WeWork: Or the Making and Breaking of a $47 Billion Unicorn is a top documentary on Hulu, and it's not hard to imagine why. Who doesn't enjoy watching a self-important businessperson with a “God complex” fall from grace?
This documentary is about the charismatic Adam Neumann, cofounder of the once- booming, hip, and sexy unicorn known as WeWork, and how he managed to take a standard real estate company that leased office space and sell it to investors and millennials as the next Facebook or Uber -- a company that would change the world.
The crazy thing about WeWork was investors bought what Neumann was selling -- to the tune of $47 big ones (billion). Here are four things commercial real estate investors should take away from this film.
1. Be cautious of visionaries
WeWork came about at a good time. More independent contractors (freelancers) and entrepreneurs were on the scene and needed a better option than a coffee shop to conduct business. WeWork did it up right. But Adam Neumann wasn't content to brand his business solely as what it was: a real estate company that redesigns office space. Instead, he wanted to change the world.
Neumann explains in the documentary that instead of "I" like in iPhone and iPad, he prefers "We," reflecting a communal aspect to life that mirrors the Israeli kibbutz he once called home.
Neumann was a millennial with a vision. Sometimes visionaries win big: Steve Jobs, Elon Musk, and Walt Disney -- and sometimes they don't: Elizabeth Holmes of Theranos and Adam Neumann. Harvard Business Review looked into business visionaries and concluded "their managers created confusion and uncertainty about what the company strategy entailed." That description describes Neumann and his vision, "WeWorld," filled with We's: WeGrow (a school), WeLive (small apartments), Rise by We (a gym), and even WeWork Mars (just what it sounds like). The problem is Neumann, after all was said and done, simply didn't know what he didn't know. Investors should be cautious of grandiose claims.
2. Do your due diligence: Don't just ride the wave
WeWork used the "FOMO" (fear of missing out) technique to lure employees and investors. One employee featured in the film, afraid he'd miss out if he took just a couple of days to think about a life-altering proposition to join WeWork, immediately joined WeWork, even moving into WeLive, a sort of dorm room for adults.
Almost from the beginning, this new employee was so enamored with WeWork, he no longer wanted to socialize with anyone outside WeWork. The collaborative atmosphere of instant millennial work friends who also started partying at 4 p.m. every day was too much of a draw. And this draw was so much a part of the company culture that outsiders looking in often asked, "Is this a cult?"
Neumann was drunk with power (and probably just drunk or high) much of the time -- at least that's the scene he set for his followers, aka employees. From the 4 p.m. drink fests to the WeWork version of the Fyre festival, Neumann was selling an image.
Millennials and investors saw that something big might be happening and they took a leap of faith -- not exactly the best strategy when it comes to investing. Remember the adage: "Don't judge a book by its cover." Investors too would be wise to invest in substance over image.
3. Evaluate the board of directors
Although not exactly fun, it's to your benefit to evaluate the board before you invest in a company. The board at WeWork just couldn't stand up to Neumann, letting him run wild while burning through cash.
One scene from the documentary showed how Neumann was treated like the emperor with no clothes: He called a latte a cappuccino and vice versa, and rather than correct him, baristas just gave him a cappuccino when he asked for a latte and a latte when he asked for a cappuccino. Yeah, red flag here. That scene demonstrates that no one had the guts to challenge Neumann, and that usually doesn't bode well for a business.
4. Understand the business
Neumann's company probably would've remained strong if it focused only on the main business: a coworking space. But Neumann pretended the company was something it wasn't: a tech company (probably because tech companies run by millennials are cool). The problem is WeWork wasn't a tech company: It used tech and it tried to implement a sort of social media for WeWork employees, but no one used it. If you don't understand the business model, take that as a red flag; maybe it's because the model makes no sense.
The Millionacres bottom line
It was investors, such as SoftBank Group (OTCMKTS: SFTBY), who made the price of WeWork highly overvalued. Investors thought they were investing in something profitable. But if they had done their due diligence, they would've discovered WeWork wasn't making projected earnings. In fact, the company was losing money. Yet, investors kept feeding the beast. Don't be that investor.