From Unicorn to Fiasco: How WeWork Crashed & Burned
Modern, sleek offices scattered across cities like London, New York, and San Francisco. Flexible, shared spaces where people could work, collaborate, and relax — creating a community of sorts.
In many ways, this sounds too good to be true — and that’s because it kind of is. Although WeWork started out strong in the early 2010s, over the past ten years, the company seems to have lost its way (and a majority of its valuation).
While WeWork still had 828 offices spread out over 120 cities in 2020, co-founder and then-CEO Adam Neumann was asked to step down from his position, and the brand suffered an unsuccessful IPO in late 2019.
The New York Times called the whole fiasco “an implosion unlike any other in the history of start-ups”, and WeWork struggled through the pandemic — with its valuation having fallen 89% since its failed IPO.
As of 2021, the WeWork board is looking to go public via a special purpose acquisition company (SPAC) with a valuation of $9 billion. Although the brand admitted to a $2.1 billion quarterly loss in May 2021, they have reached 70% of March 2020’s pre-Covid-19 membership levels.
So, where did this previously successful brand go wrong, and what can you learn from their mistakes? This article will take a look at their growth, hardships, and close with some helpful tips you can apply to your own brand journey.
WeWork: The Early Days
Co-founders Adam Neumann and Miguel McKelvey started their journey in Brooklyn back in 2008 when they established GreenDesk, an eco-friendly co-working space. By 2010, they’d sold the company and set up WeWork’s first location in the SoHo district of New York City.
By April 2011, the first WeWork Labs was officially opened, which functioned as an incubator for start-ups. In 2014, WeWork was dubbed by Forbes “the fastest-growing lessee of office space in New York” and was set to become “the fastest-growing lessee of new space in America.”
With investors like J.P. Morgan Chase & Co, Goldman Sachs Group, and Wellington Management, by 2015 WeWork had doubled the number of working spaces — with 51 locations across the U.S., Europe, and Israel. They even had plans to expand to every continent by 2017 (sans Antarctica).
2015 also saw the addition of former CFO of Time Warner Cable, Artie Minson, as WeWork’s new COO, and the brand was named one of Fast Magazine’s “most innovative companies”. Everything was looking up — the concept was solid, the timing was ideal, and the investors were flocking.
WeWork was off to a phenomenal start.
By January 2016, WeWork was chosen as one of Fortune magazine’s three unicorns to bet on and boasted a valuation of $10 billion. Throughout the rest of the year, the company raised $430 million in funding and $1.7 billion in private capital, as well as opened up new spaces in Boston.
Around 2017, WeWork started to attract the attention of some big-name investors, namely SoftBank Group Corp., who was considering investing over $1 billion into the company. The same year, WeWork expanded into India, China, and Southeast Asia and reached a valuation of $20 billion.
Some WeWork locations also began offering fitness classes for members and they even opened a gym in their New York location. Taking a Google-style approach, WeWork had its sights set on meeting all the needs of its members.
By 2018, WeWork began expanding onto college campuses, raised an additional $900 million in funding, and secured a further $3 billion from SoftBank. Very much enjoying the high-rolling lifestyle, around this time CEO Adam Neumann reportedly purchased a $60 million private jet to be able to hop from location to location with friends and family.
When the company legally changed its name from WeWork to We Company in January 2019, it had to first pay Neumann a reported $5.9 million to license the trademark. However, Neumann returned the large payout after facing backlash from critics for this “‘most egregious’ example of the co-working company’s mismanagement.”
Later in the year, WeWork secured another $2 billion from SoftBank — though they considered investing as much as $16 billion. However, due to some opposition from investment partners and the general turbulence of financial markets, it was brought down substantially.
IPO? More like IP-NO
Riding the high of its success, in 2019 WeWork filed for an initial public offering (IPO) — which was the beginning of its downfall.
WeWork was hoping to make upwards of $3.5 billion from the IPO to continue funding its uninhibited growth. Continuing his streak of questionable moves, before the IPO was supposed to go live, Neumann liquidated $700 million in stock.
However, when the We Company filed S-1 paperwork to go public, their heavy losses were revealed. Many analysts subsequently shared their deep-seated misgivings over WeWork’s future ability to be profitable and declared they didn’t expect the brand’s valuation to exceed $20 billion.
In September 2019, the IPO was postponed, as the company was “besieged with criticism over its governance, business model and ability to turn a profit.” From here on out, things were in a downward spiral.
Shortly thereafter, SoftBank reported a $9.2 million write-down on its investments in WeWork and The Guardian published a piece on the brand’s unfortunate fall from grace. Reporter Matthew Zeitlin pointed to the company’s expensive, unprofitable business model, as well as unethical and questionable behavior by CEO Neumann, as the main reasons the brand was failing.
Following these issues, WeWork had a big change in management — due to backlash from the failed IPO and an alleged loss in confidence by SoftBank, Neumann was asked to step down as CEO.
