Modern Wisdom - #238 - Reeves Wiedeman - The Catastrophic Story Of WeWork

Episode Date: October 29, 2020

Reeves Wiedeman is an author and a Contributing Editor for New York Magazine. At one point, WeWork was one of the world's highest ever valued private companies. Now it's in free fall. Expect to learn why WeWork was so overvalued, where it got all it's capital from, the fundamental flaw in the business model, how personality & charm can overcome objections, what we can learn from Silicon Valley's biggest failures and much more... Sponsor: Get Surfshark VPN at https://surfshark.deals/MODERNWISDOM (Enter promo code MODERNWISDOM for 83% off and 3 Months Free) Extra Stuff: Buy Billion Dollar Loser - https://amzn.to/33Nn2lI Follow Reeves on Twitter - https://twitter.com/reeveswiedeman  Get my free Ultimate Life Hacks List to 10x your daily productivity → https://chriswillx.com/lifehacks/ To support me on Patreon (thank you): https://www.patreon.com/modernwisdom - Get in touch. Join the discussion with me and other like minded listeners in the episode comments on the MW YouTube Channel or message me... Instagram: https://www.instagram.com/chriswillx Twitter: https://www.twitter.com/chriswillx YouTube: https://www.youtube.com/ModernWisdomPodcast Email: https://www.chriswillx.com/contact  Learn more about your ad choices. Visit megaphone.fm/adchoices

Oh, yes, hello people in podcast land. Welcome back. My guest today is Reeves Wideman, and we are talking about the catastrophic downfall of WeWork. At one point, WeWork was one of the world's highest ever valued private companies. Now, it's in freefall. So today, expect to learn why WeWork was so overvalued, where it got all its capital from, the fundamental floor in the business model, how personality and charm can overcome objections, what we can learn from Silicon Valley's biggest failures,

and much more. I've spent a fair bit of time learning about we work in Adam Newman, the X CEO over the last couple of years, and to get this sort of, there's something so compelling about it, I really don't know what it is, but I hope that you find it as interesting and enjoyable as I did. Don't forget, if you haven't picked up a copy of my ultimate life hacks list yet, then what are you doing? Head to chriswillx.com slash life hacks, and you can get the free ebook today with over 200 ways that you can upgrade your life instantly. ChrisWillX.com slash life hack. You can download it before I finish doing this intro. It's linked

in the show notes below. Go press the button and you'll also join my three-minute Monday newsletter where every Monday I upgrade your life in three minutes or less, including an insight from whatever I've been learning or thinking about that week Preview of all of the upcoming podcast episodes three lessons that I've discovered from the wild and wonderful world of the internet and a life hack Another one sometimes a new one sometimes revisiting an old one Chris will x.com slash life hacks go and pick yourself up free e-book and you'll get added to my three-minute Monday newsletter. But for now, it's time to learn about the slow motion car crash that was...we work. What have you spent the last couple of years researching?

Well I've spent about the last year and a half researching we work the company and the last few years researching sort of the world of I guess high growth unicorn startups is one way of putting it some of which have flamed out in one way or another and some of which are still with us so. Is we work classed as one of those unicorns and what is a unicorn for people that don't live in Silicon And what is a unicorn for people that don't live in Silicon Valley? What's a unicorn? Sure, sure.

Well, there's unicorns, there's zebra's, there's all kinds of different species now, but a unicorn very simply is a company that according to private valuations set by private investors is worth more than a billion dollars. And you know, there are now certainly more than a hundred of these kinds of companies and we work, despite all the struggles, remains one of those. Those companies that are unicorns, are they still private or of some of those transition

to now be traded? Yeah, the typical way it sort of looked at is these are magical creatures. They exist outside of the way the markets traditionally treat these companies. So unicorns are generally companies that are private before they hit the stock market. And then you no longer are unicorn once you do? You're not. I don't know what you transform into exactly in the Silicon Valley, no culture,

but it's sort of like a caterpillar butterfly thing, but I don't know what the next transformation is. If anyone understands the Pokemon game that is Silicon Valley sufficiently well, what does the unicorn evolve? It's Charizard, isn't it? Charizard. Charizard. And then you get the shiny one, and then that's everyone at school once you, Cards. Well, you're joking, I think, but truthfully, there is another group called a Decaquon. And a Decaquon is an even rarer breed of company

that has a private valuation above $10 billion. And we work was one of those. I guess that is actually a qualification that the company has now lost. Who else is in that category of the old Deca Conde, you know? You know, I'd have to think. I mean, Airbnb is one that is, is sort of going public, has said they're going public soon. I think Palantir, which also went public recently, is another one that would have classified. It's a pretty small group and it has traditionally been

kind of the biggest companies, the Ubers, the Lifts and the WeWorks that reach that kind of threshold. Have you had a look at much to do with the electric scooter, lime and bird and all of this? There was a period towards a start of last year where they were doubling their valuation every six weeks, like all of them. Yeah, well, and here in the US, they seem to find a new city to occupy every few weeks. And yeah, I mean, those are the kinds of companies

that we're talking about. And I think one of them, I'm forgetting exactly what I think Bird may have at one point had a billion dollar valuation, which is, I mean, you know, if you want to kind of summarize the last decade, a billion dollar scooter company that didn't exist a few years ago is, which, by the way, I was recently in Nashville, Tennessee, and tried to get a bird scooter. I think technically I was trying to get a lime scooter going. They're birds, they're limes, there's like five or six different companies in all these cities,

and I could not get the app going, could not get the scooter to stop chirping at me, and eventually just gave up on it. So it's unclear exactly what the billion dollar valuation is worth. There's some executive from Bird and Lime screaming into their air pods at the moment going, it was your fault. This was another system. We tested it until the cows come home. Yeah, well, unfortunately, the scooter is no good without the human to get on it. So I guess maybe take the app back.

