
Some WeWork Board Members Seek to Remove Adam Neumann as CEO - moltensodium
https://www.wsj.com/articles/some-wework-board-members-seek-to-remove-adam-neumann-as-ceo-11569171188?mod=rsswn
======
soniman
This has all happened before. The proto-WeWork was called HQGlobal and the
firm behind it was Frontline Capital. The whole thing unraveled in the 2000
bust as the tenants all went out of business and canceled their leases at the
same time. WeWork is not going to be pretty when the economy turns. Bill
Ackman backed Frontline Capital and it pretty much sunk his first hedge fund,
Gotham Capital.

~~~
crb002
It can work, but they need more anchors. Stripe, Gitlab, ... companies that
are remote but have workers prefer to cowork. Economic downturn might actually
help them if they can gobble long term low leases. More unemployed also means
more consumer base outside big corporate America. Their biggest threat is
small mom and pop coworking spaces like Gravitate in DSM. Geoff wouldn't sell
for less than a massive premium, and nobody is going for WeWorks bad service
if they tried to compete.

~~~
cylinder
Why on earth would stripe pay a middle man like WeWork to manage their office
and lease?! Stripe is looking at buying an entire building. I'm pretty sure
they can handle a 15 yr lease just fine. And don't need WeWork staff to decide
what their office kitchens need.

~~~
wp381640
Because demand might be elastic and you can keep costs closer to utilization
and outsource stuff you don't want to do like manage an office

Same reason companies pay Google and Amazon for cloud servers

~~~
delfinom
But plenty of "non-WeWork" office space offerings have already been like that
for decades. They'll provide janitors, receptionists, etc unless you opt for
spaces without it to run your own.

~~~
dagw
_But plenty of "non-WeWork" office space offerings have already been like that
for decades._

Cynically, those companies have the downside of needing to make a profit.
WeWork strikes me as the sort of company that would happily take a massive
loss, just to get to brag that Stripe and Facebook use their services.

~~~
DavidHm
That's 100% been the case - I am familiar with the industry and they have been
more than willing to not make any margin in order to get the clients they want
(big names, or poach from the competition)

That strategy works great, so long as you have unlimited funding.

------
jeremyjh
> Mr. Neumann still has allies among the directors and the ability to fire the
> entire board thanks to shares he controls that carry extra votes.

It defies imagination that a fund would put 10B into a company whose CEO is
accountable to no one. I think we may also see new leadership in SoftBank, or
at least their next fund.

~~~
Donald
You can thank loose monetary policy that has created an unbalance between
capital seeking returns and the number of investment opportunities. Executives
have leveraged this into abusive multi-class share structures that sacrifice
shareholder's ability to reign in company behavior. The result is a few tech
executives wielding unaccountable authority over incredibly powerful economic
resources.

~~~
JumpCrisscross
> _You can thank loose monetary policy_

I'm not so sure. WeWork is the product of three capital sources.

One, Mortimer Zuckerman, who was "not just their landlords AND seed investor,"
but also "happened to own Fast Company and NY Post which were instrumental in
propping up WeWork in the press before anybody knew who they were" [1].

Two, MBS, who backed the Vision Fund to the tune of $45 billion [2].

Three, Masa Son.

Mr. Zuckerman's investment was too small to be affected by monetary policy.
And I doubt the Saudis invested in the Vision Fund because their bonds weren't
yielding enough. The only monetary actor is Son, though that is more based on
Japan than dollar dynamics.

WeWork's competition, on the other hand, is juiced by monetary policy in the
form of construction loan and mortgage rates. But that doesn't create WeWork,
just lots of commercial real estate.

[1] [https://medium.com/@henry.hawksberry/is-we-work-a-
fraud-5b78...](https://medium.com/@henry.hawksberry/is-we-work-a-
fraud-5b78987d3e61)

[2] [https://www.reuters.com/article/us-saudi-pif-investment-
fact...](https://www.reuters.com/article/us-saudi-pif-investment-
factbox/factbox-saudi-sovereign-funds-strategy-in-focus-idUSKCN1TT0ON)

~~~
rhizome
Aren't there also tax strategies/techniques that offer benefits from these
investments when they fail as well? That both making and losing money in the
VC/FinEng context each have their tax advantages (in the US)?

My impression is that upon this foundation and US interest rate/monetary
policies create a perverse incentive where the investor doesn't really have to
care too much how the company turns out. Like sure, a success pays off much
more, but bankruptcy isn't bad either. Did I dream all this? :)

~~~
JumpCrisscross
> _Aren 't there also tax strategies/techniques that offer benefits from these
> investments when they fail as well?_

The Vision Fund will have a $10bn capital loss to write off against future
capital gains taxes. But those losses are worth a hell of a lot less than
$10bn in cash.

