Billion Dollar Loser, page 10
For a third straight year, WeWork was hosting its employees and members at a children’s camp five hours north of New York City that was owned by the parents of Mark Lapidus, Rebekah’s cousin, who helped Adam land the Woolworth Building deal and had since joined WeWork as its head of real estate. Three hundred people attended the first camp, in 2012, which cost $200,000—members paid a nominal fee to attend—an expense WeWork chalked up to marketing. “Thank you for being part of something that actually has a meaning,” Adam said onstage a year later, at Summer Camp 2013. “Every one of us is here because we want to do something that actually makes the world a better place—but we wanna make money doing it!”
By 2014, Summer Camp had quintupled in size to include more than 1,400 WeWork employees, members, and friends. The event offered traditional camp fare—archery, s’mores, acoustic sing-alongs to Weezer’s “Say It Ain’t So”—in a start-up-friendly atmosphere: one attendee wore a T-shirt that read BOBA FETT WAS A FREELANCER. (Adam loved rap music, and campers were assigned to sleep in tents laid out along Wu-Tang Way, Slick Rick Road, Biggie Boulevard, Lil’ Kim Lane, and 2Pac Trail.) A yoga class took savasana to the soundtrack from The Social Network while an entrepreneurial arts and crafts hackathon challenged attendees to come up with the worst possible business idea—something to outdo onesies with knee pads. Five Flags, an amusement park that only sold tickets through the DMV, had won the first competition. The deranged entrepreneurs of 2014 came up with a marketplace for renting babies that could be used to pick up women, a hepatitis factory with a mission to spread hepatitis, and a coworking space with dial-up internet and enforced isolation.
On Saturday afternoon, Lew Frankfort, the former CEO of Coach, who had invested in WeWork alongside JPMorgan and joined the company’s board of directors, gave a talk at a fire pit in front of a few hundred campers. Adam and Rebekah sat in the front row. Frankfort encouraged the assembled entrepreneurs to embrace single-mindedness, telling them to “never be captive to your employees” in the pursuit of your vision. “A drive for excellence and a fear of failure is a double-edged sword,” Frankfort said. “If you have it, embrace it.”
“Lew, are you going to party with us?” someone in the crowd asked.
While some attendees viewed Summer Camp as a networking opportunity, passing business cards between bunk beds, it was for most a weekend to forget adulthood. “This is my only vacation this summer, so I’m getting into as much trouble as humanly possible,” the cofounder of a small social media company told Marisa Meltzer, a New York Times reporter who had purchased a ticket to the event, much to the chagrin of WeWork’s PR team. The cofounder had taken psychedelic mushrooms on the first night of camp and was carrying around a water gun filled with vodka.
The campground was dotted with canoes filled with cans of Coors Light and Smirnoff Ice, and several people participated in a contest that required eating a pie, sprinting to the lake and back, and then chugging a giant boot full of beer. There were a dozen hookah pipes lined up on a table, and the scent of marijuana wafted over a “Logistics for a Start-up” talk given by a senior employee from UPS. On the second night of camp, Rebekah’s old friend Michael Franti performed, leaping into the crowd to dance with the Neumanns. By the end of the weekend, a twenty-seven-year-old marketing manager from Brooklyn had successfully hooked up with multiple strangers, consumed more tequila than she had in the previous year, and thought the weekend had even been a little productive. “I’ve already followed up with some people I met,” she said after the event. “I’m hoping they’ll evolve into real lasting friendships and business connections.”
For the company’s young workforce, Summer Camp was a dream weekend—the most fun they’d had since college and the ultimate collapse of work-life boundaries that WeWork promised. Drinking and partying had been ingrained in WeWork’s culture from the beginning, with Neumann serving as partyer in chief ever since he sealed the Empire State deal over a bottle of whiskey. During an outdoor party at a WeWork employee’s house, when they ran out of wood for a bonfire, Adam picked up a piece of picnic furniture and tossed it into the flames. The company had started hosting lavish Halloween parties, to which Adam wore elaborate costumes. In 2013, he went as Gandalf, the wizard from The Lord of the Rings. A year later he and Rebekah painted their faces and bodies blue to dress up as the Na’vi, from Avatar. During a company ski trip, a WeWork employee remembers watching as Adam and several executives grabbed waiters’ trays from the hotel bar so they could go sledding. When a hotel employee asked them to stop, Neumann yelled, “Fuck that—I could buy this hotel!” Later that night, a few WeWork designers decided that the hotel’s furniture was laid out all wrong. The next morning, the entire lobby was rearranged. WeWork was asked not to come back.
