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WeWork co-founder and CEO Adam Neumann is ready to take his business to the next level. Now he has to prove it to everyone else.
The entrepreneur of Israeli origin launched WeWork in 2010 with his partner Miguel McKelvey and his wife Rebekah, in order to transform the workspaces into coworking. And they succeeded. WeWork has 466,000 members in 28 countries and a value of $ 47 billion.
In December, the company confidentially filed an initial public offering under We Company's umbrella, which also includes its start-up WeLive Living Community Living and its WeGrow children's school.
In their context, revenues doubled last year to $ 1.8 billion, but losses also increased to $ 1.9 billion. After the disappointing IPOs of Lyft and Uber, the question of whether WeWork will one day become profitable naturally arises.
Especially with fears of an imminent recession.
Neumann, whose off-kilter behavior makes up for his imposing stature, spoke about this concern with us at WeWork's headquarters in Manhattan. He also explained why he thought people had a false impression of SoftBank's small, unexpected investment following the filing of the IPO, and how the company reacted to the personal ownership of properties assigned to WeWork – while bringing him millions.
Building a $ 47 billion business in nine years is not easy. This also requires a serious management of the ego; Neumann, 40, has grown from a billionaire in less than ten years. He is also the father of five children. He explained how his views on success had changed dramatically over this period and why, in his view, the adoption of Jewish Shabbat practice had made him a better leader.
The following interview has been modified for its length and clarity.
Richard Feloni: You co-founded the company nine years ago. You have a value of $ 47 billion and you have applied for an IPO. How do you understand that, given the tremendous scale the corporation has built up during this period? What strategies did you use?
Adam Neumann: About 10 years ago, I met my co-founder in life and business, Rebekah. I met Miguel a little bit before. It has always been about creating something bigger than ourselves. It was always a question of doing something meaningful.
I grew up as a leader because I surround myself with people who give me honest feedback.
It's creating around me a group of leaders who are encouraged to voice their opinions, to disagree, to communicate and to collaborate. If any of us think that any of us is approaching something that is wrong, it is our job to really push, fix and raise issues even when it is feels really bad at ease.
It's one of the most important things we've deployed here at WeWork and it works great for us. This is one.
Two: Realizing the world is global. Whatever the culture of New York, it is not the culture of Boston, not to mention Singapore, Berlin, Shanghai or Mumbai. You must understand that culture is a local thing. There is a world culture, but we like to say: "Global game book, local execution".
In the last six months, one of the things you've seen a lot about is increasing the accountability of regional leaders.
By being less centralized and believing in our partners, I can become a better leader and they are able to succeed.
How the CEO of WeWork has developed a $ 10 billion relationship with SoftBank's CEO, Masayoshi Son, whom he calls "Yoda"
Feloni: Creating relationships with investors such as SoftBank's CEO, Masayoshi Son, is also critical to this growth. How was it to meet him? How do you develop a relationship in which you can get someone to invest as much in the vision as you have?
Neumann: By the time Masa arrived, it was easier because we had a lot of work behind us. There have been seven consecutive years of growth of 100% over the previous year, all our figures being forthcoming, the cost per addition of another decreasing member.
Masa always saw an image bigger than the others and became heavier than the others.
I am usually the person who thinks very big in the room. But with Masa, no matter how big you think, he'll believe you. He will go bigger. I learned a lot from that. I still learn whenever I interact with him.
But I actually think it was some of the previous investors who wrote these big checks: Wellington [Management Company], T. Rowe Price, Loyalty [Investments]. They did not listen to their peers and said, "It can not work," and they really trusted their instincts. If it was Henry [Ellenbogen] at T. Rowe Price, or Michael Carmen at Wellington, or Will Danoff at Fidelity, each of them had to make that agreement, and they have always been great supporters.
I think these relationships were very important. Part of that was letting them criticize me when they disagreed with me.
Feloni: Is that how you built these relationships?
