Guest article by Rod Smith, CEO of Verum CBD
The amazing rise and the even more amazing crash of the uber-startup WeWork, along with the CEO and the man behind it all, Adam Neuman, offers some sobering lessons in the world of high finance, marketing, and customer service. A brief look at the company’s strategy and company culture reveals several major areas where entrepreneurs can take away plans of what NOT to do when their company is on the cusp of international success.
Being generous is one thing . . .
But being profligate with company profits is another. In WeWork’s case, things really started to fall apart two years ago when they sponsored the First Annual WeWork Creator Awards. The first prize was a cash award of one million dollars. That was flashy enough, but Neuman had to hold the award ceremony in the most expensive venue in America — Madison Square Garden. Although the Garden does not normally give out its rental fees to the public, most experts are pretty certain that WeWork paid, and paid through the nose, over a million dollars for one night at the Garden. They could have held the ceremony at any of dozens of other venues where the in-house marketing team would have moved mountains to get them plenty of free publicity. Now that would have been at least semi-reasonable, if the publicity have been crushing — but curiously enough, the WeWork marketing and advertising team didn’t maximize this event on social media, so it slipped through the cracks in newspapers and on radio and TV. But that’s not the real boo-boo here. The most egregious part of the package came after the award was given, when Neuman and his panel of judges decided that the contestants were so brilliant and deserving that a half dozen runners up should be awarded cash prizes of anywhere from twenty-five to fifty-thousand dollars. Just for showing up. It added up to several million more dollars, that had not been budgeted out beforehand. WeWork’s extended credit network began drying up from that point onward.
Contracts, not just daydreams
WeWorks found much initial success with its idea of turning the workplace into a practical utopia where employees were encouraged to be the best they could be in a relaxed and supportive atmosphere. But as the hype grew, the consequent contracts for renovating and renting WeWork-designed work spaces did not keep pace. Neuman and his company, in effect, became the victims of their own success. The more positive feedback that came in, the more the company was willing to take chances on extending their own credit to clients who needed a while to catch up with their other vendors. It’s a common story in business history; promises made in good faith, but eventually defaulted on in the face of cold hard business reality. There is no substitute for that tried and trite cliche: Show Me The Money.
Like the ancient mythological Greek Icarus, Adam Neuman flew too close to the sun with his brilliant ideas and lack of backup planning and sound infrastructure. His fall is a sad lesson to all entrepreneurs.