Speaker 1: We're gonna start this episode with a threat. The threat
Speaker 1: comes from Adam Newman, the CEO of We Work, and
Speaker 1: he was talking to Jamie Hodari, a guy who runs
Speaker 1: a smaller rival coworking space called Industrious. The two CEOs
Speaker 1: were considering doing a deal together. This was in and
Speaker 1: to talk it out, Adam invited Jamie to spend the
Speaker 1: day with him. They were going to fly to Atlanta
Speaker 1: to tour each other's offices, and Adam wanted to fly
Speaker 1: Jamie out on a private jet. I got the calendar
Speaker 1: invite from his assistant, and the plane was leaving from
Speaker 1: the Hampton's and I explained that I don't live in
Speaker 1: the Hampton's. I live very far from the Hamptons in
Speaker 1: in Brooklyn, and I was just going to fly down
Speaker 1: commercially and meet them there and we'd still have the
Speaker 1: whole day in Atlanta. And and she explained that Mr
Speaker 1: Newman insists that you come out, So I had to
Speaker 1: take a like two hour ruber ride or something, you know,
Speaker 1: to get to this six am takeoff. And that definitely
Speaker 1: felt like a bit of a flex. So they're on
Speaker 1: this private jet and at one point Adam pulled Jamie
Speaker 1: aside for a private conversation maybe an hour in he
Speaker 1: asked to sort of sit away from everyone else and
Speaker 1: talk one on one, and he said, look, I respect
Speaker 1: what you guys do. I think you seem like a
Speaker 1: good guy, and as a result, I want to give
Speaker 1: you a heads up that you know if if coming
Speaker 1: out of the next few weeks things don't go the
Speaker 1: way we work, would like them too, I think, he said,
Speaker 1: you know, I have two hundred people waiting for a
Speaker 1: push of a button for me, and their job is
Speaker 1: going to be to bury your business. And what that
Speaker 1: will mean is that we're going to give all of
Speaker 1: your customers a year free, and the ones that don't leave,
Speaker 1: we'll give two years free, and the ones that don't leave,
Speaker 1: we'll give three years free. Until you don't have a
Speaker 1: single customer left, and you will have lost the business
Speaker 1: that you spent the last five years building. Uh. That's intense.
Speaker 1: Jamie didn't know what to think. He says. He felt
Speaker 1: a little scared, but he didn't know how seriously to
Speaker 1: take this threat because what Adam was describing would have
Speaker 1: been such an expensive move. In short, I didn't really
Speaker 1: believe him because what he described again would would mean,
Speaker 1: they were almost by definition, losing a lot of money
Speaker 1: on those customers. He said, well, you know you should
Speaker 1: believe me, and and you're going to see that I'm
Speaker 1: not bluffing. You're listening to Foundering. I'm your host, Ellen Hewitt,
Speaker 1: and this week we're talking about money. How We Work
Speaker 1: was able to raise money and some of the surprising
Speaker 1: things the company did with the cash, and whether having
Speaker 1: money lots of money affected We Work's ability to see
Speaker 1: straight from the moment the company was founded in We
Speaker 1: Work had money to spend, not because it was turning
Speaker 1: a pro fit. In fact, it lost money more and
Speaker 1: more every year. At its peak, we were lost almost
Speaker 1: two billion dollars in one year. We Worked got its
Speaker 1: money from investors, large mutual funds and investment banks and
Speaker 1: venture capitalists, including Masa Yoshi Son. He's one of the
Speaker 1: biggest tech investors out there, and he often preached that
Speaker 1: when it comes to business, the crazier the better. All
Speaker 1: these investors wanted to give We Work cash in exchange
Speaker 1: for owning a slice of the company, which they hoped,
Speaker 1: over time would become more and more valuable by the
Speaker 1: way We Work. And a representative for Adam Newman the
Speaker 1: client to comment on this episode. Now, let's get back
Speaker 1: to the story of Jamie and Adam on the plane.
