1 00:00:00,040 --> 00:00:03,520 Speaker 1: We're gonna start this episode with a threat. The threat 2 00:00:03,600 --> 00:00:06,800 Speaker 1: comes from Adam Newman, the CEO of We Work, and 3 00:00:06,840 --> 00:00:09,800 Speaker 1: he was talking to Jamie Hodari, a guy who runs 4 00:00:09,840 --> 00:00:14,560 Speaker 1: a smaller rival coworking space called Industrious. The two CEOs 5 00:00:14,640 --> 00:00:18,599 Speaker 1: were considering doing a deal together. This was in and 6 00:00:18,680 --> 00:00:21,400 Speaker 1: to talk it out, Adam invited Jamie to spend the 7 00:00:21,440 --> 00:00:23,640 Speaker 1: day with him. They were going to fly to Atlanta 8 00:00:23,760 --> 00:00:26,920 Speaker 1: to tour each other's offices, and Adam wanted to fly 9 00:00:27,080 --> 00:00:32,639 Speaker 1: Jamie out on a private jet. I got the calendar 10 00:00:32,680 --> 00:00:37,000 Speaker 1: invite from his assistant, and the plane was leaving from 11 00:00:37,120 --> 00:00:40,400 Speaker 1: the Hampton's and I explained that I don't live in 12 00:00:40,479 --> 00:00:44,480 Speaker 1: the Hampton's. I live very far from the Hamptons in 13 00:00:44,479 --> 00:00:47,320 Speaker 1: in Brooklyn, and I was just going to fly down 14 00:00:47,400 --> 00:00:49,720 Speaker 1: commercially and meet them there and we'd still have the 15 00:00:49,720 --> 00:00:53,440 Speaker 1: whole day in Atlanta. And and she explained that Mr 16 00:00:53,520 --> 00:00:56,480 Speaker 1: Newman insists that you come out, So I had to 17 00:00:56,480 --> 00:01:00,600 Speaker 1: take a like two hour ruber ride or something, you know, 18 00:01:00,680 --> 00:01:04,280 Speaker 1: to get to this six am takeoff. And that definitely 19 00:01:04,360 --> 00:01:06,760 Speaker 1: felt like a bit of a flex. So they're on 20 00:01:06,840 --> 00:01:10,040 Speaker 1: this private jet and at one point Adam pulled Jamie 21 00:01:10,080 --> 00:01:15,360 Speaker 1: aside for a private conversation maybe an hour in he 22 00:01:15,440 --> 00:01:19,040 Speaker 1: asked to sort of sit away from everyone else and 23 00:01:19,080 --> 00:01:22,640 Speaker 1: talk one on one, and he said, look, I respect 24 00:01:22,680 --> 00:01:25,920 Speaker 1: what you guys do. I think you seem like a 25 00:01:25,959 --> 00:01:28,840 Speaker 1: good guy, and as a result, I want to give 26 00:01:28,880 --> 00:01:32,600 Speaker 1: you a heads up that you know if if coming 27 00:01:32,640 --> 00:01:35,800 Speaker 1: out of the next few weeks things don't go the 28 00:01:35,800 --> 00:01:38,479 Speaker 1: way we work, would like them too, I think, he said, 29 00:01:38,520 --> 00:01:41,760 Speaker 1: you know, I have two hundred people waiting for a 30 00:01:41,760 --> 00:01:44,360 Speaker 1: push of a button for me, and their job is 31 00:01:44,400 --> 00:01:47,000 Speaker 1: going to be to bury your business. And what that 32 00:01:47,040 --> 00:01:49,120 Speaker 1: will mean is that we're going to give all of 33 00:01:49,120 --> 00:01:52,560 Speaker 1: your customers a year free, and the ones that don't leave, 34 00:01:53,160 --> 00:01:55,960 Speaker 1: we'll give two years free, and the ones that don't leave, 35 00:01:56,360 --> 00:01:58,560 Speaker 1: we'll give three years free. Until you don't have a 36 00:01:58,600 --> 00:02:01,320 Speaker 1: single customer left, and you will have lost the business 37 00:02:01,360 --> 00:02:06,120 Speaker 1: that you spent the last five years building. Uh. That's intense. 38 00:02:06,920 --> 00:02:09,640 Speaker 1: Jamie didn't know what to think. He says. He felt 39 00:02:09,639 --> 00:02:12,240 Speaker 1: a little scared, but he didn't know how seriously to 40 00:02:12,280 --> 00:02:15,880 Speaker 1: take this threat because what Adam was describing would have 41 00:02:15,919 --> 00:02:18,920 Speaker 1: been such an expensive move. In short, I didn't really 42 00:02:18,960 --> 00:02:22,880 Speaker 1: believe him because what he described again would would mean, 43 00:02:22,919 --> 00:02:25,520 Speaker 1: they were almost by definition, losing a lot of money 44 00:02:25,520 --> 00:02:29,320 Speaker 1: on those customers. He said, well, you know you should 45 00:02:29,360 --> 00:02:32,040 Speaker 1: believe me, and and you're going to see that I'm 46 00:02:32,040 --> 00:02:37,680 Speaker 1: not bluffing. You're listening to Foundering. I'm your host, Ellen Hewitt, 47 00:02:38,120 --> 00:02:41,600 Speaker 1: and this week we're talking about money. How We Work 48 00:02:41,720 --> 00:02:44,480 Speaker 1: was able to raise money and some of the surprising 49 00:02:44,560 --> 00:02:47,680 Speaker 1: things the company did with the cash, and whether having 50 00:02:47,720 --> 00:02:51,679 Speaker 1: money lots of money affected We Work's ability to see 51 00:02:51,760 --> 00:02:56,320 Speaker 1: straight from the moment the company was founded in We 52 00:02:56,440 --> 00:02:59,600 Speaker 1: Work had money to spend, not because it was turning 53 00:02:59,639 --> 00:03:02,560 Speaker 1: a pro fit. In fact, it lost money more and 54 00:03:02,600 --> 00:03:06,080 Speaker 1: more every year. At its peak, we were lost almost 55 00:03:06,120 --> 00:03:09,520 Speaker 1: two billion dollars in one year. We Worked got its 56 00:03:09,520 --> 00:03:13,320 Speaker 1: money from investors, large mutual funds and investment banks and 57 00:03:13,400 --> 00:03:17,520 Speaker 1: venture capitalists, including Masa Yoshi Son. He's one of the 58 00:03:17,560 --> 00:03:20,960 Speaker 1: biggest tech investors out there, and he often preached that 59 00:03:21,000 --> 00:03:24,679 Speaker 1: when it comes to business, the crazier the better. All 60 00:03:24,720 --> 00:03:27,919 Speaker 1: these investors wanted to give We Work cash in exchange 61 00:03:27,919 --> 00:03:30,680 Speaker 1: for owning a slice of the company, which they hoped, 62 00:03:30,760 --> 00:03:34,640 Speaker 1: over time would become more and more valuable by the 63 00:03:34,680 --> 00:03:37,680 Speaker 1: way We Work. And a representative for Adam Newman the 64 00:03:37,760 --> 00:03:40,960 Speaker 1: client to comment on this episode. Now, let's get back 65 00:03:41,000 --> 00:03:43,120 Speaker 1: to the story of Jamie and Adam on the plane. 66 00:03:43,680 --> 00:03:47,320 Speaker 1: According to Jamie, Adam made good on his threat in 67 00:03:47,360 --> 00:03:50,200 Speaker 1: a lot of markets. Customers all of a sudden got 68 00:03:50,240 --> 00:03:55,880 Speaker 1: bombarded with emails from dozens of different brokers saying, you know, 69 00:03:55,960 --> 00:03:59,320 Speaker 1: they basically insert ways we work handid off the dirty 70 00:03:59,360 --> 00:04:02,120 Speaker 1: work to a series of brokers who then went and 71 00:04:02,240 --> 00:04:04,800 Speaker 1: advocated to our customers that they should be leaving us 72 00:04:04,800 --> 00:04:09,480 Speaker 1: for we work. And you know, for two three five days, 73 00:04:09,720 --> 00:04:12,680 Speaker 1: you know, maybe a week, it seemed possible that there was, 74 00:04:12,760 --> 00:04:15,640 Speaker 1: all of a sudden going to be this just wave 75 00:04:16,240 --> 00:04:22,120 Speaker 1: of customers exiting Industrious. And it didn't happen. Jamie said, 76 00:04:22,200 --> 00:04:25,599 Speaker 1: we works attacked, just didn't work. Not that many customers 77 00:04:25,680 --> 00:04:28,880 Speaker 1: left Industrious. When Jamie thinks back on that moment on 78 00:04:28,920 --> 00:04:33,160 Speaker 1: the plane, he's struck by adams naked aggression. Even though 79 00:04:33,200 --> 00:04:35,520 