It is the coworking company that was once valued at over $50 billion, but then came spectacularly crashing down.
In this episode, we'll learn about the amazing rise and fall of the company that tried to make office space cool.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:23] I'm Alastair Budge and today we are going to be talking about The Rise and Fall of WeWork, the co-working company that was set to take over the world, and then... well, didn’t.
[00:00:37] It is a really interesting story involving a charismatic leader, empty buildings, ping pong tables, lots of money, the future of work, and a lot of free coffee.
[00:00:51] Before we get right into today’s episode, I want to remind you that you can become a member of Leonardo English and follow along with the subtitles, the transcript and its key vocabulary over on the website, which is leonardoenglish.com.
[00:01:06] Membership of Leonardo English gives you access to all of our learning materials, all of our bonus episodes, so that’s more than 160 different episodes now, as well as two new ones every week, plus access to our awesome private community where we do live events, challenges, and much, much more.
[00:01:29] Our community now has members from over 50 countries, and it is my mission to make it the most interesting place for curious people like you to improve their English.
[00:01:40] So, if that is of interest, - and I can't see a reason why it wouldn't be - then the place to go to is leonardoenglish.com.
[00:01:53] OK then, WeWork.
[00:01:56] Now, you may have heard of this company before.
[00:01:59] Perhaps you have even been inside a WeWork office.
[00:02:04] If you haven’t heard of it, WeWork essentially is a company that rents out office space.
[00:02:10] If you are a freelancer and you want to work at a desk in a nice office, or if you are a large company and you want a nice office for your staff, WeWork provides everything you need.
[00:02:24] Now, unless you are familiar with the story of WeWork, you probably think this sounds all terribly boring, but before pressing pause, or skipping to another episode, let me assure you that the story of WeWork is anything but boring, and through it we can ask ourselves all sorts of interesting and pertinent questions.
[00:02:50] Such as: What will the offices of the future look like?
[00:02:54] How will office life post-COVID be different?
[00:02:58] Is every company a technology company?
[00:03:02] And is there such a thing as a dream that is just too big?
[00:03:08] Now, back to WeWork.
[00:03:10] Let me paint a picture of WeWork at its peak, at its height, in the summer of 2019, before telling the story of how it got there.
[00:03:22] The company had raised over $8 billion dollars in venture capital, it had raised this money from investors in order to grow.
[00:03:31] It had offices in 32 different countries, and over half a million people working inside them.
[00:03:39] Its offices had free beer, ping pong tables, sofas, you name it.
[00:03:45] Its thousands of employees would be flown to all-expenses-paid WeWork festivals where they would party and be serenaded by famous musicians.
[00:03:58] The company had its own private jet, and its founder had a collection of houses and apartments in some of the world’s most desirable cities, all over the US, Europe, and The Middle East.
[00:04:14] It was set to go public, it was set to list its shares on the stock exchange, and hoped to be worth over $50 billion dollars.
[00:04:25] This fundraising would make its charismatic CEO, an Israeli named Adam Neumann, a billionaire several times over, and staff with stock options, staff who owned shares in the company, as well as early investors, would receive a bumper payday, they would make a load of money.
[00:04:45] Yet, over the period of a few weeks WeWork fell from the stars, as investors looked more closely at the company and smelled something fishy, they felt that something was wrong.
[00:05:01] The company scrambled, Neumann was forced out, thousands of employees were sacked, offices were closed, and the company struggled to avoid going bankrupt.
[00:05:13] To figure out how that all happened, we need to go back almost 10 years, to New York City.
[00:05:21] WeWork was founded in 2010 by two friends: Adam Neumann, the charismatic Israeli, and Miguel McKelvey, an American from Oregon.
[00:05:33] They had successfully built and sold an office rental company, a company that managed office space, and now they had plans for something bigger.
[00:05:44] This vision for WeWork seemed to come primarily from Neumann.
[00:05:49] He had grown up in a kibbutz in Israel, a sort of collective community, and he wanted to recreate the community feel in an office environment.
[00:06:01] McKelvey, on the other hand, was an architect by trade, but had also grown up in what he called a 5-mother-collective, a sort of mini kibbutz of 5 different families.
[00:06:16] So both men were deep believers in the power of community to bring people together.
[00:06:23] If one were to put labels on the responsibilities of each of the men, it was Neumann’s job to be the salesman, to find new buildings to rent, to do deals, to get people inspired by the vision of WeWork, and to raise money from investors.
[00:06:43] And McKelvey, as an architect, was in charge of designing the buildings.
[00:06:48] Now, WeWork’s main business wasn’t particularly complicated.
[00:06:54] It would rent large amounts of office space, and sometimes even entire buildings, then it would decorate them and make them look pleasant to a younger, more creative crowd, it would divide them into smaller offices, and rent them out individually.
[00:07:12] To give a very basic example, if they rented a space from a property owner for $50,000 a month, and then found 200 freelancers who were willing to pay $500 each every month, then WeWork would collect $100,000 in rent from the freelancers, and pay $50,000 to the building owner, and the difference was how it made its money.
[00:07:37] Not rocket science, right?
[00:07:40] The proposition was very attractive to investors, and WeWork soon was flooded with money from people who wanted a piece of the company, thinking they might have found the next Facebook or Google.
[00:07:53] The CEO of the company, Adam Neumann, was an excellent storyteller, and an extremely charismatic individual.
[00:08:02] He spoke with an Israeli accent, he was almost two meters tall, and he had an imposing presence that captivated anyone who listened.
[00:08:14] And WeWork seemed to be doing something that no other company had managed to do.
[00:08:20] It was making office space cool.
