WeWork’s cofounder and CEO, Adam Neumann, feels ready to take his company to the next level. Now he has to prove it to everyone else.
The Israeli-born entrepreneur launched WeWork in 2010 with his business partner Miguel McKelvey and his wife Rebekah as a way to transform coworking office space. And they’ve succeeded. WeWork has 466,000 members across 28 countries, and has a valuation of $47 billion.
Taken in context, revenue doubled last year to $1.8 billion — but losses also grew to $1.9 billion. In the wake of disappointing IPOs from Lyft and Uber, there’s the natural question of whether WeWork will ever be able to become profitable.
Especially with fears that a recession is imminent.
Neumann, whose casual demeanor offsets his imposing stature, opened up about this concern with us at WeWork’s Manhattan headquarters. He also explained why he believes people have the wrong impression of the unexpectedly low investment from SoftBank that followed the IPO filing, and how the company has responded to his personal ownership of properties that had been leased out to WeWork — while netting him millions.
Building a $47 billion business in nine years isn’t easy. It’s also requires some serious ego management; Neumann, 40, went from broke to a billionaire in under a decade. He also is a father to five children. He discussed how his perspective on success has drastically changed in that time, and why he believes adopting the Jewish practice of Shabbat has made him a better leader.
The following interview has been edited for length and clarity.
Richard Feloni: You co-founded the company nine years ago. You’ve got a valuation of $47 billion and you’ve filed for an IPO. How do you wrap your brain around that, in terms of the tremendous scale the company has built over this time? What were some of the strategies you used?
Adam Neumann: About 10 years ago, I met my co-founder in life and in business, Rebekah. I met Miguel a little before that. It was always about creating something bigger than ourselves. It was always about doing something meaningful.
I grew as a leader because I surround myself with people who give me honest feedback.
It’s by creating a group of leaders around me that are encouraged to speak their mind, to disagree, to communicate, and to collaborate. If one of us thinks that one of us is approaching something wrong, then it’s our job to really push, correct, and bring up things even when they feel really uncomfortable.
That’s one of the biggest things we’ve deployed here at WeWork and it’s been working very well for us. That’s one.
Two: Realizing the world is global. Whatever is New York culture is not Boston culture, let alone Singapore, Berlin, Shanghai, or Mumbai. You have to understand that culture is a local thing. There is a global culture, but we like to say, “Global playbook; local execution.”
One of the things you’ve seen us do a lot over the past six months is empowering regional leaders more and more.
By being less centralized and by believing in our partners, I’m able to become a better leader and they’re able to succeed.
How WeWork’s CEO grew a $10 billion relationship with SoftBank CEO Masayoshi Son, whom he calls “Yoda”
Feloni: Key to that growth was also building relationships with investors like SoftBank CEO Masayoshi Son. What was it like meeting with him? How do you develop a relationship where you can get someone to invest so heavily in the vision you have?
Neumann: By the time Masa came, it was easier because we had a lot of execution behind us. There were seven consecutive years of 100% growth year over year, of all our numbers being ahead, of cost-per-adding-another-member going down.
Masa still saw a bigger picture than others and went heavier than other people.
I’m usually the person who thinks very large in the room. But with Masa, it doesn’t matter how big you’re thinking — he’s going to out-think you. He’ll go bigger. I learned a lot from that. I still learn every time I interact with him.
But I actually think it’s some of those earlier investors that wrote those big checks: Wellington [Management Company], T. Rowe Price, Fidelity [Investments]. They did not listen to their peers or say, “This can’t work,” and they really trusted their gut. If it were Henry [Ellenbogen] at T. Rowe Price, or Michael Carmen at Wellington, or Will Danoff at Fidelity, each one of them on their own had to establish this understanding, and they have been great supporters throughout.
I think that those relationships were very important. Part of it was to let them criticize me when they didn’t agree with me.
Feloni: Is that how you built those relationships in the first place?
Neumann: We talk about superpowers here — one of mine is people. Building a relationship is natural in this organization. It’s how we do anything here. We do it physically, not virtually.
Feloni: What does that mean? If you’re sitting down with one of these investors, how would your “superpower” emerge?
Neumann: You feel it right now! The reason you’re feeling it is because I’m talking to you. It’s coming from the heart. The way you build a relationship is authenticity, with really connecting to the person. And listening.
I develop a relationship in a real way. I’m there for my investors just like I’m there for my friends; just like they’re there for me. Not just when things are good, but when things are bad. I call in advance when there’s a problem. I try not to let them hear about it in the press.
