wework case study

Why did WeWork fail, and what is next for the company?

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Reporting by Kannaki Deka and additional reporting by Susan Mathew in Bengaluru; Editing by Anil D'Silva

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WeWork Case Study: A Fall From the Pinnacle of Success

Devashish Shrivastava , Anga Mahatara

Here's a thorough WeWork case study briefing the history, business model, and the fall of WeWork from the pinnacle of success. WeWork is an American organization that gives shared workspaces to other companies and organizations.

Established in 2010, it is headquartered in New York City. WeWork oversaw 46.63 million square feet of space in 2018. WeWork structures and fabricates physical and virtual shared spaces and office administrations for people and companies. WeWork has over 700 locations in 38 countries for workspace.

In January 2019, the firm declared its plan to rebrand as "The We Company"; it was valued at $47 billion at that time. In that year, troubles started brewing for the company.

Adam Neumann left his position as the CEO and surrendered a greater part of ballot control in WeWork from 26 September 2019. WeWork also postponed its arranged securities exchange posting until the end of 2019 as issues began to arise in its corporate administration, valuation, and other business aspects.

On September 30, 2019, WeWork officially pulled back its S-1 documentation. The proposed IPO was thus delayed. The organization's valuation fell below $10 billion, not exactly the $12.8 billion it had raised since 2010.

How Was WeWork Founded? Rapid Expansion of WeWork Business Model of WeWork WeWork Business Growth WeWork IPO Failure Future of WeWork In India

How Was WeWork Founded?

In May 2008, Adam Neumann and Miguel McKelvey started GreenDesk, an "eco-accommodating coworking space" in Brooklyn. In 2010, Neumann and McKelvey sold the business and began WeWork. Its first area was New York's SoHo district with halfway financing from Manhattan land designer Joel Schreiber who obtained a 33% stake in the organization for $15 million.

By 2014, WeWork was considered "the quickest developing renter of new office space in New York", and was on track to turn into "the quickest developing tenant of new space in America. "During the monetary emergencies, there were these vacant structures and these individuals outsourcing or beginning organizations," Neumann told the New York Daily News.

"I knew there was an approach to coordinate the two. What isolates us, however, is community." WeWork collaborated with several organizations, including new businesses such as Consumer, HackHands, Whole Whale, Turf, Fitocracy, Reddit, and New York Tech Meetup. In 2011, PepsiCo put a couple of representatives in the SoHo WeWork, who went about as guides to littler WeWork part companies.

The first WeWork Labs opened in New York's SoHo in April 2011. WeWork Labs works as a startup hatchery , furnishing an open workspace to empower joint efforts among individuals who "don't have their business-related thoughts completely cooked."

Rapid Expansion of WeWork

The company had 51 cooperating areas in the US, Europe, and Israel in January 2015– twice the same number as it had towards the end of 2014.

On June 1, 2015, WeWork reported that Artie Minson, previous Chief Financial Officer of Time Warner Cable, would join the organization as President and Chief Operating Officer.

On March 9, 2016, WeWork declared that it raised $430 million in another round of financing from Legend Holdings and Hony Capital Ltd., pegging the organization at $16 billion at that time.

By October 2016, the organization had raised $1.7 billion in private capital. In October 2016, the organization reported its arrangements to open a fourth area in Cambridge/Boston region. It opened workspaces in Boston's Leather District and Fort Point in 2014.

On January 30, 2017, the Wall Street Journal composed that SoftBank Group Corporation is gauging speculation of well over $1 billion in WeWork Corporation, in what could be among the principal bargains from its new $100 billion innovation fund."

In April 2017, the organization began offering wellness classes in some of its areas and opened an exercise center at a New York location. In July 2017, the valuation of the organization came to around $20 billion .

Later that month, it was reported that WeWork would expand to China using $500 million contributed by SoftBank , Hony Capital, and different loan specialists to shape "WeWork China".

In September 2017, WeWork ventured into Southeast Asia through the acquisition of Singapore-based SpaceMob , and it put aside a financial limit of $500 million to develop in Southeast Asia, the home of more than 600 million people. The association's top rival in China is Ucommune, the main Chinese unicorn in the coworking space.

In late October 2017, WeWork purchased the Lord and Taylor Building on Fifth Avenue in Manhattan from the Hudson's Bay Company for $850 million. The arrangement incorporated the use of floors of certain HBC-claimed retail chains in New York, Toronto, Vancouver, and Germany as WeWork's shared office workspaces . The deal was formally finished in February 2019.

Business Model of WeWork

WeWork was established in New York in 2010 to offer cooperating spaces to business visionaries, new businesses, specialists, and enterprises. WeWork has developed quickly, making it one of the biggest and most obvious cooperating chains on the planet.

It presently has representatives in over 700 areas around the world, incorporating stations in many U.S. urban areas and 38 nations that include Brazil, Germany, and Thailand.

How Does It Work

Superficially, WeWork's business model resembles a moderately ordinary land play. Over the 700+ areas it operates in, everybody from solo business people to enormous organizations can lease everything from a work area to a private floor. WeWork is not the same as your normal land organization — it conveys an incentive to the inhabitants and the landowners.

WeWork gives its occupants something that is conventionally elusive, an on-request adaptable space with momentary leases (even on a month-to-month premise at times). This takes care of the problem of continuous shifting, one that affects developing businesses.

The process of shifting involves finding another office space, moving in, marking a long-haul rent, rebuilding the space , and moving out to begin everything once more elsewhere.

At the point when an organization exceeds its WeWork participation, it can move up to a progressively extensive alternate space, a private office, or even a private floor — diminishing erosion from changes. Clients don't need to consider all the particulars of leasing office space, and they gain admittance to a lot of office advantages (free espresso, quick web, etc).

For landowners, WeWork offers huge incentives , including higher rents, an extended inhabitant pool, and increments in land esteem. In a blog entry distributed in 2018, the organization announced lease premiums between 15-29% in structures it managed in New York and Los Angeles. WeWork claimed a generation of $250 million in extra income for proprietors in New York, Chicago, and Los Angeles alone.

Space Used by WeWork

WeWork feels managing a business workspace is an intense issue regardless of how enormous (or little) your association is— and it's once in a while a center competency. Consultants and the employees of nascent stage companies don't have the financial backing to pay for office space, and end up telecommuting or working out of some stop-hole arrangement.

A below-standard working space could restrain joint effort and profitability. Small and medium-sized organizations battle with spending requirements and restricted assets, and development directions can make space needs a moving objective.

Venture associations face close consistent strain to cut expenses and increment productivity — land and activity costs can be a difficult barrier to cross. WeWork positions itself as the answer to these issues. By giving turnkey, versatile workspace arrangements, the organization vows to wipe out the contact associated with finding, involving, and dealing with a workspace.

Consultants and new companies get the advantages and preferences of having an office space without the expenses and obligations that accompany it. Small organizations get adaptable, reasonable space alternatives that can be reconfigured as needed.

WeWork rents a couple of floors of a structure from a property director in a high-thickness urban zone. It revamps the space to incorporate a blend of private workplaces, meeting rooms, parlors, and open workspaces.

It adds additional facilities such as espresso, office supplies, and brew on tap. WeWork pivots and leases workplaces to a blend of specialists, solopreneurs, new companies, and huge organizations.

WeWork essentially fits a larger number of bodies into its spaces than a run-of-the-mill corporate office. The normal per-individual office space in the United States is just shy of 200 square feet, as indicated by the US General Services Administration.

WeWork individuals can anticipate under 100 square feet. WeWork does this without yielding specialist profitability or fulfillment. Indeed, a central guarantee at WeWork is that its spaces are deliberately intended to cultivate greater efficiency and more development.

Services Added With Value by WeWork

Another factor adding to WeWork's guarantee of "greater profitability, more development" is the worth-added administrations the organization offers to individuals. In 2018, it relaunched WeWork Labs, a hatchery-style program for new companies planned for helping them develop their business.

In February 2019, the organization reported a redo of the WeWork application, complete with new ability-sharing highlights planned for making it simpler for clients to discover, interface, and team up with different individuals.

Once individuals enter the WeWork environment, it becomes hard for them to leave owing to the benefits. The organization's open recording archives report a net enrollment consistency standard of 119%.

