Masayoshi Son and the Fall of WeWork
With the focus on Adam Neumann, we fail to recognize the role SoftBank’s Masayoshi Son played in the fall of WeWork. Now he continues using his think big, expand rapidly investment strategy. Which promising start-up will fall at his feet next?
They called him Yoda. WeWork’s co-founder Adam Neumann, and his wife Rebekah Paltrow Neumann, believed that Masayoshi Son had the force with him. Perhaps they were stroking his ego to access his open checkbook, or they really believed he was the wisest master in the world of technology. Either way, they would soon learn the mistake of interpreting the grandeur, out of this world commands of Son as practical direction and knowledge to gain success.
The fall of WeWork has been the talk of Wall Street and Silicon Valley ever since its failed IPO filing. Until that point, WeWork had been seen as one of the most valuable start-ups in the world, and had even been valued at $50 billion at one point. However, to sell shares to the public, WeWork was required to disclose its financials more broadly for the first time kicking off its downward spiral.
The We Company, the parent company of WeWork, had far more losses than profits raising questions and skepticism among investors. The mounting pressure to raise funds and concern regarding his corporate governance decisions resulted in Neumann stepping down from his role as the Chief Executive. With Neumann removed from his role, SoftBank has now turned its attention to saving WeWork by laying off 2,400 employees, outsourcing office maintenance work, and scaling back on its plans for expansion. As they work to quickly save the once famed start-up, they fail to address the most significant contributor to WeWork’s fall: SoftBank Group’s Chairman and CEO Masayoshi Son.
Son has a remarkable rag to riches story that is often reserved for some of the most gifted, hardest working, innovative thinkers of our time. With an estimated net worth of over $18 billion, he is well within the ranks of some of the wealthiest people in the world.
His story begins on the Japanese island of Kyushu where he was born to working-class Korean immigrants. His father was convinced that his son was gifted and always encouraged him to dream big. And that is exactly what Son did. At only 16-years-old, he met one of his idols – McDonald’s Japan founder Den Fujita after relentlessly pursuing a meeting with him. Fujita encouraged him to leave Japan and study in the United States. The next year, Son moved to California where he finished high school and college. While studying at the University of California at Berkley, he started and sold his first company for $1 million. Moving back to Japan, his bets and risks only got bigger resulting in both failures and successes.
Son’s greatest success story has been his decision to invest $20 million in the then untested start-up Alibaba for a 34% stake. He is famously known for deciding to invest in the company after a 5-minute chat with founder Jack Ma based on his intuition, or rather the look in Ma’s eyes. The gamble paid off for Son when Alibaba shares were sold on the public market and his investment was worth $50 billion.
It’s possible that Son was trying to re-live the excitement of winning big, or re-claim the fame he garnered with Alibaba when he invested billions with WeWork. He is said to have called WeWork his next Alibaba, even telling Neumann that he saw similarities between him and Ma. Whatever it was, it became unhealthy very quickly.
Son makes investments based on a vision. And that is his vision of interconnecting everyday objects through artificial intelligence to create a more intelligent world. He is a man on a mission and he’s impatient. His strategy to realize his vision is to travel the world on his private-jet and find technological innovators and founders with a vision, and give them money – lots of it, often even more than they need.
The only person who had a larger and more expansive vision for WeWork than Neumann was Son. WeWork executives have talked about Son’s lofty expectations, and were spending as fast as they could to meet them. They were expanding in markets all over the world – regardless of whether or not there was a need for their business offering. WeWork’s footprint more than doubled after SoftBank entered the picture, becoming the largest commercial tenant in New York City, Washington D.C. and London. A 2016 study conducted by the Kauffman Foundation and Inc. Magazine showed the dangers of expanding beyond consumer demand. Growth must be held in check and be in alignment with market demand.
Son’s focus is always on rapid growth and accelerated expansion. When he meets with founders, he is not focused on profits. Instead, he wants to know how fast the company can go. Sam Zaid is the CEO of Getaround, a company that SoftBank has invested $300 million in. Zaid has said he remembers Son asking him, “How can we help you get 100 times bigger?” Son is relentless in his pursuits and does not take no for an answer. He is even known to press founders to take more money than they have requested, at times threatening to back their competitors instead.
All of this makes sense when you look at Son’s childhood. His father pushed him and expected a lot from him, he was a minority living in Japan, and grew up bullied. He had a chip on his shoulder when he returned back to Japan from the United States to build his empire. He felt like he had a lot to prove, and likely still feels like he has a lot to prove and doubters to make wrong.
In 2016 Son was the second richest person in Japan as he trailed behind Japanese fashion tycoon Tadashi Yanai. It was around this time that the Saudi Prince Mohammad bin Salmon entered the scene. The Crown Prince was looking to economically diversify Saudi Arabia and was ready to give SoftBank billions to begin an investment fund. And so Son created the Vision Fund with a $45 billion commitment from Saudi Arabia’s sovereign fund. With the entry of other big players like Apple, Qualcomm,. Foxconn, the family office of Larry Ellison, and Son’s own money, the $100 billion Vision Fund was created. Subsequently in 2017 and 2018, Son took the top spot and became the richest person in Japan.
Now fast forward to 2019. From the losses accumulated by Son from the fall of WeWork and other start-ups SoftBank backed, Son has again fallen. He has been out-seated by Tadashi Yanai who is the richest person in Japan right now. While he has publicly said he’s embarrassed by some of his recent investment decisions, he still believes in his investment strategy. As he continues to move forward with plans for a second phase of the Vision Fund, there are no signs that he will be reigning in himself.
The removal of Neumann may seem to be the answer to rescuing WeWork, but it will eventually prove to be the wrong root cause. If SoftBank is unable to turnaround the fate and performance of its investments, investors will begin to turn to the one commonality between all of these failures: Masayoshi Son. Just like Son used his financial power to convince Neumann to step down, those with greater financial power may soon be looking for Son to step down. How much longer will Saudi Arabia, the Vision Fund’s biggest investor, remain patient? Only time will tell.
As Warren Buffet has famously said, “It takes 20 years to build a reputation and five-minutes to ruin it. If you think about that, you’ll do things differently.”
By: Niroja Arulananthan
Niroja Arulananthan is a Canadian writer at large who is interested in business, politics and media.