When I’m about to do something in their wheelhouse, something that they’re better at than me, I will call for advice.
In Masa’s case, he does very well face to face. I’ll get on the plane and go to Tokyo, even if it’s not always easy, and develop a personal relationship.
Rebekah and I are going to have dinner with Masa together, for example, next Sunday in San Francisco, so it will become more personal.
Masa and Rebekah get along very well, which is fascinating, because she’s very picky. She likes him a lot. She calls him Yoda. He is Yoda. He has the force with him.
What really happened when the $20 billion SoftBank investment went south
Feloni: Last December, there were reports that there was going to be an investment from SoftBank upward of [a reported] $16 billion. It was cut down significantly.
Neumann: It ended up being $6 billion. Everyone thinks it was $5 billion at $110 share — [but it’s] plus another billion of secondary, so a total of six, which is important to know.
Editor’s note: “Secondary” here refers to the purchase of shares from existing shareholders, rather than directly from the company.
I think that was a testimony to our relationship. We actually filed [for an IPO] before, to keep optionality open and because we knew the deal with Masa was not 100% guaranteed.
We were supposed to do the deal and then I get a phone call from Masa saying that it’s not going to work out.
If you look at the stock market at the time, it was a deal directly from SoftBank, not its Vision Fund. Therefore, SoftBank’s own financial position was part of it. If you look at the exact date, December 24, it was traded in Japan —it was Christmas Eve but markets were open — SoftBank was down between 54 to 60% from when the deal was agreed upon verbally.
That day, if they would’ve done the deal and after the money that they would’ve spent, WeWork might have had a higher valuation. But SoftBank had a bad day.
When Masa called and told me that was the case, he also told me that he was going to invest $4 billion at $110 a share and that he believed in this.
I actually went to see him and I said, “I would feel more comfortable if it’s $5 billion as opposed to $4 billion.”
He said, “I would like you to do a little secondary.”
I said, “Well, that’s actually great, because employees and investors thought that they were getting an event.” We agreed together on $6 billion, which was very beneficial for all parties.
Relationships get measured when a challenge comes, not when everything is perfect. He called me personally and he was very straightforward. He told me exactly why.
Not only did I understand — I talk a lot about believing in something greater than yourself, and a lot about the fact that if we always muscle everything through, we don’t give a chance for the universe to enter.
When I got that phone call, I was with my family on vacation. I didn’t even tell my wife about it for hours and I didn’t call any of my executives who were all starting to celebrate Christmas.
My wife asked me later that night, “Why didn’t you tell me?”
I said, “I didn’t want to ruin the day for anyone.”
And she goes, “Why would you ruin the day? It was what was meant to happen. There would have been no problem.”
I said, “Well, of course. I agree with you, but I thought maybe…”
“Oh, no. Not a problem.”
We’re now in May, five months later. Only hindsight will tell, but it seems like we’re doing amazing. Our employees are very happy. What I learned afterwards, our investors didn’t really want to sell, which I didn’t know at the time.
They would have, because it was a fair price and was negotiated in a way that things legally work, but it’s not what they wanted.
Now that I’ve had a chance to talk to all of them after they told me how much they love the company and how they see themselves as long-term holders, I feel very happy with how things went the way they did. Masa’s still a huge shareholder. He’s invested over $10 billion.
Alyson Shontell: Would you have filed the paperwork to go public if that deal hadn’t come down?
Neumann: I filed before. The day I filed is important. The day I filed, as far as I knew, I was either doing the full deal — which was actually $20 billion, not $16 billion.
I filed because I wanted optionality. A: The fact that we agreed on a deal doesn’t mean the deal is done — which ended up being the case, because it wasn’t signed yet. B: Until that moment of signature, I would still have to impose such a big move, not just for myself, but for the employees, for the investors, for our members. I would’ve really taken that last look once it was all said and done. What’s better for all of our employees and members?
But I’m very happy that we stand where we stand today. I think it’s a great example of an event that, in the moment, you might think, “Oh, no.” Then you look back five or six months later and you’re happy. Masa’s very happy, also. He owns almost 29% of the company.
Silicon Valley’s Saudi Arabia problem
Shontell: I notice that you said you raised from SoftBank, not the Vision Fund. That has not always been the case.
Saudi Arabia is a huge investor in the Vision Fund. There are human rights issues there. There’s corruption there. There’s what happened with the journalist [ Jamal Khashoggi‘s assassination] there.
Was that a purposeful decision? Because there are a lot of tech companies that are taking money from the Vision Fund. It seems to me that Silicon Valley has a Saudi Arabia problem because they need a lot of cash. What do you think about that?