WeWork's developing exhibit of significant worth included administrations — going from espresso and office supplies to showcasing programming and an administrations commercial center — push it past a basic landowner into a sort of full-administration proficient "hatchery" where an individual can arrange, and develop their business, adopt new abilities, and have the everyday details of dealing with a workspace dealt with.

On the off chance that an organization or individual moves to another city, there will be another WeWork space sitting tight for them . If a vital accomplice or specialist organization is required, WeWork can help find the ideal option. What's more, as the organization develops from a little startup to a large organization, WeWork's administration scales to keep up with the upgrade.

Analysis of Data

An essential piece in the WeWork ecosystem is the utilization of information. WeWork has for quite some time been utilizing information to advise participating organizations on areas, where they ought to be set, and what the blend of workplaces, workspaces, and courtesies should be like.

WeWork started to create products out of its information capacities with the "space-as-an-administration" offering "Powered by We". Presented in 2017, Powered by We denotes a critical change for WeWork.

Earlier, WeWork's administrations were limited to the spaces that it involved. Through Powered by We, the organization started to grow its range outside its leases into the organization's current spaces.

This has a one-two-punch impact, empowering the organization to order the more significant expenses that accompany serving endeavor customers, while simultaneously shedding one of its most noteworthy wellsprings of both expense and hazard — the leases themselves.

Share of Workspace

The common workspace level is the least worth offering that WeWork has — not the organization's most beneficial part, but a significant establishment for what's worked above it.

These mutual workspace collaborations are what many pictures when they hear the words "cooperating space." Members come in every morning and either snatch any accessible work area space in a typical zone if they have what WeWork alludes to as a "sweltering work area" enrollment or, for $100 or so extra a month, settle in at their very own committed work area in the common workspace.

As indicated by the WeWork site, these common workspaces are intended for new businesses and little organizations, specialists, advisors, and telecommuters. Hot work area participation starts at $190 every month and can reach upwards of $600 in costly urban communities like San Francisco. Committed work areas run from $300 to $700.

Central Station by WeWork

The level above office suites, central station by WeWork will be WeWork's "white name" answer for big business customers. Instead of setting the organization up with a space inside a current WeWork premise, the central station is set up in independent areas sourced by WeWork in an area of the customer's decision.

Customer organizations pick one of four "configurable designs," running from an open warm-up area to official suites. Customers also pick inner staff to oversee everyday tasks for their area, with WeWork taking what the site alludes to as an "in the background" job.

WeWork Labs

A striking case of how WeWork uses esteem-added administrations to draw organizations into the WeWork system comes as WeWork Labs. WeWork Labs is WeWork's "worldwide development stage" — an in-house startup hatchery that enlarges the central WeWork workspace offering extra highlights, including devoted program directors, week-after-week occasions, pitch evenings, workshops, and financial specialist presentations.

Relaunched in 2018, the program is at present offered in more than 700 areas — 154 in the United States and others in significant urban communities over the world, incorporating Brazil, China , Israel, Singapore , the UK , and Thailand, among others.

The organization said 1,000 new businesses have been brooded through the program as of December 2018.

The key factor that separates WeWork Labs from other startup quickening agents is the plan of action; instead of the standard hatchery model of taking value in the business, WeWork Labs charges a level expense, basically an up-charge to what the startup would some way or another compensation for space at WeWork.

Costs for the program's US areas go from $300 - $600 every month. There's a key measurement to WeWork Labs too as effective organizations move on from the program and develop into undeniable organizations, they become potential clients for WeWork's growing suite of administrations.

WeWork Business Growth

The We Co., the American firm which works collaborating office spaces under the WeWork brand, has posted vigorous income development in India, even as it reels under huge misfortunes universally, demonstrating the organization's first open administrative recording.

We Co. posted an overall deficit of around $689.7 million and an income of $1.54 billion in the initial half-year of 2019. According to a report by Reuters, it is hoping to raise $3-4 billion through the first sale of stock (IPO), which is probably going to be propelled in September this year.

Since its entrance in India in 2016 through an organization with Bengaluru-based Embassy Group, WeWork has been forcefully extending its impression. At present, its services are available in over 40 locations in 6 cities.

Internationally, We Co. is available in over 700 areas in 38 nations. According to the recording, the organization earned $3.5 million in the executive's expenses in the half-year finished on June 30, enlisting a 118% bounce from $1.6 million in the year-back period.

In January 2019, the organization's valuation was expressed as $47 billion, however by September when an IPO was arranged and deferred, the valuation was decreased to $10-12 billion.

Throughout the final quarter of 2019, WeWork's evaluated market capitalization has kept on falling to a limited extent because of various examinations of Neumann's conduct and strategic approaches.

In 2018, WeWork's misfortunes and income both multiplied. As per the Financial Times, the organization lost $219,000 every hour of every day from March 2018 to March 2019 .

As of December 20, 2022, WeWork's net worth is $1.03 billion only a drop from $21.76 billion (2021).

WeWork IPO Failure

In January 2019, WeWork declared that it would move into a two-story structure in Tampa Heights in 2020 as a component of its venture into Tampa.

On April 29, 2019, WeWork was documented privately for an IPO . On July 18, 2019, Wall Street Journal detailed that Adam Neumann sold $700 million of his WeWork stock before its IPO. The organization was hoping to raise over $3.5 billion from its IPO.

The We Company recorded S-1 desk work to go public. Media inclusion featured the organization's overwhelming misfortunes uncovered by the S-1 documenting disclosures, while experts communicated apprehensions over WeWork's capacity to end up productive later on. The IPO unveiled that WeWork faced $2 billion in losses in 2018.

Smartkarma, an expert on speculation research expressed, "We can't understand the reshaping's that would be important to verbalize a way to gainfulness here," and noted it didn't anticipate that the organization's valuation should go beyond $20 billion.

Future of WeWork In India

WeWork India has its services available in over 40 locations in 6 cities with over 62,000 members occupying over 5 million square feet of space.  

Since the dispatch of the American shared workspaces supplier in India, the Bengaluru-based Embassy Group had put $181 million into the WeWork partner. The target at present is the six main markets in the nation, including Bengaluru and Mumbai.

The raising support plans come amid discussion around WeWork's first sale of stock. WeWork's parent, The We Company, pulled back its IPO seven days after the SoftBank-backed adaptable office startup removed author Adam Neumann as its CEO.

"Despite everything, we keep up a great association with WeWork all-inclusive and will hold the brand," said Karan Virwani, chief of WeWork India.

The organization had hold of the establishment for WeWork in India till the end of 2021. It might want to hold onto the brand; however, WeWork holds the main right of refusal and can purchase out the Indian Realty designer.

International Haven Group had paid around $200 million for the establishment two years prior. The Realty conglomerate holds an 80% stake in the establishment.

Independently, Embassy Group intends to concentrate on business, modern, collaborating, and co-living portions to grow its impression in the nation.

Does SoftBank still own WeWork?

Yes, Softbank holds about 65% of the equity in WeWork .

What happened to Adam from WeWork?

Adam Neumann resigned from the position of CEO and gave up majority voting control in 2019.

Can WeWork be profitable?

It is hard to tell that WeWork will be profitable ever. The company has a negative cash flow. According to WeWork's initial-public-offering disclosures, its losses are running ahead of its revenue. WeWork is not profitable on its preferred metrics either.

What is the problem with WeWork?

The problem is it has a negative cash flow. According to WeWork's initial-public-offering disclosures, its losses are running ahead of its revenue. WeWork is not profitable on its preferred metrics either. Also, its whole business model is flawed with excessive leverage.

Does WeWork make money?

WeWork expects revenue of around $5 billion in 2022. On other hand as of December 20, 2022, WeWork's net worth is $1.03 billion only a drop from $21.76 billion (2021).

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Why WeWork went wrong

The office-space startup took a tumble when investors tired of its messianic CEO and lack of profits. But why were its backers – the House of Saud among them – so keen to pour billions into it in the first place?

I t’s so easy to focus on Adam Neumann, the tall, long-haired, barefoot, meat-banning, weed-smoking, tequila-drinking, Kabbalah-studying, experimental school-opening Paltrow-cousin-in-law and founder and now deposed chief executive officer of the We Company, the real estate company that dropped “Work” from its name after it bought the copyright for the word “We” from Neumann himself.

