I think the original big deal with WeWork's game plan was the free beer on the job. Alcohol, of course, is a drug, a hard one. I think they had some horror shows from drunks(no surprise), and have toned it down, but it was a big part of the marketing - FREE DRUGS. Just a coincidence -Neumann, I guess like shots of Tequila.
People are jailed now for using safer drugs, but this guy builds an empire giving away the legal one, while losing tons of money. Strange world.
13
"Each of his shares will now have three votes, down from 20 votes earlier this year"
If only we could do the same for the U.S. Senate, where each resident of the 10 least populous states has 15 votes to my one.
36
"He once unilaterally declared that WeWork would ban meat from the company, which forced executives to quickly come up with a rationale for why."
It is not hard to come up with a rationale for banning meat. It should be harder to come up with a rationale to NOT ban something steeped in so much cruelty to animals, people, the earth, and our health.
45
@Joel I can understand being against meat. One granddaughter of mine was a vegetarian for a while. However the extreme part to me would be baning it from the entire company.
Although his jacket probably is just imitation leather it still gives the message that leather is ok. I don't see a big difference between meat and leather.
74
@Joel
Banning meat may be a good move for a religious cult, but probably not a wise business practice.
19
@Joel I feel like you're missing the forest for the trees here.
11
It's not tech ... it's simply real estate. It's also simply hinky.
8
It also says something about the way Softbank continues to misfire on their investments. Softbank is a one-hit wonder, who made a really lucrative bet on Alibaba. Their other big bets don't look so good.
5
Funding long term commitments with short term leases is just as risky as using short term loans to fund long term obligations was when Lehman Brothers was doing it with abandon in 2007. This is why firms in the commercial rental business prefer long term leases. Sure, this company saw a land rush of customers. Why wouldn't they come to a firm that accepts the risk of market rates going down, and also offers short term leases at lower than cost? Warnings to potential investors have been apparent for months. How did the private investors that recently valued this thing at $47BB fool themselves for so long?
11
If any investor had done their due diligence and tried working in one of their offices for any length of time I guarantee they would have ran for the exits. Having worked in one I have experienced the following: lines for elevators, paint falling from ceilings, inadequate heating/cooling systems, questionable office security, not enough restrooms for the number of employees, obvious code violations, fire safety issues, wifi phones that are unreliable, office staff that are not capable to respond to requests in a timely manner. I could go but these are the big issues...
23
WeWork is nothing more than a REIT, led by a charlatan. Nothing new to see here, folks.
13
My father taught me years ago that you cannot cheat an honest man. As I look at this motley crew of business hucksters, Wall Street bankers, lawyers, so called "investors" and all the other hanger-on grifters who stand to make a buck from such failed transactions as this, I cannot see an honest man among them.
None of them being too honest or too bright, I'd say they all got what they had coming to them. Looks like justice to me.
For a few this will be a teachable moment. For the rest we'll read about them soon enough in yet another NYT's DealBook report. At least it supplies Andrew Ross Sorkin and his colleagues steady employment.
5
As someone in real estate in nyc, let me say, every one of my colleagues knew this was a house of cards. It was a cynical feeding frenzy that made everyone a bunch of money. Sorry everyone else out there who doesn’t know this game and got suckered; it’s called the “art of the deal”!
16
I’m getting tired of tech companies “changing the world.” They seem to keep changing it in the wrong direction.
When I found out that WeWork had spent $850 million so that they could turn Lord & Taylor into a cubicle and junk food purgatory, I knew their time would soon be up. Any maneuver that gauche is a clear sign that management has a fatal case of HDS (Hubris and Delusion Syndrome).
13
People shouldn't resent these founders of start-ups, any more than they resent their local politicians, and ineptitude and waste at every level of business and government. But people do a lot of great things, and the "save the world" model persists.
What strikes me is what these overnight tech sensations do with their newfound riches. They spend them as frivolously as any lottery winner. These companies don't create anything except wealth for those who got in early, just like a Ponzi scheme. Create the hype, court the investors, everyone waits to cash in on the IPO and then just as quickly cash out. What's left among the rubble are a few billionaires, a handful of multi-millionaires, and thousands of disjointed lives. Rinse and repeat. It seems that all technology has enabled is more efficient wealth extraction, invariably upwards. I can't wait until the Chinese fully replicate our model of late capitalism; it will be our revenge.
49
I have said for sometime that UBER was not all that it appeared to be. Now we have We Work being put under a microscope and found to be lacking. Overstock lost 25 % of its diminshed value in one day yesterday.
s
Just like 2001-2002 Dot,com Meltdown it's time to leave these sketcky companies and buy into those that have histories of profitable operations Buying into IPO's is not for beginners..
18
What, exactly, is the business idea here?
What is the point of difference or the intellectual property that will keep out competitors?
WeWork is a bizarre cult of nothing.
I've looked at this business as a potential employee and potential investor and walked away from both opportunities with a clear conscience.
Adam Neumann is a rich man, but really he's just a charlatan.
33
How long before ,”WeWork” is featured on CNBC’s ,”American Greed,” I wonder!
11
@Bogey yogi
Oh yes, they will bash him, that comes approximately 18 months after they couldn’t praise him enough. So tell me, who really is at fault here?
5
very disappointed they are not going public soon, or with Neumann at the helm... I was actually looking forward to shorting this sham of a company
16
Remember Theranos anyone?
23
WeWork’s business model is not difficult to duplicate. There are few proprietary hurdles to overcome. It’s lease and remodel and flip. I don’t see it ever really dominating this market, which is growing but easy to enter, especially by regional players who are savvy about spaces close to home.
7
I don’t see how WeWork can be successful in the long term. The trend in small firms is to work from home, with only a third to a half of the workforce showing up in the office on any given day. When people in the office talk to their neighbors three desks away on Slack, it’s clear that physical presence doesn’t have the value it once had.
Broadband collaboration tools and robot avatars make sense in this world. Fractional office leasing, not so much.
In my opinion, the bankers have collected their fees, and the smart money has exited. To use a phrase from the period the founders still think they’re living in, WeWork is toast.
11
So much for yet another entrepreneur whose rise seems to have been fueled by delusions of grandeur.
