The Rise and Fall of WeWork: What Every C-Suite Executive Should Know 

The Rise and Fall of WeWork: What Every C-Suite Executive Should Know 

On the 6th of November 2023, WeWork, once the titan of office-sharing workspaces, filed for Chapter 11 bankruptcy protection with debts soaring to $18.65 billion against its $15.06 billion assets.
Once valued at a staggering 47 billion dollars, what are the reasons that drove the rise and fall of WeWork? How can they guide your organization’s journey through the ever-evolving landscape of tech C-suite staffing? Let’s unravel the compelling narrative of WeWork’s rise and glean strategic insights for today’s leaders.

WeWork’s Meteoric Rise 

Marked by its innovative approach to office spaces, Adam Neumann created WeWork in 2010 as a way to offer flexible and collaborative office environments.¹

This co-working company located in New York embraced the concept of shared workspaces as the modern solution for many organizations. WeWork tapped into a growing trend of freelancers, startups, and established companies seeking adaptable office solutions.

By 2015, the company reached a valuation of $10 billion with offices in 32 locations. Its number of clients grew to over 23,000 all over America.

This growth can be attributed to the following strategies WeWork used to stand out from the competition:

 

Marketing a Community

WeWork designed beautiful, hip co-working spaces to foster a sense of community among members. This created a buzz and attracted many freelancers, startups, and companies looking to move away from traditional office dynamics.

Instead of focusing their marketing on the physical spaces, they defined their brand as a way to build a community of like-minded individuals. This means renting a space with their company can also result in benefits like network growth and connections.

 

Low Office Rental Rates

Another reason why WeWork became popular was its low rental rate for office space. Since clients were only renting small, flexible office spaces, clients were asked to pay only around $45 per month. The company assured its customers that this was a reasonable price since it also included the chance to meet other professionals within the same industry or field.

Moreover, the company offered short-term rental options and easy membership plans, making it affordable for new startups or independent workers. Lower overhead costs shared across many members also allowed WeWork to keep rental rates inexpensive.

 

Quick Global Expansion

Because of its initial success, WeWork caught the attention of investors like SoftBank. In 2017, the bank invested around $8 billion in the company. This investment increased WeWork’s valuation to $20 billion, which it quickly used to expand aggressively into many cities around the world. This rapid scale gave them an edge over rivals.

 

The Company’s Downfall 

Although the company continued its expansion, its success came crashing down in August 2019 as it filed for an Initial Public Offering (IPO).

During that time, WeWork’s investors were able to see the company’s performance metrics for the first time. To their dismay, they learned that the company amassed a total of $3 billion in losses in the past three years.

Due to these numbers, investors began pulling back from the company. Softbank, their largest backer, got cold feet about investing an additional $3 billion. This left WeWork strapped for cash right before going public.

But what caused these negative business statistics? The following are some of the issues WeWork encountered that led to their downfall.

 

Ambitious Growth Strategy

WeWork pursued an extremely ambitious growth strategy that ultimately compromised its financial stability.

The company prioritized rapid global expansion. It focused on opening lavish new co-working locations even before existing spaces generated profits. This growth-at-all-costs mentality came at the price of prudent financial planning and operations.

Aside from more office spaces, WeWork branched out into side businesses like WeLive shared housing and Wave entertainment venue. They tried to create a series of businesses under the company, but this diluted focus from its core offering without producing returns.

Their years of aggressive growth accumulated over $3 billion in net losses even before 2020. This continuous debt bogged down the company and left little buffer to weather downturns.²

 

The COVID-19 Pandemic

Their expansion’s breakneck pace also left WeWork vulnerable when disaster struck with the COVID-19 pandemic. Many locations were forced to shut down for months, while those that reopened saw only sparse demand, with more professionals working from home.

As the pandemic persisted, many companies found remote or hybrid arrangements more convenient and cost-effective even when restrictions eased.

With businesses realizing that expensive central offices were unnecessary to maintain productivity, WeWork and other co-working spaces saw demand fall. A cultural shift toward more virtual collaboration meant fewer professionals needed to rent memberships across WeWork’s many locations.

Already saddled with long-term leases and debts, WeWork struggled to stay solvent as revenue dried up due to sparse occupancy. Locations with all the amenities sat empty while leases remained unpaid.

 

Leadership Issues

By late 2019, WeWork was running so low on cash that it had to cancel its IPO. This prompted Softbank to step in, purchasing a majority stake in WeWork to keep it afloat. However, heavy losses continued even after leadership changes and restructuring efforts.

The change in CEOs could not affect the direction of the company’s success. This is because WeWork was drowning in debt due to bad decisions made by its previous leader, Adam Neumann. Based on news reports, Neumann often invested in things that have questionable relevance to his company. Since WeWork lacked a board of directors, he made financial decisions based on his interests.

Take WaveGarden, a company that builds artificial wave pools, as an example. Neumann, an avid surfer, invested $13.8 million in WaveGarden in 2016.³ However, the WaveGarden location he invested in closed just a month later due to construction issues and complaints from the local community. This wasted capital could have instead helped keep WeWork survive.

