by John Mullins, Associate Professor of Management Practice at London Business School
Vaunting egos and untethered ambitions. Not an encouraging mix of characteristics for any company, but with WeWork in mind, it was the fuel which seemingly helped propel the company to soaring heights, and then drove it into the ground (WeWork files for bankruptcy amid office market downturn, Financial Times, November 7 2023).
Let’s leave the allusions to Icarus aside: it’s already a threadbare simile.
In my long experience studying entrepreneurs and their ventures, I believe that it is important for entrepreneurs to give themselves a version of an exit interview on their business. One needs to step back and try to be objective and bring other people’s points of view into sharp relief as those running a business are often far too close to the action to always have the best perspective.
Let’s look at the facts: many new business ventures will never get off the ground. Of those that do, the majority will fail. There are millions of entrepreneurs in the US, and across the world, who are doing what Neumann and McKelvey did. However, most of their ventures will fail in short order. Indeed, less than one per cent of those who submit business plans to business angels, venture capitalists or similar sources of funding will be successful in raising the money they seek.
This picture of entrepreneurship is not a pretty one. The odds are daunting, the road long and difficult. Why, then, do so many adults in the UK and in the US actively pursue entrepreneurial dreams? In a word: opportunity! Opportunity to develop an idea that seems, at least to its originator, a sure-fire success.
Opportunity to be one’s own master – no more office politics, no more downsizing, no more working for others. Opportunity for change. Opportunity to experience the thrill, excitement, challenge and just plain fun inherent in the pursuit of entrepreneurial adventures. As a former entrepreneur, I know, because I’ve been there too.
But there’s a problem. Most opportunities are not what they appear to be, as the business failure statistics demonstrate. Most of them have at least one fatal flaw that renders them vulnerable to all sorts of difficulties that can send a precarious, cash-starved new venture to the scrap heap in a heartbeat. An abundance of research makes it clear that the vast majority of new ventures fail for opportunity-related reasons:
· Market reasons: perhaps the target market is too small or simply won’t buy
· Industry reasons: it’s too easy for competition to steal your emerging market
· Entrepreneurial team reasons: the team may lack what it takes to cope with the wide array of forces that conspire to bring fledgling entrepreneurial ventures to their knees.
As long-time venture capitalist William Egan notes: “You may have capital and a talented management team, but if you are fundamentally in a lousy business, you won’t get the kind of results you would in a good business. All businesses aren’t created equal”.
WeWork seemed to dodge many of these pitfalls, at least for a while.
The original business was solid, offering people a place to work that was less formal than an office but offered more than a pinched table in a coffee shop. While not new, it was well-pitched for the age of mobile technology set within the era of less formal, more dynamic working practices.
So, what went wrong with WeWork? We need perhaps to take a metaphysical perspective, looking at the cult of personality in business.
Founded in 2010 with a mission to “create a world where people work to make a life, not just a living”, the venture was immediately successful. Seven years later, WeWork was the most valuable startup in the world.
But then the wheels began to fall off the sidecar.
Filing for a flotation in 2018, the attendant scrutiny revealed that WeWork was losing money, and lots of it. After the IPO was pulled, the world of WeWork began to come unstuck, laying off thousands of employees. It was during this time that Neumann resigned as CEO and gave up majority voting control as of September 26, 2019.
He was retained as a consultant on a hefty salary, but he also seemingly bequeathed the legacy of his own personality which had been stamped all over the company. Alcohol-fueled company retreats, a blaringly loud leadership style, and a freewheeling, barefooted approach to international travel had left their indelible mark.
Now I am not saying that a sober demeanor, a button-down Brooks Brothers style of management would have been the elixir for WeWork. It clearly required the verve and brio that Neumann and his acolytes brought to bear on the company. And yet the freewheeling, unfettered style of management ultimately unstuck WeWork’s ability to deliver returns.
This might well become an aphorism in the future, but the barefoot, permissive style of management does have its flaws. My advice for those who get caught up in the zeitgeist of their own ventures, and to those who choose to follow would-be messiahs, would be to take a serious-minded step back. Take a colder, more calculating look at your business and be prepared to take advice. There just might be someone out there who will advise you to put your shoes back on and, to borrow a phrase, curb your enthusiasm.
Dr Mullins is the author of many books including his latest, Break the Rules!: The Six Counter-Conventional Mindsets of Entrepreneurs That Can Help Anyone Change the World
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