WeWork may ultimately prove viable, but it doesn’t appear that it was wise to decouple the payment of refurbishment expenses from the company’s revenue and lease cycles.
It would behoove the company’s managers to remember that WeWork is essentially a real estate leasing company, not a novel way of life.
9
I am convinced that these companies are used to launder money from nefarious sources. If I were a banker and needed to clean billions, I'd find a company long on business speak jargon but short on actual product and overhead costs. A mercurial founding CEO who talks in platitudes and circles is a must. When Neumann or another one of these CEOs is forced out, it means that they are completely out of control and would jeopardize the real purpose of these businesses.
14
@MJG you just described SoftBank
6
Another conman bites the dust
We shall shed no tears
21
@Paul
Is he a con man or is Adam a man with a brilliant idea that was not executed properly? NYT couldn’t say enough brilliant things about this guy a couple of years ago. Oh, let’s bring him down now. Why? Because some people didn’t do their do diligence 12 months ago. The Adam I knew was eager to learn and grow a business and was not so egotistical that he would not or could not take advise.
If any business investor questioned what he was doing,
I think Adam would have heeded his advise.
2
Neumann represents the childish, big money world of tech to a tee. It's like Mark Zuckerberg without the million dollar handlers. Peter Pan with $700 million dollars.
He'd sit around and smoke pot on his private jet, fire people within minutes for 'not jiving' with him, etc. I've read elsewhere of people sitting on planes with him and his friends in first class, and it was like a bunch of rich manchilden.
And in tech, being convincing, talented, aggressive and a good showman allowed him to raise billions for nothing more than a real estate company. He can raise from the private market, but the public market has been much harsher to him.
Neumann just doesn't have the chops to take WeWork beyond its funding stage. We saw it with Travis in Uber, then they brought in Dana, a more seasoned tech exec with execution skills. He's turned companies around before; Travis was an overpaid bully.
22
Only fools believed that WeWork was changing the world. And as to Neumann being brought down by his idealism and ambition... What idealism? He has ambition aplenty but his ideals are identical to Trump's - tell people what they want to hear and line your pockets thru shady maneuvers.
So glad to see these enormously unprofitable unicorns get shredded on the public markets. The superrich that pour money into these private equity funds obviously have too much. A wonderful example of the parting of ways that befalls a fool and his money.
20
Lemme guess: barrista?
3
@GMooG let me guess: conman
3
the company armed with media flimflam...It does not need math to see this corp can not make money..but in the end Wall stsreet wizard and tech saga were fooled over by this scam
5
But what the heck does WeWork do? What do they produce or what service do they provide?
4
@Misha they provide companies and individuals with a desk or office in a beautifully appointed office with access to a kitchenette or conference room at the fraction of the cost of taking on a least to an unfurnished office, in a Location they would not be able to otherwise provide.
6
@avigail milder They lease shared office space. It's not a new idea, BTW. Law firms in particular have been doing this for decades.
10
@sundevilpeg Hasn't Regus been doing this for a long time? I get many of these services from them included in my American Express Platinum card. Sure, they are not styled like an Apple store, but the services are there. When I explained what I could do with a Regus office to my dad, he replied that is sounded perfect for a conman.
1
“Top Wall Street bankers” told stories not remotely based on reality but based on driving fee revenue. Congrats guys! (And it is guys)
7
Selling the sky to wealthy folks.
4
Selling the sky to wealthy folks.
1
WeWorks is a sham. it lost over a billion dollars last year, and is unlikely to ever make money.
3
@Roger Werner why does that matter? The money has already been made. Neumann has millions in cash and the early stage investors have already exited.
You always hear about people "selling their company to Google," but you never actually hear about the long-term business prospects of those ventures. That's because they're beside the point.
7
I ask where these venture funds get their funds to support these far out money losing startups. Oh wait, it’s my retirement fund. Great!
7
@Mac Call it stupid money, money that just does not care, or maybe in some cases money that is managed by people making decisions based on kickbacks. Our pension funds and university endowments are the stupid money, in nearly all of these cases. These are the same entities that happily pay 2 and 20 to hedge funds for the privilege of earning less than a generic equity index fund. Still, how did JPM end up getting suckered into backing something public investors would not touch? Are the fees really that good?
2
Too busy spending time on licensing “We” this and “We” that and too little thought on creating a unique and sustainable business model. This company will go the way of Pets.com once the early investors run for the exits. Watch...You wait. I mean We wait.
10
Funny how you list Andrews’ lavish lifestyle as just bad boy excesses but you choose to frame his decision to ban meat was impulsive. In this way you play into traditional lazy thinking about culture and business that is far removed from bold thinking required by leaders.
6
I spent several months working in a WeWork “office” ... it was a tiny box the size of an apartment bathroom, with a sliding glass door, and it was cramped, stifling hot, and noisy.
8
Who will pick up the tab for the cleanup once a minor economic tremor sends WW tenants running for the stairs, they default on enough newsworthy leases and the investors take a haircut? It won’t be pretty. If you think NYC is impacted because it has a lot of empty retail space, you haven’t seen anything until whole office towers are dark day and night.
12
"Investors are saying, ‘We’re not going to tolerate this nonsense anymore.'”
This doesn't seem to be a deal for smart money. Lots of self-dealing and not much there there are a bad combination. Here are the the first two sentences of the IPO filing: "We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness." Come on! It's a New York real estate company. Like Trump Org.
14
A ponzi like scheme running on the coattails of the SoftBank name. Nothing that is proprietary and unique and non replicable in their business model. Valuations which are still absurd and should be in the region of 2 or 3 times real earnings.
11
Private money is one thing, but top tier Wall Street banks are supposed to be able to evaluate businesses before they are offered to public investors. That said, it shouldn't be rocket science to avoid investing in companies run by overtly erratic CEOs.
10
@LTJ, I also wondered what JPM and Goldman were thinking. Then I did the math. $70 million in underwriting commissions.
11
Hardly something that will be fixed by changing a CEO. The IPO is always going to be based on an underlying offering with absurd valuations. This is just a fancy office Space rental company .
7
An office space rental company that is structured like a house of cards. Even beleaguered malls had a mix of large and small tenants covering various parts of the retail trade.
9
I wonder what the market cap will be for a company that basically sub lets office space. The valuation of quite a few of these companies today can only exist when money is not real.