Neumann: That’s a very complex question.
Neumann: I’ll hover around it.
Only our first investment came from there. All of the follow-up investments that you know of are SoftBank investments, not the Vision Fund, which is just a fact with us. The first one happened in 2016.
This is going into politics, but I’ll go with you a little. The world still uses fossil fuels. You want to take their cash. You want to take their oil. You buy the plastic. It’s in the system. It’s not just Saudi Arabia. It’s of all the countries in the Middle East.
Being an Israeli myself, my biggest wish is a direction towards peace. Any country from the Middle East that wants to change money that’s generated just from harvesting natural resources to investing in what could be futuristic technologies that not only could make financial returns but could maybe bring their country into positive things, I’m supportive of.
I think Uber — [cofounder] Travis Kalanick — doesn’t get enough credit for the fact that when Uber took money from Saudi Arabia, part of the deal was that women would be allowed to drive. That is a huge shift.
I think the world has a global problem of extremists, together with a huge shift in what different countries can allow their citizens to do or not. I think the only way we’re going to solve it is if we come together and agree on a certain level of moral standards, that there are a few things and behaviors we don’t accept no matter what.
If that means we can’t get money because of it, then I agree with you. But if we don’t find a way to come together and see the best in each other and find ways to collaborate even if it’s hard in the beginning, then I think things will only get worse.
I hope that there will be a way for Silicon Valley to partner with all of the Middle East. I think that they should go from there to Africa.
Then, I think there are problems. I think there are still a lot of problems in Latin America. A lot of problems right here in the US that we can deal with. I think Silicon Valley needs to do that. I also think we can go as simple as the homeless problem in San Francisco.
I don’t mean to touch it too much, but I do think global companies need to start taking a stand on what’s right and wrong, not just for the sake of paying less taxes or getting in favor with the government of the country they want to enter; actually, for the sake of humanity.
Feloni: So you take that for your business as well?
Neumann: We 100% take that for our business, regularly. We just came out with an impact report. The numbers are amazing — audited by external parties. We increased GDP in cities. We increased employment with our refugee program, with our veteran program.
When the day does come for us to go public, part of it will have to do with that, also. The reason to go public in the future is to be able to effect more change.
What will happen to WeWork in a recession
Feloni: You’re starting to have this impact. You’re still growing rapidly. If you were going to talk to investors, some are still wary of how the company’s losing money and that’s been growing over time, too. What would you tell them?
Neumann: Excellent question. Let me show you something. [He brings out a printed slide from an investor presentation showing a version of the following chart.]
Editor’s note: The chart has the following assumptions.
- Drawing from Q1 2019, it estimates 82,000 annual desks added, at an average membership value of $6,340.
- WeWork uses its own metric called community-adjusted EBITDA. It is defined as “Equal to Membership and Services Revenue, less Adjusted Rent, Tenancy Costs, and Adjusted Building and Community Operating Expenses.”
- It has an implied annual community-adjusted EBITDA margin of 27%.
- It has average revenue per membership growing 2% a year over a 15-year lease, based on the average lease term.
- It assumes full occupancy.
A lot of other companies spend $1 billion and that goes toward paying employees or discounting a service.
When we spend $1 billion, [taking a look at] 2018, that would have been able to add 236,000 members. I would’ve paid you an average of $6,000 per year. At a 27% contribution margin, so a full-on margin, what does that mean?
That same $1 billion on a 15-year lease would generate $24 billion dollars in revenue, $7 billion in contribution margin. We do not lose money; we invest money in the future. We’re building a global physical platform. To build that, you have to build the infrastructure.
It’s very different from other companies who spend $1 billion and it’s gone, or whatever discount it gave in the market. Our $1 billion, when it’s gone, it’s going to pay itself back this many times. That’s crazy.
Shontell: Well, what happens if the economy crashes sometime in here [points to the middle of the chart]?
Neumann: Number one: We’re a 50% discount than any other service. Let’s say you are IBM, any enterprise you want to be, and you want to compare an office in Manhattan that you have to one membership — a dedicated space at WeWork. We’re at least 50% cheaper than what it’ll cost you [for your office]. So in a downturn, if you want to spend less, you would really like us.
Feloni: So you think you could actually have a benefit if there’s a downturn in the next few years?
Neumann: The last thing think I wish for is a downturn, but I will give you the math. Then, you decide if that’s a benefit or not.
I know it’s a fact that I’m 50% cheaper than the average [office] in New York City.