[00:08:24] There were thousands of other companies that did a similar thing, but they were boring.
[00:08:29] Nobody dreamed about working in them, and they were merely a utility.
[00:08:36] WeWork was aspirational; people wanted to work in a WeWork office, and people wanted to work for WeWork.
[00:08:46] WeWork seemed to have found the formula for growth. It found office space, signed a contract to rent the space for an extended period of time, refurbished the space and made it cool, then new tenants would arrive.
[00:09:03] All it needed for world domination was money.
[00:09:08] It needed to invest in people, and it needed to invest in these leases, in the rents for the space.
[00:09:18] Even though WeWork tended to not buy the buildings outright, it just rented them, it was a very capital intensive business.
[00:09:27] Starting a worldwide property empire wasn’t cheap.
[00:09:31] Luckily, Neumann was an excellent salesman, and money seemed to naturally flow towards him.
[00:09:40] The money started small, comparatively speaking, $15 million dollars from a New York property developer, but shortly afterwards the numbers were in the hundreds of millions and then the billions.
[00:09:54] WeWork was flying high, and burning through money, it was spending far more money than it made.
[00:10:02] By 2016 it was not just a unicorn, the term given by investors to a startup valued at over a billion dollars, it was now a decacorn, a company valued at over $10 billion.
[00:10:18] It seemed unstoppable.
[00:10:21] A large amount of the later money had actually come via Japan, from an eccentric but brilliant Japanese businessman, called Mayoshi Son.
[00:10:32] Son had built up the Japanese technology company SoftBank, and had developed a reputation as an excellent, albeit unorthodox investor.
[00:10:44] He had made one of the best investments in history, as an early investor in Yahoo!, and then giving an unknown entrepreneur called Jack Ma $20 million to start a company in China.
[00:10:58] The company Jack Ma started was Alibaba, and this $20 million investment would turn into over $150 billion for Son.
[00:11:10] Son was on the lookout for the next home-run investment, he was now looking to invest in companies that he believed would change the world and net him a handsome profit.
[00:11:23] After meeting Neumann, he believed he had found one in WeWork, and SoftBank piled money into the company, with Son reportedly agreeing to invest $4.4 billion after meeting Neuman for only 28 minutes.
[00:11:40] By this time, the vision of WeWork had outgrown mere office space.
[00:11:46] It had changed its name to The We Company, and had bought and built schools for kids, buildings for people to live in, and even slightly less connected businesses such as one that made swimming pools with artificial waves.
[00:12:02] Neumann’s vision, or at least what he was telling investors, would be that WeWork would solve many of the world’s problems, office space was merely the start.
[00:12:14] A child might be born in a We apartment, they would go to a We kindergarten, they would work at a We office, and their entire life would revolve around The We Company.
[00:12:27] Now, you might think this sounds mad and implausible, perhaps even Orwellian, but Mayoshi Son and Softbank continued to believe in this vision.
[00:12:40] As SoftBank put more and more money into the company, people on the outside scratched their heads and questioned what was going on.
[00:12:49] Was there something that they didn’t understand?
[00:12:53] How could an office space company possibly be valued so highly?
[00:12:59] It’s worth briefly pausing to address the question of how companies are valued.
[00:13:04] Obviously this is an extremely complicated question but how it is relevant to WeWork is that technology companies tend to be valued more highly than traditional companies, they are given what’s called a higher multiple.
[00:13:21] One of the main reasons for this is that there is a much lower cost to service more customers for a tech company, because the distribution of software is much cheaper.
[00:13:33] If you are, for example, a company that builds houses, the cost of building 10 houses is much more than building one house, it’s not exactly 10 times, but it might be almost 10 times.
[00:13:46] But for technology companies, for software companies, there is very little additional cost to selling more software, it costs you almost the same to sell one piece of software as it does 10, 100, or 10,000.
[00:14:04] This means it tends to be a lot cheaper, easier, and quicker for a tech company to grow, therefore their valuations are higher as a multiple of revenue.
[00:14:15] Long story short, if you are a tech company, or you manage to convince your investors that you are a tech company, your valuation can increase a lot.
[00:14:27] WeWork managed to do an excellent job at convincing investors that it was a tech company, that it was a so-called “platform for office space”, and it was rewarded with sky-high valuations.
[00:14:43] But under the surface WeWork was burning through money, it was losing more and more money every month.
[00:14:50] For many tech companies, this had come to be expected.
[00:14:54] You spend more than you make in order to get customers and to build a great product, then at some point in the future you are profitable, and everyone is happy.
[00:15:06] Because the amounts of money that were involved were so huge, WeWork would spend money like there was no tomorrow.
[00:15:14] WeWork had taken on so much office space, it had rented so many buildings, that it literally struggled to find new ones. There was only so much available space in the prime cities that WeWork was targeting.
[00:15:30] Because the owners of buildings knew how much money WeWork had, they were able to charge higher rates, meaning that these locations became less profitable.
[00:15:42] At the same time, WeWork was spending huge amounts of money to find new tenants, to find people to fill its offices.
[00:15:51] It would often offer incredibly generous discounts to entice people into its office, to get new freelancers and companies to try its offices, even offering to give them a year’s free rent to switch.
[00:16:07] Again, the idea was that this was an investment in the future, and after that year was over the company would stay in the WeWork office, paying rent, and everyone would be happy.
[00:16:19] But a business can’t continue to lose money forever, and there was pressure for WeWork to go public, to float on the stock market.
[00:16:29] SoftBank and Mayoshi Son weren’t prepared to support the company forever, and it looked like going public was the only option left for WeWork to survive.