8
Or if you have Softbanks real money backing you. The valuations only SoftBank could pull offf. The master of artificial reality.
1
Sustainable revenue model and path to profitability matters... even for the unicorns. Would this event lead to change in metrics (revenue rate vs meteoric topping growth) for digital companies? Not all VC’s / Investors are SoftBank.
1
the article says "But it might take a more seasoned chief executive who has run businesses with a steady hand to convince investors that WeWork can become a sustainable business, not just a fast-growing one." OR it might actually take a business model that makes more sense to convince investors... and if they had ever had that the excesses of people like the Neumanns would have been tolerated
2
The problem with entrepreneurs whose egos are larger than a hot air balloon is that by duping investors to raise the cash to over-pay for real estate it raises the daily cost of business for the rest of us suckers that are engaged day to day in actual commerce to try to earn an honest buck.
Does anyone have any idea how many businesses in manhattan have moved or folded the tent because of ridiculously high real estate costs in the past fifteen years?
When the internet became a thing twenty plus years ago the promise was that telecommuting and e-commerce would obviate the need for high priced office space. The inflated bubble pricing in real estate since then baffles me. It's all about image, and tastes change. Like when Cadillac decided to relocate their design operations to soho. And filming their commercials there. To be cool. Why?
19
Like a lot of techy start-ups, wework makes absolutely nothing. They just hold leases to rent other peoples property. I'm not sure why banks/investors would throw money at this, thinking long term.
23
@Albert in CA
They threw money at this because they believed that there was a market for it. Unfortunately, the reality of committing to 15 year leases while your clients have no money and want no commitment is a problem.
The illusion of being a big shot business owner is achieved when you have an office for your clients to see. Unfortunately for them, a shared office space is immediately obvious to clients, and in most cases is no different than a Starbucks-like atmosphere or a public library.
With their competitor Regus, the illusion was far better kept and they were more successful as a result. Their offices are professional, closed spaces and you get a secretary that pretends to work for you. The shared office idea is not evident at all.
Like the people who made money during the gold rush - who invested in housing and gold-digging equipment instead of going out to look for gold themselves - WeWork's investors relied on the principle that bilking money from people with dreams was profitable.
13
Correct , Regus made the money in stealth mode. Smart.
How he fooled people who initially invested is a lesson that many should learn from because the strategy of the business model on paper doesn’t add up to the reality of the commercial real estate market.
Perhaps their model could help revitalize some of the vacancies but the gamble of signing companies to sublease for less than the lease term commitments We Work signed is a red flag that every investor should have seen and scrutinized.
The question now is can We Work survive let alone have an IPO anytime in 2020 or even 2021?
17
Take the money and run is the strategy, not creating new enterprises that will last.
14
Well WeWork and Hudson’s Bay have already destroyed Lord & Taylor/the Fifth Avenue flagship store.
13
Collateral damage
1
"So, the mother of all party crashers took a dump in the We IPO punch bowl. The crasher? Math. The autopsy will show the shelving of this IPO was death by S-1." ~NYU Professor Scott Galloway
21
Money laundering behemoth.
14
WeWork was founded in 2010 by Newman, grew this big, almost about to IPO and then.... Curious what has the board been doing all these years? Thought they are supposed to provide guidance and direction, whatever happened to that? It's easy to make a fall guy in Newman - and I am no supporter of him, he probably deserved it. But why couldn't the board prevent much of Newman's bad behavior, conflict of interest & partying and other activities that are making headlines now?
22
@parth, good questions. Was the board truly independent, able and willing to ask tough questions about Neumann and hold him accountable or did he stack the board with allies who rubberstamped his decisions?
5
@parth The board had no power - all of the power resided in Neumann's super-voting stock. And, its major investors including SoftBank just went along for the ride until........more rational investors saw through the fallacy of the business model and the value went poof!
Part of the moral of this story is that when there is more of a focus on "purpose" than on profit you may get a shaky foundation. Take note Business Roundtable.
3
Bad business model or at least very flawed.
Were investors given false data, or blinded by the hype of the new style workplace. Neumann may just become to be known as “the Bernie Made-off “ with your money of the real estate industry even though WeWork is really not a real estate company, but a 3-Card Monte dealer, pretending to be hybrid high tech/ real estate startup subleasing office space.
1
Fake company. Fake business model. No real product. CEO with delusions of grandeur (and definitely unaddressed SERIOUS mental health issues) . ZERO chance of ever making money. Just like Uber, Lyft, etc., etc...
America used to have real businesses run by real business people (think Henry Ford, Andrew Carnegie, J. P. Morgan, Cornelius Vanderbilt, etc.)Now we have a society full financial grifters and conmen.
Just another typical modern "company" for the modern superficial times we live in.
100
And setting a global trend of copycats who will all end up with the same result. Running a Ponzi scheme based on absurd valuations
6
@Raven Some markets favor the dominance of one company. Amazon and Facebook are good examples: their domination of their market goes much further than can be explained by technological advantages alone.
Uber, Lyft, AirBnB, etc hope to achieve a similar position. WeWork has the same claim but when you look at their market that seems very unlikely. And if one looks at their operations one has to wonder whether they even believe it themselves.
Maybe people are finally waking up to this kind of charlatanry? Maybe?
13
@Mannley Man, thanks! learned a new word today...it applies to the U.S. 'president.'
2
Adam Neumann’s WeWork is nothing more than an international executive suite company masquerading as a millennial high technology real estate game changer.
Adam has been afflicted with a severely debilitating case of hubris.
Enjoy your vacation, Adam.
25
If only the same steps had been taken early on by Facebook with Mark Zuckerberg.
16
He should be in jail. And the board members should go for not stepping in sooner.
15
Those of us in commercial real estate have long questioned the business model and long term viability of WW. I wouldn’t invest in that company even if they get a new shiny, less impulsive CEO. The core business and how they spend their money is not sustainable.
33
I wonder which hedge funds, or gullible investors bought the last round of equity. People question that we have securities laws in this country, and this is a great example of why.
10
The first thing to remember is that these unicorns think they are tech companies when they are not even close to that.
Using their logic a kid who runs a lemonade stand is running a tech company if he has an iPad fir ordering supplies and accepting payments.
