PDF Summary:The Cult of We, by Eliot Brown and Maureen Farrell

WeWork's rapid ascent from a modest co-working space in New York to a multi-billion dollar company highlights the power—and potential pitfalls—of charismatic leadership. In The Cult of We, Eliot Brown and Maureen Farrell trace the life of WeWork founder Adam Neumann, whose exceptional salesmanship and ambitious vision ignited the company's meteoric rise and catastrophic downfall.

The book delves into how Neumann turned WeWork into a poster child for startup culture in the 2010s. It explores Neumann's talent for wooing investors with grand narratives that portrayed WeWork as a tech innovator, despite its traditional real estate model. The authors uncover how poor oversight and a prioritization of unrestrained growth over fiscal discipline led to an excess of spending, disorganization, and ultimately, Neumann's ouster from the CEO role.

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The early phase of funding for startups concentrated on fostering innovative ideas instead of supporting leaders due to their charismatic traits.

The authors chart the evolution of a specialized area within the financial industry that has provided funding to almost every major tech firm emerging from Silicon Valley. After the conclusion of World War II, a scheme was progressively developed to promote innovation through the distribution of resources to technological ventures that entailed significant risk. During its initial stages, the focus was on supporting promising concepts rather than solely on proficient leadership. VCs sought out companies with groundbreaking technologies or products and would often bring in experienced business executives to lead these firms.

The writers underscore this pattern by referencing early examples within the industry, particularly noting a firm that, following financial backing from Benchmark, soared to remarkable heights of success in the late 1990s: eBay. Venture capitalist Bruce Dunlevie recognized the potential in Pierre Omidyar's nascent online auction platform and concluded that the company ought to bring on seasoned CEO Meg Whitman to oversee its development, rather than leaving Omidyar to manage its expansion by himself. The authors contend that in the beginning, venture capitalists were inclined to favor experienced leaders to manage the business, viewing a founder with a captivating character as more of an obstacle than an asset to a growing firm.

Venture capital firms have placed greater emphasis on the entrepreneurs and the enthralling narratives they present.

The authors describe the shift in strategy within the venture capital sector following the burst of the dot-com bubble, influenced by the enduring successes of tech companies founded and led by their creators like Amazon and Facebook, leading to the embrace of a philosophy that is more supportive of founders. Venture capitalists began to see themselves as advocates for entrepreneurship, committing to a more independent strategy in their investment practices, motivated by the lasting successes of trailblazing business originators like the CEO of Amazon. The book emphasizes that entities like Founders Fund and Andreessen Horowitz were instrumental in promoting and strongly supporting a culture that emphasizes the importance of company founders.

The book details the methods by which venture capital entities devise approaches to entice entrepreneurs, providing them with the chance to retain more control of their enterprises alongside the benefits of venture capital funding. Venture capitalists provided backing and investment to entrepreneurs who had aspirations for swift expansion. The writers contend that this shift took place concurrently with a movement toward increased secrecy among emerging companies. Investors prioritized compelling marketing stories over conventional financial indicators when assessing a company's worth. A founder’s ability to tell a compelling story about the “mission” of his or her company, Brown and Farrell contend, was more valuable to investors than the company's bottom line, particularly at companies that were still bleeding cash.

Mutual funds actively pursued enterprises that showed great promise, channeling significant investments into them.

The excerpt details how the influx of mutual fund investments in the 2010s altered the financial landscape of Silicon Valley, leading to an increase in company valuations, intensifying the competition for investment opportunities, and fostering a culture of rapid growth and support for entrepreneurs. The authors depict the strong attraction that mutual funds, which typically concentrate on investments in public companies, have towards the private sector, motivated by the substantial profits realized from initial investments in enterprises such as Twitter and Facebook. The apprehension of missing out on the expansion of future tech giants sparked a surge in funding that transformed the financial terrain of the startup ecosystem.

