CULT OF WE EB

Eliot Brown, Maureen Farrell

• Publisher: Mudlark
• Year: 2021
• Print ISBN: 9780008389383
• eBook ISBN: 9780008389413
• Topic: Business
• Subtopic: Business Biographies
• Index: Business

'An amazing portrait of how grifters came to be called visionaries and high finance lost its mind.' Charles Duhigg, bestselling author of The Power of Habit

The definitive inside story of WeWork, its audacious founder, and the company's epic unravelling from the journalists who first broke the story wide open.

In 2001, Adam Neumann arrived in New York after five years as a conscript in the Israeli navy. Just over fifteen years later, he had transformed himself into the charismatic CEO of a company worth $47 billion. With his long hair and feel-good mantras, the six-foot-five Neumann looked the part of a messianic Silicon Valley entrepreneur. The vision he offered was mesmerizing: a radical reimagining of work space for a new generation. He called it WeWork.

As billions of funding dollars poured in, Neumann's ambitions grew limitless. WeWork wasn't just an office space provider; it would build schools, create cities, even colonize Mars. In pursuit of its founder's vision, the company spent money faster than it could bring it in. From his private jet, sometimes clouded with marijuana smoke, the CEO scoured the globe for more capital but in late 2019, just weeks before WeWork's highly publicized IPO, everything fell apart. Neumann was ousted from his company, but still was poised to walk away a billionaire.

Calling to mind the recent demise of Theranos and the hubris of the dotcom era bust, WeWork's extraordinary rise and staggering implosion were fueled by disparate characters in a financial system blind to its risks. Why did some of the biggest names in banking and venture capital buy the hype? And what does the future hold for Silicon Valley 'unicorns'? Wall Street Journal reporters Eliot Brown and Maureen Farrell explore these questions in this definitive, rollicking account of WeWork's boom and bust.

PART I

CHAPTER 1

The Hustler

ADAM NEUMANN BELIEVED HE WOULD BE THE MAN TO REINVENT baby clothes.

It was 2006, and he was twenty-seven years old. Neumann was already running his own fledgling business that aspired to mass-produce pants and onesies with built-in knee pads for crawling babies. He named it Krawlers. Despite his sincere belief in the brilliance of his concept, Neumann was still hunting for ways to get the business moving, let alone to turn a profit. He flew to China to meet with suppliers. He pushed his product on baby retailers.

Neumann had arrived in New York from Israel in the fall of 2001, landing in a city reeling from the 9/11 terrorist attacks. Yet, in times of boom and bust alike, New York always beckoned dreamers like Neumann. His reason for the move, he told his friends, was simple. He wanted to get rich. New York was “where opportunity happens.”

He moved in with his younger sister, Adi, and lost no time making connections. Adi, a model who appeared on the covers of magazines including international editions of Elle, Vogue, and Cosmopolitan, brought in plenty of money to support a flashy lifestyle. The two shared an apartment, which doubled as Adam’s office, on the fifteenth floor of a building in Tribeca that attracted a gregarious crowd. Twentysomethings flitted in and out of one another’s apartments or socialized on the roof.

While Neumann had flirted with modeling himself—he had a distinctive look, lanky with long, flowing dark brown hair and a face marked by high, rounded cheekbones—he opted to pursue dreams of another sort.

Neumann had launched Krawlers while a student at Baruch, a public college in Manhattan known for its business program. The budding entrepreneur had tested out a string of business ideas, including a collapsible high heel, before eventually landing on padded infant clothes. Friends say he got the idea by seeing a similar product in Israel. He took to Krawlers with his trademark intensity, dropping out of Baruch to work on it full-time. He talked about how big the company would become—how they’d be selling millions of dollars of Krawlers clothes a year. He borrowed money from his sister, raised more from a wealthy hedge fund manager she was dating, and invested $100,000 he’d received from his grandmother.

Neumann knew little about children. He was young and single, and his time was dominated by working, drinking with friends, chain-smoking cigarettes, and churning through dates with different women. And the business logic of Krawlers had obvious holes: typically babies crawl for only a period of months.

Yet Neumann proved to be a gifted salesman, particularly when face-to-face with a potential buyer.

At trade shows where many of the clothes were sold, Neumann was a magnet for the small-business owners. His dramatic appearance, his booming voice with its emollient accent, and his vibrant energy stood out amid rows of infant clothing purveyors—so much so that a small crowd often huddled around him. He conjured a world in which a baby couldn’t be happy without built-in kneepads. He’d walk potential buyers through the experience of being a parent and having children crawl. Your child will love you more because of these clothes, he’d tell them, with a smile. The company’s slogan became “Just because they don’t tell you, doesn’t mean they don’t hurt.”