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AMONG THE BELIEFS Adam had adopted from many founders in Silicon Valley was a lack of interest in sales—the product, whatever it was, should be so good that it sold itself. He tried to avoid using the term sales altogether, pushing whatever selling the company did onto its “community” team. But as WeWork opened more spaces, some of them not far from locations that already existed, the company needed to ramp up its operation to keep its occupancy rate high.
In 2014, Benchmark, which had also been the earliest major investor in Uber, helped recruit Luca Gualco, who had helped Uber expand internationally, to lead WeWork’s “community team.” (Adam wasn’t ready to lose the euphemism.) Gualco was a forty-three-year-old former professional water polo player from Italy who made a habit of lifting weights at WeWork headquarters and bursting into song at company events. He called WeWork employees at all hours of the night to demand reports on their numbers. “There are only two things that matter in a company,” he told one group of employees. “Sales, and everything else.”
Gualco brought along Patrick Morselli, another senior Uber employee, to help manage WeWork’s expansion. Morselli quickly recognized certain differences between the two companies and their leaders. “Travis is an analytical person. He thinks like an engineer. He’s process driven, organized, meticulous,” Morselli told me. “Adam is the opposite. He’s charismatic. He’s a dealmaker. He wins people over because they like him. But he doesn’t work systematically.” Adam wasn’t bad with numbers; employees marveled at his ability to scan an empty building and calculate how many desks WeWork could squeeze inside. But he had built WeWork on guts and charm rather than by creating a system to support its growth. The two Uber emigrés set about trying to create a “playbook”—an idea ported from Uber and popular all over the tech world—that would contain a standardized plan for the company’s expanding legion of employees. Their constant refrain became “Well, at Uber…”
The comparison annoyed WeWork employees. Uber had plenty of factors complicating its business, but taxi service was more or less universal across the globe, lending itself to a relatively uniform playbook. Workplace demands, by contrast, varied widely: when WeWork arrived in the UK, in 2014, the company had to install espresso machines because Londoners wouldn’t accept drip coffee. Angelenos cared about on-site parking in a way that New Yorkers didn’t. And while Uber insisted on abdicating responsibility for the cars that its drivers used—hiding behind the shield of being a “platform”—WeWork not only had to lease its buildings but fully load them with features, perform routine maintenance, and ensure they had competent humans at the wheel.
WeWork employees from this period tend to describe their experience by making analogies to fast-moving vehicles: building an airplane while flying, or pedaling a bicycle desperately so it doesn’t fall over. At the beginning of 2013, WeWork had ten buildings in development; by 2014, it was working on more than a hundred. “We are in a consumption phase like nothing that has ever been seen,” Adam said, describing the company’s appetite for leases. He began to compare WeWork’s expanding reach to conquering empires of the past, boasting in 2015 that WeWork was undergoing “the fastest physical growth in the history of the world,” with perhaps one exception. “I’m not sure about Roman times,” he said. “There might have been some very high-growth companies there.”
Cities around the country were clamoring for WeWork, which had successfully marketed itself as jet fuel for local entrepreneurs. San Francisco’s mayor rerouted police patrols when Adam agreed to build a location in a less desirable neighborhood, while Chicago mayor Rahm Emanuel pressed Adam to open a WeWork there. Anyone who got in the way of WeWork’s expansion was liable to be shoved aside: WeWork kicked two nonprofits out of their offices in downtown San Francisco when it offered to pay the building’s landlord double the rent in order to take over the space from the organizations, both of which worked to prevent tenants from being evicted from their homes in San Francisco.
