Adam Neumann: The cult of WeWork

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1:24Welcome to Good Bad Billionaire. I'm Zing Zing and I'm a journalist, author and podcaster. And I'm Simon Jack. I'm the BBC's business editor. And each episode on Good, Bad, Billionaire, we pick a billionaire, find out how they made their money. And then we judge them. Are they good, bad or just another billionaire? Our billionaire this episode is Adam Neumann. Now, you may not have heard of him, but you will have heard, I think, of the co-working company WeWork that he founded. Adam Newman is six foot five. He's handsome. He's charismatic. His floppy hair makes him look like someone from my so-called life, which is ironic because Jared Leto played him in the highly unflattering biopic We Crashed.

2:06Adam is the barefoot hippie CEO who charmed billions out of investors. Now, the concept of WeWork was pretty simple. You rent a bunch of buildings long term, you turn them into offices and rent them out short term at a profit to people who don't want the faff of managing or owning their own office. Sprinkle a little bit of millennial cool on them and hey presto. At its peak, WeWork was worth$47 billion. And Adam had a lot of fun getting to that point. He bought a$60 million Gulfstream jet and got stoned in it. He booked P. Diddy, the chain smokers, Run-DMC and Lord for office parties. As you do.

2:42He spent$20 ,000 on tequila and made people do shots during business meetings. Ever done a shot during a business meeting? I'd like one right now. Yeah, his modest aspirations, including wanting to live forever, to become the world's first trillionaire and expand his company to Mars. In reality, he oversaw one of the most spectacular business failures in modern history, but still walked away with a billion dollars, which is why we're talking about him. We're going to tell you the Adam Neumann story from the beginning, how he got from zero to a million dollars, then a million to a billion, and ultimately how his story ends.

3:17From Messiah to Pariah, this is the rise and fall and possible rise again of Adam Neumann.

3:28So let us start with chapter one, going from zero to a million. Our story, Adam's story, starts in Israel. A young Adam Neumann growing up in a kibbutz. Which is essentially this kind of a self-sustaining utopian community built on socialism and Zionism. You know, they are all over Israel. And this is where Adam grew up as a teenager. And this gives him a strong sense of community, which is a word, seeing that will resonate with him and influence his business, as we see. But this isn't quite a rags to riches story. No, it isn't. And that's because the Newmans came from, well, relative middle class wealth, right?

4:09Both parents were doctors. And even though they split up and Adam lived and grew up on a kibbutz in Israel for his teenage years, there's always something of the kind of entitled playboy about him. He had a habit of growing his hair long, breaking into the kibbutz swimming pool, going around with lots of girls. So, you know, not quite the kind of Jesus figure on the fringes of society here. And also not quite the kind of hay man dropout. I mean, he went to business school, right? Right. So he went to Baruch College in New York at 22, living rent free with his sister, Addie, who was a model and was enormously successful and well connected in New York at the time.

4:49And just spent quite a lot of his 20s just doing what a handsome, tall young man in New York does, having fun. But he had big dreams. He had a few early business ventures. They say you've got to learn to fail. And he had a couple of failures. Yeah, so one of his first big ventures was a business company called Crawlers, Crawlers with a K. It's quite a bizarre idea. And I have to say, I don't have children. I don't know about you. But I don't really see what the point of this invention was. But it was a kind of baby onesie with padded knees so that when babies started crawling, they wouldn't feel pain.

5:23Right. Would you buy something like this? I think I probably need one now. Maybe that was Adam's first mistake. And he got some money from his family to do that. right? Yes. So famously, Addy was already quite successful as a model. She was on the cover of magazines like Vogue. So she put in a few hundred thousand dollars and his grandmother as well contributed a few hundred too. So that was the initial seed investment for crawlers. Good old granny came up, came good with some money. But we wouldn't be talking about Adam Newman if crawlers was a huge success and we'd have heard about it. It wasn't.

5:57But then in any business venture, you meet important people. And one of those was a guy called Miguel McKelvey. Yes. And Miguel McKelvey at the time was an architect. So coming from a more traditional work background than Adam, but they had a few things in common. So Miguel grew up on what I think he described as a matriarchal commune in Oregon. So a bit like a kibbutz again, there's that common denominator. So quite like Adam in his unconventional upbringing, was also the product of a single mum like Adam. And I think found in Adam not quite a kindred spirit, but someone that he could work with.

6:34Because while Adam loved being the centre of attention, Miguel was very much the person who liked being next to the centre of attention. And he also had that qualified architect background, which meant that he could design offices, which Adam could not. Okay, so a key wingman for Adam Newman throughout this. And the moment, I suppose, a flash of inspiration came when Adam needed to rent out some of his own office space, sublet it, to raise a few dollars. I think also, interestingly, this came about because Crawlers was not that successful and Adam was in need of some cash. And that's where he came up with the idea of renting out part of their office to another company.

