- How did WeWork go from a 47 billion IPO
to be worth less than 10 billion,
and some say as little as zero.
That's what we're gonna look at today.
What are the real reasons for this epic downfall
from super unicorn to worth nothing at all.
And what can we learn from that?
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This is RAW Startup.
- We were promised a world where technology
was gonna bring us together.
We are a co-working space.
We are as much a co-working space as Amazon is
a book selling store.
Anybody who thought that Amazon was there
just to sell books,
just didn't understand the vision.
- Every single company in this space
has gone broke.
- You, my friend, are full of shit.
- That's a recipe for total disaster.
I've always been an entrepreneur.
With ViVino, we've raised more than 60 million dollars.
We have 40 million users all over the world
and we've sold wine for hundreds of millions of dollars.
Over the past 25 years, I've followed startups.
I've seen them succeed.
I've seen them fail.
There is so much we can learn here
as we are gonna look at the real reasons why WeWork failed.
Finally in this video, I'll also tell you
how timing may have kept WeWork alive
much longer than they should.
So stay tuned for that.
And it may look like we are kicking people
that are laying down.
But the fact is that Adam Neumann and WeWork
are not laying down.
WeWork is still there.
Adam Neumann is still walking away with 2 billion dollars.
Walking away from a failed startup with two billion dollars
is just one of the grotesque stories in the WeWork saga.
I promise you, you've never seen
anything like this before.
As a founder, this just makes me furious.
I think about all the hard working founders
out there that don't get any funding.
So many great startups could've built with this money.
Instead, it went to WeWork for total value destruction.
I made a list of the nine real reasons why WeWork failed.
Number nine, Nepotism.
Nepotism means doing special favor for family and friends.
Usually, startups are driven by merit.
We hire the best people to get the job done.
That was not the case with WeWork.
WeWork is very much run like family business.
(soothing music)
This meant you didn't hire for merit.
You hired for loyalty because they were family.
That's a problem.
You always wanna hire the best people
if you wanna build a great startup.
Family business is okay if you own the startup.
A heavily funded startup like WeWork
cannot be run like a family business.
First red flag was hiring Rebekah, Adam's wife,
as chief brand and impact officer.
According to Bloomberg,
Adam hired multiple family members.
We heard about his wife,
but also his brother-in-law and others.
To make matters worse,
there was a special clause in the paperwork.
If something should happen to Adam,
there will be a hiring committee.
But that hiring committee was gonna be lead
by his wife Rebekah.
Who do these people think they are?
King and Queen?
Number eight, greed and self-dealing.
When I read about this, there was no going back.
I knew this was a bad company lead by really bad people.
At some point, we don't know exactly when,
Adam Neumann registered the trademark "we".
Then, in 2019, for mysterious reasons,
Adam Neumann decided that WeWork should change
the name to "we".
Obviously, to make that happen,
they need to buy the trademark "we".
Well, who has that?
Mm? Oh.
Adam Neumann has that.
So WeWork paid Adam Neumann six million dollars
for the "we" trademark.
I mean what is going on in this company?
Nothing makes any sense here.
Adam Neumann should've been thrown out of the
company for just suggesting an idea like this.
Adam Neumann also borrowed
hundreds of millions of dollars from WeWork.
He even leased real estate back to WeWork.
All this is completely unacceptable.
A founder/CEO needs to be one with the startup.
Other people have invested in the company.
There is no room for greed or self-dealings.
Always remember that anything the CEO does
will be acceptable to anyone in the organization.
Pretty soon, you will have a corrupt
and greedy organization at all levels.
Number seven, overfunded and overspending.
Over funding leads to over spending,
and WeWork has raised 22 billion dollars.
That's all the way up there with Uber,
another SoftBank company.
The fact that the money keeps flowing in,
is another thing that doesn't make sense with this company.
They should've gone bankrupt a long time ago.
This may be a first ever,
a startup that's too big to fail.
The investors had too much to lose,
they wouldn't let it go bankrupt.
There are plenty of examples of horrible spending at WeWork.
But let's just take one.
The 16 million dollar private jet.
I mean, 16 million dollars is a lot of money.
That's what we raised to build Vivino.
And that's what you spend on buying a private jet.
Well, maybe you really needed it.
Let's have a look at what he used it for.
Oh, mostly just smoking weed I guess?
This is not good.
Number six, premature scaling.
Premature scaling is when you scale a business
before the business or business model is ready.
That is what happened at WeWork.
I would go so far as to say that
I've never seen premature scaling like this before.
WeWork is in 836 locations around the world.
WeWork is the largest private tenant in
New York City, DC and London.
Now that's premature scaling for you.
This is premature scaling for one reason.
