WeWork may be the tech world’s first zombie “unicorn.”
If the last month made anything clear, it is that the New York-based startup has a business model that’s doomed to fail. And yet SoftBank’s Masayoshi Son and JPMorgan Chase’s Jamie Dimon are engaged in a tug of war over who gets to delay WeWork’s demise.
Both billionaires erred in drinking Adam Neumann’s Kool Aid that an office-sharing supplier was, somehow, a tech disruptor. Now, Son and Dimon are embroiled in a race to save face by rescuing a corporate boondoggle better left to die.
Just four weeks ago, Neumann, cofounder of office-hive sensation WeWork was spending apace, signing property leases everywhere, many with 15-year terms, all on the assumption investors would buy his 1999 tech-bubble-era spin.
Then investors read the initial public offering prospectus. It depicted a leadership team burning through cash, and a governance structure that might make 1990s-era tech CEOs blush. Next, came the crash in WeWork valuations.
The mistake wannabe WeWork saviors are making is taking things so personally. Son can be excused for wanting to save Neumann’s unsalvageable company. Blame it on his 2012 acquisition of telecom albatross Sprint. It remains unprofitable. There is also the opportunity cost. Immeasurable management time, energy and resources have gone toward, first, struggling to turn Sprint around and, second, unloading the millstone.
Dimon appears to be determined to perpetuate the myth of omnipotence bestowed on him in 2008. As Bear Stearns and Lehman Brothers crashed, Wall Street executives faced existential crises. JP Morgan Chase avoided the worst the subprime debacle. Dimon played the role of white knight. There is reputational risk to admitting he got played by Neumann’s we-are-a-game-changer spiel.
Rather than rescue WeWork, why now ask some obvious questions? Here is one: Ever wonder why AirBnB does not rent property itself or remodel your kitchen? WeWork does pay rent—lots of it around the globe. And it invests big on making spaces it does not own trendy, buzzy and flowing with perks like free beer.
Dimon spends much of his time soberly eyeing bond issues and mergers-and-acquisitions deals. But Son, surely, should have noticed that the “sharing economy” WeWork harnesses thrives by getting labor, capital and basic responsibility off its books. The game is to fob them off onto others. With WeWork, landlords make their money and renters enjoy a measure of flexibility, while shareholders are left out on the curb.
Son is determined to change this narrative. He reportedly is ready to heap another $5 billionWeWork’s way. Whether he can is an open question. Despite Neumann being ousted as CEO, he still holds a hefty say on the WeWork board. And reports are, Neumann favors a JPMorgan Chase bailout over Son’s more hands-on approach.
There’s a good argument Son should walk away. Sure, WeWork accounts for 10% of his $100 billion Vision Fund. Son could write it off completely, apologize to shareholders and pivot elsewhere to raise returns.
Yet Son appears to be embracing Japan Inc.’s worst impulses by tossing a life-preserver at a drowning company. As the Nasdaq tech-IPO set hit a wall in the 1990s, Japan swung into bailout mode. Bureaucrats and business lobby bigwigs joined hands to stop any major company from going bust or being acquired by overseas executives.
In recent years, Japan Inc. circled the wagons to protect Sharp, Toshiba, Japan Display to name a few. Japan Display, remember, was cobbled together in 2012 by Hitachi, Sony and Toshiba and aided by the oxymoronically named Innovation Network Corporation of Japan. In July, Japan Display was receiving a—wait for it—bailout.
Nearly seven years into Prime Minister Shinzo Abe’s revival efforts, Japan is producing half as many tech unicorns as Indonesia. Here, Son has been a fascinating outlier. That rare Japanese CEO taking huge risks, swinging for the fences and showing his peers how to restore the nation’s innovative mojo.
Why, then, dig in on WeWork? So Son throws billions more at a cash-strapped company. And you change leaders at the top. You even roll up your sleeves to actively run the company. But Son is still left with a business model that does not work.
Talk about the Vision Fund losing vision just as Son is reportedly struggling to gather investors for a second giant venture capital pool. Son’s fund hardly seems equipped to stop and rationalize one company with a model easily replicated and is tied directly to the whims of property values it doesn’t own.
Since 2010, WeWork has been hoovering up vacant office blocks. It has been a godsend for office property markets from San Francisco to Singapore and Manila. Now, a pullback will leave landlords reeling. It could “negatively affect the valuations of surrounding office properties in those cities—even if they don’t have direct exposure to WeWork,” Bank of America Merrill Lynch analysts warned in a recent client note.
Son, though, may be courting even greater reputational damage when he comes up short trying to revive the undead. WeWork may not be the Pets.com of our time, but history may indeed lump it in with the poster children of the 1990s dot-com massacre. Cue the macabre “WeDead” jokes in VC circles.