7:11This is when this idea of renting out office space calcifies into something real with Miguel. Enter GreenDesk, their first proper company. Which worked. I think the timing of it is really interesting, right? Because GreenDesk launches in spring 2008, when, as we know, the global economy was in basically freefall and people told Adam and Miguel that this would never work because companies were tightening their belts. Why do you think GreenDesk worked in the end? The context of the time, I think, is really important because you've got the financial crisis going on. The biggest financial crisis I ever thought I'd see in my lifetime, people were getting laid off.

7:46A lot of people getting laid off, a lot of people shutting down office space. You had a lot of people looking to restart their careers, maybe had to look somewhere else. Not only that, but you had companies who were downsizing. But if they needed a few extra people, maybe things like, you know, they could work out of smaller offices. So in a way, a recession of that scale, you could argue was actually quite a good moment because the office space was cheap. So recessions are sometimes famously quite a good time to start a business and not just for them, but also for the people who became their customers.

8:20And that's where it got some traction. And I think the first few tenants of Green Desk were quite interesting for that reason, right? So they were a fashion designer, Gothamist, which was a kind of scrappy media startup, a calligrapher, a private equity firm. You know, all these people were tangentially kind of on the sidelines of New York money, New York society, month to month lease, you know, this feeling of camaraderie. it's quite attractive, really, if you want to set up something on your own feet. Yeah, and it had that kind of sort of millennial feel about it. We don't need the big office.

8:54I'm not going to punch in and punch out. I go wherever I like. I've got my laptop, will travel, full of ideas. All I need to do is plug and get a bit of Wi-Fi for a while. And if there are some other amenities in there, more than coffee, maybe other things, a beer keg, for example, that all fitted that millennial buzz really well. And do you think that Green Desk was just one of many startup, rent-a-desk places that were operating at the time? Because, you know, I think when it launched, there was already a New York Times article profiling the launch of these kind of more communal workspaces. But they were much scrappier.

9:30You know, we're talking about places in San Francisco where the walls were constructed from bedsheets and everyone kind of was a hacker and it was a little bit more DIY. Do you think what Green Desk offered was professionalism, a little bit? Professionalism with an edge of cool. No one wanted to... Do you remember the Dilbert cartoons where everyone were in cubicles? You wanted to get away from that as far as possible, being a small cog in a massive machine. Sometimes the personalities of the people behind it show through in the products that they offer. And I think that might have been the case with Green Desk and it certainly was when we get to the next stage.

10:06So let's talk about the next stage. So what happened to Green Desk? So they sold up to the landlord from whom they'd rented the space, who'd watched pretty impressed. And he went on to sort of try and expand that business himself. He did. But they got half a million bucks each. So the company, these two, Miguel and Adam, have their first million dollars. Stage one. Stage one.

10:29So that's the first million in the bank. Now what? How do you go from a million to a billion? I mean, that is a lot of millions. And personally speaking, I don't actually understand how you could possibly go from a million, which seems like a lot, to a billion. But let's find out. So Adam and Miguel are told by their landlord whom they sell up Green Desk to that they are not allowed to start another Green Desk-like company in Brooklyn. So they start looking ahead to Manhattan, the big apple, the big city. And they come up with this idea called WeWork. And eventually they want to expand it to apartments, to hotels, to banks.

11:05But because offices are the thing that they're most comfortable with, WeWork starts as an office. Yeah. So offices were to WeWork like books were to Amazon. The first commodity, if they can make this work, then maybe you can expand it to other. But in all of these businesses, when you're going, you're talking about the difficulty of going from the unimaginable from going to a million to a billion. In the trade, we call this scale up. Right. And to scale up, you need someone to come along who's got deep pockets. And this is where Joel Schreiber comes into the picture. a very important person in this story.

11:37So Adam has been going out and pounding on the doors of various investors, asking them, please give us some money so we can make WeWork a thing. And he hits gold with Joel Schreiber, who's a real estate developer, who's very well respected in New York. Now, Joel doesn't have buildings to give Adam, but he does have a lot of money. So he asks Adam and Miguel, how much is this hypothetical WeWork actually worth? And Adam and Miguel go away, they confer, and they tell him that WeWork, which at this point does not have a single office, is worth 45 million. And what does Schreiber do? He says, I'll take 30 % of that and gives them 15 million bucks.