50
The term “tech company” seems to be the nation’s catch-all for “headquartered in the Bay Area”
27
I imagine this is the best out for him, whether he realizes it or not: surely his liability is limited and he'll get to cash in whatever shares he has before it craters.
I really want to know what the grownups in the room were thinking when they agreed to hand over cash to start with.
19
This snake of a CEO has already cashed out. And this is going to be a spectacular crash on the level of Theranos in no time. Assuming that the IPO will eventually not happen, all the institutional investors will completely lose out.
Where did these people (Neumann, Holmes at Theranos) learn to sweet talk (besides being born privileged) people so well that they would hand over millions?
"Scrutiny directed toward" him? Give me a break. Conflict of interest, early cash-out...these are basic due diligence. This is hardly scrutiny. If he doesn't want the criticism, well, don't do shady things. It's that simple.
43
These ego-maniac CEOs are tiresome. These high-flying companies that lose millions are equally tiresome.
54
The commercial from the former investment firm Smith Barney had in the 1970s with the actor John Houseman always comes to mind with these types of reports, which the commercial ends with Mr. Houseman sternly saying “We make our money the old fashion way. We earn it.”
How can this Board even agree to a formula of 3 votes a share - down from 20 which was unfathomable.
You give someone so much voting power because without that someone - the company would certainly fail.
It's hardly the case with this guy. The company is hardly a going concern as it's losses equal it's revenues.
Just think, a parent would not allow a kid to run a lemonade stand - even for one weekend - at this rate. It's even difficult to understand.
The whole enterprise is criminal in that it's a great marketing hoax.
I live in Bogota where We has offices near my apartment. Empty is what I hear.
They have a Colombian owned competitor who is already profitable even in Colombia.
For life of me - I don't understand how our regulators allow such scams to flourish - when innocent investors get duped.
16
@Neil, only institutional investors lose here, not retail investors. Every firm that invested in this company needs to give their head a shake
8
How can this Board even agree to a formula of 3 votes a share - down from 20 which was unfathomable.
You give someone so much voting power because without that someone - the company would certainly fail.
It's hardly the case with this guy. The company is hardly a going concern as it's losses equal it's revenues.
Just think, a parent would not allow a kid to run a lemonade stand - even for one weekend - at this rate. It's even difficult to understand.
The whole enterprise is criminal in that it's a great marketing hoax.
I live in Bogota where We has offices near my apartment. Empty is what I hear.
They have a Colombian owned competitor who is already profitable even in Colombia.
For life of me - I don't understand how our regulators allow such scams to flourish - when innocent investors get duped.
2
Imagine, investors are soured on purchasing shares of yet another startup that loses money.
8
Renting out shared office space has been around for more than 50 years. It's a difficult business that does poorly in the inevitable business downturn. Long-term liabilities with short-term assets. It might even be worth zero.
35
Could be worth less than zero if liabilities vastly exceed assets...
18
@sammy I thought the same- didn’t Kinko’s rent out office space back in the day?
3
I heard of a better IPO: "Why Work"!
35
Do NONE of these start-ups have women in their top ranks who can take command in time of crisis? They have to promote two more guys? However capable they are, one would think that there are lots of women "We's" out there, workers and decision makers about where an office will be located, who are women.
What kind of financial system allows people like this to borrow so much with so little substance to show for it?
Bottom line on the guys that ratcheted this valuation sky high: "WeStink".
24
@TW, It's not a matter of having someone in skirt at the top, or not. Newmann's wife is just as bonkers as he is (and she's the sister of G.Paltrow). Look at the business model, it's simply not sustainable. Wework is doing exactly what Regus does. What's new?
6
@TW: Maybe there are no women in their top ranks because, Elizabeth Holmes aside, most women don't want to be affiliated with companies run by crazy (and often super-annuated) bro's who have the emotional IQ of a doorstop.
18
Amusing and a case of VERY bad timing for these so-called 'unicorns.'
I've been hearing about these companies (e.g. We, Uber, Lyft) for years, but Larry Ellison called it: they don't make any money and they're based on an app, for gosh sakes!
Public-market investors have been fooled before, but this unicorn scam is based on the 'greater-fool theory' by which public markets bail out 'sophisticated' private investors. Right.
I hope these unicorns don't taint the private capital markets so much that they go 'the way of the unicorn' -- extinct.
On a personal note, the Neumanns sound a little off, and their board oversight seems to have been nonexistent. Pass.
4
@S M Unicorns aren't "extinct" - they are imaginary, much like the business plan of WeWork.
3
WeLose a new HBO doc coming soon. Honestly, they lost me with the WeGrow school, which is totally bananas.
15
It’s amazing Adam Neumann got away with as much as he did for as long as he did. (Though, that is sort of a trend in other arenas nowadays ....)
If the IPO goes through, it’s shouldn’t be at $15 billion. Hopefully no retail investors would be stupid enough to think the odds are good the valuation could go higher than that. All they’ll be doing is helping the venture investors stem their losses and padding Neumann’s pockets even more. The sad thing is that he still has his fancy homes (plural) and other assets. The lesson seems to be that as long as you find enough suckers and hold up the charade long enough, you’ll make out pretty well — as long as you’re willing to trash your reputation.
7
Boris Johnson gets handed a big defeat in Britain, impeachment inquiries are opened on Trump — and now this. Today has been a good start, don’t you think?
64
@Mike
I was *just* saying the same thing! I cannot remember a news day like this. It’s been a very, very long time. I feel a smidge if hope for humanity again.
20
Hold the schadenfreude. Johnson is still PM, Trump is still in office and will stay there, and Neumann is still a billionaire.
12
True, be patient.
1
Bring in Jared Kushner to run the company. He has lots of free time to spend since he finished up the middle-east peace plan.
64
a lousy disgraced businessman-who nobody wants around,
looks like trump has his next cabinet person
23
except he's a Dem
3
Neumann is in very big trouble. As reported in the S-1, he has nearly $1 billion dollars worth of loans against his WeWork stake.
As a point of comparison, IWG plc (parent company of Regus) is worth <$5 billion, brought in $3.2 billion in revenue in 2018 and reported a net income of $122 million. WeWork lost $1.9 billion on $1.8 billion in revenue in the same time frame. Mr. Neumann's stake in an appropriately valuated WeWork is likely significantly less than the loans he has out.
