What can we learn from WeWork's spectacular failure?

WeWork is an American unicorn that provides shared workplaces for small businesses as well as services for a variety of businesses. Its headquarters are in New York, where it was founded in 2010. It made headlines in September 2019 when it was about to file for an IPO, but its largest investor, SoftBank, pulled out at the last minute. Its founder, Adam Neumann, had resigned from the company, citing board members were pressurizing him. In exchange for 1.7 million dollars, he gave away the majority of his shareholding. There were concerns about Adam's behaviour, the company's work culture, and the significant losses in the months running up to its IPO. There were also issues regarding whether or not it was a tech firm. But its investors ignored all of these worries because they saw it as a long-term investment that would pay out handsomely in the future. Everything changed when the company decided to go public and all of its financial records were required to be made public. People became aware of the company's insider activities, which included burning funds without a clear route to profitability, and allegations of weak leadership began to surface.

WeWork's owner, Adam Neumann, was one of the company's primary problems. The majority of the board members were members of his family or close acquaintances. Rebekah, his wife, was a co-founder, and his brother-in-law served as the "head of wellness." This allowed him to commit a slew of financial crimes without being caught. According to the Wall Street Journal, Adam was buying property privately and then leasing it to WeWork. He also borrowed money from the corporation at a low or no interest rate. In other words, the corporation was both paying him rent and lending him money.

Ruby Anaya, a former employee, filed a sexual assault complaint against the company in 2018, alleging that two of her co-workers assaulted her while being?drunk at one of the company's parties. She also claimed that the company's leadership was "frat-boy," with Neumann coming on to her and other female employees on multiple occasions.

WeWork has tried to persuade the world that it is a technology company, but it has always been a real estate company that exclusively lends space to other tenants that use technology to make better business decisions.

It's commonly said that a company's leadership steers it in the right direction. In the instance of WeWork, Adam Neumann built the firm from the ground up, and when he departed, it was still at the ground level. In just six weeks, a promising start-up with a 47-billion-dollar valuation became cash-strapped and on the verge of bankruptcy.

WeWork, which was founded in New York in 2010 by Adam Neumann, Miguel McKelvey, and Rebekah Neumann, now has over 4 million square metres of space. WeWork became one of America's top commercial real estate firms and one of the world's top start-ups with an all-time high valuation of roughly $47 billion in January 2019, thanks to its idea of developing and building physical and virtual shared working and office spaces. J.P. Morgan Chase & Co., Wellington Management, Goldman Sachs Group, and Soft Bank had?all participated in various rounds of fundraising.

WeWork laid?off 2,400 employees on November 21, 2019, accounting for over 20% of the company's global workforce. The main cause of the layoff was a problem with the organization's workforce management. On September 13, 2019, the company's governance was changed so that the CEO could be nominated by the board of directors instead of Adam Neumann's family. SoftBank, WeWork's main?investor, also asked Neumann to step down as CEO because the corporation had lost faith in his leadership abilities.

After the repercussions of WeWork, its business model, governance, and ability to earn a profit were questioned and criticised. WeWork lost nearly $2 billion in 2018, and the post-IPO debacle cost the company more than $20 billion. But what is the root of the WeWork debacle? Is it a problem with the finances, the business model, or the leadership??

Lessons Learnt

Process over product: For a long time, coworking spaces have advertised themselves to the entire globe based on trends and hypes. People nowadays, on the other hand, do not purchase hype; they buy value and tangible substance. Values differ from one company to the next and from one person to the next, and it all depends on the coworking members and how they view it.

Forget about short-termism: There's a lot of it in the sector, such as short leases, quick movements, and quick solutions. Many suppliers take advantage of the impression of start-ups as having a casual, throwaway culture, banking on the high turnover of start-up members. In reality, this translates to a failure to establish an accountable culture. What does it mean to invest in your members' growth if you see them as a flash in the pan?

Refocus on innovation: Coworking is most effective when it serves as a launching pad for fresh, interesting, and inventive entrepreneurs eager to disrupt their market. This appears to have gotten forgotten among the many new start-up behemoths in the industry. They will stagnate if they concentrate just on keeping members rather than recognising and assisting them in developing and growing. That's all there is to it.

For some, the WeWork debacle was a positive thing since it showed ordinary people and investors that overvalued unicorn firms are not the best places to invest.

What turned WeWork from an investor favourite to a pariah didn't fit into any predefined boom-and-bust model, nor was it about mundane investor worries like future cash flows. WeWork's demise, according to the excellent Bloomberg columnist Matt Levine, could only be described in abstract terms. Something about what happened — and how quickly it happened – felt unfathomable.

WeWork was Softbank’s biggest failure as an investor and stakeholder. Softbank promoted and supported WeWork as a tech company on the scale of UBER, Facebook etc. but in actual WeWork was more of into real estate business mainly leasing and renting office spaces. The tech part of WeWork business was of merely 10% which almost every big company has. If Softbank has checked WeWork from beginning and promoted it like what it actually is then situation might have been different. There was lot of leadership problem, Neumann should have been expelled way before and that too with less numeration as his personal expenses were making toll on company like buying private jets, new and better offices for himself etc. Neumann face did help WeWork in the beginning but eventually he was no more than a showbiz person. Overall Softbank didn’t play their role properly and acted mere as a source for soft money.

Private investors are expected to look in terms of the long term, particularly SoftBank, which claims to want to "build an ecosystem that will continue to flourish for 300 years." However, WeWork's investors swiftly caved in, demanding from the company the concentration and discipline that critics had been claiming was lacking for years. Perhaps some of the more gloomy and anonymous asset managers expected the CEO of a nearly $50 billion corporation to act like one, while his venture capital backers expected him to continue his enormous ambition.

There was no such need of hasty IPO to raise money. First WeWork should have cleared its internal issues and maintained its finances. The hype and show that they made was also responsible for their downfall. Overvaluation of WeWork was beyond the reality on the ground. You can’t build a company in the clouds. Also, there were no females at leadership position in WeWork. Backing out of Morgan Stanley from IPO was the last dent for WeWork. The bank withdrew from the IPO after losing the lead underwriter role in the deal.

If the WeWork has not filed for IPO and instead focussed on diversifying its leadership and improving their revenue generation streams primarily then things would have turned better for them and thus WeWork would still have been a unicorn and a market leader.