12:16I mean, nice work if you can get it. So the first WeWork opens in 2010 in Soho with only 17 tenants. So not that many people, really. Musicians, startups, architects, and it's still quite DIY. So the thing I find most incredible about the first WeWork is that Miguel wires the whole office for Wi-Fi himself. And the head of IT is a high school computer nerd who drops out to work on WeWork. I'm still reeling from the fact that they haven't got a single asset and they managed to get somebody to give them$15 million. You've got to be one charming so-and-so to be able to pull that off. And that is kind of the Adam Neumann story.

12:55It's charming the birds from the trees and the money from investors. And I think the thing that strikes me most about this era of WeWork is that it was considered cool to work at somewhere like WeWork. And that's why it attracted so many people in their 20s who were willing to put up with the working conditions. When I speak to, and in my work, I do speak to a lot of very rich people who've made huge empires. And all of them sort of talk misty-eyed about it when it was just me and you, Dave and Mr. Hewlett and Mr. Packard. Right. In the corner when we had one printer and one phone and we used to have to go down and, you know, take out the garbage.

13:31And they talk about that much more than they talk about the billions they've made thereafter. And I think this is that moment for WeWork. And why do you think that is? Why do you think there's so much nostalgia for back when it all began, even though clearly, you know, nobody really joins a company expecting to make IKEA furniture and wiring up the internet? Yeah, I think it's because it plays into a romantic notion of you against the world, against massive odds, and tells a narrative to the rest of the world. I haven't always been mega rich, you know. I basically built myself up straight from the bottom.

14:05It taps into the American dream. It taps into that hard work and gets you there. And the sky's the limit. But actually enjoy the process rather than the exit. And Newman later on in his life says, don't work just thinking about the exit. Enjoy the moment. And he seems to have done that. I mean, the rags to riches story is very compelling. But, you know, at the same time, Adam is out there milking his social circles for cash, right? So at this point in WeWork, he starts raising millions from friends, from family. He even rents out a house in the Hamptons to network with rich people even more. And crucially, this is also when he gets with Rebecca Paltrow, now known as Rebecca Newman, a very wealthy New York socialite.

14:46So the Paltrow name, everyone's eyes raised. Is it the same Paltrow family? Yes, it is. And she, Rebecca, is a cousin of Gwyneth's and she doesn't hide that fact. And actually, she's an important person in this story. Yes, because she actually ends up investing quite a lot of a$1 million nest egg she inherits into Adam's company when WeWork's just starting out. So Rebecca becomes an increasingly important figure in WeWork. She actually gets the title of chief branding officer and starts to ingratiate herself into almost every aspect of the way the company works. And she'll become an important figure later on when the company eventually tries to go public.

15:24And so they start raising money. Every time you raise money, you're asked to give a value of the company. So you put money in and say, how many shares? What kind of share of the company are you getting for this amount of money? So that's how you can basically chart the value of a company over time, because each time they raise the money, you have to put a value on it. So February 2014, the financiers say WeWork is worth 1.5 billion. Ding! We've hit that billion dollar. That doesn't last long. Before long, it's 10 billion dollars. 10 billion dollars there by 2016. It becomes what they call a deck of corn.

15:59A unicorn is worth 1 billion, a deck of corn worth 10 billion. And then you've got the big guys coming in. JP Morgan Chase, biggest bank in the world on some measure. Goldman Sachs, smartest guys on Wall Street. They're in. So they've really got a lot of momentum now. So what was Adam actually telling these guys to convince them to pony up so much cash? Was it just raw charisma? Was he showing them any kind of figures and profits that were impressive enough to justify that kind of investment? I think there are two things going on. He was saying this is the second biggest asset class of any kind in the world.

16:31So the market is worth trillions. What is an asset class? An asset class is a good question. So gold is an asset class or precious metals is an asset class. Government bonds, IOUs are the government issue. That's an asset class. Shares are an asset class. Real estate, all of those things are called asset class. It's like a category. It's a category all on its own. So he said, listen, real estate is, you know, you think about the combined wealth of a country. A lot of it is tied up in bricks and mortar, whether that's commercial or residential. So the market for this is absolutely huge. And that's well known.

17:06But there's another thing that's going on right now. We're out in the 2010s. Facebook has been around a little while by now. Valuations for companies are going through the roof. And what he successfully does, and this in a way is the biggest trick he pulls throughout his career, he manages to persuade people his company is a technology company and not a good old-fashioned real estate company. And so they go, you've made property into a tech company. This is the greatest thing ever. So why do you think Adam had such a vested interest in making WeWork out to be a tech company, as opposed to what it actually was, which seems to be just plain real estate.