Speaker 1: According to Jamie, Adam made good on his threat in
Speaker 1: a lot of markets. Customers all of a sudden got
Speaker 1: bombarded with emails from dozens of different brokers saying, you know,
Speaker 1: they basically insert ways we work handid off the dirty
Speaker 1: work to a series of brokers who then went and
Speaker 1: advocated to our customers that they should be leaving us
Speaker 1: for we work. And you know, for two three five days,
Speaker 1: you know, maybe a week, it seemed possible that there was,
Speaker 1: all of a sudden going to be this just wave
Speaker 1: of customers exiting Industrious. And it didn't happen. Jamie said,
Speaker 1: we works attacked, just didn't work. Not that many customers
Speaker 1: left Industrious. When Jamie thinks back on that moment on
Speaker 1: the plane, he's struck by adams naked aggression. Even though
Speaker 1: adams plan didn't work, he was ready to go to
Speaker 1: such extreme lengths to take down a competitor. Jamie couldn't
Speaker 1: understand choosing to burn money that way. It felt like
Speaker 1: we Work could do no wrong. It was growing like
Speaker 1: mad venture capitalists were falling over themselves to try to
Speaker 1: get we work to take their investment. And all around
Speaker 1: Silicon Valley you heard startups talking about how spending lots
Speaker 1: of money was the way to grow fast, to win
Speaker 1: against their rivals. Profits came later, Profits weren't sexy. I
Speaker 1: want to give you a glimpse into how venture capital works,
Speaker 1: how it turns traditional business sense upside down. With most
Speaker 1: small businesses, you want to be making a profit. Let's
Speaker 1: say yourself frozen bananas, and it costs four dollars to
Speaker 1: make each one. That's the cost of the supplies, paying
Speaker 1: your employee, and rent for the banana stand. So you'd
Speaker 1: want to sell the banana for maybe five dollars. The
Speaker 1: first four dollars covers all your expenses. Then you might
Speaker 1: have a dollar of profit. Now, let's say you're raising
Speaker 1: money from venture capitalists for your banana stand. That means
Speaker 1: something different. You've sold a slice of your business to
Speaker 1: the VC in exchange for cash. You now have a
Speaker 1: lot of cash. That's exciting. You can use it immediately
Speaker 1: to hire more banana sellers, buy more bananas, whatever you want.
Speaker 1: Vcs want the companies they invest in to grow. They
Speaker 1: invested in you to become the biggest frozen banana seller
Speaker 1: in the market. Now you need to sell way more
Speaker 1: bananas in way more cities than your competitors, and do
Speaker 1: it first. Instead of opening one banana stand next year,
Speaker 1: they want you to open ten. Vcs. Care a lot
Speaker 1: about how many five dollar bananas you can sell, so
Speaker 1: they may push you to expand to new markets, even
Speaker 1: if it costs more to hire someone or rent is
Speaker 1: more expensive. So it now costs you six dollars to
Speaker 1: make a banana that you still sell for five. You're
Speaker 1: losing money on each banana you sell. That sounds like
Speaker 1: a dumb idea, but in this upside down world, it
Speaker 1: makes sense because you're still growing. You're selling more than
Speaker 1: you ever did, crowding out the competition and cementing your
Speaker 1: name as the number one frozen banana seller. We Work
Speaker 1: knew how to grow. It was growing every year, which
Speaker 1: means it was doubling its business. We had plenty of demand.
Speaker 1: We were not signing real estate fast enough. As far
Speaker 1: as we knew, we were going to keep growing a
Speaker 1: hundred percent until someone told us to stop. That's Dave Fano.
Speaker 1: He was we Works chief growth officer until he left
Speaker 1: in and he saw that the more we Work locations
Speaker 1: they added, the harder it was to keep growing a
Speaker 1: percent year after year. It was harder, significantly harder to
Speaker 1: go from five hundred to a thousand than from a
Speaker 1: hundred to two hundred, just the amount of moving parts
Speaker 1: and pieces. Because there's only so much available real estate
Speaker 1: in a given market, you gotta get bigger blocks of
Speaker 1: real estate. You can't get four million square feet square
Speaker 1: feet at a time. You've gotta start to sign leases
Speaker 1: that are two fifty square feet, and those are more
Speaker 1: complex negotiations and they take longer. So there's just a
Speaker 1: lot of things that got exponentially harder as you got bigger,
Speaker 1: and as you tried to keep doubling to keep growing.
Speaker 1: We Work was expanding into markets all over the world,
Speaker 1: even the ones where it seemed like it was losing
Speaker 1: my me. Here's Jamie again. It was clear that London
Speaker 1: was a bad market for we Work, and yet they
Speaker 1: kept doubling down there. So if you don't care if
Speaker 1: your units make any money, then one thing you can
Speaker 1: do is at a lot of units in London, then
Speaker 1: maybe it's okay to rent space at eleven dollars and
Speaker 1: go sell it for ten over and over. We Work
Speaker 1: may have been losing money, but they didn't stop the
Speaker 1: company from dominating the headlines. Adam's profile at the time
Speaker 1: was huge. He was hanging out with actors, going on TV,
Speaker 1: doing photo shoots for magazine covers. He was an incredibly
Speaker 1: visible CEO where his personality became the company's personality. And
Speaker 1: as his fame grew, so did Adam's vision for we Work.
Speaker 1: We want to help the world to self actualize themselves.
