The Cult of We - Book Summary

Embark on a journey through the turbulent ascent and descent of a billion-dollar enterprise.

In 2019, the world's investment community was jolted by the stark reality of America's most prized startup, WeWork. With a valuation that once touched a staggering $47 billion, it was revealed to be little more than an overhyped real estate firm, burning through more than $1.6 billion annually. Puzzling, isn't it? How did the world's top investors get hoodwinked by this startup? What caused the delays in the company's plans to go public? And most importantly, how did the flamboyant party-loving CEO of WeWork, Adam Neumann, manage to dodge the bullet?

In this narrative, we'll dissect the complex matrix of elements that played a role in the extraordinary roller-coaster ride of this company.

During this journey, you will gain insight into:

- How a former baby clothing salesperson enticed the world's wealthiest investors to pour millions into his venture;

- The reasons behind the illusion of a humble real estate business being hailed as the crown jewel of tech startups globally;

- The uncontrolled nature of the startup culture during the 2010s that fueled reckless investment decisions, particularly into WeWork.

From a casual meeting to creating a $45 million company: Adam Neumann and Miguel McKelvey's story.

In the year 2006, a rooftop party in New York City brought together two unlikely characters — an architect named Miguel McKelvey and a man named Adam Neumann, who with his shirtless appearance, boisterous demeanor, and Israeli accent, was anything but unnoticeable.

A friendship was kindled that evening, and soon after, Neumann found himself seeking McKelvey’s guidance to find an inexpensive location for his baby clothing enterprise. McKelvey recommended 68 Jay Street, the very building he was working in.

But soon after Neumann moved in, it became apparent that children's clothing was hardly his primary interest. His prime motive was unabashedly clear — he wished to amass wealth, and he managed to pull McKelvey into his quest as well.

The key take-away here is: In an astonishing display of ingenuity, Adam Neumann and Miguel McKelvey spawned a company worth $45 million armed only with an elevator pitch.

McKelvey soon found himself playing the role of a sounding board for Neumann’s various business plans. Among these was an idea that, despite not being ground-breaking, held promise: Neumann aspired to lease ready-to-use office spaces to tech firms. The gist was that the clients would pay a premium for flexible, furnished offices, and Neumann's strategy was to pack these offices closely together to bolster profits. McKelvey was hooked, and together they pitched this idea to their landlords at 68 Jay Street.

Their proposition found willing ears. Brooklyn was teeming with entrepreneurs and small-scale firms in search of versatile office solutions, and with the 2008 Great Recession prompting even mammoth organizations to downsize their office spaces, the timing seemed perfect. The landlords hopped on board as partners, providing Neumann and McKelvey with a floor in one of their buildings, a former pipe factory. McKelvey put his architectural skills to work, crafting the floor plan, the business blueprint, and the website. Thus, in 2008, GreenDesk was launched.

However, Neumann had already set his sights on the horizon. In 2009, both he and McKelvey sold their GreenDesk stakes to the landlords for half a million dollars each. They then dove into their next venture — scouring for spaces they could rent and fragment into smaller offices. Even before they completed raising funds for their inaugural building, they were already on the prowl for investors for subsequent spaces.

Their search brought them to real estate developer Joel Schreiber. Despite not having a single client, Neumann and McKelvey pitched a valuation of $45 million for WeWork. Astonishingly, Schreiber not only agreed to invest, but also abstained from any sort of negotiation. He readily invested $15 million for a one-third equity stake in the company.

Such an influx of capital was beyond anything the duo had ever imagined.

Neumann's masterstroke: crafting WeWork's narrative as a tech startup.

WeWork's early clientele mostly comprised tech startups, and their office spaces played host to lively happy hours. In the aftermath of the 2008 financial turmoil, the buzz in these offices was about the next big disruption from a tech startup. Fueling these startups were venture capitalists — the investors who pour in essential early-stage funding, often well before these enterprises showcase any profitability. Companies like Amazon, Apple, Facebook, Google, and Microsoft owe their meteoric rise to these private investors.

By the dawn of the decade in 2010, most venture capitalists had redirected their focus from innovative ideas to innovative leaders. Figures like Jeff Bezos of Amazon and Steve Jobs of Apple were held up as the archetype — they were not just impeccable salesmen, but they were also the founding figures of their companies. Neumann saw himself fitting the same mold.

The central idea here is: Neumann projected WeWork as a tech startup to elevate its company valuations.

Neumann might not have been a tech savant, but his position as a founder meant venture capitalists were eager to hear him out. To pitch his real estate firm in a new light, he cleverly rebranded it as a tech startup, leveraging the tagline "space as a service" — a twist on the emerging "software as a service" business model.

Neumann and McKelvey's pitch for WeWork also underscored the eroding boundary between work and leisure. Drawing parallels with tech giants like Google, which provided its employees with free food and onsite gym facilities, they promised to replicate the Silicon Valley office experience for urban millennials everywhere. This would involve sleek designer furniture, glass-walled cabins, communal spaces stocked with food, and the inescapable feature of free beer on tap.