At a trade show in Manhattan’s Javits Center around 2006, Daniel Rozengurtel spotted Neumann’s head above a swarm of people at the Krawlers booth. Rozengurtel and his wife had started an e-commerce website called Spiffy Baby. It didn’t take long for Neumann to convince the couple, who had recently had a baby, that the kneepad-lined clothes were something they’d need for their child—as would their customers. Within a single conversation, Neumann struck Rozengurtel as amazing. He put in an order.

On a good day, Neumann sold thousands of dollars of baby clothes at a time. He bounced off the walls with energy and ideas, constantly hustling and calling prospective investors and retailers. He struggled to sit still for long periods; he constantly paced around his office as he talked on the phone. He loved the negotiating, the banter, and the sport of it all. He would even haggle with bewildered department store salespeople.

Neumann wasn’t rich yet, but he was having fun and learning the ropes of deal making. And his twenties in New York, in all their kinetic glory, were stable—at least when compared with what came before them.

NEUMANN WAS BORN IN APRIL 1979 IN THE SOUTHERN ISRAELI city of Be’er Sheva’ to a pair of medical students at Ben-Gurion University. He and his sister relocated each time his parents switched hospitals as part of their training. His parents divorced when Adam was seven, and he and Adi went with their mother, Avivit, to the United States, where she secured an oncology fellowship in Indianapolis. Neumann’s childhood, by his own account, was “shitty.” A bright child, he suffered from severe dyslexia, making reading difficult. His mother, who would go on to be one of Israel’s top oncologists, was often exhausted from her work ministering to cancer patients.

After two years in Indianapolis, Neumann and his family returned to Israel, where his father had remained. The siblings lived with Avivit. She lined up a job at a hospital in western Israel, as well as a part-time gig on a kibbutz—one of numerous socialist-inspired communities scattered throughout the country, remnants of a utopian movement started decades earlier. Because of her work as a doctor there, the Neumanns got housing within the kibbutz’s gates.

The kibbutz, Nir Am, had roughly six hundred residents and sat ten miles inland from the Mediterranean Sea, just on the northern edge of the Negev Desert. The ethos of the kibbutz movement was one of sharing and egalitarianism. For decades after its founding in 1943, Nir Am residents supported the kibbutz by picking grapefruits and potatoes in the fields or working in the on-site cutlery factory, a low-tech maker of forks, knives, and spoons. Salaries were equal. Cars were shared—with driving hours controlled by a sign-up sheet. In Nir Am’s brutalist concrete dining hall, families would join together to eat meals of cereal, chicken, or falafel.

Neumann, then eleven, struggled to make friends. The children in Nir Am had grown up in the community and knew one another like siblings. Neumann and his mom and sister, on the other hand, were outsiders: they were simply renting space there. But Neumann eventually endeared himself to the others. He was loud and fun and invited peers over to his room, where he showed off American trinkets, like his Nintendo video-game system. Outside, they’d play basketball, or sometimes with a baseball Neumann brought from America. As years passed, his friends became the center of his community; he slept in the house designated for teenagers, where he had a sizable room of his own.

Neumann’s time in Nir Am coincided with sweeping changes in the kibbutz structure. Throughout Israel, the idealistic dreams of the kibbutz had begun to falter. These communities were designed to be self-sustaining, but decades into their existence they relied heavily on government subsidies. The vision wasn’t working, and as finances deteriorated, Nir Am began to change—to introduce capitalistic reforms to the troubled socialist structures. More residents took jobs outside the kibbutz, while all residents began to pay for meals and air-conditioning; food waste and electricity use plunged. (Later the cafeteria would shut down and be converted into a co-working space.)

Neumann loved the sense of community at Nir Am and the close bonds he made, but the economic egalitarian spirit didn’t rub off on him. He told friends he wanted to leave and make millions of dollars. He would later carp about the inherent unfairness of kibbutz life. Slackers and hard workers received the same pay, he’d say.

IN ISRAEL, MILITARY SERVICE IS COMPULSORY, A RITE OF PASSAGE during which men and women, usually serving in their late teens and early twenties, often forge lifelong friendships and vast peer networks. Neumann, aiming high, scored a spot in the naval academy, an elite placement within the Israel Defense Forces, second in prestige only to fighter pilot training. The position required seven years of service rather than the mandatory three. The navy screened cadets with rigorous tests, seeking candidates who could combine physical agility with problem solving.

Neumann, athletic and sharp, completed the initial training—a stage where attrition is high. Still, his leadership showed itself more on days off, when he would corral friends for windsurfing expeditions on the Sea of Galilee. As he moved into the next phase of his naval training—serving on boats and helping coordinate operations on land—he made it clear to friends that the rigid, rule-bound hierarchy of the military wasn’t for him.

One evening, Neumann and several junior officers attended a party on a rented cruise ship near the naval base. Neumann was supposed to be on his assigned navy ship, watching over it while it was docked for the night, he told others. A missile boat isn’t like a car in a parking lot: one can’t just roll up the windows, lock the door, and leave it alone. Yet, while downing drinks with a fellow cadet on the cruise ship, Neumann boasted about how he’d snuck off to join the party boat, leaving his post unattended.

