When Having Too Much Money Is A Bad Thing
The recent WeWork debacle is an incredible business story that MBA students will be dissecting and analyzing for years to come.
How could a company that was expecting one of the richest, most high profile IPOs of recent times now be on the verge of bankruptcy - in barely a couple of months?
It seemed to have all the ingredients you’d want - a flamboyant founder who would often walk around Manhattan barefoot, a lofty mission about elevating our consciousness, a truly differentiated product offering and marketing buzz that the most storied brands would kill for.
Now, there’s talk of bankruptcy and a possible new beginning to rebuild what many still consider, at its core, to be a solid business: not a company that some of the biggest investment banks said could be valued at between $60-90 Billion, nor the $47 Billion valuation that the IPO was expected to raise, but a real business valued at a far more reasonable $5-6 Billion. (Nothing to sneeze at, by any stretch of the imagination.)
There’s much speculation in the media as to the exact cause - from questions of governance to runaway expenses to hyper growth that wouldn’t/couldn’t be reined in.
But one anecdote in a recent article especially caught my eye. It seems that Adam Neumann, who co-founded the company less than a decade ago, was in the process of building a solid organization at a solid clip. Then one of his investors, SoftBank, put up a massive chunk of cash and basically told him, do what your doing, but 10x it. Do whatever you need to do to scale this vision to not just the next level but well beyond that. And that triggered a spectacular and what many have referred to as un-constrained growth.
The thing is, capital is an amazing lubricant and it allows you - as an entrepreneur and a business executive - to get many things done, quickly and efficiently. You can bring in the best people, finance the right projects, invest in the most optimal assets to drive you towards your objectives. Without it, you’re grinding and working super hard to get where you need to be.
But too much capital is also a problem. It can embed a lack of discipline and the perspective that money can solve all your issues. Sometimes, it lulls you into a sense of complacency, leading you to take your eye off the ball, papering over your problems with glossy assets and ignoring fundamental questions of strategy and good business sense.
In other words, when capital flows like water, there’s a pretty high likelihood that you’re going to drown.
All of which leads us to where WeWork is today. Again, I don’t know if that’s the core issue, nor am I suggesting that SoftBank primed that pump (after all, Masayoshi San is a heck of a better investor than I am!).
But I do think there’s a discipline that bootstrapping or at least constrained capital delivers that sharpens an entrepreneurs senses, focuses everyone on the core of the mission and establishes a sense of urgency towards that agenda.
As an entrepreneur, not having more money than you need to fuel a business isn’t always a bad thing.