003 - WeWork Case Study - Promotion

Mike: [00:00:00] Hello and welcome to the BottomUp podcast. This is episode three. I'm your cohost Mike Parsons. And as always, I'm joined by the man from New York state, Mr. Chad Owen himself. Hey,

Chad: [00:00:13] Mike. We're, in the middle of our WeWork case study, podcasting here. What's your biggest takeaway so far?

Mike: [00:00:21] Well, you know, for all the criticism WeWork have had, they did some good things and I just don't want us to lose sight of those.

How about you?

Chad: [00:00:29] Yeah, I mean, certainly here at the end of 2019, they're getting tons and tons of bad press, but I think that's why you and I are sitting down here to catalog. Both the positive things that we can learn from, WeWork as well as maybe some of the missteps in the lessons we can learn from that.

And so today we're going to continue the discussion talking about the third P, the promotion, of WeWork and what they did wrong and what they did right and what we can learn from that.

Mike: [00:00:55] Exactly. So, this is all about decoding a business under the four P's. So so far, we've done the product, we've done the people, we're in promotion.

Now the next show will be all about profit, which is the big, stinky, hairy one. Let's just. Get it out there. and we really hope that on this show today that we can share with you one insight that you can take away a bite-sized, compressed, a little practical tool or tip, that will help you build better products or a better business.

So, promotion, well, you know, it's fitting that we use promotion as our third P because WeWork with the grandmasters of self-promotion. Chad, who rivals. WeWork, particularly Adam Newman, the founder over the last few years. Do you think there's any company? Maybe Elon Musk is a great self-promoter. I mean, Adam did an amazing job.

Chad: [00:01:52] I would put Elon above Adam, but yeah, Adam Newman's was certainly giving Elon Musk a run for his money.

Mike: [00:01:59] and there's so much to unpack here. not only on a positive side, there are some very critical learnings. and I think we're going to start with a great little tool that we love to do when we're working on projects.

It's a free tool, Google Trends where you can look and quantify, you know, generally awareness or some version of intent by comparing, different search queries. So, here is a massive insight. WeWork is actually bigger as a brand than the entire category of coworking. Keeping in mind that it popularized and brought to life this world of coworking.

But if you put into Google Trends, so just. Typing Google Trends into your search engine, you'll get there. But if you type in WeWork and compare the search interest with the term WeWork and the term coworking at its peak, WeWork with almost 10 times more popular as a search query than that of coworking.

I find that ridiculous. Chad, this is enormous.

Chad: [00:03:12] It's the Holy Grail for brands, right? Becoming synonymous with, right. You don't ask for a tissue, you ask for a Kleenex. You don't ask for a, you know, sparkling, sugar water. You ask for Coke.

Mike: [00:03:23] Right?

Chad: [00:03:24] And yeah. You don't, talk about, Oh, doing, coworking.

You talk about WeWorking. I think its kind of the brand Holy Grail to get there. Where

Mike: [00:03:31] yes,

Chad: [00:03:31] you've overcome the category in which you're in.

Mike: [00:03:34] So for me, that's just a great little tool that anybody can use. So, if any of our listeners just, it's so fun. You can do your Pepsi versus Coke.

you can do new England Patriots versus the San Francisco 49ers whatever you like. and compare that data and it gives you a really good sense of what moves the needle on search activity, which should be a proxy for awareness and intent, of your product. And, I think that this is where we should also credit, not only the company but particularly Adam Newman, their founder.

In the previous episode, we mentioned that he was the one that went out and got the first, investment, from SoftBank. And, he played a massive part in, getting so much press, so much awareness and conversation going around the brand. It was a credit to him, and I think, the fact that they were bigger than the category is a big idea.

But I think Chad, this is where we kind of pivot into some of the cautionary tales. I think the second idea that we want to bring you around promotion, building a brand and marketing, is that you need to be very careful of the promises you make, and they had a big promise at WeWork. What was it?

Chad: [00:04:50] To elevate the consciousness of mankind?

Mike: [00:04:54] I think if we were looking at Maslow's hierarchy of human needs, I believe that might be at the top, Chad.

Chad: [00:05:00] Yeah. But I think you can lose sight of the fact that you know, their business fundamentals, make them a business that's in real estate, right? So how do you get from real estate to elevating human consciousness?

Mike: [00:05:14] Right? And that's where we talk about being careful of the promises you make, because not only did they say they were elevating the world's consciousness, that they also said that they were a tech company. And the truth really is that when you make a big brand promise, you will be held accountable to it.

So, one of the things that happens is there becomes a reality distortion when the things that you say don't match the things that you do. And we've got this great, data, from CB Insights, which produce a lot of really good work. And they actually studied over the course of three or four years, the volatile new sentiment that was around WeWork.

And what you see are there, these peaks where they do interesting things such as new offices, partnership with MasterCard, something like this. But then what you see is how fragile that is because it's so big. You're really held to a very high account. And, what you see is that the sentiment in news shifted from.

