My 2 Cents | #7

WE used to WORK: Lessons from The Journey and The Fall

11/12/2023

Opinion of the Advisory Principal Gianfranco Miranda

End of the year incoming! Some reflections are ahead of time! Embrace yourselves!

So welcome once again to My 2 Cents. In this edition, we will talk about WeWork or BankRupt, as we may know it by now. So why is it relevant to talk about this type of business that was the poster child of 2010’s startups and now is a great example of how to bankrupt a business? Let's get into it.

📈 WeWork's rise in 2010 was no luck, but a real trend in most tech-service startups of the era. Like WeWork, we had Airbnb, Uber, DoorDash, among others, that were receiving a lot of interest from investors around the world. Their main business of leasing shared workspaces in the most demanding and business-wise parts of the capitals of the world took office businesses by storm and caused a movement of shared spaces between companies. This created a new venue where startups, small businesses, or even corporations could reduce office rent and send their employees to a leasing space for a fraction of what they were paying. But why didn't this work?

📉The WeWork downfall didn't happen because of sales or profitability. It happened because two factors triggered their decline:

1️⃣ Big Expenses

2️⃣ Remote Work

So were those two reasons the only ones? No. There were a lot of other things that happened to the business that affected it. Even by receiving a lot of investment and capital, and then just being overvalued by the market, it took the business down. But I would think that one of the most important and undervalued factors was the founder's leadership.

🗣️ When you talk nowadays about Adam Neumann and his eccentricity, you can discover how his decisions affected the company's performance and growth. I think that he wanted to live the life of a rockstar in the shoes of a fanatic. He wanted to have all the thrills of running a billion-dollar company without the real commitment to profitability and hard work. Even his erratic decision like ending the year with firings with a specific quota was something odd and not usual in these business environments. This is when I see that the company was destined to doom.

2019 and the failure of the IPO marked this long-time agony of the business. Once the founder of the company decided to walk away with a big failure and 1 billion dollars in the bag from Softbank.

🕵There are times when you see the greatness or decadence of a person. But I think that when he took the money and left, everyone really confirmed that he only thought about himself and not about the people that built everything for him.

Then COVID-19 hit, and rent space was on a downturn ride to crash in the business space. Demands for offices dropped, and rent was too low to overcome the expenditure in headcounts at the company. They even had to still pay every lease that they signed and rent lower than the actual profit line to stay in business.

And then we got to 2023. No more COVID (right?), and nowadays, we know that a business needs to sell to survive. How does a company that intended to file for Chapter 11 bankruptcy and amassed $16 billion in losses as of June 2023 and is still paying over $2.7 billion a year in rent and interest that is over its 80 percent of their value is still in business?

They still got value on leases, value on contracts, and the dream that everything will change in a short period, and the business will thrive again.

Maybe it's time for them to realize that some things are only there for a few years. And in this case, it's a business model that needs to evolve and change the one that requires closure and to rest in peace.

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Sources:

How WeWork Went From $47B Startup to Bankrupt Penny Stock WSJ - https://www.youtube.com/watch?v=p3q5m0ILTfk

https://www.cnbc.com/2023/11/07/wework-files-for-bankruptcy.html

https://time.com/6332270/wework-bankruptcy/

https://www.theverge.com/2023/11/6/23948568/wework-bankruptcy-filing-chapter-11