michael barbaro

From The New York Times, I’m Michael Barbaro. This is “The Daily.” Today: It was the most valuable start-up in the United States, with plans to revolutionize how and where people around the world worked. Amy Chozick on the spectacular rise and fall of WeWork and the story of the man behind it all. It’s Monday, November 18. Amy, I wonder if you could read this letter that WeWork employees sent to their bosses.

amy chozick

Sure. Here’s what they wrote. “To the We Company Management Team. WeWork’s company values encourage us to be entrepreneurial, inspired, authentic, tenacious, grateful and together. Today, we are embracing these qualities wholeheartedly as we band together to ensure the well-being of our peers. Thousands of us will be laid off in the coming weeks, but we want our time here to have meant something. We don’t want to be defined by the scandals, the corruption and the greed exhibited by the company’s leadership. We want to leave behind a legacy that represents the true character and intentions of WeWork employees. In the immediate term, we want those being laid off to be provided fair and reasonable separation terms commensurate with their contributions, including severance pay, continuation of company-paid health insurance and compensation for lost equity.”

michael barbaro

It’s a pretty grim letter.

amy chozick

It is.

michael barbaro

So how did WeWork get to this point? What’s the story here?

archived recording Co-founder and C.E.O. of WeWork, Adam Neumann.

amy chozick

So the story of WeWork really starts with a man named Adam Neumann.

archived recording (adam neumann) Growing up in Israel, watching American television and movies, I believed that the American dream is get a degree, get a great job, have lots of fun, make lots of money.

amy chozick

He was born in Israel. He moved to New York.

archived recording (adam neumann) I majored in entrepreneurship and marketing.

amy chozick

And he started all of these sort of fly-by-night entrepreneurial ideas. One of them was —

archived recording (adam neumann) This genius idea was going to be a women’s high-heel shoe with a collapsible heel.

amy chozick

— women’s high heels with collapsible heels. Another was —

michael barbaro

For storage.

amy chozick

No, because it’s uncomfortable, Michael, to walk around in heels all day. So you collapse them when you’re going down subway stairs.

archived recording (adam neumann) And this is definitely not my passion. And I came up with my second great idea — Krawlers, with a K. Krawlers was baby pants with kneepads on them to protect the babies’ knees for the crawling age.

amy chozick

Knee pads for crawling babies.

michael barbaro

Hmm.

amy chozick

The slogan was —

archived recording (adam neumann) Just because they don’t tell you doesn’t mean they don’t hurt.

michael barbaro

[LAUGHS]

archived recording (adam neumann) Of course, the business was a tremendous failure.

amy chozick

So he settles on co-working.

archived recording (adam neumann) And in 2010, started WeWork. [APPLAUSE] archived recording WeWork is a leader in the business of renting out spaces to entrepreneurs. The company —

amy chozick

And it was a very specific time to be in the co-working business. There were a lot of people who had a lot of start-up ideas, Silicon Valley was booming, and you needed a place to work outside your parents’ basement, right? So —

archived recording It lets people rent out a desk or a private office equipped with amenities like internet, coffee and spacious common areas. WeWork also —

amy chozick

— they were sleek. They had community space, sofas all over the place for team-building. There was cold brew, kombucha, taco Tuesdays. There was beer and wine on tap. Instead of going out for a drink, you’d stay at the office. It really came to symbolize the kind of start-up entrepreneurial hustle of millennials.

michael barbaro

In other words, this kind of space was perfectly timed for a generation of people who didn’t see themselves as office workers, but as individual businesses and entrepreneurs who needed a place to do that.

amy chozick

Exactly.

archived recording (adam neumann) WeWork is the office space of tomorrow. The future is about light, innovation, creativity. It’s going from me to we. We give you space that will inspire you, uplift you and help you innovate the products of tomorrow.

amy chozick

So in Adam’s mind, this was a community company. His mission was to elevate the world’s consciousness. He would talk about this. So he grew up partly on a kibbutz in Israel, and he would talk about it as a capitalist kibbutz. It was this mix of, like, capitalistic hustle with this yearning for communal meaning. Adam Neumann would say that he wanted WeWork to create a world where people don’t just make a living, they make a life.

michael barbaro

And they make a life in these WeWork offices.

amy chozick

Exactly. The thing Adam Neumann is really best at is communicating his vision, convincing people that he can change the way we work and live. He fully adopted the persona of the iconoclast start-up founder, and he looked the part. You know, at 6 foot 5, with flowing brown hair, you know, people looked up to him. When he walked into a meeting —

michael barbaro

Literally.

amy chozick

— people paid, literally, paid attention to him. But the most important person who bought into his vision is a Japanese executive, the head of a company called SoftBank —

archived recording (masayoshi son) The thing is, you know, I have a vision.

