WeWork is a commercial real estate company providing shared workspaces for tech start-ups and other enterprise services. It was founded by Adam Neumann and Miguel McKelvey in 2010. WeWork’s business model was built on complex arrangements between the company and its landlords. There were also several conflicts of interest between Neumann and WeWork, which provided the impetus for the failed IPO and significant devaluation that would follow.
WeWork is a commercial real estate company providing shared workspaces for tech start-ups and other enterprise services.
It was founded by Adam Neumann and Miguel McKelvey in 2010.
Few companies have had a dramatic and convoluted rise and fall than WeWork.
For years, the company was at the mercy of Neumann’s unconventional leadership style and questionable behavior.
In a strange duality, both traits contributed to the success and also downfall of WeWork.
So intriguing is the company’s story it spurned a documentary entitled WeWork: Or the Making and Breaking of a $47 Billion Unicorn.
Some of this story is told below.
Company culture and questionable leadership
WeWork was built on a simple premise: it provided a place where start-up employees and freelancers could find like-minded individuals and discuss ideas.
Employees worked long hours but were well compensated with glamorous parties and extravagant perks.
Neumann’s approach blurred the line between work and pleasure, but most stakeholders fully supported an idea he believed represented the future of work.
However, doubts began to emerge over Neumann’s business acumen in 2017 after he told Forbes that WeWork’s valuation was “more based on our energy and spirituality than it is on a multiple of revenue.”
He was also accused of purchasing a private jet with company funds and filling it with marijuana smoke to the detriment of others.
Together with his wife, he may also have fired employees for giving off bad vibes.
In the end, many former employees accused him of being a toxic individual akin to a cult leader.
They frequently recounted him arriving at meetings intoxicated and claiming he would become the President, the Israeli Prime Minister, or a trillionaire.
Unsustainable business model
WeWork’s business model provided little scope for attaining profitability.
In a nutshell, the company leased office buildings, transformed them into shared workspaces, and provided free beer to tenants.
Rent would be paid by a rotating cast of freelancers, venture-funded start-ups, and larger corporations.
However, it’s important to reiterate that WeWork leases buildings and does not own them.
To make a profit, it had to charge workers more than it paid landlords.
Once the market recovered and hit record highs, WeWork started negotiating with its landlords for concessions, including reduced or free rent and capital infusions to refurbish certain locations.
Essentially, the company relied on landlords to keep the lights on while trying to build its revenue streams.
In early 2019, a Wall Street Journal article outed Neumann for a potential conflict of interest after it was discovered he purchased commercial properties and then leased them back to WeWork.
In August 2019, the company publicly filed documents for an impending IPO after making a $2 billion loss the previous year.
The paperwork was criticized for its dramatic, floury epitaph, which read, “We dedicate this to the energy of we – greater than any one of us but inside each of us”.
It also included several damning admissions made by Neumann, including that he sold a trademark for millions back to his own company and gave interviews contravening the IPO quiet period.
Alarmingly, he did not seem to grasp the magnitude of his actions or that they reflected poorly on him and the company.
WeWork then went into crisis mode as $37 billion was wiped from the company’s valuation.
Acquisition and restructuring
Fortunately, WeWork was saved by a Japanese tech investment fund, SoftBank, headed by one of Neumann’s closest allies.
SoftBank paid Neumann $1.7 billion to step down as part of the deal and took an 80% stake in the company, now worth around $8 billion.
SoftBank later reneged on a deal to buy $3 billion in WeWork shares after the scale and magnitude of Neumann’s indiscretions took their toll.
It laid off almost 20% of its global workforce in November, with more terminations in March and April 2020.
It also phased out free beer in its workspaces.
While the move to ban beer is arguably less significant than the mass terminations, it does hint at a new WeWork normal post-Neumann.
- WeWork is a commercial real estate company providing shared workspaces for tech start-ups and other enterprise services. Once valued at $47 billion, the company became embroiled in controversy and was acquired for the more modest sum of $8 billion.
- WeWork’s company culture promoted excessive spending, long working hours, and partying. CEO Adam Neumann was accused of being a toxic and bizarre leader who made wild, baseless, and sexist claims about himself and his employees. Company IPO documents show he was unaware of the consequences or magnitude of his actions.
- WeWork’s business model was built on complex arrangements between the company and its landlords. There were also several conflicts of interest between Neumann and WeWork, which provided the impetus for the failed IPO and significant devaluation that would follow.
- WeWork’s Concept: WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey. It offered shared workspaces for tech start-ups and other enterprises, creating a community for like-minded individuals.
- Unconventional Leadership: Adam Neumann’s leadership style combined long working hours with extravagant perks and parties. He blurred the line between work and pleasure, contributing to the company’s initial success and later downfall.
- Questionable Behavior: Neumann’s questionable behavior included making statements about WeWork’s valuation being based on “energy and spirituality.” He was also accused of using company funds to purchase a private jet and engaging in bizarre actions, like filling the jet with marijuana smoke.
- Unsustainable Business Model: WeWork leased office buildings and transformed them into shared workspaces. However, its business model relied on charging more to tenants than it paid to landlords. The company’s profitability was challenging, especially when faced with high rent prices and market fluctuations.
- Failed IPO: WeWork filed for an IPO in 2019, but the documents raised concerns about Neumann’s actions, conflicts of interest, and lack of understanding about the implications. The IPO was ultimately unsuccessful, leading to a significant devaluation of the company.
- Acquisition and Restructuring: SoftBank, a Japanese tech investment fund, stepped in to acquire an 80% stake in WeWork, valuing the company at around $8 billion. Neumann received a substantial payout to step down. WeWork underwent layoffs and cost-cutting measures to stabilize its position.
- Change in Culture: The acquisition and restructuring led to changes in WeWork’s company culture. The excessive spending, partying, and lavish perks were reined in, hinting at a new post-Neumann era for the company.
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