Back to the lab. It's interesting with that just to linger on that scooter. The thing for a second as well. It really does show how decoupled valuation has come from marketability. There are entire cities that have outlawed these scooters. I think as it's San Francisco had decided that they were going to permit one or two scooter companies at a time to trial because they didn't want overload.

It's like, right, here's the six-week window where everyone can have a go on a line. Here's the six-week window where everyone can have a go on a bird. Yeah, that's right. I live in New York City where they aren't allowed. It's been a political back and forth of, do we want these scooters cluttering up our sidewalks? The battle we've had there recently, or the back and forth,, there's now multiple kinds of scooters. We have these scooters called Rebels, which are, you actually sit back, it's almost sort of like a Vespa and electric Vespa.

And several people have died. And the companies shut down for a while, but then they kind of brush it off and sort of continue expanding. So it is, the scooter wars are sort of an interesting and weird dynamic that's now in pretty much every city at this point. I can see you are an equivalently talented writer

coming up with a really interesting book about that in maybe five years. Once we have a little bit more story arc about all of this. It's such a like Pokemon Power Rangers battle of the sort of weird novelty personal locomotion world. Right. And which one's going to win, you know? And what's the difference between them?

And it is, I mean, it's actually is something I've thought about. And I think one of the interesting things about a lot of these kinds of companies, some of the ones we're talking about, but the scooter one specifically is these are Silicon Valley startups that are taking that kind of ethos and bringing it into the real physical world.

Like this is not a piece of software that just exists somewhere. This is suddenly their scooters all over my city. And there's good parts of that, and there's bad parts of that, and you can argue both sides. I, despite the story I just told you, have enjoyed writing these scooters in other situations, and I think there may be a very good argument for them, but they do put these companies in kind of an interesting place that they weren't in 10 years ago, which is that Silicon Valley startups typically preferred to kind of choose to believe that the real world was sort of over there and that they didn't necessarily have to think about how they're whatever they were working on sort of what affected had on

the broader world beyond whatever they wanted to do. And now these companies are having to deal with city councils and politicians and local businesses. Real shit. Yeah, real shit. And I remember, I, one of the first of these companies I wrote about was Uber, back in 2017. And this was when Travis Kalanick, the founder of Uber, was around the time that he was ousted from the company. The company was going through all this terminal. I remember talking to an advisor who the company had hired, who sort of his job was to kind of help start up to deal with politics. And he was so frustrated that all of these companies just wanted to believe

that they could go into any of these cities, do whatever they want because in their view they were making it better and not realize that they're now part of an ecosystem and that while there are great things about Uber, about scooters, about we work, you know, when you get into the physical world you're suddenly dealing with more than just bits and data. So that's a lovely open loop into the story of WeWork, isn't it? Where do we begin? What's the people who are listening don't have a clue what WeWork is. They've probably gone past them in the street, the sign, but maybe haven't realized, them in the street, the sign, but maybe I haven't realized, give us the, whatever it's called, the Clifnotes on your work as a company. Well, in a nice loop, the story really begins, I mean, given the era that we're in, it begins in the last recession, it begins in kind of 2008

when Adam Newman, who was one of the co-founders of WeWork, along with Miguel McElvie and Architect, was one of the co-founders of WeWork, along with Miguel McElvie and Architect. Long story short, got together and decided to, they wanted to make what was basically an office leasing company. And they were both sort of had worked in small businesses. Miguel had worked at a small architecture firm.

He had also worked at a tech startup before. And Adam had a few of his own businesses. And they've been written about before. So much humorously, one of them was a baby clothes business where the main feature of the product was that they had a knee pads. The idea was that babies when they crawl their knees must hurt even if they can't speak and tell adults that their knees hurt. It didn't quite work, but it did become a real baby-close business.

And you try to few other things. And so, you know, in sort of the depths of the recession in 2008, when, you know, companies were crumbling, they started this business to lease out, just basically take a space, cut it up into smaller pieces and lease it out to people. And it worked great. And there are all kinds of reasons that it worked great. They built a nice space.