Speaker 1: adams plan didn't work, he was ready to go to 80 00:04:35,560 --> 00:04:39,200 Speaker 1: such extreme lengths to take down a competitor. Jamie couldn't 81 00:04:39,240 --> 00:04:45,080 Speaker 1: understand choosing to burn money that way. It felt like 82 00:04:45,160 --> 00:04:47,840 Speaker 1: we Work could do no wrong. It was growing like 83 00:04:47,960 --> 00:04:51,360 Speaker 1: mad venture capitalists were falling over themselves to try to 84 00:04:51,400 --> 00:04:54,279 Speaker 1: get we work to take their investment. And all around 85 00:04:54,320 --> 00:04:57,599 Speaker 1: Silicon Valley you heard startups talking about how spending lots 86 00:04:57,640 --> 00:05:00,640 Speaker 1: of money was the way to grow fast, to win 87 00:05:00,760 --> 00:05:06,680 Speaker 1: against their rivals. Profits came later, Profits weren't sexy. I 88 00:05:06,720 --> 00:05:09,360 Speaker 1: want to give you a glimpse into how venture capital works, 89 00:05:09,960 --> 00:05:15,760 Speaker 1: how it turns traditional business sense upside down. With most 90 00:05:15,800 --> 00:05:18,800 Speaker 1: small businesses, you want to be making a profit. Let's 91 00:05:18,800 --> 00:05:21,880 Speaker 1: say yourself frozen bananas, and it costs four dollars to 92 00:05:21,920 --> 00:05:24,839 Speaker 1: make each one. That's the cost of the supplies, paying 93 00:05:24,839 --> 00:05:27,680 Speaker 1: your employee, and rent for the banana stand. So you'd 94 00:05:27,680 --> 00:05:30,520 Speaker 1: want to sell the banana for maybe five dollars. The 95 00:05:30,520 --> 00:05:33,480 Speaker 1: first four dollars covers all your expenses. Then you might 96 00:05:33,560 --> 00:05:37,839 Speaker 1: have a dollar of profit. Now, let's say you're raising 97 00:05:37,839 --> 00:05:41,520 Speaker 1: money from venture capitalists for your banana stand. That means 98 00:05:41,560 --> 00:05:44,719 Speaker 1: something different. You've sold a slice of your business to 99 00:05:44,760 --> 00:05:48,080 Speaker 1: the VC in exchange for cash. You now have a 100 00:05:48,120 --> 00:05:51,640 Speaker 1: lot of cash. That's exciting. You can use it immediately 101 00:05:51,680 --> 00:05:54,800 Speaker 1: to hire more banana sellers, buy more bananas, whatever you want. 102 00:05:56,120 --> 00:05:59,520 Speaker 1: Vcs want the companies they invest in to grow. They 103 00:05:59,560 --> 00:06:02,679 Speaker 1: invested in you to become the biggest frozen banana seller 104 00:06:03,000 --> 00:06:06,040 Speaker 1: in the market. Now you need to sell way more 105 00:06:06,080 --> 00:06:08,960 Speaker 1: bananas in way more cities than your competitors, and do 106 00:06:09,040 --> 00:06:12,240 Speaker 1: it first. Instead of opening one banana stand next year, 107 00:06:12,480 --> 00:06:16,039 Speaker 1: they want you to open ten. Vcs. Care a lot 108 00:06:16,160 --> 00:06:19,080 Speaker 1: about how many five dollar bananas you can sell, so 109 00:06:19,120 --> 00:06:22,240 Speaker 1: they may push you to expand to new markets, even 110 00:06:22,240 --> 00:06:24,480 Speaker 1: if it costs more to hire someone or rent is 111 00:06:24,520 --> 00:06:28,120 Speaker 1: more expensive. So it now costs you six dollars to 112 00:06:28,120 --> 00:06:31,080 Speaker 1: make a banana that you still sell for five. You're 113 00:06:31,080 --> 00:06:34,120 Speaker 1: losing money on each banana you sell. That sounds like 114 00:06:34,120 --> 00:06:37,080 Speaker 1: a dumb idea, but in this upside down world, it 115 00:06:37,160 --> 00:06:41,000 Speaker 1: makes sense because you're still growing. You're selling more than 116 00:06:41,040 --> 00:06:44,360 Speaker 1: you ever did, crowding out the competition and cementing your 117 00:06:44,480 --> 00:06:50,839 Speaker 1: name as the number one frozen banana seller. We Work 118 00:06:50,920 --> 00:06:54,560 Speaker 1: knew how to grow. It was growing every year, which 119 00:06:54,560 --> 00:06:57,720 Speaker 1: means it was doubling its business. We had plenty of demand. 120 00:06:57,800 --> 00:07:00,600 Speaker 1: We were not signing real estate fast enough. As far 121 00:07:00,680 --> 00:07:03,240 Speaker 1: as we knew, we were going to keep growing a 122 00:07:03,320 --> 00:07:07,440 Speaker 1: hundred percent until someone told us to stop. That's Dave Fano. 123 00:07:07,960 --> 00:07:10,640 Speaker 1: He was we Works chief growth officer until he left 124 00:07:10,680 --> 00:07:14,160 Speaker 1: in and he saw that the more we Work locations 125 00:07:14,160 --> 00:07:16,560 Speaker 1: they added, the harder it was to keep growing a 126 00:07:16,960 --> 00:07:21,240 Speaker 1: percent year after year. It was harder, significantly harder to 127 00:07:21,280 --> 00:07:24,400 Speaker 1: go from five hundred to a thousand than from a 128 00:07:24,480 --> 00:07:27,640 Speaker 1: hundred to two hundred, just the amount of moving parts 129 00:07:27,640 --> 00:07:31,080 Speaker 1: and pieces. Because there's only so much available real estate 130 00:07:31,080 --> 00:07:33,400 Speaker 1: in a given market, you gotta get bigger blocks of 131 00:07:33,440 --> 00:07:36,760 Speaker 1: real estate. You can't get four million square feet square 132 00:07:36,760 --> 00:07:38,840 Speaker 1: feet at a time. You've gotta start to sign leases 133 00:07:38,880 --> 00:07:41,880 Speaker 1: that are two fifty square feet, and those are more 134 00:07:41,920 --> 00:07:45,240 Speaker 1: complex negotiations and they take longer. So there's just a 135 00:07:45,240 --> 00:07:50,640 Speaker 1: lot of things that got exponentially harder as you got bigger, 136 00:07:51,440 --> 00:07:54,640 Speaker 1: and as you tried to keep doubling to keep growing. 137 00:07:54,800 --> 00:07:57,320 Speaker 1: We Work was expanding into markets all over the world, 138 00:07:57,880 --> 00:07:59,800 Speaker 1: even the ones where it seemed like it was losing 139 00:07:59,840 --> 00:08:04,080 Speaker 1: my me. Here's Jamie again. It was clear that London 140 00:08:04,200 --> 00:08:06,720 Speaker 1: was a bad market for we Work, and yet they 141 00:08:06,800 --> 00:08:09,600 Speaker 1: kept doubling down there. So if you don't care if 142 00:08:09,640 --> 00:08:12,920 Speaker 1: your units make any money, then one thing you can 143 00:08:12,920 --> 00:08:15,240 Speaker 1: do is at a lot of units in London, then 144 00:08:15,280 --> 00:08:18,280 Speaker 1: maybe it's okay to rent space at eleven dollars and 145 00:08:18,320 --> 00:08:21,120 Speaker 1: go sell it for ten over and over. We Work 146 00:08:21,200 --> 00:08:23,600 Speaker 1: may have been losing money, but they didn't stop the 147 00:08:23,600 --> 00:08:27,239 Speaker 1: company from dominating the headlines. Adam's profile at the time 148 00:08:27,320 --> 00:08:30,440 Speaker 1: was huge. He was hanging out with actors, going on TV, 149 00:08:30,960 --> 00:08:34,079 Speaker 1: doing photo shoots for magazine covers. He was an incredibly 150 00:08:34,200 --> 00:08:39,440 Speaker 1: visible CEO where his personality became the company's personality. And 151 00:08:39,480 --> 00:08:42,640 Speaker 1: as his fame grew, so did Adam's vision for we Work. 152 00:08:43,280 --> 00:08:46,960 Speaker 1: We want to help the world to self actualize themselves. 