One year ago, WeWork was soaring as an idealistic company. It was the startup built on the very values that make the word ‘startup’ so appealing. WeWork didn’t just represent a real estate business; it expressed progressive business culture, multi-culturalism, and community.
WeWork is the embodiment of all of the words your social entrepreneur friend unnecessarily puts into every sentence when talking about their latest business venture.
They didn’t only brand themselves this way, but also their service expressed these traits as well. WeWork was about bringing people together to reach their dreams — that was their vision. Throw this vision in with craft beer, big unnecessary whiteboards, bright multi-colored rooms, and you have the dream millennial startup.
While on the other side of the same coin, Fyre Festival also had a unique vision. They wanted to create a new type of music festival — something high-end, exclusive, and life-changing. Billy Mcfarland, the entrepreneur behind Fyre, is quoted in the Netflix documentary, Fyre, the greatest party that never happened in saying,
“Fyre Festival is going to define a generation.”
Both WeWork and Fyre were built up to be these generation-defining ventures. If you need any more proof of how WeWork’s business can successfully tug on heartstrings, watch their 2018 Year in Review — a beautiful montage of dreams coming true through the space WeWork creates. Alternatively, take a look at Fyre’s promotional video to witness the prestige this festival created. The two were untouchable.
However, eventually, the music stopped.
In the past month, WeWork has imploded on itself with the release of its IPO. It turns out while the CEO, Adam Neuman, was so busy attempting to meet his vision of changing the world through his Utopian startup, he forgot he needed to actually turn a profit.
A similar fate had awaited Fyre Festival, while you probably already know the outcome. Fyre Festival became one of the biggest viral failures of our lifetime. Billy was so busy getting investor money and working with influencers, he forgot to install the toilets on the island.
So how do two potentially massive successes go from generation-defining to generational laughing stocks? The failure of these companies lies in their unquestionably strong sales pitch.
By the end of 2014, WeWork had closed it’s Series D round of funding raising over 550 million dollars and bringing in significant investors. WeWork made the tireless and heartless world of startup fundraising look easy, and they were just getting started.
Only two years later, the value of WeWork was valued at roughly 6 billion dollars. There were very few signs of weakness in this organization’s ability to pull in investors. This led up to an investor called Softbank investing 3 billion dollars, making it WeWork’s largest investor.
This stellar track record pushed WeWork CEO Adam Neuman to open the IPO valuation at a staggering 47 billion. This is a considerable amount of money, even for a company with such a robust investing history. Consider now that this valuation comes from a company recorded in losing 4.2 billion dollars from 2016 to the first half of 2019.
Speaking as someone with a business degree, I can tell you; losing 4.2 billion is not good practice.
Fundamentally, WeWork’s business model is flawed. They took enormous loses each year, planning to make money in maturity without taking into account how dependent their business is on a strong economy. Look no further than the co-working space Regus, that filed for bankruptcy after the financial crisis of 2001–2002 for proof of the business model’s issues.
Speaking of flawed business models, Fyre Festival sold tickets between 5,000 and 100,000 dollars promising villas to the premium ticket holders, before anything had even been built. Similar to WeWork, Fyre also had major investors support in their idea, with these issues being written on the wall. They took an impossible idea, hosting a festival on an island, with no infrastructure to support it, and tried to plan the entire thing within a couple of months.
For Fyre, everyone looking into the curtain either was too invested or quit outright, and the festival ended up eating up millions of dollars, while not paying out salaries. The entire event was riddled with red flags from the moment where the promotional video stopped.
So, when you look at the logistics behind the groups, they were not as generation-defining as they claimed. Or at least, not in the way they would have hoped.
WeWork was bleeding cash, and Fyre had no realistic infrastructure to hold any semblance of a festival. What’s phenomenal is how little you needed to look to know the truth about these companies. Yet investors still repeatedly financed them. It didn’t matter how successful the business was, all that mattered was how big they could make themselves appear.
Whether you’re deceiving a group of wealthy tech investors or a crowd of luxurious Instagram influencers, the idea is always the same.
It’s all in the sales pitch, and to be a good salesperson, you have to truly believe in what you’re selling.
Adam Neuman and Billy Mcfarland shared the trait of wanting to change the world. Both believed that their vision would work out, no matter the situation. Whether it’s over-confidence, privilege, stupidity, or all of the above, these guys sold the hell out of terrible ideas.
They both could make you believe you were part of something bigger, something that wasn’t going to need to sweat the small stuff because it didn’t affect their overall vision.
When you’re selling a vision and changing the world with millions of dollars in support, suddenly the rules of business don’t apply. Common business problems now have two ways to be fixed. You can either change major aspects of how your business will run to adjust to the problem, or you can throw money earned from investors at it, in the hopes it will go away. For these companies, because of their ability to sell their idea, the ladder was almost always the road traveled.
We live in an age where if you can sell your idea, your business model is irrelevant and your festival logistics are trivial. If you can have money continue to pour in through investing, who cares if you’re losing cash hand over fist? We don’t just see this with Fyre Festival and WeWork. Uber recently was reported in losing 3.04 billion this year — yet its IPO valuation was again, far higher than it should have been.
When it comes down to it, these startups are fueled by necessary ignorance. If any of them stopped on their destructive, chaotic track, they would diminish. So the solution is to then simply not stop. They kept fueling themselves with more investor cash long enough to convince them they could do no wrong, that their idea had to be the generation-defining experience they wanted.
In sum, the sales pitch has no longer become the means in which to reach the vision of the company. Instead, the sales pitch has become the company while everything else is, evidently, secondary.