Last Thursday, as November fog rolled across the San Francisco Bay, Masayoshi Son, CEO of SoftBank, walked into Salesforce Tower, on Mission Street, for a meeting that would determine the fate of thousands of people and billions of dollars. Here, inside this 1,000-foot skyscraper, he’d come to visit WeWork’s West Coast headquarters, a stunning space that spans three floors and boasts 360-degree vistas, Artemide lighting, vintage rugs, and a Vladimir Kagan chair.
But Son hadn’t come to admire the interior design or the view.
He’d come for a raw look at the grim picture inside WeWork right now.
A month ago, the embattled coworking company was on the verge of collapse. In late October, Son stepped in with a $9.5 billion rescue package, which for now has pulled WeWork back from the brink. All in all, he has staked $18.5 billion in the company since 2017.
Now Son has to figure out how to get his money back.
In an extraordinary meeting that would last close to four hours, Son huddled with executives from WeWork and SoftBank in a conference room, shades drawn, to map out a new course for WeWork. Co-CEOs Artie Minson and Sebastian Gunningham presented Son and top lieutenants from across SoftBank’s global empire with details of the current state of WeWork’s operations. Among those present were SoftBank’s chief strategy officer, Katsunori Sago; Rajeev Misra, chief of SoftBank’s $100 billion Vision Fund; and Marcelo Claure, CEO of SoftBank International, whom Son dispatched in September to oversee operations at WeWork, following the departure of cofounder and CEO Adam Neumann.
Together, the goal was to map out a plan to turn WeWork around.
Son, known for his ebullient, quirky demeanor (he once compared himself to Yoda), was all business. He told the group that he wanted the company to turn a profit by 2021. He also suggested that WeWork advised them to look for new ways to monetize existing space, by identifying additional services and products to sell to members. “If we have this space and we have it 24 hours a day, 7 days a week, what are the other ways it can be utilized?” observes one executive familiar with the discussions last week. A spokesperson for SoftBank declined to comment for this story.
Of course, WeWork already has a “hot desk” offering: “It’s perfect for those who need flexible, 24/7 access to a coworking space, but not necessarily a private office, or even the same desk every day,” says WeWork’s marketing copy touting the service. And the company’s acquisitions of Flatiron School and Meetup, for example, were arguably done to “identify additional services and products” either to sell to members or better utilize the space after hours.
“If in the past he had been all about grow, grow, grow,” says a source familiar with the discussions last week, “now he’s like, we need to prove to the world this is a really good business.”
To get there, WeWork is planning a restructuring that will impact thousands of employees, starting this week. The New York Times reported that 4,000 jobs will be cut. According to a source familiar with the restructuring plans, the company will announce this week the fates of its top executives, including Minson and Gunningham, as well as chief operating officer Jen Berrent. One source inside WeWork says a board meeting is planned Tuesday, and decisions regarding management changes will be determined then.
Even the fate of ex-CEO Neumann is unclear. One provision of his exit deal, not yet made public, stipulates that while the company is private, he has the right to designate one board seat and one nonvoting board observer, once he’s repaid his debts to SoftBank and stuck to the terms of a four-year noncompete agreement. If the company goes public, Neumann can regain two board seats (under the same conditions), provided future underwriters of such a deal don’t advise otherwise.
It will take more than cutting headcount to fix WeWork’s troubles. The company announced last week that it lost $1.25 billion in the quarter that ended in September, double its losses from a year earlier. Under Neumann, WeWork changed its name to The We Company; expanded into dozens of new businesses, including schools, a gym, apartments, and a surfing business; and set a breakneck pace to grow. “I am opening an average of two buildings a day globally,” Neumann told me in April. Between 2016 and the second quarter of 2019, WeWork opened 417 new locations. To fill those spaces, under Neumann’s leadership, the company offered deep discounts to tenants, which contributed to We’s massive losses. For example, in Austin, Texas, one tenant who ran a small events business recalls WeWork offering him dozens of free desks to move into one of its new buildings. The company was opening so many new offices that he learned that by switching locations every few months he could drastically reduce his overhead. “It was kind of common knowledge around Austin,” he says. “As long as you were willing to move, WeWork would give you free space.”
Under the new management, those flush days for prospective and current WeWork members are over. Rather than racing to open new locations, the company is now scrambling to pare back its sprawling operations. It is shedding all assets that aren’t part of its core business while also moving to fix problems with its core office-rental business. One real-estate executive familiar with WeWork’s operations says that the company is attempting to extract itself from leases negotiated under Neumann that were poorly priced.
As Son and his team dig in for the fight of WeWork’s life, they are facing strong forces moving against them. Competitors have been quick to take advantage of its weakened position. “We’re in a hypergrowth stage at the moment,” says Mark Dixon, CEO of IWG, which is WeWork’s biggest competitor, with 3,500 locations around the world. He says that the attention on WeWork is helping to fuel IWG’s expansion, which includes opening new locations and scooping up smaller competitors. WeWork’s bad press has been a selling point for corporate customers in particular—many have been put off by WeWork’s financial troubles. “Our strategy has been greatly helped by the focus that they have put [on flexible office leasing], so we are grateful to them for that,” Dixon says. “Thank you, WeWork.”
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