There was no sign that any of the locations were profitable.
Also, there were no signs
that the scaling would make them more profitable.
It's fine that they're not profitable,
but before you go into aggressive scaling
you have to make sure that your first
markets/locations are profitable.
For instance, Uber.
Although never profitable, they claimed to be profitable
in their early markets such as San Francisco and New York.
Same goes for Spotify.
Didn't make a lot of money.
But, they were profitable in their early markets.
I don't think this was ever the case for WeWork.
They added locations, and lost more and more money.
Number five, no corporate governance.
If you own a company,
you can do almost whatever you want.
But as soon as you have investors
in the company, everything changes.
You are now responsible for other peoples money
and that takes corporate governance.
Corporate governance means that you take care of that money,
act properly, and so on.
It's like an internal police
to make sure everything's done right.
The point is there was no corporate governance at WeWork.
Instead there was self-dealing, nepotism,
personal greed, horrific voting rules,
and all the other bad stuff
that corporate governance is meant to stop.
The senior management, the board, the investors,
and the auditors really failed
at creating good corporate governance at WeWork.
And that's one of the reasons why they failed.
And sorry EY, but this looks bad for you.
The auditor is there to make sure
corporate governance is there.
Number four, focus.
All companies need focus.
No matter how well you are funded.
Even if you've got billions of dollars,
you still need focus.
Too much funding can really mess up the focus
as you're looking for things to do with all that money.
WeWork was all over the place
even before their core business worked.
They did a school called WeGrow.
(cheerful music)
- [Adam Neumann] Teach kindness, they teach honesty.
- Really?
Do you want the Neumann family to teach you about honesty?
I think not.
They did a gym called Rise By We.
They did We Live, a place to live.
A co-living space.
And Adam wasn't done yet.
There was talk about Webank, WeSail, WeSleep
and an airline.
Well it gets worse.
They actually acquired a share
in an artificial wave company.
Yes, waves, like you see them in the ocean.
This looks like a lot of fun.
But how does it relate to coworkers visas?
With a school, gym, office, home,
all being WeWork, why would you ever leave?
It's okay to expand your business if your core business
is working and making money.
And you can go outside your normal core business
if it improves your core business.
If you start doing many things because
your core business isn't working, you're in real trouble.
WeWork starting losing focus before
their core business was working.
Now you have no core business, no focus,
and you are bound to fail.
WeWork should've spent all their resources
on fixing their core business.
Staying focused is one of the most
important things for any startup.
Number three, a broken product market fit.
A lot of people said to me,
"They're very successful.
They have five hundred thousand paying members.
That sounds like a great product market fit."
But is it really a great product market fit?
Let's take a look at how we define product market fit.
Product market fit is finding a product that
you can build at scale, that the market wants,
at the price that the market is willing to pay.
The last part is the problem.
If the price of gas is four dollars a gallon,
then I guarantee you I can sell
a lot of gas for two dollars a gallon.
I just won't make a lot of money.
I believe that's the core of the product.
Actually, people love their product.
But the cost of building that product
was just too high.
That means WeWork will never make any money
selling that product.
And you actually don't have a product market fit.
The second problem with the product market fit
is that the business model may be fundamentally flawed.
WeWork takes long leases and cuts them up
and sells them as short term leases.
Historically, that has not
been a great business model for any company.
Especially when the recession hits.
Here is legendary real estate investor
Sam Zell on CNBC.
- As a matter of fact this company
or this kind of company began in 1956.
Every single company in this space has gone broke.
- We're almost at the top.
Number two, Co founder Adam Neumann.
Well, were do I start?
There's a lot to say about Adam Neumann.
Adam Neumann was the co-founder and CEO
all the way up to September 2019 when he resigned.
There is no doubt.
Adam Neumann was WeWork for good and bad.
Adam Neumann did a couple of startups before
he went into real estate.
One of them was a shoe company
that made a high heel with a collapsible heel.
The other failed company was called "Crawlers."
They did baby clothes with padded knees for protection.
Here's their fantastic slogan,
"Just because they don't tell you,
it doesn't mean it doesn't hurt."
Great slogan.
I think Adam is a visionary founder
that can really sell an idea.
Take a look here.
- [Adam Neumann] So when I think of we,
I think of an ecosystem that brings it all together.
And the fabric of that ecosystem happens at the building,
at the neighborhood, and at the city.
- Adam does an amazing job
at selling the vision and an idea.
And it was clear that investors and employees
really bought into it.
It was almost like a cult.
Being able to sell the idea
can be incredibly valuable for a startup.
We've seen that with Elon Musk at Tesla and Space X.
He's the heart and soul of those companies.
