WEWORK: THE STORY OF AN ALLAMERICAN BUSINESS SCANDAL

WeWork is the story of one of the world’s most valuable start-ups’ rise and fall. In less than a decade, WeWork grew from a small co-working space company to a global brand valued at $47 billion. Then, in less than a year, the company’s value plummeted.

Recently, a miniseries titled WeCrashed was released. The show depicts the story of the greed-filled growth and inevitable crash of WeWork and the narcissists whose crazy “love” made it all possible.

As the globe is captivated yet again by another American business scandal, it appears that WeWork is still the buzz of the global village.

We looked at the WeWork narrative to seek to understand modern society’s obsession with dull companies and the antiheroes who lead them.

The goal statement of one of the most talked-about start-ups of this century is “to enhance the world’s awareness.” Adam Neumann and Miguel McKelvey established WeWork in New York City in 2010. The company provided low-cost, flexible shared workspaces to up-and-coming technology start-ups around the world. Still, it is best known for making headlines in 2019 when it went from a $47 billion valuation to a mere $10 billion valuation while undergoing a company rebranding (to “The We Company”) and filing S-1 statements as part of its IPO. The firm was present in 121 cities across the world and had over 740 sites as of December 2021, and it went public with a current worth of $9 billion. A once favorite of Softbank’s Masayoshi Son, he subsequently said, “My own investment judgment was really bad. I regret it in many ways.”

In 2008, Adam Neumann and Miguel McKelvey founded an “eco-friendly co-working space” in Brooklyn; in 2010, they sold the company and founded WeWork in New York’s SoHo district. WeWork was named the fastest growing renter of new office space in New York in 2014. Then, in 2015, the company expanded and had 51 collaborating areas across the US, Europe, and Israel. Artie Minson (former CFO of Time Warner Cable) joined as COO. In 2016, WeWork was valued at $16 billion and raised $1.7 billion in private financing. In 2017, the first indication that SoftBank is interested in investing in WeWork arose, and the investment could be part of their Vision Fund ($100 billion innovation fund). WeWork’s valuation then surpassed $20 billion. Expansion in Asia began against established competitors (some of which were also unicorns, such as Ucommune in China), and in 2019 WeWork began preparing for an IPO and rebranded itself as “The We Company.”

After funding $1 billion in series H spearheaded by Softbank, the company’s valuation rose to $47 billion. Soon, Adam Neumann sold $700 million in WeWork stock before the company went public. The S-1 form was made public, causing quite a stir. Several inconsistencies were discovered by the media and specialists in the information that was to be submitted by the corporation as part of its IPO. The “Community Adjusted EBITDA” – a very creative accounting scheme that didn’t really work, was almost the same as their revenue!

A significant lack of accountability also marked WeWork: while the company was losing money and explaining to its employees how they were meant to make sacrifices for it, Adam Neumann purchased a $60 million plane. The losses for the first and second quarters of 2019 were over $700 million. Still, the company was unable to scale efficiently — losses increased proportionally, demonstrating that its branding as a technological company was nothing more than a pipe dream. This media storm raised worries about the company’s future viability, and caused significant public outrage in the aftermath of the discovery. The IPO was halted, Adam Neumann was replaced, and the firm was taken over by SoftBank, which also announced a $5 billion rescue package. In 2020, SofBank valued WeWork at $20 billion and said the investment in WeWork was “foolish.” By this point, they had invested approximately $17 billion in WeWork. WeWork went public in 2021 and is valued at $9 billion.

A business strategy like no other So what went wrong with WeWork? The short answer is “everything”. The longer answer is another story…

WeWork marketed itself as a tech company, despite the fact that technology was not its primary offering. They provided data analytics tools to help the company understand how individuals used the rooms they rented, but their core product was renting inexpensive office space. Later on, they created many lines of business ranging from education to on-demand sleeping rooms and set out to create a new way of life – the “we way.” The primary business line catered to entrepreneurs and (often small) enterprises looking to rent cheap furnished office spaces. Besides that, the company has a diverse range of office renting offerings aimed at capturing and retaining a diverse community.

