Modern WisdomThe Catastrophic Story Of WeWork | Reeves Wiedeman | Modern Wisdom Podcast 238
EVERY SPOKEN WORD
110 min read · 22,277 words- 0:00 – 0:30
Adam Neumann’s high-risk temperament: “Millionaire or jail”
- RWReeves Wiedeman
Some of this just comes down to temperament, and we start the book with a quote from Adam Neumann's high school driving instructor. Adam's either going to be a millionaire or he's going to jail. Those are the two options. There's no, like, nice steady Adam Neumann work his way up the ranks at, at some job. He was ... He was a go big kind of person, and the question was going to be whether he, he, (laughs) he ended up, uh, being successful with that risk or, or falling on his face.
- CWChris Williamson
Or both.
- RWReeves Wiedeman
Or both.
- 0:30 – 0:58
What Reeves researched: WeWork and the broader unicorn-startup era
- CWChris Williamson
(wind blows) What have you spent the last couple of years researching?
- RWReeves Wiedeman
Well, I've spent about the last year and a half researching WeWork, the company, and, and the last few years researching sort of the world of, I guess, high-growth unicorn startups, um, is, is one way of, of, uh, putting it, some of which, um, have flamed out in one way or another, or ... and some of which are, are still with us, so.
- 0:58 – 3:30
Unicorns, decacorns, and the private-valuation game
- CWChris Williamson
Is WeWork classed as one of those unicorns? And what, what is a unicorn? For people that don't live in Silicon Valley, what's a unicorn?
- RWReeves Wiedeman
Sure, sure. Well, there's, there's, there's unicorns, there's zebras, there's all kinds of different species now, but it ... But a unicorn very, um, simply is a, is a company that, according to private valuations set by private investors, is worth more than a billion dollars. Um, and, you know, there, there are now, um, certainly more than 100 of, of these, um, uh, k- kinds of companies, and, and WeWork, uh, despite all its troubles, remains one of those.
- CWChris Williamson
Those companies that are unicorns, are they still private or have some of those transitioned to now be traded?
- RWReeves Wiedeman
Yeah. The, the, the typical way it's sort of looked at is, is these are, um ... You know, they are magical creatures. They exist outside of the way the, the markets traditionally treat these companies. So, so unicorns are, are generally companies that are, that are private before, um, before they hit the stock market, which-
- CWChris Williamson
And then you ... Are you no longer a unicorn once you do?
- RWReeves Wiedeman
I ... You a- ... You're not. I don't know, like, what you transform into exactly in, like, the Silicon Valley nomenclature.
- CWChris Williamson
Oh.
- RWReeves Wiedeman
But, but you, you, you ... Yeah. It's, it's sort of like caterpillar/butterfly thing, but I don't know what the next, like, transformation is.
- CWChris Williamson
Got you. If anyone understands the Pokemon game that is Silicon Valley sufficiently well-
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
... what does the unicorn evolve ... It's Charizard, isn't it? Charizard-
- RWReeves Wiedeman
Charizard, exactly.
- CWChris Williamson
And then you get the shiny one, and then that's ... Everyone at school wants you cards.
- RWReeves Wiedeman
Well, you're, you're joking, I, I think, but, but tru-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
Truthfully, there, there is, there is another group called a decacorn. And a decacorn is a ... is an even rarer breed of company, um, that has a private valuation above $10 billion. And WeWork was, was, um, uh, was one of those. I guess that is actually a qualification that the company has, has now lost, um, in, in-
- CWChris Williamson
What ... Who e- who else is in that, uh, category of your decacorns, do you know?
- RWReeves Wiedeman
You know, I'd have to think. I mean, Airbnb is one that is, um, is, uh, sort of going public, has said they're, they're going public soon. Um, I think Palantir, which also went public recently, uh, is, is another one that, that would have classified. It's ... It's a pretty small group, and it, and it has traditionally been kind of the biggest companies, the Ubers, the Lyfts, um, and, and the WeWorks, um, that, that reach that kind of, um, threshold.
- 3:30 – 9:08
Scooter wars as a preview: valuations vs real-world constraints
- CWChris Williamson
Have you had a look at much to do with the electric scooter, Lime-
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
... uh, uh, and Bird and, and all of this? There was a period ... Was it towards the start of last year where they were doubling their valuation every six weeks, like all of them?
- RWReeves Wiedeman
Yeah. Well, uh, a- ... And, uh, here, here in the US, they seem to find a new city, um, to occupy, uh, every, every, um, every few weeks. And, and, um ... Yeah. I mean, tho- those are the kinds of companies that we're talking about. And I think one of them, I'm, I'm, I'm forgetting exactly, but I think Bird may have, at one point, had a, had a billion-dollar valuation, which is ... I've been, you know ... If you want to kind of summarize the last decade, a, a, a billion-dollar scooter company that didn't exist a few years ago is, is ... Which, by the way, I was, I was recently in Nashville, Tennessee, um, and tried to get a Bird scooter. I, I think technically I was trying to get a Lime scooter going. There are Birds, there are Limes, there's, like, five or six different companies in all these cities, and I, I could not, could not get the app going, could not get the scooter to stop chirping at me, and eventually, um, eventually just gave up on it. So, uh, it, it's unclear exactly what, what the billion-dollar valuation is, is, um, is worth. At this point.
- CWChris Williamson
There's some executive from Bird and Lime screaming into their AirPods at the moment going-
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
... "It was your fault. This wasn't us."
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
"This was ... We tested it till the, till the cows come home."
- RWReeves Wiedeman
Yeah. Well, you know, unfortunately, uh, the scooter is no good without the human-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
... um, human to get on it. So, uh, I, I guess maybe take the app back, back to the lab.