[00:16:41] And that is when it all started to go downhill, that's when it all started to go a little bit wrong for WeWork.
[00:16:49] As WeWork was forced to open up to investors, people saw under the hood and some of the excesses of the company were revealed.
[00:17:00] Alongside this, there were also numerous lawsuits against the company, accusations of drug-use by Neumann, employees coming forward and talking about the cult of WeWork, and all sorts of unorthodox and worrying behaviour that investors don’t like to see.
[00:17:21] WeWork had most recently been valued at $47 billion, but it soon became clear that new investors weren’t prepared to value it at nearly that much, and they certainly didn’t buy the story that it was a technology company.
[00:17:39] As a result, investors wouldn’t pay anywhere near what WeWork had hoped, and it had to postpone going public.
[00:17:48] It had hoped to raise hundreds of millions of dollars from going public, from its stock market offering, but given that this wasn’t an option anymore, it needed to make some serious changes to avoid running out of cash.
[00:18:04] The first change came at the top of the company.
[00:18:08] Neumann was pushed out of WeWork, he was in effect sacked, but, unlike you or me where we might be sacked and if we're lucky given a little bit of money to say "thank you for your work", Neumann was paid $1.7 billion to leave, and was then kept on as a consultant on a salary of $46 million a year.
[00:18:34] Thousands of WeWork employees were sacked, and they were understandably appalled that the boss had been given such a huge amount of money while they were losing their jobs, and their stock options proved to be worth much less than they had been promised.
[00:18:53] This all happened in Autumn of 2019, and then in the spring of 2020, as we all know COVID-19 hit, WeWork’s offices had to close, and the company was in more trouble than ever before.
[00:19:09] Of course, the world is still in a state of semi lockdown, with people in countries all over the world working from home, and not in a great rush to return to the office.
[00:19:21] So, where does this leave WeWork?
[00:19:25] It has changed its leadership, it has a new boss, and the excesses of the past appear to be behind it.
[00:19:33] But is it going to be the answer to the future of work, with people valuing the ability to go into fashionable offices from time to time, but otherwise wanting a more flexible working environment?
[00:19:48] Or, is the old, office-based way of working a thing of the past?
[00:19:53] What will happen to the knowledge workers that were previously WeWork’s bread and butter?
[00:19:59] Have they got used to working from home, and will they be flooding back to the offices when they open up?
[00:20:07] Only time will tell, but if you are asking me, it seems that a company like WeWork may well be a small part of the answer to the working preferences of the future.
[00:20:18] Most surveys of people who have been forced to work from home for much of the past year and a half suggest that people aren’t looking forward to going back to the traditional office environment, where they are required to be there all day Monday to Friday.
[00:20:35] But at the same time, they don't know that they want to be working from home all day every day.
[00:20:42] So, perhaps, just perhaps, WeWork could be exactly what they are looking for, and it might be the phoenix to rise from the ashes.
[00:20:53] OK then, that is it for today's episode on the rise and fall of WeWork.
[00:21:00] Who knows, maybe you might be listening to this episode in a couple of years’ time and ask why the title isn’t The Rise and Fall and Rise Again of WeWork.
[00:21:11] As always, I would love to know what you thought of this episode.
[00:21:15] If you have been working from home during COVID-19, and you previously worked in an office, how do you feel about returning? Have you returned already?
[00:21:24] What would your ideal working situation look like? And is it anything like a WeWork?
[00:21:31] For the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:41] And as a final reminder, if you enjoyed this episode, and you are wondering where to get all of our bonus episodes, plus the transcripts, subtitles, and key vocabulary, then you should head to leonardoenglish.com.
[00:21:55] I am on a mission to make Leonardo English the most interesting way of improving your English, and I would love for you to join me, and curious minds from 50 different countries, on that journey.
[00:22:08] The place you can go to for all of that is leonardoenglish.com. You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:22:20] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:23] I'm Alastair Budge and today we are going to be talking about The Rise and Fall of WeWork, the co-working company that was set to take over the world, and then... well, didn’t.
[00:00:37] It is a really interesting story involving a charismatic leader, empty buildings, ping pong tables, lots of money, the future of work, and a lot of free coffee.
[00:00:51] Before we get right into today’s episode, I want to remind you that you can become a member of Leonardo English and follow along with the subtitles, the transcript and its key vocabulary over on the website, which is leonardoenglish.com.
[00:01:06] Membership of Leonardo English gives you access to all of our learning materials, all of our bonus episodes, so that’s more than 160 different episodes now, as well as two new ones every week, plus access to our awesome private community where we do live events, challenges, and much, much more.
[00:01:29] Our community now has members from over 50 countries, and it is my mission to make it the most interesting place for curious people like you to improve their English.
[00:01:40] So, if that is of interest, - and I can't see a reason why it wouldn't be - then the place to go to is leonardoenglish.com.
[00:01:53] OK then, WeWork.
[00:01:56] Now, you may have heard of this company before.
[00:01:59] Perhaps you have even been inside a WeWork office.
[00:02:04] If you haven’t heard of it, WeWork essentially is a company that rents out office space.
[00:02:10] If you are a freelancer and you want to work at a desk in a nice office, or if you are a large company and you want a nice office for your staff, WeWork provides everything you need.
[00:02:24] Now, unless you are familiar with the story of WeWork, you probably think this sounds all terribly boring, but before pressing pause, or skipping to another episode, let me assure you that the story of WeWork is anything but boring, and through it we can ask ourselves all sorts of interesting and pertinent questions.
[00:02:50] Such as: What will the offices of the future look like?
[00:02:54] How will office life post-COVID be different?