The authors argue that the considerable influence of mutual funds in the market, due to their large-scale portfolios, drove market valuations to levels that smaller venture capital funds found unsustainable, leading to a shift in priorities among early investors. Venture capitalists, under the strain to yield substantial returns on private market investments, often turned to mutual funds as buyers for their stakes in companies that frequently did not have well-defined strategies for achieving profitability. The authors contend that this inclination prompted numerous firms to place a greater emphasis on obtaining additional capital at increased valuations rather than on establishing enduring business strategies or implementing cost reduction tactics.

Private market investments are increasingly attracting mutual funds, which are now vying with venture capitalists to secure opportunities in burgeoning enterprises.

The writers follow the pattern where a handful of successful investments by fund managers in private companies, including Twitter, as well as the substantial valuations companies like Facebook garnered during their IPOs, led to mutual funds taking an interest in private markets. Mutual funds were concerned that hesitating to invest until the company became publicly traded on stock exchanges might cause them to miss significant early investment opportunities. Consequently, the authors argue that these organizations rushed to compete for the opportunity to invest in startups that were in high demand, with the goal of gaining initial access to businesses they anticipated would become significant worldwide tech pioneers.

The writers contend that this development introduced a new and often reckless dimension to Silicon Valley's fiscal strategies. Investors, who usually concentrated on mature markets, were drawn to companies that showed substantial potential for growth rather than established profitability. The traditional approach of rigorous financial examination was set aside, replaced by a fervent belief in the broad narrative and the potential of an innovative commercial enterprise. The authors highlight that investment funds often prioritized the allure and manner of presentation of the founder over in-depth financial examination, owing to the lack of comprehensive financial information on startups before they become publicly traded companies.

The environment for emerging companies became increasingly complex when the emphasis shifted towards increasing revenue rather than securing profits.

The authors note that the surge of mutual fund capital into venture capital significantly transformed the startup environment, emphasizing scale over short-term earnings in anticipation that this expansion would yield higher profits, particularly for early investors intending to divest their shares eventually. Furthermore, as funding for technology companies surged, the economic logic for these entities evolved, prompting them to sidestep the standard disclosure obligations that are typically enforced for publicly traded companies. Companies in the private sector were under no obligation to reveal detailed financial statements or to show a strategy for profitability in the short term.

Investors relied on private market valuations due to the lack of a public stock price, underscoring the importance of founders who were adept at creating compelling stories and establishing connections with financiers, as noted by the authors. As the number of startups decreased, there was less competition for investment capital, which benefited companies that managed to obtain funding amounts that spanned from substantial sums in the hundreds of millions to in excess of a billion dollars. The book depicts a scenario in which a handful of startup magnates, including Brian Chesky from Airbnb, were revered in a manner reminiscent of a religious cult. Many startups placed a higher emphasis on progressing to the next level of funding rather than creating a sustainable and profitable business model.

Venture capitalists were captivated by Neumann's magnetic charm.

The narrative emphasizes the role of a bold entrepreneur, excessive investor excitement, and a lack of proper supervision in prematurely celebrating Adam Neumann's billionaire status while WeWork was swiftly exhausting billions of dollars from investors without adequate scrutiny from the financiers. Neumann's inherent charisma and persuasive talents enabled him to embody the archetype of a "visionary" founder, an attribute highly prized by investors during the 2010s. WeWork captivated investors by positioning itself as a transformative influence in the real estate industry with a focus on community, which led to the financial weaknesses and escalating operational difficulties being largely ignored.

The authors portray a unique character, crafted by Neumann, who positioned himself as a trailblazer for the millennial generation, drawing investors eager to support innovative ventures that revolutionize conventional industries. Neumann's lavish lifestyle was seen by many investors not as excessive, but rather as a testament to his extraordinary intelligence. Neumann's financial practices, characterized by a heavy dependence on the proceeds from share sales and borrowing from banks, were not rigorously examined as his investors prioritized expansion over managing expenses.