amy chozick

— called Masayoshi Son. Everyone calls him Masa.

archived recording (masayoshi son) We go and change the world together.

amy chozick

Masa’s company oversees something called the Vision Fund.

archived recording (masayoshi son) — thinking about what is the future? What is the — how we can change the life of people for the better humanity.

amy chozick

This is the largest tech investment fund in the world. They have $100 billion dollars to play with, largely from the Saudis who want to diversify away from oil and invest in tech. And Masa is this very interesting character who’s always trusted his gut.

archived recording One of the investments you made is considered by many people to be the most successful investment in the history of mankind. You invested roughly $20 million in Alibaba. And at the time it went public, it was worth roughly $90 billion. What is it that made you feel this was worth putting in $20 million. archived recording (masayoshi son) Well, he had no business plan. But his eyes was very strong — strong eyes, strong, shining eyes. I could tell.

amy chozick

And so he meets Adam Neumann. Adam Neumann gives Masa a tour of his offices. This includes the right soundtrack in the background and all the sleek office space and virtual-reality renderings of WeWork office space in the future. So you could wear these glasses and feel like you’re standing in Tokyo or Shanghai, right down to looking out the street and seeing the scene that you would see from the offices. And this really blows Masa’s mind. He loves this vision. He loves Adam’s energy.

archived recording You know, both WeWork and SoftBank Vision Fund are shoot-the-moon operations, so —

amy chozick

So after a 12-minute tour of the WeWork offices and Adam Newman’s vision —

archived recording — basically both willing to make humongous bets, and they’re sort of enabling one another.

amy chozick

— Masa Son invests over $4 billion in WeWork.

archived recording (speaker 1) And by the way, I work in a WeWork, so WeWork’s good. archived recording (speaker 2) [LAUGHS] I hear they have good drinks on tap, David. Look —

amy chozick

This is an enormous investment. And he doesn’t say, Adam, I need you to be a very careful steward of this extremely important investment. Be careful with my money. Instead he says, I need you to go crazier. I need you to do more. I need you to explore your wildest visions.

michael barbaro

He says that?

amy chozick

He says, go as far as you can with this. And there’s more money where this came from.

michael barbaro

So just how wild does Adam Neumann go with this $4 billion investment?

archived recording So we’re at WeWork in Austin, Texas, right now.

amy chozick

He started opening WeWorks all over the country.

archived recording I’m in my new office at the Crystal City WeWork that just opened up today.

amy chozick

Every major American city had a WeWork.

archived recording — my new office space, which is in the WeWork in Long Beach, California.

amy chozick

And then he expanded massively abroad.

michael barbaro

I feel like I remember this moment, because I woke up one day and had a long walk around Manhattan, and there was a WeWork at every single turn.

amy chozick

The Lord & Taylor building. Absolutely, they became ubiquitous. WeWork now is 45 million square feet of real estate. It’s the largest private landlord in New York, Washington, and London.

michael barbaro

Wow.

amy chozick

And then, giant companies started also moving their employees into WeWork offices, thinking it’s a draw for employees to work in these spaces.

michael barbaro

Like which companies?

amy chozick

Verizon, Salesforce, IBM all moved a lot of employees into WeWork office spaces.

michael barbaro

Hmm.

amy chozick

And this is the point when Adam really leans into Masa’s advice, which is to go wild. Pursue your craziest dreams. He opens a WeLive apartment building and wants to expand that. He says these are places that will have community and cut down on the suicide rate because people never feel alone. He was talking about WeGrow, and he and his wife opened a school in downtown Manhattan. There was WeBank, there was WeSail. There was WeSleep. There was talk of an airline.

michael barbaro

WeFly?

amy chozick

WeFly, presumably. There was talk of WeMars, even putting office space on the red planet.

michael barbaro

That really is wild.

amy chozick

It was wild. So Adam Neumann becomes fantastically rich. He also indulges his eccentricities. I mean, he was known to walk around the office barefoot. But now, he’s installed a private plunge pool in his office — a cold plunge, an infrared sauna in his office. He has a white Maybach. He’s, like, blaring hip-hop as this chauffeured white Maybach takes him all over Manhattan. He also convinced the company to buy a $60-million private plane, which he and other executives hotbox.

michael barbaro

I’m sorry?

amy chozick

That’s, you know, getting high in a confined space with the marijuana smoke filling the cabin. Tequila — Adam Neumann loved his Don Julio tequila. He would even get people who didn’t seem the tequila type, like Jared Kushner, to take tequila shots at 9:00 in the morning while they were scoping out some real estate in Philly.

michael barbaro

Wow.