Neumann: We are talking about superpowers – one of mine, it is people. Building a relationship is natural in this organization. It's like that we do anything here. We do it physically, not virtually.
Feloni: What does it mean? If you sit down with one of these investors, how could your "superpower" emerge?
Neumann: You feel it now! You feel it because I'm talking to you. It comes from the heart. The way you build a relationship is genuine, with a real connection to the person. And listen.
I develop a relationship in a real way. I am here for my investors, as well as for my friends. just as they are there for me. Not only when things are good, but when things go wrong. I call in advance when there is a problem. I'm trying not to let them hear by the press.
When I am about to do something in their wheelhouse, something for which they are better than me, I will ask for advice.
In the case of Masa, he is doing very well face to face. I will take the plane to Tokyo, even if it is not always easy, and develop a personal relationship.
Rebekah and I are going to have dinner with Masa together, for example next Sunday in San Francisco, so it will become more personal.
Masa and Rebekah hear very well, which is fascinating because it is very difficult. She loves him very much. She calls him Yoda. he is Yoda. He has strength with him.
What really happened when the $ 20 billion SoftBank investment flew away?
Feloni: Last December, it was announced that SoftBank would invest from [a reported] $ 16 billion. It has been reduced significantly.
Neumann: That ended up being $ 6 billion. Everyone thinks it was $ 5 billion to $ 110 – [but it’s] plus another one billion secondary, so a total of six, which is important to know.
Editor's note: "Secondary" here refers to the purchase of shares from existing shareholders, rather than directly to the company.
I think it showed our relationship. We have actually filed [for an IPO] before, to keep open optional and because we knew that the deal with Masa was not 100% guaranteed.
We were supposed to close the deal and then, Masa called me to tell him that it would not work.
If you look at the stock market at the time, it was a transaction directly from SoftBank, and not from its Vision Fund Fund. The financial situation of SoftBank was therefore part of it. If you look at the exact date, December 24th, it was negotiated in Japan – it was Christmas Eve but the markets were open – SoftBank was down between 54 and 60% compared to the time when it was. agreement was reached verbally.
That day, if they had done it and after the money that they would have spent, WeWork might have had a higher valuation. But SoftBank had a bad day.
When Masa called me to tell me that was the case, he also announced that he was going to invest $ 4 billion at $ 110 a share and that he believed it.
In fact, I went to see him and said, "I would feel more comfortable if it was $ 5 billion, instead of $ 4 billion".
He said, "I would like you to do a little bit of a secondary."
I said, "In fact, it's great, because employees and investors thought they were organizing an event." We agreed on $ 6 billion together, which was very beneficial to all parties.
Relationships are measured when a challenge arises, not when everything is perfect. He called me personally and he was very simple. He told me exactly why.
Not only have I understood, but I talk a lot about believing in something bigger than myself, and the fact that if we always do everything we can, we are not giving any chance to the universe of the world. ;enter.
When I received this call, I was with my family on vacation. I did not even talk to my wife for hours and did not call any of my senior managers who were all starting to celebrate Christmas.
My wife asked me later in the night, "Why did not you tell me?"
I said, "I did not want to ruin the day for anyone."
And she said, "Why would you spoil the day, it was what was supposed to happen, there would not have been a problem."
I said, "Well, of course, I agree with you, but I thought maybe …"
"Oh, no, it's not a problem."
We are now in May, five months later. Only the hindsight will indicate it, but it seems that we came out surprisingly well. Our employees are very happy. What I learned later, our investors did not really want to sell, which I did not know at the time.
They would have done it because it was a fair price and negotiated legally, but it was not what they wanted.
Now that I have had the opportunity to talk to everyone after telling them how much they love society and how they see themselves as long-term bearers, I am very happy with the way things have gone. . Masa is still a huge shareholder. He has invested more than $ 10 billion.
Alyson Shontell: Would you have filed the paperwork to make it public if this agreement was not reached?