While his classmates went on to serve as officers for many more years, Neumann would not. Several officers who served with him say he got a medical exemption, claiming an ailment they suspected was exaggerated in order to avoid years of seafaring. Instead, he stayed in the port in Haifa, occasionally teasing his colleagues when they returned from a few days at sea. They weren’t amused.

Rather than serving the full seven years, he ended his service after five—bored and frustrated by military service. By the summer of 2001, he was eager to leave the country. His sister—then a celebrity in Israel—brought him onto a segment on the Guy Pines show, a gossipy talk show that was a hit there. Wearing a white tank top and wraparound sunglasses, Neumann, twenty-two, outlined his own plans while sitting next to his sister. “We’re moving to New York,” he told the interviewer, before gleefully recounting a time he visited Adi on a prior trip to the city and met Matt Damon at a club.

NEW YORK PROVED TO HAVE THE GLITZ NEUMANN IMAGINED—the bars and the clubs and the beautiful people.

But business wasn’t turning out as he’d hoped.

As he tried to get Krawlers going, it became clear that thousands of dollars in sales here and there weren’t going to build the baby clothes empire he’d imagined. While he didn’t have to answer to any boss but himself, building a business was hard. Neumann’s dyslexia weighed him down. Reading was difficult, as was using a computer: he had to ask others to send emails, or he would send typo-ridden messages himself. Finances, meanwhile, were shaky, and the company was subsidized by his sister and others. Red ink was in great supply. In 2006, Neumann wrote to his clothes designer, Ranee Kamens, that the company had lost $45,000 in the past year. Returns piled up, and Krawlers had to give customers credits for the following season—a sign of defective or low-quality products.

“Spring season was not a good season for us,” he wrote.

Kamens, too, was struggling to get paid. She left Krawlers by the fall, but had yet to be paid for her work from the prior spring. She wrote an email requesting that compensation, and Neumann responded that he’d take care of it.

Two weeks later, Kamens sent him another message, noting, “My birthday is the 19th. It would be a great present if we c/d be settled by then.”

She didn’t hear from him.

Neumann realized Krawlers wasn’t headed where he wanted it to go. It was hard to see how he’d be the millionaire he’d boasted he’d become while at Nir Am.

“It’s not going to be a one billion dollar business,” he told Roy Ramon, a good friend he first met in the navy.

He needed a bigger idea.

CHAPTER 2

Greenhorns

ADAM NEUMANN WAS HALF-NAKED WHEN HE FIRST ENCOUNTERED his future co-founder.

Miguel McKelvey was headed to a colleague’s Tribeca apartment, where there was a midday party on the roof. It was summer 2005, around the same time that Neumann was sketching out his ambitious plans for Krawlers. McKelvey, a mild-mannered architect in his early thirties, was in an elevator at 95 Worth Street when a tall man in shorts, but no shirt or shoes stepped in. Bursting with energy, the man launched into conversation with others in the elevator, speaking with some accent.

When the elevator stopped to let a rider off, the shirtless figure with long wavy hair held the door open to prolong his conversation; the other passengers all waited awkwardly while he kept talking. The strange interaction left an impression on McKelvey, who stood even taller than Neumann, at six feet eight. He’s breaking all social norms, all at once, he thought.

Soon, on the rooftop, the two chatted. It turned out that McKelvey’s colleague—Gil Haklay—lived with Neumann. McKelvey was intrigued by the extroverted man he’d just met; Adam was just the type of person he gravitated toward. As he later explained to an interviewer, “I like to be next to the center of attention.” They would keep in touch.

MCKELVEY WAS SOMETHING OF THE INVERSE OF NEUMANN. HE had moved to New York the prior year and hadn’t met many people outside his small architecture firm. He wasn’t big into drinking or social gatherings.

When he talked, he tended to avoid eye contact, looking down at the floor with his hands dangling from his pockets. He spoke with a dull monotone and peppered his slowly articulated sentences with “like.”

One thing he did have in common with Neumann was an offbeat childhood. McKelvey, too, was raised on a tiny commune of sorts, a collection of five women who were close friends and decided to raise children together as a single unit in Eugene, Oregon, largely without fathers in their lives. McKelvey considered himself to have five siblings—four sisters and one brother—all from mothers other than his own. Later, as he became aware of the unusual circumstances of his childhood, he’d make ...

Table of contents

• Title Page
• Copyright
• Note to Readers
• Dedication
• Epigraph
• Contents
• Authors’ Note
• Prologue: The Summit
• Part I
• Part II
• Part III
• Part IV
• Epilogue
• Footnotes
• Notes
• Index
• Acknowledgments
• About the Authors
• About the Publisher