- CWChris Williamson
Yeah. It's, it's interesting with that, just to sort of linger on that scooter thing for a second as well, it really does show how decoupled valuation has come from marketability. There are entire cities that have outlawed these scooters. I think ... 'Cause it ... San Francisco had decided that they were going to permit one or two scooter companies at a time to trial, because they didn't want overload. Is that right?
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
Here's this six-week window where everyone can have a go on a Lime. Here's a six-week wingo- window where everyone can have a go on a Bird.
- RWReeves Wiedeman
Yeah. That, that's right. And I, I, I live in New York City where, um, they, um, they aren't allowed. And, and it's been kind of a, a, a political back and forth of, of do we want these, these scooters, you know, cluttering up our, our sidewalks? And, and the battle we've had there recently, or sort of the back and forth, was, was ... (laughs) There, there's now multiple kinds of scooters. We have, we have these scooters called Revels which are ... You know, you actually sit back. It's almost sort of like a Vespa, an electric Vespa. And, um ...... several people have died. And, and, you know, the, the companies shut down for a while, but then they kind of brush it, brush it off and, and sort of continue, continue expanding. So it is... The, the scooter wars are, are sort of an interesting and, and weird dynamic that's now in, in pretty much every city at this point.
- CWChris Williamson
I can see you or an equivalently talented writer-
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
... coming up with a really interesting book about that in maybe five years once we have a little bit more story arc about all of this, because it's such a, like Pokemon, Power Rangers battle of the sort of weird novelty, uh, personal locomotion worlds.
- RWReeves Wiedeman
Yeah. (laughs) Right. And which one's gonna win, you know? And, and what's, what's the difference between them? And, and it is, I mean, you, you know, it's actually is something I've, I've thought about. And I think one of the interesting things about a lot of these kinds of companies, some of the ones we're talking about, but the scooter ones specifically is, is these are Silicon Valley startups that are taking that kind of ethos and bringing it into like the real physical world. Like this is not a piece of software that just exists somewhere. This is suddenly there are scooters all over my city. And, and there's good parts of that and there's bad parts of that. And you can argue both sides. I, despite the story I just told you, have enjoyed riding these scooters, um, in, in other situations. And I, I think there, there may be a very good argument for them, but, but they do put these companies in kind of an interesting place that they weren't in 10 years ago, which is that Silicon Valley startups typically, um, preferred to kind of choose to believe that the real world was sort of over there and, and that they didn't necessarily have to think about how their... whatever they were working on, sort of what effect it had on the broader world beyond whatever they want to do. And now these companies are having to deal with city councils and politicians and local businesses. And-
- CWChris Williamson
Real shit.
- RWReeves Wiedeman
Yeah. Real shit. And, and-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
And I, I remember I, I... one of the first of these companies I wrote about was Uber back in 2017. And, um, this was when Travis Kalanick, the founder of Uber, um, was... It was sh- around the time that he was ousted from the company. Um, the company was going through all this, all this turmoil. I remember talking to an advisor who, who the company had hired, who, who sort of, uh, his job was to kind of help, uh, startups deal with politics. And he was so frustrated that all of these companies just wanted to believe that they could go into any of these cities, do whatever they want, because in their view they were making it better and not realize that they're now part of an ecosystem. And, and that while there are great things about Uber, about scooters, about WeWork, um, you know, when you get into the physical world, you're suddenly dealing with more than just bits and, and data. So...
- CWChris Williamson
That's a lovely open loop into the story of WeWork, isn't it?
- RWReeves Wiedeman
Yeah.
- 9:08 – 11:27
WeWork in plain terms: what it is and why it took off in 2008–2010
- CWChris Williamson
So where do we begin? What's the... People who are listening don't have a clue what WeWork is. They've probably gone past them in the street, the sign, but maybe haven't realized... Give us the, the, whatever it's called, the CliffsNotes on-
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
... WeWork as a company.
- RWReeves Wiedeman
Well, well, in a n- in a nice loop, the story really begins... I mean, given the era that we're in, it begins in the last recession, and it begins in, in kind of 2008 when, um, Adam Neumann, who was one of the co-founders of WeWork along with Miguel McKelvey, an architect, um, long story short, got together and decided to... They wanted to bake- make what was basically an office leasing company. And, and they were both sort of had worked in, in small businesses. Miguel had worked at a small architecture firm. He had also worked at a tech startup before. Um, and Adam, uh, had a few of his own businesses, um, and, and they've been, they've been written about before, uh, somewhat humorously. One of them was a, a baby clothes business where the main feature of the product was that they had knee pads. Um, uh, the idea was that babies when they crawl their knees must hurt, um, even if they can't speak and, and tell adults that, that their knees hurt. Um, it didn't quite work, (laughs) but it did become a real baby clothes business. Um, and, and he tried a few other things and, and so, you know, i- in sort of the depths of the recession in 2008 when, when, you know, companies were, were crumbling, um, they started this business to, to lease, um, lease out, just basically take a space, cut it up into smaller pieces and lease it out to people. And, and it, it worked great and, and there are all kinds of reasons that, that it worked great. They built a nice space. Uh, people at that time were looking for community. You were getting laid off from your job and maybe you were starting to freelance and you wanted a place to go, which I think we can all kind of empathize with, with now even though we're, we're sort of dealing with a, a different set of circumstances. Um, so that's, that's sort of where the business began. And, and then from there, it, it, it grew, um, you know, pretty steadily and, and then eventually pretty exponentially, um, to become a, a global office space business, um,
- 11:27 – 13:58
Mission creep and mythmaking: from real estate to “elevate the world’s consciousness”
- RWReeves Wiedeman
operating more or less under the same principles, um, that then morphed into other things. Um, it morphed into becoming a tech company or aspiring to become a tech company. Um, it morphed into becoming what, what Adam liked to call a community company. That WeWork was not in the business of, of real estate, but they were in the business of, of bringing people together. And, and under that umbrella, the WeWork eventually had apartments, um, they had a gym, um, they had an elementary school, um, and all manner of other kind of business lines that, that were, uh, eventually assembled under a mission statement that the company revealed at the beginning of last year, which is to elevate the world's consciousness, um, which we can dive into what exactly that means. That's actually a question that I asked Adam Neumann himself, um...... but that's, that's sort of the- the long story of the rise of WeWork, um, and- and then, you know, uh, the- the sh- the short, or the short version I guess, and- and the short version of the fall is that the company tried to go public. Um, the stock market looked at a company that had all of those things that I just talked about, that made some money but also lost two billion dollars, um, in- in, uh, 2018 alone, um, and decided that this was not a- a- a good business, frankly. And- and that they didn't have faith in the business, and- and sort of in- in pretty much the most spectacular kind of IPO failure anyone can remember, the company pulled its IPO. Um, Adam Neumann was pushed out, um, and, uh, he is, uh, sort of spending, spending his days at the moment, um, well, uh, surfing and waiting for a payout and- and seeing- seeing kind of what- what happens next. But that's the-
- CWChris Williamson
The short-
- RWReeves Wiedeman
... short, uh, bre- that's the CliffsNotes versions of the- the book I just wrote.
