Billion Dollar Loser, page 9
Building WeConnect was more difficult than talking about it. Miguel used his basic programming skills from English, baby! and worked with his brother Kyle and a team of developers in India to build an early prototype. On launch day for a new feature, they looked on in horror when it took minutes for a single profile page to load. Another designer who worked on the project left after a few months, saying she couldn’t “fully wrap my head around the scalability and sustainability of it all.” By 2013, hardly any WeWork members were using the network in a meaningful way. It was nice to walk down the hall and meet other entrepreneurs, but the benefit of knowing every WeWork member wasn’t clear, and there was no shortage of other ways to connect digitally.
On a conference call with Bruce Dunlevie and Michael Eisenberg, the Benchmark partners told Adam and Miguel they had done good work getting the company this far, but that WeWork needed to become more tech-forward and bring in the talent to get there. Specifically, Benchmark recommended hiring a chief product officer to take over for Miguel, who had performed the role without having the title. Miguel would manage the design of WeWork’s physical spaces, while Adam oversaw the digital side. Adam tried to hire Aber Whitcomb, from MySpace, to run WeWork’s tech team, but he turned down the job. Through a search firm, WeWork found Mike Sommers, a former vice president of product development at AOL.
“I’m here to build the killer app,” Sommers told Miguel after taking the job.
Miguel took Benchmark’s suggestion as a mild affront. He knew his technical skills were lacking, but he also knew the ins and outs of WeWork better than anyone. It wasn’t obvious that the company could or should produce a killer app. Why not let him hire a head of engineering to handle the coding while he thought up ideas that made sense alongside WeWork’s business?
Sommers lasted eight months—the first in a long line of executives brought in to push the company’s technological capabilities. He was replaced by Roee Adler, the chief product officer at a start-up based in Tel Aviv, who came recommended by one of Michael Eisenberg’s partners. Adler and a team of half a dozen engineers were tasked with figuring out how to fulfill WeWork’s tech promise.
But the team found itself spending much of its time simply making sure the company’s back end could keep up with its growth. “The member network was held up with chewing gum and prayers,” a software engineer who joined the company in 2013 said. WeWork’s operations depended on a hodgepodge of Google Docs and disorganized spreadsheets, and Adler’s team built a pair of programs to streamline operations: Space Man would handle billing, while Space Station would help community managers keep track of their locations—everything from reports about broken toilets to notes about what kind of dessert each member liked so that community managers could hand out personalized gifts. Some employees questioned the value of building these systems at all. Why not buy software from Salesforce or another tech giant instead of leaning on the company’s small team of developers and engineers to patch together its own system?
But Adam maintained a sense that he and his company could do the impossible, and everyone from Miguel on down found it easier to find a way to make things happen rather than question the wisdom of his ambitions. In this case, building software internally was crucial to presenting WeWork as a tech company, and finding new ways to make money. They hoped that the member network would allow them to sell various goods and services to members—from health-care plans to discounted software subscriptions—of which WeWork could take a cut. One employee looked into how the company might launch its own cryptocurrency. Data collection was becoming the cornerstone of every fast-growing tech company, and Adam walked in one day to tell the engineers that he wanted to see when and for how long members were using different parts of each WeWork by tracking their phones as they moved through the building.
“I don’t think the technology is quite there yet,” one WeWork engineer said.
“I think it is,” Adam replied.
WeWork’s engineers grew to live by what they called the BASS rule—Because Adam Said So. The team had a tradition of loudly clapping after an engineer presented a new product for his colleagues, but the applause became so regular that Adam walked out of his office one day to inquire: Why all the fuss if they weren’t producing any results? (The team started booing one another instead, which Neumann liked better.) The engineers were working twelve-hour days, sometimes more, plus the weekend construction duty expected of every employee; one night, Joey Cables found himself installing a toilet in a new WeWork location. It wasn’t totally clear to the tech team that their work could produce what Neumann wanted. “Adam used to say, ‘We’re on a rocket ship,’” the WeWork engineer said. “The joke was, ‘A rocket ship to where?’”
Chapter Seven
Reality Distortion Field
A FEW WEEKS into 2014, Benjamin Dyett organized a meeting of what he called the Five Families of Coworking. Dyett was the owner of Grind, an upmarket coworking space that he opened in 2011. Landlords had begun to shift their attitude toward the new operators, thanks in part to the growing attention lavished upon WeWork, but the industry remained at a precarious moment: small fish swimming alongside much bigger sharks. The meeting of the Five Families was meant to build a community of communities. “We’ll be enjoying some chit-chat, future talk, and best practices sharing, all fueled by some beer and wine,” Dyett wrote in his invitation. “Leave all agendas and judgments at home.”
There were now many more than five coworking families—the Neumanns and Dyetts as well as the Bacigalupos, the Levys, the Hodaris, the Lancasters, and so on—a dozen of whom showed up on a Monday night at a furniture showroom in the Time Warner Center, just off Central Park. “You had a lot of people who were bitter competitors, but there was a sense of camaraderie,” said Tony Bacigalupo, who ran New Work City, a few blocks from 154 Grand. Dyett had gotten to know Adam over the years as someone eager to chat about the business, if a bit eccentric; Adam wasn’t wearing any shoes when Dyett met him at WeWork’s Varick location. Dyett and Neumann both had the same number of offices back in 2012; since then, Adam had raised far more money than any of his competitors, and his capital-boosted ambitions had left his rivals behind. “Everyone else had to make a profit,” Dyett said. “Adam didn’t.”
