Introduction
In the world of startups and venture capital, few stories have captured the imagination quite like the rise and fall of WeWork. Once hailed as the most valuable startup in the United States, WeWork's meteoric ascent and spectacular collapse serve as a cautionary tale about the excesses of the modern startup culture and the dangers of unchecked ambition.
"The Cult of We" by Eliot Brown takes readers on a wild ride through the history of WeWork, from its humble beginnings in Brooklyn to its near-collapse in 2019. At the center of this story is Adam Neumann, the charismatic and controversial co-founder whose vision, salesmanship, and unbridled ambition propelled WeWork to dizzying heights before bringing it crashing back down to earth.
This book offers a fascinating look at how a simple idea for flexible office space morphed into a grandiose vision of reshaping the way people work, live, and interact. It's a tale of hubris, excess, and the power of storytelling in the modern business world. Through the WeWork saga, we gain insight into the culture of Silicon Valley, the mindset of venture capitalists, and the dangers of valuing growth at all costs.
As we delve into the key ideas of "The Cult of We," we'll uncover how a baby-clothes salesman managed to convince some of the world's savviest investors to pour billions into his company, why a real estate firm was valued as a cutting-edge tech startup, and how the startup culture of the 2010s contributed to reckless investment decisions.
The Birth of WeWork
The story of WeWork begins with a chance encounter between two men who couldn't have been more different. In 2006, at a rooftop party in New York City, Miguel McKelvey, a quiet architect, met Adam Neumann, a loud, shirtless Israeli with big dreams and even bigger ambitions. Despite their differences, the two struck up a friendship that would eventually lead to one of the most valuable startups in history.
Neumann, at the time, was running a struggling baby-clothes business and was looking for affordable office space. McKelvey, who worked in a building at 68 Jay Street in Brooklyn, suggested Neumann move his operation there. Little did McKelvey know that this simple suggestion would set in motion a series of events that would change both their lives forever.
Once settled in his new office, it became clear that Neumann's true passion wasn't baby clothes at all. His real goal was simple: to get rich. And he saw McKelvey as the perfect partner to help him achieve that goal. Neumann, ever the idea man, began bouncing business concepts off McKelvey, who proved to be an excellent sounding board.
One of these ideas, while not entirely original, showed real promise. Neumann proposed renting out fully equipped, flexible office spaces to technology companies. The concept was straightforward: tenants would pay a premium for ready-to-use offices, and Neumann would maximize profits by packing these spaces tightly. McKelvey, intrigued by the potential, agreed to join forces with Neumann to bring this idea to life.
With nothing more than a pitch and a healthy dose of chutzpah, Neumann and McKelvey approached their landlords at 68 Jay Street with their concept. The timing couldn't have been better. Brooklyn was teeming with entrepreneurs and small companies in need of flexible office solutions, and the Great Recession of 2008 had even large corporations looking to downsize their office footprints. The landlords, seeing the potential, agreed to partner with Neumann and McKelvey, offering them a floor in one of their buildings, a former pipe factory.
McKelvey, putting his architectural skills to use, worked on the floor plan, business plan, and website. In 2008, their first venture, GreenDesk, was born. But for Neumann, this was just the beginning. Always looking ahead, he saw GreenDesk as a stepping stone to something much bigger.
In 2009, Neumann and McKelvey sold their stakes in GreenDesk to their landlord partners for $500,000 each. With this seed money, they set their sights on expanding their concept. They began searching for spaces they could rent and subdivide into small offices, all while hunting for new investors to fund their growing ambitions.
Their search led them to Joel Schreiber, a real estate developer. In a move that would set the tone for WeWork's future, Neumann and McKelvey pitched their new company, which at this point existed only on paper, as being worth $45 million. Remarkably, Schreiber not only bought into their vision but didn't even attempt to negotiate. He agreed to invest $15 million for a one-third stake in the company, providing Neumann and McKelvey with more money than they had ever seen in their lives.
This early success was just the beginning of WeWork's journey. Neumann and McKelvey had proven their ability to sell a vision, even without a single customer or a physical space to show for it. This knack for storytelling and salesmanship would become a hallmark of WeWork's rise, propelling the company to unimaginable heights in the years to come.
WeWork as a Tech Startup
As WeWork began to take shape, Adam Neumann quickly realized that the key to achieving astronomical valuations lay not in presenting his company as a real estate venture, but as a cutting-edge tech startup. This realization would shape WeWork's narrative and drive its stratospheric rise in the coming years.