Neumann's grand visions and magnetic charm captivated investors, traits that are often observed in other "visionaries."

The book delves into the complex methods of persuasion employed by Neumann that enthralled a wide array of esteemed international investors, including venture capital entities like Benchmark, mutual funds such as Fidelity, and the Japanese conglomerate SoftBank, led by Son. The authors depict his presentations as both charismatic and compelling, blending heartfelt stories with audacious declarations, indicating that WeWork's impact might reach further than just office spaces and profoundly affect society at large. He persuasively portrayed WeWork as more than a mere real estate venture, but as a trailblazing organization fueled by technological advancements and a purposeful vision, akin to industry behemoths such as Facebook or Uber.

The authors portray Neumann alongside other iconic figures in technology like Elon Musk, presenting him as the epitome of an inspired and unconventional innovator. Investors misinterpreted the company leader's bombastic proclamations and rash decisions as signs of an entrepreneurial visionary instead of seeing them as warning signals. Neumann's compelling storytelling and magnetic allure were instrumental in shifting focus away from WeWork's economic and functional shortcomings, thereby masking the substantial problems within the company and allowing him to amass a fortune that exceeded that of numerous contemporaries who had effectively taken their tech companies public.

Investors in the market felt a strong pressure to quickly fund fast-growing companies like WeWork.

Eliot Brown and Maureen Farrell illustrate that the fervent race for technological funding in the 2010s, particularly when investment capital from mutual funds entered the scene, led investors to prioritize the discovery of prospective investments over the execution of in-depth assessments. The fear of missing out on a success story comparable to that of Facebook frequently eclipsed the importance of basic caution and scrutiny.

The authors contend that conditions were conducive to Neumann's ascent. As WeWork's valuation soared with successive funding rounds, the fear of missing out on the chance grew among investors, prompting them to contribute capital to the company's swift expansion. The story details the keen interest of T. Rowe Price's Henry Ellenbogen and Fidelity's Gavin Baker in WeWork, motivated less by concrete financial logic and more by a mutual feeling of haste. Investors, they argue, were eager to associate themselves with the company’s rapid growth trajectory. The authors argue that the media's often unquestioning support of startup culture not only magnified this perception but also contributed to an environment in which WeWork's questionable business tactics and growing financial losses were overshadowed by narratives of relentless growth and innovation.

Other Perspectives

• The emphasis on founders may overlook the importance of a balanced team and the collective skills necessary for a startup's success.
• Charismatic leadership without sound business fundamentals can lead to overvaluation and unsustainable business practices.
• The focus on narrative over profitability might encourage short-term thinking and speculative investment rather than long-term value creation.
• Mutual funds entering the venture space could lead to increased market volatility and risk, as these funds may not have the same expertise in early-stage company growth.
• The rush by mutual funds to invest in private markets might inflate valuations and create bubbles, as seen in historical market cycles.
• Prioritizing revenue growth over profitability can lead to a lack of financial discipline and potentially contribute to economic inefficiencies.
• The cult of personality around entrepreneurs like Neumann can overshadow due diligence, leading to significant oversight failures.
• The pressure to fund fast-growing companies quickly may result in a lack of thorough vetting and an increase in imprudent investments.

During Neumann's leadership period, WeWork was characterized by fiscal turbulence, an absence of clear strategic planning, and extravagant spending.

WeWork is fundamentally challenged by the complexities of scaling its business model in a profitable manner.

The conversation explores the built-in limitations of WeWork's business model that limited its ability to grow profitably. The company's mounting financial deficits, fueled by significant expenditures on office space leases, construction projects, and employee upkeep, grew more difficult to overcome even as the business rapidly grew. The authors acknowledge the firm's emphasis on cultivating a communal atmosphere in its marketing efforts, yet they argue that this trait did not significantly influence the company's financial results, underscoring that the fundamental business model remained consistent with its predecessor, Regus, involving the acquisition of extended-duration leases on office properties and subsequently leasing them to occupants under more adaptable terms.