- CWChris Williamson
Dude, I mean, I've watched, before reading, uh, your book, I'd watched a bunch of different videos that have been done on it. The guy's name is gonna escape me, Australian dude, YouTuber-
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
... who does some really great... Again, everyone's just gonna be screaming down their AirPods at me. It'll come to me.
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
Anyway, um, I noticed over the last two years or so, quite a lot of high profile YouTubers who are interested in this sort of stuff, documenting this slow motion third trimester car crash that is the WeWork kind of downfall.
- RWReeves Wiedeman
Yeah.
- 13:58 – 15:45
How the IPO process works—and why WeWork’s attempt collapsed
- CWChris Williamson
Just before we go back, I want to get into Adam Neumann, because I think he's kind of the crux to all of this. What- what actually happened with the IPO? Like, did- do you need, like, a particular amount of interest before you go public? Why- why was it-
- RWReeves Wiedeman
Sure.
- CWChris Williamson
... a failure?
- RWReeves Wiedeman
Yeah, well, you know, the- the public often thinks of IPOs of, like, "Oh, am I, am I gonna invest in this, and is this gonna be the next Apple?" And it's, "Is this gonna pay for my kid's college education?" Like, an IPO is very specifically, company needs money and they need to raise it. And in- in WeWork's case, they were trying to raise three billion dollars. Um, and, you know, as part of these IPO roadshows, which is what all these companies are doing now, although they don't, they don't actually go on the road anymore, um, is they go around to investors. Um, they give them, uh, a document. It's called an S1. It's a document that's filed with the- the SEC in the United States. Um, and- and then they give them a presentation. They say, "Here's how our business works." Um, you know, they're supposed to sort of be honest and forthcoming about some of the potential problems. Um, and then investors have to decide, uh, whether or not they want to invest. And this is going to, this is going to institutions, some... A place like Fidelity, that might be able to invest a billion dollars on its own if it wanted to, into an IPO, um, of this size. And- and essentially what happened is- is for a variety of reasons, w- a- and- and we can talk about them, um, investors just- just decided that- that the company wasn't worth what it, what it said it was, and- and there wasn't enough interest. And so, um, eventually once- once it was clear WeWork wasn't gonna be able to raise the three billion dollars, or at least that there was a danger, um, that it wouldn't get there, uh, for a handful of reasons, they decided to- to pull it. Um...
- 15:45 – 26:05
Adam Neumann the leader: charisma, persuasion, and the Fyre Festival connection
- CWChris Williamson
How would you describe Adam Neumann as a person and a CEO?
- RWReeves Wiedeman
Two different questions, but- but they are related. Um, uh, charismatic, um, outgoing, very tall. Uh, he's 6'5", which- which is, um, often noted, but I think is not an insignificant thing for- for someone like him, whose- whose charm and charisma and personality and vision, um, are, were what people were buying, as much as they were buying sort of the- the numbers that- that were- were behind, um, behind the business. Um, as a CEO, um, you know, the thing people always talk about was that he is that, that he was someone who could get into a room, and- and that might be a room with potential investors, uh, it might be a room with a landlord he was trying to make a deal with, um, and it- it might be a room with his employees. And- and that he was able to convince them that what he was selling would become true, that- that this vision of- of WeWork as much more than an office leasing company, um, was- was possible, and- and that- and that they were actually building that. And I think that was... Like, whatever people want to say about them, he was an incredibly inspirational leader, um, and that went for young people who were straight out of college, uh, as much as it did for sort of mid-career people who came in and- and- and saw something to kind of latch onto.
- CWChris Williamson
I mean, Billy McFarland from Fyre Festival was a very charismatic and outgoing CEO.
- RWReeves Wiedeman
Mm-hmm. Indeed. And, uh, for this book, I called Billy in prison. Um-
- CWChris Williamson
No way.
- RWReeves Wiedeman
Yep.
- CWChris Williamson
Fuck.
- RWReeves Wiedeman
And we- we spoke, uh, briefly, um, just as coronavirus was- was sort of hitting in the spring, um, so it was obviously a- a tense, tense moment for him. Um, and the reason I called him is that, uh, he launched his companies from WeWork offices. He was a WeWork tenant.
- CWChris Williamson
No way.