He's already bankrupt on paper; this will vet very interesting from here
14
...” one of the most valuable start-ups to emerge in the last decade”?! Don’t you mean most over-valued”? Wework gussied up an existing real estate idea then bamboozled investors into believing it was a great new idea with legs. Neumann convinced ppl WeWork is an IT unicorn while he personally capitalised on unwarranted hype and SoftBank money. Neumann reminds me of the big tent demagogue hustlers of the Great Depression. Fold your tent WeWork and begone with you.
16
While Neumann has engaged in dubious governance and financial shenanigans, the main problem with we work is the business model of getting tied into long term leases while renting out space on a short term basis. If they can’t make money in an expansion, just wait till a recession hits. BLAMO!
7
Shame on you, Jamie Dimon.
I thought you were a little
better than the others. Oh well...
7
@Ken B Whatever gave you *that* idea?
2
@sundevilpeg I guess I was fooled by his
"personable gravitas" on various interview
shows. I know, I know, I was stupid.
Adam Neumann comes out of this a billionaire with a lot more leisure time on his hands. Good for him.
5
WeWork's business plan has been tried before, to no avail. And it has lots of competition right now.
The fundamental problems include:
A). They do short term leases, but the leases against that revenue stream are long term.
B). They cater to small companies/start-ups/ and dreamers, and we are about to enter a recession in the real economy and a shut-down in the free-money that's funded WeWork's clients.
C). They are run by a delusional CEO, who's turned the basic real estate rental business into some grandiose, world saving technology platform. Not true. It's a real estate company that is poorly conceived.
D). The related party transactions (between the CEO and the largest investor) are disgusting.
The most interesting part of this to me is that WeWork's biggest investor (SoftBank) accounted for the vast majority of the company's venture funding. Softbank repeatedly bought rounds of new equity at higher and higher prices, and "walked up" the company's market valuation from a billion or so to $47 billion more recently.
And Softbank (along with others) had a side deal, that said that if the company went public for prices below their cost, they would be compensated by receiving new shares (at the IPO price) that made them whole.
This is the very definition of a Ponzi scheme, aimed at making the public investor the bag holder for venture funded IPO's.
57
As a client of WeWork I left because the place creeped me out. From compulsory iHeartRadio playlists blasting in public areas & bathroom stalls, to hearing that WeWork has been developing software that tracks client's responses to and movements within WeWork buildings & environments - lounges, kitchens, conference rooms, phone booths, etc - there was a surveillance capitalism whiff to the place. I felt sorry for the staff who were generally very good and sincere it seemed, but paying $500 a month to be an unpaid consultant - lab rat? - for WeWork was not what I signed up for.
31
His style sometimes impulsive? Wanted to ban meat from the office? and this is the only bad thing? How about he can't settle disputes with his own contractors and they are suing him for unpaid bills? How about he brought a bag of weed on the plane to an international business trip? How about he promoting drinking at office hard parties? And the employee was suing the company for sexual harassments? He is well known for party boy style. How he can be even suited for CEO and lenders are actually giving him billions?
20
@ILoveCandies
Lenders like to Party too
3
The signs were probably bad from the beginning; the arbitrary irrational firings, the banning of meat (even though he eats meat!?), and the freaky "energy" judgements...these people have always been unfit. The question is - why did so many blindly follow this madness?
10
This will not turn it into a profitable business.
4
The true VC's and Private Equity who understood the medical testing space didn't invest in Theranos either, no matter how many NY Times Magazine covers Elizabeth Holmes had (written by Marc Andreesen's wife, no less - c'mon, NY Times). They recognized it as an impossibility and investor hype. I'm surprised that the Times still covers so many of these Silicon Valley "high end pump and dump" schemes so breathlessly. WeWork is nothing more than an overpriced REIT. Ask any Commercial Real Estate Investor.
The early investors treating the public markets as the greater fools should get the media attention THAT deserves, not the breathless hype it craves to artificaially drive up IPO's that those same people short.
27
REITs own real estate; we work does not
5
@Laura Hallelujah!!
REITs also rent real estate and lease it out to others.
https://www.investopedia.com/terms/r/reit.asp
2
A dive into the background of Adam Neuman and his wife is a chilling read but unfortunately emblematic of a lack of ethical consciousness enveloping current practices.
13
Never heard of him, or his company.
2
We Work’s model is a ponzi scheme.
They took billions from the original investors, and are raising funds from other investors to repay the first batch.
Since they are saying they will not be turning a profit for a very long time, then they will need a new batch of investors, to repay the suckers that buy in to their IPO.
At the end of the day this is a real state company that owns properties and rents them, except that like other smarter companies, these guys from We bought a lot of expensive real state they cannot make ends meet to maintain.
I jus cannot see how investors are going to get in the band wagon and give them more money to burn, hoping for a real estate fire sale some day.
36
Neumann is not the only one to blame.
The bankers that led financing rounds and made millions in fees that fed the hubris to think of itself a tech company when convenient.
The board which allowed for insider dealing and wheeling.
The private funders, mostly SoftBank, who let them get away with anything to promote the vision fund.
Neumann is a millionaire multiple times over, and can now watch the thing go down.
109
Yes, rich but unfulfilled. I had lunch with Adam. He gave me a tour of the LA WeWork building in 2011. During that lunch we saw a homeless guy and he got him food. I will never forget that. If anything, he will be sore that he couldn’t achieve his grand ambition and got oustered. No amount of money can fix that loss of pride and purpose.
3
@James Barcelona You can't possibly be serious. He's a serious grifter, and that's what the grift is all about - money, and lots of it.
8
@Gustavo
Two great films aptly describe this model of capitalism aka ' Citizen Kane' and 'The Godfather'.
Private companies cater to human hubris in the new gilded age robber baron malefactors of great wealth caste class.
Under federal law public companies must register their securities and disclose all material matters to their investors. While state security laws are colloquially known as ' blue sky' laws reflecting the 'worth' of some securities.
3
This whole We Work disaster is an indictment of these pseudo tech startups. They are supported but the big Banks and Hedge Funds and empower ego centric founders who would become ridiculously wealthy while losing billions of dollars and not able to say when there would be a sustainable business without a continued infusions of billions of dollars.
