Next month the iconic satirical Mad magazine prints its last new issue. The infamous motto of its fictitious mascot, the grinning Alfred E. Neuman, was “What, me worry?” When it comes to WeWork founder Adam Neumann, perhaps a distant cousin, the question should be “What, we worry?”
And there is more and more to worry about, starting with the news this week that Neumann has sold more than $700 million of his ownership pre-IPO, indicating a lack of faith in his own company while he prepares to hawk it to new investors. Surely founders, like other people, have expenses related to family vacations, home upkeep, kids, cars, and college loans. But those minimal lifestyle maintenance costs don’t seem to be the motive here. TechCrunch reported that Neumann has comfortably spent $80 million on his six homes, including his 13,000-square-foot San Francisco crash pad complete with a guitar-shaped room.
This nine-year-old co-working startup has a pumped-up valuation, somehow, of $47 billion. The Wall Street Journal questioned this lush valuation as Neumann tried to distance himself from Uber’s IPO collapse this spring. Eyebrows were raised earlier this year when the Journal questioned a potential conflict of interest, with Neumann earning of millions of dollars as landlord and serving as an owner of many of the buildings that WeWorks leased. This was not fully disclosed to equity investors, the Journal reported.
Research by Noam Wasserman in his book The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, has shown that founder-led companies outperform matched non-founder-led enterprises given their dedication to an insurgent mission and their owner mindset. This is why legendary founders such as Bernard Marcus of The Home Depot, Michael Dell of Dell Technologies, Bill Gates of Microsoft, and others retained their ownership, especially pre-IPO. Contrast that with the founders of Groupon and Zinga, who massively sold out pre-IPO.
So, what could Neumann know that has him worried about his own investment in WeWork? Well, for one thing, they’re losing more than $2 billion a year—that’s $120,000 of losses every hour of every day. WeWork is in 36 countries and is the largest landlord in New York, San Francisco, and Washington D.C. But are those high-cost leases a good thing in a downturn? Its competitor, IWG, formally Regus. was forced into bankruptcy in the 2003 market downturn with a similar model. (Andrew Ross Sorkin of the New York Times has questioned whether WeWork is too big to fail.)
Meanwhile, speaking of similar models—what is unique here? Neumann is hardly Mark Zuckerberg or Elon Musk, who, despite their own larger-than-life personas, do at least have unique, disruptive technologies. Strip away the barn-wood interiors, bean bags, and espresso bars, and Neumann’s empire looks a lot like…a lot of other real estate companies.
New, fast-growing entrants like New York’s Knowtel, Serve Corp of Australia, and Mindspace—not to mention the far more global IWG—are genuine competitive threats. IWG, for example, is in 70 more countries than WeWork, and twice as many cities (250 to WeWork’s 124). Oh, and IWG actually makes money—while also providing a wider array of offerings like serviced offices, virtual offices, meeting rooms.
Yes, Neumann is certainly charismatic, regaling students recently at a college commencement with tales of playboy years “hitting on every girl in the city.” But as he cashes out ahead of his own IPO, many should worry whether WeWorks really works—for anyone beyond its founder.