153 00:08:47,440 --> 00:08:51,160 Speaker 1: Here's the beauty. We have actually been given a permit 154 00:08:51,679 --> 00:08:55,560 Speaker 1: from the world, from investors, for our members from the 155 00:08:55,679 --> 00:08:58,320 Speaker 1: universe to actually have a chance to go and tackle 156 00:08:58,400 --> 00:09:02,320 Speaker 1: this problem. That's Adam speaking at an all hands meeting 157 00:09:02,320 --> 00:09:05,679 Speaker 1: in mid You can hear him talking about how big 158 00:09:05,720 --> 00:09:08,280 Speaker 1: and meaningful we Work is going to be. It's not 159 00:09:08,400 --> 00:09:11,480 Speaker 1: just work. It's about helping their members in every aspect 160 00:09:11,480 --> 00:09:14,400 Speaker 1: of their lives to find happiness and to find themselves. 161 00:09:15,120 --> 00:09:17,679 Speaker 1: That might explain some of the side hustles we Work 162 00:09:17,720 --> 00:09:19,880 Speaker 1: got into that seemed to have nothing to do with 163 00:09:19,960 --> 00:09:24,360 Speaker 1: office rental. We Work started planning we Live, which was 164 00:09:24,440 --> 00:09:28,000 Speaker 1: an experiment in building communal apartments kind of like adult 165 00:09:28,080 --> 00:09:31,120 Speaker 1: dorms for millennials. We Work at a grand plan of 166 00:09:31,200 --> 00:09:34,240 Speaker 1: launching thirty locations in a year, but they only ever 167 00:09:34,280 --> 00:09:37,480 Speaker 1: opened up two. But we Live was just the start. 168 00:09:37,880 --> 00:09:40,480 Speaker 1: We work with rapidly trying new things, a lot of 169 00:09:40,520 --> 00:09:43,000 Speaker 1: new things. It was getting a little out of control. 170 00:09:43,640 --> 00:09:47,280 Speaker 1: Here's Adam at an all hands meeting in we have 171 00:09:47,440 --> 00:09:51,280 Speaker 1: four hundred and forty two open projects that are in 172 00:09:51,400 --> 00:09:55,240 Speaker 1: different categories that don't have anything to do with we Work. 173 00:09:55,320 --> 00:09:58,040 Speaker 1: Our buildings are four well margin. The base of our 174 00:09:58,040 --> 00:10:02,319 Speaker 1: brands a hell of a number. I'm personally set us 175 00:10:02,320 --> 00:10:04,440 Speaker 1: on the path of a few projects that were not 176 00:10:04,520 --> 00:10:06,839 Speaker 1: qualified to do. Doesn't mean they couldn't have been cool. 177 00:10:06,880 --> 00:10:09,160 Speaker 1: They could have been amazing. We just happened to not 178 00:10:09,320 --> 00:10:12,840 Speaker 1: be qualified to do. He seemed aware that we Work 179 00:10:12,920 --> 00:10:15,920 Speaker 1: was losing focus. I want to tell you about some 180 00:10:15,960 --> 00:10:19,320 Speaker 1: of we worked crazy expenses, expenses that seem to have 181 00:10:19,440 --> 00:10:23,280 Speaker 1: nothing to do with office space. And here's Jamie recounting 182 00:10:23,320 --> 00:10:26,200 Speaker 1: the time Adam told him about a recent we Work investment. 183 00:10:26,880 --> 00:10:30,000 Speaker 1: It was in a company called Wave Garden. Adam asked 184 00:10:30,040 --> 00:10:32,360 Speaker 1: Jamie if he'd ever heard of it. Jamie said no, 185 00:10:33,200 --> 00:10:35,200 Speaker 1: and so then he pulled out his phone and he 186 00:10:35,240 --> 00:10:38,320 Speaker 1: started playing this video he made some phrase about how 187 00:10:38,320 --> 00:10:42,559 Speaker 1: it makes waves, and I completely misunderstood what he meant. 188 00:10:42,720 --> 00:10:46,480 Speaker 1: I thought he was talking about some construction technology company 189 00:10:46,679 --> 00:10:49,520 Speaker 1: that metaphorically was making waves. It was doing big things 190 00:10:49,520 --> 00:10:52,720 Speaker 1: in its industry. But then the video just kept showing 191 00:10:52,760 --> 00:10:56,880 Speaker 1: people surfing, and at some point I was like, man, 192 00:10:56,920 --> 00:11:00,480 Speaker 1: they are really taking this like wave metaphor. Are really 193 00:11:00,559 --> 00:11:02,680 Speaker 1: far like that they have to explain what they do. 194 00:11:03,040 --> 00:11:04,679 Speaker 1: And then there was a moment where I was like, 195 00:11:04,880 --> 00:11:10,000 Speaker 1: oh my god, this isn't a metaphor. They literally make waves. 196 00:11:10,400 --> 00:11:14,480 Speaker 1: Why are they buying this company? Yep. We Work spent 197 00:11:14,559 --> 00:11:17,720 Speaker 1: thirteen million dollars to buy almost half of a wave 198 00:11:17,760 --> 00:11:21,920 Speaker 1: pool company. Later, we Work investor told me the rationale. 199 00:11:22,320 --> 00:11:24,720 Speaker 1: He said that we Work wanted to build huge corporate 200 00:11:24,720 --> 00:11:27,840 Speaker 1: campuses and put wave pools in them. But to Jamie 201 00:11:28,000 --> 00:11:31,520 Speaker 1: the investment was baffling. It's like when people become really 202 00:11:31,520 --> 00:11:33,520 Speaker 1: wealthy and all of a sudden they think that the 203 00:11:33,559 --> 00:11:35,840 Speaker 1: McDonald's near the house where they grew up is better 204 00:11:35,880 --> 00:11:37,760 Speaker 1: than the McDonald's in the city they currently live in, 205 00:11:37,800 --> 00:11:41,079 Speaker 1: and they have people fly the big Mac over from 206 00:11:41,120 --> 00:11:43,800 Speaker 1: their hometown McDonald There's something like, I don't know, I 207 00:11:43,840 --> 00:11:45,679 Speaker 1: guess that's what rich people do, and I guess that's 208 00:11:45,720 --> 00:11:48,640 Speaker 1: what rich companies do. We worked had so much money 209 00:11:48,760 --> 00:11:51,800 Speaker 1: they were literally giving it away. They launched a pitch 210 00:11:51,840 --> 00:11:55,520 Speaker 1: competition called the Creator Awards, where they handed out twenty 211 00:11:55,559 --> 00:12:01,600 Speaker 1: million dollars in prize money. Hello, Hello, Hello, welcome everyone, 212 00:12:01,760 --> 00:12:09,720 Speaker 1: Welcome to the eighteen Berlin Create Our Awards. Amazing entrepreneurs 213 00:12:09,800 --> 00:12:13,320 Speaker 1: pitched their startup ideas on stage to celebrity judges like 214 00:12:13,360 --> 00:12:16,880 Speaker 1: Ashton Kutcher and p Diddy. We were called the Creator 215 00:12:16,920 --> 00:12:20,880 Speaker 1: Awards marketing events to help spread the word about their offices. 216 00:12:21,600 --> 00:12:23,720 Speaker 1: They held them all over the world in places like 217 00:12:23,760 --> 00:12:27,880 Speaker 1: Tel Aviv, Austin, and Shanghai. When you do something that 218 00:12:28,000 --> 00:12:31,000 Speaker 1: comes from the heart, when you bring it together with intention, 219 00:12:31,320 --> 00:12:37,120 Speaker 1: magic happens. If you're a graphic designer and accountant and artists, 220 00:12:37,120 --> 00:12:40,400 Speaker 1: a singer, or anything in between. Euro creator and euro 221 00:12:40,520 --> 00:12:42,760 Speaker 1: creator and what does that mean? That means that we're 222 00:12:42,840 --> 00:12:46,840 Speaker 1: part of something greater than ourselves. And it wasn't just Adam. 223 00:12:47,000 --> 00:12:49,520 Speaker 1: Other execs also got caught up in the ability to 224 00:12:49,559 --> 00:12:53,520 Speaker 1: spend freely. Here's Carl Pierre, a community manager in d C. 225 00:12:54,360 --> 00:12:57,480 Speaker 1: He's describing how he was instructed one night to find 226 00:12:57,520 --> 00:13:00,800 Speaker 1: a last minute helicopter or private plane for an executive. 