[00:02:58] Is every company a technology company?
[00:03:02] And is there such a thing as a dream that is just too big?
[00:03:08] Now, back to WeWork.
[00:03:10] Let me paint a picture of WeWork at its peak, at its height, in the summer of 2019, before telling the story of how it got there.
[00:03:22] The company had raised over $8 billion dollars in venture capital, it had raised this money from investors in order to grow.
[00:03:31] It had offices in 32 different countries, and over half a million people working inside them.
[00:03:39] Its offices had free beer, ping pong tables, sofas, you name it.
[00:03:45] Its thousands of employees would be flown to all-expenses-paid WeWork festivals where they would party and be serenaded by famous musicians.
[00:03:58] The company had its own private jet, and its founder had a collection of houses and apartments in some of the world’s most desirable cities, all over the US, Europe, and The Middle East.
[00:04:14] It was set to go public, it was set to list its shares on the stock exchange, and hoped to be worth over $50 billion dollars.
[00:04:25] This fundraising would make its charismatic CEO, an Israeli named Adam Neumann, a billionaire several times over, and staff with stock options, staff who owned shares in the company, as well as early investors, would receive a bumper payday, they would make a load of money.
[00:04:45] Yet, over the period of a few weeks WeWork fell from the stars, as investors looked more closely at the company and smelled something fishy, they felt that something was wrong.
[00:05:01] The company scrambled, Neumann was forced out, thousands of employees were sacked, offices were closed, and the company struggled to avoid going bankrupt.
[00:05:13] To figure out how that all happened, we need to go back almost 10 years, to New York City.
[00:05:21] WeWork was founded in 2010 by two friends: Adam Neumann, the charismatic Israeli, and Miguel McKelvey, an American from Oregon.
[00:05:33] They had successfully built and sold an office rental company, a company that managed office space, and now they had plans for something bigger.
[00:05:44] This vision for WeWork seemed to come primarily from Neumann.
[00:05:49] He had grown up in a kibbutz in Israel, a sort of collective community, and he wanted to recreate the community feel in an office environment.
[00:06:01] McKelvey, on the other hand, was an architect by trade, but had also grown up in what he called a 5-mother-collective, a sort of mini kibbutz of 5 different families.
[00:06:16] So both men were deep believers in the power of community to bring people together.
[00:06:23] If one were to put labels on the responsibilities of each of the men, it was Neumann’s job to be the salesman, to find new buildings to rent, to do deals, to get people inspired by the vision of WeWork, and to raise money from investors.
[00:06:43] And McKelvey, as an architect, was in charge of designing the buildings.
[00:06:48] Now, WeWork’s main business wasn’t particularly complicated.
[00:06:54] It would rent large amounts of office space, and sometimes even entire buildings, then it would decorate them and make them look pleasant to a younger, more creative crowd, it would divide them into smaller offices, and rent them out individually.
[00:07:12] To give a very basic example, if they rented a space from a property owner for $50,000 a month, and then found 200 freelancers who were willing to pay $500 each every month, then WeWork would collect $100,000 in rent from the freelancers, and pay $50,000 to the building owner, and the difference was how it made its money.
[00:07:37] Not rocket science, right?
[00:07:40] The proposition was very attractive to investors, and WeWork soon was flooded with money from people who wanted a piece of the company, thinking they might have found the next Facebook or Google.
[00:07:53] The CEO of the company, Adam Neumann, was an excellent storyteller, and an extremely charismatic individual.
[00:08:02] He spoke with an Israeli accent, he was almost two meters tall, and he had an imposing presence that captivated anyone who listened.
[00:08:14] And WeWork seemed to be doing something that no other company had managed to do.
[00:08:20] It was making office space cool.
[00:08:24] There were thousands of other companies that did a similar thing, but they were boring.
[00:08:29] Nobody dreamed about working in them, and they were merely a utility.
[00:08:36] WeWork was aspirational; people wanted to work in a WeWork office, and people wanted to work for WeWork.
[00:08:46] WeWork seemed to have found the formula for growth. It found office space, signed a contract to rent the space for an extended period of time, refurbished the space and made it cool, then new tenants would arrive.
[00:09:03] All it needed for world domination was money.
[00:09:08] It needed to invest in people, and it needed to invest in these leases, in the rents for the space.
[00:09:18] Even though WeWork tended to not buy the buildings outright, it just rented them, it was a very capital intensive business.
[00:09:27] Starting a worldwide property empire wasn’t cheap.
[00:09:31] Luckily, Neumann was an excellent salesman, and money seemed to naturally flow towards him.
[00:09:40] The money started small, comparatively speaking, $15 million dollars from a New York property developer, but shortly afterwards the numbers were in the hundreds of millions and then the billions.
[00:09:54] WeWork was flying high, and burning through money, it was spending far more money than it made.
[00:10:02] By 2016 it was not just a unicorn, the term given by investors to a startup valued at over a billion dollars, it was now a decacorn, a company valued at over $10 billion.
[00:10:18] It seemed unstoppable.
[00:10:21] A large amount of the later money had actually come via Japan, from an eccentric but brilliant Japanese businessman, called Mayoshi Son.
[00:10:32] Son had built up the Japanese technology company SoftBank, and had developed a reputation as an excellent, albeit unorthodox investor.
[00:10:44] He had made one of the best investments in history, as an early investor in Yahoo!, and then giving an unknown entrepreneur called Jack Ma $20 million to start a company in China.
[00:10:58] The company Jack Ma started was Alibaba, and this $20 million investment would turn into over $150 billion for Son.