Neumann’s ambitions were as ludicrous as his persona. “Rather than just renting desks,” Fast Company reported in January, “the company aims to encompass all aspects of people’s lives, in both physical and digital worlds.” This included expanding the WeWork model to residential housing and education. Before Neumann had even started the company, he had envisioned “WeSleep to WeSail to WeBank”. While none of these will ever be realised, perhaps he was right to think beyond office space subleasing. The company as he had built it is in crisis.

Everything went wrong for WeWork soon after it publicly filed documents for an initial public offering of shares, on 14 August. Six weeks later, Neumann had voted to remove himself from the CEO job and given up his majority control of WeWork’s stock. The company’s proposed valuation had fallen by more than half, and the IPO had been called off entirely. The failed IPO and the company’s subsequent takeover by SoftBank, its largest investor, were both facilitated by the public exposure of long-known information: WeWork was losing a ton of money; its projections of the size of the market for shared office space (up to $3tn) were wildly optimistic (it counted anyone who worked at a desk in an American city where there was a WeWork as a potential “member”; in non-US cities with WeWorks, the estimate applied to anyone with an office job); and its corporate culture and strategy were completely in hock to Neumann and his family’s bizarre ideas and whims.

The company’s business model had been known to be expensive and have little path to profitability since at least 2015, when BuzzFeed first published documents WeWork had used to solicit investors. Neumann’s weird behaviour, meanwhile, had been part of the sales pitch from the very beginning. What seemed to make this year’s WeWork stories different, and more damaging, was the addition of alleged self-dealing and self-enrichment by Neumann to the core model of leasing office buildings, transforming them into “shared” workspaces, providing free beer to tenants, and then counting on a rotating cast of freelancers, venture-funded startups and some larger corporations to pay rents that could be as short as a month at a time. But Neumann’s propensity to sell stock and lease buildings he partially owned back to WeWork wasn’t news either – it was exposed by the Wall Street Journal earlier this year, before the trouble started.

The more sceptical sections of the financial press have always had WeWork’s number, even when the company’s footprint and valuation were soaring. In 2017, the Wall Street Journal’s indefatigable Neumann correspondent Eliot Brown described “A $20 Billion Startup Fueled by Silicon Valley Pixie Dust”. It was all there: his casual transubstantiation of office space subleasing into something more like software (he had told investors they were buying into a “physical social network”), as well as the doubts from anyone who knew about his actual business – real estate – that the company was worth $20bn, let alone the $47bn it was valued at in its last round of private fundraising, let alone the more than $100bn Morgan Stanley reportedly told the company it could be worth.

What happened since August wasn’t the consequence of the kind of investigative journalism that felled Theranos , or the long-foreshadowed public tumble of an Uber. It was more akin to the kind of frenzied group condemnations that emanate from Twitter every so often. Widely known facts were re-aired in a new climate. What was once amusing or somewhat confusing was now, in a new light, merely horrifying. But this time, instead of hopped-up teenagers hurling moralistic condemnation at mediocre TV shows, it was middle-aged men condemning a 220-page financial statement on Twitter, in real time.

Like a film-maker caught in an unanticipated critical maelstrom, WeWork and Neumann tried hard to swim against the current. There was the eventual partial compromise to stem the tide of ill will, when Neumann finally returned to WeWork the $6m or so he got for the name “We”. But that didn’t help the valuation. Nothing did. Bankers proposed cutting the company’s value by more than 50% until the capitulation became final. By 24 September, Neumann was out of his job and the WeWork show was pulled off air. There would be no debut, no whirring of computers at Nasdaq’s New Jersey servers. Now the company is majority owned by SoftBank at a valuation of $8bn, well short of the $13bn that’s been put into it.

P ast exposés of WeWork’s kooky business practices and sunny projections had relied on documents distributed to potential venture investors. When WeWork turned to the bond market last year to borrow hundreds of millions, it had to deliver some more revelations. What the investor documents showed, amid all the fantastical profit projections, was that in 2017 WeWork had lost $883m, despite having some $886m in revenue. A leak to the Financial Times revealed that in 2018 the company managed to lose $1.9bn on some $1.8bn of revenue.

Throughout all this, Neumann was being Neumann. His private jet trips may have involved some incidental transportation of marijuana across international borders, his wife may have fired employees for their bad vibes , and the company may have ended a meeting announcing layoffs with a performance by a member of Run-DMC.

But Neumann’s leadership and loose corporate culture wasn’t all surfing in the Maldives, guitar-shaped houses and expensive experimental schools, according to one lawsuit. A former WeWork employee alleged last year in a civil case that she was groped or forcibly kissed at corporate events, including at an alcohol-fuelled WeWork “Summer Camp”, and that her complaints resulted in little attention from human resources and little to no action against her alleged assailants. She was later fired.

“The sexual harassment and assaults of Plaintiff did not happen in a vacuum,” the employee’s complaint read. “They are product in part of the entitled, frat-boy culture that permeates WeWork from the top down.” The former employee specifically mentioned that during her job interview with Neumann, he served shots of tequila and that “company managers and executives heap immense pressure on employees to attend after-work events and place a premium on employees’ participation in the parties that WeWork sponsors”. The company said she had been fired for poor performance.

What transformed WeWork from an investor darling into a pariah didn’t belong to any predetermined boom-and-bust model, and it wasn’t about prosaic investor concerns, like future cash flows. According to the great Bloomberg columnist Matt Levine, WeWork’s downfall could only be explained in abstract terms. Something about what happened – and the speed with which it occurred – seemed unknowable.

Levine pointed out that at its peak valuation, WeWork was worth almost half the entire value of publicly traded US real estate investment trusts: “Nobody gets into venture capital because the best-case scenario is doubling their money.” Such returns would be far too small. “For WeWork, maximal office-landlording success would be kind of disappointing,” wrote Levine. More ambitious schemes were required. If you could somehow build a company that included micro-apartments, software and schools, then, sure, why not? Maybe it really would be worth $100bn someday. Or, at least, if people as smart as WeWork’s venture capital investors bought into this, then surely the less sophisticated asset managers that buy into IPOs would, too.

That’s not how things worked out. Private investors are supposed to be long-term thinkers – especially SoftBank, which claims it wants “to create an ecosystem that will continue to grow for 300 years”. But WeWork’s investors folded quickly, suddenly demanding from the company the focus and discipline critics had been saying was missing for years. Maybe some of the more dour and anonymous asset managers expected the CEO of a nearly $50bn company to act like one, while his venture capital investors wanted him to maintain his overwhelming ambition.

But it was precisely those investors, SoftBank and the Silicon Valley venture firm Benchmark, that forced him out. What was strange was that they knew better than anyone that WeWork really did need to raise more money to address its endemic cash burning. Even Levine admitted to being a little stumped: “WeWork’s investors, particularly SoftBank, were there because of Neumann’s upside, his ability to sell a wild vision of WeWork as a transformative company that can dominate the world and justify a $47bn private valuation. And now, nah, never mind, office landlord.”

U nlike real estate booms past, WeWork’s subleasing spree won’t leave behind many monuments: no half-built skyscraper complexes in Kuala Lumpur, no pointless airports in rural Spain. Instead the money found its way into already existing infrastructure, made visible only by discreet signs or logos on windows scattered on office buildings in New York, San Francisco, Seattle and Boston.

WeWork had consistently promoted itself as “asset light”: its buildings leased from developers, then, after being subdivided, rented out on a short-term basis. This lightness will stand out as WeWork’s true innovation, in two ways. The first was that by signing leases, as opposed to buying or even building, it could grow incredibly quickly, as long as it was able to raise enough money to cough up rent. It also built light. Contra its loudest critics, WeWork is more than just marketing, spin and pineapple water. It has used all of that atmospherical ephemera to convince workers – whether they’re freelancers or employees of fast-growing companies that can’t build out their own space quickly enough – that they don’t need as much space as they might have thought. One estimate puts WeWork’s square footage per “member” at around 50 sq ft, well short of the office average of 250. WeWork is thus able to charge high rents for substantially less space than its competitors.

But because of its pretensions to being a technology company, the offering to tenants is famously flexible: you can rent month to month and can easily expand or shrink your space according to your needs. For WeWork, this means that the revenue can vary substantially over a year. If there were ever a large drop in demand for flexible office space, WeWork would still have its own lease payments to contend with. In its company filings, WeWork placed its average lease length at 15 years and wrote that it was on the hook for some $47bn worth of payments, with only $4bn of revenue commitments from members. The company is essentially renting long and subleasing short, leaving itself exposed to the same risk as financial institutions that fund themselves with short-term borrowing while maintaining long-term funding commitments.