“Their pitch went beyond simply offering short leases to startups in need of flexibility,” the Financial Times put it succinctly. WeWork, with its pinball machines, meditation rooms, and beer on tap, would not only appear different, but it would also provide a physical social network to a generation of millennials who were questioning if there was more to life than their screens. Neumann’s idea of establishing a new work culture — and more — was suddenly all over the place. ‘We are here in order to change the world,’ he once stated. ‘Nothing less than that interests me.’

To make the offers even more appealing, WeWork handled all office administration - as a renter in their offices, you didn’t have to worry about paying for utilities like electricity, water, internet, etc. This turnkey option was especially appealing in large cities, where the price of setting up an office’s entire infrastructure can be overwhelming and several times the rent that WeWork received. It is also worth noting that the majority of WeWorks facilities are usually placed in good locations. To keep expenses low, WeWork often rented spaces for at least 15 years or immediately purchased the properties (to minimize the space acquisition costs as much as possible). They par - titioned the rooms they obtained into smaller spaces that they rented out. Rents received from subdivided areas paid for the space, restoration, and consumables and were meant to create profits. WeWork provided substantial incentives to those who owned working spaces. These included, among other things, higher-than-average rentals (when computed over the lease period), a larger and more diversified pool of residents, offices branded with powerful symbols of triumphant capitalism, and so on. WeWork’s real estate became heavily sales-driven to support their demand surge in workspace demand. In 2018, the start-up (then valued at $20 billion) signed deals in North America with CBRE, Cushman & Wakefield, and JLL, offering their brokers a 20% fee on a one-year lease and a 5% fee on expansions and renewals. Moreover, building owners appreciated working with WeWork since they did not have to handle several clients or find new tenants every year/couple of months, do due diligence on them, and so on. Furthermore, specific WeWork properties saw an enhanced property value, including a 50-120 percent increase in the sale price and up to a 29 percent increase in rent surcharges after WeWork moved in, according to the WeWork Landlord Partnership.

Overall, WeWork did an excellent job of marketing itself. According to Google trends, it grew to be larger than the entire co-working industry and was so successful that it became associated with the concept of co-working. It sold itself with feelgood phrases like “Do What You Love”, which spoke directly to people’s needs and desires, namely to be successful and to be a part of something bigger than themselves in a world void of meaning, philosophy and religion. WeWork stated that they wished to raise the global consciousness by providing comfort and happiness to the workplace. The concepts of community, prosperity, and responsibility (all essentially meaningless buzzwords) worked like a charm with their clients. As Atlantic reporter Derek Thompson said in the documentary “WeWork: Or the Making and Breaking of a $47 Billion Unicorn,” millennials want more than just a job or a career; they want a calling, and WeWork certainly appeared to provide one. In a way, WeWork, a highly capitalist company, tried to sell the socialist dream.

In terms of market, WeWork was operating in a highly profitable market. Despite the pandemic, the number of co-working spaces increased by 15% between 2018 and 2021, while the number of individuals working in co-working spaces increased by 48%, reaching nearly 2.5 million in 2021. According to Statista, the number of individuals working in co-working spaces will reach 5 million by 2024, with around 42,000 co-working spaces worldwide. Regus, Spaces, and Knotel were WeWork’s main competitors (they went bankrupt after the pandemic). WeWork was by far the most significant shared office leaser in the United States in 2019, renting 27.5 million square feet of office space. By the third quarter of 2019, WeWork had around 601,000 members worldwide. In terms of revenue, memberships account for 83% of revenue, extra services account for 5%, and other revenue sources account for 12%, while location running expenses account for 80% of costs. Because of the rebranding and aggressive expansion strategy, the S-1 statement submitted to the United States Securities and Exchange Commission revealed that costs were around 189% of total revenues in the same time period by H1 2019. WeWork’s revenues climbed 8,4 times between 2016 and 2019 and raised $3,5 billion in 2019, despite the company incurring losses of $417 million in 2016, $990 million in 2017, and $110 million in 2018. With the 2019 relaunch, the corporation lost $1.25 billion in the third quarter. According to CrunchBase, the total investment in WeWork was approximately $ 21,6 billion over 21 funding rounds, with a current market value of $ 9 billion. Also according to Crunchbase, they spent up to $1.3 billion on some of the acquisitions to enhance their capabilities.

