WeCrashed: What really happened to WeWork?

The story of how WeWork imploded has always been too alluring for authors and scriptwriters to ignore. In corporate circles, it has also been a popular cautionary tale—a story of transgression fuelled by mindless ambition and greed which culminates in disaster.

What is the history of WeWork?

WeWork started out as a US real estate company that provided flexible shared workspaces for technology start-ups. Rising to prominence in the financial boom years after the Great Recession, it targeted millennials as it tried to provide them shared office spaces for co-working.

WeWork started out as Green Desk in 2008, when Neumann and his business partner, Miguel McKelvey rented an empty floor of a Brooklyn building and divided it into cubicles for rent. “Everyone who had been fired from their jobs came. Everyone who didn’t want to be at home because they were depressed,” McKelvey told Wiedeman.

Entrance to a WeWork office in Manhattan (Wikimedia Commons)

The founders soon replicated their model in Manhattan and San Francisco as the company gained popularity. Buoyed by its initial successes, the company started “blitzscaling”, acquiring office spaces in multiple cities and growing rapidly, thanks to a massive infusion of $8 billion from SoftBank, which was its biggest investor.

In fact, it was Neumann’s knack for amassing billions of dollars in venture capital that fuelled the company’s rapid growth. But, as critics pointed out, Neumann did not have a viable and sustainable business model as he kept expanding with little planning. He tried to turn WeWork into a tech giant and experimented with a LinkedIn-style app for the company’s members. Also in the pipeline were plans to launch WeLive—a dormitory-style co-living arrangement, and WeGrow, a private school run by his wife, Rebekah. None of these plans were successful in the long run.

Despite these failures, WeWork was the most valued tech start-up in the US, with a stratospheric $47 billion valuation. It almost epitomised the remarkable example of Silicon Valley’s audacity as Neumann made bold assertions saying he was not in the market to make money but “change the world”. And then, in 2019, everything fell apart.

How did the remarkable success story of WeWork fall apart?

In the summer of 2019, after nearly 10 years of doing business, WeWork filed for an initial public offering (IPO). The WeWork IPO was the most eagerly anticipated public offering of the year—for a company valued at a staggering $47 billion, it was meant to be another landmark that sealed its cult status. Instead, what unfolded was a story of remarkable capitulation and downfall.

On August 14 that year, the company publicly filed documents for IPO. The filing, called an S-1, exposed WeWork’s narrative of being a grand success story riding on unimaginable profit. Story after story about Neumann’s bizarre dealings, mismanagements and strange behaviour tumbled out of the closet and made instant headlines.

The financial documents also showed that WeWork was losing tons of money and its market projections were wildly optimistic.

Within 33 days, the IPO was scuttled and WeWork’s valuation dropped by 70%. After the failed IPO, WeWork was taken over by SoftBank, its largest investor. Neumann also voted to remove himself from the CEO’s role and gave up majority control of WeWork’s stock. He was reportedly offered a $1.7-billion package to leave the company.

What caused the WeWork disaster?

Rapid expansion on the back of an unsustainable business model, Neumann’s questionable dealings and erratic behaviour have been cited as reasons behind WeWork’s fall.

In its quest to build a “creative office space”, WeWork offered a dizzying combination of every hip trend of corporate culture, with phone pods and nap rooms. Neon-pink signs in its offices read: ‘DO WHAT YOU LOVE’. Neumann was always eager to “sell an experience”, which made the company turn into a real-estate behemoth, that spanned across 800 locations with more than 12,000 employees.

WeWork space in San Francisco (Wikimedia Commons)

According to documents first published by Buzzfeed, all this growth since 2015 was based on a business model which was extremely expensive and had little space for profit. Investment documents show that in 2017, WeWork had lost $883 million, despite having a revenue of $886 million. The Financial Times revealed that in 2018 the company lost $1.9 billion on $1.8 billion of revenue. Behind the glamour and glitz of a culture selling a next-generation working experience to millennials was a sinking ship struggling to stay afloat. The bubble was always going to burst.

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What further complicated matters and perhaps accentuated the slide was Neumann’s own questionable personal dealings. Tall, long-haired and charismatic, Neumann’s idiosyncrasies are well-documented—he drank tequila, smoked weed and walked about barefooted in the office. He charmed investors and developed a sort of cult following in corporate circles. That was until the bubble burst and the horror stories started tumbling out.

One of these stories was that Neumann made millions of dollars by leasing multiple properties in which he has an ownership stake back to WeWork, The Wall Street Journal reported. In a prospectus related to a debt offering, WeWork stated that it had leases with multiple properties owned in part by Neumann. It added that the company paid more than $12 million in rent to buildings “partially owned by officers” of WeWork between 2016 and 2017.

In years before the scuttled IPO, Neumann purchased at least five homes, including a $10.5 million Greenwich Village townhouse and a $60 million Gulfstream jet for WeWork. More troubling was the fact that Neumann reportedly took personal loans from the company at below-market rates to fund his lavish lifestyle. He also went on to purchase the trademark to the name “We”, and WeWork paid him $5.9 million to license it.

Even as it tried to play down its losses, the company in its filing stated, “We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level for the foreseeable future.”

Was the company’s ‘questionable work culture’ also to blame?

As WeWork slid towards bankruptcy, story after story that blamed the company’s “questionable work culture” began to emerge. They described in horrifying detail how as WeWork was on its path of descent, Neumann indulged himself with his private jet trips transporting marijuana across international borders and his wife laid off employees on the basis of “bad vibes”.

Even as investment rolled in, Neumann reportedly spent lavishly on private expenses—for instance, he paid $60 million buy a private jet—while not focusing on the company’s immediate needs. Employees complained of widespread burnout but he was largely unsympathetic. In his book, Wiedeman writes, “Adam complained that he didn’t think he was getting what he paid for as it stood. He told one employee he could save money by getting a roommate.”

Event held at WeWork Toronto (Wikimedia Commons)

Moreover, a former WeWork employee lodged a civil case alleging that she was sexually assaulted at corporate events, including at the company’s ‘Summer Camp’, and the human resources department did not act based on her complaints. She was later fired for “poor performance”.

The Guardian reported that the employee, in an email, later wrote: “The sexual harassment and assaults of Plaintiff did not happen in a vacuum. They are product in part of the entitled, frat-boy culture that permeates WeWork from the top down.”

She added that during the job interview, Neumann had served shots of tequila and that “company managers and executives heap immense pressure on employees to attend after-work events and place a premium on employees’ participation in the parties that WeWork sponsors.”

Much of ‘WeCrashed’ paints Neumann as the start-up conman who powers his way to the top, attracting huge investments SoftBank, Benchmark and Goldman Sachs. It also focuses on his relationship with Rebekah, with Hathaway telling him “You’re a supernova” and “I am the soul of the company”.

But it is not blind to the company’s toxic work culture. In the third episode, the series shows that WeWork lacked an HR department for a significant amount of time and offered employees stock options in lieu of a proper salary. It also says that the company was “a really bad place to work, especially for women.”