The book highlights that, despite Neumann's assertions regarding WeWork's nature as a technology company, it did not undergo the swift growth typically seen in emerging software companies. The authors contend that as the company grew, WeWork's fundamental strategy, which was in essence a real estate speculation tactic, did not succeed in boosting its profit margins. The necessity for WeWork to secure progressively substantial capital infusions stemmed from its dedication to continuous significant investments in high-end properties, growth, and the sustenance of a sizable workforce in proportion to its member count.

The expansion of WeWork made the related expenses stemming from its inefficiencies and lack of economies of scale increasingly evident.

The writers highlight a notable inconsistency in Neumann's stewardship of WeWork: the firm's rapid growth into new urban areas failed to yield substantial economies of scale. Neumann's unyielding drive for growth resulted in the establishment of a global enterprise that, despite its extensive reach covering millions of square feet, was characterized by opulence and inefficiency.

The authors illustrate this event by detailing particular instances, including the acquisition of office furnishings and equipment, as well as the regular launch of new business initiatives that tended to replicate those already in place. The story describes how WeWork amassed an excess of unused couches due to the constant modifications made to cater to the personal preferences of Adam Kimmel. The writers highlight how employees were compelled to exaggerate future growth while minimizing building costs, resulting in mounting financial deficits. The authors argue that WeWork's efforts to consolidate and coordinate different aspects of its operations often faced resistance from regional branches reluctant to cede their independence. Each new layer of management added complexity rather than efficiency.

The firm's primary revenue stream was generated from leasing fees, despite the concept of 'community' having a negligible impact on its financial prosperity.

Brown and Farrell suggest that the company's focus on "community" as a marketing strategy had negligible impact on WeWork's financial success. Neumann and McKelvey strove to cultivate a sense of community and shared purpose within WeWork through intentional design features in their offices, frequent event hosting, and deliberate language in their interactions with investors and staff. The story struck a chord with the primarily millennial customer base, which swiftly identified with the company's persona as showcased by its Instagram activity and promotional efforts.

Brown and Farrell contend that WeWork encountered difficulties in utilizing its emphasis on community to substantially boost its financial earnings. The authors scrutinize a study carried out by WeWork staff in late 2017, designed to assess how successful the company was in fostering a communal spirit. The results were not promising, showing that within the community, more than two-thirds of members failed to establish friendships, and the connections that were made tended to be viewed more as professional rather than personal bonds in the context of the company's environment. The fundamental issue with WeWork's business strategy was its emphasis on the subleasing of office premises. Brown and Farrell present an analysis of established sites, showing that Regus, the predecessor company, had financial results that indicated levels of profitability comparable to WeWork's.

WeWork, unlike its predecessor Regus, which employed similar business models, was swiftly exhausting its financial resources.

Brown and Farrell highlight the similarities in the business approaches of WeWork and Regus, while also pointing out the stark contrasts in their expenditure, waste production, and fiscal achievements. Brown and Farrell highlight Neumann's shortfall in originality by drawing a comparison between the rise of WeWork and the erstwhile supremacy of Regus within the industry of office space services. They both rented buildings from landlords and then subdivided this space to sublease to smaller companies at a premium, adding on amenities like coffee and IT support.

The authors describe the way it aligned with the changing cultural landscape in ways Regus did not, offering both aesthetic and practical advantages that established it as the top choice for major companies like Amazon when they looked into renting entire floors or buildings. WeWork employed a higher number of staff per member compared to Regus, consistently adding extravagant but unnecessary features like fresh fruit water, leading to increased costs rather than enhancing profitability. Regus openly positioned itself as a business focused on the subletting of office premises, instead of presenting itself as a technology-based entity. Brown and Farrell argue that the divergent approaches are chiefly responsible for Regus's success in achieving substantial earnings, unlike WeWork, which faced considerable economic challenges despite being valued at $47 billion in 2019, a figure that sharply contrasts with Regus's valuation of $3 billion.