Adam Neumann: The leader of the times

Adam Neumann, a charismatic entrepreneur who “seduced” prominent figures in the business world, was the key person linked to the company and the center of the controversy.

His objectives for WeWork were ambitious, but he was unable to address the company’s core issue: producing internet company profits while operating as a classic large landlord company with a twist. Neumann had the impression in his head that he was a proper shaker in the world, but in actuality, he lacked the goods to back it up. As interest in the IPO increased, so did interest in Neumann. His office rants, alcohol issues, stories of cannabis smuggling, and overall lack of support from everyone around him (except his wife) generated a bad reaction from the public. Furthermore, he was seen as egocentric (having a photoshopped photograph of himself surfing) and hypocritical, demanding a company-wide meat ban while purportedly consuming meat himself. Apparently, Neumann also cashed in on rent payments for company-owned spaces, and soon enough, money problems and legal troubles arose. It was also found that he had been paid for copyrighting the word “We.” As the S-1 form was investigated, more and more allegations of sexism and unethical behavior poured in, eventually leading to his demise. Clearly, Neumann’s domineering manner left an imprint on his organization and contributed to its demise. It’s unclear whether he was aware of how he was seen.

In a 2019 Guardian piece, he was described as “the tall, longhaired, barefoot, meat-banning, weed-smoking, tequila-drinking, Kabbalah-studying, experimental school-opening Paltrow-cousin-in-law”. To round out the picture, he boasted at the height of his authority that he could connect everyone and even influence those in positions of power, such as Mohammed bin Salman Al Saud, Saudi Arabia’s crown prince, deputy prime minister, and minister of defense. Neumann allegedly stated, “If only MBS would listen to me, I could counsel him on how to be a better leader.”

Even though Adam Neumann was heavily criticized, he did have some strengths; he was a very imposing figure who knew how to make himself seen and heard, and he was also someone who could draw people to him; without these qualities, he would not have been able to create such a personality cult for himself.

A Vanity Fair article titled “You Don’t Bring Bad News to the Cult Leader” detailed: “Neumann’s charisma was intoxicating to be around. ‘If you had to go to war, you wanted him to be your general,’ a former executive said. (…) ‘When you’re in a room with Adam, he can almost convince you of anything,’ a former employee said. Neumann used mass gatherings to spread his gospel. “I think the thing that all of us know is that if you want to succeed in this world, you have to build something that has intention,’ he said on stage at Summer Camp in 2013. He then explained that everyone at camp was there because it had meaning and they were actually making the world a better place. And then added that they want to make money doing it! The crowd of thousands exploded in cheers. ‘So many of the people were young and had never worked in a real company. They bought all of it,’ a former senior executive said. ‘I realized after I got there, it was a cult’”.

At first, people at WeWork truly felt that they were around each other and happy under Adam’s leadership, which is why they had a hard time detaching from it later. Adam sold his story so well that, for many employees, their entire life was about the “We” universe (working at WeWork, living in WeLive, etc.). Neumann’s talents, however, were balanced (if not outweighed) by his flaws. Neumann lacked self-awareness, failing to recognize that what he was doing was wrong. He also lacked empathy, failing to comprehend how others perceived him. He also made a lot of bad mistakes because he let his emotions get the best of him. He spent a lot of money and hired people that were unmotivated and occasionally outright unscrupulous.

His inflated self-esteem made him feel superior to others, resulting in a corrosive company culture. Needless to say, when a leader behaves in this manner, he will very certainly need to be replaced. Simply put, Neumann’s skills and faults as a leader determined the fate of the entire organization and its roughly 14500 people. He certainly outshone the rest of the leadership team. His insane drive and charisma drove people to work so hard, and his ability to draw people in kept them there.

“‘When I met him, after a couple of minutes, I wanted to invest,’ said Joey Low, whose Star Farm Ventures put money into the company in 2013 and multiple subsequent funding rounds. ‘He was hungry for success — that was for sure.’”. Last but not least, other people who were inside Neumann’s circle (people such as Artie Minson, the COO), or Neumann’s wife, Rebekah) had a secondary role in the company’s demise, as they acted like enablers (more or less willingly) to Neumann’s leadership style. Nobody could challenge him or his opinions (or his wife’s), and those who did were sacked. Within the corporation, the only other person he would truly listen to was his wife, Rebekah, who was also in charge of a private school called WeGrow.