[00:11:10] Son was on the lookout for the next home-run investment, he was now looking to invest in companies that he believed would change the world and net him a handsome profit.
[00:11:23] After meeting Neumann, he believed he had found one in WeWork, and SoftBank piled money into the company, with Son reportedly agreeing to invest $4.4 billion after meeting Neuman for only 28 minutes.
[00:11:40] By this time, the vision of WeWork had outgrown mere office space.
[00:11:46] It had changed its name to The We Company, and had bought and built schools for kids, buildings for people to live in, and even slightly less connected businesses such as one that made swimming pools with artificial waves.
[00:12:02] Neumann’s vision, or at least what he was telling investors, would be that WeWork would solve many of the world’s problems, office space was merely the start.
[00:12:14] A child might be born in a We apartment, they would go to a We kindergarten, they would work at a We office, and their entire life would revolve around The We Company.
[00:12:27] Now, you might think this sounds mad and implausible, perhaps even Orwellian, but Mayoshi Son and Softbank continued to believe in this vision.
[00:12:40] As SoftBank put more and more money into the company, people on the outside scratched their heads and questioned what was going on.
[00:12:49] Was there something that they didn’t understand?
[00:12:53] How could an office space company possibly be valued so highly?
[00:12:59] It’s worth briefly pausing to address the question of how companies are valued.
[00:13:04] Obviously this is an extremely complicated question but how it is relevant to WeWork is that technology companies tend to be valued more highly than traditional companies, they are given what’s called a higher multiple.
[00:13:21] One of the main reasons for this is that there is a much lower cost to service more customers for a tech company, because the distribution of software is much cheaper.
[00:13:33] If you are, for example, a company that builds houses, the cost of building 10 houses is much more than building one house, it’s not exactly 10 times, but it might be almost 10 times.
[00:13:46] But for technology companies, for software companies, there is very little additional cost to selling more software, it costs you almost the same to sell one piece of software as it does 10, 100, or 10,000.
[00:14:04] This means it tends to be a lot cheaper, easier, and quicker for a tech company to grow, therefore their valuations are higher as a multiple of revenue.
[00:14:15] Long story short, if you are a tech company, or you manage to convince your investors that you are a tech company, your valuation can increase a lot.
[00:14:27] WeWork managed to do an excellent job at convincing investors that it was a tech company, that it was a so-called “platform for office space”, and it was rewarded with sky-high valuations.
[00:14:43] But under the surface WeWork was burning through money, it was losing more and more money every month.
[00:14:50] For many tech companies, this had come to be expected.
[00:14:54] You spend more than you make in order to get customers and to build a great product, then at some point in the future you are profitable, and everyone is happy.
[00:15:06] Because the amounts of money that were involved were so huge, WeWork would spend money like there was no tomorrow.
[00:15:14] WeWork had taken on so much office space, it had rented so many buildings, that it literally struggled to find new ones. There was only so much available space in the prime cities that WeWork was targeting.
[00:15:30] Because the owners of buildings knew how much money WeWork had, they were able to charge higher rates, meaning that these locations became less profitable.
[00:15:42] At the same time, WeWork was spending huge amounts of money to find new tenants, to find people to fill its offices.
[00:15:51] It would often offer incredibly generous discounts to entice people into its office, to get new freelancers and companies to try its offices, even offering to give them a year’s free rent to switch.
[00:16:07] Again, the idea was that this was an investment in the future, and after that year was over the company would stay in the WeWork office, paying rent, and everyone would be happy.
[00:16:19] But a business can’t continue to lose money forever, and there was pressure for WeWork to go public, to float on the stock market.
[00:16:29] SoftBank and Mayoshi Son weren’t prepared to support the company forever, and it looked like going public was the only option left for WeWork to survive.
[00:16:41] And that is when it all started to go downhill, that's when it all started to go a little bit wrong for WeWork.
[00:16:49] As WeWork was forced to open up to investors, people saw under the hood and some of the excesses of the company were revealed.
[00:17:00] Alongside this, there were also numerous lawsuits against the company, accusations of drug-use by Neumann, employees coming forward and talking about the cult of WeWork, and all sorts of unorthodox and worrying behaviour that investors don’t like to see.
[00:17:21] WeWork had most recently been valued at $47 billion, but it soon became clear that new investors weren’t prepared to value it at nearly that much, and they certainly didn’t buy the story that it was a technology company.
[00:17:39] As a result, investors wouldn’t pay anywhere near what WeWork had hoped, and it had to postpone going public.
[00:17:48] It had hoped to raise hundreds of millions of dollars from going public, from its stock market offering, but given that this wasn’t an option anymore, it needed to make some serious changes to avoid running out of cash.
[00:18:04] The first change came at the top of the company.
[00:18:08] Neumann was pushed out of WeWork, he was in effect sacked, but, unlike you or me where we might be sacked and if we're lucky given a little bit of money to say "thank you for your work", Neumann was paid $1.7 billion to leave, and was then kept on as a consultant on a salary of $46 million a year.
[00:18:34] Thousands of WeWork employees were sacked, and they were understandably appalled that the boss had been given such a huge amount of money while they were losing their jobs, and their stock options proved to be worth much less than they had been promised.
[00:18:53] This all happened in Autumn of 2019, and then in the spring of 2020, as we all know COVID-19 hit, WeWork’s offices had to close, and the company was in more trouble than ever before.
[00:19:09] Of course, the world is still in a state of semi lockdown, with people in countries all over the world working from home, and not in a great rush to return to the office.
[00:19:21] So, where does this leave WeWork?
[00:19:25] It has changed its leadership, it has a new boss, and the excesses of the past appear to be behind it.