227 00:13:01,160 --> 00:13:04,520 Speaker 1: I had another we Work employee communicates me that an 228 00:13:04,520 --> 00:13:08,839 Speaker 1: executive needed transportation immediately, ideally helicopter from Washington, d C 229 00:13:09,000 --> 00:13:11,400 Speaker 1: O a jet to get back to New York City, 230 00:13:11,640 --> 00:13:14,640 Speaker 1: and no context, just told it was very important. I 231 00:13:14,720 --> 00:13:16,920 Speaker 1: was calling my friends who are staffers to see if 232 00:13:16,920 --> 00:13:20,559 Speaker 1: we could pay to borrow, uh, you know, a senator's 233 00:13:20,600 --> 00:13:22,640 Speaker 1: plane or something crazy. I was going through every channel 234 00:13:22,679 --> 00:13:24,960 Speaker 1: and it was nuts. At the end of the day, 235 00:13:25,200 --> 00:13:27,040 Speaker 1: it was almost like midnight, so I'm trying to find this. 236 00:13:27,400 --> 00:13:28,840 Speaker 1: I had a good lead on a on a on 237 00:13:28,880 --> 00:13:32,079 Speaker 1: a on a helicopter, and then uh, it turns out 238 00:13:32,679 --> 00:13:35,480 Speaker 1: that particular we Work executive just needed to get back 239 00:13:35,559 --> 00:13:38,440 Speaker 1: to a party in New York and that's the only 240 00:13:38,480 --> 00:13:41,920 Speaker 1: reason why he wanted to leave DC Again midnight, I 241 00:13:41,920 --> 00:13:43,480 Speaker 1: found a good lead and I was told like, oh, yeah, 242 00:13:43,520 --> 00:13:45,040 Speaker 1: you know, it looks like the party let's be over anyway, 243 00:13:45,120 --> 00:13:49,320 Speaker 1: So he's good. Yeah, nearly lost my mind. So Adams 244 00:13:49,400 --> 00:13:52,880 Speaker 1: executives were willing to spend money in frivolous ways, and 245 00:13:52,920 --> 00:13:55,720 Speaker 1: at the same time, Adam was stretching the truth about 246 00:13:55,720 --> 00:13:58,800 Speaker 1: the company's financial position. Here he is at an all 247 00:13:58,840 --> 00:14:02,160 Speaker 1: hands meeting in twenty six team telling employees that the 248 00:14:02,240 --> 00:14:05,959 Speaker 1: business was profitable when it really wasn't. As opposed to 249 00:14:06,000 --> 00:14:08,679 Speaker 1: other companies that you're reading about, we don't have any issues. 250 00:14:08,960 --> 00:14:10,719 Speaker 1: We don't need to raise any more money. We're in 251 00:14:10,760 --> 00:14:13,400 Speaker 1: an amazing place where the profitable business that's going to 252 00:14:13,440 --> 00:14:16,079 Speaker 1: only get better. That's going to help us fulfill our 253 00:14:16,200 --> 00:14:20,000 Speaker 1: calling and our mission. By shifting this culture, we're gonna 254 00:14:20,000 --> 00:14:22,120 Speaker 1: be able to not only keep doing these things, but 255 00:14:22,200 --> 00:14:26,040 Speaker 1: do them pen times better, move very strongly into positive 256 00:14:26,080 --> 00:14:28,640 Speaker 1: cash flow. No need to rely on raising money, now, 257 00:14:28,720 --> 00:14:30,840 Speaker 1: need to rely on going public, no need to rely 258 00:14:30,880 --> 00:14:34,480 Speaker 1: on anything except for ourselves and fulfill our mission farm members, 259 00:14:34,680 --> 00:14:36,160 Speaker 1: and we're going to do it, all of us together. 260 00:14:36,960 --> 00:14:40,160 Speaker 1: He says here they have a profitable business. I can't 261 00:14:40,160 --> 00:14:42,560 Speaker 1: tell if he's being sloppy or misleading when you're saying 262 00:14:42,600 --> 00:14:46,160 Speaker 1: that we now know that we Work was losing money. 263 00:14:46,680 --> 00:14:49,520 Speaker 1: In the tape, Adam is telling his employees that we 264 00:14:49,600 --> 00:14:52,120 Speaker 1: Work doesn't need to rely on raising money for the 265 00:14:52,160 --> 00:14:55,760 Speaker 1: business to keep growing, but in just a few months 266 00:14:56,120 --> 00:14:59,360 Speaker 1: he'll turn around and raise four point four billion dollars 267 00:14:59,480 --> 00:15:02,680 Speaker 1: from a fame as investor, and this decision will change 268 00:15:02,760 --> 00:15:06,360 Speaker 1: the entire course of we Works trajectory. All of the 269 00:15:06,360 --> 00:15:10,120 Speaker 1: company's impulses to do things that were more random, more grandiose, 270 00:15:10,200 --> 00:15:14,960 Speaker 1: more expensive, They're about to be unleashed. We'll be right back. 271 00:15:27,880 --> 00:15:30,200 Speaker 1: So before the break, we talked about how we Work 272 00:15:30,320 --> 00:15:33,080 Speaker 1: was about to raise money from a new investor, and 273 00:15:33,160 --> 00:15:35,760 Speaker 1: apart from Adam, this investor is one of the most 274 00:15:35,800 --> 00:15:39,960 Speaker 1: important people in the story of We Work, Masa Yoshi's son. 275 00:15:41,160 --> 00:15:44,080 Speaker 1: To explain who he is and why he's so important, 276 00:15:44,480 --> 00:15:47,400 Speaker 1: I want to introduce a colleague of mine, Sarah McBride. 277 00:15:48,080 --> 00:15:51,720 Speaker 1: Here's Sarah. I've been reporting on venture capital for the 278 00:15:51,760 --> 00:15:54,880 Speaker 1: past few years, so I'm spending a lot of time 279 00:15:54,960 --> 00:15:59,120 Speaker 1: on we Work's biggest backer, soft Bank, plus the guide 280 00:15:59,120 --> 00:16:02,680 Speaker 1: behind it. My Sayashi's son, but too many people. He's 281 00:16:02,760 --> 00:16:07,920 Speaker 1: just known as Massa, like share or Madonna. Massa is 282 00:16:07,960 --> 00:16:11,520 Speaker 1: a kingmaker in Silicon Valley, one of the most famous 283 00:16:11,560 --> 00:16:15,640 Speaker 1: investors in the world and one of the spendiest. He 284 00:16:15,720 --> 00:16:18,800 Speaker 1: founded soft Bank when he was only twenty four years old. 285 00:16:19,280 --> 00:16:24,000 Speaker 1: It's grown into a giant investment company in Japan. It's huge, 286 00:16:24,320 --> 00:16:28,400 Speaker 1: it's bigger than Sony or Honda. Even he uses his 287 00:16:28,480 --> 00:16:31,720 Speaker 1: money to make big bets on others. He's best known 288 00:16:31,760 --> 00:16:34,880 Speaker 1: for an investment he made in a Chinese internet company 289 00:16:34,960 --> 00:16:38,600 Speaker 1: called ali Baba. At the time he first invested back 290 00:16:38,640 --> 00:16:42,320 Speaker 1: in two thousand, Ali Baba was small. Nobody knew it 291 00:16:42,320 --> 00:16:46,000 Speaker 1: would take off the way it did. Ali Baba was 292 00:16:46,040 --> 00:16:49,440 Speaker 1: founded by a guy named Jack Ma. He built it 293 00:16:49,480 --> 00:16:52,760 Speaker 1: into kind of a souped up version of Amazon, tailored 294 00:16:52,800 --> 00:16:56,560 Speaker 1: for the Chinese market. Now, Ali Baba is one of 295 00:16:56,600 --> 00:17:00,680 Speaker 1: the most valuable companies anywhere. Jack Ma is an icon. 296 00:17:02,040 --> 00:17:06,400 Speaker 1: Here's what's so interesting. When Massa talks about his famous 297 00:17:06,440 --> 00:17:09,200 Speaker 1: big bet, about why he took a leap of faith 298 00:17:09,240 --> 00:17:12,840 Speaker 1: and invested in jack maa so early. He doesn't talk 299 00:17:12,880 --> 00:17:15,880 Speaker 1: about how smart jack Ma seemed, or how he'd come 300 00:17:15,960 --> 00:17:20,240 Speaker 1: up with an original business plan. He talks about his charm, 301 00:17:20,240 --> 00:17:24,800 Speaker 1: his ability to attract people to follow him. Well. He 302 00:17:24,920 --> 00:17:34,560 Speaker 1: had no business plan and zero revenue employees, maybe thirty 303 00:17:34,600 --> 00:17:40,880 Speaker 1: five for the employees. But his eyes was very strong, 304 00:17:41,320 --> 00:17:47,720 Speaker 1: strong eyes, strong shining eyes. Um I could tell from 305 00:17:47,840 --> 00:17:51,520 Speaker 1: the way he talked, the way he looked at he 306 00:17:51,600 --> 00:17:54,600 Speaker 1: has a klisma, he has a leadership. He can bring 307 00:17:55,640 --> 00:18:01,560 Speaker 1: you know young Chinese people following him. Now, if a 308 00:18:01,680 --> 00:18:05,440 Speaker 1: young entrepreneur