← Making It with Jon Davids
Making It with Jon Davids
239 - How WeWork Built a $47B "Delusional" Business (steal the best strategies)
00:17:14
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- [00:01]
A
What's up, guys? J.D. here. If you're a fan of listening to the podcast, you may also enjoy watching it. Today's episode has a bunch of visuals, so head over to JohnDavids.com YouTube and you can watch it on my YouTube channel. While you're there, hit subscribe and leave a comment. Let me know what you think. And of course, if you prefer to listen, stay right here. Okay, let's do it. You're listening to Making it with John Davidson.
- [00:31]
B
If we do the work right and we find a way to become a real family in this community and company, not just our employees, but also with our members around the world, we could wake up one day and say we want to solve the problem of children without parents in this world. We can wait and do it within two years. And then children are abusive situations. And then we can go to any minority or anyone who is weaker, who is getting taken advantage of with someone who is more powerful. And from that, we can go to world hunger. And there's so many topics that we could take one by one.
- [01:00]
A
And that's Adam Neumann, the guy who looks like a youth pastor who just discovered tequila. He's on stage talking about how his company is going to solve all the world's problems. Children without parents, abusive households, world hunger. And this goes on for a while. And then about a year later, he's gonna get fired and watch his $47 billion mass hallucination come to an end. But, and this is the part we care about. Before the crash, he convinces the world's richest people to give him unlimited money. He creates a fever dream of capitalism and brand building that can teach us a lot. So today, I'm gonna strip away the delusion. I'm gonna crack open his brain, and I'm gonna steal his Playbook so you can do what Adam did, legally and ethically. My name's John Davids. I'm the CEO of Influicity. Brands like these pay me lots of money so I can make them lots of money. And this story could make you lots of money. And it's totally free. This episode is brought to you by my Playbook social media selling machine, available right now@johndavids.com let's be real. You don't want likes. You want sales. You want to know that customers are going to show up every day from the content you're already posting. This Playbook shows you how that's done, how to turn social posts into cash flow, and how to scale in a way that's simple, repeatable and on brand, grab it free right now at johndavids.com playbook. That's johndavids.combookbook. so, first off, to understand the WeWork fever dream, we need to understand the business. And honestly, the business is incredibly boring. Adam starts WeWork in 2010, and the model is simple. He rents an office floor from a landlord for, let's say, 1,000 bucks. He puts up some glass walls, buys some nice couches, installs a beer tap, and then rents desks out to freelancers for $2,000. That's it. That's the whole business. It's called real estate arbitrage. It's been around for hundreds of years. It's what Regus does. It's what your local landlord does. I literally did this in my old office. It's not that special. But Adam realizes something. If he sells office space, he's a landlord, and landlords make 5x valuation. And also, nobody likes landlords. But if he wraps that boring real estate in a layer of tech bro fairy dust, suddenly he. He's not a landlord. He's a tech CEO. He's Steve Jobs with a lease agreement. And just like that, WeWork isn't a rental company. It's a physical social network.
- [03:31]
C
One thing I heard a lot when I was asking people about you is, you know, you're basically renting out. You're renting space, and you're renting it out again, is. Is the community part what makes you different from. From a Regis, you know, another office kind of renting company that they've got 2,000 locations or something gigantic.
- [03:50]
A
Right?
- [03:50]
C
But you guys are different from them.
- [03:52]
B
So, you know, the world is shifting. You have a generation that cherishes intention and meaning a lot of times above material goods, and you got to treat everything different. The difference between us and a lot of other companies, and we don't really look at competitors. We really look inside and see how can we build a better product and a better company. But the difference is, when Miguel and I started this company, the intention was, can we change the world?
- [04:15]
A
And.
- [04:16]
B
And if we taught other people to treat each other the way they want to be treated, even if they did it just a little bit inside, wework, will that make a difference? And we feel that all those things, the more time is passing, the more we let it happen, the bigger the difference is. So, yes, community is definitely the difference. But I think the real difference, intention and meaning behind what we do, there's a real reason to why we chose to do what we're doing.
- [04:37]
A
And Then something crazy happens. People buy it. They start investing real money into this corporate psychosis. So Adam hits the gas. He opens locations in New York, London, Tel Aviv. He's growing so fast that they are literally building the desks while people are moving in. It is a speedrun of capitalism. But to keep the money flowing, he needs to keep the hype going. And that brings us to our first big lesson. Most businesses make the mistake of selling the thing. If you sell coffee, you talk about the beans. If you sell software, you talk about the features. Adam looks at that and laughs. He knows that features are commodities. Anyone can rent you a desk. So Adam decides to sell identity.
