The (Real) Genius of Adam Neumann and a16z
To some people, Adam Neumann is a freak, a scammer - or even worse.
The empire which he built at WeWork turned out to have serious financial, cultural and other problems which were exacerbated by an overabundance of easy capital from the likes of SoftBank and by the rapid growth which that capital bought.
All the gory details of Neumann and WeWork have been well-documented.
But now Adam Neumann is back.
And because his startup - called Flow - has a kooky-sounding name and because it focuses on real estate - and perhaps most of all, because he just collected $350 million in initial capital from Andreessen Horowitz, the world definitely knows that Neumann is a freaky scammer.
Right?
Not so fast…
Some things about Neumann were, and still are, particularly “unique”. His physical appearance is one of them. This is not to say that he looks greatly different than other Silicon Valley founders, but his outward “look” combined with inner “feel” made him into a magnetic figure on the order of a modern-day Messiah. Neumann played that role to perfection with grand visions for reinventing the commercial property market.
He very nearly succeeded.
WeWork did not continue its meteoric rise and did not break a $50 billion valuation, but it did manage to do something almost as significant: it defined a category.
Much like Google, Facebook, Airbnb and other (now) iconic startups-turned-household names, people began to speak of office-space in terms which directly reflected the company and brand narrative of WeWork.
When startup founders were ready to kick off their ventures or when two of them traveled to another city for a business meeting, would simply “get a WeWork”. The term became ubiquitous and natural. Just like people today talk about “ubering it from the airport” or “grabing a coke” at the store, people talked about their offices using one brand name and one alone: WeWork.
Neumann’s downfall, of course, was a combination of over-the-top hubris, too much money at once - and, most importantly, a business model that could only work in up-markets. Being locked into long-term leases for commercial real-estate while WeWork occupants had full and free flexibility from day to day made for some unique business difficulties. Demand flow eventually cooled and WeWork was left on the wrong side of the ledger.
But now Neumann is back - with the “backing” (pun absolutely intended) of Andreessen Horowitz.
Are they stupid, crazy - or worse…?
In this instance, it is worth considering if both Neumann and a16z don’t have another level of genius that has gotten lost in the outcry of the outsized check that Flow just received.
Because - while it is easy to criticise both sides (and there has been plenty of criticism lately) - there is a deeper truth, a more enduring thread that helps explain both the attitude and ability of Silicon Valley VCs and visionary entrepreneurs like Adam Neumann.
This is the experience economy.
It’s all about the experience, stupid
There is an under-appreciated aspect to the cross-over between the physical and technical world of startups.
This is the “experience economy.”
Let us consider a few examples:
Uber
Much has been made of the business model of Uber. As a company offering on-demand rides from Point A to Point B it owns no cars, has no overhead costs, no high-intensive fleet management.
But the forgotten element in Uber’s story is that - at its heart - Uber was about experience. An on-demand application allowed ordinary users to get a ride, much as a higher net-worth individual might have done with a taxi, whenever and wherever they may wish.
This is an experience upgrade.
Airbnb
Much like Uber, technology enabled travellers to get access to cool lodgings in interesting locations - whenever and wherever desired.
On the other side of the platform set-up, renters of Airbnb locations could quickly and easily transform themselves into “hoteliers” without the extra overhead of property development and maintanance.
That is a superior “experience” - par excellence.
WeWork
Now we come the major company in question.
How did WeWork capitalize on the “experience economy”?
It developed a technical platform that reduced friction, allowed major flexibility and built (or attempted to build) economies-of-scale into the commercial, business real-estate market.
For new and growing companies this was an experience that had never been offered before.
The sum and substance of this analysis is that “experience” has played a major part in the rise of some of the most prominent companies of the last decade.
This experience was aided by technology - and in particular the application revolution that made anything and everything available with 1-2 clicks on a smartphone.
Of course, this movement was enhanced and driven by companies like Apple and Google, who made it extremely easy to access information and do “just about everything” within an application on the mobile phone.
In this sense, we can see Apple as the “grandaddy” of the experience economy.
Experience going forward
In light of this anecdotal evidence, it makes perfect sense that Andreessen Horowitz has decided to put such a major amount of funding into Adam Neumann’s new startup.
Why?
Because he - of all people - knows how to combine the advantages of technology with the physical world - and build superior experiences for consumers.
Yes - the financials must be scrutinised. Yes, the business model of Flow must be judged based on the (mostly failed) experience of WeWork.
But there is a wider movement at work and a16z would be stupid not to try and take advantage of it.
There is one more - very significant - aspect of experience that plays into the current story of Neumann and a16z.
As one of the premiere venture capital firms in Silicon Valley, Andreessen Horowitz has an obligation to its Limited Partners (LPs). As such, it also has a distinct interest in deploying their capital in the most efficient way possible.
What does this mean?
An investment firm is also conscious of the effects of “experience” in its own business set-up. This begs the question - which is easier:
To deploy 35 $10 million checks to a wide variety of entrepreneurs with a wide range of business ideas?
To deploy 1 $350 million check to a 2nd-time founder with a high public profile which may generate massive interest and potentially a great amount of follow-on investment interest?
The answer is quite clear - option 2.
For this reason - both Adam Neumann and Andreessen Horowitz are geniuses for what they are doing now - together.