- RWReeves Wiedeman
Um, and in fact, the sort of mild amount of news that- that we break in the book is- is that, um, his company before the Fyre Fest, before Fyre, um, was called Magnises. And Magnises was a sort of credit card, uh, club access kind of company. Basically a- a lifestyle company. And at one point, um, Magnises had a WeWork office in New York, and, um, Billy had met Adam a number of times. He sort of talked to me about how...... at least the way that he thinks of, thought of his companies as, as, um, at least at their higher aspiration is connecting people. Um, he, he saw, he saw that vision in, in Adam and, and sort of what he was selling. And, and at one point WeWork and Magnises were in talks, WeWork was in talks to buy Magnises. It would sort of be the kind of lifestyle component to go along with the WeWork work component. Um, unfortunately, uh, Billy and his company trashed a townhouse, uh, where they had a party in New York, the deal fell apart, and, um, uh, the rest is history in, in multiple ways. Both Adam and Billy (laughs) went their separate directions, and I guess in a certain way they, they came back together in, in the way that their stories ended a little bit, but, uh-
- CWChris Williamson
I wonder what... I would love to be a fly on the wall at a meeting between Adam Neumann and Billy McFarland man.
- RWReeves Wiedeman
Yeah. (laughs) Same.
- CWChris Williamson
Did you ever see... Did you see that podcast between Grant Cardone and The Real Wolf of Wall Street?
- RWReeves Wiedeman
No, I didn't.
- CWChris Williamson
Okay. Well, it's ju- It's like a big dick measuring competition. They get them out on the table and they start wiggling them around. And then Grant wiggles his and then Wolf of Wall Street wiggles his, and it's just that. And I imagine Billy McFarland versus Adam Neumann would be something similar.
- RWReeves Wiedeman
Yeah. Yeah. And I, I think, you know, th- I, I mean, I remember watching the Fyre Festival documentaries, which I devoured, and, and, you know, you watch, at least for me, I would watch Billy and I would be like, "This is the guy that, that was so charming and, and charismatic?" But then, you know, and, and, and in some ways I had that feeling when, when I met Adam, but, um, of, of questioning this a little bit. But then I think it's hard to know when you sort of get into these rooms and, and people, people also are incentivized to believe. They, they want, you know... People wanted the Fyre Festival to happen. People wanted WeWork to change the world, to make it a better place. So, so, you know, it's, it's easy to think, sort of look at this sort of skeptically, but then I think when you get in the room, you know, there's a reason they, they appeal to people.
- CWChris Williamson
I think, I wonder if you agree, that the same compulsion we all have of why we watched the Fyre Festival documentary and fell in love with that sort of thing where you're kind of watching through your hands-
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
... a little bit like how you watch a horror movie-
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
... um, at a much more transparent, and slower, and significantly in terms of capital, bigger scale, I think that's why WeWork has warranted a book written by yourself and all of these videos I've seen online with, you know, like hundreds of millions of plays and stuff like that.
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
Would you agree? Is that the, is that the, the primary, um, pull, like the reason that people are compelled to look at WeWork?
- RWReeves Wiedeman
Yeah, I think there's, there's a, there's probably a variety of things. Uh, Ja Rule plays a role in, in the WeWork story as well. So he is also, like, you know, lev-
- CWChris Williamson
That guy is everywhere.
- RWReeves Wiedeman
He's everywhere. He's everywhere. And I, I, um, you know... Good for him. But, uh-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
But I think there's... I mean, more seriously, yeah, like, I mean, I'd be curious to know why, why sort of what you think, um, makes the Fyre Festival and, and WeWork especially interesting. But for me, it's, you know, one of it is, is there's a certain comeuppance that, that comes for people. And, and, you know, with, with WeWork, you know, I would imagine, um, a- as you sort of said at the top, like a, a lot of your listeners, they probably knew what WeWork was. They, they, they might have been to one or, or at least had heard of it, but they didn't really pay much attention to it. And then same thing with the Fyre Fest, like most people didn't know what it was un- until kind of after it had blown up. And then, and then in hindsight you sort of see like all, (laughs) like Ja Rule's there-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
... and you tried to do this thing in, in however many weeks, and of course this wasn't going, gonna work. And, and so I think it's, it's, it is fun and, and satisfying too. And, and same thing with WeWork, you know? You've got this tall haired guy who smokes a lot of weed and, um, surfs a lot, um, who started an elementary school i- in an office leasing business. Of course this, this wasn't gonna work. Um, and people were saying that along the way, and there were certainly people who, as they said that, once it happened, they, they, um, felt sort of, um, rewarded for their, their skepticism. And then I think for the rest of us, it's just kind of the enjoyment of watching a train wreck.
- 26:05 – 35:27
The scale of WeWork + SoftBank’s jet fuel: Masa Son and the Vision Fund
- CWChris Williamson
... can you lay the landscape of just how vast their operation was? And can we also talk about the amount of wealth and investment that they'd accrued, including that particular, uh, Asian investor?