The firm under Neumann's leadership engaged in decisions that, because they lacked focus and were propelled by an abundance of funding, resulted in extravagant expenditures.

In this section of the narrative, it is detailed that Neumann's lavish spending intensified, propelled by the considerable capital he acquired from backers attracted to WeWork's growth narrative, even as the firm's considerable economic deficiencies stayed hidden. The authors thoroughly describe the manner in which Neumann allocated the company's resources to extravagant office spaces, extravagant retreats, and unrelated investments like a wave pool company, none of which were clearly connected to WeWork's core business activities.

Neumann believed firmly that maintaining the company's reputation as a trailblazer in the industry and bolstering his image as a visionary leader required significant spending to convey an aura of success. The writers highlight the glaring discrepancy between Neumann's professed dedication to communal values and his own opulent way of life, which was notably lavish even by the standards of the most indulgent corporate executives.

The company invested in opulent headquarters, its own aircraft, and supported interests like Wavegarden.

Adam Neumann's growing clout and fame resulted in him channeling a larger portion of WeWork's invested funds into his own ventures and a life characterized by lavish extravagance. The writers delve deeply into this behavior, illustrating his purchase of a $63 million Gulfstream G650 as an example of ultimate opulence. The head of a company that had not yet turned a profit made a striking move by purchasing an opulent estate in California worth $21 million, along with a private plane and several other residences.

Beyond his personal expenditures, Brown and Farrell highlight further examples of Neumann's lavish and impulsive financial decisions, including his funding of Wavegarden, a wave-pool company, which seemed to many to be significantly disconnected from the core business of WeWork. Neumann's penchant for lavish spending, fueled by the impressive market valuation of WeWork, presaged a looming conflict between his drive to establish a revolutionary enterprise and his preference for luxurious lifestyles.

Neumann's inclination to shift focus towards peripheral projects like WeLive and WeGrow, rather than prioritizing the core enterprise, illustrates his distraction from what should have been the primary concern.

This section of the document highlights how Neumann's propensity for launching a multitude of new ventures and side businesses impeded the company's progress towards profitability, despite a rapid rise in revenue. The authors describe how the company's focus shifted to side projects like WeLive, promoting communal living, and WeGrow, an educational program for kids, leading to an intricate corporate framework and increasing investor unease due to the drift from its principal commercial pursuits.

The authors attribute the numerous new initiatives to Neumann's unwavering commitment to innovation and his partner Rebekah's drive to revolutionize traditional institutions like education. The writers point out that Rebekah Neumann was a passionate advocate for the Montessori educational approach and dedicated to nurturing a sense of social awareness in young minds. In New York, the couple, finding no suitable educational institution, commissioned WeWork to build and manage a facility tailored to their requirements. WeGrow, a primary education initiative that was generously funded and located within the company's main offices on Eighteenth Street, was significantly influenced by the whimsical directives and shifting mandates of Rebekah Neumann. Neumann's continuous development of new growth plans stemmed from his belief that WeWork's market value was more reliant on its ability to boost revenue rather than on generating consistent cash flow. The authors contend that WeWork placed a greater emphasis on bolstering its reputation as an innovator, similar to tech companies, rather than focusing on its core business of renting office spaces.

WeWork's proclaimed objectives sharply diverged from its actual expenditures, unveiling a considerable absence of financial discipline.

This section of the examination highlights the significant contrast between WeWork's lavish spending on non-essential projects and Neumann's lifestyle, which stands in opposition to the company's stated commitment to fostering a community centered on enhancing life rather than simply producing profits, an idea often repeated in its marketing content. The depiction of WeWork as a company committed to communal values and the improvement of society was undermined by the disclosure of its growing financial losses and the extravagant spending by Neumann, which shifted public opinion against the company as its financial information became public during its attempted IPO.