To keep up, WeWork was hiring architects, salespeople, community managers, mechanical engineers, coders, real estate brokers, and more. At one company meeting, a newly hired software engineer yelled out, “Adam, we’re hiring slightly over pi people per week.” Many of the new arrivals came from jobs at dull real estate companies or from the lowest rungs of architecture firms and found it exhilarating to be given so much responsibility at a successful company that also knew how to throw a good party. One employee decided she wanted to work at WeWork because the company had the word fuck on its website. (“It was something about, ‘We fucking break down walls!’”) If the salaries were lower, WeWork’s hiring managers told them not to worry: the company’s stock, they reminded them, was on the rise.
Ted Kramer, an energetic veteran of several start-ups, joined WeWork’s operations team in 2013, taking a pay cut in the hope that any shares he accumulated would one day be worth much more. Kramer was the kind of eager go-getter that every fast-growing start-up depended on, and in less than two years, he helped open WeWorks in New York, Los Angeles, San Francisco, Washington, DC, Austin, Boston, Seattle, Miami, Chicago, and its first overseas locations in London.
The launch of each WeWork presented new challenges, especially given Adam’s insistence that every location open on time. Kramer opened the first WeWork in Berkeley, California, without a functional front door, which left him to buy breakfast for members as an apology for the cold East Bay wind blowing into the building. A new WeWork in SoHo, half a dozen blocks from 154 Grand Street, didn’t have a bathroom, so Kramer bought out all the pastries in a nearby coffee shop so that members could use the cafe’s toilet. The aging HVAC system in WeWork’s first Washington, DC, location required constant repair—Green Desk’s founding ethos having been sacrificed at the altar of growth. Keeping expenses low was key to WeWork’s model, even if the company’s tequila budget could sometimes get out of control. “You’ve got three options: fast, right, or cheap,” Kramer said. “WeWork always picked fast and cheap.”
When they took a moment to breathe, Kramer and other employees sometimes had a tough time explaining exactly why they were working so hard. Many of them looked up to Miguel, who still spent considerable time in the trenches, designing and building out new spaces. But the company was beginning to form itself in Adam’s image. For all his bluster, he could be an inspiring leader, pushing WeWork employees beyond their limits for the good of the cause and the promise of riches down the line. They compared his aura to the “reality distortion field” that an Apple employee once described as emanating from Steve Jobs, convincing anyone within its radius that the impossible was not only plausible, but exactly what they were going to do. After several workers installed a large stone table in a Manhattan WeWork, one employee noticed smears of blood left behind by one of the workers, which felt poetic.
Many WeWork employees were in their first jobs and uncertain about what to expect from a CEO. Toward the end of 2014, Carl Pierre, a WeWork employee in Washington, DC, arrived at the company’s Dupont Circle location to find its game room trashed. They had been rushing to open the location on time, busing a dozen construction workers in from New York the night before the building’s grand opening to get rid of more than five hundred pounds of trash. Now, the game room was strewn with unwashed cups, and Pierre said the place smelled like weed. When they reviewed security footage from the night before, preparing to identify and chastise whichever WeWork member had disrespected the community, they were surprised to see that it wasn’t a member at all. Adam and another WeWork executive had spent the night drinking beers and playing on a Time Crisis video game console. Their employees were left to pick up the mess.
* * *
A FEW WEEKS LATER, WeWork employees arrived at the company’s Gordon Gekko headquarters one morning to find that a large glass wall in Adam’s office was cracked. The night before, an employee had apparently broken it with a bottle of Don Julio 1942, Adam’s favorite tequila. Adam and a group of employees had been celebrating yet another funding round: $355 million, at a valuation of $5 billion. WeWork’s Series D put it among the world’s dozen most valuable unicorns, ahead of Spotify and just a few spots behind Theranos.
