Why WeWork didn’t work
The rise and fall of the tech fever dream is an extraordinary tale of hype and outrageous executive antics, says Tom Knowles.
When Adam Neumann got on a private jet, the charter company crew would often be in for a rough ride. Friends along for the journey would spit tequila at each other while downing shots – morning or night. Passengers would throw up in the cabin after too much booze and not bother to clean it up. The curtain divider between the two parts of the jet would get torn down by Neumann as a joke. There was often so much marijuana smoke in the cabin that on one flight the crew were forced to pull out the jet’s oxygen masks and put them on.
Neumann was not a rock star or a Hollywood actor. He was the boss of a company that provided office space on flexible leases in trendy-looking buildings.
Eliot Brown and Maureen Farrell’s fascinating and highly entertaining book, The Cult of We, is packed with marmaladedropper stories such as this about Neumann and his mismanagement of a company that was given too much money by investors who thought they had found the next Apple.
WeWork is not Apple. It is a company that takes out a long lease on several floors or a whole building from an existing landlord, redecorates that space in a hip style designed to appeal to millennials, and then offers it to tenants on shorter leases for a higher price, with some free beer and coffee thrown in for the customers. Neumann, the co-founder and chief executive of WeWork, was also not Steve Jobs. His first startup, Krawlers, produced onesies with built-in kneepads for crawling babies, with the slogan: ‘‘Just because they don’t tell you, doesn’t mean they don’t hurt.’’
The book deftly chronicles the story of how WeWork, boosted by Neumann’s evident charm, rode a wave of investor FOMO (fear of missing out). Brown and Farrell explain how venture capitalists, Wall Street banks and normally staid mutual funds rushed to invest their money in startups coming out of New York and Silicon Valley in the 2010s.
These institutions saw how savvy investors had made millions by taking an early bet on Facebook or Twitter and reaped the rewards when the company floated on the stock market. They wanted a slice of the action and Neumann made sure everyone thought his startup WeWork was one of those companies.
Neumann was also smart in insisting WeWork was a tech company, rather than a property firm, and so could deliver the sort of returns only software companies see. This was all rubbish, of course.
Even if you haven’t come across one of its offices, you have probably heard of WeWork. The company’s story is an absorbing one – it became one of the most highly valued US startups of all time before seeing its fortunes unravel so rapidly that bosses struggled to lay off staff because they couldn’t afford the severance packages. There has been one television documentary about Neumann and WeWork, two podcast series and another book on the tale – Reeves Wiedeman’s Billion Dollar Loser. Yet Brown and Farrell find plenty of new ground – and deliciously entertaining anecdotes – in this latest chronicle. Wiedeman’s book placed much more focus on Neumann’s upbringing in Israel, living in a kibbutz and serving in the country’s military, as well as the earliest days of WeWork, which was co-founded in New York in 2009 with Miguel McKelvey, who barely gets a mention in The Cult of We.
Instead, Brown and Farrell, two reporters at The Wall Street Journal, chronicle Neumann’s ability to charm investors, bankers and the public into thinking his office leasing company was genuinely going to change the world, while he grew increasingly egotistical and deranged in his behaviour. The word ‘‘cult’’ is in the book’s title for a reason. Some employees began to treat Neumann as a demi-god, screaming his name when he took to the stage at a work conference, adhering to his increasingly erratic whims, and even – in the case of its chief legal officer – getting married in a WeWork office.
As his fame and stature grew, Neumann began to tell colleagues that he thought WeWork would be able to end world hunger, broker peace in the Middle East and ‘‘elevate the world’s consciousness’’. This was not helped by his wife, Rebekah Paltrow Neumann – cousin of Gwyneth – who pushed her husband to essentially believe he was the Messiah. ‘‘I just knew he was going to be the man who would hopefully save the world,’’ she says of her first date with Neumann. ‘‘The second I met him.’’
At one point Rebekah set up a WeWork-inspired primary school – WeGrow – to help to raise ‘‘global conscious citizens’’ who can ‘‘understand what their superpowers are’’. It cost US$42,000 ($59,820) a year to attend.
Neumann already had a big ego, but this book places much of the blame for WeWork’s downfall on Masayoshi Son, who brought out Neumann’s worst qualities and made him believe the company had an unlimited supply of cash. Son, the billionaire chief executive of the Japanese conglomerate SoftBank, created the world’s biggest investment fund in 2016 – a US$100 billion vehicle that includes US$45 billion from Saudi Arabia’s Crown Prince Mohammed bin Salman. Within months of the fund opening, Son invested US$4 billion into WeWork after being given a 12-minute tour of one of its offices by Neumann.
The money went to Neumann’s head, but not without damaging advice from Son, who acted as a weird father figure to the WeWork chief executive, constantly encouraging him to think bigger. In one key meeting Son told Neumann that being crazy always beat being smart.‘‘To Neumann’s aides in the room, the words seemed foreboding,’’ Brown and Farrell write.
The company made rash acquisitions, such as buying a Spanish company that made surf pools with 8-foot waves on demand; it spent US$10 million on work conferences for staff that featured acts such as the Red Hot Chili Peppers; it allowed Neumann to constantly use a private jet at the company’s expense. Neumann had a hairdresser follow him everywhere.
As befitting of two Wall Street Journal writers, Brown and Farrell concisely explain some of the key business dynamics that are crucial for understanding WeWork’s journey and the slightly unconventional financial agreements Neumann set up with WeWork to benefit himself. There is also a nice tone of dry wit that runs through the book.
Eventually, it all came tumbling down. The Saudis began to grow tired of WeWork’s antics and declined to take part in Son’s plan to invest another US$10 billion in the company, leading to the Japanese billionaire also backing out. WeWork swerved to floating on the stock market instead, and had to open its accounts to the public. Media, analysts and the markets were aghast at what they saw. The IPO was cancelled, Neumann was pushed out by a board of directors that had once accepted his every whim, and a company once valued at US$47 billion was due to run out of money in less than two months. Neumann still – somehow – managed to walk away with a settlement of roughly a billion dollars.
The Cult of We is an often thrilling account of a company that forgot that its core business was just renting office space and believed its own hype. It is also, more importantly, a cautious tale of how investors fell for the Emperor’s New Clothes once again, rushing to pour their money into a venture that seemed exciting as long as no one looked too hard at the details. There sadly seems little doubt that no one will have learnt any lessons from this.