WeWork has no federal guarantees and basically no assets. Its downside
scenario is grim for shareholders. The only one walking away with cash might
be Adam, though I expect he'll burn a good amount of it defending against
litigious shareholders and possibly prosecutors.

------
thedogeye
WeWork is a useful product. Office real estate is broken for startups.
Landlords make us take 5-10 year leases when startup planning horizons are
almost never longer than 18 months. WeWork earning 30-40% margins by allowing
us to take shorter terms that better fit our needs. Should be a good business.

~~~
hbbio
There is clearly a market for WeWork... and many competitors. WeWork is and
will be a great company, no matter what.

WeWork main competitor is Regus, founded in 1989. Regus is now present
worldwide with revenues of 2.535 billion GBP (2018). Their market cap is a
mere 3.68 billion!

There are also tons of smaller companies in that sector which are not
international (mostly 1/2 countries) with much lower valuations.

So, the business model is fine, the market fine, the room to expansion here
(especially with growth of remote work). Just the previous valuation wasn't.

~~~
chrisseaton
Have you ever been in a Regus office? They're horrible spaces. They don't _get
it_. WeWork is a lot nicer. That's why they're worth a lot more.

~~~
cure
Yeah. Regus offices are dreadfully bland. Also, they nickel and dime you for
every little thing (you want an hour of wifi for that meeting room you booked?
it's going to cost you...). Regus is also very expensive, as office space
goes.

~~~
samsonradu
This could be due to the fact that margins are slim and they're trying to make
a profit?

------
kunday
Prof Galloway wrote an article just days ago laying out what will happen to we
work given the IPO is shelved now. First one was to replace the CEO.

[https://www.profgalloway.com/wewtf-part-
deux](https://www.profgalloway.com/wewtf-part-deux)

------
MobileVet
With $700M extracted and long term leases to the company for properties that
he owns... One could easily ride off into the sunset.

It will be interesting, and insightful, to see if that is the tact he takes.
If he does... It will add credibility to the already strong case for this
being deliberate deceit versus unchecked ignorant hubris.

~~~
blantonl
He’s quoted as saying he wants to be “President of the World” and live
forever. This guy isn’t riding off into the sunset.

~~~
hef19898
So the bank robber type who gets caught after the perfect crime for picking up
a penny from the floor or for having one last job too many?

~~~
ineedasername
Both maybe? Trying for the We trademark money after cashing out 700m seems
like picking up the penny, and the various We spinoffs seem like the job too
many.

------
iamleppert
What kind of company that is controlled by a single man insists on branding
itself as “we”?

Even the name of the company is a bold-faced lie.

~~~
stagger87
Is your argument that companies that use plural pronouns in their name should
have certain types of ownership structures?

~~~
cdolan
First rule of getting out of a hole is to stop digging.

Honestly how did you make this logical jump? It’s pretty obvious to me the
parent post was pointing out that there is a lot of irony in a company,
completely controlled by one individual (or his wife if he dies), is named
“We”.

~~~
wavefunction
Unless it's the "royal We" and then it's even more potential delicious irony.

------
tempsy
Didn't investors, especially SoftBank, enable this behavior? They deserve as
much blame for this mess as he does, if not more.

~~~
tptacek
Help me understand how this is a coherent argument. I could see making the
argument that investors _share_ some of the blame for what the CEO did. How
could they have _more_ of the blame?

~~~
wpietri
I could argue it either way. But I think it's reasonable to suggest that there
will always be people who are scammers (or so oblivious that it amounts to the
same thing). We've only heard of Adam Neumann because investors gave him
billions. SoftBank in particular gave $10+ billion [1], and I understand
that's really just Masayoshi Son making those decisions. So I think it's
reasonable to give him a lot of the blame for empowering somebody whose
business plan appears to have been surprisingly close to that of the
Underpants Gnomes [2].

[1] [https://www.bloomberg.com/news/articles/2019-09-06/wework-
ip...](https://www.bloomberg.com/news/articles/2019-09-06/wework-ipo-turns-
contentious-at-softbank-s-vision-fund)

[2]
[https://knowyourmeme.com/memes/profit](https://knowyourmeme.com/memes/profit)

~~~
DebtDeflation
> SoftBank in particular gave $10+ billion

This is the fundamental conundrum. Softbank has invested a total of $10.65B
for a 29% stake in a company that (if valued like the commercial real estate
firm it actually is instead of the tech unicorn that it isn't) is probably
worth $5-6B if we're being generous. Further complicating matters, We is
posting losses and burning cash at an incredible rate and will need additional
financing in the very near future. It only makes sense for Softbank to
continue to prop We up if they believe they can dump it on a greater fool in
the very near future, which is looking less and less likely by the day.

