don’t worry about Adam Neumann, who was just ousted as the CEO of The We Company; first of all, he’s still the non-executive chairman of The We Company. Besides, entrepreneurs are like vampires: unless you put a stake through their heart, they’ll come back. (Just ask Travis Kalanick, who’s claiming his next act will be “bigger than Uber.”) Neumann will be fine. The better question is if We will be fine. Another good question is if SoftBank, We’s biggest shareholder, will be fine.
For those of you who are wondering what the hell is going on, welcome! The brief version of events is that The We Company — the company formerly known as WeWork — was about to go public and put out a bunch of paperwork. That paperwork revealed, all in one place, the following things: that Neumann was renting his own buildings to The We Company, that Neumann had secured loans from The We Company, and that to change its name to The We Company from WeWork, the company paid for naming rights from… Adam Neumann. It kind of started to feel like the point of The We Company, lofty language about “elevating” one’s “consciousness” aside, was just to give Adam Neumann money.
And that’s before we even get to the, uh, unusual behavior. As chronicled by The Wall Street Journal, Neumann’s peccadillos included smoking weed on a private jet flight to Israel from the U.S., freaking out the plane’s owner; firing seven percent of his staff, then bringing in Darryl McDaniels of Run-DMC and drinking tequila with the remaining employees; and flying senior employees to a summer camp where he riffed about solving the problem of orphans and eradicating world hunger.
We is now in the process of unwinding from Adam Neumann, who has even ceded majority control of the company — his supervoting shares, once worth 20 votes (vs. the one vote a pleb would get) are now worth only three votes, The New York Times reports. He no longer has the power to fire the entire board. He’s also paid back the $5.9 million that he made on the branding change. And he’s out as CEO. His wife and co-founder, Rebekah Paltrow Neumann (first cousin of Gwyneth), has also given up her titles and roles, according to Bloomberg.
That is nice, I guess? Like, absolutely congratulations to The We Company for trying to do the right thing, however belatedly. But while Neumann’s excesses weren’t obvious to the public markets until recently, the private investors in We — which include SoftBank and Benchmark Capital — knew about it. That’s literally their job! They have board seats in order to know these things. The part of this I am confused about is why they waited until now to rein Neumann in.
Filling for an IPO seems like an awful lot of work, and The We Company literally did have to write all 10 pages of the Neumann-related disclosures to do it, you know? Absolutely no one raised their eyebrows and went hmm but will the markets go for this? No one? How… how stupid does the VC world think we all are? Also, like, for that matter: how stupid do JP Morgan and Goldman Sachs think we all are?
Listen, I know things have been frothy in the tech investment sector for… actually, for quite some time. (Remember Yo?) Founder-worship, another key element of the tech sector, probably enabled some of this nonsense as well. SoftBank’s “big chip bully” investing strategy definitely didn’t help. We isn’t a tech company. It’s very obviously a real estate company, but apparently just saying “tech” a lot is a great way to get people to behave as though you’re selling software as a service and give you money like you’ve got the same upsides?
It seems like private investors haven’t been driving hard bargains so much as they’ve been getting high on their own supply. Founder-worship and the devaluation of investors essentially means, as Bloomberg’s Matt Levine wrote:
The company is not a joint venture between the founder (who provides the vision and the work and the name) and the investors (who provide the money); the company belongs to the founder, and the investors are hired providers of a relatively low-value input (money), who can expect only a grudging economic share, not any sort of say in running the business.
Yes, well, we all saw how that worked out here. Neumann’s previous attempts at business ventures included women’s shoes with collapsible heels and baby clothes with kneepads that had the truly chilling slogan “Just because they don’t tell you, doesn’t mean they don’t hurt.” Neither got off the ground, and neither suggested, you know, good judgment. In a world that makes sense, the investors might have gotten cold feet about Neumann’s leadership before trying to pawn the We Company off onto the public markets.
We do not live in a world that makes sense; We does not live in a world that makes sense.
The We Company is growing rapidly. It’s also unprofitable. One of the reasons that investors expressed concern was its frankly hilarious corporate governance — but another major worry is the literal business model. For instance, WeWork made $1.8 billion in revenue last year. This sounds pretty good until you realize that the company lost $1.6 billion. In the first half of 2019, the company spent a dollar for every dollar it generated. “Without new funding or lower expenses, the amount of cash that WeWork can freely spend could shrink to $400 million by next March from $1.9 billion,” The Information wrote.
And so the company is now considering firing as many as 5,000 employees, The New York Times and The Information say. We employed about 12,500 people as of its last regulatory filing. The genius money people who got We into this mess are discussing firing 40 percent of the workforce. They have, additionally, considered shuttering the education and housing parts of the business and slowing The We Company’s expansion. That seems drastic.
Again, I want to be clear: WeWork’s financials are definitely not a surprise to investors like SoftBank founder Masayoshi Son. They had access to them the entire time! SoftBank has a board seat! A former member of SoftBank’s board also has a board seat! In fact, SoftBank’s whole deal is that they pump money into companies until they dominate the market, profits be damned. In 2017, Son met with Neumann and, according to New York Magazine, told him “to make WeWork ‘ten times bigger than your original plan’ and to recognize that, in a fight, being crazy is better than being smart — and that WeWork wasn’t being ‘crazy enough.’”
I will pause here so we can all imagine telling the guy who wants to be president of the world — the guy who stashes cereal boxes of weed on private planes that don’t belong to him while traveling internationally — that he isn’t being crazy enough. Go on. Close your eyes. Visualize it. Allow the power of We to flow through you. Doesn’t Neumann’s whole deal make a lot more sense now?
Things are not totally rosy for SoftBank, even beyond the We Company IPO flop — several of the company’s other investments, such as Uber and Slack, have underperfomed the S&P 500 for the period since their IPOs, Fortune tells us. And the scandal around We now threatens SoftBank’s attempt at a second VisionFund, Bloomberg reported. It did not escape my attention that in the public statement around what we will tactfully call WeWork’s leadership changes that SoftBank wasn’t mentioned once, despite reporting indicating that SoftBank led the coup against Neumann.
Anyway Adam Neumann is gone now, and presumably the executives who remain played Run-DMC’s “It’s Tricky” in a very sad and nostalgic way before taking tequila shots in his honor. Perhaps “elevating the world’s consciousness” should have waited until The We Company elevated its business model. That task now rests with chief financial officer Artie Minson and We vice chairman Sebastian Gunningham, who are both replacing Neumann.