people who exhibit qualities like Steve Jobs or Jeff Bezos are good to fund. As it happens, that type of person also happens to be good at fundraising. Adam was both of those. He’s a tremendous salesman with extraordinarily high self-confidence, and when you get in a room with him – he just convinces you to look into the future and talks about the future as if it’s tangible, today.

When I first met him in 2013, he was talking about his business and was full of energy- bouncing off the walls about how fast things were going to grow. He was telling me, ‘…when we open Portland in 9 months, we’ll be full in 3 weeks…’ at the time I was like, ‘wow! That’s amazing! What a business!’ but then I thought about it and realised, you know what… he can’t know that… they haven’t even found a space in Portland yet. When he puts in a room though, and starts talking about the future, as an investor you buy into it… it’s like. ‘…hook it into my veins, give me more of this, here’s all my money, go build a big company! 

Q: It seems in many ways these fundraising tactics cross into grifting?

[Eliot Brown]: I often say that when it comes to Silicon Valley start-ups, there’s a fine line between optimism and securities fraud. It’s incredibly fickle. You could have easily seen a situation in 2001 where- for example- Amazon went under, and everyone would be talking about how Jeff Bezos was essentially, a grifter. There’s a lot of people who think that about Elon Musk, and an early investor in WeWork had once said that, ‘Adam is a lot like Elon Musk,’ – and yet a lot of people think Elon is pushing a tech valuation on a car company….

Today, the same thing is happening with public markets. People are deluding themselves into believing the unbelievable about pre-revenue companies and tech companies with huge valuations. I mean there’s a car company that hasn’t sold a single vehicle which is trading at a valuation of twice Nissan! There are stories in the papers all the time about people who are putting their life savings into these companies thinking it’s a good bet. You could argue it’s their own choice, but it doesn’t seem to be sensible to have so many people so unhinged from reality.

Today, with a lot of US listings, we’re seeing founders and early investors getting very rich – taking cash-out before the business even proves itself. In the case of many SPACs, they’re often cashing out before even getting revenue. It’s like a collective grift. There’s a huge lack of critical thinking – people look at one or two things that confirm that the company they’re investing in is changing the world and ignore the 10-15 things that confirm that it’s just a real-estate company.

Q: Was there a cult-like atmosphere at WeWork?

[Eliot Brown]: We use the term ‘cult’ in a tongue-in-cheek way in the title of our book, but it was definitely cult like at WeWork. That was a reflection- as cults often are- of the leader. In this case, that was Adam Neumann, viewing the company and the world as things that should conform to his values. As he raised more and more money, his head got more and more in the clouds and he became more and more detached from reality. He was genuinely thinking he could bring peace to the middle east. He wanted everyone to act as he did, banned meat from the whole company, and deliberately tried to force everyone to operate to his values set.

Q:  What was working life like at WeWork in the rapid growth days?

[Eliot Brown]: WeWork had a very party-heavy culture. In the early years, people would just come around passing out tequila shots (eventually they started passing around water shots for those people who didn’t want to drink). There was a lot of late-night work and a lot of hustling to put things together.

It’s worth mentioning that a lot of people there genuinely thought they were working for a world-changing company and genuinely thought they were on a mission to make the world a better place. It was funny and sad to have these conversations with people over so many years – they didn’t realise it was essentially an office space company.

Q: How do founders escape consequences when engaging in such excess?

[Eliot Brown]: It’s not only the fact that WeWork’s founders could engage in excess without consequence- but the board of directors would approve this stuff unanimously! They would fight for a while and say no, we don’t want a jet… but then it’s like, okay, time to vote! And guess what they vote for a jet. That’s the reality of founder control, and also the reality of directors not standing-up as much as they could have.

Adam Neumann did have the ability to control the full board, but if all the directors had voted against him, it would have required some nuclear option where he could have stacked the board with new seats and then outvoted them. It never came to that because they didn’t want to challenge him – why? Their stock kept going up, their job was to make money, and so they were like meh… maybe the public markets will bring him some discipline..

Q: When did WeWork start to unravel?

[Eliot Brown]: 2018 was like the peak of Rome before the fall – by that point, the foundations were already quite unstable. Adam thought he was going to have a deal from SoftBank to inject another $10 billion into the business – he [Adam] had this plan that would see him being worth $4-5trillion, with a company worth $10 trillion.

He started all these cash-burning plans, and when it didn’t happen by 2019, the fuse was lit on the collapse. At that point, WeWork were losing $2billion a year, and had less than a year of runway left. Adam had been going on TV saying they had 5 years of cash left, but the only real option left for them was to IPO. Of course, their company was in absolutely no shape, it was not fit for the public markets at the time.

[Vikas: How unique is WeWork?]

[Eliot Brown]: WeWork had this particular situation where their CEO was really not much more than a salesman. Elon Musk by contrast is a really technical operator. The basic idea of selling a company doing one thing, that actually has quite a low value profile, as a super successful software company with a massive valuation, is everywhere but you see it particularly with electric vehicles at the moment. You have start-ups valued in the billions without revenue or even product in many cases. The auto sector, on the back of these start-ups, has increased by over $800 billion.

Q:  What are the lessons we can take from WeWork?

[Eliot Brown]: The reality is we haven’t learned any lessons, but there are lessons we should learn. Founder control is central to this – when you’re giving 20 or 30-somethings billions of dollars with no guardrails, what do you think is going to happen? So, governance is one piece… but we also need to realise that our minds are susceptible to herd mentality and confirmation bias. One big difference between WeWork and- say- Theranos was that Theranos was about a charismatic entrepreneur who lied to investors about something. Adam Neumann lied around the edges perhaps, but he was using real numbers and getting sophisticated investors to see those numbers in a different light – he was getting them to delude themselves, and that is really very, scary. Some of the best investors were valuing WeWork at 50x revenue – even in software, that’s huge. It was scary how easy it was for these people to lose grip of reality whereas I was just a reporter who took one e-con class and was like ‘well this looks like a real estate company’.

Q: Do you think Adam Neumann really believed his thesis?

[Eliot Brown]: You wonder how much- in the back of his head- Adam questioned the WeWork thesis. He and his co-founder sold an extraordinary amount of stock, around $500 million between them. Before the company tried to go public, he borrowed another $500 million.  I think he thought he was going to be a trillionaire.

When you see things that are ‘too good to be true’ it often means you’re drifting far from reality. One of the things that motivated me to switch jobs from real-estate to venture capital was seeing these huge valuations which seemed like obvious lunacy to me. People were spending $40 when they had $5, it’s basic-bad-economics! People were rationalising fantasies – that’s not how the world works.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.