- RWReeves Wiedeman
Sure. Um, so, you know, by the... By 2019, by the spring of 2019, when I, when I started reporting on, on the company, I, I think, and this... The first location opened in 2010, um, in, in SoHo in, in New York City. Uh, by 2019, they had more than 400, uh, 30-plus countries, um, five different continents. Uh, they were just opening in Africa, in, in Johannesburg. Um, hundreds of thousands of, of members, um, as they called them, not, not tenants. Um, and, and the reason... And, and by all accounts, as, as Adam Neumann himself put it, um, uh, and, and, and probably accurately, uh, this was the fastest physical expansion by any company ever. And that's, that's probably true. He, he very coyly said that he wasn't sure, uh, about Roman times and that there may have been, uh, high growth startups in, in Roman times. Um, but, uh, it, it, it grew incredibly fast, and the reason they were able to do that is because mainly... O- o- on the one hand, and, and I think it's worth giving credit where it's due, they provided something that people wanted. Uh, WeWork offices were cool. Um, they had good coffee. You could meet cool people. Flexible, if you wanted to get out next month, you could do it. You didn't have to sign a five, 10-year lease. There are all kinds of reasons that, that that's a problematic business model, but it was a thing that, that people wanted. The other thing, as you alluded to, is that Adam Neumann was extremely good at raising money. Um, and that started with him just kind of raising money from friends and family. Uh, the first big round of investment was from Benchmark, which is a big Silicon Valley firm. They were the earliest major investor in Uber, uh, big early investor in Instagram, um, and just kind of a classic Silicon Valley venture capital firm. Um, was a, was a big question of why they... Exactly they were investing in this, in this, um, real estate company that was, that was not a tech company like the ones they, they typically invested in. But, but once that happened, um, you went through a series of investors, kind of some, some blue chip names, the JPMorgans, the Goldman Sachses, um, of the world. Um, e- eventually getting to this point in 2016 when WeWork has, has more or less tapped out most of the available sort of private money that you'd be able to get, um, from, from those banks in New York to the Silicon Valley firms. Um, they had recently scored an investment in China. Um, but then what happened is that Adam met Masayoshi Son. Uh, and Masayoshi, or, or as he's known by pretty much everyone, uh, Masa, uh, is a Japanese businessman. He, he runs a tech conglomerate called SoftBank. Um, and SoftBank has a, has a long history. He founded the company in, in the 1980s. He's, he's ridden various waves, uh, in the tech boom from, you know, selling CDs and CD-ROMs and floppy disks, back when that's what you did, um, up through, uh, doing a lot of work in getting broadband in Japan and, and mobile technology. And, and what he did in 2016 is he created this thing called the Vision Fund. Um, and the Vision Fund was $100 billion, uh, venture capital vehicle, um, with various investors. The most significant one by far was the government of Saudi Arabia, which invested $45 billion dollars of the $100 billion, um, which, you know, invites all kinds of questions that, that we can talk about. But, but the upshot of it was that, you know, Saudi Arabia was trying to diversify its economy away from oil, um, and Masa was someone who was known for taking big bets. He, he... That, that's what he's done throughout his, his career is being willing to take huge risks and frankly, uh, in some cases, fall on his face and get back up and, and do it again. And so he had promised to Saudi Arabia, to some other entities, um, Apple, Foxconn were also investors, um, in the fund, that he was going to go out and find basically the companies of the future. He sort of talked about it as kind of building a new version of Warren Buffett's Berkshire Hathaway, where you would have this kind of conglomerate of, of companies, and instead of it being airlines and newspapers and, and whatever else, and trains-... it was gonna be tech companies and, and focus particularly on artificial intelligence. And Masa had become very, sort of obsessed with the singularity and, and the idea that you, it would be, you know, har- harder to do- differentiate between humans and robots and all the consequences, um, that, that would happen there. Uh, and he stumbled onto WeWork. And, and, um, there, uh, again, uh, as with Benchmark, there are all kinds of questions about why exactly SoftBank, um, decided WeWork was a good investment, um, as a firm that typically invests in, in tech companies. Um, but ultimately, uh, SoftBank invested initially more than $4 billion, uh, which was m- more money than, than WeWork had raised up to that point, um, (clicks tongue) uh, back in 2017. Um, and they followed that with another $2 billion a year later, and that, uh, was the money that really gave jet fuel to, to WeWork's growth, and at least in hindsight, may have been sort of a, a, a sort of poison chalice is, is one way to look at it that obviously turning down something like that is, is hard to do, um, but it, it may have kind of pushed the, the company sort of over a cliff.
- CWChris Williamson
Taking it on hastens the arrival of the inevitable.
- RWReeves Wiedeman
Exactly. Exactly. And it's, yeah, it's, it's, it's something you think you want, um-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
... but, you know, and again, this, this, uh, come up with other companies that I, I wrote about, um, it's hard to spend $4 billion. It's hard to do that responsibly, um, in, in any way that kind of makes sense. And, and there's certain ways in which, you know, you can, you can point out sort of individual managerial missteps, but in some ways it's, it's almost just a, a, an, an impossible task to do that in a way that, that would, that would really make sense. (laughs)
- CWChris Williamson
Wasn't it right that the Japanese investor, whose name I'm not gonna try because I'm gonna butcher it, wasn't it right that he decided to invest after 15 minutes of a meeting with Adam? Is that true?
- RWReeves Wiedeman
Uh, you know, it's, it's, it's more or less true. Um, 28 minutes is what they say. Uh, you know, he-
- CWChris Williamson
Shit the bed.
- RWReeves Wiedeman
Yeah. And, and he is sort of known from, known for doing that. You know, I talked to someone else who, who had a company that SoftBank invested in, and, and, and that's basically what happened is, is he had a 10-minute meeting with Masa, Masa decided he wanted to invest. What of, what of course is sort of left out of all these stories is after that decision, months and months of due diligence is, is done, but, but what Masa himself has, has said over and over is that often his feeling, uh, in that first moment when he meets an, an entrepreneur, um, you know, his, his most successful investment was he was one of the earliest investors in Alibaba, um, the sort of Ch- uh, Chinese, um, Amazon. And he made that investment, um, he's often said just basically because he believed in Jack Ma, the, the entrepreneur. He sort of, he has sort of described it in these kind of like primal terms of, of just a, a feeling that he had as, as much as anything else. So, um, you know, he's also said with the Vision Fund, uh, he's, he's described his meeting with, uh, Mohammed bin Salman, the, the at the time soon to be Crown Prince of Saudi Arabia, as, uh, it took him 45 minutes to raise $45 billion. Um, and so he clearly prides himself and in some ways lives on this reputation of, "I make gut calls and then, and then I move on to the next one."
- CWChris Williamson
That's mental.
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
(laughs) Like it's just, it sounds great and it's wonderful in a book, and is cool when tweeted online, and harks to a, a, a man who has the vision, Vision Fund, a man who has the ability to see that which other people cannot. And you're like, "Mate, this isn't me trying to get the next motivational speaker to work in the HR department of your company. This is me doing very, very complicated multifaceted financial products that require the, the most clinical dissection to work out what the hell is going on. And you're doing it based on whether or not this person..." Like I could send, I could send one of the 18-year-olds that works for me in club promo, one of the event managers I've got who are just brimming with testosterone and charisma, send them in as the pretend someone of something.