Neumann showed up late to the meeting of the Five Families, flanked by two assistants. He walked past several rows of chairs occupied by other coworking operators who were listening to a presentation about the ins and outs of selecting office furniture. Adam settled into a bright orange couch at the side of the room, crossed his arms, and waited for a chance to speak. When the time came for Q&A, he lifted himself up onto the back of the couch, raised his hand, and proceeded to talk for the next twenty minutes. Adam didn’t have urgent thoughts to share on the ergonomics of desk chairs; he wanted to deliver a warning. Everyone in the room had been building their businesses in boom times, with the market only going up in the half decade since the recession. There would be a correction, Adam said, and no one could say what that might do to their businesses. Would tenants abandon their month-to-month leases, leaving the Five Families to find a way to pay rent on their buildings without as much money coming in? He urged caution.
Adam then pivoted to laying out his plan for WeWork. His company was opening a new space every eighteen days, he said, and his aim was to make WeWork as big as he could as fast as he could—the same goal he expressed to Juda Srour and Jake Schwartz. He was taking out twenty-year leases, and the free-rent periods he was given at the beginning of each one was allowing him to gobble up space while he could and worry about the escalating rents when the time came.
Shlomo Silber, who ran two coworking spaces in New York, raised his hand to ask a question. How did such growth fit with the macroeconomic warning Neumann had just offered? Adam brushed him off. WeWork wasn’t a real estate company like the rest of them, he said; it was a tech-enabled physical social network. He was a community builder, not a landlord.
Adam left before the event ended, leaving several of the attendees to roll their eyes at his hyperbole. A few of them came away feeling a mixture of excitement and fear. “He thought there was a utopian future he could bring about, and I remember being kind of excited to hear someone who was able to think at that level,” Bacigalupo said. “But it also felt like the villain in the movie telling you the whole plot before he kills you. It would have been funny if that speech bought us time to compete. It didn’t.”
* * *
A SOFTWARE COMPANY might operate for years on Benchmark’s investment, paying its employees, buying server space, and renting an office. But WeWork was not a software company. The costs of its leases, renovations, and day-to-day operations were much larger and required additional funding to keep up with the growth Adam was promising—he intended to open more locations in 2014 than he had in the company’s first four years combined—as well as the increased expectations that bigger investors brought to WeWork’s business. An employee on WeWork’s finance team recalls Bruce Dunlevie telling WeWork that he thought the company might one day be worth as much as $10 billion. “At the time, we thought it was crazy to think the company would ever be worth even $1 billion,” the employee said.
Benchmark had come to Neumann, but if the company was going to continue expanding, Adam needed to go out looking for money. A team at WeWork put together a proper pitch deck and presented it to a wide range of investors in 2013. JPMorgan Asset Management looked at the deal but decided to pass, as did General Atlantic, a venture capital firm, after one of its employees pointed out a new error in WeWork’s model: a “-” had been replaced with a “+” in a spreadsheet, which prompted WeWork’s model to assume that its buildings were operating at more than 100 percent occupancy.
Even as some investors passed on WeWork, Adam had grown confident enough in his pitch to remain picky. Shark Tank, the televised start-up competition that glorified the fundraising process, was interested in having WeWork appear as its first nine-figure valuation, but doing so would mean giving up equity to the show’s producers. Goldman Sachs said that it was willing to invest at a $220 million valuation, more than doubling Benchmark’s figure from a year before. But Adam again thought that number was too low; Airbnb was working on a deal valuing itself at more than $2 billion. Some WeWork employees weren’t certain their company was worth anything close to that, and turning down a large investment with Goldman’s stamp of approval seemed foolish, especially given that WeWork was running out of cash. But Adam decided to look elsewhere. “There were no other offers on the table,” the finance team member said. “It was one of the ballsiest things I’ve ever seen.”
If anyone was unsurprised it was Miguel. He had recognized Adam’s cockiness instantly upon meeting his cofounder, and WeWork’s early success only fed Neumann’s belief in his own powers of persuasion. “Adam has an endless faith in his ability to convince people to do things he wants them to do,” Miguel said in 2013.
Adam’s faith was rewarded. Not long after rejecting the Goldman Sachs deal, WeWork raised $40 million from investors, led by DAG Ventures, a private equity firm that often invested bigger checks into companies that Benchmark had already backed. The Series B round valued WeWork at $440 million—double the offer from Goldman Sachs.
* * *
IN 2013, WEWORK MOVED into a new headquarters after years of bouncing from one floor to another inside the company’s half-finished spaces. The new office at 222 Broadway had several appealing features. It occupied two floors, with Adam’s office looking down upon an atrium where his two hundred employees milled about. Across the street was an even more personally satisfying view: the building where Adam once begged Stella Templo to help him stay in the country. Adam was also tickled to find out that WeWork’s new space had been used as the set for the movie Wall Street. WeWork put up a poster of Michael Douglas in French cuffs and suspenders to mark the location of Gordon Gekko’s fictional office.