A model this risky requires an unusual source of investment, and these days SoftBank is the most unusual of all. Or perhaps the second most unusual, after its own partner: the Saudi government. A year before SoftBank’s Saudi-backed Vision Fund poured $4.4bn into WeWork, in 2017, the Saudis invested directly in Uber. WeWork and Uber’s involvement with the Saudi government raised hackles in the press. For a while, before the assassination of Jamal Khashoggi , the two companies were able to pitch themselves as liberalising forces in Saudi Arabia, helped along by the government’s eventual announcement that women would finally be able to drive. But when the Saudis attempted to host a “Davos in the desert” investment conference soon after Khashoggi’s murder, several technology and finance executives dropped out. Crown Prince Mohammed bin Salman’s brutal purge of the Saudi elite investor class had not provoked much of an outcry from the American public and business class; neither had the brutal war against Yemen. The dismemberment of a journalist, overseen by some of the prince’s closest advisers, was different.

Khashoggi’s killing was so shocking and blunt that even SoftBank’s CEO, Masayoshi Son, was compelled to condemn it. But that was as far as Son went. He would stay in business with the Saudis because SoftBank had “accepted the responsibility to the people of Saudi Arabia … to help them manage their financial resources and diversify their economy”.

Late last year, SoftBank publicly listed shares in its core business, a Japanese mobile phone company, helping effect its transition into a company that primarily invests or owns other technology companies. These holdings include a stake in the Chinese e-commerce marketplace Alibaba, a wholly owned English semiconductor company, and US telecoms giant Sprint, as well as stand-alone funds for dozens of other bets, including the Vision Fund, whose biggest single investment was WeWork. The Fund is supposed to invest in “unicorns”, or in companies that are or will be leaders in their sectors. Typically these types of bets are supposed to be lower risk, because companies with valuations that high have businesses that are more or less … real. Though the fund is supposed to be yoked to Son’s 300-year vision, it also promises some investors 7% returns every year.

It is in this nexus – between the Japanese telecom company trying to turn itself into an investor betting on a global technology revolution, a cash-rich nation trying to diversify its economy and embed itself into non-energy global markets, and an ambitious entrepreneur trying to raise as much money as possible – that the WeWork mania and Neumann’s behaviour come into focus.

When it comes to Neumann, there are two diverging theories. In one telling, he let his ambition get ahead of his abilities to run a profitable business: he was simply taking what money was available and pouring it back into the company, trying to deliver the impressive revenue growth that venture capital investors supposedly want. In a different telling, suggested by another one of WeWork’s great chroniclers, the journalist Reeves Wiedeman, Neumann is the genius of this period of venture capital mania. His deal to give up control over the company in SoftBank’s acquisition of majority control over it only proves it further: the Japanese conglomerate is buying $1bn of WeWork stock from Neumann along with an $185m consulting fee and $500m in order to pay off a loan from JPMorgan – and, the Wall Street Journal reported , covering $1.75m he owed the company for using the company’s private jet for “surf vacations and other jaunts”. Neumann may have become a laughing stock, but he is a very rich laughing stock.

O ne of the great mysteries of modern finance is how to make money when you know there’s a bubble, or at least how to get much, much richer than everyone else. The obvious way is to bet against the bubble, but this is difficult, as its expansion can easily outlast one’s ability to finance the wager. It’s even harder if the bubble is primarily happening in the private markets, where it is very difficult, if not impossible, to directly bet against the fortunes of a company that you think is overvalued. What you can do, however, is try to find a way to soak up as much money as possible from optimistic investors and then furiously distribute it to yourself and your family, so that by the time things turn, you’re already rich.

And to properly pull this off, you would need to find investors with a lot of money that they felt obligated to spend. It was just as important for WeWork to serve as a parking place for Saudi and Japanese cash as it was to provide office space for burgeoning businesses. In the introduction to SoftBank’s most recent annual report, Son thanks shareholders for their support as “we continue to move forward, inspired by our belief in the power of technology to build a more connected, efficient, and joyful world, as expressed by our corporate philosophy: ‘Information Revolution – Happiness for Everyone.’” He goes on to hail the coming “AI Revolution, which is poised to redefine all industries – including education, health care, real estate and finance, as well as the advertising and retail sectors”. This revolution will, Son intends, be funded by SoftBank.

The scale suggested by Son’s plan is massive – literally all industrial output for the rest of human history – and it has been matched by the Vision Fund, which raised almost $100bn, including a $45bn commitment from Saudi Arabia. But you still have to invest the money, or, as Son put it, “take the helm of a group of companies led by top AI entrepreneurs from all different fields, much like a preeminent orchestra made up of virtuosos on scores of instruments, and help them harmonise, while creating additional value along the way”.

To take Son’s logic seriously, if the entire world economy is going to be transformed by a set of emerging technologies, the investment opportunity is never too big. But just because an investment is justified by a theory about how technology will transform all production doesn’t mean there are enough companies actually pushing those changes to fund. One day you wake up and you’re funding on-demand dog walkers, indoor farming and an Indian hotel chain, to the continued bafflement of journalists and market observers. The private equity titan Stephen Schwarzman put it delicately when he told CNBC: “[Tech] often comes with no earnings, and so if you’re going to finance the expansion of an industry that often doesn’t earn anything, you’re going to need large amounts of money to the extent you’re a believer.”

Unlike traditional venture capital funds that might raise, at most, a few billion from wealthy families and pension funds, SoftBank needed to raise much, much more, because its strategy was different. When those traditional venture capital firms are confronted with a bizarre, failed investment, more often than not they will shrug it off, pointing out that their overall returns are overwhelmingly generated from a few hugely successful bets. This model is most effective with software companies, which require some startup capital to hire engineers and start selling a product, but then can quickly turn into highly profitable businesses as they find a market and mature.

But as the technology industry grew, the market for funding tech companies changed. Following the financial crisis, interest rates fell to rock-bottom levels, cash piled up on companies’ balance sheets and in the hands of the ultra-wealthy, and regulatory changes made going public quickly less attractive. Technology companies were able to raise hundreds of millions of dollars from mutual funds, sovereign wealth funds, and other huge pools of capital when, 10 years earlier, they would have had to sell their shares to the public. But the resources and eagerness on the part of these funds – and the wealthy families that spent as lavishly – would come to mean what one might call over-investment.

While the cost of starting a traditional startup has plummeted thanks to cheaply available server access from Amazon, companies that, in the parlance of the industry, move “atoms” (stuff) instead of “bits” (code) can be ruinously expensive to run. Whether it’s the cost of leasing and building out new locations for WeWork, or the torrent of rider discounts and driver bonuses that Uber and Lyft pay out to start up new markets, these companies eat through investor cash for years in order to survive.

Looking backwards through the telescope, the mega-funding for app-based taxi-cab dispatchers and beer-distributing office subleasers makes more sense as a case of savvy operators creating landing zones for massive flows of cash, of demand for big “tech” investments creating a supply of them, which can then be sold as the next big thing. What distinguishes many of these companies, especially ones that have received investment from SoftBank, is their neither-fish-nor-fowl, real world/software nature, along with their insatiable need for capital. As popular business analyst Ben Thompson has argued, the Vision Fund may have confused companies that need lots of capital with companies that offer big opportunities, resulting in a “paucity of tech companies” in its portfolio and instead a collection of Wags and WeWorks.

S o why did the Saudi government want to pour money into companies selected seemingly almost at random by a charismatic and eccentric Japanese businessman? The resulting fit between the Saudis and Neumann was not just awkward for business reasons, but also cultural. Not because Neumann is Israeli, or likes weed and tequila, but because to a degree unusual even by startup-founder standards, WeWork had wrapped itself in gauzy rhetoric about its ability to change the world. This led to predictable tension when it turned out that the company’s biggest funder was Saudi Arabia, a country ruled by an authoritarian regime and where religious authorities still exercise tremendous control over everyday life.