- [05:21]
B
A few months ago, I got the pleasure to have a trip that was a three day trip. One day in New York, one day in London, and one day in Tel Aviv. And the most amazing thing that I saw in that trip as I was doing it is that the members might speak a different language and dress a little differently, but inside, they're all part of the sweet generation. They're all part of the awakening. And they all feel the same. They're global citizens of the world. They want to work to create their life's work. They don't want to just work to make a living. And they're willing to share and leverage their peers and the other members globally to become successful.
- [05:58]
A
Did you hear that? They're all part of the we generation. They're all part of the awakening. They're all global citizens of the world. Listen to that language. Even the mission statement is up there. Our mission is to elevate the world's consciousness. This shaman of subleasing is renting desks to graphic designers in soho. But he talks like he is leading a spiritual revolution. He bans meat from the company expense account because WeWork is saving the planet. He creates a summer camp for employees called WeWork Summer Camp, where thousands of adults go into a field, listen to Florence and the machine, and marinate their souls in lukewarm vodka. And my friends, this is brilliant because it vaporizes the competition. If you're a freelancer looking for an office, you have two options. You can go to a boring gray cubicle with a flickering light bulb, or you can join the we generation. You can be part of the tribe. You can drink the craft beer and high five the dude next to you who was also saving the world. Adam makes you feel like by writing a check to WeWork, you're becoming a better person. You aren't a tenant. You are a global citizen. Now, obviously, Adam takes this Too far to the point where the underlying business can't possibly support the brand mirage sitting on top. But the strategy is rock solid. You need to stop selling the utility of what you do and start selling the identity of the person who buys it. If you run a gym, don't sell access to weights, sell the feeling of being an athlete. If you're a financial advisor, don't sell tax returns, sell freedom from anxiety. People don't buy products, they buy solutions to their problems. That's how they see it. And if your solution also helps them feel like a better version of themselves, you're playing at another level. Adam Neumann sold the version of the freelancer who wasn't lonely, wasn't struggling. They were manifesting who they were meant to be. I don't even know what that means, but I'd pay money for it. It works so well that those people pay double the market rate for a desk in a shared workspace. So that's the first piece. But there's something else happening here too. A cool brand is a start, but it won't get you a 47 billion DOL valuation. For that, you need to bend reality. And this is where Adam becomes a magician. He needs investors to look at his real estate company and see a software company. Because real estate companies Trade at maybe five times earnings and software companies trade at 20 times revenue. It's a massive difference. It's so important that Adam literally bans the word real estate from the office.
- [08:37]
C
WeWork does a lot of tech as well that people don't really see that the commons thing is part of that, but you do a lot more than that.
- [08:46]
B
So a lot of people might be surprised to know that we have more engineers in WeWork than contractors, architects and designers. We're not only. It's not even about being technology first. In today's world. When you build a company, if you're not technology oriented and you're not letting that lead your information process and your decision making process, then you're missing out.
- [09:03]
A
He tells investors we are a platform. He builds an app that nobody really uses. He buys a wave pool because tech, he starts using words that don't mean anything. And then he invents his own metric. This is my favorite part. Adam creates a financial metric for his company called Community Adjusted ebitda. What the actual does that mean? It sounds like something you'd learn at Harvard Business School if your professor was chugging Ayahuasca. So EBITDA is earnings before interest, taxation, depreciation and amortization. It's a fancier way of saying profit. This is how much money we made if you ignore all the money we spent on marketing, administration, building offices, everything. EBITDA alone is a shaky number, but this guy is truly distorting reality. It's like someone saying, I'm on a strict diet. As long as you don't count the pizza, the beer, and the nachos I ate at 2am it's financial fan fiction. But because he says it with total confidence, the investors nod their heads and I. I have to admit, I kind of love it. It's just so good. It's reframing everything. So how can you use this strategy without getting investigated by the sec? Well, it's called positioning. Brand positioning just means you control the frame of how everyone else sees you. You decide what category you play in. One of the best recent examples that I've seen of this is Chomps versus Slim Jim. I talked about this back on episode 198 of my podcast. Technically, both of those sticks of dried meat. But Slim Jim is positioned as gas station food. It feels greasy and it costs a dollar. You buy it with a Coke and a bag of Doritos. But Chomps is grass fed. It's Paleo. It's fuel. You buy that at Whole Foods after your yoga class. And because of that positioning, chomps can charge 