- 35:27 – 42:16
The actual business model: rent arbitrage dressed up as tech
- CWChris Williamson
And th- this, so anyway, uh, that I think lays the land quite nicely. We've got the fact that this was huge growth, that he had a lot of money behind him. Can you give the ele- elevate a pitch for how WeWork made its money? Like what the actual core of their money-making operation was?
- RWReeves Wiedeman
Sure. Um, it's, it was essentially a, a rent arbitrage. So the idea is they, um, would go to a landlord, uh, lease a building, um, or, or a, a floor of a building. Um, and, you know, they would pay a certain amount of money to that landlord, let's say it's a hundred bucks. Um, and then they ra- uh, they would then slice that office into, that office up into, um, a hundred little offices, um, rent it out to a hundred people and each rent it out to them for a buck 50. So then, you know, they're making, um, a hundred and fifty bucks. That's essentially the business. That's it. It's, it's as simple as that. And it's, it's frankly as old as time. Um, and, and that was what was so confusing to people, um, is that this is a business that existed before. Um, WeWork had made the offices cooler. Um, they had done a amazing job of branding, which is not insignificant. Um, but the idea th- of, of taking big spaces and, and cutting them up into smaller offices is something that-... this happened all the time. Regus, which is a company based out of Europe, um, is- is sort of the most- most prominent, um, most prominent example. And so, uh, that- that was kind of what was most confusing about people, or to people who were skeptics of it, is- is that's- that's a tough business and it's- it's a risky business, because what happens, and- and we've seen this now, is when you hit... What happens when you hit a downturn? And- and I think, you know, if- if suddenly all 100 of your tenants, or even 50 of your tenants leave, then you're under water. Um, and- and if that happens at the scale that WeWork had grown, um, that's- that's gonna be a problem. Um, and I think that's, you know, an- an- an underrated sort of part, or maybe underconsidered part of the success of a lot of these unicorns over the past decade is that the economy did nothing but grow, basically from the 2008 recession up until the- the pandemic that we're all experiencing. By and large, it was an upward trajectory, and so none of these companies had to deal with kind of what had- had fallen, um, or- or, uh, deal with doing business in a, in a difficult climate. So, you know, WeWork tried to- to make money other ways. I mean, the apartment business d- didn't- didn't quite work. The elementary school wasn't- (laughs) wasn't making money. You know, they tried to get people to pay for extra printing, but those are, those are marginal things. This is not like a software business where you're gonna be selling more and more services the more and more you get people on- on your business. Essentially, it just came down to renting out space for a certain amount and hoping you could lease it out to other people for- for more money.
- CWChris Williamson
Me and you could do that. Me and you could- we could get-
- RWReeves Wiedeman
I mean-
- CWChris Williamson
... whatever that nice apartment that you're in now with that painting of a very majestic castle is-
- RWReeves Wiedeman
(laughs) This is, this is at WeWork in, uh, Austria.
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
Like me and you could do that. And this really is like the elephant in the room, the crux of the story, that WeWork was positioning itself as a tech company, it was billing itself as a tech company, it was telling people it was a tech company, but it was the oldest of old time real estate, and it was just skimming off the top, the difference between long lease versus short lease, and once you get below your minimum occu- occupancy to hit breakeven point, which is inherently risky when you allow this hyper-flexible, one-month minimum, no-month minimum rolling contract bullshit, you are left-
- RWReeves Wiedeman
Yup.
- CWChris Williamson
... holding 400 plus properties across six continents, all of which can't be occupied during a pandemic, which, uh, no one could foresee, but you certainly could foresee if there is ever a downturn-
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
... if there's ever a reason for people not to go to work or just generally a recession, our costs are going to go up and our income is going to completely disappear off the face of the earth.
- RWReeves Wiedeman
Yeah. Yeah, I mean, to go back to your point, like, yeah, you and I could run one of these spaces. There are people like you and me who do them. They don't run 400 of them, you know? And- and- and the, like, you know, I- I, you know, speaking for myself and- and others, you know, what Adam Neumann had partly was- wasn't the same, and why he and- and Masa from Softbank were- were, sort of came so neatly together is, has a very high risk tolerance, and- and a willingness to sort of say, "This doesn't totally make sense, but there's an argument for it. There's an argument that we could kind of make that- that- that this might work." And so, you know, there- there's- there's a very thin line between- between, you know, the- the kinds of risks that pay off and- and the ones that ends up with you collapsing. And I think some of this just comes down to temperament, and we start the book with a quote from Adam Neumann's high school driving instructor, who, um, you know, recognized in kind of just the way that he operated as a teenager, the- the thing that he said in- in a class in- in Israel where- where Adam grew up was, was Adam's either gonna be a millionaire or he's going to jail. Like those are the two options. There's no, like, nice, steady, Adam Neumann work his way up the ranks at- at some job. He was, he was a go big kind of person, and- and the question was gonna be, um, you know, whether he- he- (laughs) he ended up, uh, uh, being successful with that risk or- or falling on his face.
- CWChris Williamson
Or both.
- RWReeves Wiedeman
Or both. I mean, and that's- that's-
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
... sort of the- the central irony here, and I think is, (laughs) a real central irony of- of a lot of this era. I mean, you can look around at- at other examples. I mean, I mean, Billy McFarland's in prison, so, you know, he, I- I think he- he- he clearly has- has fallen on his face. But- but for Adam, um, he's rich. He's- he's gonna be wealthy, um, for the rest of his life, um, in theory. He has a billion dollar package that is currently tied up in- in some legal maneuvering, but, um, you know, it... The- the risk paid off for him personally, and- and he's gonna have some reputational sort of work to do, but- but the risk paid off.