[00:19:33] But is it going to be the answer to the future of work, with people valuing the ability to go into fashionable offices from time to time, but otherwise wanting a more flexible working environment?
[00:19:48] Or, is the old, office-based way of working a thing of the past?
[00:19:53] What will happen to the knowledge workers that were previously WeWork’s bread and butter?
[00:19:59] Have they got used to working from home, and will they be flooding back to the offices when they open up?
[00:20:07] Only time will tell, but if you are asking me, it seems that a company like WeWork may well be a small part of the answer to the working preferences of the future.
[00:20:18] Most surveys of people who have been forced to work from home for much of the past year and a half suggest that people aren’t looking forward to going back to the traditional office environment, where they are required to be there all day Monday to Friday.
[00:20:35] But at the same time, they don't know that they want to be working from home all day every day.
[00:20:42] So, perhaps, just perhaps, WeWork could be exactly what they are looking for, and it might be the phoenix to rise from the ashes.
[00:20:53] OK then, that is it for today's episode on the rise and fall of WeWork.
[00:21:00] Who knows, maybe you might be listening to this episode in a couple of years’ time and ask why the title isn’t The Rise and Fall and Rise Again of WeWork.
[00:21:11] As always, I would love to know what you thought of this episode.
[00:21:15] If you have been working from home during COVID-19, and you previously worked in an office, how do you feel about returning? Have you returned already?
[00:21:24] What would your ideal working situation look like? And is it anything like a WeWork?
[00:21:31] For the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:41] And as a final reminder, if you enjoyed this episode, and you are wondering where to get all of our bonus episodes, plus the transcripts, subtitles, and key vocabulary, then you should head to leonardoenglish.com.
[00:21:55] I am on a mission to make Leonardo English the most interesting way of improving your English, and I would love for you to join me, and curious minds from 50 different countries, on that journey.
[00:22:08] The place you can go to for all of that is leonardoenglish.com. You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:22:20] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:23] I'm Alastair Budge and today we are going to be talking about The Rise and Fall of WeWork, the co-working company that was set to take over the world, and then... well, didn’t.
[00:00:37] It is a really interesting story involving a charismatic leader, empty buildings, ping pong tables, lots of money, the future of work, and a lot of free coffee.
[00:00:51] Before we get right into today’s episode, I want to remind you that you can become a member of Leonardo English and follow along with the subtitles, the transcript and its key vocabulary over on the website, which is leonardoenglish.com.
[00:01:06] Membership of Leonardo English gives you access to all of our learning materials, all of our bonus episodes, so that’s more than 160 different episodes now, as well as two new ones every week, plus access to our awesome private community where we do live events, challenges, and much, much more.
[00:01:29] Our community now has members from over 50 countries, and it is my mission to make it the most interesting place for curious people like you to improve their English.
[00:01:40] So, if that is of interest, - and I can't see a reason why it wouldn't be - then the place to go to is leonardoenglish.com.
[00:01:53] OK then, WeWork.
[00:01:56] Now, you may have heard of this company before.
[00:01:59] Perhaps you have even been inside a WeWork office.
[00:02:04] If you haven’t heard of it, WeWork essentially is a company that rents out office space.
[00:02:10] If you are a freelancer and you want to work at a desk in a nice office, or if you are a large company and you want a nice office for your staff, WeWork provides everything you need.
[00:02:24] Now, unless you are familiar with the story of WeWork, you probably think this sounds all terribly boring, but before pressing pause, or skipping to another episode, let me assure you that the story of WeWork is anything but boring, and through it we can ask ourselves all sorts of interesting and pertinent questions.
[00:02:50] Such as: What will the offices of the future look like?
[00:02:54] How will office life post-COVID be different?
[00:02:58] Is every company a technology company?
[00:03:02] And is there such a thing as a dream that is just too big?
[00:03:08] Now, back to WeWork.
[00:03:10] Let me paint a picture of WeWork at its peak, at its height, in the summer of 2019, before telling the story of how it got there.
[00:03:22] The company had raised over $8 billion dollars in venture capital, it had raised this money from investors in order to grow.
[00:03:31] It had offices in 32 different countries, and over half a million people working inside them.
[00:03:39] Its offices had free beer, ping pong tables, sofas, you name it.
[00:03:45] Its thousands of employees would be flown to all-expenses-paid WeWork festivals where they would party and be serenaded by famous musicians.
[00:03:58] The company had its own private jet, and its founder had a collection of houses and apartments in some of the world’s most desirable cities, all over the US, Europe, and The Middle East.
[00:04:14] It was set to go public, it was set to list its shares on the stock exchange, and hoped to be worth over $50 billion dollars.
[00:04:25] This fundraising would make its charismatic CEO, an Israeli named Adam Neumann, a billionaire several times over, and staff with stock options, staff who owned shares in the company, as well as early investors, would receive a bumper payday, they would make a load of money.
[00:04:45] Yet, over the period of a few weeks WeWork fell from the stars, as investors looked more closely at the company and smelled something fishy, they felt that something was wrong.
[00:05:01] The company scrambled, Neumann was forced out, thousands of employees were sacked, offices were closed, and the company struggled to avoid going bankrupt.
[00:05:13] To figure out how that all happened, we need to go back almost 10 years, to New York City.
[00:05:21] WeWork was founded in 2010 by two friends: Adam Neumann, the charismatic Israeli, and Miguel McKelvey, an American from Oregon.
[00:05:33] They had successfully built and sold an office rental company, a company that managed office space, and now they had plans for something bigger.
[00:05:44] This vision for WeWork seemed to come primarily from Neumann.