~~~
goatinaboat
WeWorks next finance round was supposed to be $4Bn IPO money + $6Bn loans
contingent on the IPO succeeding. Another SoftBank-sized mountain of cash,
which is now looks unlikely they’ll get. It’s interesting that it’s the same
amount. Maybe this was SoftBank’s planned exit?

~~~
kunday
Even if someone were to invest in we work they will expect bargain price,
given things considering.

I think SoftBank is probably pushing things further enough until they raise
money for their next vision fund.

------
exogeny
Considering he has the votes to fire the entire board, I'd be shocked if this
happens.

Softbank is completely fucked.

~~~
gwern
Adam has the votes, but not the cash. Softbank has the cash, but not the
votes. Arrangements can be made.

Ironically, that's a problem for Adam precisely because We is _not_ Theranos.
Holmes had the votes _and_ the cash, which hadn't been spent yet since
Theranos wasn't a real business, and she could (and did) just coast for years
on what was already in the bank without any need to go to any investors or
banks or third parties (who would of course have demanded her ouster as step
1). But since We is a real business with real users and a successful one, We
can't just coast on its cash (even if it stopped expansion).

~~~
krisoft
> But since We is a real business with real users and a successful one, We
> can't just coast on its cash.

We have a very different definition of what does it mean to be a successful
business.

~~~
gbear605
It's successful in the sense that it could raise prices to make a profit and
there's a possibility that it would still have enough customers left. Unlikely
the oft-discussed "selling dollars bills for 90 cents" companies, WeWork is
creating real value that its customers will pay for. The question is still
open whether that value is more than the operating costs, but it's at least
possible. I'd bet against it though.

~~~
rightbyte
Uber is also creating real value for its customers.

~~~
bsder
And Uber could be profitable and create real value for investors. The problem
is that, in that case, Uber isn't a unicorn and isn't worth the billions
already thrown into it.

~~~
rightbyte
Ye, but depends on how much loans Uber has if they can ever be profitable. But
in theory yes. Just sack 95% of the RnD departement and raise fare prices
untill supply and demand even things out.

------
pythonwutang
This is just the beginning. Start microwaving some popcorn because this will
be quite a glorious train wreck to watch! Hopefully the negative impacts are
economically isolated.

~~~
19ylram49
My popcorn got cold. This train-wreck is taking too long. The suspense is
killing me.

------
larkinrichards
I don’t mean to speak in support of the CEO, and I don’t say this to support
WeWork.

> The Wall Street Journal reported last week that Mr. Neumann had taken
> marijuana on a flight from New York to Israel.

In this day and age, where we have businesses that legally sell weed, this
sort of commentary appears to be a pointless inclusion of “salacious” details.
It is irrelevant to the discussion of whether WeWork has a legitimate growth
model or whether the CEO is doing the “right” thing.

I suspect that SoftBank is attempting to win this battle in the court of
public opinion, because they bought shares that didn’t have the same voting
rights as Mr Neumann’s shares, and they now regret that decision.

~~~
nradov
The concern is not over the marijuana use per se, but over illegal drug
smuggling across international borders. That shows a major lack of judgment
and could have resulted in serious consequences for the charter company if
they had been caught. Based on that behavior and other reports I suspect Adam
Neumann suffers from narcissistic personality disorder.

~~~
larkinrichards
That seems like a serious diagnosis for anyone to make based off of news
coverage alone. I don’t think we are helping the dialog when we propagate such
ideas.

------
rvz
Looks like the IPO delay has caused a back-firing to the CEO.

According to him, it's more like MeWork.

~~~
sg47
More like YouWork, MeEnjoy.

~~~
ummonk
YouWork, a Me company.

------
bitL
Didn't the two head honchos already redirect some cashflow to their accounts?
I think they and their grandchildren will be fine... Softbank on the other
hand...

~~~
MobileVet
Yes... And Softbank was so high on kool-aid they let Adam sell them $700M of
his stake. Absolute worst use of investment at that level...

Taking a little out to derisk yourself after a B or greater round is
reasonable. Taking almost 10% of a round is obnoxious.

~~~
misiti3780
ya i was surprised that he was able to extra so much money also.

------
KoftaBob
He adds very little of value at this point, and only harms the reputation and
uses it as a way to funnel VC money into his bank account.

