INTRO: Do you guys remember WeWork? A few years ago,
the company became extremely popular amongst the startup world for renting out office space.
This popularity was accelerated by Softbank investing $10.65 billion
into the company in hopes of it going public at $47 billion. But, all these hopes and dreams were
crushed when it came out that instead of investing this money effectively, the CEO, Adam Neumann, was
burning a significant amount of it living it up. Everything from smoking weed on private jets to
purchasing deca-million mansions left and right. It seems like Adam was under the impression that
he had already made it, but his facade would come crumbling down when WeWork fired him in late 2019.
This was followed up by investors pulling out as much money as they could and writing off the rest
as losses. Softbank, for example, wrote down $9.2 billion in losses in regards to WeWork.
WeWork did eventually go public, but their market cap today has come in
at a much more modest $3.76 billion which is over 90% lower than their $47 billion
valuation. After such a nightmare with WeWork, you would think that Adam Neumann was done for as his
reputation was toast. But, somehow, in late 2021, Adam regained his position as a billionaire. So,
here’s the rise and fall of WeWork and the unexpected comeback of Adam Neumann.
HUMBLE ORIGINS: Taking a look back, the story of Adam Neumann
dates back to April 25, 1979, to Israel. Adam didn’t grow up with private jets and mansions,
but his family was pretty well off. His father was a physician and his mother was working towards
becoming a physician herself. This was actually the reason that the family would move to the US
when Adam was 7 years old. His mother needed to complete her medical residency and what better
place to do that than the US. The US wasn’t very kind to Adam though as he had a very tough time
in school due to his dyslexia. He couldn’t read or write till third grade, and even then, these
tasks were a big struggle for Adam. Fortunately, after 4 years in the US, Adam’s mother completed
her residency and the family would move back to Israel which gave Adam a sense of familiarity.
Nonetheless, his academic performance didn’t improve all that much, so after high school,
Adam would go ahead and join the Israeli Naval Academy. He would follow up this training with
five years in the Israeli Navy between 1996 and 2001, and he was honorably discharged as a
captain. Unsure of what to do next, Adam would move to New York City to live with his sister
who had built up a career as a model. Around the same time, Adam would enroll in Zicklin
Business School and attempt to secure a business degree, but this was by no means his focus. It
seems like what Adam really wanted to do was pursue entrepreneurship. In college, he entered
an entrepreneurship competition and submitted a project relating to community living. But, this
wasn’t very successful as his idea wouldn’t even pass the first round of eliminations. With no luck
at business competitions, Adam decided to go ahead and try his luck at real business, but this wasn’t
any better. In fact, it was a lot worse given that he was losing himself and his investor’s money.
First, he started a women’s footwear brand and when that didn’t pick up any steam,
he switched over to selling baby clothing starting up brands including “Egg Baby” and “Krawlers”. As
you would guess, these weren’t very successful endeavors either and Adam’s expenses far
outpaced his revenue. At one point, he was pulling in $2 million in revenue but spending $3 million.
Despite the bleak outlook of his brands, Adam decided to go all-in on business and dropped out
of college with just 4 credits left. He rented a small warehouse in Dumbo, Brooklyn which he
converted into a small office. The office didn’t help the financial situation of his business,
but I think it helped him feel better about the business. Unfortunately, though, none of these
businesses would ever take off, and Adam would eventually up closing all of them. While Adam
wasn’t able to start up a successful business, one thing he was extremely good at was making
connections and raising money. And with his next venture, he would leverage this skill to the max.
STARTING WEWORK:
The idea of WeWork actually dates back to Adam’s days in the small warehouse. Given
the small nature of his business, he didn’t have many employees and most of the cubicles within his
warehouse were empty. So, Adam reached out to his landlord and asked them if he could sublease parts
of the warehouse. His landlord would agree and Adam would begin looking for potential tenants.
This actually turned into a full-on endeavor called GreenDesk in 2008 which Adam ran with
a friend Miguel McKelvey. Adam and Miguel were both big fans of the shared office space idea.
Adam says that it reminded him of the Israeli community that he often missed.
Anyway, GreenDesk would grow quite substantially in the late 2000s, and soon enough Adam was
renting out over 100 office spaces for $350 to $2400 per month. Despite this success, in 2009,
Adam and Miguel would decide to sell the business to their landlord and cash out. This didn’t mean
that Adam was done with the shared office space business though. Rather, he just wanted a clean
slate to start something much bigger. In 2010, Adam and Miguel began looking for larger and
better locations that he could rent out, and this is when he would run into a real estate developer
named Joel Schreiber. Joel really liked the office sharing idea and offered to become an angel
investor in the company. He didn’t just offer a few hundred thousand or even a few million though.
He offered to invest $15 million into the company in exchange for a 33% stake. Personally, I have no
clue why Joel decided to invest $15 million into a company with no revenue. It’s also unclear why
he decided to invest this money into two random dudes he just met instead of just starting the
business himself. Nonetheless, that’s what he decided to do and that’s how WeWork was born.
Over the next few years, Adam and Miguel secured a bunch of high appeal locations
all across New York. This included a location in New York’s Soho district, a location near
the empire state building, and a location in the meatpacking district. They would follow up
this expansion across New York with national and even international expansion. In 2011,
they opened up a location in San Francisco, and in 2012, they opened up a location in Tel Aviv,
Israel. To Adam, it seemed like he had finally hit the jackpot, but this wasn’t exactly true.