17:45It's all about the value of the company. Technology companies sell for much bigger multiple, is the word they use, of what they earn than regular companies. And this is what every company wants to try and be seen as a bit of a tech company because they think they'll be valued more. And so, as you rightly say, this is just office space. In a technology company, once you do the first programme, if you're Microsoft and you've invented Excel or something, you can make a million more of those and it costs you nothing. They just get downloaded. If you're Facebook, you've got two billion users. There's very little tangible capital involved in that.

18:24It's basically in the ether. But a real estate company, these are just office blocks. And there's only so many offices you can build. There's only so much space. There's only so much concrete. There's only so many you can build. And there's only so much room you can rent. whereas in the internet there is an unlimited amount of space and that's why they come on those multiples and why everyone wants to try and pretend to be a tech company which is what they did. And I think this is also why Adam starts hiring engineers and trying to build this thing called WeConnect which is meant to be a tech platform connecting the different offices to each other and it's meant to be a kind of internal working app you know sort of like what Slack is but crucially it just doesn't work and I think one of the engineers at the time said it didn't matter if it didn't work.

19:08They just had to make it because Adam said so. And this is the way the word community, which we've already mentioned, was a big thing in both of their backgrounds when they were growing up. It's the power of the community. That's one of the things that give things like Meta, Facebook, Google, etc. that gives them their clout. It's the fact that they can convene billions of people at once. And he was basically trying to fake that within what is essentially just serviced offices. And famously, he also pitched to Sean Parker, who invested in Facebook and founded Napster with the words, I'm doing the social network, but the physical social network.

19:44Yeah. And at this point in technology and investing, everyone was promising we're going to change the world, we're going to change how we live. No amount of ambition was too much. And also, everyone wanted to capture the next Google, the next Facebook, whatever. There was a fear of missing out, saying this could be mega. And if we don't get in now, we'll miss the boat. And that was part of the confidence trick as well. He deliberately tried to compare himself to Steve Jobs of Apple. He said that the noughties were the I, you know, iPod, iPhone, I this, I that. He said the 2010s are going to be the we.

20:21And then he went even further and said, I am the we. So there you go. I mean, that's where the serial killer music starts happening. That's when everyone should have gotten out. So in this period from 2014 onwards, there's a feeding frenzy. People all want a piece of this. And then comes the big moment when a guy called Masayoshi Son, a Japanese investor, has the world's biggest investment fund. It's something called the Vision Fund. And he comes in and pumps in billions at a valuation which values this company at$47 billion. They've made the big time. And let's contextualise that figure. How big is$47 billion compared to other tech firms that were getting silly amounts of money at the time?

21:07Did it put WeWork as one of the highest valued companies out there in the world? It put it right at the top of the tree in terms of companies that were still private. Obviously, you had the Googles, the Apples, what have you, which have been a long time public companies, which the public could buy shares in. But this puts it right up there in the galaxy of stars of mega companies that are still private. It's really near the top of the tree. And this is when Adam also becomes a billionaire, right? And starts spending like a billionaire. So I think one of the best stories of Adam's spending spree involves spending$35 million, short change, small change for a billionaire, to buy four apartments in New York to knock them all together into one massive penthouse.

21:51He flies 2 ,000 employees, that's everyone in WeWork, to California, rents out Universal Studios Hollywood for the night and pays the Chainsmokers to perform. And, you know, his ego and a disconnect starts growing. So I think at one point during a public relations call with some employees, he starts thinking about, no, maybe I could be president of the United States. Before then, he's informed that, unfortunately, as someone who is not born in America, he cannot. And then he goes, OK, yeah, well, that's a bit small for me anyway. And he buys, you know, the ultimate corporate play thing is the Gulfstream jet, a$60 million jet to get around the world.

22:30He actually now admits, looking back, that the$47 billion valuation, that's when he went a bit nuts. I think it went to his head. I mean, he was always wanting to get there. But at that point, he thought he was totally invincible. There's a really good story from this period of when Adam's relentless partying starts getting on the nerve of his tenants. So famously, at one point, The Guardian was actually the biggest tenant of WeWork in New York in one of its Soho offices. and he keeps throwing parties in the canteen where people are doing shots. He's like blasting music and someone from The Guardian comes down and says, hi, Adam, do you mind turning it down a little bit?

23:07You know, we've heard Rundas Tan for the 10th time in a row and he locks eyes with her and then silently puts his hand on the volume down, turns it all the way up and then starts pretending to stack cash on top of his hands, one hand on top of another, as if to say, I'm a billionaire, baby. Don't tell me what to do. Wow. What pleasant behaviour. I know. Exactly what you want from your landlord. Yeah. And the funny thing is about this cash burn thing. During this period, there was a great premium put on companies spending as much money as they could. If you weren't burning through investor cash, like, you know, saying we're investing more, we're building, we're building, we're building, we're getting bigger and bigger and bigger.