In other cities, I’m 60 or 70% cheaper. I’m half the cost. So if you’re the CFO, that must be very attractive.
I’m not a new balance sheet. As of 2020, all leases need to be on a balance sheet. I’m a membership agreement and I’m off your balance sheet. That’s very attractive.
For many CEOs, they feel that our space is better designed, has great energy, and gives them a lot of flexibility. They think that their employees like it more. So, CEO: Employees like it more. CFO: It’s costing him or her half the amount. Head of HR: Higher retention.
On top of all of the that, we can offer flexibility and mobility. These are all things that will work very well in a market that’s slowing down. Point number one.
Point number two, and a very interesting one — 51% of our members do business with each other. For small businesses, the downturns end up being even tougher than for the larger businesses, who have a balance sheet. We’re going to be able to offer a lot of internal business — that we already do — that will help them a lot.
Number three. Businesses are flexible. You want to get smaller, you want to get bigger. Some will want to get bigger in the downturn, some will get smaller — space is fixed. We give that flexibility.
Number four. As we speak, we’re already in an experience with Buenos Aires after a downturn, São Paulo after a downturn, China, what people would consider 50% down, Brexit — every one of those markets I just said, memberships never grew faster [than] when the market went down.
And, here’s the good one: cost of construction went down by 20 to 30%. That’s huge for us. For the cost of leasing, either the lease itself went down 15 to 30% [or we got] access to management deals.
A management deal is when the the landlord is willing to give us no lease, pay 100% for the construction, and share the upside with us. Get above market returns. When there are no other tenants because the market is slower, everyone is rushing to give us that deal. More management deals, cheaper leases, and lower construction all work amazingly for us.
On top of that, because enterprise today is 40% of our business, an average stay at WeWork is north of 14 months. All those numbers that used to be in the past, of month-to-month, are just not our truth anymore.
Editor’s note: WeWork defines an enterprise client as one with 500 or more full-time employees.
So because of all of those reasons, I’m saying that we have proven in markets where it has occurred already. We’re stronger while [a downturn] happens and come out much stronger.
Saying that, I’m not wishing for a downturn for the obvious reason of the WeWork company first and foremost puts human beings first. The last thing I want to hear is a husband or a wife going to their partner back home and saying, “I’m sorry to tell you, but I lost job and I’m not sure how I am going to take care of my responsibility in the household.” That’s a bad thing.
Shontell: WeWork is a nine-year-old company. It has only been around during the boom.
Neumann: In America.
Shontell: In America. Yes.
Neumann: I’m less than 50% in America these days. I’m a global company with only 45% of my members in the United States, and [that’s] getting smaller.
Shontell: How do you avoid getting stuck paying long-term leases [if memberships were to go down]?
Neumann: So enterprise today is 40% of our business and we expect to to see it higher in the future, substantially higher. For an enterprise business that’s only two and a half years old, we’re already at 37% of all Fortune 500 companies, which is fascinating in such a short time. For those large companies, the average longterm lease would be 18 months. That’s number one.
Number two. The examples I gave you are real examples in countries where we’re quite big. The numbers speak for themselves. On top of that, you’re sitting on a lot of cash. This is part of the reason why it’s important to be very well funded. You have a lot of optionality.
Remember that if you ever needed to stop growth or slow down, you will immediately start having free cash flow and your margins are so high that you have a lot of room.
And our committed back log — which means signed deals, unbreakable, that are either started or about to start, but enterprise-quality credit — is larger than our revenue. I should’ve started with that!
After our bond earnings, you will hear our April run rate of $3 billion and you will hear our committed back log of $3.3 billion. And 80% of it is 12 months forward, so guaranteed. That number’s only going to grow. You’re going to have a lot of transparency in the next 16 months, going into 24 months, and then going to 36 months, which is very unique. We’re the only space- as-a-service membership model that’s able to show that for that much ahead and with that level of signatures.
And penetration — because we’re so small, you’re not looking for 80% of the market. You’re not even looking for 8% of the market. We’re .09% of the market today going to 1%. There’s a lot of room.
Why WeWork’s CEO says investors should trust him, even though he made millions in a controversial way
Feloni: The other thing I’ve been seeing from potential investors is that they are concerned that you would still be the landlord of some properties. What would you say to them?
Editor’s note: The WSJ reported in Jan. that Neumann had leased some properties he owned back to WeWork and pocketed millions through rent.
Neumann: In 2013, when I acquired some of these properties, no one was buying anything from us. Landlords didn’t believe in the WeWork tenancy. So, I had to set an example.