But as is so often the case in the world of technology investment, what looks like a contradiction may actually be consistency. If WeWork couldn’t offer software-esque returns on investment, then it could offer all the superficial trappings of a technology company: spiritualist pablum about elevating global consciousness, a charismatic CEO with a fondness for giving talks with a microphone attached to his face, and an overall approach that sometimes appears to have started with the HBO satire Silicon Valley and then worked backward into an actual company. If Saudi Arabia wanted to more fully enmesh itself into the global economy, then it had to sign up for the pseudo-new-age bullshit on offer from some of its largest companies. For the companies – whose social liberalism often runs far ahead of the Republican party’s, let alone that of the House of Saud – SoftBank’s intermediary role offered plausible deniability. But, as Mohammed bin Salman put it himself, with admirable directness: “Without the PIF [Saudi Arabia’s sovereign wealth fund], there will be no SoftBank Vision Fund.”

In the old days – which is to say before 2017 – Saudi leaders were content for their relationship with the US to be relatively discreet. Ever the flashy millennial, Bin Salman wanted more attention, touring the US in 2018 and publicly wooing the most visible instantiations of the American imperium: technology executives, prominent journalists, Dwayne “The Rock” Johnson. As part of his much-ballyhooed “opening” of Saudi Arabia, he even allowed an American movie to be screened on Saudi soil. The film told the story of an ambitious young king seeking to open up his rich but isolated country to the world: Black Panther.

The attempted diversification of Saudi Arabia’s economy has occasionally veered off into farce, like when the government tasked western consulting firms with implementing Bin Salman’s dreams of a future city in the Arabian desert called Neom. (According to the Wall Street Journal, Neom would feature a beach that supposed to glow “like the face of a watch”, as well as a “robo-cage fight”, “one of many sports on offer”.)

If Neom and Bin Salman’s American grand tour were the most visible attempts in a wider plan to become something more than an oil supplier to the modern corporate technology world, then the cheque written to SoftBank is the downpayment. And if WeWork is what happens when capital is in the hands of resource-rich autocracies, futurist telecom executives and cash-rich mature companies, perhaps it can serve as a launching point for thinking about how capital would behave differently under the aegis of democratic control.

The “We” in WeWork was the customers working in the offices, living in the apartment buildings, and learning in the schools – not the people determining where any of this was built, and in what quantity. If money is indeed piling up on the balance sheets of large corporations and in the coffers of the Saudi treasury as proceeds for burning the planet – and if that money is ultimately at the disposal of a farseeing Japanese mobile phone mogul – one might ask if it could be managed differently if it were in the hands of, well, “We”.

A longer version of this article first appeared at nplusonemag.com

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The Rise and Fall of WeWork

2021, SAGE Business Cases

This case examines the rise and fall of WeWork—a company that experienced one of the most dramatic changes of fortune in technology company history. For several years, WeWork was a Silicon Valley darling, growing at breakneck speed with visionary Adam Neumann at the helm. By some estimates, Neumann’s company was worth USD 47 billion in January of 2019. But when the company filed paperwork in preparation for going public later that year, investors balked at the details revealed in the documents: billions of dollars in losses and lots of questionable behavior on the part of Neumann (including numerous conflicts of interest involving his personal business dealings). The initial public offering was postponed and later withdrawn; Neumann was forced to step down as CEO; and by May of 2020 the company’s valuation had dropped to USD 3 billion. Exploring this recent history will provide an opportunity to ask what lessons can be drawn from the rise and fall of WeWork, and from the economic and social context that enabled its growth.

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Maha Rafi Atal

In recent years, the power of large technology corporations has become a focus of public debate in both developed and developing countries. This growing chorus brings together complaints about breaches of privacy and data protection, competition and market consolidation, and electoral and other political interference. The most powerful of these companies have grown into behemoths by establishing themselves both as purveyors of their own products, and as the hosts of “platforms” that circumscribe, and profit from, the activities of other organizations. This platform function gives these companies substantial power over their commercial rivals, who depend upon these platforms to operate. More fundamentally, this article argues, the dual function of these “platform companies” allows them to straddle the very categories that we use to organize our understanding of the political and economic world. They are at once product companies, service companies and infrastructure companies; players in the market and markets of the marketplace; private platforms and public spheres. The straddling of these categories places these companies in the institutional cracks of the regulatory system. Moreover, companies consciously exploit this regulatory straddling to thwart challenges to their power. This article argues that such deliberate shape-shifting has allowed these companies to control the political and economic stage on which their own power must be contested, and compromised the ability of scholars, the public and ultimately states to see clearly, and therefore constrain, that power.

Benjamin Sovacool

This article argues that the corporation is a type of technology, and that as a technology it is failing society. The article begins by exploring the history of the corporation and posits that it is a social technology that is distinct in its function (creating profi t for shareholders and generating wealth), process (growth and expansion), structure (adherence to a pyramidal arrangement of managers) and personhood (a permanent legal identity conferred by the law). The article then explores how corporations consolidate wealth and perpetuate inequality, socialise many of their risks to the public sector, commodify human beings and the natural environment, and bestow massive external costs to society at large. Since many of these aspects of corporate activity are invisible, recognising them may offer an important fi rst step towards their reform.

Melina Sherman

Many books have been written about the decline of the manufacturing-industrial society and the massive social and economic shifts that characterize the late 20 and early 21 centuries (e.g., Castells et al., 2012; Cross, 2002; Stiglitz, 2010). However, few books on this topic have focused on the social norms, values, attitudes, and individual experiences that accompany system-wide changes (e.g., Fisher & Downey, 2006; Zaloom, 2006). This latter point is the center of Gina Neff’s Venture Labor: Work and the Burden of Risk in Innovative Industries, a multifaceted study of employee risk in New York City’s Silicon Alley during the last decades of the 20 century. Neff argues that the so-called “dot-com era” and the forms of “venture labor” employees underwent as a strategy of managing risks in their jobs is best understood as a response to social, economic, and technological changes rather than the cause of them.

International Review of Social History

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In this article, we explore some of the forms of institutional work that organizations perform as they participate externally in the processes that drive change in the institutional logic that characterizes their field, and as they respond internally to the shift as it occurs. More specifically, we present the results of an in-depth case study of Intel Corporation, a firm that was implicated in a fundamental shift in the institutional logic of its field in the late 1980s and 1990s as the field moved from a traditional supply-chain logic dominated by computer assemblers to a new platform logic following very different organizing principles. Through the qualitative analysis of 72 interviews with Intel employees, complemented by extensive archival data from 1980 to 2000, we identify two forms of institutional work that Intel performed externally – external practice work and legitimacy work – and two forms of work that they carried out internally – internal practice work and identity work – as the organization worked to simultaneously influence the shift in logic that was occurring and to deal with the ramifications of the shift.

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SSRN Electronic Journal

Luca Enriques

Jennifer Gabrys

Daniel Marschall

At the birth of the Internet Age, computer technologists in small, aggressive software development companies became part of a unique networked occupational community. They were creative, team-oriented, and enthusiastic workers who built “boundaryless careers,” hopping from one employer to another. In his absorbing ethnography The Company We Keep, sociologist Daniel Marschall immerses himself in IntenSivity, one such technological workplace. Chronicling the employees' experiences, Marschall examines how these workers characterize their occupational culture, share values and work practices, and help one another within their community. He sheds light on the nature of this industry marked by highly skilled jobs and rapid technological change. The experiences at IntenSivity are now mirrored by employees at Facebook and thousands of other cutting-edge, high-tech start-up firms. The Company We Keep helps us understand the emergence of virtual work communities and the character of the contemporary labor market at the level of a small enterprise.

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The WeWork Business Model

Despite very public ups and downs over the last few years, WeWork remains at the forefront of the shared workspace industry. By quickly becoming the driving force behind the industry's growth—and thriving despite a worldwide pandemic—WeWork's success proves definitively that coworking is the new normal. At only a little more than a decade old, the brand is poised to keep growing in the coming years, especially with new CEO Sandeep Mathrani.

Today, WeWork is still shaking up the industry at every turn. Over the past few years, it has acquired tech startups such as office sign-in system Welkio and physical data software company Euclid in a move toward domination in the business sphere. The brand's app, WeWork On Demand, expanded in late 2020 and is now available in 17 major U.S. cities. And despite a disastrous downfall under founder Adam Neumann, WeWork is now on track to be profitable once again by the end of 2021.

If there is anything that the controversial story of WeWork can teach us, is that resilience is key in growing a business, as recently revealed an early strategy of WeWork was to walk into Starbucks and pitch to people working on their laptops .

WeWork's unprecedented success has prompted dozens of questions: Who are the investors behind WeWork? How does WeWork make money? What are the financial risks associated with its business model? Why do landlords decide to take WeWork as a tenant as opposed to leasing directly? The answers might surprise you.