The space was a more appropriate setting than WeWork’s previous offices for a visit from Jimmy Lee, a legendary banker at JPMorgan: Gekko’s character was said to have been based partly on Lee, who had worked with companies ranging from General Motors to Facebook. JPMorgan had been keeping its eye on WeWork. Noah Wintroub, one of the firm’s top investment bankers, had met Adam at a happy hour at a hotel in SoHo that was hosted by Michael Eisenberg, from Benchmark. Adam asked Wintroub to step outside while he smoked a cigarette, and complained about an issue with one of WeWork’s accounts at Chase; Adam was impressed that Wintroub made a call, and the situation got resolved.
Wintroub lived and worked on the West Coast, and had made it a mission to help JPMorgan become more involved with young start-ups. Jamie Dimon, the bank’s CEO, had emerged from the financial crisis as a leading financial voice—a Wall Street titan who managed to remain friendly with Barack Obama—but the firm had struggled to break into the tech world. Goldman Sachs and Morgan Stanley dominated the business of helping the tide of world-beating start-ups navigate the financial world and eventually make their way toward a public listing on the stock exchange. WeWork wasn’t a pure tech play, but the opportunity to disrupt the real estate business seemed like a big one. JPMorgan was still Manhattan’s largest private office occupier—the position that Adam had promised to usurp—so it knew the pains and costs of leasing and maintaining office space. The Wall Street Journal reported that after Dimon toured a WeWork location with Neumann, he tore up a design for a new JPMorgan space in Manhattan and agreed to pay WeWork $600,000 to design a new one.
In February of 2014, less than a year after WeWork was valued at $440 million, JPMorgan Asset Management and several other investors put an additional $150 million into the company at a valuation of $1.5 billion. Adam began spending time with Jimmy Lee, who became his first serious mentor in the financial world, an alternately encouraging and sobering voice in Adam’s ear. (Lee chastised Wintroub after Adam was slow to thank him for giving a glowing quote to Forbes magazine on WeWork’s behalf.) Neumann appreciated Lee, he said later, as a banker who “did business with a handshake and made bets that were first based on people and then numbers.” Whenever WeWork went public, JPMorgan’s early involvement figured to help it land a role in handling WeWork’s IPO.
The new valuation made WeWork one of just fifty American “unicorns,” a term invented the year prior to describe the growing cohort of start-ups with previously unheard-of private valuations above $1 billion. It was hard for anyone to believe how far WeWork had come in four years. Adam flew with friends and family to Turks and Caicos for a three-day thirty-fifth birthday party. Miguel had moved into a nice apartment in Manhattan with a great view, fulfilling his childhood dream of being able to see the New York City skyline from his home, but he felt bashful sharing the valuation with his friends and family.
At a party in May to celebrate an expansion of WeWork’s Gordon Gekko headquarters, several of New York’s biggest landlords, including Steven Roth, the septuagenarian founder of Vornado, stood under a net of white and black balloons and toasted Neumann, the young man they had once looked at with skepticism. “Adam always says, ‘No schmucks and no assholes,’” Roth said. But “the definition of a schmuck is someone who rents a property at .5x and then that guy turns around and rents it at 1.5x.”
Adam corrected Roth by holding up two fingers, to indicate WeWork’s margin was actually even larger. That, Roth amended, was “the definition of an asshole,” before ending his speech and taking a swing at a large gong that was engraved with WeWork’s name. Adam and his team used to bang a gong each time WeWork signed a new lease, until there were so many that the celebratory noise became too much to bear.
* * *
AFTER THE SERIES B investment from DAG Ventures, Adam and Miguel finally offered employees a benefit they had put off: WeWork stock. If it was going to be a tech company, it needed to act like one. At WeWork headquarters, Adam and other WeWork executives called employees in one by one, and told them how much equity they would be receiving. “You’re gonna make a really good millionaire,” an executive told one employee while sharing the details of her stock package. On weeknights, Adam would sometimes walk around WeWork headquarters offering shares and a tequila shot to anyone working late. (Only the boldest employees followed up on the offers in the light of day.) The potential financial boon was exciting for WeWork’s employees, some of whom were right out of college and barely understood how a stock option worked, or came from industries where such equity stakes were rarely handed out. Adam bragged openly about the fact that WeWork underpaid its employees, but promised that if they remained committed to the company, their options would one day more than make up the difference.
Up to that point, the benefits of working for WeWork were less quantifiable: a sense of purpose, fun parties, free beer. In August of 2014, WeWork’s two hundred employees boarded buses in New York and Boston, where the company had opened its newest location, to make their way to WeWork’s annual corporate retreat, called Summer Camp. The New York crowd gathered at sunrise in front of the American Museum of Natural History. “This is like a mini Burning Man,” one person said, standing in front of the statue of Theodore Roosevelt on horseback. At 6:45 a.m., someone opened a bottle of Patrón and offered a toast: “To Summer Camp!”