How could Jamie Dimon and Masayoshi Son and others Investors let Adam Neumann get away with this hype and behavior for so long?
65
Another tech Master of the Universe goes from widespread media glory to disgrace as soon as the media takes more than a superficial look. Investors are not the only ones who should learn lessons from Theranos, We Work, Uber, Tesla...
And then there are the tech "geniuses" who promised to bring the world together but really just wanted to bring the world's data together and sell it.
24
Totally agree! In fact, I would also list the “credible” tech companies in that mix too: Amazon, Google, Facebook, etc.
9
I don't think this will usher in a new era of valuation realism, but it should give some investors something to chew on. WeWorks liked to position itself as a "tech" company. But it truly is not. The business model is not scalable: it requires a physical space that must be rented (100% of the risk) and sub-leased (100% on speculation). Even at $15 billion it is a lead balloon: they are expanding in a market that is seeing a huge over-supply with prices for coworking spaces going down.
7
Shared work spaces are like communal seating in restaurants. It's a trend, a novelty, but I'd rather have some privacy.
16
WeWork and I’m sure their competitors as well offer all sorts of leasing options including private offices as well as small suites for startups so you do not have to be communal with anyone outside of your own world if you choose not to be.
1
no its actually a good environment only if the work space is organized well. I tried many coworkings and some of them are really noisy or just uncomfortable. I dont understand the idea of popularizing a huge chain as wework from the business side. and how true workers or expats would like to work with people around them who are drinking alcohol. sounds awful. just a waist of money.
3
@Brian
Compared to Regus, their workspaces were grossly inferior and unprofessional.
The whole point of renting office space for your business is that you look professional to your clients.
If you're going to replicate the atmosphere of a Starbucks or a library, guess what? Those places exist and they're free to use. You don't need to fork over money to WeWork if that's the work space you want.
3
How does a CEO "ban meat" from a company of thousands of employees?
1
@Laxmom company paid lunches and catering were not allowed to have meat. he attempted to do the same thing to the food in the buildings but failed.
That really did happen.
9
Because they can ban meat at their discretion.
No-one is harmed by the exclusion of meat at company functions.
1
@Brentley I rented space at WeWork until they went on their anti-meat crusade. While they said they were doing it for the environment and the carbon footprint, I always found it hypocritical considering the number of private jets the executives must've been using.
8
We are overly enamored by hype and buzz words. We think “tech” is the end all solution to everything. We seldom ask simple questions like : what problem does it solve or help do it better faster cheaper?? How big is the market or demand for it?
Or we focus on the hundreds of millions they raised in funds. Not once projecting revenue or profit growth projections.
18
In its coming season, I am eager to see how HBO's "Silicon Valley" will depict the rise and fall of WeWork in the animated opening sequence.
4
@Sennheiser416
That program on HBO has the potential for sharp, incisive humor about this time in history but alas, it is rather bland.
2
Wework is transforming office design, real estate and the commerical market. Dealing with real estate is an expensive business. Transforming the real estate commerical leasing business model takes a lot of energy. As an architect, I follow WeWork closely and have very few doubts that it will actually not only be profitable but change the corporate office real estate model globally.
I would put wework alongside Amazon, meaning that they know exactly what they are doing long term and it will be immensely profitable later down the line.
1
@Dim
'I would put wework alongside Amazon'
Amazon has sold product from day one.
WeWork is loaded with empty office space they cannot rent out.
Hardly similar.
21
@Dim
I am also an architect. I don't see them transforming anything at all. They provide subleased office space, nothing new. What they provide can be easily replicated by any real estate company that hires a few interior designers and architects. They hire big names in architecture like Bjarke Ingels but is it anything more than a marketing ploy? Where does their worth come from?
14
@Dim
Interesting perspective, Dim. But how is WeWork fundamentally different from it's predecessor, Regus, which hasn't exactly transformed commercial real estate? It's nicer, sure, but the concept seems the same to me.
5
This is one of the most epic pyramid schemes of all time. Yet many of the big institutional investors are in it. Because there is way too much capital in the system, allocated unproductively or, worse, fraudulently in the desperate hunt for returns. I can't even get upset at this anymore.
62
Has wall street finally figured out that these 'tech companies' (that are really just transport companies, or real estate companies, etc., with a PR agent) aren't worth billions of dollars in make-belief future profits based on the hype and spin of a personality? WeWork will probably only squeek out a slight profit when(if) it matures -- it operates in a space of relatively low barrier of entry and no real IP assets. Almost anyone can put a Kurig, a couch, and some cubicles into class B rental space -- seriously, there is someone in my town who has been doing this for some time.
12
I wish everyone would stop calling stock market gamblers "investors." The republican brand of economics with give aways of multi-billions in tax breaks to corporations and sneakily taxing the working and middle class in snake fashion to pay for these huge tax breaks will simply lead to another recession, as bad as the last one that Obama fixed. Trickle down economics does not work. The CEOs do nothing but create baloney jobs as part of the bribe for the tax break to make the employment figures look better. Stock market gamblers have a good time for a while, but eventually lose alot when it happens. However, with these super-rich fools the lesson is never learned and the profiteering brokers make alot of money and the working and middle classes pay a huge price in more ways than one.
10
@Peter Have you been to rural America? Small towns? Obama fixed nothing. The dire economics of many small- to medium-sized communities is appalling in many cases, especially where manufacturing has exited. Millions of Americans are still recovering from the last recession which, for many, has never ended.
6
Uber and Lyft investors have no issue with investing in companies who lose money on every ride on the hope of making it up on volume. We work should look for them
2
I just don't get it? Is the 'cubicle' dead? Hmm, that's an idea
set up cubicle in my apt and rent it out. I know a lot of renters
who need some extra cash.
I'm calling JP Morgan tomorrow. Uber Office! Well I'll have to think up a new catchy name.
6
There was always something just a bit off about the whole WeWork mania.
3
Anyone following this story has seen this coming for awhile. The ban on meat - which Adam himself didn’t practice - was indicative of numerous other lapses, including drug use, a company jet, messianic posturing, and a totally farcical communal vision. Does anyone remember WeLive? Or his friendship with Jared Kushner?