------
GCA10
Leaving aside all of the headline-making entertainment of Adam Neumann being
Adam, the real problem here is that WeWork really doesn't have much in the way
of enduring network-effect advantages -- even though it tried so hard to
convince investors otherwise.

In many tech-fueled marketplaces, getting big in a hurry is a practically
unbeatable advantage. I saw this 20 years ago when I was tracking eBay. No end
of little players would approach me and say: "I've designed a better
marketplace than eBay. If I just had 1 million users, you'd see how good it
is."

But it was too late, and there was no way for them to go from 10 users, to
10,000, to anything bigger. Loyalties on both sides of the market were already
sewn up. Both buyers and sellers wanted a deep, super-smooth market where they
could transact 10-50 times a month without ever being frustrated by a lack of
market depth. When people need a viable market many times a week, switching
costs become unfathomably high. eBay owned that concept for as long as it
would work. It's been basically the same story for Uber, Lyft, Twitter, etc.

But this is not true the one-time need of renting this season's splashy
workspace with free kombucha. Tenants pick their spot and then stay for 3
months, 11 months, three years or whatever. There's a little bit of shuffling
around and re-transacting, but not nearly as much.

Besides, if the WeWork concept is that good, it's easy to copy and does not
need giant scale to work. That's totally different from trying to build the
third ride-hailing service. In this case, someone who owns three office
buildings in Chicago's West Loop can convert them to a WeWork clone and rent
them just fine to people who want to be in that neighborhood. The fact that
this new outfit (WeLoop) does not have a London outpost or a list of 75,000
other tenants in other states is irrelevant. Buyers show up for one
transaction (get me a groovy office space in my neighborhood) and then they
are done. That is already beginning to happen, in fact.

Yeah, WeWork has a greater ability to serve large corporations that want an
ever-changing blend of space in a lot of cities. But that's not its core
market. And even if it is, WeWork isn't automatically better off than existing
REITs that can tweak their multi-city properties as needed.

So it's brave of Team Adam to go into a lot of cities all at once and tell
people that this year's losses will soon give way to profits once the
buildings fill up. But that doesn't seem to be happening on schedule. And even
if WeWork eventually gets to breakeven, that just entitles it to compete
against a lot of established players who already own better buildings in
better locations -- and who can clone whatever elements of WeWork design seem
appealing to customers.

Getting access to capital on super-friendly terms gave WeWork the ability to
build fast, almost regardless of what the short-term economics might be. But
now access to capital is getting quite a bit harder.

And that can feed on itself in scary ways. Once capital gets scarce, a lot of
expansion plans get much harder to carry out. Now growth slows. And that makes
investors more jittery. Borrowing rates go up; loan covenants get tighter, and
equity dilution gets more severe. Growth shrinks further. Money gets tighter.

In such situations, it takes a skilled pilot to land the plane safely, let
alone regain altitude.

~~~
smelendez
I think it's possible there could be advantages for a chain co-working space
over independent ones, but it depends on how the market looks long term. Not
saying that chain has to be WeWork, of course.

For instance, short term users, who pay the highest rates, could turn out to
be a big part of the market. That could be business travelers, companies
moving office or setting up offices, companies that need temp office work,
etc. They may go for a well-known chain over an independent, just like
business travelers often do with hotels. Similar with, as you mentioned, big
companies that need to hire in a lot of different cities at once.

It's also possible a big chain could manage to offer better deals than a
smaller player if they can negotiate with big, multicity landlords and other
vendors or get some kind of special deals for members (e.g., discounts on
software, or cheap lunch delivery/taxi service sharing drivers between
members).

We also owns Meetup, and I could see WeWork or another chain finding ways to
offer additional uses that we don't currently associate with coworking spaces.
The advantage could be easy online booking for all kinds of meetings and
events, maybe with added features like food and beverage catering.

A chain could also effectively become a marketplace for coworking and other
temporary business space needs. Maybe you could book a spot for your company
holiday party, or reserve a shopping mall kiosk for a week to do user testing,
or even book space at a non-corporate-owned coworking space through your
account.

~~~
notahacker
> We also owns Meetup, and I could see WeWork or another chain finding ways to
> offer additional uses that we don't currently associate with coworking
> spaces. The advantage could be easy online booking for all kinds of meetings
> and events, maybe with added features like food and beverage catering.

> A chain could also effectively become a marketplace for coworking and other
> temporary business space needs. Maybe you could book a spot for your company
> holiday party, or reserve a shopping mall kiosk for a week to do user
> testing, or even book space at a non-corporate-owned coworking space through
> your account.