Speaker 1: Here's the beauty. We have actually been given a permit
Speaker 1: from the world, from investors, for our members from the
Speaker 1: universe to actually have a chance to go and tackle
Speaker 1: this problem. That's Adam speaking at an all hands meeting
Speaker 1: in mid You can hear him talking about how big
Speaker 1: and meaningful we Work is going to be. It's not
Speaker 1: just work. It's about helping their members in every aspect
Speaker 1: of their lives to find happiness and to find themselves.
Speaker 1: That might explain some of the side hustles we Work
Speaker 1: got into that seemed to have nothing to do with
Speaker 1: office rental. We Work started planning we Live, which was
Speaker 1: an experiment in building communal apartments kind of like adult
Speaker 1: dorms for millennials. We Work at a grand plan of
Speaker 1: launching thirty locations in a year, but they only ever
Speaker 1: opened up two. But we Live was just the start.
Speaker 1: We work with rapidly trying new things, a lot of
Speaker 1: new things. It was getting a little out of control.
Speaker 1: Here's Adam at an all hands meeting in we have
Speaker 1: four hundred and forty two open projects that are in
Speaker 1: different categories that don't have anything to do with we Work.
Speaker 1: Our buildings are four well margin. The base of our
Speaker 1: brands a hell of a number. I'm personally set us
Speaker 1: on the path of a few projects that were not
Speaker 1: qualified to do. Doesn't mean they couldn't have been cool.
Speaker 1: They could have been amazing. We just happened to not
Speaker 1: be qualified to do. He seemed aware that we Work
Speaker 1: was losing focus. I want to tell you about some
Speaker 1: of we worked crazy expenses, expenses that seem to have
Speaker 1: nothing to do with office space. And here's Jamie recounting
Speaker 1: the time Adam told him about a recent we Work investment.
Speaker 1: It was in a company called Wave Garden. Adam asked
Speaker 1: Jamie if he'd ever heard of it. Jamie said no,
Speaker 1: and so then he pulled out his phone and he
Speaker 1: started playing this video he made some phrase about how
Speaker 1: it makes waves, and I completely misunderstood what he meant.
Speaker 1: I thought he was talking about some construction technology company
Speaker 1: that metaphorically was making waves. It was doing big things
Speaker 1: in its industry. But then the video just kept showing
Speaker 1: people surfing, and at some point I was like, man,
Speaker 1: they are really taking this like wave metaphor. Are really
Speaker 1: far like that they have to explain what they do.
Speaker 1: And then there was a moment where I was like,
Speaker 1: oh my god, this isn't a metaphor. They literally make waves.
Speaker 1: Why are they buying this company? Yep. We Work spent
Speaker 1: thirteen million dollars to buy almost half of a wave
Speaker 1: pool company. Later, we Work investor told me the rationale.
Speaker 1: He said that we Work wanted to build huge corporate
Speaker 1: campuses and put wave pools in them. But to Jamie
Speaker 1: the investment was baffling. It's like when people become really
Speaker 1: wealthy and all of a sudden they think that the
Speaker 1: McDonald's near the house where they grew up is better
Speaker 1: than the McDonald's in the city they currently live in,
Speaker 1: and they have people fly the big Mac over from
Speaker 1: their hometown McDonald There's something like, I don't know, I
Speaker 1: guess that's what rich people do, and I guess that's
Speaker 1: what rich companies do. We worked had so much money
Speaker 1: they were literally giving it away. They launched a pitch
Speaker 1: competition called the Creator Awards, where they handed out twenty
Speaker 1: million dollars in prize money. Hello, Hello, Hello, welcome everyone,
Speaker 1: Welcome to the eighteen Berlin Create Our Awards. Amazing entrepreneurs
Speaker 1: pitched their startup ideas on stage to celebrity judges like
Speaker 1: Ashton Kutcher and p Diddy. We were called the Creator
Speaker 1: Awards marketing events to help spread the word about their offices.
Speaker 1: They held them all over the world in places like
Speaker 1: Tel Aviv, Austin, and Shanghai. When you do something that
Speaker 1: comes from the heart, when you bring it together with intention,
Speaker 1: magic happens. If you're a graphic designer and accountant and artists,
Speaker 1: a singer, or anything in between. Euro creator and euro
Speaker 1: creator and what does that mean? That means that we're
Speaker 1: part of something greater than ourselves. And it wasn't just Adam.
Speaker 1: Other execs also got caught up in the ability to
Speaker 1: spend freely. Here's Carl Pierre, a community manager in d C.
Speaker 1: He's describing how he was instructed one night to find
Speaker 1: a last minute helicopter or private plane for an executive.