What is WeWork?

WeWork was founded in New York in 2010 with a goal to offer coworking spaces to entrepreneurs, startup companies, freelancers, and even larger enterprises . The company grew rapidly since its establishment, making it one of the largest and most visible coworking chains in the world. It now has thousands of employees and over 800 locations worldwide, including outposts in 40 of U.S. cities and 32 countries, like Brazil, Germany, and Thailand.

What are its membership options?

Flexibility is key in WeWork’s business model: They ensure that clients no longer need to worry about long-term leases. The company offers six levels of membership: All Access, On Demand, dedicated desks, small private offices, office suites, and custom full-floor offices.

For single workers, the all-access subscription option provides access to open workspaces across the world, so members can show up whenever they wish, pick any available seat in a common area, and start working immediately. Alternatively, the on-demand option allows you to pay only when you use a space, like a desk or a conference room, on a day-to-day or hourly basis. For those who want a little more stability, WeWork offers dedicated desks that they lease to one client or one business only.

Teams and businesses of all sizes can also opt for private offices, which come equipped with furniture and can accommodate dozens of workers as businesses grow. The most personalized option is a custom build-out, which presents maximum freedom for groups that want to customize their workspace with features like CEO suites, conference rooms, or labs. WeWork scouts buildings and then transforms them, for businesses big and small: They've already done this for Facebook, Microsoft, HSBC, and Deloitte.

Who are the investors behind WeWork?

WeWork's investors have included a number of global entities, including holding conglomerate SoftBank, private equity firm Hony Capital, and real estate developer Greenland Holdings. In August 2017, SoftBank and its founder, Masayoshi Son, poured a massive $4.4 billion investment into WeWork. This included $3 billion for WeWork itself, namely through primary investment and the purchase of existing shares, and $1.4 billion dedicated to WeWork’s expansion into the Asian market: WeWork China, WeWork Japan, and WeWork Pacific. In August 2018, WeWork announced  yet another $1 billion in funds from SoftBank.

As of 2019, WeWork had raised nearly $47 billion in private equity and venture capital funding in the years since its founding. The immense interest by Asian companies such as Hony Capital, Legend Holdings, and China Oceanwide represents WeWork’s promising expansion into Eastern markets. Apart from its Asian investors, Western companies like Goldman Sachs, J.P. Morgan, and T. Rowe Price have also invested in the Manhattan-based WeWork. Unfortunately, when founder Adam Neumann greatly mismanaged the company in late 2019, WeWork lost its chance at an IPO as its valuation dropped more than 90% .

After a very public demise under Neumann's leadership, the company has made an unexpected turnaround. CEO Sandeep Mathrani, who took over in February 2020, is now looking towards a possible IPO for the company once again.

How does WeWork make money?

In a nutshell, WeWork rents buildings from property owners at one price and then rents them out to clients at higher prices. Not all of the locations WeWork uses are similarly priced; buying up real estate in Baltimore or Nashville, for example, is cheaper than in New York City. These price discrepancies help keep WeWork's overhead from getting too high.

After renting the buildings, WeWork transforms them, updating everything inside and adding features like cafés, offices, and community spaces. Once finished, the company rents out the spaces for significantly higher prices. Apart from making money on rent, WeWork also provides additional services for a fee, such as partnerships with local businesses, car rentals, and other à la carte amenities.

What are the financial risks of WeWork’s business model?

WeWork pays landlords a huge amount of money and sinks even more into cosmetic updates, so it relies heavily on the revenue from renting to its clients to cover its high costs. If a location does not onboard enough clients to fill the available spaces or if the client's rental income does not cover WeWork's own rent, the company finds itself in a risky position.

As of 2019, WeWork had signed $18 billion worth of leases over the next few years and committed to renting 14 million square feet of office space worldwide. The company had written off massive losses as the cost of massive growth and valued itself at $47 billion at its peak. After a rocky few months in late 2019 and early 2020, today the company is back in the black and sees a promising future ahead. It's important to note that loss periods are not abnormal for startups, especially in the case of WeWork's unusual business model.

Why do landlords take WeWork as a tenant?

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From the perspective of a landlord , WeWork's business model makes sense despite the high fixed costs and long-term lease agreements. For commercial property owners and managers, it's easier to have one contract with a single large company for a fixed period than to find and lease to several different tenants for shorter periods, especially if the building is in a challenging real estate market. Overall, the managing efforts and negotiation processes are much less troublesome with one tenant, and WeWork usually leases properties for 10 years. This takes less time and resources away from the building owner while taking care of the biggest concern for landlords—vacancy rates. WeWork has also garnered enormous media exposure by attracting young, innovative businesses and curating established corporate clients.

What happened to WeWork under Adam Neumann's leadership?

There’s no arguing that WeWork , which was managing millions of square feet of office space as of late 2019, has grown astronomically since its launch in 2010.

Once one of the fastest-growing companies in the world, WeWork was on top of the coworking food chain. In late 2019, a series of shocking events surrounding Neumann's leadership decisions put the future of the company and its massive workforce in question, along with the general perception of the coworking industry and its implications on the commercial real estate market.

Below, we take a look at how and why this coworking giant went from being one of the most highly valued startups to contemplating bankruptcy in the space of 6 weeks, before Mathrani swooped in and helped bring the company back to stability in 2020.

From WeWork to The We Company

Valued at $47 billion (Softbank being the largest investor), the company rebranded from WeWork to “The We Company” early in 2019. According to reports, the decision was made to help the firm grow and reach a wider audience.

Many business journals and analysts questioned the brand's ability to turn a profit after it lost more than $2 billion in 2018. For years, industry experts in the commercial real estate and tech industry questioned the vacancy rates of WeWork locations and the overall viability of the business model amid its rapid expansion into co-living, education, childcare, and several other sectors.

What Went Wong?

In August 2019, The We Company submitted its S-1 filing in preparation for an IPO (initial public offering). Almost immediately, headlines and reactions from tech bloggers and economics experts alike criticized the prospectus and the company for its complex corporate structure, questionable business practices, negative financial projections, and inflated language.

After the filing, the company faced more scrutiny of its leadership and finances from both investors and potential shareholders. Conflicts of interest were revealed in CEO and co-founder Adam Neumann’s ownership of the “We” trademark and several stakes of the company’s real estate holdings, raising red flags among stakeholders, employees, and observers alike.

By the second week after the IPO filing, these revelations and criticisms of the company had severely damaged the outlook of the IPO, putting the company in a very fragile position along with Softbank’s $10 billion investment. Amid reports of self-dealing, sexism, and unprofessional behavior, Neumann eventually had to step down from his role as CEO and chair of The We Company in September 2019, just a few days after the company decided to delay its IPO.

As a result, WeWork’s value plummeted from $47 billion to just over $8 billion.

Adam Neumann steps down

Neumann’s reported behavior and business practices were at the heart of much of the criticisms the company received in the press. The fact that he personally trademarked the word 'We' and licensed the use of the word to his own company for $5.9 million raised red flags among executives and business experts, prompting a rollback of this arrangement soon after it came to light.

Neumann was also reported to have frequently encouraged employees to drink shots of tequila and smoke marijuana at work. This carefree attitude from the CEO, coupled with reports of an increasing lack of gender diversity among the company’s managerial staff and high-level executives, severely damaged the public perception of the company culture. Even before the planned IPO, WeWork was heavily criticized for its lack of female board members or decision-makers in general.

WeWork’s valuation plummeted more and more with every negative report about WeWork’s corporate governance practices and Neumann’s behavior, further disconcerting investors and delaying the official IPO. The turning point occurred after marijuana was found on Neumann’s company jet after it landed in Japan (where it is illegal). Shortly after this incident Neumann stepped down as CEO and drastically reduced his voting power on the board from 10:1 to 3:1. As co-founder of the company, he now only retains a non-executive chair on the board of directors, but no controlling stake in the company.

Though many company decision-makers sought to quell investor’s fears and save the IPO by removing Neumann, his exit package drew even more criticism. By leaving WeWork, the 40-year-old entrepreneur walked away with more than $1.7 billion by selling his shares to SoftBank, earning a sizeable consulting fee in the process.