People at that time were looking for community, you were getting laid off from your job, and maybe you were starting to freelance, and you wanted a place to go, which I think we can all kind of empathize with now, even though we're sort of dealing with a different set of circumstances. So that's sort of where the business began and then from there it grew pretty steadily and then eventually, pretty exponentially, to become a global office-based business, operating more or less under the same principles, that then morphed into other things. It morphed into becoming a tech company,

or aspiring to become a tech company. It morphed into becoming what Adam went to call a community company that we worked with not in the business of real estate, but they were in the business of bringing people together. And under that umbrella, the we work eventually had apartments. They had a gym, they had an elementary school,

and all manner of other kind of business lines that were eventually assembled under a mission statement that the company revealed that the beginning of last year, which is to elevate the world's consciousness, which we can dive into what exactly that means. That's actually a question that I asked Adam New and himself. But that's sort of the long story of the rise of we work. And then the short version, I guess,

and the short version of the fall is that the company tried to go public. The stock market looked at a company that had all of those things that I just talked about that made some money, but also lost $2 billion in 2018 alone and decided that this was not a good business, frankly, and that it didn't have faith in the business and in pretty much the most spectacular IPO failure anyone can remember the company. Pulled its IPO, Adam Newman was pushed out and he is sort of spending his days at the moment while surfing and waiting for a payout and seeing kind of what happens next, but that's

the short... That's the cliff notes versions of the book I just wrote. I do. I mean, I've watched before reading your book, I'd watched a bunch of different videos that have been done on it. The guy's name is going to escape me. Australian dude, YouTuber, who does some really great, again, everyone's just going to be screaming down their air pods at me. It'll come to me. Anyway, I noticed over the last two years or so, quite a lot of high profile YouTubers who are interested in this sort of stuff, documenting this slow motion, third trimester

car crash that is the we work kind of downfall. Just before we go about, I want to get into Adam Neumings, I think he's kind of the crook store of this. What actually happened with the IPO? Like, did you need like a particular amount of interest before you go public? Why was it a failure? Yeah, well, you know, the public often thinks of IPOs of like, oh, am I going to invest in this? And is this going to be the next apple? And is this going to pay for for my kids college education? An IPO is very specifically, company needs money and they need to raise it and in we work's case they were trying to raise $3 billion. As part of these IPO road shows, which is what all these companies are doing now, although they don't actually go on the road anymore,

is they go around to investors, they give them a document, it's called an S1, it's a document that's filed with the SEC in the United States, and then they give them a presentation, they say here's how our business works, they're supposed to be honest and forthcoming about some of the potential problems.

And then investors have to decide whether or not they want to invest. And this is going to, this is going to institutions, some place like Fidelity that might be able to invest a billion dollars on its own if it wanted to into an IPO of this size. And essentially what happened is for a variety of reasons, and we can talk about them, investors just decided that the company wasn't worth what it said it was, and there wasn't enough interest. And so, eventually, once it was clear, we weren't going to be able to raise the $3 billion or at least that there was a danger that it wouldn't get there for a handful of reasons

they decided to pull it. How would you describe Adam Newman as a person in a CEO? Two different questions, but they are related. Charismatic, outgoing, very tall. He's 65, which is often noted, but I think is not an insignificant thing for someone like him whose charm, encouragement, personality, and vision were what people were buying as much as they were buying sort of the numbers that were behind the business. As a CEO, the thing people always talk about was that he is that, that he was someone who could get into a room,

and that might be a room with potential investors. It might be a room with a landlord, he was trying to make a deal with, and it might be a room with his employees, and that he was able to make a deal with. And it might be a room with his employees and that he was able to convince them that what he was selling would become true, that this vision of we work as much more than an office leasing company was possible

and that they were actually building that. And I think that was, whatever people want to say about them, he was an incredibly inspirational leader. And that went for young people who were straight out of college, as much as it did for sort of mid-career people who came in and saw something to kind of latch onto. something to kind of latch on to. I mean Billy McFarland from Five Festival was a very charismatic and outgoing CEO. Indeed and for this book I called Billy in prison. No way. Yeah. And we spoke briefly just as coronavirus was sort of hitting in the spring. So it was obviously a tense moment for him. And the reason I called him is that he launched his companies from WeWork offices.

He was a WeWork tenant. And in fact, this sort of mild amount of news that we break in the book is that his company before the fire fest, before fire, was called Magnesis. And Magnesis was a sort of credit card club access kind of company, basically a lifestyle company. And at one point, Magnesis had a WeWork office in New York, and Billy had met Adam a number of times. He sort of talked to me about how, at least the way that he thinks of thought of his

companies as at least at their higher aspiration as connecting people. He saw that vision in Adam and sort of what he was selling. And at one point, we work in Magnesis, we're in talks, we were in talks to buy Magnesis. It would sort of be the lifestyle component to go along with the WeWork work component. Unfortunately, Billy and his company trashed a townhouse where they had a party in New York, the deal fell apart,

and the rest is history in multiple ways. Both Adam and Billy went their separate directions, and I guess in a certain way they came back together in the way that their stories ended a little bit. I wonder what I would love to be a fly in the wall in a meeting between Adam Newman and Billy McFarlane. Did you ever see that podcast between Grant Cardone and the real wolf of Wall Street? Oh, I didn't.

Okay. Well, it's like a big dick measuring competition. They get them out on the table and they start wiggling them around and then Grant Wiggles hears and then Wolf Wall Street Wiggles. And it's just that. And I imagine Billy McFarlane versus Adam Neumann will do something similar. Yeah, and I think, I mean, I remember watching

the Fire Festival documentaries, which I devoured. And you know, you watch, at least for me, I would watch Billy, and I would be like, this is the guy that was so charming and charismatic, but then, you know, and in some ways I had that feeling when I met Adam, but of questioning this a little bit. But then I think it's hard to know when you sort of get into these rooms

and people also are incentivized to believe. They want, you know, people wanted the fire festival to happen. People wanted we work to change the world, to make it a better place. So, you know, it's easy to think, sort of look at this sort of skeptically, but then I think when you get in the room,

there's a reason they appeal to people. I think, I wonder if you agree, that the same compulsion we all have of why we watch the five festival documentary and fell in love with that sort of thing where you're kind of watching through your hands a little bit like how you watch a horror movie. At a much more transparent and slower and significantly in terms of capital, bigger scale, I think that's why we work has warranted a book written by yourself and all of these videos I've seen online

with hundreds of millions of plays and stuff like that. Would you agree is that the primary pull, like the reason that people are compelled to look at we work? Yeah, I think there's probably a variety of things. Job rule plays a role in the WeWork story as well. So he is also everywhere. So he's everywhere.