catches Massa's eye, he likes to tell them 309 00:18:05,440 --> 00:18:08,600 Speaker 1: they remind him of Jack Ma, or that he thinks 310 00:18:08,600 --> 00:18:12,520 Speaker 1: they'll become the next Jack Ma. The entrepreneurs love it. 311 00:18:12,520 --> 00:18:15,800 Speaker 1: It's the biggest compliment he could give, and it worked 312 00:18:15,800 --> 00:18:19,920 Speaker 1: with Adam Newman too. In fact, Adam told Fast Company 313 00:18:19,960 --> 00:18:24,080 Speaker 1: magazine that he reminded Massa of Jack Ma. In two 314 00:18:24,119 --> 00:18:28,000 Speaker 1: thousand seventeen, Soft Bank announced an investment fund that would 315 00:18:28,040 --> 00:18:31,679 Speaker 1: be one hundred billion dollars. It was a huge amount 316 00:18:31,680 --> 00:18:36,280 Speaker 1: of money, way way bigger than any venture fund, and 317 00:18:36,320 --> 00:18:40,119 Speaker 1: when Massa began investing this money, it actually changed the 318 00:18:40,160 --> 00:18:45,200 Speaker 1: way Silicon Valley works. In the old days, successful startups 319 00:18:45,240 --> 00:18:48,400 Speaker 1: could count on raising tens of millions of dollars depending 320 00:18:48,400 --> 00:18:52,600 Speaker 1: on how they were doing. Now, venture capitalists were competing 321 00:18:52,640 --> 00:18:55,919 Speaker 1: with soft Bank to invest in the best companies, so 322 00:18:56,040 --> 00:19:01,600 Speaker 1: money started flying around hundreds of millions, sometimes even billions 323 00:19:01,680 --> 00:19:05,760 Speaker 1: of dollars to one startup. And that's exactly what happened 324 00:19:05,760 --> 00:19:10,159 Speaker 1: to we work. The story itself is pretty crazy. Massa 325 00:19:10,240 --> 00:19:13,160 Speaker 1: had a meeting with Adam. He told Adam he would 326 00:19:13,240 --> 00:19:16,840 Speaker 1: spend two hours that we Work, but when he showed up, 327 00:19:17,160 --> 00:19:20,399 Speaker 1: he said he had only twelve minutes. When it was 328 00:19:20,480 --> 00:19:23,080 Speaker 1: time to go, he invited Adam to jump into the 329 00:19:23,119 --> 00:19:26,280 Speaker 1: car with him. Adam pulled out his pitch deck because 330 00:19:26,280 --> 00:19:30,199 Speaker 1: he wanted a big investment from SoftBank. Massa told him 331 00:19:30,240 --> 00:19:33,280 Speaker 1: to put it away and took out an iPad. He 332 00:19:33,400 --> 00:19:37,359 Speaker 1: drafted a rough investment agreement between them. They both signed 333 00:19:37,400 --> 00:19:41,480 Speaker 1: then and there. That was late two thousand and sixteen. 334 00:19:42,119 --> 00:19:44,879 Speaker 1: Adam still had a photo of the contract on his 335 00:19:44,960 --> 00:19:48,520 Speaker 1: phone months later and showed it to a reporter from Forbes. 336 00:19:49,160 --> 00:19:52,400 Speaker 1: He said it gave him goose bumps. Adam ended up 337 00:19:52,440 --> 00:19:55,920 Speaker 1: getting a four point four billion dollar investment from soft 338 00:19:55,960 --> 00:19:59,480 Speaker 1: Bank the next year, with more to come. Here's Adam 339 00:19:59,520 --> 00:20:02,720 Speaker 1: on seeing BC. It's a real partnership and I think 340 00:20:02,720 --> 00:20:04,280 Speaker 1: the longer we know each other, the more we can 341 00:20:04,280 --> 00:20:06,720 Speaker 1: build it to Massa is one of the most visionary 342 00:20:06,720 --> 00:20:09,280 Speaker 1: investors in the world. He I don't know if you 343 00:20:09,320 --> 00:20:11,480 Speaker 1: know the story, but his initial decision to invest in 344 00:20:11,520 --> 00:20:14,800 Speaker 1: We Work took approximately twenty eight minutes, including when he 345 00:20:14,880 --> 00:20:18,800 Speaker 1: got in left and drove in the car. Startup founders 346 00:20:18,800 --> 00:20:21,040 Speaker 1: who work with Massa say he loves it when you 347 00:20:21,080 --> 00:20:24,320 Speaker 1: think really big, he asks what you could do if 348 00:20:24,359 --> 00:20:27,040 Speaker 1: you had several times more money than you're trying to raise, 349 00:20:27,560 --> 00:20:30,800 Speaker 1: if funding was no limit. Then he gives you that 350 00:20:30,880 --> 00:20:35,040 Speaker 1: cash and expects you to deliver. And the crazier you are, 351 00:20:35,119 --> 00:20:37,879 Speaker 1: the better. He told me that if two equally smart 352 00:20:38,040 --> 00:20:42,359 Speaker 1: entrepreneurs are duking it out, but one's also a little crazy, 353 00:20:42,840 --> 00:20:46,960 Speaker 1: the crazy one will win every time. He even described 354 00:20:47,000 --> 00:20:51,560 Speaker 1: what he called an animal smell between himself and other entrepreneurs. 355 00:20:52,200 --> 00:20:55,680 Speaker 1: They can smell it, and he can smell it. It's primal, 356 00:20:56,480 --> 00:21:00,000 Speaker 1: and it seems like Massa felt this connection with Adam. 357 00:21:00,080 --> 00:21:03,600 Speaker 1: He kept showering money on We Work, but within soft 358 00:21:03,640 --> 00:21:07,680 Speaker 1: Bank it was a really controversial investment. Some of Massa's 359 00:21:07,680 --> 00:21:10,760 Speaker 1: lieutenants that they were putting too much money into We Work, 360 00:21:11,240 --> 00:21:15,600 Speaker 1: and so did some of his investors, that Massa ignored them. 361 00:21:15,640 --> 00:21:18,920 Speaker 1: He found ways to keep writing we Work checks. That's 362 00:21:18,960 --> 00:21:21,920 Speaker 1: because he believed that in the future, more and more 363 00:21:22,000 --> 00:21:26,119 Speaker 1: people would move to coworking exactly We Works business model, 364 00:21:26,800 --> 00:21:35,960 Speaker 1: and he really believed in Adam. So Massa basically gives 365 00:21:35,960 --> 00:21:38,600 Speaker 1: Adam as much money as you could spend, and Adam 366 00:21:38,640 --> 00:21:41,159 Speaker 1: starts spending and he doesn't have to be that careful 367 00:21:41,280 --> 00:21:44,119 Speaker 1: because there's so much of it. If you talk to 368 00:21:44,160 --> 00:21:46,639 Speaker 1: people inside We Work, many of them will say that 369 00:21:46,680 --> 00:21:49,960 Speaker 1: the Soft Bank investment was this turning point. We Work 370 00:21:50,000 --> 00:21:54,400 Speaker 1: had always been kind of freewheeling, somewhat cookie with lofty ambitions, 371 00:21:55,000 --> 00:21:57,520 Speaker 1: but after Massa wrote Adam a blank check and told 372 00:21:57,560 --> 00:22:00,440 Speaker 1: him to be crazier, it felt like every in got 373 00:22:00,440 --> 00:22:04,880 Speaker 1: dialed up. We Work already had one side business, we Live, 374 00:22:05,520 --> 00:22:08,439 Speaker 1: but it started branching out even more. It started a 375 00:22:08,480 --> 00:22:12,119 Speaker 1: fitness boutique called Rise by We, and then there was 376 00:22:12,440 --> 00:22:16,240 Speaker 1: We Grow. It's an elementary school. Rebecca and Adam have 377 00:22:16,320 --> 00:22:19,960 Speaker 1: five young children together. Rebecca said in interviews that she 378 00:22:20,000 --> 00:22:22,560 Speaker 1: couldn't find a school in Manhattan that was good enough 379 00:22:22,600 --> 00:22:26,520 Speaker 1: for her oldest daughter, so they made their own. Here's 380 00:22:26,520 --> 00:22:29,600 Speaker 1: Rebecca describing We Grow on a podcast called The School 381 00:22:29,640 --> 00:22:32,960 Speaker 1: of Greatness. Once a week they get all local farms 382 00:22:33,000 --> 00:22:35,120 Speaker 1: out they do. They spend one full day a week 383 00:22:35,160 --> 00:22:38,960 Speaker 1: in nature, farming and just running and being and you know, 384 00:22:39,080 --> 00:22:42,080 Speaker 1: meditating in nature like farm animals too, or is it 385 00:22:42,160 --> 00:22:43,960 Speaker 1: just kind of there will be animals There are not 386 00:22:44,040 --> 00:22:47,760 Speaker 1: currently um but they plant seeds, they harvest their crops, 387 00:22:47,920 --> 00:22:49,720 Speaker 1: they bring them back to the city, they run a 388 00:22:49,720 --> 00:22:51,960 Speaker 1: farm stand at We Work, and then they donate all 389 00:22:51,960 --> 00:22:54,360 Speaker 1: of the proceeds to a nonprofit that they are actually 390 00:22:54,359 --> 00:22:58,520 Speaker 1: personally involved in and invested in. She sounds like she 391 00:22:58,600 --> 00:23:02,480 Speaker 1: has a very specific vision for the school. Tuition that 392 00:23:02,600 --> 00:23:06,159 Speaker 1: We Grow costs forty two dollars a year. The interior 393 00:23:06,280 --> 00:23:10,159 Speaker 1: was designed by celebrity architect. We Work came up with 394 00:23:10,200 --> 00:23:12,520 Speaker 1: a way to explain why it was running a school. 