The deal allowed WeWork shareholders to offload some of their stakes. Adam and Miguel kept their shares in an entity called We Holdings, which Adam controlled, and sold roughly $40 million worth of shares in the tender offer. This was an unusually large amount for the founders of a young start-up to take out of a company while professing their belief in its world-altering ambitions. The number wasn’t announced publicly, but rumors spread. Ted Kramer made a habit of checking stray papers on WeWork’s printers and found details about the transaction left behind in a tray.
But Adam had another reason to be excited. A deal this large would typically diminish the founders’ control over the company. Miguel wasn’t especially concerned, having already transferred some control to his cofounder. But as part of the deal, Adam engineered a change to WeWork’s charter with the help of Jen Berrent, WeWork’s new general counsel, that gave him ten votes for each share of the company he owned. The arrangement would give him roughly 65 percent of the votes on any company matter.
These “supervoting” shares had become popular in Silicon Valley, where founders feared losing control of their companies. Mark Zuckerberg had negotiated a similar deal, as had Travis Kalanick at Uber. Many investors were so eager to get in on the small group of start-ups that could make plausible arguments for world domination that they often believed they had no choice but to accept such founder-friendly terms. But giving so much control of a company to an entrepreneur who had never run a business of this size before was a risk. As the deal was finalized, Bruce Dunlevie, Neumann’s first major investor, tried pushing back on the arrangement. But Benchmark wasn’t eager to lose favor with Neumann, and it didn’t have much standing in the fight, having just given Travis Kalanick similar control at Uber. Dunlevie relented, but not before offering a warning to Berrent and WeWork’s board. “I’ll just leave you with this thought,” Dunlevie said. “Absolute power corrupts absolutely.”
Chapter Eight
Greater Fools
IN AN ARTICLE TITLED “Office of the Future,” about the most innovative company in commercial real estate, Fast Company magazine explained that the global economy was moving faster than ever, aided by the internet and a rise in entrepreneurship that entrenched real estate interests weren’t prepared to meet. Start-ups were pivoting every six months, doubling or halving in size along the way, and no one needed a ten-year lease anymore. The company had been founded by an entrepreneur himself, and offered furnished offices whenever and increasingly wherever anyone needed them, with new locations opening at a rapid pace. Hospitality was a top priority: employees were instructed to answer the phone with a “smile in the voice.” The company was still figuring out all the ways its spaces might be used—the Backstreet Boys, who were then at the peak of their fame, had just used one to hold a global videoconference—but at its core, the business hinged on bringing a “sense of community” to shared offices.
The Fast Company article appeared in March of 2000, when Miguel was working on English, baby! and Adam was still in the Israeli Navy. The company that was supposedly building the office of the future was Regus, launched in Belgium in 1989 by Mark Dixon, a British businessman who had dropped out of school to start a lunch delivery service called Dial-A-Snack. Regus had 250 locations in twenty-five countries and was opening two more every week. Dixon had a Neumannian view of his company’s future, a decade before Adam joined him in the industry. He believed that people would use Regus spaces to work, to congregate, to build community. “I tell our employees that we’re just getting started,” Dixon said. “If we get it right, we have an opportunity to change the world.”
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WEWORK’S RISE FROM nothing to becoming a multibillion-dollar company in half a decade gave many in the real estate world a sense of déjà vu. In 2000, when the Fast Company article ran, Regus was preparing to go public on the London Stock Exchange. The company had become a crucial cog in the booming start-up economy of the ’90s, and its shares quickly shot up by almost 40 percent, reaching a total market capitalization—the stock market’s version of a private company valuation—above $3 billion. But when the dot-com bubble burst, Regus collapsed with it. Tenants bailed on their flexible contracts, leaving Regus with a devastating decrease in revenue to cover the costs of the long-term leases it still had to pay for. In 2003, the US arm of Regus filed for bankruptcy.
By the time WeWork secured a private valuation of $5 billion at the end of 2014, Regus had recovered and would soon rebrand as IWG—International Workplace Group—a nicely profitable if boring company. But IWG had not returned to its peak stock market value, a number WeWork had now blown past, despite the fact that IWG had more than two thousand locations bringing in over $2 billion in revenue. WeWork, by comparison, had just two dozen spaces producing close to $150 million.