The culture of the company is also seeped in bro-ness, and there are on-going lawsuits and complaints about the company’s widely known inequities women’s pay. This goes back to Adam, who has long come off as a delusional, child-like charlatan. His exit was inevitable. He embodies the post-2008 excess of the economic cycle and tech euphoria, and his story is ripe for HBO.
A few things to watch: 1) it’s unclear if the firm ever pays off; 2) Softbank employees were pressured to invest in the Vision Fund, which might have to realize insane losses here as the main backer; 3) Uber’s switchout for a new CEO didn’t actually turn the corner on their business model - them and Lyft still subsidize rides; 4) we have to wonder if WeWork is the cultural and economic “peak” of the 09-19 cycle, the longest in history, and we have to seriously reflect on the magic of the word “tech” and how quickly it caused investors to lose their wallets in a game of hot potato not unlike the dot.com and mortgage bubbles of not so very long ago.
The lasting irony here is that it was public markets that stopped the music this time. In that, this time it’s different.
20
This guy was a danger to all socially, does things and says things, creating a new normal for masses to believe it's acceptable to behave like him.
2
Really dumb real estate company (not a tech company) that has taken on roughly 10x in dollar terms of long-term leases versus re-leasing to good economy-dependent small businesses. This was never a new mousetrap. It’s been done before and failed miserably many times.
I have no idea why this CEO was ever lauded. We live in an age now that if a millennial hits ‘Like’ on a company (Uber, Lyft, WeWork), it must be a fantastic business. Analysis be darned! The Musical Chairs game of sloshing around money and hoping you’re not the last one standing is bogus.
There is no new paradigm. A child with 3rd grade math skills could could explain WeWork is quite likely doomed to be a disaster; hence the severe cut in valuation, a valuation Mr. Neumann could no longer sustain.
15
Adam departing? Not a moment too soon, some might say. Then again, the whole business model is a scam. The “We” legacy is nothing but a looted piggy bank. The redeeming virtue in all this is that the cash-strip happened pre-IPO. Public investors are spared another fleecing. At this point... Skip any intermediate steps and go straight to bankruptcy and liquidation.
12
A disaster for employees that accepted paper instead of currency for their work.
The founder failed them all. But he did take care of himself.
Wasn’t there a Broadway show about a con man? Those taken advantage of wanted to tar and feather him.
The show had a happy ending. This story will probably finish in bankruptcy court.
6
@Steve Ell Don’t expect Adam to show up at the legal proceedings he will most likely have sent his hundreds of millions already taken to his home country of Israel from where there is no possibility of extradition or clawbacks.
3
Another Tech Bro parachutes out with Tens of Millions of dollars plus other perks.
Who was a worse human - Him or Travis?
Why are PE tech investors drawn to arrogant, entitled, big ego, low EQ leaders?
Does anyone remember when Silicon Valley was full of people with low egos trying to make the world a better place for everyone?
11
@Jake "Does anyone remember when Silicon Valley was full of people with low egos trying to make the world a better place for everyone?"
Nope, I sure don't. What mythical time are you recalling, Jake?
3
Bring up a You Tube interview of this guy.
It won't take you more than 30 seconds to realize he's a total snake oil salesman.
This many people haven't been fooled by oily charm since John Edwards ran for president.
8
This is another example of an internet scam. Trying to get investors to buy there over rated ipo
4
This is a scam. The numbers will only work if WeWork's owns the property
1
Who exactly is "flocking" to these over-priced, over-crowded, over-fancy offices?
1
Greedy sleepwalkers will when gambling is called an investment.
Everyone "investors" are looking for the next steve jobs, but a company needs to be profitable so the leader can stay at the helm. Adam wasn't profitable and so he has to go to protect the investors money. WeWork is a zombie company. They say that 1 in 6 are zombie companies. That is the bigger story here. Not that a company founder over extended himself and led his company to the brink of insolvency. 1 in 6. There needs to be some deep digging into that metric to show how this "new" economy has a lot of smoke, mirrors and snake oil salesmen. Unmm I mean salespeople. That's the proper nomenclature, right?
7
These companies that are run by "charismatic but unpredictable" founders, careen toward IPOs, and then quickly flop are really anthropological studies more so than business ventures or reliable investments.
12
An IPO for a company that proudly loses billions...help me here.
Unless WeWork can demonstrate profitability, why is worth anything.
Here's an idea. A company like this creates a great new concept - but one that makes money. Then it seeks investors so it can scale up.
There's trouble in River City. But there will always be the gullible.
50
I don’t understand why a money losing real estate company is worthy of an investment. But then, with the current holder of the Oval Office anything is possible.
44
Paging Compass! They’re next. They’ve been in the red since inception, “growing” at breakneck speed and keep touting huge injections of cash as some sort of financial victory. How about you turn a profit?
2
@Roy, too much instant money to be made this way.
I'm not sure that all businesses do their best as national franchises. A family member rents flexible office space started by a local entrepreneur. He likes the ability to easily get the owner to make changes to the structure of his rental plan or to get enhancements to the work environment. He knows that the owner understands the needs of small business owners. The owner participates in local events and knows the city and its officials well. Managers of national concerns don't always have the same level of flexibility and useful connections.
8
I bet real estate gurus have looked at the whole Wework legal and financial premise and thought, "Nope, never going to work," or something similar. Poor co-workers, back to the coffee shop or any of the other 10,000 coworking spaces that are doing fine because the owners are not psychotically focused on world domination.
43
As a retired technology stock analyst who lived through several underwriting cycles when good sense was temporarily displaced, I still find it difficult to understand why investors allow themselves to get excited about companies that grow revenues while losing large sums. It doesn't take a great deal of skill to give stuff away...which is precisely what such companies do. It's no wonder that many of these entities are run by "charismatic" leaders - they serve to distract attention from the numbers and the underlying realities. Jim Collins and his group at Stanford showed years ago in "Good to Great" that self-effacing CEOs tend to create the healthiest long-term organizations. The opposite apparently works best for hit-and-run capitalism, and a business media that seemingly finds flim-flam irresistible only fuels the fire.
223
@Tad La Fountain
To be fair, Good to Great featured GE and Circuit City as models of "great." Circuit City is long gone and Jack Welch's managment style is now thoroughly discredited, as GE sells off its businesses in a struggle to survive.