- 42:16 – 52:04
The downfall timeline: IPO sprint, bizarre S-1 tone, and ‘quirks’ turned liabilities
- CWChris Williamson
Take us through the downfall. What happened? And also-
- RWReeves Wiedeman
The-
- CWChris Williamson
... it happened to be when you began reporting on them. Have you considered that?
- RWReeves Wiedeman
Uh, I- I- I think that I played a very, very, very, very small role.
- CWChris Williamson
Pivotal.
- RWReeves Wiedeman
(laughs) But I showed up, um, a few days before Adam went on his 40th birthday party, um, uh, around the world trip, uh, that ended up in the Maldives. Um, he's a big surfer, as- as I've mentioned, and, um, while they were there, this was in April of 2019, um, they, uh, decided to go public, and- and this had been a thing they had been kind of tossing around but- but didn't want to do, and Adam didn't want to do because if you're that, sort of have that temperament, it's a lot easier to just be able to connect with Masa and say, "We're gonna go take this big risk." Once you become a public company, you have shareholders to- to report to, and- and, you know, you're gonna have (laughs) to explain why you're, why you're opening an elementary school. Um, and so from there, it was basically...... an extremely chaotic summer. Um, a lot of the companies you're seeing going public now, uh, the Airbnbs of the world, um, they've been preparing for this for a long time. Um, WeWork in, in certain ways had been... There had been an, an early pre-Masa moment where they considered going public and, and very fatefully, uh, decided not to. Um, but it was, it was a sprint, and it was a sprint from April to the end of the summer, uh, when the company released, uh, what's called an S-1. Um, and, and the S-1 is a document... Uh, is again, this document that you, you, you send to the SEC, and it has all these, um, uh, all this information on, on how your business works, basically, that, that is meant to give to investors. And sort of from the beginning, it was clear, you know, these documents are, are very boring documents. They are pages and pages of charts and graphs and, uh, disclosures in very small font. Um, in the beginning, the very first page of... I've just looked it up so I can read it verbatim. Um, the very first page of WeWork's version of this said, "We dedicate this to the energy of we, greater than any of us, but inside each of us." Um, again, it's sort of a... You can ask lots of questions about what that, uh, that actually means. Um, but, uh, the point is, if you're a financial investor and that's the first thing you s- you see, you're sort of like, "Huh?" Um, and so, you know, then from there, it was, it was, uh, a sort of shockingly quick, um, turn of public opinion against the company. And again, some of that was people finding out about Adam and his quirks for the very first time and sort of being like, "What the heck is, is going on here?"
- CWChris Williamson
What sort of quirks?
- RWReeves Wiedeman
Um... What's that?
- CWChris Williamson
What sort of quirks?
- RWReeves Wiedeman
Um, the fact that he, um, uh, he and his wife, uh, Rebekah, who is also... Um, sort of came into the company later on as, as sort of a, a, a, an executive and, and was sort of the driving force, um, behind the company. Um, the fact that they had so much control was, was one big thing. And so much control that, that when they wanted to start an elementary school, they didn't really tell many people about it, and it just kind of happened. Um, and, and so some of it was just sort of the control that they had over the company. But if you want to talk about some of the weirder stuff, um... A- and, and some of it's not weird. In fact, you know, it's... Uh, for one thing, Adam surfed a lot. Uh, that's okay. Lots of people like to surf a lot. Um, but WeWork was also invested in a wave pool company, a company that made one of these kind of inland surfing pools that are now becoming vaguely popular, but didn't seem to have anything to do with, uh, WeWorks business. Um, it came out sort of, you know, sort of an open secret that, that, um, Adam smoked a lot of marijuana. Um, and that again, uh, in and of itself, um, not the strangest thing in the world, but when you have, uh, you know, the CEO of a c- of a company sort of, um, doing this as, as kind of regularly and openly as, as he seemed to be, um, it, it led people to, uh, ask a lot of questions. Um, and then I think the, the, the main quirk, I guess, to circle back to the, that sort of, uh, epigraph that I mentioned, was just the way that he talked and the, and the way that, that WeWork talked about what they were doing and the fact that they talked... They didn't... They, they just wouldn't state the obvious, which is, "We're a real estate company."
- CWChris Williamson
(laughs)
- RWReeves Wiedeman
They insisted on saying, you know, "We are elevating the world's consciousness," uh, that this is all about the energy of we, and, and all of this stuff that, that I think o- on the one hand, I'm in favor of elevating the world's consciousness, whatever that may mean. Um-
- CWChris Williamson
Sounds lovely.
- RWReeves Wiedeman
... the ene- Yeah. The energy of we sounds like a good thing, but I think at a certain point, it became, eh, clear to people that it, it o- purposefully or not, it was distracting. It was distracting from the main... The, the actual reality of, of what was going on, which was WeWork provides nice office space, but, you know, elevating the world's consciousness is, is not something that, that it, it does.
- CWChris Williamson
Do you know the British term, "All talk and no trousers"?
- RWReeves Wiedeman
Uh, no, but I can guess-
- CWChris Williamson
You can imagine what it means. (laughs)
- RWReeves Wiedeman
... where it's going. Yeah. Yeah.
- CWChris Williamson
And tha- that's Adam Neumann. Like-
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
... um, I, I... This is again-
- RWReeves Wiedeman
Well, the, the corollary for Adam is, is, uh, "All talk, no shoes," because he would walk around-
- CWChris Williamson
Barefoot.
- RWReeves Wiedeman
... without wearing shoes a lot.
- CWChris Williamson
How did I guess? Um, I think that's another part of it. It's not only the comeuppance of an, an undeserved company overall, but it's someone in the Adam position who, from the outside looking in, has a number of things that the... Especially like the normal working class guy or girl would find pretty difficult to deal with. Spending a lot of time surfing, spending a lot of time smoking weed, decides to employ his wife probably on some ridiculous retainer package for someone who I'm sure that she has many talents, but I bet that she's less qualified than many of the people who could have got that job. Uh, and then this rapping in 2020 awakened like Austin Psychedelic language-
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
... is, is the icing on a very twatty cake.