Speaker 1: I had another we Work employee communicates me that an
Speaker 1: executive needed transportation immediately, ideally helicopter from Washington, d C
Speaker 1: O a jet to get back to New York City,
Speaker 1: and no context, just told it was very important. I
Speaker 1: was calling my friends who are staffers to see if
Speaker 1: we could pay to borrow, uh, you know, a senator's
Speaker 1: plane or something crazy. I was going through every channel
Speaker 1: and it was nuts. At the end of the day,
Speaker 1: it was almost like midnight, so I'm trying to find this.
Speaker 1: I had a good lead on a on a on
Speaker 1: a on a helicopter, and then uh, it turns out
Speaker 1: that particular we Work executive just needed to get back
Speaker 1: to a party in New York and that's the only
Speaker 1: reason why he wanted to leave DC Again midnight, I
Speaker 1: found a good lead and I was told like, oh, yeah,
Speaker 1: you know, it looks like the party let's be over anyway,
Speaker 1: So he's good. Yeah, nearly lost my mind. So Adams
Speaker 1: executives were willing to spend money in frivolous ways, and
Speaker 1: at the same time, Adam was stretching the truth about
Speaker 1: the company's financial position. Here he is at an all
Speaker 1: hands meeting in twenty six team telling employees that the
Speaker 1: business was profitable when it really wasn't. As opposed to
Speaker 1: other companies that you're reading about, we don't have any issues.
Speaker 1: We don't need to raise any more money. We're in
Speaker 1: an amazing place where the profitable business that's going to
Speaker 1: only get better. That's going to help us fulfill our
Speaker 1: calling and our mission. By shifting this culture, we're gonna
Speaker 1: be able to not only keep doing these things, but
Speaker 1: do them pen times better, move very strongly into positive
Speaker 1: cash flow. No need to rely on raising money, now,
Speaker 1: need to rely on going public, no need to rely
Speaker 1: on anything except for ourselves and fulfill our mission farm members,
Speaker 1: and we're going to do it, all of us together.
Speaker 1: He says here they have a profitable business. I can't
Speaker 1: tell if he's being sloppy or misleading when you're saying
Speaker 1: that we now know that we Work was losing money.
Speaker 1: In the tape, Adam is telling his employees that we
Speaker 1: Work doesn't need to rely on raising money for the
Speaker 1: business to keep growing, but in just a few months
Speaker 1: he'll turn around and raise four point four billion dollars
Speaker 1: from a fame as investor, and this decision will change
Speaker 1: the entire course of we Works trajectory. All of the
Speaker 1: company's impulses to do things that were more random, more grandiose,
Speaker 1: more expensive, They're about to be unleashed. We'll be right back.
Speaker 1: So before the break, we talked about how we Work
Speaker 1: was about to raise money from a new investor, and
Speaker 1: apart from Adam, this investor is one of the most
Speaker 1: important people in the story of We Work, Masa Yoshi's son.
Speaker 1: To explain who he is and why he's so important,
Speaker 1: I want to introduce a colleague of mine, Sarah McBride.
Speaker 1: Here's Sarah. I've been reporting on venture capital for the
Speaker 1: past few years, so I'm spending a lot of time
Speaker 1: on we Work's biggest backer, soft Bank, plus the guide
Speaker 1: behind it. My Sayashi's son, but too many people. He's
Speaker 1: just known as Massa, like share or Madonna. Massa is
Speaker 1: a kingmaker in Silicon Valley, one of the most famous
Speaker 1: investors in the world and one of the spendiest. He
Speaker 1: founded soft Bank when he was only twenty four years old.
Speaker 1: It's grown into a giant investment company in Japan. It's huge,
Speaker 1: it's bigger than Sony or Honda. Even he uses his
Speaker 1: money to make big bets on others. He's best known
Speaker 1: for an investment he made in a Chinese internet company
Speaker 1: called ali Baba. At the time he first invested back
Speaker 1: in two thousand, Ali Baba was small. Nobody knew it
Speaker 1: would take off the way it did. Ali Baba was
Speaker 1: founded by a guy named Jack Ma. He built it
Speaker 1: into kind of a souped up version of Amazon, tailored
Speaker 1: for the Chinese market. Now, Ali Baba is one of
Speaker 1: the most valuable companies anywhere. Jack Ma is an icon.
Speaker 1: Here's what's so interesting. When Massa talks about his famous
Speaker 1: big bet, about why he took a leap of faith
Speaker 1: and invested in jack maa so early. He doesn't talk
Speaker 1: about how smart jack Ma seemed, or how he'd come
Speaker 1: up with an original business plan. He talks about his charm,
Speaker 1: his ability to attract people to follow him. Well. He
Speaker 1: had no business plan and zero revenue employees, maybe thirty
Speaker 1: five for the employees. But his eyes was very strong,
Speaker 1: strong eyes, strong shining eyes. Um I could tell from
Speaker 1: the way he talked, the way he looked at he
Speaker 1: has a klisma, he has a leadership. He can bring
Speaker 1: you know young Chinese people following him. Now, if a
Speaker 1: young entrepreneur catches Massa's eye, he likes to tell them
Speaker 1: they remind him of Jack Ma, or that he thinks
Speaker 1: they'll become the next Jack Ma. The entrepreneurs love it.