Neumann: I filed before. The day I filed is important. The day I filed, as far as I know, I was doing the whole case – which was actually $ 20 billion, not $ 16 billion.
I filed because I wanted to optional. A: The fact that we have agreed to an agreement does not mean that the agreement is reached – which ended up being the case, because it has not been signed yet. B: Until this moment of signing, I should still impose such a move, not only for me, but for the employees, for the investors, for our members. I would have really taken this last look once everything was said and done. What's better for all our employees and members?
But I am very happy that we are where we are today. I think it's a great example of an event in which, at that time, you might think, "Oh, no." Then you look five or six months later and you are happy. Masa is very happy too. He owns nearly 29% of the company.
The problem of Silicon Valley in Saudi Arabia
Shontell: I notice that you said that you collected from SoftBank, not the Vision Fund. This has not always been the case.
Saudi Arabia is a major investor in the Vision Fund. There are human rights issues out there. There is corruption there. There is what happened with the journalist [ Jamal Khashoggi’s assassination] The.
Was it a deliberate decision? Because many high tech companies benefit from the Vision Fund. It seems to me that Silicon Valley has a problem with Saudi Arabia because it needs a lot of money. What do you think of that?
Neumann: It is a very complex issue.
Shontell: Yes.
Neumann: I will go around.
Only our first investment came from there. All of the follow-up investments you know are SoftBank's investments, not the Vision Fund, which is a fact of life here. The first one happened in 2016.
It goes into politics, but I'm going with you a little bit. The world still uses fossil fuels. You want to take their money. You want to take their oil. You buy the plastic. It's in the system. It is not only Saudi Arabia. This is from all the countries of the Middle East.
Being myself Israeli, my greatest wish is a direction towards peace. Any country in the Middle East that wants to change money generated solely by exploiting natural resources by investing in technologies that could be futuristic technologies could not only generate financial returns, but could possibly to bring to his country advantages, which I support.
I think Uber – [cofounder] Travis Kalanick – does not get enough credit for the fact that, when Uber took money from Saudi Arabia, part of the agreement provided for women's permission to drive. It's a huge change.
I think the world is facing a global problem of extremists and a radical change in what different countries can allow their citizens to do or not. I think the only way to solve this problem is to get together and agree on a certain level of moral standards, namely that there are some behaviors and things that we do not have. let's not accept, whatever happens.
If that means we can not get money because of that, then I agree with you. But if we do not find a way to get together, to see the best of each other and to collaborate, even if it is difficult at first, then I think the situation will only make that & # 39; worse.
I hope that Silicon Valley will be able to associate with the entire Middle East. I think they should go from there to Africa.
Then I think that there are problems. I think there are still a lot of problems in Latin America. In the United States, we can solve a lot of problems. I think Silicon Valley has to do that. I also think we can go as simple as the homelessness problem in San Francisco.
I do not want to talk about it too much, but I think global companies need to start taking a stand on what's right and wrong, not just to pay less taxes or get support from the government of the country they want . enter; in reality, for the sake of humanity.
Feloni: So, are you taking this for your business too?
Neumann: We take this 100% regularly for our company. We have just published an impact report. The numbers are extraordinary – audited by third parties. We have increased GDP in cities. We have increased employment with our refugee program, with our veterans program.
When the day comes for us to go public, some of that will have to do with that, too. The reason for going public in the future is to be able to make more changes.
What will happen to WeWork during a recession?
Feloni: You start to have that impact. You grow quickly again. If you wanted to talk to investors, some are still wary of the company's loss of money, which has also increased over time. What would you say to them?
Neumann: Excellent question. Let me show you something. [He brings out a printed slide from an investor presentation showing a version of the following chart.]
Editor's Note: The graph is based on the following assumptions.
- Based on the first quarter of 2019, he estimates the number of offices added to 82,000 for an average value of $ 6,340.