The problem with Adam is that it's not real.
He's just selling BS.
It's not real at all.
This is Adam Neumann talking about
what his wife said about him the first time she met him.
- [Adam Neumann] She looked me straight in the eye
and she said "You, my friend, are full of shit.
Every single word that comes out of your mouth, is fake."
- Mr. and Mrs. Neumann, that's exactly how I see it.
I could not agree more.
None of the chat about doing good is real.
This is about Adam Neumann
and making Adam Neumann richer and more powerful.
I think we have enough evidence to say that Adam Neumann
is selfish, dishonest, greedy, power hungry.
Everything with Adam Neumann is about Adam Neumann.
Fundamentally, Adam Neumann is not a great founder.
At least, not alone.
If he had a good, strong, co-founder
or investor that could keep him in the rails
things might have worked out.
Adam Neumann is good at one thing
and that's selling an idea or a vision
whether it's real or not.
He had no idea how to build it.
I know that a lot of prominent people
disagree with me on this.
But for me, certain dishonest behavior
just disqualifies you as a founder.
You're just a bad founder.
So how did a bad founder raise this much money?
Well, the answer lies in number one.
Number one, investor SoftBank.
Yes, I think SoftBank is the primary responsible
for this total cluster fuck.
They've invested over seven billion
into this company and they just let it all happen.
They didn't improve anything.
They did the opposite.
They pushed WeWork over the edge.
It's important to stress that Masayoshi Son,
or Masa of SoftBank is a very successful
Japanese entrepreneur that I respect very much.
He is one of the richest people in Japan.
As an investor, he at least
made one very successful investment in Alibaba.
We don't know if that was luck or not,
but they made a lot of money off that investment.
Since then, it's not been going so well.
And WeWork is the worst example of that.
I'll go as far as to say I've never seen
an institutional investor fail as bad as this.
Things went wrong from day one.
The story is that the one billion investment decision
was made after only minutes of talking.
Famously, in 2017 Mr. Neumann spent just 12 minutes
walking Mr. Son around WeWork's headquarters,
prompting an investment of 4.4 billion dollars.
I mean, we've already set the stage for madness.
Who spends 12 minutes
to decide on a 4.4 billion dollar investment?
From day one, SoftBank pushed WeWork over the edge.
Crazier, faster, bigger and more.
The SoftBank deal changed things precipitously.
They talk about WeWork as existing pre and post-Masa.
The investment transformed the start-up from a mere unicorn
into something with nearly unlimited ambition.
So push, push, push, with no policing.
That's a recipe for total disaster.
If we look at the list of reasons why WeWork failed,
almost everything on this list
is something SoftBank either created, or should've stopped.
That's what investors are supposed to do.
A gentle push in the right direction
and stop any bad decisions.
SoftBank, where were you?
Look, SoftBank, I'm a father.
I have three children.
I know a child when I see one.
Adam Neumann is a child.
You know what happens when you leave the children at home
with the wallet on the kitchen table?
They will start buying themselves really really big toys.
Stupid money usually comes from angles
that aren't that experienced.
This is another first.
A 100 billion dollar fund that's stupid money.
We just didn't think that stupid money
could come from a 100 billion dollar fund.
Like I said, this is a first.
SoftBank, we listened to you because you had a lot of money.
In the end, you were just a whole bunch of stupid money.
It's 2020 now, we're leaving a decade.
Congratulations SoftBank,
you are the worst investor of the decade.
You made investments at the scale never ever seen before.
And you hurt start-up ecosystems all over the world.
You backed and created role models
of people like Adam Neumann.
Greedy, unethical, bad founders
that nobody should ever invest in.
As an investor, you have a responsibility
to invest in good founders.
Anyone you invest in becomes a role model.
And Adam Neumann is no role model.
I think SoftBank should apologize for their behavior.
And yes, SoftBank is the number one
reason why WeWork failed.
So here are the reasons why WeWork failed.
But we're not quite done yet.
There is some good news.
The good news here is that the IPO didn't happen.
SoftBank didn't get to IPO WeWork
and steal the public's money.
The public was smart and said no.
The fact the WeWork didn't IPO shows that the system works.
The company was broken
and should never be offered to the public.
Finally, how did WeWork last so long?
We know there is one big de terminator for start-up success.
Timing.
They started in 2010
and I think their timing was incredibly good.
Or lucky.
For the past 10 years we've not seen a recession.
That's a very long and unusual cycle.
I predict that as soon as the recession hits
WeWork will go bankrupt.
The business model cannot handle a recession.
Sorry.
That's it, if you want content just like this
to help build your amazing start-up
please subscribe to my channel now.
Thank you very much for watching.
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