300% more for a seemingly similar product. Positioning can make or break your business. And when you use it right, it can lift you to a whole new level. Adam knew. He knew that if he positioned wework like a commodity, he'd get paid for a commodity. But if he took it premium, made it a tech company, he'd get paid premium. So he did the smart thing. And you know what happened next? Stop positioning your business like a gas station snack and start positioning it like a superfood. Quick break. So I can tell you about Influicity. That's the little marketing agency I started in my apartment about 10 years ago. Well, fast forward, it is not so little anymore. Influenicity works with some of the biggest brands in the world, building customer communities that drive revenue. We do this through influencers, podcasts, paid media, social media content, AI, and so much more. You can learn more@influicity.com and hey, while you're there, check out our case studies. We have a lot of them. That's influicity.com. okay, so you're selling identity. You've thrown up a reality distortion field, but you still need the cash. You still need that big, big Bold billion with a B bankroll. And this is where Adam gets dangerous. He meets this guy named Masayoshi Son, the CEO of SoftBank, the dude with the biggest venture capital checkbook in the world. Masa is known for making big decisions in split seconds, and Adam knows this. So when Massa comes to visit WeWork in December 2016, Adam doesn't give him a long winded presentation. He gives him a 12 minute tour. Adam rushes Masa through the office. He shows him the energy. He shows him the packed desks. He orchestrates this insane sense of urgency. He basically implies this train is leaving the station. You're either on it or I'm going to your competitor. Massa tells Adam to get in his car. And right there in the backseat of a black Limo driving up 18th street in Manhattan, Massa drafts up a check for $4.4 billion. And then he tells Adam to get even crazier.
- [13:15]
D
Some of my investors said, mahsa, you get too excited and too much concentration into one company. Don't go too far too much. But I still, you know, I'm so excited, and if I could increase, I would like to increase.
- [13:35]
A
Adam used FOMO fear of missing out to make WeWork an irresistible investment for SoftBank. He made the deal feel scarce. He made himself the prize. And let's be honest, I can't fault Adam for this part at all. Massa made the decision to write the check himself, and Adam cashed it. Two big boys making big boy decisions. Now, we boys and girls, we don't want to flush $47 billion down the toilet like our dollar store Jared Leto friend over here. But seriously, you need to steal this strategy. You've got to create fomo. I see so many entrepreneurs begging for business. Oh, I can start whenever you want. I'm available 24, seven that reeks of desperation. And desperation is the cheapest perfume on the shelf. You want to be magnetic. You want to be desirable. You run a restaurant, you sell cars. You're a massage therapist, you're a financial advisor. You need to manufacture some type of scarcity. And here's the reality. We all have it naturally built into whatever we sell. I'll tell you exactly how to do it at a basic level so you can show your real scarcity. Just look at how airlines do it. Go book a flight and then look at the ticket prices. A lot of the time it'll say something like four tickets left or seven tickets left. Right there, you're showing scarcity just by calling out the number. Because I as the buyer don't know if that's a lot or a little. Your customers won't know either. When you put a number to it, you express scarcity. There's a finite amount of this thing. That's step one. Step two, sometimes the airline will say there's six tickets left at this price, which means we actually have more tickets. But the price could be different, say $1 more. So I'm portioning a bucket of my product, airline tickets, and saying these tickets are finite. So even if you have lots more of the other tickets in other buckets, this bucket won't last long. Do you see how effective that is? But fellas, we're not done. Let's take it home with step three, impose a deadline. So the airline could say, we have six tickets left at this price and the price goes up at midnight. Now, you have scarcity because there's a limited number of tickets and you have urgency because the price will go up at midnight. How much better is that than just saying you want to buy a ticket? Every business needs some kind of FOMO engine. If you do it like WeWork, it could be worth a lot of money. So there it is, the WeWork playbook. And by the way, even though we work bled billions and billions of dollars, Adam Neumann still walked away with hundreds of millions while his company imploded behind him and his employees lost everything. I don't recommend that part at all. That is not for me. That is not for us. But the strategies underneath, those are magic. My name is John Davids. Get my best stuff to your inbox@johndavids.com this episode is brought to you by my Playbook website selling machine, available right now@johndavids.com playbook. Most companies want websites that look nice. But a lot of nice looking websites don't sell. What you really want is a website that grabs attention, builds trust and turns visitors into buyers while you sleep. That's what this Playbook gives you. Based on 10 years of work we've done at Influicity, optimizing websites for 7, 8 and 9 figure brands. Download the Playbook now at johndavids.com playbook that's johndavids.com Playbook.