Speaker 1: It's the biggest compliment he could give, and it worked
Speaker 1: with Adam Newman too. In fact, Adam told Fast Company
Speaker 1: magazine that he reminded Massa of Jack Ma. In two
Speaker 1: thousand seventeen, Soft Bank announced an investment fund that would
Speaker 1: be one hundred billion dollars. It was a huge amount
Speaker 1: of money, way way bigger than any venture fund, and
Speaker 1: when Massa began investing this money, it actually changed the
Speaker 1: way Silicon Valley works. In the old days, successful startups
Speaker 1: could count on raising tens of millions of dollars depending
Speaker 1: on how they were doing. Now, venture capitalists were competing
Speaker 1: with soft Bank to invest in the best companies, so
Speaker 1: money started flying around hundreds of millions, sometimes even billions
Speaker 1: of dollars to one startup. And that's exactly what happened
Speaker 1: to we work. The story itself is pretty crazy. Massa
Speaker 1: had a meeting with Adam. He told Adam he would
Speaker 1: spend two hours that we Work, but when he showed up,
Speaker 1: he said he had only twelve minutes. When it was
Speaker 1: time to go, he invited Adam to jump into the
Speaker 1: car with him. Adam pulled out his pitch deck because
Speaker 1: he wanted a big investment from SoftBank. Massa told him
Speaker 1: to put it away and took out an iPad. He
Speaker 1: drafted a rough investment agreement between them. They both signed
Speaker 1: then and there. That was late two thousand and sixteen.
Speaker 1: Adam still had a photo of the contract on his
Speaker 1: phone months later and showed it to a reporter from Forbes.
Speaker 1: He said it gave him goose bumps. Adam ended up
Speaker 1: getting a four point four billion dollar investment from soft
Speaker 1: Bank the next year, with more to come. Here's Adam
Speaker 1: on seeing BC. It's a real partnership and I think
Speaker 1: the longer we know each other, the more we can
Speaker 1: build it to Massa is one of the most visionary
Speaker 1: investors in the world. He I don't know if you
Speaker 1: know the story, but his initial decision to invest in
Speaker 1: We Work took approximately twenty eight minutes, including when he
Speaker 1: got in left and drove in the car. Startup founders
Speaker 1: who work with Massa say he loves it when you
Speaker 1: think really big, he asks what you could do if
Speaker 1: you had several times more money than you're trying to raise,
Speaker 1: if funding was no limit. Then he gives you that
Speaker 1: cash and expects you to deliver. And the crazier you are,
Speaker 1: the better. He told me that if two equally smart
Speaker 1: entrepreneurs are duking it out, but one's also a little crazy,
Speaker 1: the crazy one will win every time. He even described
Speaker 1: what he called an animal smell between himself and other entrepreneurs.
Speaker 1: They can smell it, and he can smell it. It's primal,
Speaker 1: and it seems like Massa felt this connection with Adam.
Speaker 1: He kept showering money on We Work, but within soft
Speaker 1: Bank it was a really controversial investment. Some of Massa's
Speaker 1: lieutenants that they were putting too much money into We Work,
Speaker 1: and so did some of his investors, that Massa ignored them.
Speaker 1: He found ways to keep writing we Work checks. That's
Speaker 1: because he believed that in the future, more and more
Speaker 1: people would move to coworking exactly We Works business model,
Speaker 1: and he really believed in Adam. So Massa basically gives
Speaker 1: Adam as much money as you could spend, and Adam
Speaker 1: starts spending and he doesn't have to be that careful
Speaker 1: because there's so much of it. If you talk to
Speaker 1: people inside We Work, many of them will say that
Speaker 1: the Soft Bank investment was this turning point. We Work
Speaker 1: had always been kind of freewheeling, somewhat cookie with lofty ambitions,
Speaker 1: but after Massa wrote Adam a blank check and told
Speaker 1: him to be crazier, it felt like every in got
Speaker 1: dialed up. We Work already had one side business, we Live,
Speaker 1: but it started branching out even more. It started a
Speaker 1: fitness boutique called Rise by We, and then there was
Speaker 1: We Grow. It's an elementary school. Rebecca and Adam have
Speaker 1: five young children together. Rebecca said in interviews that she
Speaker 1: couldn't find a school in Manhattan that was good enough
Speaker 1: for her oldest daughter, so they made their own. Here's
Speaker 1: Rebecca describing We Grow on a podcast called The School
Speaker 1: of Greatness. Once a week they get all local farms
Speaker 1: out they do. They spend one full day a week
Speaker 1: in nature, farming and just running and being and you know,
Speaker 1: meditating in nature like farm animals too, or is it
Speaker 1: just kind of there will be animals There are not
Speaker 1: currently um but they plant seeds, they harvest their crops,
Speaker 1: they bring them back to the city, they run a
Speaker 1: farm stand at We Work, and then they donate all
Speaker 1: of the proceeds to a nonprofit that they are actually
Speaker 1: personally involved in and invested in. She sounds like she
Speaker 1: has a very specific vision for the school. Tuition that
Speaker 1: We Grow costs forty two dollars a year. The interior
Speaker 1: was designed by celebrity architect. We Work came up with
Speaker 1: a way to explain why it was running a school.
