Make Me Smart July 27, 2021 Transcript Note: Marketplace Podcasts Are Meant to Be Heard, with Emphasis, Tone and Audio Elements a Transcript Can't Capture
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Make Me Smart July 27, 2021 transcript Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can't capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it. Kai Ryssdal: All right, Molly, you ready? Molly Wood: Mmhmm. Kai Ryssdal: All right. Let's go. Let's go. Molly Wood: By ready, I mean taking a large sip off coffee but basically ready. Kai Ryssdal: Hi everybody I'm Kai Ryssdal, welcome back to Make Me Smart. None of us as we like to say around here, is as smart as all of us. Molly Wood: That's right. I'm Molly Wood. it is Tuesday, which means it's time to get some help being smart dive deep into a single topic. And today you can hear the joy in my voice. Because we are just taking, let's just call this a personal day, like a day, we just want to talk about this thing. The issue that led to bananapants becoming a thing on this show, the company that went so far past bananas that ended up at pants WeWork. Kai Ryssdal: It's just an amazing story. So we did an episode like two three years ago, about WeWork's IPO that went horribly, horribly, horribly wrong. Failed is a good word you could use also a founder Adam Nuemann's sub— "noy-men." I pronounced it like the microphone Nuemann his his boot-age from the company. A lot has changed since then. It was like a $47 or $50 billion company at one point now it's down to $9 billion is no longer trying to and this is their, quote, raising the world's consciousness. It's actually doubling down on real estate plans to go public via a SPAC, we've talked about those. Molly Wood: We have a whole episode about that too, because it's sort of equally bananas. We will put that in the show notes. That of course, though, is that special purpose acquisition company that a lot of companies are using these days where one company goes public as a blank check to bring in lots of others to presumably speed up the process, but potentially get rid of some of the public facing scrutiny that the traditional IPO route entails. Kai Ryssdal: So this is a story honestly, yes, about WeWork, but about a bunch more about startup culture, about finance and how all that works. Also, in a way about the economy that was and the economy yet to be. And so that's what we're going to talk about with Maureen Farrell. She's a correspondent and the Wall Street Journal, also a co author of the new book, it's called "The Cult of We: WeWork, Adam Neumann and The Great Startup Delusion." Maureen. It's so good to have you on. Maureen Farrell: Thank you so much for having me. Kai Ryssdal: I wonder maybe if the first place to start is with Adam Neumann and who he was and where he came from and where this company came from? Maureen Farrell: Sure. So Adam Neumann, was originally from Israel. He moved over to the United States after serving in the Israeli Navy for many years, in about 2001. And he was an entrepreneur from the minute he set foot in New York, and one of his first companies he went to Baruch College in New York for a while dropped out like every good entrepreneur is known to do you drop out of college to go after your business. And Adam Neumann, in Adam Neumann's case, it was a baby clothes company. And he had this brilliant in his eyes, very brilliant idea. He realized that he didn't have children of his own babies crawled, he thought their knees hurt, but they couldn't tell anybody. So he built baby clothes with built in knee pads. That was his first business. Molly Wood: I'm like, I just want to interject and say I am already so delighted with how this episode is going. So delighted. Maureen Farrell: So glad. So yeah, that was not the giant business he was telling everybody it was going to be and he but he was in downtown Brooklyn at the time in layer before the financial crisis like in the mid 2000s. And he met an architect His name is Miguel McKelvey. And they both started sort of talking about all different business ideas they might do together. And he came he stumbled upon this whole idea of subdividing office space. And they started with this company called Greendesk in an area in Brooklyn and decided to try it out when people take a fully fledged office instead of buying their whole own office space outfitting it What if they just did that and subdivided the space, they convinced a landlord to let them do that and a few floors in downtown Brooklyn, and it worked incredibly well. that essentially became the genesis of what a year or two later would become WeWork. Kai Ryssdal: What was the mechanism then whereby he gets from, you know, the the thing he was doing in Brooklyn to this thing that and look, I follow business news reasonably closely, but it did seem that he kind of we work sprang fully formed upon the scene as a as a gargantuan of the temporary office space thing. And, and I wonder how we got from Brooklyn to there. Maureen Farrell: When he first started his business. I mean, it took a lot to get this first building going. But essentially, you know how it took he he convinced a landlord yet again, he got some investments, friends and family. And they made this first building work, and it was around the time of the financial crisis. So there was tons of empty office space. So it was a little bit easier to sell this whole concept. Some other people were doing it. But in terms of the answer your question, Kai in terms of what changed it from this thing that other people were doing? It wasn't a neat idea, it made sense. You know, in this post financial crisis, New York with this empty office space, a lot of people are starting as entrepreneurs. But venture capital was really the answer. He is around like, by 2011 2012, Facebook was booming, the tech sector was, you know, really already starting to take off in such a huge way. And he just started calling this company, you know, we're not an office based company, he started saying, oh, we're the physical Facebook or Facebook in the third dimension. And he started pitching this company to venture capitalists is like the next fast growing company. And what Adam Newman was, as he was an incredible salesman, but what he was probably the most incredible at was raising money, tons and tons of money. And part of the way he did it was by convincing tech investors that this was the tech company. And, you know, not a real estate company, which is still even after writing this book, and following this company, it's sort of hard to fathom how he was able to do that. Molly Wood: So wait in in the process of writing and researching this book, you never ran across the secret, the secret deck that shows the actual technology here? Maureen Farrell: Oh, yeah, no, I never Well, there would be like, glimmers of technology. But they, you know, it was it was funny each step of the way he was calling it he sort of always knew how to hook on to what venture capitalism wanted, you know, in 2012, it was the physical Facebook. Eventually, it became more of an artificial intelligence company. And we did, we saw tons of pitch decks and he would sort of put some of the hot button terms of what was in that sort of text. Like I said, the moment he would weave them into rework. But they it kind of made no sense. And it what you never saw was how it translated into a profitable tech company. He was always billing it, as you know, we were going to take off it was going to take on the look like a tech company, but it never did is that I mean, as you both know, from covering the failed IPO, it was growing revenue and growing losses just as much until the day of its ill fated last IPO. Kai Ryssdal: So so all these investors and venture capitalists, primarily among them SoftBank, big fund, they like got got well, fleeced is too strong word, but they got sold on this vision by this guy. Maureen Farrell: Yes, it's incredible. I mean, there each step of the way, and I mean these were, Benchmark is considered one of the top venture capitalists in Silicon Valley. And they were one of the first big investors. And yes, each each step of the way, JP Morgan, Harvard's endowment, SoftBank, Goldman Sachs, like even their wealth management arm. Each and every investor he did, yeah, convinced them. And the funny thing that we noticed was that he would always get to sort of the top decision maker and have them see the light of why this was not the company thought it was, and it was so much more.