We have not only raised money, we have $2.8 billion under management. But there’s $1 billion that was just raised from Ivanhoé Cambridge, which is very well respected in global institutions, very good at real estate. It is now all under the We Company.
The other thing is that moving forward, whatever I own that has any WeWork tenancy in it is moving to WeWork. I’ll lose money on that transaction, but the reason that’s not a problem is because I’m a large shareholder of WeWork. WeWork is me; I am WeWork. If it’s good for WeWork, it’s good for me. The only vision moving forward is one aligned strategy.
Now that people believe in us and are willing to give us money to buy, we’re very happy to have LPs [limited partners] like Ivanhoé Cambridge. We have some of the largest institutions of the world and we will not let them down. We’re going to be very careful shepherds of their capital.
And the last thing I need is to diversify into more properties. I’m much happier in WeWork, and letting ARK, the company that’s going to be doing it under the We Company, focus on it.
Also, the real estate side will not report into me. ARK is a separate company that reports to another chairman, Steven Langman. And they have fiduciary duties toward the people they raise money from. It’s their job to buy real estate that is going to make a return for their investors.
How to manage your ego when you go from broke to a billionaire in under 10 years
Shontell: I was listening to a speech you gave [at the United Jewish Appeal Federation’s annual dinner last December] and you were saying that within 30 days of meeting your wife, you proposed to her. In your first talk, she was like, “You don’t get it.”
Neumann: “You don’t get it. You don’t get the game of life.”
Shontell: Right. So what did you think success was back then, when you were a hard-partying guy with a supermodel sister going out all the time, versus now?
Neumann: First of all, I think you nailed it. You have most of the answer in the question. I think the interesting thing about that first conversation with Rebekah was that no one has ever used those words with me.
When she presented it to me that way, I was so impressed I said, “Well, I want to know this game of life.” I told her what success is and I defined it in a very boring way, maybe influenced by Hollywood.
She told me she thought success was being surrounded by people who you care for and who care for you, actually creating an impact on this planet, enjoying the ride, and really enjoy every moment of it. Otherwise, it’s not worth doing.
I think her definition is more true today than it ever was. As we’ve started to grow toward this word called “success,” I know today that Rebekah was right more than I could have imagined.
When Rebekah told me that, we were living at 166 2nd Avenue in an apartment smaller than this office.
Shontell: In your same speech, you were talking about ego management. You said around WeWork’s $5 billion valuation mark, you had to keep your ego in check. You got all this success so quickly. Your family is suddenly in a whole different financial situation. I don’t know if you were a billionaire then or not, but you were certainly on the way.
How do you keep your ego in check? How did you come to terms with yourself and your new life when it was happening so fast?
Neumann: The answer is quite consistent. It’s really Rebekah. I think her contribution to my life can not be overstated. I would not be able to keep it in check without her.
Therefore, WeWork wouldn’t exist. If I don’t keep [myself] in check, you can’t be the “We” Company and a “me” person. Which was why the moment the company was ready to buy real estate, I was like, take my real estate at cost. I don’t need anything. We’re all together. And if anything, this was always towards a “we” mission.
Rebekah’s maniacal focus on always doing the right thing by others, not just by us, doesn’t really leave a lot of room for that.
When I don’t have my ego in check and I come home at night, she looks at my face. She doesn’t even need to talk to me. She’s like, “Ugh, again? I thought we had that one covered! Sit down.”
She’ll do whatever it takes just to make sure I snap right back. Go hang out with the kids, go do this, go do that, and come back in an hour. You come back indoors and you remember where you came from and where you’re going.
The other thing is that I practice the spiritual practice of Shabbat. For me, Shabbat — and I’ve been recommending it to a lot of people — is the opportunity to disconnect from technology for 24 hours, connect to your family, connect to your friends, connect to something greater than yourself.
It’s almost more relevant today than 3,300 years ago. I’m so grateful that in my heritage that there was that practice. But no one has a monopoly on that practice. I recommend it to everyone. I do believe that because once a week I stop for 24 hours and really focus on what’s most important, that stays in my head for the rest of the week and helps me, in a real way, manage myself and my behavior.
When Friday night comes, one of the things we do right after the candle lighting is sing a song. The song is about what were all the good deeds I did this week, and what were all the bad deeds I did this week. If they were weighed, what would be heavier, the good or the bad?
You wish every week that the good is bigger than the bad, and the next week you’ll do better. Repeating that kind of practice and now sharing it with my kids in a world that’s so connected, disconnecting has never been more important.
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