395 00:23:13,080 --> 00:23:17,760 Speaker 1: It said the school's mission was to unleash every human superpowers. 396 00:23:18,359 --> 00:23:21,199 Speaker 1: It kind of connects to We Worked brand. But I 397 00:23:21,200 --> 00:23:24,920 Speaker 1: spoke to one employee, Stephen Green. He remembers Adam being 398 00:23:25,040 --> 00:23:27,560 Speaker 1: a bit more blunt in a speech at a company 399 00:23:27,560 --> 00:23:31,840 Speaker 1: off site explaining why they started We Grow. So Adam 400 00:23:31,880 --> 00:23:35,080 Speaker 1: explained that Rebecca had a dream the night before and 401 00:23:35,160 --> 00:23:39,200 Speaker 1: in that dream, We Work had a school. The next morning, 402 00:23:39,520 --> 00:23:42,800 Speaker 1: Rebecca told him about the dream, and he said, Okay, 403 00:23:42,840 --> 00:23:46,320 Speaker 1: we're gonna start school. No marketing analysis, you know, No, 404 00:23:46,520 --> 00:23:50,000 Speaker 1: We're gonna do some some test groups. And that was 405 00:23:50,200 --> 00:23:53,000 Speaker 1: simple as that. So on the one hand, you have 406 00:23:53,119 --> 00:23:56,800 Speaker 1: We Worked, the company branching out into seemingly unrelated businesses. 407 00:23:57,600 --> 00:24:01,200 Speaker 1: But then there's also Adam's personal extravagance. Says we Worked 408 00:24:01,200 --> 00:24:03,960 Speaker 1: bought a private jet for sixty million dollars. It was 409 00:24:04,000 --> 00:24:06,680 Speaker 1: the top of the line gulf Stream G six fifty. 410 00:24:06,720 --> 00:24:09,119 Speaker 1: Adam took it for business and also on trips to 411 00:24:09,160 --> 00:24:13,240 Speaker 1: Costa Rica and Hawaii, sometimes to go surfing. At summer camp, 412 00:24:13,359 --> 00:24:17,480 Speaker 1: employees stayed in tents, but one ex employee described Adam's 413 00:24:17,520 --> 00:24:20,560 Speaker 1: summer camp lodging as a huge compound up on the 414 00:24:20,640 --> 00:24:24,119 Speaker 1: hill visible from the valley below. In his office and 415 00:24:24,160 --> 00:24:27,639 Speaker 1: we Works headquarters, Adam added a secret back room that 416 00:24:27,720 --> 00:24:30,639 Speaker 1: had a sauna and an ice bath. It became a 417 00:24:30,680 --> 00:24:33,280 Speaker 1: piece of lore within the office. I never got to 418 00:24:33,280 --> 00:24:35,639 Speaker 1: see it in person, but an ex employee showed me 419 00:24:35,680 --> 00:24:39,359 Speaker 1: photos once. The tub had a neon lightning bolt hanging 420 00:24:39,400 --> 00:24:42,560 Speaker 1: over it, and I also heard a funny story. Someone 421 00:24:42,640 --> 00:24:45,280 Speaker 1: told me the ice bath messed with the water pressure 422 00:24:45,320 --> 00:24:48,560 Speaker 1: in the building so much that whenever Adam ran the bath, 423 00:24:49,119 --> 00:24:54,919 Speaker 1: the office espresso machine stopped working. Meanwhile, we Work kept investing. 424 00:24:55,359 --> 00:24:58,520 Speaker 1: They acquired a marketing s c O company, a coding school. 425 00:24:58,920 --> 00:25:01,119 Speaker 1: They invested in a super foods company run by a 426 00:25:01,160 --> 00:25:06,120 Speaker 1: pro surfer whom Adam admired and befriended. One former executive 427 00:25:06,160 --> 00:25:08,639 Speaker 1: said that at the time, We Work wanted to compare 428 00:25:08,640 --> 00:25:12,840 Speaker 1: itself to Amazon, another company that expanded into seemingly disconnected 429 00:25:12,840 --> 00:25:16,040 Speaker 1: business areas and didn't turn much of a profit. This 430 00:25:16,080 --> 00:25:18,720 Speaker 1: person didn't want to be named, so here's someone reading 431 00:25:18,760 --> 00:25:21,399 Speaker 1: what they told me. But of course Adam didn't know 432 00:25:21,440 --> 00:25:23,439 Speaker 1: what to do with the school, He didn't know what 433 00:25:23,480 --> 00:25:25,240 Speaker 1: to do with the gym, He didn't know what to 434 00:25:25,240 --> 00:25:28,800 Speaker 1: do with residential things. We were buying companies for fun. 435 00:25:29,440 --> 00:25:32,280 Speaker 1: It was just too much. Adam's focus seemed to go 436 00:25:32,400 --> 00:25:36,160 Speaker 1: further and further Afield get pulled in different directions. As 437 00:25:36,160 --> 00:25:39,119 Speaker 1: a manager of business, you get, given that amount of money, 438 00:25:39,359 --> 00:25:43,280 Speaker 1: you can afford to dream very very big. After the 439 00:25:43,320 --> 00:25:47,160 Speaker 1: soft Bank investment in it seemed like Adam and Rebecca 440 00:25:47,200 --> 00:25:51,600 Speaker 1: were deciding company policies based on their personal whims, like 441 00:25:51,680 --> 00:25:54,919 Speaker 1: We Worked infamous meat ban. Sources told me that when 442 00:25:55,000 --> 00:25:57,920 Speaker 1: Rebecca and Adam announced their employees that we Work would 443 00:25:57,920 --> 00:26:01,000 Speaker 1: stop serving meat, it came as a surprise to the 444 00:26:01,000 --> 00:26:04,800 Speaker 1: other company executives. Remember this affects thousands of we Were 445 00:26:04,880 --> 00:26:09,719 Speaker 1: employees and members worldwide. The communications team had to quickly 446 00:26:09,840 --> 00:26:12,520 Speaker 1: scramble to figure out a way to frame the decision 447 00:26:12,600 --> 00:26:15,960 Speaker 1: to the public. They landed on an argument for sustainability, 448 00:26:16,400 --> 00:26:19,240 Speaker 1: and they said the idea came from Miguel McKelvey, the 449 00:26:19,320 --> 00:26:23,119 Speaker 1: other co founder. Here's a clip from CBS. We were 450 00:26:23,400 --> 00:26:26,840 Speaker 1: just released a memo to its six thousand employees saying 451 00:26:26,880 --> 00:26:30,120 Speaker 1: it won't pay for any meals that include red meat, poultry, 452 00:26:30,200 --> 00:26:33,639 Speaker 1: or pork. According to Bloomberg, the company's co founder and 453 00:26:33,640 --> 00:26:37,560 Speaker 1: Miguel mkelby said in the company memo, new research indicates 454 00:26:37,600 --> 00:26:40,080 Speaker 1: that avoiding meat is one of the biggest things an 455 00:26:40,080 --> 00:26:44,240 Speaker 1: individual can do to reduce their personal environmental impact, even 456 00:26:44,280 --> 00:26:48,560 Speaker 1: more than switching to a hybrid car. Just asn't aside here. 457 00:26:48,920 --> 00:26:51,640 Speaker 1: When most companies make a decision of this scale, they 458 00:26:51,680 --> 00:26:54,960 Speaker 1: spend months deliberating over it. But my sources told me 459 00:26:55,040 --> 00:26:58,360 Speaker 1: that this change happened with barely any warning and basically 460 00:26:58,400 --> 00:27:01,680 Speaker 1: no business rationale. It almost feels like something you do 461 00:27:01,760 --> 00:27:04,840 Speaker 1: if you wanted the company to be a reflection of yourself, 462 00:27:06,040 --> 00:27:09,520 Speaker 1: and the company kept making other important decisions for seemingly 463 00:27:09,600 --> 00:27:14,520 Speaker 1: personal reason. We work decided to raise money from bond investors. 