Silicon Valley is as much about showbiz as about anything else. Just think of Elon Musk, Mark Zuckerberg and Steve Jobs, all entrepreneurs who went on to become icons – and court controversy. The Valley is synonymous with huge successes and even bigger personalities, and it is always on the lookout for the next big thing: SpaceX, WhatsApp, Tesla, PayPal. All of these companies have changed us and our concept of what is possible.
But not all stories end well. The failures are as spectacular as the successes. Take Elizabeth Holmes, for example, the founder of health start-up Theranos. Her ambition was to develop a revolutionary blood test and she was already being touted as the ‘female Steve Jobs’, running a company valued at US$ 9 billion –until it came to light that the test did not work and that the financial data had been forged on a grand scale. Her trial for fraud is set to begin in mid-2020.
A more recent example is Adam Neumann, founder of WeWork, the global market leader in co-working spaces. His company has led the ‘new work’ trend by building and renting out flexible, modern office space where co-working and other innovative forms of working have become the gold standard. WeWork, founded in New York in 2010, is all about free coffee, a vibrant community and a new approach to work – Silicon Valley’s hip lifestyle made available around the world. The planned IPO in mid-2019 with a valuation of US$ 47 billion was meant to be the crowning glory of this success story.
But that’s not how it turned out. WeWork’s IPO required a closer look at the company’s finances. And it quickly became clear that the only way WeWork could burn money any quicker would be to set banks on fire. Despite revenues of US$ 2 billion in 2018, it managed to make a loss of US$ 1.6 billion. The full scale of the mismanagement was revealed, the IPO was postponed, the largest investor – Softbank in Japan – had to inject billions and take over the company, and thousands of the company’s employees were made redundant. So too was its unconventional founder, Adam Neumann, but his departure was sweetened by a US$ 1.7 billion severance package.
The final example is Uber. Hailed as the ‘future of personal transport’, the company’s market price has only gone one way since its launch: down. In the third quarter, the transport services provider posted losses of no less than US$ 5 billion. Not exactly an investor’s dream.
Are these stories dampening the Valley’s entrepreneurial spirit? There is no doubt that they are a cause for concern, both for employees and for investors, who could face billion-dollar losses. But these same investors had already invested billions in ideas whose end result – their marketability – they could only roughly estimate. “I said from the start that WeWork was never going to work” – the chorus of voices in Germany and the Valley making this claim is growing ever louder. Yet while it is correct to say it has not worked out, could anyone have known that for certain? That is a question that people will have to answer for themselves. Who would have thought that Google would become one of the world’s largest companies, or that Netflix would dethrone cable TV? There are plenty of crazy stories that prove that the impossible is possible. Just as Einstein said: “Everyone knew it was impossible, until a fool who didn’t know came along and did it.”
This willingness to take risks is one of the key differences between Germany and Silicon Valley. According to Saeed Amidi, CEO of Plug and Play, German entrepreneurs are more easily satisfied when it comes to their company’s valuation. In Silicon Valley, everyone dreams of billions – and if you fly too high, you risk burning your wings. But at what point does your place in the sun get too hot? That is a difficult question to answer. The spirit of Silicon Valley is the willingness to take risks.