amy chozick

But employees said that there was just free-flowing booze all the time, a lot of marijuana, a lot of these summer camp kind of weekend retreats. People would get drunk, and they’d dance around a fire singing to Journey —

[music]

amy chozick

— and other sort of “Animal House” antics, but always infused with this, like, larger purpose. Adam would get on stage with, like, Deepak Chopra and address employees. And it was this culture of WeWork that was very specific to Adam’s vision for the company.

michael barbaro

So Amy, as Adam Neumann becomes this larger-than-life character, as WeWork is opening offices all over the United States, all over the world, and as this term “We” starts to get applied to all areas of life, are people starting to question whether this is getting just a little too big and whether it’s all kind of adding up?

amy chozick

By and large, people looked at what Adam had accomplished, WeWork on every corner, as you said, taking over iconic buildings, and they believed in what he was selling. And then on top of that, you throw in Masa, this Japanese tycoon, who had made a fortune investing early on in these founders — Alibaba, Yahoo, Uber — just based on gut instincts. And if he believed in Adam, why shouldn’t everyone else?

michael barbaro

Mm-hmm.

amy chozick

So WeWork does what successful start-ups do. They prepare to go public, meaning they can sell their shares to the public. There’s a valuation on the company of $47 billion. That makes it the most valuable start-up in the country. And part of going public, they have to disclose everything in paperwork. And that’s when things start to unravel.

[music]

michael barbaro

We’ll be right back.

archived recording WeWork just unveiling its I.P.O. filing.

michael barbaro

So why did things start to unravel when WeWork files all this paperwork to go public?

amy chozick

So this is the first time that journalists, investors, the public can really look under the hood at what’s going on at WeWork —

archived recording Do we have any numbers in terms of how much money they’re making or losing right now?

amy chozick

— and it’s not pretty.

archived recording Net losses were just under a billion dollars, $904 million.

amy chozick

The company had lost $900 million in the first half of 2019 alone.

michael barbaro

Wow.

amy chozick

They had rapidly expanded into markets that weren’t necessarily friendly to WeWork. And there had also been some kind of questionable financial dealings between Adam and the company that he started.

michael barbaro

Like what?

amy chozick

Well, he had trademarked the word “We” and sold it back to the company for $5.9 million dollars. He ended up returning that money, but that certainly raised eyebrows. He had bought a lot of the buildings that WeWork was now leasing, so the company had paid him millions of dollars for space in the offices that he owned.

michael barbaro

So this is all very unconventional and potentially even self-dealing.

amy chozick

Right. But then there’s the text of the I.P.O., the legal document that they filed with the S.E.C. The word “community” is listed more than 150 times. And there was all of this kind of propping up what we now know is a very unprofitable business with this lingo of self-help and creating community. And people just started to see it as selling air, you know, couching this unprofitable business in language that made people feel good. So this paperwork filed with the S.E.C. really sets off an implosion unlike any other in start-up history.

archived recording 1 All the bad press and the bad moves caused the company’s expected valuation to drop from $47 billion down to just $15 billion, so — archived recording 2 It could come in as low as $10 billion, according to — archived recording 3 It may value the office-sharing company below $8 billion dollars, and that is a fraction of the $47 billion —

amy chozick

The value of WeWork plummets. So this is when discussion starts to spread of, well, should there even be an I.P.O.? Is this company ready to go public? And people start to turn on Adam pretty quickly at this point.

archived recording 1 WeWork C.E.O. Adam Neumann is facing new pressure from some of his top investors following the company’s decision to postpone the I.P.O. archived recording 2 Some board members and large investors in the company are privately discussing whether they could replace C.E.O. Adam Neumann and how they would do it.

amy chozick

They think he should be removed. He should not be the C.E.O. of WeWork. Not only should he not be the C.E.O., but he should have no involvement in WeWork anymore.

archived recording Yeah, this is now official. WeWork has officially come out saying that Adam Neumann is stepping down as C.E.O.

amy chozick

Eventually, Adam is forced to step down.

archived recording People are supposed to say I hate to be an “I told you so.” But I love to be an “I told you so.” This house of cards was coming down, this business based on beanbags, distressed furniture, and Nespresso machines. And yet, somehow this guy’s been treated as some guru genius because he’s such an effective self-promoter. P.T. Barnum is supposed to have said, “There’s a sucker born every minute.” That’s what’s going on here. And Wall Street, they were suckered, too, along with SoftBank buying in. Where’d they get this $47 billion for $12 million in cash? You look at their —

[music]

amy chozick

So they decide that even getting rid of Adam does not save this effort to go public, and they have to pull the IPO. I mean, this is hugely embarrassing, this company that had been valued at $47 billion, the most valuable start-up in the country, is suddenly valued at a tiny fraction of that. And this Japanese investor, Masa Son, who had been such a visionary, it’s extremely embarrassing for him. Ultimately, he has to apologize to investors, specifically for putting so much faith in Adam Neumann.