43
@DisplayName some would say Jack Welch presided over a gigantic accounting fraud. GE is a pyramid scheme too.
14
@Tad La Fountain What's a "self-effacing CEO"? Sounds sadly like an extinct creature to me.
9
Here’s a startup business primer:
When you’re a young, successful company with a great new or reinvented product or service and the company is managed well, there is often so much money being made (those are called profits) you almost don’t know what to do with it. That has NOT been the case with Uber, Lyft, WeWork, and Tesla. These companies are arguably potential dismal failures.
16
@Covfefe Tesla doesn't belong in that list. They're actually building real stuff with real costs; they're generating margin hand over fist and reinvesting that into additional products and more verticalization. Very different than the companies you mention, who have piled thin margins + equity into growth in hopes of hiding the thin margins.
48
@Covfefe "These companies are arguably potential dismal failures."
They're potential dismal failures and they're potential amazing successes.
As the saying goes, the future is hard to predict, especially the parts that haven't happened yet.
@Covfefe
Tesla has little in common with others cited.
4
Softbank and a few others invested into We and allow it to go on losing money on an epic scale. That does not mean the company is valuable. It is hard to see how We, which loses money on pretty much every deal it makes, will ever warrant a valuation in the billions of dollars.
13
It’s really simple. If you ever want to know where NOT to invest, see if Softbank invested in it.
14
There's a more general lesson here: beware cults of personality. Charismatic leaders tend to draw followers, but being charismatic doesn't mean they're right or wrong. Resist the temptation to get pulled in, to put better judgement aside.
88
Hitler, Charles Manson, Jim Jones, Elizabeth Holmes, Adam Newmann: all charismatic. So was Satan.
1
Maybe one of his lessons here, in addition to launching an extremely successful idea, is to cultivate a greater sense of tolerance for those who don't think exactly like he does. Having respect for others' perspectives, instead of trying to control them and make them in his image, will help calm erratic feelings, slow impulsive decisions, and open his eyes more to the talent and the good that's out there.
7
"one of the most valuable start-ups to emerge in the last decade" Poor choice of words. He wouldn't be stepping down if this were true. Just because some fool buys a Honda Civic for $100k doesn't mean it is really that valuable. Just because Softbank invested at unreasonable valuations doesn't mean that We is that valuable.
173
That’s why I paid only 97k for my Honda Civic.
8
As we've seen with Dara Khosrowshahi, replacing the CEO is not always the answer to solving an unsustainable business model. However after learning about behaviors such as investing in properties that were leased out to the company, it's clear that a change needed to be made. Will be interested to see where this goes.
7
Neumann, Tesla, Jobs, Zuckerberg, and many more in the "start up" arena...when did we begin to believe that inexperienced, often young, myopic leaders can run companies well? When did we stop believing in the value of wisdom, experience, and maturity?
Sigh. Authentic leadership isn't acquired by osmosis. Look at Facebook and what has been revealed about our privacy, our last election?
This perception is driven by greedy stockholders, our obsession with youth, the common illusion in our society that charisma = leadership skills, and the need...to believe.
To believe someone is super human.
When did we stop believing in ourselves...and start playing "follow the leader?
In our world right now, it's not action that is dangerous - we are paralyzed in inaction - it's following and believing.
74
@Kelly Grace Smith Tesla died a 100 years ago. Elon on the other hand has helped build a car company from the ground up, with deliveries in the soon to be millions. Steve Jobs replacement almost drove Apple into bankruptcy and Jobs came back famously saved it. Zuckerberg has grown Facebook into a 500 HUNDRED Billion dollar corporation.
2
Unfortunately the reason Facebook is profitable is disgusting, but no ones doing anything about that.
1
It’s because the executive class has run away from the tough work needed in college or at the workplace to understand science and engineering, that they treat anyone with an idea who can program like some sort of potential Superman. They’re clueless, unlike the Germans and French, who still rule industries such as high-end manufacturing, transportation, aviation and non-fossil fuel energy. Also they’ve been able to protect their elections, unlike the DNC which was clueless technically and resorted to hire outside IT sweatshops for their data security.
I suupose there's a valid reason that some firms might like the whole "shared workspace" concept, but personally I find it repulsive. There's something to be said for consistency in an office, and I say that as a 68 year old IT pro with no plans to retire anytime soon.
15
Depends on how you define consistency. If it’s because there is benefit to sitting next to/with a collaborative team, makes a lot of sense. If consistency is somewhere to put pictures and tchotchkes, then I would offer those days are drawing to a close. I work on a geographically dispersed team and where I work has become almost completely inconsequential.
2
@Art Golden many younger professionals are freelancers. They don't have the luxury of having a regular desk at a firm's office. Spaces like this allow for networking and amenities not found at home. :)
4
Hmm “one of the most valuable start-ups to emerge in the last decade”? I think their failed IPO and the information released regarding their business practices revealed that they are not that valuable.
130
One of the biggest farces in the last decade would have been more appropriate.
12
WSJ recently had an article describing how his wife --who is Gwyneth Paltrow's first cousin, and a high-level executive at WeWork -- has people fired after meeting them for mere minutes if she doesn't like their "energy." It would seem they are both mercurial, which is fine if you stay at home and don't have to deal with people who depend on your decisions and leadership, but no so much if you are responsible for others or for running a company.
181
@Brian Nash
As someone who has worked with energy in my coaching practice for almost 20 years, I can share with you that judging someone by your impression of their energy...
...says a lot more about you, than them. Your reaction to someone's energy...is about you.
The woo-woo folks have a misperception about their ability to evaluate energy. Sounds like Mr. Neumann and his followers are of this school of thought.
12
@Kelly Grace Smith you missed the whole point of Mr Nash’s comment and fair business practices ...which says a lot about you actually.
Just because you come up with a great (?) idea, it doesn't necessarily qualify you to be able to run the company that it grows into.
89
@Michael A
What even is 'his' idea. Flex work spaces for hourly, daily, and monthly rentals for individuals has been around for quite a while. Putting in a 'cool vibe' is something that workplaces have been doing since the 80s. Seems like his only idea was to go deep into debt to saturate his 'brand' of this into 'hip' neighborhoods and hope that he can pull a miracle....
77
Exactly, just like The Zuck and FB.
Is really a great idea?