Happy hour started when you got to work – and never stopped...
When Adam Neumann co-founded coworking business WeWork (WE) in 2010, he had a vision.
Neumann, an Israeli-American businessman and entrepreneur, wanted to create a sustainable space for freelancers and startup employees to work. He wanted it to be as high-tech as possible. And someday, he wanted to put a WeWork on Mars.
The company became known for its bells-and-whistles services and fun tech-firm atmosphere. It offered free beer on tap and foosball tables. It later added yoga and kickboxing classes to the mix.
While it was still a private company, WeWork managed to reach tech-like valuations. It was worth $47 billion before it tried to go public in August 2019.
That's when everything fell apart...
Renters still priced WeWork's offices like similar fractionalized office space. The world had plenty of private options for renting temporary and flexible space... like British company IWG (IWG.L), formerly known as Regus.
Then, questions arose about Neumann's business dealings and behavior. Between that and the competition, the rosy vision and accompanying valuations just didn't last long.
By October 2019, would-be rescuer Softbank valued WeWork at $4.9 billion. And when the company finally went public two years later, it had only managed to claw its way back to a $9 billion valuation. That didn't last long, either. WeWork's market cap is only about $674 million today.
At the end of the day, WeWork failed to address otherwise-unmet customer needs. If you've ever visited a WeWork space, it's easy see that the firm couldn't let go of its environment... its social offerings... and its own vision.
Neumann and his followers fell in love with the solution, not the problem. It led to disaster for later-stage investors. Today, I'll discuss how to identify other potential WeWorks in the making... and where to put your money instead.
The world of venture capital ('VC') has been turned on its head...
For decades, VC funds had access to cheap debt. That has changed lately, thanks to overinvestment, rising interest rates, and now the collapse of Silicon Valley Bank.
While WeWork is one of the most famous tech busts in recent memory, it won't be the last. Today's tricky environment means investors have to be more careful than ever about where they put their money.
This is a great time to remind yourself that at the core of both VC and investing is the entrepreneurial mindset of solving customers' problems.
At the end of the day, WeWork failed because it was a business of excess. It wasn't actually fixing issues in a way that set it apart from other established companies. And investors just wouldn't pay for all those extras... no matter how much beer and yoga it offered.
On the other hand, Israeli tech "unicorn" Waze is a prime example of the right way to run a startup. The company has some of the best GPS technology on Earth. It uses the same map data as the big guys, like Google parent Alphabet (GOOGL) and Apple (AAPL).
And it does even more. It uses real-time data and crowdsourced information to guide people on traffic avoidance, speed traps, road closures, and hazards.
The team behind Waze has fallen in love with the problems of modern navigation. It's constantly coming up with new and better services for users.
And that's no surprise, considering co-founder Uri Levine is most often credited with the quote, "Fall in love with the problem, not the solution." He even has it on a T-shirt... and it's the title of the book he released earlier this year.
Apple is another great example of a venture-backed company that did the opposite of WeWork. Founder Steve Jobs was solving problems people didn't even realize they had.
Jobs liked to say that computers were like "a bicycle for our minds." What sets humans apart from the rest of the animal kingdom is our ability to build tools. The invention of the bicycle allowed us to move more efficiently than any other species... and computers do the same for our ability to process information.
Since then, Apple has solved problem after problem after problem. The iPod digitized music, putting thousands of songs at our fingertips. The iPhone lets us take tiny computers on the go. And the iPad combined the convenience and portability of an iPhone with the power of a full-sized computer.
Jobs fell in love with the problems we faced in everyday life. Some of the world's most innovative solutions followed. Few people's legacies have come anywhere close to his.
The most successful entrepreneurial firms are either acquired or eventually go public...
And those IPOs become some of the best, most innovative stocks to own for the long run.
Early investors in Apple know this better than almost anyone. Apple stock is up a split-adjusted 157,000% since its initial public offering ("IPO").
However, it's tough to tell the difference between a successful startup and one that's destined for failure. One of the best ways is to listen to how the founders and head honchos speak about their companies.
There'll be those who explain how their companies solve a problem... and others who talk about how good their product is.
Both can sound good on the surface. That's how WeWork managed to swing a $47 billion valuation. It takes practice... The more presentations you listen to, the more you can tell the difference between a WeWork and a Waze.
And if you stick with investing in problem-focused startups, you have a better chance of investing success.
Wishing you love, joy, and peace,
March 24, 2023