He's everywhere. He's everywhere. And I'm good for him. But I think there's more seriously, yeah. I'd be curious to know what you think makes the fire festival and WeWork, especially interesting. But for me it's you know one of it is there's a certain comeuppance that comes for people and and you know with with

we work you know I would imagine as you sort of said at the top like a lot of your listeners they probably knew what we work was they they might have been to one or at least had heard of it but they didn't really pay much attention to it. And then same thing with the fire theft. Most people didn't know what it was until after it had blown up. And then in hindsight, you see like, uh-oh, like, jaw rules there.

And you tried to do this thing in however many weeks. And of course, this wasn't going to work. And so I think it is fun and satisfying to and same thing with we work. You know you've got this tall haired guy who smokes a lot of weed and serves a lot who started an elementary school in an office leasing business. Of course this wasn't going to work and people were saying that along the way and there were certainly people who, as they said, that once it happened, they felt rewarded for their skepticism.

And then I think for the rest of us, it's just kind of the enjoyment of watching a train wreck. Yeah, it feels like vindication that someone has potentially got their cumupp and so I think that's part of it. I wonder whether companies like Fire Festival and WeWork are latent pressure release valves for all of our pent up distrust and dislike of other unicorny companies that we think like holy shit calm calm meditation at Thumbtack Thumbtile we being serious like do you know? I mean like all of these Everybody knows that the big lie of Silicon Valley at the moment is that companies are being sold on this

limitless upside scalability But not all of them are going to make it and yet all of them are being invested in as if they are. And I think that particular instances like this are kind of the sacrificial lamb to the slaughter that allows all of us to bestow our like distrust towards Silicon Valley generally. It just happens to have fallen on Adam Newman and thingy McFarlane Schollers. Yeah, I think that's right. And I talked to a guy who ran a company that was sort of competitive with we work in the early days.

And for a variety of reasons, you know, this guy's done fine for himself. His business still exists. He's done great. He's very wealthy. He didn't go on the kind of blitz scaled I'm going to take over the world path that Adam did. And he talked to me about how, and this was, we spoke last spring when I was sort of reporting on the company before everything fell apart in the spring of 2019. And he talked to me about how, you know, the reason he cared about this story was it felt like if Adam gets away with this, then like, what are the rules?

Like, and what are the rules, frankly, and this is like from a diehard capitalist like worked in finance, went to business school, he's like, he was basically saying, what is capitalism good for? If you can just kind of play fast and loose with the rules, if the whole goal is to grow big, not worry about consequences, then maybe this whole system

we've set up isn't actually as beneficial to society as I would hope it would be. And that's not coming from Bernie Sanders, that's coming from a guy with an MBA. Yeah, 100% man. The last bastion that all capitalists, I'm one of them, have to stand at, like we will make our stand here, is supply and demand. It's the fact that the market will reflect the demand for a product. And there's only so far that you can get on hype and clout and just a charming guy in a meeting. Eventually, you will run up against the market and it is a immovable object. And if you're not an unstoppable force, the market's going to bum you. And it would appear that that's what's happened with we work. So before we get onto the downward slope, can you lay the landscape of just how vast that operation was

and can we also talk about the amount of wealth and investment that they'd accrued, including that particular Asian investor? Sure. So by 2019, by the spring of 2019, when I when I started reporting on on the company, I think in this first location opened in 2010, in in Soho and in New York City. By 2019, they had more than 400, 30 plus countries, five different continents. They were just opening in Africa and in Johannesburg. Hundreds of thousands of members, as they call them, not tenants. And the reason, and by all accounts, as Adam Newman himself put it, and probably accurately,

this was the fastest physical expansion by any company ever. And that's probably true. He very coily said that he wasn't sure about Roman times and that there may have been high growth startups in Roman times. But it grew incredibly fast. And the reason they were able to do that is because mainly on the one hand, and I think it's worth giving credit where it's due, they provided something that people wanted.

We work offices were cool. They had good coffee. You could meet cool people, flexible. If you wanted to get out next month, you could do it. You didn't have to sign a five, ten year lease. There are all kinds of reasons that that's a problematic business model, but it was a thing that the people wanted. The other thing as you alluded to is that Adam Newman was extremely good at raising money.