- WeWork uses its own measure called community-adjusted EBITDA. It is defined as "Equivalent to member and service income, less adjusted rent, rental costs and adjusted operating expenses of buildings and communities".
- Its implied annual EBITDA margin adjusted by the community is 27%.
- Its average income per membership increases by 2% per year on a 15-year lease, based on the average lease term.
- It supposes a complete occupation.
Many other businesses spend $ 1 billion and this is used to pay employees or to discount a service.
When we spend $ 1 billion, [taking a look at] 2018, that could have added 236,000 members. I would have paid you an average of $ 6,000 a year. With a contribution margin of 27%, so a total margin, what does it mean?
That same $ 1 billion on a 15-year lease would generate $ 24 billion in revenue and a contribution margin of $ 7 billion. We do not lose money. we are investing money in the future. We build a global physical platform. To build this, you must build the infrastructure.
It's very different from other businesses that are spending $ 1 billion and gone, regardless of the discount on the market. Our billion dollars, when he's gone, he'll pay off as many times. It's crazy.
Shontell: Well, what will happen if the economy crashes one day here? [points to the middle of the chart]?
Neumann: Number one: we have a 50% discount on any other service. Suppose you are an IBM company, regardless of your company, and want to compare a Manhattan office you have with one membership – a dedicated space at WeWork. We are at least 50% cheaper than it will cost you [for your office]. So in times of economic downturn, if you want to spend less, you'd really like us.
Feloni: So you think you can benefit from a slowdown in the coming years?
Neumann: The last thing I want is an economic downturn, but I'll give you the math. Then you decide whether it's a benefit or not.
I know it's a fact that I'm 50% cheaper than the average [office] At New York.
In other cities, I am 60 or 70% cheaper. I am half the cost. So, if you are the CFO, it must be very attractive.
I am not a new record. From 2020, all leases must be on the balance sheet. I am a membership agreement and I am out of your balance sheet. It's very attractive.
For many CEOs, they feel that our space is better designed, has a lot of energy and gives them a lot of flexibility. They think their employees love him more. So, CEO: employees love him more. CFO: It costs him half the amount. Head of Human Resources: Higher retention.
In addition to all this, we can offer flexibility and mobility. These are all things that will work very well in a slowing market. Point number one.
Point number two and very interesting: 51% of our members work with each other. For small businesses, recessions end up being even more difficult than for large companies, which have a balance sheet. We will be able to offer a lot of internal activities – what we already do – that will help them a lot.
Number three. Companies are flexible. You want to become smaller, you want to become bigger. Some will want to get fat during the recession, others will grow smaller – the space is fixed. We give this flexibility.
Number four. At the moment we are talking about, we are already experiencing an experience in Buenos Aires after a slowdown, in São Paulo after a slowdown, in China, which people would consider a 50% drop, the Brexit – each of these markets I just said, memberships have never grown faster [than] when the market fell.
And here's the good: construction costs have dropped by 20 to 30%. It's huge for us. For the cost of renting, the lease itself has dropped from 15 to 30% [or we got] access to management offers.
A management contract is when the landlord is willing to give us no lease, to pay 100% of the construction and to share the benefit with us. Get better returns than the market. When there are no other tenants because the market is slower, everyone rushes to give us this deal. More management deals, cheaper leases and more modest buildings work wonders for us.
Moreover, as the company now accounts for 40% of our business, the average length of stay at WeWork is 14 months north. All these figures that were in the past, every month, are no longer our truth.
Editor's Note: WeWork defines a business customer as a customer with 500 or more full-time employees.
So for all these reasons, I say that we have already proven in markets where this has already happened. We are stronger [a downturn] comes and goes out much stronger.
That being said, I do not want an economic downturn for the obvious reason of WeWork, which puts human beings first and foremost. The last thing I want to hear is that a husband or wife goes to their partner and says, "I'm sorry to tell you, but I lost my job and I do not know how I I will take care of myself. responsibility in the household. "It's a bad thing.
