WeWork’s CEO Needs to Realize 90% of Startup Founders Get Fired. Adam Neumann Won’t be the Exception.
In my experience the people best suited to start things are rarely the best suited to finish them. The trick for early stage leaders is knowing when it is time to start looking for a replacement. Almost universally we all wait too long and most of us must be forced out. Objectively Adam Neumann has done an amazing job building WeWork. He has successfully convinced the investment community to invest billions to enable him to build a multi-billion dollar business in a very short period of time. For that he has been handsomely rewarded, having cashed out of WeWork to the tune of $700 million. However, Adam’s performance during the company’s IPO process has convinced Wall Street that he isn’t the right person to lead a public company. The only question is whether Adam will recognize this fact in time to save his company from becoming a footnote in the history of epic Silicon Valley failures. If he fails to step aside his board will no doubt force him out — an effort that has already begun in earnest.
Despite admitting to his team that he had been “humbled” during WeWork’s failed IPO process Adam insists that he “know[s] how to run a public company.” His confidence should be of no surprise to anyone. The sort of person that can build a billion dollar company from nothing isn’t the sort of person that throws in the towel and Adam is no exception. When confronted with the idea of stepping aside for a more seasoned leader Adam bristles. Stepping down or aside is unthinkable as Adam sees it as giving up. In his mind he can’t imagine that running a public company could be harder than what he has already accomplished at WeWork. The irony is that he’s right and wrong. The truth is that ‘building’ and ‘running’ require two completely different skill sets that, I would argue, no single person possesses.
The evidence of Adam’s shortcomings when it comes to running a public company are evident in how he has been running WeWork as a private company. When you’ve got a handful of institutional investors who are giddy about your performance they’ll overlook hijinks like renting a G650 on the company’s dime with a bunch of friends to fly to Israel only to get caught smuggling a cereal box full of illegal drugs. Those same investors may also agree to let you change the name of your company using a trademark you already own to the tune of $6 million. They may also let you borrow against your stock ownership to buy several buildings and have your company rent them back netting you millions. But if you knew how to run a public company you wouldn’t done any of things in the first place as you would have realized they would have looked horrible to public market investors. Adam didn’t know better and that should be evidence enough that he doesn’t know what it takes to run a publicly traded company.
The most interesting thing is that Adam’s investors must have realized that their CEO’s actions would ultimately preclude him from retaining the CEO position during and after the IPO process. What was their plan? It is my understanding that some of them did try to ‘convince’ Adam to step aside before the final S1 was filed. However, given the fact that Adam’s various ‘hijinks’ weren’t widely known they didn’t have the same sort of leverage that Uber’s investors had over Travis Kalanick. Predictably, the negative publicity bomb went off when the final S1 was filed and it was clear that if WeWork wanted to go public with Adam at the helm they’d have to accept a much lower valuation.
The truth is that the public response to Adam’s pre-IPO behavior has been much worse than I could have imagined. Story after story calls WeWork’s business model akin to a ponzi-scheme and Adam a fraudster. Henry Hawksberry’s post on Medium is a good compilation of more than twenty-five criticisms of the company (some founded and others unfounded). Here is one of the nicer tweets about Adam:
At the end of the day Adam has done an amazing job building a multi-billion dollar business, but it is time for him to step aside and find someone who can take the helm and map out a new future for the company. Unfortunately the team he’s assembled are already headed for the door. Adam needs to act fast if there is any hope of salvaging the company he has built. Regardless of whether he steps aside in time, there is no doubt that his board will force him out one way or another.
What Adam may not realize is that if an entrepreneur is lucky enough to be part of the 1% of founders who raise venture capital there is a 90% chance that they’ll be fired within a year — translation: you’re getting fired. When your investors/board wants to fire you two things are often true:
- There is always someone more suited to run your company than you.
- There is a better opportunity waiting just around the corner.
First of all, let me say this right from the start — I am really good at giving advice and very bad at taking advice — much less my own advice. Over the course of my career, I’ve been fired (one way or another) from almost everything I’ve ever been involved with. From my first startup to my last I’ve been terminated, bought-out, promoted, or simply ignored — all of which I see as getting “fired”. In some cases, I took it with grace and in others, I fought it tooth and nail.
When I was “promoted” to chairman of ShopSavvy I fought the decision tooth and nail going so far as suing the company for failing to honor my employment agreement. The reality was that I ran the company for four years — it was time for me to hand the reigns over to someone else. In my final year with the company, our users had doubled to 40 million and our revenues had grown four-fold — that being said I didn’t have a vision for taking us to the next level. Had I used my energy helping to find a replacement instead of fighting to stay in control everyone would have been much better off. My advice:
Begin the process of searching for your replacement BEFORE the board does. Inform the board that you’ve been talking to recruiters and candidates and keep them apprised of the process. Assure them that you’re committed to the position, but that you realize that if/when you are successful it will be time to bring in the “big guns”. Ask them for advice and keep them up-to-date.
When you initiate the “fire the CEO” discussion you take all the fun and intrigue out of the process of replacing you. You’re not getting replaced anytime soon. The truth is that hiring a CEO is a very time consuming and difficult process — it is going to take forever — perhaps a year or longer. There is an outside chance that you’ll find the perfect candidate right away (hire them if you do), but the reality is that you’re going to kiss a lot of frogs before there is consensus on the board. In the meantime, keep running your company and stop worrying about getting fired. When you do find your replacement you’re going to become the CTO or some other meaningless title — your job will be to ensure the new CEO succeeds — do your job.
If your board pops the “we think it is time to start looking for a seasoned CEO” conversation with you before you — you’re getting fired. Instead of fighting the board, get excited. If you play your cards right you’re going to get to keep your ownership in the company, a board seat, and have the freedom and support to start something completely new. Typically, investors want you to focus 100% of your energy on their investment, but when they fire you they want you to disappear and keep quiet. If you’re smart you’ll disappear, keep quiet, and build something new. More often than not your investors will be calling you back in a year or two after their new CEO has faltered — they will falter. If you’re lucky you’ll have built something of value during your hiatus and you’ll be in a position of being able to help.
While I was “in the wilderness” after getting “promoted” from the CEO position to chairman at ShopSavvy I co-founded ViewMarket which is now SB Nation Radio generating millions of dollars in revenue and profit. Given the fact that most startups fail, playing multiple hands is a smart bet. Play as many hands as possible. Most entrepreneurs are good at starting things — embrace this skill and find others to help you finish. One of my good friends was recently fired from her dream job. She was devastated. But almost as soon as the news became public, job offers began rolling in — it turns out she hadn’t been dreaming big enough. Control is just an illusion. Let go. Start something new.
About The Author
Alexander Muse is a serial entrepreneur, author of the StartupMuse, contributor to Forbes and managing partner of Sumo. Check out his podcast on iTunes. You can connect with him on Twitter, Facebook, LinkedIn and Instagram.