464 00:27:15,080 --> 00:27:18,000 Speaker 1: They initially said they wanted to raise five hundred million dollars, 465 00:27:18,440 --> 00:27:20,760 Speaker 1: but at the last minute they switched to seven and 466 00:27:20,760 --> 00:27:24,080 Speaker 1: two million dollars. That's weird. I remember thinking at the 467 00:27:24,080 --> 00:27:27,080 Speaker 1: time seven o two seemed like such a random number 468 00:27:27,080 --> 00:27:30,920 Speaker 1: to pick. I asked, we worked why, and was only 469 00:27:30,960 --> 00:27:32,720 Speaker 1: able to find out that seven O two was a 470 00:27:32,800 --> 00:27:36,040 Speaker 1: lucky number for the company. That's a surprising rationale for 471 00:27:36,040 --> 00:27:38,639 Speaker 1: such a big decision how much debt a company should 472 00:27:38,640 --> 00:27:42,080 Speaker 1: take on. Later I found out why the number was lucky. 473 00:27:42,600 --> 00:27:44,520 Speaker 1: Seven O two is what you get when you multiply 474 00:27:44,640 --> 00:27:48,880 Speaker 1: two numbers eighteen and thirty nine. Eighteen is a good 475 00:27:48,960 --> 00:27:51,600 Speaker 1: luck number in Judaism. And the day of the bonds 476 00:27:51,640 --> 00:27:59,440 Speaker 1: were sold it was Adam's birthday. He was turning thirty nine. Now, 477 00:27:59,480 --> 00:28:01,879 Speaker 1: I want to take a huge step back, a two 478 00:28:01,960 --> 00:28:04,760 Speaker 1: year step back, and play for you some tape that 479 00:28:04,840 --> 00:28:08,160 Speaker 1: really knocked me off my feet when I first heard it. 480 00:28:08,160 --> 00:28:11,879 Speaker 1: It's from back in when we work was growing pretty quickly, 481 00:28:12,240 --> 00:28:16,280 Speaker 1: but still before things really got amplified by soft banks billions. 482 00:28:17,000 --> 00:28:19,880 Speaker 1: Here's Adam talking at an all hands meeting, and he's 483 00:28:19,920 --> 00:28:22,280 Speaker 1: trying to make an important point to his employees about 484 00:28:22,280 --> 00:28:25,439 Speaker 1: the way we work spend money. What he's saying casts 485 00:28:25,480 --> 00:28:28,399 Speaker 1: a really unexpected light on everything you've heard in the 486 00:28:28,440 --> 00:28:32,200 Speaker 1: episode up until now. Now, if you think this company, 487 00:28:32,520 --> 00:28:34,399 Speaker 1: I would say big, but has a little bit of 488 00:28:34,440 --> 00:28:40,120 Speaker 1: a spending culture, raise your hand. I think so it does. 489 00:28:40,200 --> 00:28:41,840 Speaker 1: It does for those of you don't know it does. 490 00:28:41,960 --> 00:28:45,200 Speaker 1: It definitely does have a spending culture. We didn't used 491 00:28:45,200 --> 00:28:47,560 Speaker 1: to be this way. We did not used to be 492 00:28:47,640 --> 00:28:50,560 Speaker 1: this way. We used to fight for every dollar. We 493 00:28:50,720 --> 00:28:54,120 Speaker 1: did not spend. We never outsourced. We first tried to 494 00:28:54,160 --> 00:28:56,760 Speaker 1: solve a problem internally and then went to the outside 495 00:28:56,800 --> 00:28:58,720 Speaker 1: well said hey, we can pay you to bring and 496 00:28:58,800 --> 00:29:00,760 Speaker 1: sometimes it worked in something as it didn't. But we 497 00:29:00,760 --> 00:29:04,360 Speaker 1: were really good at watching our cash. He was saying 498 00:29:04,400 --> 00:29:06,680 Speaker 1: that we work even though it has all this money 499 00:29:06,680 --> 00:29:09,920 Speaker 1: available to spend, was being way too careless with it. 500 00:29:10,440 --> 00:29:14,520 Speaker 1: They were spending all over the place without purpose. We've 501 00:29:14,560 --> 00:29:18,560 Speaker 1: spent this whole episode describing how flashy and indulgent Adam became, 502 00:29:19,000 --> 00:29:22,720 Speaker 1: especially after soft Bank's investment. But here he is two 503 00:29:22,800 --> 00:29:27,160 Speaker 1: years earlier, cautioning his employees to be conservative. He told 504 00:29:27,200 --> 00:29:28,840 Speaker 1: them they were spending too much and that it was 505 00:29:28,880 --> 00:29:31,719 Speaker 1: going to hurt their profits. He lectured them about how 506 00:29:31,720 --> 00:29:35,280 Speaker 1: they should be managing the nickel. That meant noticing every 507 00:29:35,320 --> 00:29:38,160 Speaker 1: time the company was wasting money, even on small things. 508 00:29:38,760 --> 00:29:41,200 Speaker 1: As an example, he talked about a breakfast spread they 509 00:29:41,280 --> 00:29:44,640 Speaker 1: ordered every Monday for an executive meeting. In the money. 510 00:29:44,720 --> 00:29:48,520 Speaker 1: We would get breakfast, some salmon, some eggs, some bagels, 511 00:29:48,520 --> 00:29:51,840 Speaker 1: some yogurt. And we've done this for a year, We've 512 00:29:51,880 --> 00:29:54,000 Speaker 1: done some maybe for two years, and truth is not 513 00:29:54,080 --> 00:29:56,400 Speaker 1: a lot of no one was really eating it. Adam 514 00:29:56,520 --> 00:29:59,040 Speaker 1: estimated that the company was saving three dollars a week 515 00:29:59,280 --> 00:30:01,960 Speaker 1: by cutting this breakfast, and he used it as an 516 00:30:01,960 --> 00:30:04,440 Speaker 1: example for his employees to look for other places to 517 00:30:04,480 --> 00:30:08,920 Speaker 1: cut costs, even small ones. For example, how many times 518 00:30:09,000 --> 00:30:11,000 Speaker 1: if you left this room and the lights were on? 519 00:30:11,600 --> 00:30:13,880 Speaker 1: How many times every time? When I've left this room 520 00:30:13,880 --> 00:30:15,400 Speaker 1: and I left this room a lot of times at 521 00:30:15,400 --> 00:30:17,960 Speaker 1: two am? How many times have you seen our buildings 522 00:30:18,200 --> 00:30:20,600 Speaker 1: with their lights on at two am? Every time? And 523 00:30:20,600 --> 00:30:22,520 Speaker 1: I love going through our buildings at to am. I 524 00:30:22,560 --> 00:30:25,840 Speaker 1: was just in two buildings last week, and I want 525 00:30:25,840 --> 00:30:28,080 Speaker 1: to hear from you. I want to start receiving notes. 