Shontell: WeWork is a company created nine years ago. It's been around only during the boom.
Neumann: In America.
Shontell: In America. Yes.
Neumann: I am less than 50% in America these days. I am a global company with only 45% of my members in the United States and [that’s] become smaller.
Shontell: How to avoid getting stuck by paying long-term leases [if memberships were to go down]?
Neumann: Thus, the company now accounts for 40% of our business and we expect a significant increase in the future. For a company that is only two and a half years old, we already have 37% of all Fortune 500 companies, which is fascinating in such a short time. For these large companies, the average long-term lease would be 18 months. It is the number one.
Number two. The examples I gave you are concrete examples in countries where we are big enough. The numbers speak for themselves. In addition to that, you are sitting on a lot of money. This is part of the reason why it is important to be very well funded. You have a lot of options.
Do not forget that if you have to stop growth or slow down your growth, you will immediately have free cash flow and your margins are so high that you have a lot of space.
And our committed return history – meaning signed, unbreakable transactions that have started or are about to start, but a corporate credit – is greater than our revenues. I should have started with that!
After our bond earnings, you will hear our April going rate of $ 3 billion and our $ 3.4 billion committed logbook. And 80% of that is 12 months ahead, so guaranteed. This number will only grow. You will have a lot of transparency over the next 16 months, going from 24 months to 36 months, which is very unique. We are the only membership model "space as a service" able to show it for the future and with so many signatures.
And penetration – because we are so small, you are not looking for 80% of the market. You do not even look for 8% of the market. We are 0.09% of the market today going to 1%. There is a lot of room.
Why does the CEO of WeWork say that investors should trust him, even if he's won millions in a controversial way
Feloni: The other thing I've seen from potential investors is that they worry that you still own some properties. What would you say to them?
Editor 's Note: The WSJ reported in January that Neumann had leased to WeWork certain properties that he owned and had pocketed millions in rent.
Neumann: In 2013, when I acquired some of these properties, nobody bought us anything. The owners did not believe in renting WeWork. So, I had to give an example.
We have not only raised money, but we have $ 2.8 billion under management. But Ivanhoé Cambridge, who is highly respected in international institutions and very successful in real estate, has just collected a billion dollars. Everything is now under the company We.
The other thing is that to go ahead, everything I own and which one of the WeWork rentals is transferred to WeWork. I will lose money with this transaction, but the reason it is not a problem is because I am a major shareholder of WeWork. WeWork is me; I am WeWork. If it's good for WeWork, it's good for me. The only vision for the future is an aligned strategy.
Now that people believe in us and are willing to give us money to buy, we are very happy to have vinyl records [limited partners] like Ivanhoe Cambridge. We have some of the largest institutions in the world and we will not let them down. We will be very careful shepherds of their capital.
And the last thing I need is to diversify into more properties. I am much happier with WeWork, and let ARK, the company that will do it under We, focus on that.
In addition, the real estate side will not report to me. ARK is a separate corporation that reports to another president, Steven Langman. And they have fiduciary obligations to the people for whom they raise money. It is their job to buy real estate that will bring in their investors.
How to manage your ego when you go from a state to a billionaire in less than 10 years
Shontell: I was listening to a speech you delivered [at the United Jewish Appeal Federation’s annual dinner last December] and you said that in the 30 days that followed your wife, you offered him. In your first conversation, she said, "You do not understand."
Neumann: "You do not get it.You do not get the game of life."
Shontell: Right. So, what did you think success was at the time, when you were a fun guy with a model's sister coming out all the time, compared to now?
Neumann: First of all, I think you understand correctly. You have the essence of the answer to the question. I think the interesting thing about this first conversation with Rebecca is that no one has ever used those words with me.
When she introduced me that way, I was so impressed that I said, "Well, I want to know this game of life." I told him what success is and I defined it in a very boring way, perhaps influenced by Hollywood.