Speaker 1: It said the school's mission was to unleash every human superpowers.
Speaker 1: It kind of connects to We Worked brand. But I
Speaker 1: spoke to one employee, Stephen Green. He remembers Adam being
Speaker 1: a bit more blunt in a speech at a company
Speaker 1: off site explaining why they started We Grow. So Adam
Speaker 1: explained that Rebecca had a dream the night before and
Speaker 1: in that dream, We Work had a school. The next morning,
Speaker 1: Rebecca told him about the dream, and he said, Okay,
Speaker 1: we're gonna start school. No marketing analysis, you know, No,
Speaker 1: We're gonna do some some test groups. And that was
Speaker 1: simple as that. So on the one hand, you have
Speaker 1: We Worked, the company branching out into seemingly unrelated businesses.
Speaker 1: But then there's also Adam's personal extravagance. Says we Worked
Speaker 1: bought a private jet for sixty million dollars. It was
Speaker 1: the top of the line gulf Stream G six fifty.
Speaker 1: Adam took it for business and also on trips to
Speaker 1: Costa Rica and Hawaii, sometimes to go surfing. At summer camp,
Speaker 1: employees stayed in tents, but one ex employee described Adam's
Speaker 1: summer camp lodging as a huge compound up on the
Speaker 1: hill visible from the valley below. In his office and
Speaker 1: we Works headquarters, Adam added a secret back room that
Speaker 1: had a sauna and an ice bath. It became a
Speaker 1: piece of lore within the office. I never got to
Speaker 1: see it in person, but an ex employee showed me
Speaker 1: photos once. The tub had a neon lightning bolt hanging
Speaker 1: over it, and I also heard a funny story. Someone
Speaker 1: told me the ice bath messed with the water pressure
Speaker 1: in the building so much that whenever Adam ran the bath,
Speaker 1: the office espresso machine stopped working. Meanwhile, we Work kept investing.
Speaker 1: They acquired a marketing s c O company, a coding school.
Speaker 1: They invested in a super foods company run by a
Speaker 1: pro surfer whom Adam admired and befriended. One former executive
Speaker 1: said that at the time, We Work wanted to compare
Speaker 1: itself to Amazon, another company that expanded into seemingly disconnected
Speaker 1: business areas and didn't turn much of a profit. This
Speaker 1: person didn't want to be named, so here's someone reading
Speaker 1: what they told me. But of course Adam didn't know
Speaker 1: what to do with the school, He didn't know what
Speaker 1: to do with the gym, He didn't know what to
Speaker 1: do with residential things. We were buying companies for fun.
Speaker 1: It was just too much. Adam's focus seemed to go
Speaker 1: further and further Afield get pulled in different directions. As
Speaker 1: a manager of business, you get, given that amount of money,
Speaker 1: you can afford to dream very very big. After the
Speaker 1: soft Bank investment in it seemed like Adam and Rebecca
Speaker 1: were deciding company policies based on their personal whims, like
Speaker 1: We Worked infamous meat ban. Sources told me that when
Speaker 1: Rebecca and Adam announced their employees that we Work would
Speaker 1: stop serving meat, it came as a surprise to the
Speaker 1: other company executives. Remember this affects thousands of we Were
Speaker 1: employees and members worldwide. The communications team had to quickly
Speaker 1: scramble to figure out a way to frame the decision
Speaker 1: to the public. They landed on an argument for sustainability,
Speaker 1: and they said the idea came from Miguel McKelvey, the
Speaker 1: other co founder. Here's a clip from CBS. We were
Speaker 1: just released a memo to its six thousand employees saying
Speaker 1: it won't pay for any meals that include red meat, poultry,
Speaker 1: or pork. According to Bloomberg, the company's co founder and
Speaker 1: Miguel mkelby said in the company memo, new research indicates
Speaker 1: that avoiding meat is one of the biggest things an
Speaker 1: individual can do to reduce their personal environmental impact, even
Speaker 1: more than switching to a hybrid car. Just asn't aside here.