[00:05:49] He had grown up in a kibbutz in Israel, a sort of collective community, and he wanted to recreate the community feel in an office environment.
[00:06:01] McKelvey, on the other hand, was an architect by trade, but had also grown up in what he called a 5-mother-collective, a sort of mini kibbutz of 5 different families.
[00:06:16] So both men were deep believers in the power of community to bring people together.
[00:06:23] If one were to put labels on the responsibilities of each of the men, it was Neumann’s job to be the salesman, to find new buildings to rent, to do deals, to get people inspired by the vision of WeWork, and to raise money from investors.
[00:06:43] And McKelvey, as an architect, was in charge of designing the buildings.
[00:06:48] Now, WeWork’s main business wasn’t particularly complicated.
[00:06:54] It would rent large amounts of office space, and sometimes even entire buildings, then it would decorate them and make them look pleasant to a younger, more creative crowd, it would divide them into smaller offices, and rent them out individually.
[00:07:12] To give a very basic example, if they rented a space from a property owner for $50,000 a month, and then found 200 freelancers who were willing to pay $500 each every month, then WeWork would collect $100,000 in rent from the freelancers, and pay $50,000 to the building owner, and the difference was how it made its money.
[00:07:37] Not rocket science, right?
[00:07:40] The proposition was very attractive to investors, and WeWork soon was flooded with money from people who wanted a piece of the company, thinking they might have found the next Facebook or Google.
[00:07:53] The CEO of the company, Adam Neumann, was an excellent storyteller, and an extremely charismatic individual.
[00:08:02] He spoke with an Israeli accent, he was almost two meters tall, and he had an imposing presence that captivated anyone who listened.
[00:08:14] And WeWork seemed to be doing something that no other company had managed to do.
[00:08:20] It was making office space cool.
[00:08:24] There were thousands of other companies that did a similar thing, but they were boring.
[00:08:29] Nobody dreamed about working in them, and they were merely a utility.
[00:08:36] WeWork was aspirational; people wanted to work in a WeWork office, and people wanted to work for WeWork.
[00:08:46] WeWork seemed to have found the formula for growth. It found office space, signed a contract to rent the space for an extended period of time, refurbished the space and made it cool, then new tenants would arrive.
[00:09:03] All it needed for world domination was money.
[00:09:08] It needed to invest in people, and it needed to invest in these leases, in the rents for the space.
[00:09:18] Even though WeWork tended to not buy the buildings outright, it just rented them, it was a very capital intensive business.
[00:09:27] Starting a worldwide property empire wasn’t cheap.
[00:09:31] Luckily, Neumann was an excellent salesman, and money seemed to naturally flow towards him.
[00:09:40] The money started small, comparatively speaking, $15 million dollars from a New York property developer, but shortly afterwards the numbers were in the hundreds of millions and then the billions.
[00:09:54] WeWork was flying high, and burning through money, it was spending far more money than it made.
[00:10:02] By 2016 it was not just a unicorn, the term given by investors to a startup valued at over a billion dollars, it was now a decacorn, a company valued at over $10 billion.
[00:10:18] It seemed unstoppable.
[00:10:21] A large amount of the later money had actually come via Japan, from an eccentric but brilliant Japanese businessman, called Mayoshi Son.
[00:10:32] Son had built up the Japanese technology company SoftBank, and had developed a reputation as an excellent, albeit unorthodox investor.
[00:10:44] He had made one of the best investments in history, as an early investor in Yahoo!, and then giving an unknown entrepreneur called Jack Ma $20 million to start a company in China.
[00:10:58] The company Jack Ma started was Alibaba, and this $20 million investment would turn into over $150 billion for Son.
[00:11:10] Son was on the lookout for the next home-run investment, he was now looking to invest in companies that he believed would change the world and net him a handsome profit.
[00:11:23] After meeting Neumann, he believed he had found one in WeWork, and SoftBank piled money into the company, with Son reportedly agreeing to invest $4.4 billion after meeting Neuman for only 28 minutes.
[00:11:40] By this time, the vision of WeWork had outgrown mere office space.
[00:11:46] It had changed its name to The We Company, and had bought and built schools for kids, buildings for people to live in, and even slightly less connected businesses such as one that made swimming pools with artificial waves.
[00:12:02] Neumann’s vision, or at least what he was telling investors, would be that WeWork would solve many of the world’s problems, office space was merely the start.
[00:12:14] A child might be born in a We apartment, they would go to a We kindergarten, they would work at a We office, and their entire life would revolve around The We Company.
[00:12:27] Now, you might think this sounds mad and implausible, perhaps even Orwellian, but Mayoshi Son and Softbank continued to believe in this vision.
[00:12:40] As SoftBank put more and more money into the company, people on the outside scratched their heads and questioned what was going on.
[00:12:49] Was there something that they didn’t understand?
[00:12:53] How could an office space company possibly be valued so highly?
[00:12:59] It’s worth briefly pausing to address the question of how companies are valued.
[00:13:04] Obviously this is an extremely complicated question but how it is relevant to WeWork is that technology companies tend to be valued more highly than traditional companies, they are given what’s called a higher multiple.
[00:13:21] One of the main reasons for this is that there is a much lower cost to service more customers for a tech company, because the distribution of software is much cheaper.
[00:13:33] If you are, for example, a company that builds houses, the cost of building 10 houses is much more than building one house, it’s not exactly 10 times, but it might be almost 10 times.
[00:13:46] But for technology companies, for software companies, there is very little additional cost to selling more software, it costs you almost the same to sell one piece of software as it does 10, 100, or 10,000.