526 00:30:28,400 --> 00:30:30,600 Speaker 1: Lights are on the two o'clock. This is wasting money, 527 00:30:30,640 --> 00:30:32,680 Speaker 1: This is wasting money. This is not smart. I don't 528 00:30:32,720 --> 00:30:35,520 Speaker 1: accept this. This is my company. I have equity here. 529 00:30:35,560 --> 00:30:37,400 Speaker 1: I don't want to be wasteful. I don't want to 530 00:30:37,400 --> 00:30:40,800 Speaker 1: be wasteful. So because we can do great things with 531 00:30:40,840 --> 00:30:44,480 Speaker 1: the money. Who is this, Adam Newman? How do you 532 00:30:44,480 --> 00:30:47,680 Speaker 1: reconcile the atom of who's trying to save on the 533 00:30:47,720 --> 00:30:50,920 Speaker 1: electricity built with the atom who's flying on a sixty 534 00:30:50,920 --> 00:30:54,400 Speaker 1: million dollar private jet. What's striking to me is his 535 00:30:54,480 --> 00:30:57,920 Speaker 1: awareness of we works out of control spending. He knew 536 00:30:58,000 --> 00:30:59,960 Speaker 1: that it could hurt the company in the long run. 537 00:31:00,760 --> 00:31:03,920 Speaker 1: So did he just forget his own warning or did 538 00:31:03,920 --> 00:31:07,720 Speaker 1: he not believe his own message. If we can't ensure 539 00:31:07,800 --> 00:31:10,360 Speaker 1: as a minimum to bring in more than we spend, 540 00:31:10,360 --> 00:31:12,560 Speaker 1: that's an easy one. Everybody knows that bring in more 541 00:31:12,600 --> 00:31:17,280 Speaker 1: than you spend, then all the dreams and all the 542 00:31:17,360 --> 00:31:20,440 Speaker 1: hopes and everything we're all sitting on is not gonna 543 00:31:20,480 --> 00:31:23,560 Speaker 1: work as well as we thought. The only thing that 544 00:31:23,640 --> 00:31:26,080 Speaker 1: can ruin this is if we don't get serious about 545 00:31:26,080 --> 00:31:30,160 Speaker 1: controlling our bottom line, controlling our expenses, getting very focused 546 00:31:30,200 --> 00:31:32,800 Speaker 1: and getting very clear. And he's saying that this is 547 00:31:32,840 --> 00:31:35,720 Speaker 1: their only chance. They can't mess it up, and the 548 00:31:35,840 --> 00:31:38,320 Speaker 1: universe does not allow waste. So if we show the 549 00:31:38,400 --> 00:31:41,120 Speaker 1: universe for too long that we're wasteful. It will come 550 00:31:41,200 --> 00:31:43,680 Speaker 1: back at us ten times fall. Because that's how, at 551 00:31:43,760 --> 00:31:46,520 Speaker 1: least how I believe the world works, and that's my 552 00:31:46,600 --> 00:31:50,880 Speaker 1: experience of how the world works. When I think of us, 553 00:31:51,440 --> 00:31:54,880 Speaker 1: the only thing that scares me is that in ten years, 554 00:31:55,360 --> 00:31:59,040 Speaker 1: when we look back, we will say that we missed 555 00:31:59,240 --> 00:32:02,480 Speaker 1: the opportunity, that we did not take this thing to 556 00:32:02,600 --> 00:32:06,160 Speaker 1: the full strength that we can take it. This tape 557 00:32:06,200 --> 00:32:09,440 Speaker 1: is a really surprising glimpse into Adam's mind and how 558 00:32:09,480 --> 00:32:12,200 Speaker 1: it seems like he changed over the years. At We Work. 559 00:32:12,880 --> 00:32:17,120 Speaker 1: Back in he showed some pretty traditional business sense, but 560 00:32:18,680 --> 00:32:22,080 Speaker 1: he seemed to have thrown it out the window. Massa 561 00:32:22,160 --> 00:32:24,840 Speaker 1: once said that the crazy man will always win in 562 00:32:24,840 --> 00:32:27,520 Speaker 1: a fight against the smart man, and it seems that 563 00:32:27,560 --> 00:32:30,680 Speaker 1: Adam became the crazy man that Massa wanted him to be. 564 00:32:32,040 --> 00:32:34,160 Speaker 1: We know now that in the ten years since We 565 00:32:34,240 --> 00:32:38,320 Speaker 1: Work was founded, it almost never turned a profit. In fact, 566 00:32:38,440 --> 00:32:41,000 Speaker 1: in the years after Adam warned his company that they 567 00:32:41,000 --> 00:32:44,520 Speaker 1: have to stop this spending culture, They're spending culture only 568 00:32:44,560 --> 00:32:48,360 Speaker 1: got spendier and it will keep getting huge. It will 569 00:32:48,400 --> 00:32:52,160 Speaker 1: become so extravagant, so head scratching that we work will 570 00:32:52,160 --> 00:32:55,360 Speaker 1: become a symbol of start up excess of CEOs given 571 00:32:55,400 --> 00:32:58,680 Speaker 1: too much permission. Here's a part of his speech that 572 00:32:58,720 --> 00:33:02,640 Speaker 1: I found particularly unting. He's talking about other high valuation 573 00:33:02,720 --> 00:33:05,840 Speaker 1: companies that had raised billions of dollars and then wasted 574 00:33:05,880 --> 00:33:09,480 Speaker 1: the money. He's using them as a cautionary tale. I 575 00:33:09,560 --> 00:33:11,280 Speaker 1: know if you guys are reading or not reading, But 576 00:33:11,360 --> 00:33:13,280 Speaker 1: a lot of our peers who I never actually thought 577 00:33:13,280 --> 00:33:16,280 Speaker 1: were our peers, but companies with high valuations who raised 578 00:33:16,280 --> 00:33:18,400 Speaker 1: a lot of money. Some of them been closing down. 579 00:33:18,440 --> 00:33:21,240 Speaker 1: A lot of them have been firing ten to their employees. 580 00:33:21,320 --> 00:33:23,640 Speaker 1: I can promise you one thing about all of them. 581 00:33:24,000 --> 00:33:29,360 Speaker 1: They all had a spending culture. And that spending culture 582 00:33:29,440 --> 00:33:32,080 Speaker 1: led to lack of processes, lack of control, and at 583 00:33:32,080 --> 00:33:33,840 Speaker 1: the end of the day, lack of money. And when 584 00:33:33,920 --> 00:33:35,840 Speaker 1: lack of money comes and the world goes up, that's 585 00:33:35,840 --> 00:33:37,920 Speaker 1: not a problem. But right now the words doing this, 586 00:33:38,040 --> 00:33:40,480 Speaker 1: or maybe it's even doing this, well, that's a different story. 587 00:33:40,720 --> 00:33:42,480 Speaker 1: There are a lot of employees they're now that thought 588 00:33:42,480 --> 00:33:44,360 Speaker 1: the equity there was worth one price, and now they're 589 00:33:44,360 --> 00:33:46,320 Speaker 1: being told it's worth another. And now they're doing it 590 00:33:46,320 --> 00:33:47,880 Speaker 1: down round then let me tell you they're gonna do 591 00:33:48,000 --> 00:33:50,360 Speaker 1: three more if they're even gonna stay in business, and 592 00:33:50,360 --> 00:33:54,240 Speaker 1: it's gonna be very difficult. The secret is to take 593 00:33:54,240 --> 00:34:00,480 Speaker 1: care of it before it becomes a problem. Layoffs down 594 00:34:00,600 --> 00:34:03,760 Speaker 1: rounds employees thinking that their equity was worth a lot 595 00:34:03,800 --> 00:34:07,120 Speaker 1: one day, only to find it's worth very little the next. 596 00:34:07,760 --> 00:34:09,880 Speaker 1: You could play this tape today and say it was 597 00:34:09,920 --> 00:34:14,120 Speaker 1: about we Work, and it would all be true. Adam 598 00:34:14,239 --> 00:34:17,319 Speaker 1: was definitely right for what it's worth. We Work did 599 00:34:17,400 --> 00:34:21,680 Speaker 1: have a spending culture when he was warning against it, 600 00:34:21,680 --> 00:34:25,160 Speaker 1: it was already in full force. Over the next few years, 601 00:34:25,440 --> 00:34:29,600 Speaker 1: that spending culture would get more extreme, and all of 602 00:34:29,640 --> 00:34:32,960 Speaker 1: these disastrous things that Adam is telling his employees are 603 00:34:32,960 --> 00:34:35,839 Speaker 1: happening to their peers. They're about to hit WE Work 604 00:34:35,880 --> 00:34:39,200 Speaker 1: in the face very soon. It was like he predicted 605 00:34:39,239 --> 00:34:43,640 Speaker 1: it years before his company spirals out of control. That's 606 00:34:43,719 --> 00:34:57,360 Speaker 1: next time on Foundering. Foundering is hosted by me Ellen Hewitt. 607 00:34:57,880 --> 00:35:01,080 Speaker 1: Sean When is our executive producer. My Aquava is our 608 00:35:01,080 --> 00:35:05,120 Speaker 1: associate producer. Ray Mondo mixed the show today special thanks 609 00:35:05,120 --> 00:35:09,040 Speaker 1: to Sarah McBride, Mike Held and Tucker, Joseph, Mark Million, 610 00:35:09,200 --> 00:35:12,880 Speaker 1: and Bandermain and Alistair Barr are our story editors. Francesca 611 00:35:12,960 --> 00:35:15,719 Speaker 1: Levi is the head of Bloomberg Podcasts. Be sure to 612 00:35:15,760 --> 00:35:18,200 Speaker 1: subscribe and if you like our show, leave a review. 613 00:35:18,800 --> 00:35:21,759 Speaker 1: Most importantly, tell your friends see you next time.