And that started with him just kind of raising money from friends and family. The first big round of investment was from benchmark, which is a big Silicon Valley firm. They were the earliest major investor in Uber, big early investor in Instagram, and just kind of a classic Silicon Valley venture capital firm. Was a big question of why they were exactly, they were investing in this real estate company that was not a tech company like the ones they typically invested in. But once that happened,

you went through a series of investors, some blue chip names, the JP Morgan, the Goldman Sachs of the world, eventually getting to this point in 2016 when we work has has more or less tapped out Most of the available sort of private money that you'd be able to get from from those banks in New York to the Silicon Valley firms They had recently scored investment in China But then what happened is that Adam met Masio Fusan And Masio Shisan, as he's known by pretty much everyone, Masa, is a Japanese businessman. He runs a tech conglomerate called Softbank. And Softbank has a long history. He founded the company in the 1980s. He's written various waves in the tech boom from selling CDs and CD-ROMs

and floppy disks back when that's what you did up through doing a lot of work and getting broadband in Japan and mobile technology. What he did in 2016 is he created this thing called the Vision Fund. And the Vision Fund was a $100 billion venture capital vehicle with various investors. The most significant one by far was the government of Saudi Arabia, which invested $45 billion of the $100 billion, which invites all kinds of questions that we can talk about. But the upshot of it was that Saudi Arabia was trying

to diversify its economy away from oil. And Masa was someone who was known for taking big bets. That's what he's done throughout his career is being willing to take huge risks. And frankly, in some cases, fall on his face and get back up and do it again. And so he had promised to Saudi Arabia, to some other entities, Apple, Foxconn, were also investors in the fund,

that he was going to go out and find basically the companies of the future. He sort of talked about it as kind of building a new version of Warren Buffett's Berkshire Hathaway, where you would have this kind of conglomerate of companies and instead of it being airlines and newspapers and whatever else and trains, it was going to be tech companies and focus particularly on artificial intelligence. And Masa had become very sort of obsessed with the singularity and the idea that you would be, you know, harder to differentiate between

humans and robots and all the consequences that would happen there. And he stumbled onto WeWork. And there, again, as with benchmark, there are all kinds of questions about why exactly Softbank decided we work with a good investment as a firm that typically invests in tech companies. But ultimately, Softbank invested initially more than $4 billion, which was more money than we work had raised up to that point back in 2017. And they followed that with another $2 billion a year later. And that was the money that really gave jet fuel

to we work's growth. And at least in hindsight, may have been sort of a sort of poison chalice is one way to look at it that obviously turning down something like that is is hard to do, but it may have kind of pushed the company sort of over a cliff. Taking it on Hayson's the arrival of the inevitable. Exactly, exactly, and it's yeah, it's it's something you think you want, but you know, and again, this, this, I come up with other companies I wrote about, it's

hard to spend $4 billion. It's hard to do that responsibly in any way that kind of makes sense, and there's certain ways in which, you know, you can point out sort of individual, managerial missteps, but in some ways, it's almost just an impossible task to do that in a way that would really make sense. Wasn't it right that the Japanese investor whose name I'm not going to try because I'm going to butcher it? Wasn't it right that he decided to invest after 15 minutes of a meeting with Adam? Is that true? You know, it's more or less true. 28 minutes is what they say. Yeah, the bait.

Yeah, and he is sort of known for doing that. I talked to someone else who had a company that self-bank invested in, and that's basically what happened. Is he had a 10 minute meeting with Masha. Masha decided he wanted to invest. What of course has sort of left out of all these stories is after that decision, months

and months of due diligence is done, but what Masa himself has said over and over is that often his feeling in that first moment when he meets an entrepreneur, his most successful investment was he was one of the earliest investors in Alibaba, the sort of Chinese Amazon. And he made that investment, he's often said just basically because he believed in Jack Ma, the entrepreneur. He sort of described it in these kind of like primal terms of just a feeling that he had as much as anything else.

So, you know, he's also said with the Vision Fund, he's described his meeting with Mohammed bin Salman, the time soon to be Crown Prince of Saudi Arabia, as it took him 45 minutes to raise 45 billion dollars. And so he clearly prides himself and in some ways lives on this reputation of, I make calls and then and then I move on to the next one That's mental Like it's just It sounds great and it's wonderful in a book and he's cool when tweeted online and hawks to A man who has the vision vision fund a man who has the ability to see that which other

people cannot. I mean, like, mate, this isn't me trying to get the next motivational speaker to work in the HR department of your company. This is me doing very, very complicated, multifaceted financial products that require the most clinical dissection to work out what the hell is going on. And you're doing it based on whether or not this person, but I could send one of the 18-year-olds that works for me in Club promo, one of the event managers I've got who are just brimming with testosterone and charisma, send them in as they pretend someone of something and this, so anyway, I think that lays the land quite nicely. We've got the fact that this was huge growth that he had a lot of money behind him. Can you give the elevator pitch for how we work made its money, like what the actual core of their money making operation was?

Sure. It was essentially a rent arbitrage. So the idea is they would go to a landlord, Lisa building, or a floor of a building. And they would pay a certain amount of money to that landlord, let's say it's a hundred bucks. And then they would then slice that office into that office up into a hundred little offices, rented out to a hundred people and each rented out to them for a buck 50. So then, you know, they're making 150 bucks. That's essentially the business. That's it. It's as simple as that and it's frankly as old as time.