SoftBank, WeWork’s biggest investor, took control of the company, with former Amazon exec Sebastian Gunningham and CFO Artie Minson filling the CEO position temporarily. Its top investors and executives re-evaluated WeWork’s path to profitability and implemented more conservative strategies to attain positive revenue in conjunction with the company’s drastically reduced valuation. These strategies include cost-saving measures like laying off of over 2,000 employees worldwide, the sale of several companies that WeWork previously acquired, and an immediate halting of the aggressive expansion of the company into new markets. Upon stepping into the CEO role in February 2020, Mathrani has continued building the company back up by cutting costs and righting the company culture.

What this means to the coworking industry

This scaling back of one of the world’s fastest-growing companies and its IPO troubles bear many similarities to large tech businesses facing the ultimate test of going public. Many coworking space operators are worried about how WeWork’s failed IPO will affect the public’s outlook on the industry.

Though recent events may be disheartening to potential investors in coworking spaces, studies show that WeWork barely scratched 2% market share in the flexible office space sector, with many of its clients being large corporations like Google, Microsoft, and Salesforce. As a whole, the coworking industry has grown steadily year-over-year and demand for local, independent flexible workspaces with strong communities remains stable, and demand is expected to rise again after the COVID-19 pandemic.

If anything, the controversies surrounding WeWork serve as an example to other expanding coworking brands, highlighting the necessity of creating a sustainable company culture and a clear path to profitability in order to earn the trust of members and stakeholders alike.

Carlo Belloni

Carlo is the Project Manager and SEO Specialist at Kisi.

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WeWork: A Quandary in Corporate Governance

By: Roberto S. Santos, Shreya Patel

On August 14, 2019, WeWork filed its IPO prospectus. Within its pages, it stated that WeWork CEO Adam Neumann had purchased the rights to the "We" trademarks from an entity known as We Holdings LLC…

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On August 14, 2019, WeWork filed its IPO prospectus. Within its pages, it stated that WeWork CEO Adam Neumann had purchased the rights to the "We" trademarks from an entity known as We Holdings LLC for $5.9 million. We Holdings LLC was also managed by Adam. When the media picked up on this, it initiated a tumultuous period of scrutiny by business pundits of the IPO prospectus. Furthermore, the lack of a clear path to profitability raised red flags with potential IPO investors, as did incidents of Adam's self-enrichment and conflicts of interest. This made investors question Adam's ability to run a large, public company. Something had to be done to restore investor confidence, but what? The voting power of Adam's shares made it difficult to impose sanctions or remove him from his leadership position. The IPO roadshow was scheduled to kick off as soon as the week of September 16, 2019! What should the board do?

Learning Objectives

After reading, analyzing, and discussing this case, students should be prepared to (1) identify whether any of Adam's actions represent a conflict of interest, (2) evaluate the fiduciary relationship between Adam and WeWork's board using agency theory, (3) evaluate WeWork's share structure and its governance implications using agency theory, and (4) develop an appropriate plan of action for WeWork's board to address potential conflicts of interest.

Sep 30, 2021

Discipline:

Business Ethics

Geographies:

United States

Industries:

Real estate industry

North American Case Research Association (NACRA)

NA0714-PDF-ENG

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Jeffrey F. Rayport

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What Didn’t Work for ‘WeWork’

In earlier blog posts, we have repeatedly told tales of grandiloquent young entrepreneurs and their downfall — Elizabeth Holmes at Theranos (“ Elizabeth Holmes: Scamming Silicon Valley ), Billy McFarland of Fyre Festival infamy (“ Under Fyre ”), and Ross Ulbricht, creator of Silk Road ( “Silk Road: Paved by Grandiosity” ).

Reeves Wiedeman’s book the Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork provides another cautionary tale of a young entrepreneur who flew too fast and too high and met a similar fate.

The story is painfully familiar. Neumann was tall, handsome, and charismatic. With Miguel McKelvey, he founded WeWork, one of many co-working space start-ups getting off the ground around 2010. The difference between WeWork and many of its arguably less successful competitors lay primarily in Neumann’s persuasive abilities and grandiosity.

Over the course of a decade, WeWork went from a small start-up to the leading competitor in its industry, supposedly worth $47 billion not long before an IPO which was highly anticipated, but never happened.

In Neumann’s telling, WeWork was not just a real estate leasing entity, it was “the world’s first physical social network.” It was not just providing a space for entrepreneurs to work, it was facilitating “community.” Neumann referred to tenants as “members.” He continuously spouted high-sounding aspirations. “The future is community.” “The next decade is the ‘We’ decade.” “If we get it right, we have an opportunity to change the world.” “We are here in order to change the world—nothing less than that interests me.” “The influence and impact we are going to have on this earth is going to be so big.” “[Our purpose is t]o raise the world’s consciousness.”

Many of the behavioral influences we constantly talk about at Ethics Unwrapped infected Adam Neumann.

He was plagued by the overconfidence bias . He himself later admitted that he was struggling with his ego as he built the company. “I am WeWork,” he once proclaimed. He called himself “the greatest real estate mind in the world.” “No one says no to me,” he said, emphasizing his negotiating skill.

Consistent with his high opinion of himself, Neumann constantly indulged himself by drinking shots of vodka and smoking pot at work, habitually being late to meetings or missing them altogether, dressing in t-shirts, going barefoot to meetings, and on and on.

The self-serving bias caused Neumann to be blind to the unethical nature of conflicts of interest that he constantly created and then rationalized. He bought property and leased it to WeWork without full disclosure. By 2018, he had been paid more than $12 million in rent and had more than $100 million lined up for future payment. He practiced rampant nepotism, including giving his wife Rebekah Paltrow numerous roles in the company for which she was ill-qualified. As the company moved toward a hoped-for IPO, it was discovered that Neumann had sold more than $700 million in WeWork stock and restructured the firm to lower the tax rate on his stock to below what rank-and-file employees would pay.

Exacerbating the overconfidence and self-serving biases was the fact that although Neumann went through the motions of being highly spiritual, another WeWork executive said that he had “no core value system,” bearing out the prediction of one of Neumann’s high school teachers who said: “Either Adam will end up in jail, or he’ll become a millionaire.”

Like Elizabeth Holmes at Theranos, Neumann had a messianic self-view, valued loyalty above all, avoided public scrutiny, and harbored little self-doubt. In late 2019, the WeWork IPO was called off by the company’s bankers because that event caused the investing world to (a) finally take a realistic look at WeWork’s numbers, (b) stop indulging Neumann’s widely-known childish behavior, and (c) seek to inject a dose of grown-up corporate governance into the company.

Although much of what was going on here has its roots in human psychology, as so much of life does, Wiedeman (along with others such as Charles Duhigg and Matthew Zeitlin) points out that there were also structural factors at play that are rooted in the current unhealthy version of American capitalism.

The short story is that insane amounts of money are controlled by venture capital funds. If they throw enough money at enough start-ups and just one becomes the next Uber or Facebook, they can make obscene amounts of additional money even if most of their bets end very badly. But for a start-up like WeWork to have a chance to become the next Uber, it needs to dominate its marketplace and the way to do that is “blitzscaling”—growing really quickly, regardless of whether you are making money. Investors threw so much money at Neumann that WeWork became easily the largest player in the market even though it had no better chance than any of its competitors to make money. Indeed, in 2018, it lost $1.9 billion dollars on $1.8 billion in revenue and had no clear path toward profitability at the time of its IPO’s demise.

But what do you do when you are a young entrepreneur and investors throw unlimited amounts of money at you and will indulge your every whim because they are afraid that if they try to rein you in, they will get a reputation for not being founder-friendly, which would mean that the creator of the next Facebook or Google might not want to do business with them? If you are Adam Neuman, you take the money and try to find ways to spend it. You open new WeWork spaces around the globe at a dizzying pace that you cannot possibly manage well. You acquire other companies that have nothing to do with WeWork’s core business but that align well with your hobbies and interests (like surfing and vegetarianism). And you dream up many tangentially-related business ideas that mostly do not come to fruition, including: WeKids (day care), WeLearn and WeGrow (schools), WeBike (bicycle valet service), WeEat (food delivery), WeMove and Rise by We (workout gyms), WeWork Studios (making movies to advance Paltrow’s acting career), WeNeighborhoods (bringing community to entire neighborhoods), WeCities (ditto to entire cities), WeMars (bringing community to Mars as soon as Elon Musk can get people there).