A WE EXPLOSION:
Despite the fast expansion, both Adam and Miguel were well aware that anybody with capital could
just do what they were doing. At the end of the day, they were just leasing commercial
buildings breaking them up and then subleasing the broken parts. So, the duo decided to add
elements that made them a bit unique. They installed beer pubs into their buildings,
they put similar clients on the same floor, and they started a web service called WeConnect that
allowed their clients to trade services. All of these small additions gave WeWork an edge
over the competition, and soon enough they were attracting billions of dollars. By 2014,
WeWork was able to get some of the most notable companies in the world to invest in them.
This included JP Morgan Chase, Goldman Sachs, Harvard Corporation, Wellington Management, and a
few others. With all this backing, WeWork was able to raise hundreds of millions of dollars with each
funding round and add dozens of locations over the next few years. In 2016, Fortune magazine would
choose WeWork to be one of their top 3 unicorns to bet on. Around the same time, SoftBank would
launch their vision fund and one of their top picks would of course be WeWork. Very quickly,
SoftBank would become WeWork’s biggest backer pouring in $18.5 billion by the end of 2019.
It seemed like nothing could go wrong. WeWork had hundreds of locations around the world,
and they basically had unlimited funding. But, really, it wasn’t all that great. First of all,
the company wasn’t even close to being profitable. You see, subleasing corporate space wasn’t very
lucrative as it had extremely high overhead. The company was burning hundreds of millions
every quarter, and there was still a long road to profitability. So, there was no way WeWork could
survive without investors. Considering this, you would think that Adam would suck up to investors
and try his hardest to become independent from them. But, it looks like Adam actually
had no problem with relying on investors. Maybe to him, it seemed like an unlimited source of cash,
but the thing he forgot about was that all the investors were in it for profit.
And sooner or later, they’re gonna want returns. Initially, though, they gave Adam a considerable
amount of freedom and they didn’t feel the need to micromanage them. This freedom, however,
got to Adam’s head, and it wasn’t long until he was burning millions.
A WE BUST:
One of Adam’s most notorious indulgences was weed-filled flight trips. Apparently, his friends
and he smoked so much on board that their crew had to wear oxygen masks. In one instance, Adam’s
private jet wasn’t available, so he borrowed a G650ER from Gulfstream to go on a trip to Israel.
As you would guess, he smoked on the entire trip there and he left a large amount of it inside
a cereal box to save it for the trip back. When the crew found this cereal box, they weren’t very
happy. You see, smoking onboard was one thing, and transporting the substance internationally
was something else. For obvious reasons, the crew nor Gulfstream wanted to be involved in this,
so they reported him and flew back to the US without him. On another trip to Mexico City,
it was reported that Adam and his colleagues were spitting vodka on each other and they threw up
all over the cabin. And after all that, they didn’t even have the decency to tip the crew.
Adam quickly built up a reputation as being a nightmare client amongst private pilots
and flight attendants, but this negative reputation wasn’t just limited to flights.
Adam also had a reputation for mistreating employees and other executives. He didn’t
necessarily overwork them or abuse them per se, but he had very little respect for their time.
For example, he often showed up hours late to meetings, if he showed up at all. All of this
was already quite a bad image, but the final straw was that WeWork wasn’t just losing money,
it was losing ludicrous amounts of money. In 2018, for example, they brought in $1.8 billion and lost
$1.6 billion. At that point, they were basically paying $2 for every dollar they brought it.
This business wasn’t any better than Adam’s original baby clothing business, but this time
he was playing with billions instead of millions. Seeing this, investors finally decided to pull the
plug on WeWork and the frat boy that was running it. Softbank and the rest of the board turned
on Adam and forced him to take a buyout for $500 million. Personally, I don’t think Adam deserved
anything given his terrible performance, but technically this was a lot less than the $14
billion Adam’s stake was worth at the peak. After everything was said and done, Adam was left with
somewhere between $450 million and $750 million. In the meantime, his investors took losses in the
tens of billions and 2400 WeWork employees lost their jobs. Usually, it’s the everyday employee
who gets screwed while investors make bank, but in this case, everyone got screwed except Adam.
DISGRACED BILLIONAIRE:
Given Adam’s infamous history with WeWork, it’s gonna be difficult for him to start a new company
and raise money, but this doesn’t really matter for him given that he already has plenty of money.
Even though he was publicly kicked out and humiliated, he did walk away with roughly half a
billion. And, with that sort of money, all he had to do was make some safe investments and cruise
back to billionaire status, and that’s exactly what he did. Ever since the WeWork ousting,
Adam has mostly stayed out of the spotlight, but recently, he did agree to do an interview after
regaining billionaire status. In the interview, he was actually given a bunch of tough questions,
but Adam was extremely well prepared for the interview and handled it really well given
the circumstances. Many have gone on to call Adam a genius for making a billion dollars
while his company didn’t even make a penny. Others think that Adam is a snake oil salesman
that manipulated his way to the top. Either way though, it doesn’t really look like Adam cares,
and I think this statement from Adam sums up his thoughts pretty well. Adam has some regrets,
but no apologies. Would you guys do what Adam did if it meant becoming a billionaire? Comment
that down below. Also, drop a like if you wish you had some of Adam’s investors by your side.
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