michael barbaro

So what becomes of Adam Neumann at this point? He has been pushed out of his company. In a way, he has been exposed as someone who is a better salesman than operator of a company. And it becomes pretty clear that he has built something that is not all that revolutionary but is a little bit of a financial house of cards.

amy chozick

Well, here’s what’s so interesting about what happened to Adam Neumann. He walked away from the company he founded with over a billion dollars.

michael barbaro

How is that possible?

amy chozick

SoftBank bought his shares in WeWork. And they also agreed to pay him $46 million in consulting fees for four years.

michael barbaro

Wow.

amy chozick

Nice work if you can get it.

michael barbaro

Why?

amy chozick

SoftBank would say that this was the cost to get Adam out and start to clean up the mess, which includes laying off potentially thousands of employees. You know, in this letter the employees call it “graft.” Here he was walking away with over a billion dollars, I mean, generational wealth as they faced layoffs, losing their health care, getting nothing. They write, “We are not the Adam Neumanns of this world — we are a diverse workforce with rents to pay, households to support and children to raise. We are not asking for this level of graft. We are asking to be treated with humanity and dignity so we can continue living life while searching to make a living elsewhere.”

michael barbaro

Amy, how do we explain what’s happened here, the pretty sad saga of WeWork and this situation that has ended with all these workers waiting to be laid off?

amy chozick

So the story of WeWork and Adam Neumann is essentially a story of his exploitation of two phenomenon. The first is this kind of late-stage tech capitalism, when investors really want to believe in these start-up founders who have businesses that are essentially sort of traditional businesses with tech layered on, and Uber is a perfect example of that — calling a taxi with your phone — and in turn, give these companies enormous valuations when the business underpinnings are not necessarily there. So the irony, of course, was that Adam Neumann tapped into this tech vernacular about changing the world, about revolutionizing office space, but his company had really nothing to do with tech. It was a commercial real estate company.

michael barbaro

But people believed that.

amy chozick

But it had a tech valuation because investors believed it. The second thing he quite brilliantly exploited was this yearning of millennials having this capitalist ambition and hustle, but also this yearning for community, this “we” generation, as he called it, that it’s not about you or me, it’s about we. And in the end, it essentially was about him.

archived recording (adam neumann) It is us who will blaze the path forward, paved not with algorithms, not with software, but with values, with friendship, with common goals, and most importantly, with humanity. [APPLAUSE] Thank you.

amy chozick

And I think that’s been particularly hard for WeWork employees to stomach. It’s not just that the business turned out to be not as profitable as they thought it was, and their CEO walked away with a giant golden parachute. It was that they believed that it was bigger than that. They believed it was a community. And now they’re saying that it wasn’t.

archived recording (adam neumann) And the we revolution is going to be led by the we generation, and it will restore in each one of us the sense of dignity and community without which braveness cannot be achieved. The we generation knows that you must treat other people the way you want to be treated.

[music]

michael barbaro

Thank you, Amy.

amy chozick

Thank you, Michael.

michael barbaro

On Sunday night, The Times reported that WeWork is preparing to lay off at least 4,000 employees. Those layoffs are expected to be announced as early as this week. We’ll be right back. Here’s what else you need to know today. Over the weekend, impeachment investigators released the closed-door testimony of a National Security Council official, Tim Morrison, who further tied President Trump to the quid pro quo with Ukraine. Morrison testified that Gordon Sondland, the U.S. ambassador to the European Union, acted at Trump’s behest when he repeatedly communicated to Ukrainian officials that opening investigations helpful to Trump would result in the release of $400 million in U.S. military assistance to Ukraine withheld by Trump. Morrison also testified that National Security Adviser John Bolton had tried and failed to convince Trump to release the military assistance during a meeting over the summer. And —

archived recording (john bel edwards) Thank you! What a great night it is for Louisiana. [APPLAUSE] And to God be the glory!

michael barbaro

— Governor John Bel Edwards of Louisiana, the only Democratic governor in the Deep South, narrowly won re-election on Saturday, defeating a Republican supported by President Trump. It was the second time in two weeks that a Republican candidate for governor backed by Trump has been defeated. After the defeat of Kentucky’s Republican governor, Trump had told Louisiana voters that he needed them to deliver him a victory.

archived recording (donald trump) So Trump took a loss, so you’ve got to give me a big win please, O.K.?

michael barbaro

On Saturday, during his victory speech, Louisiana’s governor gently teased Trump about the outcome.

archived recording (john bel edwards) And as for the president, God bless his heart. [CHEERING]

michael barbaro