WeWork was started in 2012 and leases office space and then subleases it to organizations as “shared office space.” It was co-founded by Adam Neumann. SoftBank is a venture capital company that invests primarily in start-up technology companies and was founded and is led by Masayoshi Son (called Masa). He runs the Vision Fund, which collected $100M from investors for Masa to invest in promising tech-focused startups and other ventures. It has $4 billion invested in WeWork. Masa is 20 years older than Adam and given his vast experience as a venture capitalist and his big investment in WeWork, he was a mentor and the key shareholder of Adam.
By 2018 WeWork was operating in 73 cities in 33 countries, and based on its latest round of funding, was valued at $20 billion. Masa, an incredibly aggressive investor, urged Adam to think much, much bigger. In one meeting, even though WeWork salespeople, real estate professionals and buildings each numbered in the low hundreds, and was posting great sales results (but big losses), Masa told Adam he needed to think much bigger and develop a plan to get each of those three components up to 10,000!
Responding to Masa criticism, Adam developed an outrageously expensive plan to drive WeWork to what Adam claimed would be a $3 trillion company within 5 years! The company would branch out and have not just the current shared office leasing component, but also a real estate ownership arm, and a services arm. Each of the three arms would have a market value of $1 trillion! He planned to ask Masa for $70 billion to fund it, in addition to Masa’s already super-generous funding of $4 billion.
Here are just a few of the wild assumptions in the plan, which anyone with a reasonable dose of common sense would have spotted as a sound reason to blow the whistle on this craziness:
- WeWork would have 14 million people working in its shared office spaces within 5 years, up from 400,000 in 2018, when the big plan was developed.
- Revenue from WeWork’s main business of shared office leasing would hit $101 billion in 2023, up from the $2 billion level in 2018.
- The projections for the total revenue across all three arms (shared office leasing, real estate ownership, and services) would be a jaw-dropping $358 billion in 2023. Apple, by comparison, had revenue of $266 billion in 2018, when the Adam’s plan was developed.
Masa loved the plan, but balked at the $70 billion, and eventually the two agreed at $20 billion. Masa then had to explain to the Vision Fund investors why he was planning to put an additional $20 billion of the Vision Fund into WeWork. The Vision Fund’s two biggest investors, the Saudi Arabia and Abu Dhabi sovereign wealth funds, were not interested at all and pushed back strongly. They viewed the WeWork proposed plan as totally unrealistic and the company currently as way overvalued.
From that point on, things unraveled fast for WeWork. Wall Street was raising similar concerns about the current valuation of WeWork, not knowing anything about Adam’s super-plan, and the stock price was plummeting. The IPO being contemplated was abandoned, and Adam was gone.
What is the key learning? Never have a team working on an important effort without at least one member that is strong-willed and has a ton of common sense! This simple rule got totally violated in the WeWork case.