Much as WeWork could bring customers, I can't help but think Meetup would have
been in a much better place to be that middleman for renting interesting and
varied spaces without being lumbered with a branded workspace product...

------
akulbe
Question, because I don’t know how this works. Who sets the valuation on a
company?

Does a CEO have anything to do with that, or is it wholly external?

~~~
goatinaboat
If you declare your company has a billion shares and I buy 1 for $1 then you
have a valuation of... one BILLION dollars.

If I later buy 1 share for $2 then your valuation has doubled. That is
basically SoftBank’s business model.

~~~
Dunedan
Basecamp even made a headline out of it a while ago:
[https://www.linkedin.com/pulse/basecamp-valuation-
tops-100-b...](https://www.linkedin.com/pulse/basecamp-valuation-
tops-100-billion-after-bold-vc-investment-fried)

~~~
kamyarg
> Basecamp is now a $100 billion dollar company, according to a group of
> investors who

> have agreed to purchase 0.000000001% of the company in exchange for $1.

Just wow, this is gold.

------
ineedasername
It seems too late for this to make much of a difference in IPO valuation for
investors (really SoftBank) to get the exit they want. Neumann's actions may
have been a catalyst, but now everyone is really questioning the "tech
startup" valuation and unit economics.

------
sciencewolf
Surprised it took this long!

~~~
toomuchtodo
Ponzi scheme Hail Mary.

Edit: This isn’t meant to be flippant. There is literally no value in this
company and its current owners are trying to dump it on a greater fool.

~~~
moltensodium
Does WeWork not have a crunchbase profile page? I'm curious about who all
managed to get out before the Softbank fiasco. Were employees allowed to sell
shares on the secondary market, or are they all effectively hosed now?

~~~
ascorbic
[https://www.crunchbase.com/organization/wework](https://www.crunchbase.com/organization/wework)

~~~
moltensodium
Thanks, not showing up in search for some reason.

------
emagdnim2100
Everyone likes to pile on WeWork, and I get it, but as someone who dealt with
both startup and solo office leases in the pre-WeWork era: my God is WeWork's
model comparatively amazing as a customer. The spaces are nice, there are no
headaches, you can purchase the exact amount of space and duration you need,
and you have a guaranteed decent place to do some work or just hang out
anywhere you travel.

The "no competitive advantage / anyone can do this" crowd is sort of ignoring
the fact that no one did, at least for folks that care about the things I
mention.

~~~
komali2
There's definitely pay per 6 minute desks in every city I've worked in in the
USA, did you mean something else?

------
LatteLazy
No one discusses it, but I thought a bit reason WeWork got this far is that
when they started, the financial crash meant commercial leases were very
cheap. Since they lock those in for 10+ years, but then their contracts with
the clients are 1m month plus, they have seen revenue rise with the economy
but costs stay roughly the same.

Its sort of the opposite of the problem banks have where they borrow short
term and lend long term.

------
serguzest
I am randomly bombarded by negative things regarding WeWork on the internet
lately. Some posts linked to negative news coverages about WeWork appeared on
my facebook feed (business insider articles) I saw somewhere else that how
some WeWork division manager wanted employees fired because she didn't like
their energy.

I have no opinion about the company neither I want to but I definitely feel
pushed to have a negative opinion about them!

~~~
domnomnom
Yeah when the CEO is basically profiting off borderline fraudulent name
licensing and leasing agreements there tends to be some moral outrage

------
racecar789
I wish a company going public could only release one class of shares. One vote
per share.

~~~
jayess
It doesn't appear this company will go public anytime soon, if ever. I give it
90 days before it collapses.

~~~
nknealk
It has enough cash in the bank already to survive well past 90 days, even at
it’s current burn rate

------
WesleyThom
I've seen on crunchbase and this app blind that there could be many layoffs.
As many as 5000. Whats going on?

Are the extreme cost cuts true?

------
amos19870630
Just like Theranos, investors once again fell for the personality and didn't
do their due diligence. Sure, the idea is great, but they have losses
exceeding $1.5 B. That in itself would scare me.

------
ben_jones
Playing Devil's advocate imagine having potentially millions of dollars
invested in tearing you apart - going through every piece on online history,
video, etc., trying to find something juicy to tank the company you've tried
so hard to build.

~~~
moltensodium
What company? What was built? It's a money destruction machine, not a
business. They have no plans or experiments or research moonshots that they
expect to be profitable, ever.

~~~
ohduran
People seem to forget that a lot: losing your shareholder's money isn't a
business.

~~~
dagw
_losing your shareholder 's money isn't a business._

True, but if you do it right it can be a very successful career.