- RWReeves Wiedeman
(laughs) Yeah. Yeah. And I think it's... You know, getting... Calling people on hypocrisy is, is, is almost tiresome because there's so much of it. But, but like th- you know...... the Newmans-
- CWChris Williamson
It never gets old, man. It never gets old, Reeve.
- RWReeves Wiedeman
I guess so. The, the (laughs) the, the, the Newmans, you know, talked constantly about making the world a better place. They talked constantly about climate change and sustainability. Um, they flew all over the world on a private jet. They had seven homes, at least, um, new homes kept emerging as I, as I would continue doing this, this reporting. Um, they lived a very lavish lifestyle. And, and again, it's, it's sort of, uh, you know, I, I, I don't wanna totally criticize that, I like having nice things, but you can't, you can't really have it both ways. You can't say, "I'm... All I care about, uh, is..." Literally, Adam said, like, "I want to change the world, that's all I care about." Well, no, clearly there, there are other things, and very material things, um, that meanwhile a lot of, a lot of your employees, frankly, are, are not getting to benefit from.
- 52:04 – 1:02:01
What to learn: charisma vs charlatanism, social media, and Theranos parallels
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
... before we do that, what are the lessons that you think the world should take away from the WeWork story?
- RWReeves Wiedeman
I've been thinking about this a lot, especially, you know, I, I started writing this book before, um, the pandemic began, um, and we are in an era where, for better or worse, a new world is going to be built. And, and Adam new... Maybe not a new world, uh, new things are gonna be built, um, frankly more easily than, than they once were, because, you know, as, as with the Adam Newman WeWork story, um, he built it out of a recession. It, it, it wouldn't have worked if he, if he had started it at another point. He started it at this, this sort of trough when real estate prices were low, and, and you could do something kinda different. And so we're, we're at the beginning of some kind of new cycle, and, and I think as, as I look back, um, eh, on, on this story and, and this era, trying to figure out the fine line (laughs) between, um, I guess to, to sort of take what you said, being, being charming and being a charlatan, is, is a crucial sort of radar for, for all of us to develop. And, and I don't... You know, it's, it's tricky to know which person is gonna fall on, on which kind of line, but I, but I think, you know, we can look at this in our, in our politics, um, in business, in everywhere. We've, we've become more and more, I think, keen to follow kind of charismatic leaders, um, and there's no easy solution to, to solving that. But I think being wary, (laughs) I guess being wary of charisma, um, and, and thinking more about, about the numbers and, and the data behind anything is, is something that we'd all would do well to, to follow.
- CWChris Williamson
I agree, man, it is... The cult of personality is just so, so strong.
- RWReeves Wiedeman
Yeah.
- CWChris Williamson
And, um, I wonder how much social media's played into this, you know? Like previously, people who were famous or talented or competent or whatever, um, they felt like so untouchable, you know?
- RWReeves Wiedeman
Yep.
- CWChris Williamson
Like there were these angelic, symbolic, difficult to reach, barely human individuals that you would hear about or that people would go to a street parade to catch a glimpse of.
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
And now, like I know what Kim Kardashian's dog's called because she uploads like 45... I mean, I obviously don't follow Kim Kardashian on Instagram.
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
Uh, but I imagine if I did, I would know what her dog was called. And-
- RWReeves Wiedeman
It's okay if you do, I think-
- CWChris Williamson
Reeves-
- RWReeves Wiedeman
... uh, you know, a lot of people do.
- CWChris Williamson
... Reeves, I promise you, I promise you-
- RWReeves Wiedeman
All right.
- CWChris Williamson
... I, I don't. Someone's gonna go and check, but I, I know I don't.
- RWReeves Wiedeman
(laughs)
- CWChris Williamson
Um, yeah, e- e- we, we have this desire for transparency and this cult of personality I think is being fed by the ability to see behind the curtain, you know? Like, President of the United States, man, like he's tweeting all the time, and I think it's thoroughly entertaining, but I think it's incredibly unpresidential. Um, and the fact that you have this (laughs) ambassador for the...... personality, uh, frontier, being the most powerful man on the planet. It's like, "Well, if he can do it."
- RWReeves Wiedeman
Yeah. And I ... You know, um, Adam Neumann was very good friends with Jared Kushner. Um, they were, you know, both New York real estate people. Um, Adam Neumann and Donald Trump were, were New York real estate people. And it's, it's not new that, that, you know, this kind of bombast can, can get you far. Um, it does feel as if it can get you farther than it once did. Um, that it's-
- CWChris Williamson
Mm-hmm.
- RWReeves Wiedeman
... maybe a liter- a little easier to sort of pull the wool over people's eyes. And yeah, I think, I think social media and, and the way it, it enables anyone to kind of, um, build a global brand off of very little, um, sometimes you can back that up. Uh, sometimes you can get by without having to back it up for a while. But eventually, at least that's what we'd like, we'd like to believe, um, eventually there, there will be some consequences for it. And I think there was in the WeWork case, um, we'll see in the President's case and, and in others, but, um-
- CWChris Williamson
Yeah. People get-
- RWReeves Wiedeman
... I, I think that's certainly the case.
- CWChris Williamson
They get found out, right? Um, yeah, I mean, the thing with social media is that you can scale clout-
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
... in a way that you never could before. Previously, to become famous, you had to do something, not just be someone. And the fact that you can be famous for just being someone, not like-
- RWReeves Wiedeman
Mm-hmm.
- CWChris Williamson
... Louis XIV just be someone, not like dynasty wealth, uh, bourgeois living in some baroque mansion somewhere. Not that kind of be someone. I mean, like-
Episode duration: 1:02:01
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Transcript of episode CoDBEYoWGoI