Through this seamless blend of work and leisure, Neumann and McKelvey envisaged WeWork offices as spawning close-knit communities — a notion they termed a "physical Facebook." And just as Facebook's declared mission was to "make the world more open and connected," WeWork aspired "to create a world where people work to make a life, not just a living."

Alongside this vision, Neumann's presentations included slides that forecasted a leap in revenue from $73 million in 2014 to a staggering $2.8 billion by 2018. Investors were swayed — and in 2015, the esteemed venture capitalist firm Benchmark pegged WeWork's valuation at $100 million. Such a valuation was unheard of for a startup, let alone a real estate venture. Unlike software, the revenue potential from physical office spaces was inherently limited.

Nevertheless, the hype surrounding WeWork was at its peak. By the midpoint of 2015, the company had amassed a whopping $400 million in investments.

With Softbank's hefty investment in WeWork, Neumann's audacity knew no bounds.

In a short span of time, WeWork had extended its foothold beyond the borders of the United States, establishing its presence in Europe, Israel, and setting its sights on Asian markets. This meteoric growth outpaced even the software companies Neumann had initially strived to emulate.

With the company's expansion, McKelvey gradually retreated into a more behind-the-scenes role. The wealth he had already amassed was beyond his wildest dreams. As he withdrew, he yielded most of his stake in the company profits to Neumann.

But for Neumann, there was no end in sight. He remained unflinchingly focused on doubling WeWork's annual revenue.

The key takeaway here is: Softbank's hefty investment marked the onset of Neumann's increasing recklessness.

Typically, seven years into their journey, startups are expected to exhibit diminishing losses. Yet, with 65 locations up and running by 2016, WeWork was hemorrhaging a million dollars daily. Therefore, when Neumann proposed fundraising in the world's largest market, China, investors were justifiably displeased.

Neumann, however, was under no obligation to heed them — he firmly held the reins of the company. Even as concerns mounted, partners tended to accede to his demands. Reports suggest that dissenting votes were virtually nonexistent. Unphased by the lack of profits, Neumann's fixation on turbocharging growth persisted. He reasoned that rapid expansion would serve as a beacon for prospective investors, helping him reel in the massive revenue he sought.

In 2019, Neumann journeyed to Tokyo to meet with Masayoshi Son, the founder and CEO of the tech titan Softbank Group, to discuss potential investments in WeWork. In a departure from conventional discussions, Neumann unveiled what he dubbed the "triangle plan". This involved WeWork swiftly dominating every facet of the commercial real estate market, including the global construction and brokerage sectors. He projected its worth to be in the trillions, making it the most gargantuan company in the world.

Son was captivated. At this juncture, WeWork was not only caught up in a whirlwind of hype but also ranked amongst the world's highest valued startups — albeit only on paper. With a workforce of six thousand, equivalent to one and a half times that of Twitter's, Softbank evaluated it at a staggering $47 billion.

Son declared his intention to invest $10 billion, and additional plans to buy out WeWork's existing investors for another $10 billion. An immediate investment of $4.4 billion was also made. Yet, despite this enormous infusion of capital, WeWork remained far from achieving profitability.

WeWork's rapid-fire growth led it astray from its primary operations.

In 2015, a peculiar ritual unfolded at WeWork. Employees were directed to evacuate their desks and assemble at 110 Wall Street. Neumann was scheduled to enter the building with an investor, and he wanted his staff to put on a display of enjoying themselves with the Notorious B.I.G.'s "Juicy" playing full blast in the backdrop.

This exercise wasn't a one-off event. As they awaited Neumann's arrival, employees would often have to keep the song on loop for up to an hour. It was all part of the build-up to Neumann's next grand venture: a college dormitory-style residence known as WeLive. With the same transformative touch it had brought to office spaces, it now aimed to revolutionize the residential scene.

The key takeaway here is: WeWork's lightning-fast expansion caused it to lose focus on its primary operations.

WeLive, however, didn't manage to replicate the success of its predecessor. By 2016, it had only branched out to two locations, with no further progression. But Adam Neumann wasn't one to be deterred. His mind was already brimming with ideas of conquering newer, more expansive markets. The influx of funds from Softbank gave him all the more reason to push the boundaries.

Shortly after Son's investment, Neumann rebranded WeWork as "The We Company." This new identity was intended to accommodate not just WeWork, but also fresh initiatives like WeLive and WeGrow. The latter, an elementary school promising to nurture "conscious global citizens," was helmed by Neumann's wife Rebekah. She christened herself a cofounder of The We Company, infusing its branding with a New Age flair.

Furthermore, Neumann led WeWork to acquire various firms, such as the event-sharing platform Meetup and a "coding bootcamp" known as the Flatiron School. Neumann also dipped into Softbank's funds to make unrelated investments, including a $38 million contribution to his friend Ashton Kutcher's venture capital fund. These unexpected maneuvers left the staff perplexed — why was no one reining him in? However, the reality was that Softbank's investment only solidified the board's inclination to acquiesce to Neumann's desires, a pattern established in WeWork's early years.

Concurrently, the company's spending habits spiraled even further out of control. Neumann informed the board of his plans to purchase a Gulfstream private jet worth $63.4 million, so he could eschew commercial flights. The office was frequently the venue for parties, and the obligatory Summer Camp retreats for employees had morphed into extravagant events.