And that was what was so confusing to people. Is that this is a business that existed before. We work had made the offices cooler. They had done an amazing job of branding, which is not insignificant. But the idea of taking big spaces and cutting them up in a smaller office is something that has happened all the time. Regists, which is a company based out of Europe, is sort of the most prominent example. And so that was kind of what was most confusing about people or two people who were skeptics

of it is, that's a tough business and it's a risky business because what happens and we've seen this now, is what happens when you hit a downturn. And I think, if suddenly all 100 of your tenants or even 50 of your tenants leave, then you're under water. And if that happens at the scale that we work had grown, that's going to be a problem. And I think that's an underrated sort of part, or maybe under

considered part of the success of a lot of these unicorns over the past decade, is that the economy did nothing but grow, basically from the 2008 recession, up until the pandemic that we're all experiencing. By and large, it was an upward trajectory. And so none of these companies had to deal with kind of what had fallen or deal with doing business in a difficult climate. So, you know, we worked tried to make money other ways. I mean, the apartment business didn't quite work. The elementary school wasn't making money. You know, they tried to get people to pay for extra printing, but those are marginal things. This is not a software business

where you're gonna be selling more and more services the more and more you get people on your business. Essentially, it just came down to renting out space for a certain amount and hoping you could lease it out to other people for more money. Me and you could do that. Me and you could, we could get whatever that nice apartment that you're in now with that painting of a very majestic castle is.

This is, this is a wee work in Austria. Like, me and you could do that. And this really is like the elephant in the room, the crux of the story, that we work was positioning itself as a tech company. It was billing itself as a tech company. It was telling people it was a tech company, but it was the oldest of old time real estate. And it was just skimming off the top, the difference between long lease versus short lease. And once you get below your minimum occupancy to hit break even point, which is inherently risky when you allow this hyper flexible one month minimum, no month minimum rolling contract bullshit. You are left holding 400 plus properties across

six continents, all of which can't be occupied during a pandemic, which no one could foresee. But you certainly could foresee if there is ever a downturn, if there's ever a reason for people not to go to work or just generally a recession, our cost to going to go up and our income is going to completely disappear off the face of the earth. Yeah. Yeah, I mean, to go back to your point like, yeah, you and I could run one of these spaces. There are people like you and me who do them. They don't run 400 of them, you know?

And, and the, like, you know, I, you know, speaking for myself and others, you know, what Adam Newman had partly was, was the same and why he and, and Masa from Softbank were sort of came so neatly together is a very high risk tolerance and a willingness to sort of say this doesn't totally make sense, but there's an argument for it, there's an argument that we can kind of make that this might work. And so, you know, there's a very thin line between, between, you know, the kinds of risks that pay off and the ones that ends up with equal lapsing. And I think some of this just comes down to temperament. And we start the book with a quote from Adam

Newman's high school driving instructor who, you know, recognized in kind of just the way that he operated as a teenager, the thing that he said in a class in Israel where Adam grew up was, was Adam's either going to be a millionaire or he's going to jail. Like, those are the two options. There's no like nice steady Adam Newman work his way up the ranks at some job. He's a go big kind of person and the question was going to be whether he ended up being successful with that risk or falling on his face. Or both. Or both. And that's sort of the central irony here.

And I think a real central irony of a lot of this era, I mean, you can look around it at other examples. I mean, I mean, Billy McFarlane's in prison. So, you know, he, I think he clearly has fallen on his face. But for Adam, he's rich. He's going to be wealthy for the rest of his life. In theory, he has a billion dollar package that's currently tied up in some legal maneuvering. But, you know, the risk paid off for him personally and he's gonna have some reputational sort of work to do, but the risk paid off. Take us through the downfall, what happened?

And also, it happened to be when you began reporting on them. Have you considered that? I think that I played a very, very, very, very small role. Pivotal. But I showed up a few days before Adam went on his 40th birthday party around the world trip that ended up in the mall, Deves. He's a big surfer, as I've mentioned. And while they were there, this was in April of 2019, they decided to go public. And this had been a thing they had been kind of tossing around, but didn't want to do.

And Adam didn't want to do because if you have that temperament, it's a lot easier to just be able to connect with Masha and say, we're going to go take this big risk. Once you become a public company, you have shareholders to report to and you're going to have to explain why you're opening an elementary school. And so from there, it was basically an extremely chaotic summer. A lot of the companies you're seeing going public now, the Airbnb's of the world, they've been preparing for this for a long time. We work in in certain ways had been there had been an early pre-massive moment where they

considered going public and very faithfully decided not to. But it was a sprint and it was a sprint from April to the end of the summer when the company released what's called an X1. And the S1 is a document, is again this document that you send to the SEC and it has all this information on how your business works basically that is meant to give to investors. And sort of from the beginning, it was clear, these documents are very boring documents. They are pages and pages of charts and graphs

and disclosures in very small font. In the beginning, the very first page, I've just looked it up so I could read it for Baytum, the very first page of WeWorks version of this said, we dedicate this to the energy of we, greater than any of us, but inside each of us. Again, you can ask lots of questions about what that actually means. But the point is, if you're a financial investor and that's the first thing you see, you're sort of like, huh? And so then from there, it was a shockingly quick turn of public opinion against the company.