Neumann's overt hypocrisy, demonstrated by his push for workforce reductions and fiscal austerity even as he sold off a greater percentage of his stock compared to his contemporaries, ignited significant resistance. The writers highlight the exorbitant condition set by Neumann to receive a $185 million payment from SoftBank as a prerequisite for his resignation from the CEO position. The authors detail how investor doubts intensified as they became aware of the company's precarious financial state. The authors contend that Neumann's actions significantly undermined the trustworthiness of his company, raising questions about whether WeWork was truly a beneficial force in society.

SoftBank's resources were expended on lavish remuneration for non-essential personnel and on opulent expenditures.

The narrative by Brown and Farrell illustrates the period during which Neumann led WeWork, a time when the company directed substantial portions of the multi-billion dollar investment from SoftBank toward exorbitant staff remuneration, ventures with high levels of risk, and acquisitions of dubious worth. The authors detail the unconventional financial management practices at WeWork, highlighting the company's lack of a chief financial officer for a full year and observing that subsequent CFOs often served less than a year, a period throughout which Neumann regularly made financial decisions without consulting a CFO or the company's board.

The narrative of the book illustrates the sequence of impulsive choices made by Neumann and his team of top executives, which resulted in substantial financial setbacks for the firm. The book details how WeWork's technology sector ballooned, growing to encompass more than 1,500 employees, rivaling or surpassing numerous seasoned software companies in size, even though WeWork's core business of leasing office spaces did not clearly require such a sophisticated technological infrastructure. Neumann frequently appointed people from his own circle to roles without considering their extensive business acumen or previous experience. Neumann's ambition to grow and his insistence on labeling WeWork as a tech enterprise rather than a real estate company of moderate scale were key factors in cultivating an environment marked by lavishness and extravagance.

Neumann lived a life of opulence, which sharply differed from his professed dedication to prioritizing the collective benefit over personal wealth.

The authors detail the growing conflict between Neumann's quest for individual riches and recognition, and the stated goal of WeWork to cultivate a lifestyle that goes beyond mere financial success. Neumann took advantage of the company's increasing valuation to amass millions for himself through the sale of shares and large loans, which financed his lavish lifestyle. He advocated for unity and collective backing while personally profiting from the terminology "We."

The authors argue that Neumann's behavior led to an escalating unease among staff, financiers, and observers, thereby eroding trust in the carefully crafted narrative surrounding WeWork. Neumann's preference for luxurious transportation, upscale living spaces, and prestigious schools for his children was in sharp contrast to his publicly professed commitment to community values over personal ambitions. The authors depict this contradiction with a variety of stories, including extravagant corporate celebrations marked by tequila shots and spontaneous employee gatherings that went on well into the night, where Neumann, casually dressed in denim and a simple top, his long hair cascading down his back, passionately conveyed to his youthful employees the significance of dedication and diligence.

Other Perspectives

• WeWork's spending, while extravagant, could be seen as an investment in branding and company culture, which can be a legitimate strategy for a startup aiming to disrupt traditional markets.
• The concept of 'community' might not have had a direct financial impact but could be argued to have long-term value in terms of customer loyalty and brand differentiation.
• Rapid expansion and the lack of economies of scale might be a common challenge in the initial phases of any company aiming for aggressive growth, not just WeWork.
• Comparing WeWork to Regus may not account for the different market conditions and strategic visions that could justify different spending patterns.
• Peripheral projects like WeLive and WeGrow, while not directly related to the core business, could be part of a broader vision to diversify revenue streams and create a more integrated ecosystem of services.
• The absence of financial discipline could be interpreted as a symptom of a broader issue in the venture capital industry, where growth is often prioritized over profitability.
• Neumann's personal lifestyle choices, while seemingly at odds with the company's ethos, may not necessarily reflect the company's values or impact its operational success.
• The use of SoftBank's investment for seemingly non-essential expenditures could be part of a strategic move to attract top talent and take calculated risks, which is often necessary in competitive tech industries.