From its early days, WeWork cultivated an atmosphere that appealed to tech startups. The company hosted regular happy hours for its clients, most of whom were young tech entrepreneurs. Even as the world grappled with the aftermath of the 2008 financial crisis, the buzz in WeWork's offices centered around which industry would next be disrupted by a tech startup.
Neumann keenly observed that many of these startups were financed by venture capitalists – investors who provided crucial early funding, often long before companies showed any signs of profitability. These were the same investors who had helped launch transformative companies like Amazon, Apple, Facebook, Google, and Microsoft. By 2010, most venture capitalists had shifted their focus from seeking groundbreaking ideas to investing in groundbreaking leaders – charismatic founders in the mold of Jeff Bezos or Steve Jobs.
Neumann saw an opportunity. Despite his limited tech knowledge (he could barely operate his own laptop), he understood that his status as a founder could open doors with venture capitalists. He began to reframe WeWork's narrative, presenting it not as a real estate company, but as a tech startup revolutionizing the way people work.
In his presentations, Neumann cleverly adopted tech industry jargon, describing WeWork's offering as "space as a service" – a play on the emerging "software as a service" business model. He and McKelvey highlighted how the lines between work and play were blurring, pointing to tech giants like Google that offered employees perks like free food and in-house gyms. WeWork, they argued, would bring this Silicon Valley office experience to urban millennials everywhere, with sleek designer furniture, glass walls, common areas stocked with food, and free beer on tap.
But Neumann didn't stop there. He positioned WeWork as more than just an office space provider; he sold it as a community builder. He dubbed the concept a "physical Facebook," drawing parallels between WeWork's mission and that of the social media giant. Just as Facebook aimed to "make the world more open and connected," WeWork strived "to create a world where people work to make a life, not just a living."
This narrative was compelling, but Neumann knew that investors needed more than just a vision – they needed numbers. In his presentations, he included slides projecting astronomical growth, forecasting an increase in revenue from $73 million in 2014 to $2.8 billion in 2018. These projections, combined with the tech startup narrative, proved irresistible to investors.
In 2015, the renowned venture capital firm Benchmark valued WeWork at $100 million – an extraordinary figure for a startup, especially one in the real estate sector. After all, unlike software companies, the revenue potential of physical office spaces was inherently limited. But the buzz around WeWork was intense, and by mid-2015, the company had attracted $400 million in investment.
Neumann's ability to position WeWork as a tech company rather than a real estate firm was a masterstroke. It allowed the company to tap into the seemingly limitless pool of venture capital that was flowing into the tech sector. Investors, caught up in the excitement of potentially backing the next big tech disruptor, were willing to overlook the fundamental realities of WeWork's business model.
This repositioning set the stage for WeWork's rapid expansion and sky-high valuations in the years to come. It also laid the groundwork for the company's eventual downfall, as the gap between WeWork's tech startup narrative and its real estate reality grew ever wider.
Rapid Expansion and Reckless Spending
With its newfound status as a hot tech startup and flush with investor cash, WeWork embarked on a period of rapid expansion. Within just a couple of years, the company had grown beyond the United States, opening spaces in Europe and Israel, and setting its sights on Asian markets. This breakneck pace of growth far outstripped that of the software companies whose success Neumann had once aspired to emulate.
As the company expanded, Miguel McKelvey began to retreat into a more supportive role. Already richer than he'd ever dreamed of being, he agreed to hand over most of his stake in the company's profits to Neumann. This left Neumann firmly in control and more determined than ever to pursue his vision of doubling WeWork's revenue every single year.
However, this rapid growth came at a cost. After seven years, most startups are expected to show a reduction in losses, but WeWork was moving in the opposite direction. By 2016, with 65 locations worldwide, the company was hemorrhaging money, losing a staggering million dollars a day. When Neumann announced plans to fundraise in China, the world's biggest market, investors grew uneasy.
But Neumann had positioned himself in such a way that he didn't have to heed these concerns. He maintained firm control over the company, and even when partners were worried, they tended to bow to his wishes. According to reports, "No" votes simply never happened in board meetings. Neumann remained obsessed with speeding up growth, ignoring profit margins in the belief that rapid expansion would impress future investors and help him attract even more capital.
This strategy reached its pinnacle in 2019 when Neumann flew to Tokyo to meet Masayoshi Son, founder and CEO of the tech conglomerate Softbank Group. Instead of discussing standard business matters, Neumann laid out what he called his "triangle plan": WeWork would quickly take over every part of the commercial real estate market, including the global construction industry and brokerage market. He claimed it would be worth trillions, positioning WeWork to become the largest, greatest company in the world.
