The Rise and Fall of WeWork: A Modern Business Saga
Once one of the hottest startups and at one point valued at $47 Billion, WeWork filed for Chapter 11 bankruptcy in November 2023. Founded in 2010 by Adam Neumann and Miguel McKelvey, the company aimed to redefine the concept of office space, fostering a sense of community and collaboration.
The idea rose alongside Uber and Airbnb (aka shared economy), as a daily or monthly rentable chic office space with coffee, beer and ping pong tables. WeWork's innovative approach emphasized community-building, offering not just office spaces, but an experience that blended work and social interaction. They were seen as a disrupter of the office space business model, providing flexibility that had not been available before.
Something obviously went really well initially to achieve a $47 Billion valuation. Maybe. Valuations have a subjectivity that, well, are sometimes wrong.
So what went well?
WeWork had an innovative idea, and had large financial backing. They came onto the scene when business sharing concepts were exploding. It was easy to raise the money, with small and big investors. Because of the financial backing, it expanded at breakneck speed. WeWork was initially run by co-founder Adam Newmann, who was well known as flamboyant and eccentric.
WeWork was a great idea, at the right time, providing something that people wanted: a fun place to work.
What went wrong?
So much.
In 2019, as WeWork was preparing for an IPO, many leaks and red flags began to appear. Most of these concerns pointed back to the leadership and financial practices of CEO Adam Newmann.
With such a fast growth, WeWork had taken on too much space at 15 year leases. Aka - LOTS of debt and cash needs, with no idea how they would fill all the space. The concept and paired demand had not yet been proven. The market quickly began to realize that the valuation was inflated, and actually WeWork was in financial trouble. Newman was ousted, and the IPO failed in 2019 - right before the pandemic hit.
There has been almost nothing but bad news since the failed IPO. In the immediate aftermath, WeWork laid off thousands of employees. A few months later, it started phasing out free beer. In 2020, when the pandemic hit, WeWork vacated 66 locations, and its revenue started to shrink while its losses only grew because of all the long term leases they had signed.
With substantial losses continuing, and then the abrupt pause of office work in 2020 and people working from home, WeWork’s decline was fast. By 2021, WeWork’s valuations had slashed down to $10 billion. They had projected profitability in 2021 (WeWork lost $4.4 billion), and then again 2022 (it lost $2.3 billion.) The company finally went public through a merger with a blank-check acquisition company in October 2021.
What can we learn?
The largest question: is Neumann and the subsequent leadership to blame for WeWork’s descent into bankruptcy, or is COVID?
Both, really... Neumann grew the company way too quickly, relying on raised capital and LOTS of lease obligations that were based on a set of presumptions that had no basis in reality. There was always going to be a fall because of how the business was financially structured. They had not proven the concept and ROI before stepping on the gas.
But the pandemic and temporary death of office space dealt an unrecoverable blow. Neumann is still insistent that if he had not been ousted, everything would have been fine. But Neumann’s skill was to provide out of the box thinking and charisma. These types of leaders are needed for vision and innovation, but never strategic thinking.
The once booming business concept fully collapsed and died at the young age of 13. They have released multiple plans on reorganization and insist that it’s not dead yet, but the probability is slim based on the numbers, and not lack of trust in the market.
The shared economy itself is not a failure. AirBnB and Uber, while impacted by the pandemic, made strategic adjustments and have regained their momentum and profitability. AirBnb’s Case Study
The importance of proven sustainable business models, transparent leadership, and adaptability in the face of unforeseen challenges cannot be overstated. The rise and fall of WeWork has reshaped perceptions of tech unicorns and the leadership that executes those ideas. Even the most innovative ideas can fail without a solid foundation.