She told me that she thought that success lay in the entourage of people who matter to you and who take care of you, which creates an impact on the planet, benefits from the ride and enjoy every moment. Otherwise, it's not worth it.
I think her definition is truer today than she has ever been. As we begin to move toward this word called "success," I know today that Rebekah was right more than I could have imagined.
Lorsque Rebecca m'a dit cela, nous vivions au 166 2nd Avenue dans un appartement plus petit que ce bureau.
Shontell: Dans votre même discours, vous avez parlé de la gestion de l'ego. Vous avez dit que, autour de 5 milliards de dollars de valorisation de WeWork, vous deviez contrôler votre ego. Vous avez tout ce succès si rapidement. Votre famille se trouve soudainement dans une situation financière complètement différente. Je ne sais pas si vous étiez un milliardaire à l'époque ou non, mais vous étiez certainement en route.
Comment gardez-vous votre ego sous contrôle? Comment en êtes-vous arrivé à vous réconcilier avec votre nouvelle vie alors que tout se passait si vite?
Neumann: La réponse est assez cohérente. C'est vraiment Rebecca. Je pense que sa contribution à ma vie ne peut être surestimée. Je ne serais pas capable de le contrôler sans elle.
Par conséquent, WeWork n'existerait pas. Si je ne garde pas [myself] en échec, vous ne pouvez pas être la société "Nous" et une personne "moi". C’est pourquoi, au moment où la société était prête à acheter de l’immobilier, c’était comme si je prenais mon bien immobilier au prix coûtant. Je n'ai besoin de rien. Nous sommes tous ensemble. Et si quelque chose, c'était toujours vers une mission "nous".
L'accent maniaque de Rebecca sur le fait de toujours faire ce qui est juste par les autres, pas seulement par nous, ne laisse pas vraiment beaucoup de place pour cela.
Quand je ne contrôle pas mon ego et que je rentre à la maison la nuit, elle regarde mon visage. Elle n'a même pas besoin de me parler. Elle est comme, "Ugh, encore? Je pensais que nous avions couvert celui-là! Asseyez-vous."
Elle fera tout ce qui est nécessaire pour que je revienne rapidement. Allez traîner avec les enfants, allez-y, allez-y, et revenez dans une heure. Vous rentrez à l'intérieur et vous vous souvenez d'où vous venez et où vous allez.
L'autre chose est que je pratique la pratique spirituelle du Shabbat. Pour moi, Chabbat – et je le recommande à beaucoup de gens -, c’est l’opportunité de vous déconnecter de la technologie pendant 25 heures, de communiquer avec votre famille, de vous connecter avec vos amis, de vous connecter à quelque chose de plus grand que vous.
C'est presque plus pertinent aujourd'hui qu'il y a 3 300 ans. Je suis tellement reconnaissant que, dans mon héritage, il y ait eu cette pratique. Mais personne n’a le monopole de cette pratique. Je le recommande à tout le monde. Je pense que parce qu’une fois par semaine, j’arrête 24 heures sur 24 et me concentre vraiment sur ce qui est le plus important. C’est rester dans ma tête pour le reste de la semaine et m’aider, de manière réelle, à gérer moi-même et mon comportement.
Lorsque vendredi soir arrive, l’une des choses que nous faisons juste après l’allumage de la bougie est de chanter une chanson. La chanson parle de toutes les bonnes actions que j'ai faites cette semaine et de toutes les mauvaises actions que j'ai faites cette semaine. S'ils étaient pesés, qu'est-ce qui serait plus lourd, le bon ou le mauvais?
Vous souhaitez chaque semaine que le bien soit plus gros que le mal et que vous fassiez mieux la semaine suivante. En répétant ce type de pratique et en le partageant maintenant avec mes enfants dans un monde si connecté, la déconnexion n'a jamais été aussi importante.
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