His wife’s school, which charged up to $42,000 in tuition and launched in 2018 and dissolved the following year,” was deemed a wasteful undertaking from the start. Such a project not only added to the corporation’s inflation-based image but also demonstrated the inner circle’s influence within the company if they were in Neuman’s good graces. Furthermore, Rebekah held the “strategic thought partner” status at the corporation, which raised many eyebrows. Overall, Neuman’s leadership style was crucial in both the creation and demise of WeWork.

Working at WeWork, according to many sources, was not easy. It was confusing and immensely dictatorial, as any failing system would be, a combination that can only lead to a breakdown. According to the New Yorker, “for many employees, WeWork’s promise was as enticing as it was hazy.” WeWork’s various divisions and teams each have their own set of goals, but this was usually where it ended. Employees indicated that it was frequently unclear what and how they were expected to do.

The company’s real goals were mostly implicit goals, which were to be brainwashed in the company’s ideals, such as being successful for the sake of success and having a working life (and even a personal life) that went hand in hand with the company’s view and ideals of powerful business and fake good-doing.

The people that worked for WeWork were more or less the correct people in the sense that they were qualified, even though nepotism appeared to be more essential at times than talent. According to Forbes, “nepotism and cronyism were endemic in WeWork senior management ranks during Neumann’s tenure.” Neumann dominated WeWork with the help of a close-knit group of relatives and friends. The Neumann family and friends’ cabal included the Vice-Chairman, the Chief Brand and Impact Officer, the Chief Product Officer, the head of Canadian and Israeli operations, the EVP/ex CFO, and the head of Security/ VP Special Projects.” However, this didn’t matter all that much considering that Neumann was a self-facilitator (he didn’t want experts to help him). As a result, the team’s conduct changed: instead of challenging, they all became “yes-men” who were obliged to do what he wanted and backed down on initiative and dare. Neumann commanded everyone and was incredibly able to persuade others to do what he desired. In short, even if they played a proper function, they played one that undercut the task. In terms of team procedure, while formal teams existed, there was no genuine sense of collaboration, as evidenced by Glassdoor ratings of the organization. This was frustrating for some employees, but Neumann organized his legendary parties where people felt good and like they were part of a community, which made them want to stay. “When you mix a bunch of 27-year-olds with raging hormones and unlimited amounts of alcohol that you could literally have 24/7, provided free by the company, you’re just going to have problems,” Richard Markel, a former WeWork employee, explained. This enhanced the company’s personality cult, but it also meant that there was no genuinely fair leadership process, as you had to be part of the inner-yes-men circle to gain anything. “I can honestly say, in all of my years of experience, this is the weirdest, most unprofessional treatment I’ve ever seen happen to anybody, literally anybody I’ve ever worked with,” Markel, also added in an interview he gave. The organization learned nothing from its failures or successes and tried tirelessly to please Adam Neumann and affirm what he wanted to hear. The only success that was acknowledged was that which delighted Neumann; everything else (good or bad) was ignored. Although the team process was a disaster, the company was successful due to its simple business model, which required consistency on a basic business level. People wanted to be a part of the company’s vision, lifestyle, and success and were treated poorly if they did not respond positively to questions. They even showed videos to their employees at one point. “Everything about the videos was propaganda,” claims WeWork whistleblower Joanna Strange.

Forbes contributor Stephanie Denning describes the organizational structure very well: “Frankly, it looks more like a Kandinsky painting than anything resembling a legible organizational structure.” An organizational structure is supposed to indicate how a company is structured from a reporting standpoint and sometimes, but not always, from an operational standpoint. It is usually a good indicator of where information is stored and how it flows within an organization. However, with such a complicated structure, the operational effectiveness of that flow is almost certainly flawed in practice. And if this is the abridged version, I’d be concerned to see the full version.

WeWork experienced growth after growth as a result of its manic ambition. The company never took the time to mature or rethink its design (which was serving Neuman’s agenda). They were solely concerned with growth and change, and their actions were chaotic in this regard. With his strong manipulative personality, Neumann managed to make people feel that their work, no matter how chaotic it was, was worthwhile and that they were responsible for the company’s success. “Everyone is a partner in this business,” he once said, “from the porter who cleans to the community manager to the company’s CFO and COO.” “Everyone is a collaborator.” Ultimately, continuous growth was not possible even if the strategic design was appropriate for strategy execution.

