With his flowing locks and gnomic pronouncement that the “energy of we [is]greater than any one of us, but inside each of us”, Adam Neumann has the air of a prophet. But the co-founder of WeWork, the shared office group, has not converted stock market investors.
WeWork’s decision on Monday to shelve its planned initial public offering, even at a heavily reduced valuation, is a severe setback for the company, as well as its backers SoftBank and SoftBank’s Vision Fund, and visionaries everywhere. Mr Neumann’s authority was tested and has failed.
It is a touchy moment for founders such as Mr Neumann, who convince venture capitalists that technology and a new business model can change the world. Travis Kalanick, Uber’s co-founder, was ousted as chief executive well before its IPO in May and Uber and Lyft have struggled in public markets.
Mr Neumann proclaimed that WeWork was far more than just a property company and that its “mission to elevate the world’s consciousness” merited a much higher valuation than quotidian rivals such as IWG. He is, according to the We Company’s IPO listing, “a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator.”
Max Weber, the sociologist, called charisma the “quality that makes an individual seem extraordinary....by virtue of which supernatural, superhuman or at least exceptional powers”?are attributed to him or her. Mr Neumann charmed his early backers, particularly Masayoshi Son, founder of SoftBank, which along with the Vision Fund invested a total of $10.7bn.
But charisma in business is not god-given, like the charisms (gifts of grace) described by the apostle St Paul, such as speaking in tongues or performing miracles. It relies on other people trusting in the charismatic leader; as soon as they stop believing, it evaporates.
One problem for WeWork was the gulf between Mr Neumann’s lofty corporate pronouncements and how he pursued his personal financial interests. Weber wrote in Economy and Society (1921) that charisma is a calling or mission that “disdains and rejects the economic exploitation of the gift of grace as a source of income”.
Not so Mr Neumann, who not only gained more than $700m by selling and borrowing against WeWork shares but placed his preposterous trademark rights to the word “we” in an investment vehicle and licensed them to WeWork for $5.9m. He returned the money and reduced his voting rights to control the company in an effort to salvage the IPO, but repented too late.
Even if he had been pure as a prophet, he would have faced resistance. The broader difficulty is that venture capital investors such as Mr Son - something of a shaman himself - have been quick to put huge valuations on technology companies with fluent founders, confident that stock markets will follow.
Charismatic leadership has its uses when companies need to be transformed. The original CEOs who broke away from a bureaucratic style to turn into business personalities were chief executives such as Lee Iacocca of Chrysler and Jack Welch of General Electric. They needed personal magnetism to achieve difficult changes.
More recently, leaders such as Jamie Dimon at JPMorgan Chase and Mickey Drexler at first Gap and then J. Crew have turned lagging businesses into stronger brands that attract new customers and command loyalty from investors. In Mr Drexler’s case, the magic later wore off at both retailers, renewing doubts about whether such transformations can endure.
The ultimate charismatic chief executive was Steve Jobs, who turned Apple into one of the world’s biggest companies through technological vision and force of personality. That it remains so under Tim Cook, more the kind of leader Weber called “rational-legal”, shows they sometimes do.
Mr Jobs’ magical capacity to bend an industry to his will is a model for technology founders and investors. Whatever Mr Neumann’s foibles, he is a genuine entrepreneur, who realised that shared workspaces - a dreary experience for many of those forced to work in them before WeWork was founded in 2010 - could be enlivened.
This needed not only a technology platform and design sensibility, but making desk rental feel like membership of a community led by Mr Neumann. A similar conversion has been attempted by John Foley, co-founder and chief executive of Peloton, the digital exercise company. “At Peloton, we believe that better is in all of us,” it promises in its IPO statement.
But when IPO investors scrutinised WeWork, they wanted to know not only if Mr Neumann was trustworthy but that WeWork would outlast him. A charismatic founder attracts venture capital by scaling a start-up into a business. Institutions know that inspiration has to be succeeded by discipline.
WeWork got the balance wrong, from an inflated $47bn valuation when SoftBank bought shares in January to Mr Neumann’s failure to realise quickly enough that he had to reform. WeWork hopes to revive its IPO soon but his charisma is already fading.
John Gapper is a Financial Times columnist