Remarkably, Son was sold on this grandiose vision. At this point, WeWork was not just massively hyped, but also one of the most valuable startups in the world – at least on paper. The company had a headcount of six thousand, one and a half times the staff at Twitter. Softbank valued WeWork at an astounding $47 billion.
Son announced his intention to invest $10 billion and eventually buy out WeWork's existing investors for another $10 billion. He immediately invested $4.4 billion – despite the fact that WeWork was still far from turning a profit.
This influx of cash from Softbank marked a turning point for WeWork and Neumann. With seemingly unlimited funds at his disposal, Neumann's ambitions grew even more outlandish, and his spending became increasingly reckless.
The company began to lose focus on its core business of providing flexible office space. In 2015, Neumann launched WeLive, an attempt to transform the residential sector with college dorm-style living arrangements. However, this venture never gained traction, expanding to only two locations before stalling.
Undeterred by this setback, Neumann continued to dream up new ventures. He rebranded WeWork as "The We Company," a shift meant to encompass not just WeWork but also new ventures like WeLive and WeGrow – an elementary school that claimed to raise "conscious global citizens." WeGrow was led by Adam's wife Rebekah, who had named herself a co-founder of The We Company and infused its branding with a New Age tone.
Neumann also directed WeWork to acquire a range of seemingly unrelated companies, including the event-sharing app Meetup and a "coding bootcamp" known as the Flatiron School. He used Softbank's money to make personal investments, such as committing $38 million to his friend Ashton Kutcher's venture capital fund. These moves left many staff members confused and concerned, but with the board so malleable to Neumann's wishes, there was no one to rein him in.
As the company expanded into new territories and ventures, its spending became even more extravagant. Neumann announced to the board that he was purchasing a Gulfstream private jet for $63.4 million, justifying it as a necessity to avoid commercial flights. Parties became a frequent occurrence at the office, and the company's mandatory Summer Camp retreats for employees ballooned into gigantic, expensive affairs.
In less than two years, WeWork had burned through $3 billion of Softbank's money. Despite this enormous expenditure, the company was no closer to becoming a profitable, sustainable business. The rapid expansion and reckless spending were setting the stage for WeWork's eventual downfall, as the gap between the company's lofty valuation and its financial reality grew ever wider.
The Beginning of the End
As 2019 dawned, WeWork seemed to be at the height of its powers. In January, Adam Neumann took to the stage at a three-day internal conference dubbed the "Global Summit" in Los Angeles. Pumping his fist in front of thousands of WeWork employees, Neumann exuded confidence and ambition.
The event itself was a testament to WeWork's excess. The company had rented out Universal Studios theme park for the corporate retreat, with tequila flowing freely, bands playing, and staff enjoying Harry Potter rides. The price tag for this extravaganza? A cool $10 million.
Addressing his employees, Neumann made a bold prediction: by the same time next year, he declared, the company would be worth $100 billion. Little did he know that within months, his empire would be crumbling around him.
The seeds of WeWork's downfall had been planted years earlier, in Neumann's meeting with Masayoshi Son of Softbank. When Neumann had presented his "triangle plan," Son had promised him unlimited access to Softbank's money to fund his vision. This seemingly bottomless well of cash had allowed WeWork to stay private for much longer than most startups, shielding the company from the scrutiny that comes with going public.
But as Neumann's vision grew more scattered and WeWork's losses mounted, cracks began to appear in this arrangement. After eight years of high-speed growth and billions of dollars in losses, Neumann was not content with just dominating the office space market. He wanted WeWork to sell software and food, provide housing for WeWork staff, and educate their children.
While Son had encouraged Neumann to dream big, the reality was that it wasn't entirely up to him. Softbank's $100 billion Vision Fund was partly provided by the Saudi government, who had to approve large investments. Son had initially dazzled the Saudis to secure the investment in WeWork, but over time they grew wary of Neumann's grandiose plans and the company's mounting losses. Softbank shareholders in Tokyo were also becoming increasingly concerned.
The hammer fell at the end of 2018 when Son called Neumann to deliver some bad news. The promised WeWork buyout, which would have allowed the company to remain private indefinitely, was simply not possible. The deal had to be called off.
This development left Neumann with no choice. Just four months after his triumphant appearance at the Global Summit, he had to announce that WeWork was ready to go public. It was the last thing he wanted – Neumann had always been wary of the scrutiny that came with being a public company – but with Softbank withdrawing its offer, there was simply no one left willing to throw billions of dollars at the company.
For many WeWork employees, the news of the impending IPO (Initial Public Offering) was actually welcome. WeWork had long paid lower salaries than many other startups, instead luring would-be employees with the prospect of eventually receiving stock in the company. Some employees were waiting on potential millions, depending on the company's valuation. If WeWork went public, they thought, everyone could finally get rich.