Speaker 1: When most companies make a decision of this scale, they
Speaker 1: spend months deliberating over it. But my sources told me
Speaker 1: that this change happened with barely any warning and basically
Speaker 1: no business rationale. It almost feels like something you do
Speaker 1: if you wanted the company to be a reflection of yourself,
Speaker 1: and the company kept making other important decisions for seemingly
Speaker 1: personal reason. We work decided to raise money from bond investors.
Speaker 1: They initially said they wanted to raise five hundred million dollars,
Speaker 1: but at the last minute they switched to seven and
Speaker 1: two million dollars. That's weird. I remember thinking at the
Speaker 1: time seven o two seemed like such a random number
Speaker 1: to pick. I asked, we worked why, and was only
Speaker 1: able to find out that seven O two was a
Speaker 1: lucky number for the company. That's a surprising rationale for
Speaker 1: such a big decision how much debt a company should
Speaker 1: take on. Later I found out why the number was lucky.
Speaker 1: Seven O two is what you get when you multiply
Speaker 1: two numbers eighteen and thirty nine. Eighteen is a good
Speaker 1: luck number in Judaism. And the day of the bonds
Speaker 1: were sold it was Adam's birthday. He was turning thirty nine. Now,
Speaker 1: I want to take a huge step back, a two
Speaker 1: year step back, and play for you some tape that
Speaker 1: really knocked me off my feet when I first heard it.
Speaker 1: It's from back in when we work was growing pretty quickly,
Speaker 1: but still before things really got amplified by soft banks billions.
Speaker 1: Here's Adam talking at an all hands meeting, and he's
Speaker 1: trying to make an important point to his employees about
Speaker 1: the way we work spend money. What he's saying casts
Speaker 1: a really unexpected light on everything you've heard in the
Speaker 1: episode up until now. Now, if you think this company,
Speaker 1: I would say big, but has a little bit of
Speaker 1: a spending culture, raise your hand. I think so it does.
Speaker 1: It does for those of you don't know it does.
Speaker 1: It definitely does have a spending culture. We didn't used
Speaker 1: to be this way. We did not used to be
Speaker 1: this way. We used to fight for every dollar. We
Speaker 1: did not spend. We never outsourced. We first tried to
Speaker 1: solve a problem internally and then went to the outside
Speaker 1: well said hey, we can pay you to bring and
Speaker 1: sometimes it worked in something as it didn't. But we
Speaker 1: were really good at watching our cash. He was saying
Speaker 1: that we work even though it has all this money
Speaker 1: available to spend, was being way too careless with it.
Speaker 1: They were spending all over the place without purpose. We've
Speaker 1: spent this whole episode describing how flashy and indulgent Adam became,
Speaker 1: especially after soft Bank's investment. But here he is two
Speaker 1: years earlier, cautioning his employees to be conservative. He told
Speaker 1: them they were spending too much and that it was
Speaker 1: going to hurt their profits. He lectured them about how
Speaker 1: they should be managing the nickel. That meant noticing every
Speaker 1: time the company was wasting money, even on small things.
Speaker 1: As an example, he talked about a breakfast spread they
Speaker 1: ordered every Monday for an executive meeting. In the money.
Speaker 1: We would get breakfast, some salmon, some eggs, some bagels,
Speaker 1: some yogurt. And we've done this for a year, We've
Speaker 1: done some maybe for two years, and truth is not
Speaker 1: a lot of no one was really eating it. Adam
Speaker 1: estimated that the company was saving three dollars a week
Speaker 1: by cutting this breakfast, and he used it as an
Speaker 1: example for his employees to look for other places to
Speaker 1: cut costs, even small ones. For example, how many times
Speaker 1: if you left this room and the lights were on?
Speaker 1: How many times every time? When I've left this room
Speaker 1: and I left this room a lot of times at
Speaker 1: two am? How many times have you seen our buildings
Speaker 1: with their lights on at two am? Every time? And
Speaker 1: I love going through our buildings at to am. I
Speaker 1: was just in two buildings last week, and I want
Speaker 1: to hear from you. I want to start receiving notes.
Speaker 1: Lights are on the two o'clock. This is wasting money,
Speaker 1: This is wasting money. This is not smart. I don't
Speaker 1: accept this. This is my company. I have equity here.
Speaker 1: I don't want to be wasteful. I don't want to
Speaker 1: be wasteful. So because we can do great things with
Speaker 1: the money. Who is this, Adam Newman? How do you
Speaker 1: reconcile the atom of who's trying to save on the
Speaker 1: electricity built with the atom who's flying on a sixty
Speaker 1: million dollar private jet. What's striking to me is his
Speaker 1: awareness of we works out of control spending. He knew
Speaker 1: that it could hurt the company in the long run.
