Chapter 1
A Tale of Three Companies

Putting your time, sweat, and money into a new venture always comes with risk. When a company clicks and you find yourself in that moment when a startup becomes a scale-up, or when a scale-up achieves truly sustainable, profitable growth, it can feel like more than just a bet that paid off. It can feel like magic. In that spirit, this chapter recounts three astounding fables, fairytales of the business world, that illustrate the fundamental truth about profitable growth.

Unfortunately for the subjects of these stories, these are not happily-ever-after stories. Collectively, these businesses lost more than $50 billion and they left thousands upon thousands unemployed.

Yet the stories those founders told to investors and their excited armies of recruits were extremely convincing. Listening to the founding teams describe their vision and the opportunity ahead, you would have heard arguments delivered with passion, been shown evidence of success in the market, and been walked through numbers that seemed to make sense.

Would you have spotted the fatal flaw in each company? And let's reverse the roles for a second. Say it was your business, with your name on the cover of the pitch deck. Imagine that it was your startup or scale-up headed toward disaster. Is there a single factor that, if identified and addressed, would have saved your company?

We believe there is. And it's surprisingly simple.

That single factor is this: Many leaders try to grow with what we term a "single-engine strategy." They found one source of power for their company and leaned in hard.

In this chapter, we see how this approach plays out. We consider three companies that exemplify single-engine thinking. By examining how each one took flight and ultimately fell to earth, we believe the "fatal flaw" in this approach-both its seductive promise and its fundamental problems-will become clear.

The First Fable: Acquisition at All Costs!

At almost the exact midpoint of the real estate-driven disaster economists call the Great Recession, two New Yorkers in their 20s, Adam and Miguel, had a meeting with their landlord about a lease.

They were both entrepreneurs, but they had never worked with each other before. On the surface, they were very different from one another. Miguel, a college graduate, founded an online language-instruction company that employed 25 people before he moved on. Adam, a college drop-out, had started a line of padded baby outfits that he originally called "Krawlers" (later "Egg Baby") and employed no one at all.

But after the two met at a party, they discovered a shared passion: creating a community. What they wanted from their landlord was permission to lease a vacant warehouse on Water Street, where they planned to provide a communal working space for young entrepreneurs like themselves. The name for their new venture would be Green Desk.

The idea was a hit. The warehouse became an office space. The office space was filled with thriving, young businesses. Other warehouse locations were interested, and the sky seemed the limit. And yet, this story ends with the two men losing $47 billion.

If you think you know everything about WeWork, the company Adam Neumann and Miguel McKelvey built out of their stake in Green Desk, you are not alone. When you lose that kind of money, it is bound to draw attention. Books have been written and movies have been made.

Yet the question of exactly why the business failed is still a subject of debate. Some claim that their business model was unviable. However, its fundamentals are no different from those of IWG plc, the well-regarded owner of brands such as Regus and Spaces. IWG is in its fourth decade of continuous operation and generated nearly £3 billion in revenue last period. Others will point to Neumann's shocking acts of self-dealing, some of which border on the comical: that he gave relatives high-paid jobs with titles like Chief Nurturer; that he made personal use of the company's $60 million Gulfstream G650 private jet; that he forced WeWork to give him zero-interest loans so that he could personally invest in property-and that he leased those same buildings back to the company. Yet in aggregate, these amounted to a fraction of 1% of the company's enterprise value. Deplorable? Yes. Capable of sinking a business worth nearly $50 billion? It does not seem likely.

We have an explanation that is both simple and supported by data: When your "single engine" of growth is adding new customers, at any cost, eventually you will run out of fuel.

Consider the facts: In 2010, WeWork occupied a single building. In 2015, it took on 50 locations; by 2017, it was 300, and two years later, 850. The company projected that in the next year, it would have 745,000 tenants. This is a shocking rate of expansion. In one target city, Seattle, there literally wasn't enough vacant office space to satisfy WeWork's goals.

To fuel his engine, which was sputtering under the strain, Neumann burned cash. He was already providing many tenants free beer, bottomless coffee, and complimentary Wi-Fi. What if he began handing out rent money as well?

And so, in many geographies, the company began paying tenants to occupy WeWork's own offices. This was not just a free taste. These were actual pinch-me-I-can't-believe-it deals that often spanned a year or more.

Yet there was a limit to the number of companies that needed office space, even if it was free. In 2017, an analyst showed that there weren't enough startups in existence to occupy all the real estate WeWork had taken on. But Neumann had an answer for this, too, proclaiming that the business had outgrown the confines of both its customer base and its name.

Shedding its skin, WeWork would now be "The We Company"-and its new market was, in a word, everyone. Fit adults would love the boxing, yoga, and mineral pools at Rise by We. Lonely adults would find companionship in the dorm-inspired living spaces at WeLive. Young children could enroll in Montessori schools called WeGrow, and older kids could matriculate at "college alternative" MissonU.

The music stopped during the leadup to the company's 2019 initial public offering. Among other things, the company's prospectus revealed that the firm had $4 billion of revenue against $47 billion in committed debt. Worth nearly $50 billion in January, the company's enterprise value would drop to $10 billion by October, the month it was scheduled to have its public debut. And this was before COVID-19; shares dropped from $527 in 2021 to 84 cents two years later, just before the company filed for bankruptcy.1

This was not the end of WeWork. The company tried to rebound under new management. But it was the end for Adam and Miguel. Neumann was forced out in the autumn of 2019, shortly after the company's prospectus revealed his unsustainable plans. McKelvey followed the year after. Neumann once said, in essence, that if you reach for the stars, "the money tends to follow." Reality requires more of a plan.

The Second Fable: Monetization Is Everything!

Another type of business that is flirting with trouble is one that makes a different mistake. Rather than pursuing customer acquisition exclusively as WeWork did, this sort of company focuses purely on building wallet share, monetizing the customers it has. Its dreams are all about how to charge customers as much as possible. It's another single-engine strategy that can be just as deadly.

To see what this looks like in motion, consider entrepreneur and vegan health enthusiast Doug Evans. He had found success in the extremely difficult and cutthroat area of retail food sales, starting the chain Organic Avenue in 2002. A decade in, he was ready for his next challenge. In 2013, he launched a company built around a single product and related services. The product was the Juicero Press, a Wi-Fi-connected device that would squeeze presliced servings of fruits and vegetables-purchased in packets also sold by the Juicero company-to make drinks that were supposed to be delicious and nutritious. The device was designed by "celebrity designer" Yves Béhar and was supposed to exert an impressive 4 tons of force during the squeezing process, thereby extracting the maximum amount of tasty goodness from the produce. Evans boasted that the power of the Juicero was "enough to lift two Teslas," and he compared his own obsession with producing quality juice drinks to Steve Jobs's obsession with the design of Apple computers.

As for the related services-well, those were less clear. Juicero's internet connection was supposedly designed to allow the machine to read the QR codes on the fruit and vegetable packets to make sure the produce hadn't passed its freshness date. Perhaps a secondary purpose was to make sure that the San Francisco-based company was viewed by investors and others in the business world as being a high-tech startup.

Juicero got off to a promising start. Doug Evans promised investors that he would be able to sell not just the juice-making machine but also delivery subscriptions for packets of fruits and vegetables. The idea was that...