[00:14:04] This means it tends to be a lot cheaper, easier, and quicker for a tech company to grow, therefore their valuations are higher as a multiple of revenue.
[00:14:15] Long story short, if you are a tech company, or you manage to convince your investors that you are a tech company, your valuation can increase a lot.
[00:14:27] WeWork managed to do an excellent job at convincing investors that it was a tech company, that it was a so-called “platform for office space”, and it was rewarded with sky-high valuations.
[00:14:43] But under the surface WeWork was burning through money, it was losing more and more money every month.
[00:14:50] For many tech companies, this had come to be expected.
[00:14:54] You spend more than you make in order to get customers and to build a great product, then at some point in the future you are profitable, and everyone is happy.
[00:15:06] Because the amounts of money that were involved were so huge, WeWork would spend money like there was no tomorrow.
[00:15:14] WeWork had taken on so much office space, it had rented so many buildings, that it literally struggled to find new ones. There was only so much available space in the prime cities that WeWork was targeting.
[00:15:30] Because the owners of buildings knew how much money WeWork had, they were able to charge higher rates, meaning that these locations became less profitable.
[00:15:42] At the same time, WeWork was spending huge amounts of money to find new tenants, to find people to fill its offices.
[00:15:51] It would often offer incredibly generous discounts to entice people into its office, to get new freelancers and companies to try its offices, even offering to give them a year’s free rent to switch.
[00:16:07] Again, the idea was that this was an investment in the future, and after that year was over the company would stay in the WeWork office, paying rent, and everyone would be happy.
[00:16:19] But a business can’t continue to lose money forever, and there was pressure for WeWork to go public, to float on the stock market.
[00:16:29] SoftBank and Mayoshi Son weren’t prepared to support the company forever, and it looked like going public was the only option left for WeWork to survive.
[00:16:41] And that is when it all started to go downhill, that's when it all started to go a little bit wrong for WeWork.
[00:16:49] As WeWork was forced to open up to investors, people saw under the hood and some of the excesses of the company were revealed.
[00:17:00] Alongside this, there were also numerous lawsuits against the company, accusations of drug-use by Neumann, employees coming forward and talking about the cult of WeWork, and all sorts of unorthodox and worrying behaviour that investors don’t like to see.
[00:17:21] WeWork had most recently been valued at $47 billion, but it soon became clear that new investors weren’t prepared to value it at nearly that much, and they certainly didn’t buy the story that it was a technology company.
[00:17:39] As a result, investors wouldn’t pay anywhere near what WeWork had hoped, and it had to postpone going public.
[00:17:48] It had hoped to raise hundreds of millions of dollars from going public, from its stock market offering, but given that this wasn’t an option anymore, it needed to make some serious changes to avoid running out of cash.
[00:18:04] The first change came at the top of the company.
[00:18:08] Neumann was pushed out of WeWork, he was in effect sacked, but, unlike you or me where we might be sacked and if we're lucky given a little bit of money to say "thank you for your work", Neumann was paid $1.7 billion to leave, and was then kept on as a consultant on a salary of $46 million a year.
[00:18:34] Thousands of WeWork employees were sacked, and they were understandably appalled that the boss had been given such a huge amount of money while they were losing their jobs, and their stock options proved to be worth much less than they had been promised.
[00:18:53] This all happened in Autumn of 2019, and then in the spring of 2020, as we all know COVID-19 hit, WeWork’s offices had to close, and the company was in more trouble than ever before.
[00:19:09] Of course, the world is still in a state of semi lockdown, with people in countries all over the world working from home, and not in a great rush to return to the office.
[00:19:21] So, where does this leave WeWork?
[00:19:25] It has changed its leadership, it has a new boss, and the excesses of the past appear to be behind it.
[00:19:33] But is it going to be the answer to the future of work, with people valuing the ability to go into fashionable offices from time to time, but otherwise wanting a more flexible working environment?
[00:19:48] Or, is the old, office-based way of working a thing of the past?
[00:19:53] What will happen to the knowledge workers that were previously WeWork’s bread and butter?
[00:19:59] Have they got used to working from home, and will they be flooding back to the offices when they open up?
[00:20:07] Only time will tell, but if you are asking me, it seems that a company like WeWork may well be a small part of the answer to the working preferences of the future.
[00:20:18] Most surveys of people who have been forced to work from home for much of the past year and a half suggest that people aren’t looking forward to going back to the traditional office environment, where they are required to be there all day Monday to Friday.
[00:20:35] But at the same time, they don't know that they want to be working from home all day every day.
[00:20:42] So, perhaps, just perhaps, WeWork could be exactly what they are looking for, and it might be the phoenix to rise from the ashes.
[00:20:53] OK then, that is it for today's episode on the rise and fall of WeWork.
[00:21:00] Who knows, maybe you might be listening to this episode in a couple of years’ time and ask why the title isn’t The Rise and Fall and Rise Again of WeWork.
[00:21:11] As always, I would love to know what you thought of this episode.
[00:21:15] If you have been working from home during COVID-19, and you previously worked in an office, how do you feel about returning? Have you returned already?
[00:21:24] What would your ideal working situation look like? And is it anything like a WeWork?
[00:21:31] For the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:41] And as a final reminder, if you enjoyed this episode, and you are wondering where to get all of our bonus episodes, plus the transcripts, subtitles, and key vocabulary, then you should head to leonardoenglish.com.
[00:21:55] I am on a mission to make Leonardo English the most interesting way of improving your English, and I would love for you to join me, and curious minds from 50 different countries, on that journey.
[00:22:08] The place you can go to for all of that is leonardoenglish.com. You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:22:20] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