Positive two incredibly negative in just a few months. The first news that really started the avalanche was that WeWork disclosed that their founder, Adam Newman, had taken loans from WeWork, had then bought buildings, and then leased those buildings back to WeWork.

Chad: [00:06:45] If that's not self-dealing, I don't know. It is.

Mike: [00:06:47] Yeah. And you can make these fine nuanced argument between, was it legal or not? And you might even find ways of saying, Oh, actually I didn't break any laws. But when you've gone out to the world and said, we're raising the world's consciousness, you know mankind's consciousness.

When you behave in such a self-serving way, it's so contradictory to that promise. You can see an enormous downside in new center. People started getting very upset with WeWork because of this lesson that we're sharing, which is, be careful what you promise to the world. And if you're out there self-promoting and getting yourself on the front of every magazine, just take heed because you'll be held to a high standard.

And Chad, this kept going, cause you gotta tell everyone what happened when their S1 got filed.

Chad: [00:07:39] Well, this is the other thing you, talked about the reality distortion field. I think this is where a lot of startups can get into trouble as a private company because you're not required to disclose really how you're running the business and how profitable or not you are.

You know, how you're spending your money, where your expenses are going, how you're getting your revenue, et cetera. But when you're filing an S1, at least here in the United States, you know, if you want to become a publicly listed company where the public can buy and sell shares of your stock, you have to get very specific and you have to lay it all out there.

And I think what WeWork found was when they tried to bring this, lofty narrative of elevating human consciousness, and we've got this amazing founder, and I think, the words community and Adam Newman appeared like 150 times in the S1. But when people started to look at the numbers and start to see these things, like, how money was flowing from the company as loans to Adam and then back to the company as rent payments and all that.

Like, I think that sunshine, kind of burst that bubble of that promise that WeWork made, and they ultimately couldn't live up to it in the minds of the public markets, and that's, you know, that's why they took such a hit in their valuation when they tried to take the company public.

Mike: [00:08:58] Yeah. So, everybody was buying the dream and WeWork had a valuation of around $46 billion. Right, as of today, here we are in November of 2019. It's down to four or five. But one of the interesting things is that as soon as the S1 filing, which disclosed all their numbers and financials, there's this great story that we have in the case study on BottomUp.IO,

and I'll just give you a short insight into it. But effectively, once the world saw the true numbers, it was such a contradiction to the vision and the promise that they had made. Google alerted WeWork and said that it was the most alarming swing to negative sentiment that they've ever seen in history for a company that's either on the stock market or planning to list on the stock market.

And I think I want to bring this all back. Be careful of what you promise because if you are acting in contradiction to it, the retribution will be very, very negative and very quick and strong. And in the course of two months, the company lost approximately 90% of its value. All the key execs got booted and it's on life support.

Like this company will have a great challenge to survive and many are saying that the rescue funds, committed by SoftBank are essentially the only reason they got that money because no one else would give them a cent, is because SoftBank couldn't afford for the loss of face, of, WeWork going into bankruptcy.

So, they were very fortunate that their main investor couldn't afford for them to go out. They were too big to fail.

Chad: [00:10:52] Yeah, and I think had WeWork not inflated their story so much, they might not have fallen at all. Sure. They might not have risen to such great heights, but the differences made extremely starkly in the second, little goodie that we have to share with you.

And it's an investor deck that WeWork put together in October of 2019. After their intention to go public, kind of backfired and then they had to go back out and try to raise some funds to save the business. the language is completely different. They're no longer talking about elevating human consciousness. They're no longer singing the praises of their founder, Adam Newman, who's no longer with the company, and they really just focus on the fundamentals of their business. You know, we're a lease arbitrage company we lease and build-out for less, hopefully than what we're charging customers.

And you know this is our plan for growing the business. And it's just the stark difference between what they were promising. in the S1 versus probably what they're more likely to be able to deliver in this investor deck is really stark and it kind of shows you, the perils of promising too much.

Mike: [00:12:06] Exactly. Well said. And, Chad did a great job of pulling together the original S1 filing and the subsequent investor deck. So, all of our listeners can see the stark difference, perhaps between the dream and reality. And, I think that really brings it together for the end of this show, which is, you know, be careful of the promises you make.

You can go out there and self-promote, but make sure it's sustainable. Make sure that you are on the right side of reality. Because what we clearly saw from WeWork as, whilst they were great at self-promotion, they pushed it too far and things fell apart at an incredible, never seen before rate so there you go, we've broken it all down, Chad. We've had a look at the promotion and prior to that, we've done people and product that only leaves us with one P left.

Chad: [00:12:59] That would be the profit P and I can't wait to go through all of the zany numbers associated with WeWork in, it's rise and fall. But yeah, that'll be, in the next episode where we conclude this four-part case study on WeWork, can't wait to share it with

Mike: [00:13:15] Alright guys. Well, that's a wrap of the BottomUp podcast. We'll see you next time for the last episode on breaking down the case study of WeWork.