What went wrong with WeWork
Investment documents show that in 2017, WeWork had lost $883 million, despite having a revenue of $886 million.
Introduction:
WeWork Incorporated was founded in 2010 by Adam Neumann and Miguel Mckelvey in the United States of America. A business built shortly after the recession to serve as a provider of co-working spaces with headquarter in the ever-bubbling city of New York. According to Adam, the C.E.O, “WeWork is working to create a life and not just a living”. Adam was not new to the business world as he had ventured into different businesses including a baby clothing company. The end of the promising company in 2019 had plenty of people wondering what happened as they were in the process of going public. So, what’s the story behind this well-funded Unicorn company?
The Story:
The idea of WeWork was pretty simple. It was to serve as a community aiming to revolutionize the working space by offering everything needed at their locations. WeWork positioned itself as a place where you can work, eat, exercise, school, interact and sleep. It was a one-stop co-working space.
If you ever need to raise money for your startup without much stress, call on Adam. He is a king at fund-raising for a startup. In the space of 9 years, WeWork has raised over 8 billion dollars from more than 10 different institutional investors. WeWork Venture Capital and Private Equity Financings (vcnewsdaily.com). By 2017, the business was worth over 20 billion dollars in valuation as Softbank, a Japanese conglomerate had invested 4.4billion dollars in the business growth. At the end of 2019, it was worth 47 billion dollars after another capital injection of 2 billion dollars by Softbank.
With the constant injection of money, the business had over 32 locations in 2015 and by 2019, it had grown to over 500 locations with a presence in London, South Africa, South America, the Middle East, and India. Along the way, WeGrow, a “conscious entrepreneurial school” for children, was started at one of the locations, as well as WeLive, which provided fully furnished micro-apartments.
In 2019, WeWork decided to file for an Initial Public Offering(IPO). It was then it was revealed that the losses of 900 million dollars were incurred in the first six months of 2019. In the prior year, the company burned over 1.6 billion dollars. To put the loss into context, the entire tech ecosystem of Nigeria as of 2022 is not worth that amount. The IPO was moved to September 2019 with some key senior executives stepping down including the CEO, Adam (Who voted against himself). Within 33 days, the IPO was scuttled and WeWork’s valuation dropped by 70%. Again, Softbank injected 9.5 billion dollars into the business which was more than the worth of Wework at the time ( 8 billion dollars).
Adam was said to have lavished the company’s funds on private trips and expensive lifestyles. The stories of Adam and his wife’s mismanagement and strange behavior began to surface on the internet in 2019. Adam was reportedly offered a $1.7-billion package to leave the company by the investors.
What went wrong and the lessons:
1. The constant flow of money: Adam was described as one of the best salesmen ever. However, I think he is only good at selling to investors and not customers. I am a fan of companies that makes money from the customer rather than investors. Shift your mindset from investors to customers. In addition, it is cheaper to make money from customers.
2. Zero Corporate governance: Build a business that can be handed over without pressure. Build a business where you can take a week’s break off from. That should be the goal.
3. Rapid expansion on the back of an unsustainable business model: The desire to scale rapidly is good but the key is to grow rapidly in the metrics that count. Neumann was always eager to “sell an experience”, which made the company turn into a real-estate behemoth, that spanned 800 locations with more than 12,000 employees.
4. Management lavish lifestyle: A business is different from the owners. The business’ money is not your money. In years before the scuttled IPO, Neumann purchased at least five homes, including a $10.5 million Greenwich Village townhouse and a $60 million Gulfstream jet for WeWork. More troubling was the fact that Neumann reportedly took personal loans from the company at below-market rates to fund his lavish lifestyle. He also went on to purchase the trademark to the name “We”, and WeWork paid him $5.9 million to license it.
WeWork is now WeCrashed. Investment documents show that in 2017, WeWork had lost $883 million, despite having a revenue of $886 million. The Financial Times revealed that in 2018 the company lost $1.9 billion on $1.8 billion in revenue. According to the report by New Yorker, We Work was described as a boring old business of subleasing office space.
Tell me what you think about the WeWork business story. What lesson did you learn? Share with your family, friends, and every business owner in your circle.
Cheers to a profitable lifestyle,
TL.