And again, some of that was people finding out about Adam and his quirks for the very first time and sort of being like, what the heck is going on here. What sort of quirks? What sort of quirks? The fact that he, in his wife, Rebecca, who who also sort of came into the company later on as sort of an executive and was sort of the driving force behind the company. The fact that they had so much control was one big thing and so much control that they wanted to start an elementary school. They didn't really tell many people about it

and it just kind of happened. And so some of it was just sort of the control that they had over the company, but if you wanna talk about some of the weirder stuff, and some of it's not weird, in a fact, for one thing, Adam surfed a lot. That's okay, lots of people like to surf a lot. But we work was also invested in a wave pool company,

a company that made one of these kind of inland surfing pools that are now becoming vaguely popular, but didn't seem to have anything to do with we work's business. It came out sort of, you know, was sort of an open secret that Adam smoked a lot of marijuana. And that, again, in and of itself, not the strangest thing in the world, but when you have, you know, the CEO of a company, sort of doing this as kind of regularly and openly

as he seemed to be, it led people to ask a lot of questions. And then I think the main quirk, I guess, to circle back to that sort of epigraph that I mentioned, was just the way that he talked, and the way that we worked talked about what they were doing, and the fact that they talked, they just wouldn't state the obvious, which is we're a real estate company that insisted on saying, you know, we are elevating the world's consciousness,

that this is all about the energy of we and all of this stuff that I think, on the one hand, I'm in favor of elevating the world's consciousness, whatever that may mean. Sounds like it. I'm in favor of elevating the world's consciousness, whatever that may mean. Sounds lovely. Yeah, the energy of we sounds like a good thing, but I think at a certain point it became clear to people that it purposefully or not, it was distracting. It was distracting from the actual reality of what was going on, which was we were provide nice office space, but elevating the world's consciousness is is not something that it does. Do you know the British term all talk and no trousers?

No but I can imagine what it means. That's Adam Neumann. This is again the corollary for Adam is This is again, the corollary for Adam is, is, uh, I'll talk no shoes because he would walk around without blank shoes. How did I guess? Um, I think that's another part of it. It's not only the comeuppance of an undeserved company overall, but it's someone in the Adam position who, Someone in the Adam position who from the outside looking in has a number of things that the, especially like the normal working class guy or girl would find pretty difficult to deal with. Spending a lot of time surfing, spending a lot of time smoking weed, decides to employ his wife probably on some ridiculous retain a package for someone who I'm sure that she has many talents, but I bet that she's less qualified than many other people who could have got that job.

And then this wrapping in 2020 awakened, like Austin psychedelic language is the icing on a very twaty cake. Yeah. Yeah. And I think it's, you know, getting, calling people on hypocrisy is almost tiresome because there's so much of it. But, but like, you know, never gets old, man. Never gets old, man. I guess so.

The, the, the, the, the newments. The newments talked constantly about making the world a better place. They talked constantly about climate change and sustainability. They flew all over the world on a private jet. They had seven homes at least. New homes kept emerging as I would continue doing this reporting. They lived a very lavish lifestyle. And again, I don't want to totally criticize that. I like having nice things,

but you can't really have it both ways. You can't say, I'm all I care about, it's literally, Adam said, I want to change the world. That's all I care about. Well, no, clearly there, there are other things and very material things that, meanwhile, a lot of, a lot of your employees, frankly, are not getting to benefit from. So, 100%. There's a couple of quotes, one in particular that I really liked, hyperbole, autocrat leadership and a Disconnect from Reality were suddenly assets on the path to power. And that really, in a sentence, I think, highlights the growth at any costs or growth at

by any means obsession that we've got coming out of this sort of angel investment world from Silicon Valley. And I tweeted something today, which said that the internet has permitted sociopathic and charlatans to con people at scale. And it really does feel like there's a particular matrix, framework that you would be able to create for these people, the Billy McFarlane of this world,

the Adam Newman's of this world, it was Theranos Lady, Elizabeth Holmes. The Elizabeth Holmes is of this world. There is common threads between them all that weave them together into a particular type of person. And the scary thing is that all they needed was the right company. Like the key issue behind Elizabeth Holmes from Theranos, from Adam at Newman from WeWork and Billy McFarlane from Five Festival is their product was shit.

Like fundamentally their businesses did not work. But specifically with Theranos, like you said it was going to do a thing and it didn't. At least Adam Newman actually had offices. They just weren't financially sustainable and they were the minimum occupancy was too high and it was too risky. Bill and McFarlane did not deliver a festival. Elizabeth Holmes did not test your blood. But between them all there's some common threads. So I want to get into the Theranos story just a little bit because it's just fun.

Before we do that, what are the lessons that you think the world should take away from the WeWork story? I've been thinking about this a lot, especially, you know, I started writing this book for the pandemic began. And we are in an era where for better or worse, a new world is going to be built. And Adam, maybe down to new worlds, new things are gonna be built. Frankly, more easily than they once were because as with the Adam Newman WeWork story, he built it out of the recession.

It wouldn't have worked if he had started it at another point. He started it at this sort of trough when real estate prices were low and you could do something kind of different. And so we're at the beginning of some kind of new cycle. And I think as I look back on this story and this era, trying to figure out the fine line between, I guess, to sort of take what you said, being charming and being a charlatan is a crucial sort of radar for all of us to develop. And I don't, it's tricky to know which person is going to fall on which kind of line. But I think we can look at this in our politics,

in business, everywhere. We've become more and more, I think, keen to follow kind of charismatic leaders. And there's no easy solution to solving that, but I think being wary of charisma and thinking more about the numbers and the data behind anything is something that we'd all do well to follow. I agree, man. It is the cult of personality is just so, so strong. And I wonder how much social media is played into this. Like previously, people who were famous or talented

or competent or whatever, they felt like so untouchable. Like there were these angelic, symbolic, difficult to reach barely human individuals that you would hear about or that people would go to a street parade to catch a glimpse of. And now, like, I know what Kim Kardashian's dog's called because she uploads like 45. I mean, I obviously don't follow Kim Kardashian on Instagram, but I imagine if I did, I would know what her dog was called. It's okay if you do, I think.

