So, what went wrong? How could the fifth largest unicorn that offered the most attractive flexible workspaces in big cities suddenly fall from its position of authority?
The IPO Fiasco
Way before WeWork began its journey to bankruptcy, news reports from trusted sources had already begun to reveal a deep-seated mistrust in the company’s worth. According to the New York Times, it was nothing more than “throwing money at start-ups in frenzy to find the Next Uber.” The article compared WeWork to the likes of Instacart and doubted it would prove fruitful.
Along came the IPO fiasco, which was pretty predictable considering the speculation in the market. Six weeks following the IPO release, the CEO resigned, giving up his majority share. This led to a drop of over 70% in the valuation. The IPO was soon scrapped and WeWork’s valuation fell to $2.9 billion, seemingly overnight.
An Attractive History
WeWork began as one of the most successful coworking firms in the market. At the time, the idea was quite revolutionary. They hoped to create attractive, new-age solutions to work spaces. From just 275 coworking locations in 2017, WeWork expanded to 850 in 32 countries as 2019 came to a close.
Fundings by JP Morgan Chase, Goldman Sachs, and SoftBank’s Vision Fund allowed WeWork to use the investments as a trampoline. That pushed them to control 1.7% of the total office space market worldwide by 2019. However, this is where things took a turn for the worst.
It is important to analyze not just the tip of the iceberg but also a lot of what goes on behind the curtains. 2017 was a year that witnessed WeWork generating $886 million in revenue. However, they also incurred $883 million in losses. This set off alarms for many reputable news channels which wondered whether the 2019 valuation painted an accurate picture.
Although WeWork managed to trudge through the losses for a couple of years, the recent news has shed light on the outcomes of decisions that took place years ago. WeWork’s negative cash flow coupled with its ambition forced it to fly too close to the sun. Like Icarus, it too had to succumb to the heat.
Adam Neumann, the famous WeWork co-founder, termed WeWork’s move to file for bankruptcy as “disappointing.” Just four years ago, the founder had to step away from his position as the CEO amidst heavy controversy regarding his leadership style and his decision to take the company public.
For many, this is simply a dent in WeWork’s rise. Countless investors supported Neumann’s confidence in the company which pushed him to add that it could still “emerge successfully” following a reorganization.
Regardless of whether Icarus rises again, one thing is for sure; the suspended trading along with the declaration of bankruptcy has surely rung alarms throughout the world. It is not just WeWork that is expected to face an overall decline in investor confidence; the entire industry is at a crossroads.
However, it is valuable to learn from the lessons of the once evolving and rising giant. The lapses in judgment throughout WeWork’s rise and fall can provide great lessons for coworking spaces that are beginning to make a name for themselves in the industry.