Speaker 1: So did he just forget his own warning or did
Speaker 1: he not believe his own message. If we can't ensure
Speaker 1: as a minimum to bring in more than we spend,
Speaker 1: that's an easy one. Everybody knows that bring in more
Speaker 1: than you spend, then all the dreams and all the
Speaker 1: hopes and everything we're all sitting on is not gonna
Speaker 1: work as well as we thought. The only thing that
Speaker 1: can ruin this is if we don't get serious about
Speaker 1: controlling our bottom line, controlling our expenses, getting very focused
Speaker 1: and getting very clear. And he's saying that this is
Speaker 1: their only chance. They can't mess it up, and the
Speaker 1: universe does not allow waste. So if we show the
Speaker 1: universe for too long that we're wasteful. It will come
Speaker 1: back at us ten times fall. Because that's how, at
Speaker 1: least how I believe the world works, and that's my
Speaker 1: experience of how the world works. When I think of us,
Speaker 1: the only thing that scares me is that in ten years,
Speaker 1: when we look back, we will say that we missed
Speaker 1: the opportunity, that we did not take this thing to
Speaker 1: the full strength that we can take it. This tape
Speaker 1: is a really surprising glimpse into Adam's mind and how
Speaker 1: it seems like he changed over the years. At We Work.
Speaker 1: Back in he showed some pretty traditional business sense, but
Speaker 1: he seemed to have thrown it out the window. Massa
Speaker 1: once said that the crazy man will always win in
Speaker 1: a fight against the smart man, and it seems that
Speaker 1: Adam became the crazy man that Massa wanted him to be.
Speaker 1: We know now that in the ten years since We
Speaker 1: Work was founded, it almost never turned a profit. In fact,
Speaker 1: in the years after Adam warned his company that they
Speaker 1: have to stop this spending culture, They're spending culture only
Speaker 1: got spendier and it will keep getting huge. It will
Speaker 1: become so extravagant, so head scratching that we work will
Speaker 1: become a symbol of start up excess of CEOs given
Speaker 1: too much permission. Here's a part of his speech that
Speaker 1: I found particularly unting. He's talking about other high valuation
Speaker 1: companies that had raised billions of dollars and then wasted
Speaker 1: the money. He's using them as a cautionary tale. I
Speaker 1: know if you guys are reading or not reading, But
Speaker 1: a lot of our peers who I never actually thought
Speaker 1: were our peers, but companies with high valuations who raised
Speaker 1: a lot of money. Some of them been closing down.
Speaker 1: A lot of them have been firing ten to their employees.
Speaker 1: I can promise you one thing about all of them.
Speaker 1: They all had a spending culture. And that spending culture
Speaker 1: led to lack of processes, lack of control, and at
Speaker 1: the end of the day, lack of money. And when
Speaker 1: lack of money comes and the world goes up, that's
Speaker 1: not a problem. But right now the words doing this,
Speaker 1: or maybe it's even doing this, well, that's a different story.
Speaker 1: There are a lot of employees they're now that thought
Speaker 1: the equity there was worth one price, and now they're
Speaker 1: being told it's worth another. And now they're doing it
Speaker 1: down round then let me tell you they're gonna do
Speaker 1: three more if they're even gonna stay in business, and
Speaker 1: it's gonna be very difficult. The secret is to take
Speaker 1: care of it before it becomes a problem. Layoffs down
Speaker 1: rounds employees thinking that their equity was worth a lot
Speaker 1: one day, only to find it's worth very little the next.
Speaker 1: You could play this tape today and say it was
Speaker 1: about we Work, and it would all be true. Adam
Speaker 1: was definitely right for what it's worth. We Work did
Speaker 1: have a spending culture when he was warning against it,
Speaker 1: it was already in full force. Over the next few years,
Speaker 1: that spending culture would get more extreme, and all of
Speaker 1: these disastrous things that Adam is telling his employees are
Speaker 1: happening to their peers. They're about to hit WE Work
Speaker 1: in the face very soon. It was like he predicted
Speaker 1: it years before his company spirals out of control. That's
Speaker 1: next time on Foundering. Foundering is hosted by me Ellen Hewitt.
Speaker 1: Sean When is our executive producer. My Aquava is our
Speaker 1: associate producer. Ray Mondo mixed the show today special thanks
Speaker 1: to Sarah McBride, Mike Held and Tucker, Joseph, Mark Million,
Speaker 1: and Bandermain and Alistair Barr are our story editors. Francesca
Speaker 1: Levi is the head of Bloomberg Podcasts. Be sure to
Speaker 1: subscribe and if you like our show, leave a review.
Speaker 1: Most importantly, tell your friends see you next time.