Adam Neumann, the Co-founder of We Co, and the CEO of WeWork, was once found quoting to the press: “I want to elevate the world’s consciousness”. This idealism combined with Wall Street type ambition has now forced Neumann to step down as the CEO of the office sharing startup, after a lengthy conversation with the board on Tuesday.
Over the last month, WeWork has been struggling to keep its valuation story alive, which was slashed to half last month, and there were rumours that it may not go ahead with its IPO.
And on Tuesday, Neumann stepped down after facing increasing scrutiny in the recent weeks. This begs the question, in the long run, does everything turn out smoothly for a startup, which is growing so rapidly?
“The founders can take a company to a certain level. In the end, it is the Board that decides the outcome of the CEO or founder’s performance. In most cases, the board gets it right,” says Raju Reddy, Co-founder of FalconX in San Jose, who sold one of his IT firms, Sierra Atlantic, to Hitachi in 2010.
And history is ripe with such examples.
Steve Jobs was ousted by the Apple Board in 1985 over a power struggle with CEO John Sculley over product strategy. Ride sharing platform Uber also ousted its CEO and Co-founder Travis Kalanick over allegations of misconduct in the workplace.
Zenefits, another startup which was valued at billions of dollars, went through a struggle where the founders were ousted due to negligence in compliance while selling their HR product, and a new management was brought in to run the company. This is all too common when a CEO of the company is removed because of a tussle with the Board, performance pressure, or over the direction.
Vishal Sikka, the former CEO of Infosys, also resigned because of expectations from the founders to run the company in an IT Services direction instead of a product and platform mindset.
We have also seen SoftBank removing the founders of Housing.com in India. So, with Neumann, the writing was on the wall because reports state that Masayoshi Son, the Founder of SoftBank, which has invested nearly $50 billion in WeWork, did not want him to continue as the CEO.
“Founders are stars and they should have the space to operate and think, because that’s what makes the company. If anyone tries to reign in the freedom, it can prove detrimental for the business. But after the business gets to a stage, there is some amount of discipline that is expected, especially when you are planning to make the public co-owners of the company. In case of Neumann, he should have been reigned in a bit earlier. The investors had a board seat, the paperwork was being prepared for the public issue, and I am sure they were aware of what was happening,” says Sathya Pramod, Co-founder of Inflection Point Ventures.
He adds that it is a thin line as to when the investor gets in and pushes, but when there are so many signals available, there should at least be a conversation on what’s happening, and if there could be corrections made.
“I am all for the founder running his business, but if the maturity of running an organisation does not manifest, the investor does his best in trying to protect his capital. There have been multiple occasions in large companies where the founder has stepped aside to let the company to be run better,” says Sathya.
But who really runs the company at the top? “It is always the PE or the funds,” says a source, who requested anonymity. That’s what Neumann finally found out - the going is good as long as the valuation is soaring. Neumann, sources say, has lost SoftBank’s support, its biggest supporter, and the fall in valuation of WeWork directly impacted SoftBank’s Vision Fund.
WeWork was valued at $47 billion in the private market, and its collapse to less than half of that private valuation would directly impact SoftBank. Now, it is WeWork’s parent We Co, which is dragging the company down.
Investors have started questioning the burn of these new-age tech companies for their high burn, after the stock prices of Uber and Slack collapsed by 30 percent over the last month. Questions began to be raised about why one must pay such high valuations for companies that don’t generate money, and burn cash instead. Combine this with Neumann’s jet-set lifestyle, which caught on to him as well.
“Investors like exit, period. Sometimes, the founders get carried away with their unicornisation status that they miss the end game until it is too late. Time and again, we have seen that one may be the darling of the investors, but if you mess with the investors’ exit, they will turn every stone to ratify the damage,” says Amit Jain, Founder, Z Nation Lab, who has invested in over 35 companies including 16 Y Combinator startups based in Silicon Valley.
At Wall Street, money follows those who can make money, and in the end, companies are made to run with or without founders after scale has been achieved.
Even in India, Sachin and Binny Bansal, Co-founders, Flipkart, quit after the e-commerce major was acquired by Walmart. This shows that managing the perception of the investors becomes the key for founders.
“When business reaches a stage, someone who has the ability to execute should become the CEO, and founders should take lead and manage the future of the company,” says Ankur Garg, Founder of Hotify, who sold his company to Sonasoft for a multi-million dollar deal in the Valley.
Neumann’s successor is yet to be named. WeWork has raised a total of $12.5 billion in 14 rounds in primary, secondary, and debt financing, a third of which is owned by SoftBank.
(Edited by Megha Reddy)