Site Under Construction 🚧

Some links might be broken and some of the formatting off, but I promise it will be worth the pain.

2021-04-11

4. Always Say Enough:

Ask more than necessary


The fourth law of power is to "always say less than necessary." Everything you say is an opportunity for criticism, so saying less prevents attack. It also gives you more room to maneuver when the situation changes. And you maintain an aura of alluring mystery.

The fourth law of cooperation is to "always say enough," and "to ask more than you think necessary." Everything you say is an opportunity for miscommunication, so saying more prevents misunderstanding. We always underestimate how clear we come across, so it's better to be safe than sorry and speak abundantly.

Transgression of the law

In 2010, Adam Neumann co-founded WeWork with his business partner Miguel McKelvey. Their new idea was to rent office space from landlords in bulk, divide it into smaller pieces, and sublease for profit.

But that wasn't really their "new" idea. The idea of coworking already existed. There were well-established competitors like Regus (est. 1989), the Cambridge Innovation Center (1999), and The Office Group (2004). Granted: WeWork may have been the first "pretty" coworking space, but that's hardly patentable. This was a problem because—if you recall Peter Thiel's lesson from the last chapter—a company's primary need is to be inimitable.

If WeWork's unique value proposition wasn't in coworking, it certainly wasn't in real estate. After the Great Recession (caused by real-estate speculation), you weren't going to convince any investors that you could scrape more than the thinnest of margins off of mortar and brick.

No, the new idea of WeWork was to build the first "physical social network" (yes, seriously). To offer coworking space that would fulfill not only the carnal needs—plants, wifi, standing desks—but those higher wants—"community," yoga, and craft beer.

Simple as that idea was, it would rocket WeWork to a $47 billion valuation, to spin-offs in coliving, gyms, and private schools, and to acquisitions in construction, marketing, and food.

Empty as that idea was, it would crash WeWork into the dust. The $47 billion valuation introduced intense pressure to grow, and Neumann became tyrannical. He would berate and ostracize any critic. Burning through cash, Neumann bought a company jet, threw Gatsby-esque parties, and made outlandish investments in unrelated companies like a wave-generating start-up for surfing. The perhaps most telling example is the simplest. Neumann had mixed-up the definitions of "latte" and "cappuccino." Rather than correct him, WeWork swapped their internal definitions of "latte" and "cappuccino."

When the waste and losses came to light in WeWork's S-1 paperwork in 2019 (as part of its IPO filing), the tides turned. In the space of six weeks, WeWork crashed from its peak to a valuation of "only" 9billion.Helostinvestorsbillionsandcostthousandsofemployeestheirjobs.And,intheend,hewalkedawaywithalmost9 billion. He lost investors billions and cost thousands of employees their jobs. And, in the end, he walked away with almost 2 billion...

Interpretation

WeWork crumbled because in saying too little Neumann promised too much.

The idea of pretty coworking space is not a particularly special idea. Anyone can copy it. Because anyone can copy it, others will, and your profit margins will evaporate. And because there is so much real estate, you could never achieve a situation of "winner-take-all."

And the idea of coworking space plus "community" and "culture" is not an idea. It is vague psychotechnobabble at best and cultish at worst. Let me give an example:

"Real estate is going through a fundamental shift, from a fixed-cost-per-seat commodity to a must-have experiential-differentiated service." — Adam Neumann

Let's translate that: middlemen ("service") will make lots of money if they can convince you to buy their bells and whistles ("experiential-differentiated"). To do that, they have to convince you these luxuries are essential ("must-have"). And when these luxuries become the norm, they can begin rent-seeking (cf. "fixed-cost-per-seat").1

To hide the aim of rent-seeking from clients, your best weapon is jargon and outright nonsense. Promise investors that you're like Amazon in the books-and-CDs phase. Don't commit to anything.

Neumann is unique because he blends the trite mumbo jumbo of the spiritual guru ("community," "we") with the obscurity of business speak ("experiential-differentiated service", "physical social network") . To this, he adds a lethal dose of charisma for a brew so potent it took only 12 minutes to dupe SoftBank's Masayoshi Son into a $4.4 billion investment. If only Son had probed past the veneer and looked for real content: How much money were they making (losing)? What is the conceivable take rate on a square foot of real estate? How does this take rate scale with the amount you invest in furniture, plants, beer? What are the returns on "community?"

Of course, Neumann could have (and would have) retorted, "we're trying to look past profits. We want to build something for humans not only investors." And, you know what, that answer might have even deserved praise. But if you don't ground those higher aspirations in a sustainable business model, you will one day crumble. Such is nature.

In some ways you can read Neumann's tale as validation to say "less than necessary." Evidently, this strategy works well enough to trick laypeople and seasoned investors alike. But, as with any con, time will call your bluff. Avoid the platitudes of the guru. Spurn the nonsense of the businessman.

For more on WeWork and Neumann, I recommend Hulu's documentary, WeWork: Or the Making and Breaking of a $47 Billion Unicorn.

🚀 Challenger Disaster

On January 28th, 1986, the space shuttle Challenger blew up shortly after takeoff, killing all seven crew members. In the aftermath, NASA set up the Rogers Commission to determine the cause. This commission would, by stroke of luck, include legendary physicist Richard Feynman. He was reluctant at first: there was physics to do, and Feynman doubted he was the right fit. Fortunately for the commission, Feynman came to his senses. Even as an outsider to aviation, he did have something unique to offer: the ability to ask questions—lots and lots of questions. This came from Feynman's complete lack of shame in admitting he didn't know something. For example, his first briefing at NASA's Jet Propulsion Laboratory "wasn't brief: it was very intense, very fast, and very complete. It's the only way I know to get technical information quickly . . . you ask a lot of questions, you get quick answers . . . and learn just what to ask to get the next piece of information you need." Take a pointer from Feynman and be willing to be the idiot in the room.