In the end, WeWork lost billions of dollars, never built a profitable business model, and failed to create the “community” that it hoped to foster on so many levels. WeWork did, on the other hand, illustrate yet again that the overconfidence and self-serving biases, when supercharged by boundless ambition and nearly unlimited resources, are a very dangerous combination indeed. They caused Adam Neumann to make poor strategic decisions, poor operational decisions, and poor moral decisions as well.

Cara Biasucci & Robert Prentice, Behavioral Ethics in Practice: Why We Sometimes Make the Wrong Decisions (2021).

Charles Duhigg, “How Venture Capitalists Are Deforming Capitalism,” New Yorker , Nov. 23, 2020.

J.C. Pan, “How WeWork Got Away with Spectacular Failure,” The New Republic (book review), Nov. 24, 2020 (book review).

Matthew Zeitlin, “Why WeWork Went Wrong,” The Guardian , Dec. 20, 2019.

Reeves Wiedeman, Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork (2020),

Behavioral Ethics: https://ethicsunwrapped.utexas.edu/glossary/behavioral-ethics .

Overconfidence Bias:  https://ethicsunwrapped.utexas.edu/video/overconfidence-bias .

Self-Serving Bias:  https://ethicsunwrapped.utexas.edu/video/self-serving-bias .

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WeWork’s Rise To $47 Billion—And Fall To Bankruptcy: A Timeline

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Coworking space startup WeWork filed for bankruptcy Monday after years of losses and turmoil—a steep fall from its peak valuation of $47 billion in 2019, making it one of the most valuable startups in the US at the time.

WeWork filed for Chapter 11 bankruptcy, and saw its stock fall to 84 cents a share, giving the ... [+] company a $44.5 million valuation.(Photo by Patrick T. Fallon / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

2010 Cofounders Adam Neumann and Miguel McKelvey opened the first WeWork in the SoHo neighborhood of New York City, allowing anyone from freelancers to large businesses to rent office spaces and desks.

December 2014 WeWork closed a Series D funding round of $355 million , which led to a company valuation of $5 billion, the Wall Street Journal reported.

2016 Neumann met Masayoshi Son, the CEO of SoftBank Group Corp., which eventually led to SoftBank committing $3.1 billion in new funding for WeWork in 2017, the Journal reported.

2017 WeWork opened its 200th location in Singapore—adding to its global collection of coworking spaces including in New York, São Paulo, London, and Seoul—and reached a $20 billion valuation after raising a $760 million Series G round.

January 2019 SoftBank led WeWork’s Series H funding round which raised $1 billion —totaling SoftBank’s overall investment into the company at $10 billion —and valued WeWork at $47 billion.

August 14, 2019 WeWork publicly filed for an IPO, but its filings showed large losses, such as a $1.9 billion loss on $1.8 billion in revenue in 2018 according to CNBC, and a $690 million loss on $1.5 billion in revenue for the first half of 2019 , Insider reported.

September 24, 2019 Neumann stepped down as CEO amid scrutiny from WeWork’s board members and investors over his leadership —including allegations of self-dealing—and financial problems, after the company delayed its IPO the previous week and reduced its estimated market valuation to $10 billion from $47 billion.

September 30, 2019 WeWork submitted a request to federal regulators to withdraw its IPO plans, with co-CEOs Artie Minson and Sebastian Gunningham, Neumann’s replacements, saying the company wanted to “focus on our core business, the fundamentals of which remain strong.”

May 18, 2020 SoftBank CEO Son, who invested over $10 billion in WeWork and pushed its valuation from $17 billion to $47 billion, said he was “foolish” for the firm’s investments, and valued WeWork at $2.9 billion , CNBC reported.

May 2021 WeWork lost $2.1 billion in its first quarter of the year according to the Financial Times , which pointed to the coronavirus pandemic and a settlement between SoftBank and Neumann, who sued the bank for trying to back out of a $3 billion deal to buy shares of WeWork from its earliest employees and Neumann.

October 21, 2021 WeWork went public at a $9 billion valuation after merging with special purpose acquisition company BowX Acquisition Corp., and saw its shares rise 13% despite filings showing the company was losing billions of dollars.

August 2022 WeWork said its offices reached pre-pandemic occupancy levels—72%—after a heavy drop during the first year of the coronavirus pandemic, when many members decided to work from home and canceled their rental contracts with WeWork, Bloomberg reported.

August 8, 2023 WeWork said its losses and negative cash flows were giving the company doubt about its ability to continue operating, warning of a possible bankruptcy in a Securities and Exchange Commission filing.

September 6, 2023 WeWork announced its plans to renegotiate “nearly all” of its leases by leaving “unfit and underperforming locations” and reinvesting in better-performing markets to cut operating costs and continue running “for many years to come.”

November 6, 2023 WeWork filed for Chapter 11 bankruptcy and its stock fell to 84 cents a share, giving it a $44.5 million valuation.

Key Background

WeWork has $15 billion worth of assets but $18.6 billion in debt, according to the Wall Street Journal . It also reportedly owes almost $100 million “in unpaid rent and lease termination fees” to real-estate companies and property owners it worked with. Neumann stepped down from leading WeWork after its failed IPO filing revealed details about potential conflicts of interest that former Twitter CEO Dick Costolo told the Journal are “so egregious,” including an entity controlled by Neumann selling the rights to the “We” family trademarks to the company for $6 million, though Neumann eventually changed his mind. Neumann said in a statement that watching WeWork’s fall since he left the company in 2019 “has been challenging,” noting that the coworking space startup “has failed to take advantage of a product that is more relevant today than ever before.” Meanwhile, CEO David Tolley said in September the company has tried to pivot from a “period of unsustainable hypergrowth.”

What To Watch For

WeWork’s bankruptcy filing is limited to its spaces in the U.S. and Canada, and the company has 777 locations across 39 countries. On November 6, over 400 of its other entities filed for bankruptcy too, including “many individual subsidiaries” it used to run its spaces in other countries, the Wall Street Journal reported.

$47 billion. That was WeWork’s peak private valuation in January 2019 before its failed IPO.

Forbes Valuation

We estimate Neumann to be worth $2.2 billion. Since leaving WeWork, Neumann has started another real-estate startup called Flow, which received a $350 million investment from venture capital firm Andreessen Horowitz. The startup reportedly involves real estate management software and aims to launch a digital wallet to store different currencies including crypto.

Further Reading

WeWork Files For Bankruptcy. Stock Is Halted At 84 Cents A Share ( Forbes )

WeWork Files For Chapter 11 Bankruptcy ( Forbes )

Correction: This story has been updated to clarify the entity controlled by Neumann tried to sell the rights to the “We” family trademarks and the sale did not happen.

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WeWork Creditors Demand Company Negotiate with Potential Buyers

(Bloomberg) -- Coworking giant WeWork Inc. should be forced to negotiate with potential buyers, possibly including co-founder Adam Neumann, as well as given a 30-day deadline to come up with a plan to exit bankruptcy, a panel of lower-ranking creditors said in a court filing.

Squabbling among company managers, senior lenders and longtime backer SoftBank Group Corp. has stalled the revitalization of WeWork and its various units, lawyers for an official committee of unsecured creditors told the judge overseeing the company’s Chapter 11 bankruptcy. 

WeWork’s reorganization has “stagnated while their liquidity continues to shrink,” because the company has missed nearly all the deadlines laid out in a tentative restructuring deal with lenders and SoftBank, they said in the filing .

“Worse and at the same time, the debtors continue to ignore potential alternative solutions,” including offers that could help repay creditors and preserve the business, the committee wrote.

“We remain intensely focused on finishing this important work and are on track to emerge from Chapter 11 next month as a financially strong and sustainable company,” the company said in an emailed statement. Managers will review any proposals “in the ordinary course.”

In a filing last month, WeWork argued that it is making progress and asked the judge to extend its exclusive right to file a revised bankruptcy-exit plan to July 3. The committee’s request would enable a competing reorganization proposal sooner than that. 

Neumann has said he wants to buy back his company, offering more than $500 million. That proposal is at odds with a deal the company cut last year at the start of its restructuring case with SoftBank and senior creditors. Under that proposal, WeWork would slash more than $3 billion of debt, wipe out most of its shares and hand ownership to lenders, according to court records.

The company needs to raise money to exit bankruptcy, but has been unable to do so because its tentative agreement with lenders and SoftBank “remains a dead letter,” the unsecured committee claimed in its filing. 

The case is WeWork Inc., 23-19865 , U.S. Bankruptcy Court for the District of New Jersey (Newark).

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