Reeves, Reeves, I promise you, I promise you, I don't, someone's going to go and check, but I know I don't. We have this desire for transparency and this cult of personality, I think, is being fed by the ability to see behind the curtain, you know, like, President of the United States, man, like, he's tweeting all the time and I think it's thoroughly entertaining, but I think it's incredibly fact that you have this ambassador for the personality frontier being the most powerful man on the planet, is that well? If he can do it. Yeah, Adam Newman was very good friends with Jared Kushner.

They were both New York real estate people. Adam Newman and Donald Trump were New York real estate people. Adam Newman and Donald Trump were New York real estate people. And it's not new that this kind of bombasts can get you far. It does feel as if it can get you farther than it once did, that it's maybe a little easier to pull the wall over people's eyes. And yeah, I think social media and the way it enables anyone to kind of build a global brand off of very little. Sometimes you can back that up.

Sometimes you can get by without having to back it up for a while, but eventually, at least that's what we'd like to believe. Eventually, there will be some consequences for it. And I think there was, the WeWork case, we'll see in the president's case and in others. But people get to get to the case. They get found out, right? The thing with social media is that you can scale clout in a way that you never could before. Previously, to become famous, you had to do something,

not just be someone. And the fact that you can be famous for just being someone, not like Louis XIV, just be someone, not like dynasty wealth, bourgeois living in some baroque mansion somewhere, not that kind of be someone. I mean, like just reality TV, spend six weeks on the right TV program and come off in the entire country knows your name. Like that is fame for fame's sake as opposed to fame for talent or capability or hard work or whatever's sake. But as with many things that are hollow like that, when you come up against slightly tougher times, or when you decide to actually stress test that fame, you find that it's incredibly hollow.

And you're like, oh, actually, there's nothing in here. Like, hit it with a hammer, and it cracks and spliddles everywhere, and you're like, oh, that was all it was. I thought that this was the Elon Musk. I am allowed to have this much bravado because of how much gusto I've got behind me, how virtuous and sort of reliable this is. So I want to finish off on the Elizabeth Holmes Theranos story.

If anyone doesn't know or is interested, if this slow motion car crash sounds interesting, first off, go and buy Billion Dollar loser LinkedIn LinkedIn show notes below, the fantastic book that we've just been talking about. But also on Amazon Prime, just search Theranos, THERANOS, T-H-E-R-A-N-O-S, and there's a really, really good documentary about it. What parallels can we draw from Adam Newman to Elizabeth Holmes? I'll start by saying the one difference which you hinted at earlier. I'll start by saying the one difference which you hinted at earlier is that we work worked. The business was there, it was a real thing, there were offices, people liked them, they paid money for them. All of those things was a very real difference.

But it was interesting that I started reporting on this just as I think that that documentary was coming out and I was talking to we work in poise and and they were suddenly feeling kind of nervous having watched this this thermos documentary and I think some of the similarities are obviously in the two leaders Elizabeth Holmes what you know became famous as you said for without having the real or anything real to sort of sort of back that up. Adam had become this similar kind of figure. There were things like the stratification of information. I mean, you look at these two different, two companies

and they both of them kind of became so big, so fast you were kind of in your own corner and you assume that they're adults in the room, you assume that they're kind of checks and balances going on, which is like what we all hope, I mean that's the only way to like go through your day with some kind of healthy subskepticism, but some kind of belief that that people are running the numbers and and I think you know in both cases that failed people, and then the checks and balances on that point. A lot was made about what's there in us.

There were no doctors on its board. It was all big names who had been kind of wooed by Elizabeth Holmes and Charmed by her. And that was the case with Adam. It was kind of these finance people. There was not a real estate person on, on WeWorks Board of Directors, which, which was in some ways an intentional move. We worked in want to be seen that way. And, and it's a lot easier to sort of pretend, pretend that you're something else.

The partitioning of information is really interesting. And it's telling that that's how every secret service across the world works as well. Yeah, it's a convenient way to run an organization so long as someone is sort of making sure they're all working together, but when the danger is of course when like one part of it, the organization isn't holding its weight, it could all crumble. So, man, I really enjoy this story. I don't know what it is about it, and I wonder if the people listening get the same sort of satisfaction. I know that they do. Everyone listen, get this same come up and satisfaction, they're calling out of hypocrisy. And a billion dollar loser linked in the show notes below, if you enjoyed this story, then go and check it

out. Any other things that people should check out online, any other places you want to send them, Reeves? You know, you can go to billiondollarloserbook.com and that has kind of all the information about where you can buy the book and I'm on Twitter and not really on Instagram, but you can find all my other thoughts on this and other things on Twitter. Peace, thank you very much. I don't follow Kim Kardashian either. And on that note.

So you and I are the only two people in the world. Who don't follow Kim Kardashian, right? Sorry Kim, but for now, ladies and gentlemen, we'll catch you next time.