 

Takeaways for C-Suite Executives 

It’s undeniable that WeWork achieved something not many startups could. Instead of looking at it as another failed company, consider what you can learn from its historic rise and fall.

The following are five takeaways from WeWork’s experiences:

 

1. Treat Data as Your Compass

Basing investments, expansion plans, valuations, and other big decisions on financial fundamentals and metrics is vital. These include:

  • Key Performance Indicators (KPIs) like customer acquisition costs, churn rates
  • Return on Investment (ROI) across initiatives
  • Growth trajectories – revenue, market share
  • Profitability by segment
  • Staying on top of changing regulations that may impact what technology or data you leverage

The biggest mistake Neumann made was making decisions without consulting the numbers first. Whether it’s leasing another open space using loaned money or investing in companies with big promises, you need to always base your decisions on researched statistics.

Always rely on accurate metrics and insights to inform strategic choices. This way, you can ensure a well-informed path moving forward. Regularly assess market trends, customer feedback, and internal performance metrics to avoid blind spots that could jeopardize your company’s success.

Read More: From Gratitude to Greatness – How to Accomplish Your 2023 Goals 

 

2. Create Sustainable Business Models

Growth only matters if paired with a viable path to profitability. Ensure your core business can sustain itself with realistic projections before you branch into new ventures. Hoping to find an audience that would bring them profit, WeWork diluted their focus with side projects like WeLive and Wave. This was done even when their main coworking spaces were still bleeding cash.

Instead of experimenting with different products, it’s best to strengthen what you already have. Stay focused on building a resilient framework that aligns with your company’s goals, visions, and missions.

Focusing on long-term viability will surely shield your organization from the pitfalls of unsustainable growth. It can also enhance your company’s capability to weather any industry challenges that may come your way.

 

3. Seek Professional and Expert Advice

All of the poor investments made by Neumann could have been prevented if he had a board of experts reviewing WeWork’s big financial decisions.

Being a good leader, you must ensure that your decisions remain unbiased and beneficial for your company. To make this happen, surround yourself with advisors who will thoroughly test ideas rather than just nod along.

Cultivate a culture where your team feels empowered to offer candid guidance on vulnerabilities rather than fearing consequences. Be mindful when creating your team of professionals. Prioritize both their expertise as well as the diverse perspectives they can offer.

Read More: The 2023 Competitive Advantage – Leveraging Top Talent and Diversity 

 
4. Plan the Allocation of Budgets and Assets

With the hopes of gaining an edge against competitors, WeWork bought outside of their means. The lack of financial planning and proper budget allocations led to the company’s tragic downfall.

To avoid this, carefully evaluate financial risks across obligations related to your own company, industry, and working process. Rigorously scrutinize your expenditures. Moreover, always remember your company’s financial health and capabilities during the planning phase.

Ensure your resources are directed towards initiatives that align with your business goals. Remember that effective financial management safeguards organizations from drastic losses like what WeWork experienced.

Read More: Consulting 101 – What Every Employer Needs to Know 

 

5. Maintain Realistic Valuations

Accurately benchmark your company’s actual and projected worth. By knowing the true score within your financial state, you can make informed decisions and prevent commitments from escalating far beyond your reach.

Without doing their calculations, WeWork overestimated their value. Although this led to more investments, it also created unwarranted expectations and unsustainable financial structures.

For you to avoid a situation like this, conduct regular reevaluations of company valuations. Factor in revenue multiples, growth trajectories, addressable market size changes, competitive forces, and macroeconomic shifts.

Aside from transparently modeling valuation methodologies, consider anchoring leadership’s perception to realistic markers like revenue growth, margins, and cash burn rates. This way, you’re enabling accurate financial planning and avoiding unrealistic expectations.

 

EMPOWER YOUR ORGANIZATION WITH A STRATEGIC LEADER

Success hinges on effective strategies and an experienced team. If your company is seeking a leader to make impactful and strategic decisions On-Demand Group is here to help our clients with our Technologists in Residency Program. We offer award-winning technology consulting services and solutions that can meet your varying needs. Contact us today!

 

References 

1 Lake, Sydney, and Alena Botros. “WeWork’s $18 Billion Bankruptcy Is the Last Thing the Reeling Commercial Real-estate Sector Needed.” Yahoo!Finance, 8 Nov. 2023, https://finance.yahoo.com/news/wework-18-billion-bankruptcy-last-203752692.html

2 Reuters. “WeWork Troubles Deepen As SoftBank Pulls Its $3 Billion Tender Offer.” CNBC, 2 Apr. 2020, www.cnbc.com/2020/04/02/softbank-terminates-3-billion-wework-tender-offer.html.

3 Holmes, Aaron. “WeWork CEO Adam Neumann Is Such a Big Surfing Fan He Led the Company to Invest $13 Million into a Startup That Creates Artificial Waves — Check Out How ‘Wavegarden’ Works.” Business Insider, 18 Sept. 2019, www.businessinsider.com/wework-ceo-adam-neumann-invested-in-wavegarden-wave-startup-2019-9.

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