The story of Adam Neumann and the rise and fall of WeWork reads more like a parable than a business story.
A tale of monstrous ego, vaulting ambition and a credulous public.
Adam Neumann was the tall, handsome, barefoot, tequila-shooting, weed-smoking Svengali who booked rap stars for the office party, had aspirations to live forever, become the world's first trillionaire and expand his company to Mars.
That seems a million miles from humbling reality, as the company that became the largest tenant of office space in New York and London files for bankruptcy protection from the very landlords who once adored it. It started with a solid, proven idea pitch-perfectly retuned for its time.
A space to work for those who wanted more than a coffee bar but less than an office was not a new idea. Regus (now IWG) was founded in the late 1980s. But when WeWork was founded in 2010 the conditions were perfect.
Commercial premises had emptied out as the financial crisis saw even some of the biggest businesses fold. Landlords were desperate. There was an army of laid-off workers trying to find a way to rebuild their careers and thanks to mobile technology could work anywhere.
Rock-bottom interest rates meant you could borrow to fund expansion cheaply. And investors with FOMO – fear of missing out – were prepared to pay almost anything in case they missed the next Amazon, Google or Facebook.
Throw some fun into the mix – by serving free beer and playing music for a younger crowd embracing new and blurred lines between work and personal life – and you had the formula for a company that, to its fans, felt more like a movement than a business.
At the heart of it all was Neumann. He arrived in New York in 2001 after growing up in a kibbutz in Israel. He went to business school and, while there, he had a number of bright ideas including a women's shoe with a collapsible heel and a company making baby trousers with knee pads.
But in 2008, to save costs he rented out half his own office space to someone else and then he and a friend persuaded the landlord to let them divide up some floors of an empty building and rent them out. This business was called Greendesk – it served free fairtrade coffee and celebrated kibbutz-style, communal living.
Young, groovy freelancers flocked in and Neumann realised he was on to something.
Taking a page from the Jeff Bezos playbook, the company gets get big fast with the help of a friendly real estate developer who invests $15m (£12m) for a 33% stake. He changes the name to WeWork and the ball is rolling.
Investors pile in, including one of the world's biggest tech investors, Softbank, pumping the value up to $47bn (£38bn) over the next seven years. Neumann wowed audiences and investors with his vision. He continues to expand into over 20 countries, he buys a gulfstream jet, hires P Diddy for the office party. But the company was losing £200,000 an hour.
Although people point to the pandemic and the recent rise in interest rates as WeWork killers, the start of its decline was well before either.
People started asking awkward questions about why a company that sublet office space was being valued like a technology company.
In 2017 the Wall Street Journal said the company was “fuelled by Silicon Valley pixie dust”.
WeWork was in fact playing a game that has proved dangerous time and again.
Buying long and selling short. That meant buying up huge amounts of long-term office space leases in prime locations and hoping that you can find enough short-term tenants to cover your own expenses, plus a profit.
But it is arguably only when Neumann decides to sell shares in an initial public offering (IPO) in 2019 that the veil falls. Documents filed with the authorities revealed bigger losses than thought and an odd relationship between the company's finances and Neumann's own.
The IPO bombed. WeWork's value fell by $40bn within a few months and Neumann resigned as chief executive shortly afterwards. Six months later, Covid hit and the landscape for shared working changed dramatically.
Neumann ultimately did a pretty good job of disentangling his own finances from that of the company he founded. WeWork is currently worth about $50m – roughly a thousandth of its peak value. Neumann himself walked away with over a billion dollars – more than 20 times what the company is currently worth.
This pied piper who enchanted some of the world's biggest and supposedly smartest investors has moved on. He has investments in dozens of companies and recently secured a $350m backing from another big name, venture capital firm Andreessen Horowitz.
To return to our parable – he flew too close to the sun. But it wasn't the wax on his wings that melted.
— CutC by bbc.com