In less than two years, WeWork had drained $3 billion of Softbank's funds — yet it was still a long way from establishing a profitable, sustainable business model.

Once Softbank backed out, WeWork had no option but to go public.

In 2019, Adam Neumann electrified the stage, fist pumping to a crowd of thousands. The cheering masses were WeWork employees, gathered for a three-day internal conference — the "Global Summit" — held in Los Angeles.

Most of the staff had traveled from New York to the Universal Studios theme park, hired by WeWork for this extravagant corporate retreat. The ambiance was festive — the tequila flowed, bands performed, and employees thronged to the Harry Potter rides, all at an expenditure of $10 million.

When Neumann took to the stage to address his team, he foretold that by the following year, the company would hold a valuation of $100 billion — or so he believed.

The crux of the story is: With Softbank retracting its deal, WeWork found itself cornered into going public.

When Neumann had initially pitched his triangle plan to Son, the investor had reassured him of unlimited access to Softbank's funds to fuel his vision. This implied that WeWork could remain private for an extended period, safeguarding it from public scrutiny.

However, Neumann's focus began to falter. Despite eight years of swift growth and billions in losses, he ventured further afield from his original concept. Beyond the mishap with WeLive and his haphazard investments, he now aimed to have WeWork venture into software and food sales. He envisioned providing housing for WeWork employees and educational facilities for their children.

While Son only egged the founder on to dream bigger, the final say didn't rest entirely with him. A significant portion of Softbank's $100 billion Vision Fund came from the Saudi government, which had a say in substantial investments.

Initially, Son had managed to captivate the Saudis into backing the WeWork investment. Over time, however, they became increasingly skeptical of Neumann, as did Softbank's shareholders in Tokyo. As 2018 drew to a close, Son called Neumann to deliver the disappointing news. The WeWork buyout was no longer viable, he said. The deal had to be scrapped.

A mere four months after the Global Summit, Neumann found himself compelled to announce that WeWork was prepared to go public. Despite being the exact opposite of what he desired, once Softbank backed out, there was no one left to invest billions into the company.

For the employees, however, this was a silver lining. WeWork's pay scale was more modest compared to other startups. They lured potential employees with the promise of company stock. Some were banking on millions, depending on the company's valuation. If WeWork were to go public, they believed, they could finally hit the jackpot.

WeWork's leadership crumbled under Adam Neumann's indulgent lifestyle and personal avarice.

Gradually, the concerns of employees and investors extended beyond WeWork's vast losses to focus on the founder himself.

Neumann's personal net worth reached a whopping $10 billion in 2019, thanks to the lucrative agreements he concocted for his own benefit. Simultaneously, he drifted further away from his employees. He became infamous for his extravagant parties aboard his private jets and was perpetually accompanied by a retinue of aides, including a hairstylist and a surf instructor.

Despite the growing concerns, Neumann held the reins of WeWork, commanding ten-to-one voting power over other shareholders. But as the company geared up to go public, Neumann abruptly decided he wanted even more control. He insisted to his exasperated aides that he was entitled to a twenty-to-one voting power.

The crux of this part is: Adam Neumann's lifestyle of excesses and personal greed ended up eclipsing his leadership at WeWork.

In the summer of 2019, WeWork's legal and accounting teams, along with its executives, began working on an essential document — the IPO prospectus. This document details the company's financial position as it prepares to list on the public stock market. Prior to its publication, the communications department compiled a list of all potentially damaging details about the company that the press could scrutinize. The 20-page list unveiled instances of Neumann's profiteering, including WeWork's restructuring for his tax advantage and his sale of the "We" trademark to WeWork — his own company — for $5.9 million.

The chickens came home to roost when the financial documents were unveiled on August 19, 2019. Initial news headlines zeroed in on the company's astounding $11 billion in losses. Then, the prospectus came under ridicule on Twitter for its lofty tone, dedicated to "the energy of We." By the day's end, the focus had shifted to Neumann's twenty-to-one voting power.

Meanwhile, in his Tokyo office, Son found himself grappling with humiliation. It was evident that market investors didn't see WeWork as a $47 billion company, as he had proposed. They didn't even seem to value it between $15-20 billion.

For nearly a decade, Neumann had successfully convinced top-notch investors to amplify WeWork's valuation and supply a constant flow of funds. However, the end was near. Barely two days after the IPO documents were released, Neumann finally decided to step down, but not without securing a $1 billion severance package for himself on his way out.

Wrapping up the narrative

Here's the core takeaway:

At the heart of the economic downturn that gave birth to the Great Recession, Adam Neumann and Miguel McKelvey kickstarted their real estate venture in Brooklyn. It was a time when large corporations were abandoning their vast office spaces, while tech startups were burgeoning. WeWork found its niche in leasing out these spaces to these emerging businesses. Neumann leveraged his skills in salesmanship and tech-centric branding to attract the audacious investors who were also financing his tenants. By 2019, his relentless pursuit of growth propelled WeWork to the pinnacle of American startups. But, Neumann's continual disregard for profitability became his undoing, leading to the collapse of his empire within the same year.