But as WeWork prepared for its IPO, the cracks in its facade began to widen. The company's lawyers, accountants, and executives set to work on the IPO prospectus, a crucial document that outlines a company's financial information before it's listed on the public stock market. As they prepared this document, WeWork's communication department put together a list of all the potentially damaging details about the company that the press might pick up on. This list ran to an alarming 20 pages long, highlighting examples of Neumann's profiteering, including the restructuring of WeWork for his tax benefit and the disclosure that he had sold the trademark "We" to WeWork – his own company – for $5.9 million.
The reckoning came on the morning of August 19, 2019, when WeWork's financial documents were published. At first, news headlines focused on the company's staggering $11 billion in losses. Then, social media began to mock the New Age tone of the prospectus, which had been dedicated to "the energy of We." By the end of the day, attention had shifted to Neumann's outsized control over the company, including his twenty-to-one voting power over other shareholders.
Meanwhile, in Tokyo, Masayoshi Son was beginning to feel the sting of humiliation. It was becoming clear that market investors didn't value WeWork anywhere near the $47 billion figure that he had assigned to it. In fact, they didn't seem to think WeWork was even worth $15–20 billion.
For nearly a decade, Neumann had managed to convince some of the world's top investors to boost WeWork's valuation and provide a seemingly endless stream of money. But now the show was over. The emperor had no clothes, and everyone could see it.
Two days after the IPO documents were published, Neumann finally stepped down as CEO. But true to form, he didn't leave empty-handed. His departure came with the promise of a $1 billion severance package, a final demonstration of the excess that had characterized his tenure at WeWork.
The WeWork saga serves as a cautionary tale about the dangers of unchecked ambition, the power of charismatic leadership, and the potential pitfalls of the modern startup culture. It highlights how the pursuit of growth at all costs, coupled with a lack of proper oversight, can lead even the most promising companies astray.
Lessons Learned and Final Thoughts
The rise and fall of WeWork offers several important lessons for entrepreneurs, investors, and anyone interested in the world of startups and venture capital.
First, it underscores the importance of a solid, sustainable business model. While Neumann's ability to tell a compelling story and paint a grand vision was remarkable, it ultimately couldn't compensate for WeWork's fundamental flaws. The company's core business – renting office space – was capital-intensive and inherently limited in its scalability, no matter how it was dressed up as a tech company.
Second, the WeWork saga highlights the dangers of prioritizing growth over profitability. In the startup world of the 2010s, there was a prevailing belief that companies could afford to lose money for years as long as they were growing rapidly. WeWork took this philosophy to the extreme, burning through billions of dollars in pursuit of expansion without ever developing a clear path to profitability.
Third, it serves as a reminder of the importance of corporate governance and oversight. Neumann's outsized control over WeWork, combined with a board that seemed unwilling or unable to challenge him, allowed for reckless decision-making and spending. This lack of checks and balances ultimately contributed to the company's downfall.
Fourth, the WeWork story illustrates the power of narrative in the business world. Neumann's ability to position WeWork as a tech company rather than a real estate firm allowed it to achieve valuations far beyond what would typically be possible for a company in its industry. This highlights both the importance of storytelling in business and the potential dangers when that story diverges too far from reality.
Finally, the WeWork saga is a stark reminder of the potential pitfalls of the "cult of the founder" that has become prevalent in startup culture. While visionary founders have indeed built some of the world's most successful companies, unchecked faith in a charismatic leader can lead to poor decision-making and a lack of accountability.
As we reflect on the WeWork story, it's important to remember that while the company's fall was spectacular, its rise was equally remarkable. Adam Neumann and Miguel McKelvey built something truly impressive, transforming the way many people think about office space and work environments. Their vision of creating community through shared workspaces has had a lasting impact on the business world, even if their execution ultimately fell short.
In the end, "The Cult of We" is not just the story of a failed company or a cautionary tale about startup excess. It's a mirror held up to our society, reflecting our dreams, our ambitions, and sometimes our delusions. It challenges us to think critically about the stories we're told and the values we prioritize in the business world.
As we move forward, the lessons from WeWork's rise and fall will undoubtedly influence how investors evaluate startups, how boards govern companies, and how entrepreneurs build their businesses. While the era of seemingly unlimited funding for unprofitable startups may be coming to an end, the drive for innovation and the dream of building world-changing companies will continue.
The WeWork saga reminds us that while ambition and vision are crucial in business, they must be tempered with realism, sound governance, and a focus on building sustainable, profitable companies. It's a lesson that the business world would do well to remember in the years to come.