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The Cult of We: WeWork and the Great Start-Up Delusion

I’m not 100% sure when I became fascinated with the office sub-leasing business WeWork, but it was certainly ahead of its mid-2019 filing for an IPO, and which point things really did seem to fall spectacularly apart.

Eliot Brown and Maureen Farrell are a pair of Wall St Journal reporters who covered WeWork on the paper in the years of its spectacular growth – and especially the growth in its valuation. The story they tell here is one of our times, with companies’ value tied up so much not in what they are actually earning today, but what they could earn tomorrow if the growth continues.

Except, as becomes readily apparent throughout this book, not all companies can “scale” in the same way. Companies that are based essentially on software, like Facebook or Google, can make enormous savings from that scale down the line. The cost of maintaining one extra user is basically zero. Yet if your business is sub-leasing office space, every extra desk space that you hire out costs you more money. You have to keep leasing more office space in more buildings.

This is the story of Adam Neumann, a young entrepreneur who was driven to create a business whose valuation grew at the expense of just about everything else. It’s the story of The Emporer’s New Clothes, as seemingly respectable financial institutions kept backing him in spite of, rather than because of the business he was in – positioning it as a tech company on some especially specious grounds, rather than the real estate business it actually was (and with the lower valuation that brings with it).

And it’s the story of Softbank, its founder and CEO, Masayoshi Son, and his Vision Fund, backed heavily by the Saudi Arabian Public Investment Fund. The Vision Fund was an attempt to replicate the success Masayoshi Son had previously had with an early investment in Alibaba which reaped tremendous rewards.

The book also explores the wider start-up scene, and the backers that are so willing to support often young and very inexperienced CEOs, giving them incredible leverage, almost treating them as latter-day Messiahs, and allowing them to structure their companies in such a way that even if they end up with relatively small shareholdings after multiple funding rounds, they still have all the voting rights – meaning they maintain complete control over those businesses regardless of the wishes of other, larger, shareholders.

If that all sounds a bit serious, this is also a book about a frankly unhinged couple at the top of a business, who are let rip to go out and buy surfing businesses on whims, or purchase a private jet just because they can. Never mind that their business is, year after year, losing money, and despite all their projections stating otherwise, getting worse rather than better. Neumann and his wife appear as frankly delusional at times, carried away with the personal wealth that they are attaining. Indeed, the amount of money that they manage to pull out of the business at a relatively early stage also brings significant questions about corporate governance in the modern era. Think about all those Dragons’ Den sessions where the Dragons look down their noses at people who asking them for cash at the same time as they are personally pulling lots of cash out of their nascent business during its early expansion.

The really curious thing about all this is that centrally, there is a perfectly good business model here. It’s not dissimilar to Regus – now known as IWG, who’s CEO Mark Dixon pops up, scratching his head more than once in this story. And as we slowly move towards a post-pandemic world where companies are going to look at different kinds of office attendance models, it may well be that there’s a real opportunity here. But the capital required for growth in this business is high – office space in major city centres is expensive. And the valuation of those businesses is low compared to tech companies. Hence, everyone wants to position themselves as a tech company rather than anything else.

If you know the story of WeWork, you won’t be learning anything fundamentally new in this book, but you will be learning an awful lot of detail, and the whole tech scene is covered here. But there’s an incredible breadth of colour here, with stories and anecdotes that really paint a full picture of what happened.

And if you don’t know the story in great detail, you’re in for a fantastic ride!

Highly recommended.

The Cult of We is available now in hardback, ebook and audiobook. Thanks to Netgalley for my copy.