Sharing my learnings from the book, The Cult of We by Eliot Brown & Maureen Farrell
The Cult of We by Eliot Brown & Maureen Farrell
WeWork would be worth $10 trillion, more than any other company in the world. It wasn’t just an office space provider. It was a tech company—an AI startup, even. Its WeGrow schools and WeLive residences would revolutionize education and housing. One day, mused founder Adam Neumann, a Middle East peace accord would be signed in a WeWork. The company might help colonize Mars. And Neumann would become the world’s first trillionaire.
This was the vision of Neumann and his primary cheerleader, SoftBank’s Masayoshi Son. In hindsight, their ambition for the company, whose primary business was subletting desks in slickly designed offices, seems like madness. Why did so many intelligent people—from venture capitalists to Wall Street elite—fall for the hype? And how did WeWork go so wrong?
In little more than a decade, Neumann transformed himself from a struggling baby clothes salesman into the charismatic, hard-partying CEO of a company worth $47 billion—on paper. With his long hair and feel-good mantras, the six-foot-five Israeli transplant looked the part of a messianic truth teller. Investors swooned, and billions poured in.
Neumann dined with the CEOs of JPMorgan and Goldman Sachs, entertaining a parade of power brokers desperate to get a slice of what he was selling: the country’s most valuable startup, a once-in-a-lifetime opportunity and a generation-defining moment.
Soon, however, WeWork was burning through cash faster than Neumann could bring it in. From his private jet, sometimes clouded with marijuana smoke, he scoured the globe for more capital. Then, as WeWork readied a Hail Mary IPO, it all fell apart. Nearly $40 billion of value vaporized in one of corporate America’s most spectacular meltdowns.
Peppered with eye-popping, never-before-reported details, The Cult of We is the gripping story of careless and often absurd people—and the financial system they have made.
- This book tells the story of how the office-space company WeWork became the world’s most valued startup – only to come crashing down a few years later.
- Once valued at $47 billion, WeWork was in fact nothing but a glorified real estate company – one was losing more than $1.6 billion.a year.
- Architect Miguel McKelvey and Adam Neumann met at a party in New York City in 2006 and the two men struck up a friendship.
- McKelvey was often a sounding board for Neumann’s business ideas. One of these, Neumann wanted to rent ready-to-use office space to technology companies. The kicker was that tenants would pay more for fully equipped, flexible offices than they would for standard office space and Neumann would pack the offices tightly together to maximize profit. McKelvey was sold and together, the two men pitched the idea to their landlords at 68 Jay Street.
- The landlords joined the scheme as partners, offering Neumann and McKelvey a floor in one of their buildings, a former pipe factory. McKelvey worked on the floor plan, business plan, and website – and in 2008, GreenDesk was born.
- Yet Neumann was already looking to the future. In 2009, he and McKelvey sold their stakes in GreenDesk to the landlords for $500,000 each. They then got to work expanding their concept, searching for space they could rent and slice up to create small offices.
- This led them to real estate developer Joel Schreiber. Although they didn’t yet have a single customer, Neumann and McKelvey told Schreiber that WeWork was worth $ 45 million. Incredibly, Schreiber agreed to invest $15 million in exchange for a one-third stake in the company.
- To achieve higher company valuations, Neumann presented WeWork as a tech startup.
- While Neumann could barely operate his own laptop, the fact that he was a founder meant venture capitalists were willing to listen to him. In his presentations, he reframed his real estate company as a tech company by using the slogan “space as a service” – a play on the emerging “software as a service” business model.
- When pitching the concept for WeWork, Neumann & McKelvey also highlighted how the lines between work and play were being blurred; they pointed to tech companies like Google, which offered employees free food & in-house gyms. WeWork would make the same Silicon Valley office experience available to urban millennials everywhere.
- WeWork strove “to create a world where people work to make a life, not just a living.”
- At the same time, Neumann’s presentations contained slides projecting an increase in revenue from $73 million in 2014 to $2.8 billion in 2018. The investors were convinced. By the middle of 2015, the company had attracted $400 million in investments
- Within just a couple of years, WeWork swelled beyond the United States. The company opened spaces in Europe and Israel, and it began to look toward Asian markets. As the company expanded, McKelvey retreated into a more supportive role
- After seven years, startups are usually supposed to show a reduction in losses – but with 65 locations by 2016, WeWork was losing a million dollars a day. So when Neumann announced plans to fundraise in the world’s biggest market, China, investors weren’t happy. Meanwhile, Neumann continued to ignore profit margins and remained obsessed with speeding up growth. He reasoned that rapid growth would impress future investors, helping him to attract the huge amounts of revenue he was after.
- In 2019, Neumann flew to Tokyo to meet Masayoshi Son, founder and CEO of the tech conglomerate Softbank Group. Son was interested in discussing investments in WeWork. But at the meeting, Neumann put the usual business aside and instead laid out what he called his “triangle plan”. Son was sold. Son announced his intention to invest $10 billion and eventually buy out WeWork’s existing investors for another $10 billion. He also invested $4.4 billion immediately – but WeWork was still far from turning a profit.
- Neumann’s next big idea: a college dorm-style living experiment called WeLive. Just as WeWork had transformed office space, it would now redefine the residential sector. WeLive didn’t quite live up to its office space predecessor. By 2016 it had only expanded to two locations, and it never went any further. But Neumann remained relentless.
- Soon after Son’s investment, Neumann rebranded WeWork as “The We Company.” The shift was meant to encompass WeWork as well as new ventures like WeLive and WeGrow – an elementary school that claimed to raise “conscious global citizens.” WeGrow was led by Adam’s wife Rebekah, who’d named herself a cofounder of The We Company and infused its branding with a New Age tone.
- Neumann also directed WeWork to buy a range of companies, including the event-sharing app Meetup and a “coding bootcamp” known as the Flatiron School. He also used Softbank’s money to make unrelated investments, like committing $38 million to his friend Ashton Kutcher’s venture capital fund. At the same time, company spending got even wilder.
- In less than two years, WeWork had depleted $3 billion of Softbank’s money – yet it was no closer to becoming a profitable, sustainable business.
- After SoftBank withdrew its deal, WeWork was forced to go public.
- Adam Neumann’s hard-partying lifestyle and personal greed overshadowed his leadership at WeWork.
- For nearly a decade, Neumann had managed to convince the world’s top investors to boost WeWork’s valuation and provide a seemingly endless stream of money. But now the show was over. Two days after the IPO documents were published, he finally stepped down – but not without the promise of a $1 billion severance package on his way out.