Review: Billion Dollar Loser , by Reeves Wiedeman

WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey as a successor company to their similar 2008 GreenDesk business. (Adam's wife Rebekah is now presented as a co-founder. This seems dubious in Wiedeman's account, although Rebekah's role in the company is murky, ever-changing, and hard to pin down.) Its business model in reality was to provide turn-key, pre-furnished and stocked co-working and small office space to individuals and businesses on flexible, short-term leases. Its business model in Neumann's speeches and dreams, and represented by the later renaming of the company to the We Corporation, was nothing less than to transform the way people worked, learned, and lived.

Through aggressive, money-losing expansion, WeWork grew rapidly to over 500 locations in 29 countries and became the largest office tenant in New York City. Based primarily on massive financial support from Masayoshi Son, CEO of Japanese holding company SoftBank, WeWork's private valuation rose to $47 billion. In 2019, the company attempted to go public, but its IPO collapsed, in part due to deeper analysis of the company's books. Neumann was forced out of the company (with an individual payout valued at $1.7 billion), the IPO was withdrawn, SoftBank wrote down 90% of their investment in the company and took control of it, and WeWork laid off more than 20% of its workforce.

This book is a detailed history of WeWork's rise and fall, joining a genre that includes The Smartest Guys in the Room (Enron), Bad Blood (Theranos), and Super Pumped (Uber). I believe it's the first full book on WeWork, although it was preceded by several long-form stories, including "The I In We" by Wiedeman for New York magazine. As the first history, it's a somewhat incomplete cut: litigation between Neumann and WeWork is still pending, WeWork staggered into 2020 and a world-wide pandemic that made cramped open-plan offices an epidemiological disaster, and there will doubtless be new revelations yet to come. The discovery process of lawsuits tends to be good for journalists. But despite being the first out of the gate, Billion Dollar Loser reaches a satisfying conclusion with the ouster of Neumann, who had defined WeWork both internally and externally.

I'm fascinated by stories of failed venture capital start-ups in general, but the specific question about WeWork that interested me, and to which Wiedeman provides a partial answer, is why so many people gave Neumann money in the first place. Explaining that question requires a digression into why I thought WeWork's valuation was absurd.

The basic problem WeWork had when justifying its sky-high valuation is competition. WeWork didn't own real estate; it rented properties from landlords with long-term leases and then re-rented them with short-term leases. If its business was so successful, why wouldn't the landlords cut out the middle man, do what WeWork was doing directly, and pocket all the profit? Or why wouldn't some other company simply copy WeWork and drive the profit margins down? Normally with startups the answer revolves around something proprietary: an app, a server technology, patents, a secret manufacturing technique, etc. But nothing WeWork was doing was different from what innumerable tech companies and partner landlords had been doing with their office space for a decade, and none of it was secret.

There are two decent answers to that question. One is simple outsourcing: landlords like being passive rent collectors, so an opportunity to pay someone else to do the market research on office layouts, arrange all the remodeling, adapt to changing desires for how office space should be equipped and stocked, advertise for short-term tenants, and deal with the tenant churn is attractive. The landlord can sit back and pocket the stable long-term rent.

The second answer is related: WeWork is essentially doing rental arbitrage between long-term and short-term rents and thus is taking on most of the risk of a commercial real estate downturn. If no one is renting office space, WeWork is still on the hook for the long-term rent. The landlord is outsourcing risk, at least unless WeWork goes bankrupt. (One infuriating tidbit from this book is that Neumann's explicit and often-stated goal was to make WeWork so large that its bankruptcy would be sufficiently devastating to the real estate industry that it would get a bailout.)

There's a legitimate business here. But that business looks like a quietly profitable real estate company that builds very efficient systems for managing short-term leases, remodeling buildings, and handling the supply chain of stocking an office. That looks nothing like WeWork's business, has nothing to do with transforming the world of work, and certainly doesn't warrant sky-high valuations. WeWork didn't build an efficient anything. It relied on weekend labor from underpaid employees and an IT person who was still in high school. And WeWork actively resisted being called a real estate company and claimed it was a tech company or a lifestyle company on the basis of essentially nothing.

Wiedeman seems almost as baffled by this as I am, but it's clear from the history he tells that part of the funding answer is the Ponzi scheme of start-up investing. People gave Neumann money because other people had previously given Neumann money, and the earlier investors cashed out at the expense of the later ones. Like any Ponzi scheme, it looks like a great investment until it doesn't, and then the last sucker is left holding the bag. That sucker was Masayoshi Son, who in Wiedeman's telling is an astonishingly casual and undisciplined investor who trusted knee-jerk personal reactions to founders over business model analysis and historically (mostly) got away with it by getting extremely lucky.

(I now want to read one of these books about SoftBank, since both this book and Super Pumped make it look like a company that makes numerous wild gambles for the flimsiest of reasons, pushes for completely unsustainable growth, and relies on the sheer volume of investments catching some lucky jackpots and cashing out in IPOs. Unfortunately, the only book currently available seems to be a fawning hagiography of Son.)

On one hand, the IPO process worked properly this time. The sheer madness of WeWork's valuation scared off enough institutional investors that it collapsed. On the other hand, it's startling how close it came to success. If WeWork had kept the Ponzi scheme going a bit longer, the last sucker could have been the general investing public.

Another interesting question that Billion Dollar Loser answers is how Neumann got enough money to start his rapid growth strategy. The answer appears to be the oldest and most obvious explanation: He made friends with rich people. The initial connections appear to have been through his sister, Adi Neumann, who is a model and hosted parties in her New York apartment (and also started dating a Rothschild heir). Adam met his wealthy wife Rebekah, cousin to actress and "wellness" scam marketer Gwyneth Paltrow, via a connection at a party. He built social connections with other parts of the New York real estate scene and tapped them for investment money.

The strong impression one gets from the book is that all of these people have way more money than sense and we should raise their taxes. It won't come as a surprise that Adam and Rebekah Neumann are good friends of Jared Kushner and Ivanka Trump.

Those are the questions I was the most curious about, but there's much more here. Wiedeman's style is nearly straight chronological reporting with little analysis, but the story is so wild and absurd that it doesn't need much embellishment. Neumann is obviously a megalomaniac whose delusions of grandeur got worse and worse as WeWork was apparently succeeding. Rebekah Neumann is if anything even less in touch with reality than he is, although in her case that appears to stem from having so much money that reality is an inconvenient speed bump. Miguel McKelvey, Neumann's co-founder, is an odd and interesting side note to the story; he appears to have balanced Adam out a bit in the early going but then wisely started to cash out and pocket his winnings while letting Adam dominate the stage.

There are some places where I don't think Wiedeman pushed hard enough, and which cut against the view of Neumann as a true believer in his impossible growth vision. Neumann took several investment opportunities to cash out large amounts of his stock even while WeWork employees were being underpaid and told their stock options would make up for it. He clearly used WeWork as a personal piggy bank on multiple occasions. And Wiedeman documents but doesn't, at least in my opinion, make nearly enough of Neumann's self-dealing: buying real estate that WeWork then rented as a tenant, or paying himself for a license for the name We Holdings (although there at least he later returned the money). I think a good argument could be made that Neumann was embezzling from WeWork, at least morally if not legally, and I wish Wiedeman would have pressed harder on that point.

But that aside, this is a great first history of the company, told in a clean, readable, and engaging style, and with a lot more detail here than I've touched on (such as Rebekah Neumann's WeGrow school). It's not as good as Bad Blood (what is), but it's a respectable entry in the corporate collapse genre. If you like this sort of thing, recommended.

Rating: 7 out of 10

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