Power was clearly hard to come by at WeWork, and the company was run like an authoritarian state (very similar to a communist country, if you will). Conflicts, as with any authoritarian regime, were not truly resolved; they were only hidden and were not supposed to see the light of day. Employees covered up their mistakes down to the smallest detail. There’s a sad but funny story about a barista mixing drinks. Adam and a visitor had once exchanged drinks. Instead of admitting his error in front of Neumann, the barista pretended that the order was correct and that the drinks had different names and consciously attributed the names of the drinks incorrectly. Given that Neumann was acting solely in the company, Neumann acted like a dictator who ordered everything, and there was no real internal power distribution. “A bad leader cannot be replaced unless two conditions are satisfied: First, the CEO must not be able to replace the board instantaneously and second that board must abandon its support for the CEO,” said an article outlining Neumann’s many flaws. The company was unofficially divided into two social networks; one centered on Neumann and content with its position. The other was made up of disgruntled employees who remained silent.

When things began to go way off the mark, they coerced people into remaining loyal to the We cult. What were supposed to be fun events turned into long days of mandatory seminars where the company actually tracked people to ensure everyone was participating. Neumann, like any authoritarian ruler who saw himself as possibly becoming the “president of the world,” was very calculated and knew exactly what he was doing as he drew people into his “cult.”

Various Glassdoor.com reviews from the time of the crash appear to paint the same picture: employees felt like they were living in a cult and that the company’s internal politics ruled everything. People faced the ego of the leaders, as well as being ostracized and ridiculed if they questioned the leaders’ authority. Furthermore, the environment was described as “toxic,” because all major decisions were made behind closed doors and only from the top down. There were also frequent firings without proper communication, which caused people to be concerned about their jobs and work hard to keep them. In a lawsuit case, a former WeWork employee claimed that she was groped or forcibly kissed at business events, including an alcohol-fueled WeWork’ Summer Camp.’ Her concerns drew minimal attention from human resources and saw little to no action taken against her alleged attackers. She was eventually fired.

Neumann’s wife is said to have fired employees for bad vibes, and apparently, once, the company ended a meeting announcing layoffs with a performance by a member of Run-DMC. Overall, WeWork had a culture in which the company’s core assumptions (as proposed by its management) did not align with day-to-day work and frat-like behavior were issues that were mostly resolved with large parties aimed at deepening the We culture and getting people to rely on WeWork. In conclusion, WeWork’s culture was clearly disconnected from its strategy.

Thus, what was only natural to happen, happened: everything crashed and, ultimately, Neumann was pushed out, or rather bought out for over $1 billion.

WeWork: The movie

The 2022 Apple TV series WeCrashed fictionalizes the story of WeWork. It’s a fantastic series that will most likely be regarded as one of the year’s best. WeCrashed, starring Jared Leto and Anne Hathaway, imagines what the Neumanns and those around them might be like in real life. It is a thought-provoking drama that delves into the philosophy of modern work.

At first glance, it appears to be a show about how desperate we are to humanize our dry, office, humanity-drained careers and how it comments on the idea that today we are expected to give everything to our careers and work. However, the show is much deeper.

WeCrashed demonstrates how the idea of making work fun, gaining clients through parties, and overlapping the personal and professional simply does not work, and how true businesses that succeed happen in chilly boardrooms. It also deflates the myth of turning a hobby into a job, as well as the type of society-driven work that we are all encouraged to do today. Finally, the most socialist character turned out to be the least socially inclined and the biggest capitalist. As it is usually the case.

The show is excellent because many people believe their jobs are worthless and want to be assured that they actually are. It’s a little like peering behind the curtain of The Wizard of Oz.

In many ways, the WeWork story is the story of work in the early 21st century: A story of naivity, cash burning, hopeful burnouts, making work fun, mistaking work for community, trying to mix socialism and capitalism, cheap feel-good mantras and the success of the realist who gains the system by doing exactly the opposite that he claims to stand for. And, for that, it’s a masterpiece that we will most likely keep hearing about.