Cut to the last two years — which have been tumultuous, to say the least. Further changes in management, heavy losses due to Covid-19, and a merger with BowX Acquisition Corp later, WeWork posted another $2.1 billion loss.
However, the brand claims they currently have 490,000 members, which is 70% of March 2020’s pre-Covid-19 levels. With a new strategy to take it slow and focus more on the product, WeWork is doing its best to grow again.
So, what can you learn from this brand’s rollercoaster of a growth journey? Let’s take a look.
What You Can Learn From Their Mistakes
From spending money on frivolous things to engaging in heavy nepotism to expanding at an unsustainable rate, WeWork made its fair share of mistakes along the way — mistakes that harmed the company’s brand image and created negative perceptions with its target audience.
Let’s take a look at some of the biggest ones and discuss how you can avoid repeating them in your own growth journey.
1. Don’t Get Ahead of Yourself
In the early days of a successful brand, it’s very tempting to get a bit ahead of yourself. The funding is rolling in, consumers are loving your product, and everything is going well — it’s easy to overstep and let greed drive you.
WeWork did just that. Constantly adding new investors, rapidly expanding to new cities, countries, and continents, and buying up other businesses left and right — all before they themselves were anywhere close to being profitable.
Now, we’re not saying you have to wait until your brand is fully profitable before making some bold moves. However, you do need to have rock-solid short-term and long-term plans set up to make sure that your bold moves won’t sink you.
You also need to understand how consumers, and more importantly your target audience, perceive your brand. Are they on board with your latest changes? Do they associate your brand with being bold or foolhardy? These are important questions you need answered to ensure your brand strategy is on-point.
Furthermore, you need fall-back plans. What if your investors pull out? What if a global pandemic hits? What if your CEO ends up being a slightly unhinged megalomaniac? All these things and more need to be addressed if you want to guarantee your best shot at success.
So what can you take away from this point? Take your time. Test your product and see how consumers react before you go international. Gather funding responsibly and sustainably, and don’t spend everything at once.
While it may not be as fun, it’s definitely the smarter move for your overall brand strategy.
2. Don’t Overpromise and Underdeliver
Another one of WeWork’s biggest mistakes was to overpromise and underdeliver — especially with their employees. Not only is this unfair to your employees, but it can harm your overall brand image if consumers see you going back on promises.
In September 2019, Neumann was forced to sell the Gulfstream G650 — not only because of the failed IPO but also because it created problems with employees who were promised bonuses and raises and didn’t receive them.
Furthermore, three former executives at WeWork have sued the company for a wide variety of reasons — from pregnancy discrimination to race discrimination to a gender pay gap to sexual harassment.
Most notably for this point, former Director of Employee Relations, Ayesha Whyte, sued WeWork claiming she “was promised a well-paying job that never materialized”. Clearly, WeWork was in the habit of making promises they couldn’t keep to their employees.
What can you learn from this? Always do your best to make good on promises and consider how they will reflect on your brand image. And if you don’t think you can fulfill said promises, don’t make them to begin with.
Unless you’re confident that you can provide your employees with the raises, bonuses, or promotions you’ve promised, find another way to reward them.
That doesn’t mean you should promote or give raises to deserving employees, but don’t make a habit of going back on offers — as this will lower trust in your management skills and harm the way consumers perceive your brand.
3. Don’t Keep C-Levels That Are Sinking Your Ship
Now, this may seem a bit harsh and, depending on how much stock they own, some C-level executives have more actual power than others.
However, when you have a CEO like Adam Neumann — who’s jet-setting around the world in a $60 million plane, carrying marijuana across international borders, and letting his wife “fire employees for their bad vibes” — it may be time to consider new management.
In the case of WeWork, they probably should have considered side-lining Neumann much earlier than 2019. His erratic behavior and shady dealings were red flags for years before and led the company into some truly hot waters — not to mention drastically affected its brand image and decreased brand value.
While it can seem harsh to fire a C-level executive for brand failure, if it’s their vision and strategic choices that have landed your brand in a heap of trouble, they can’t realistically be the one to get you out again.
What can you take away from this point? Remember that C-level executives are not above reproach. They, too, can mismanage companies, harm brand perception, and need to be let go. If things go wrong, keep an eye on who steps up to take the blame and make changes and who ignores the issues and continues on their course.
Everyone is allowed to make mistakes, but it’s those who refuse to learn from them and change who will lead your brand astray. Good C-level executives are open to new ideas and innovative tools that will help them improve brand performance.
For its first five years, WeWork had a meteoric rise to fame and success. Billions in funding, locations all over the globe, and executives that lived a high-rolling lifestyle.
But sooner or later, all mismanaged companies will see their downfall. From getting ahead of itself to overpromising to keeping a CEO that was clearly more of a risk than an asset, WeWork came crashing down.
However, with a new brand strategy of slowing down and focusing more on their product, WeWork’s new management hopes to turn things around in the coming years. We hope that this brand can learn from its mistakes and make a full recovery.
And it wouldn’t hurt for them to invest in some advanced brand tracking software to gain a better understanding of how their target audience perceives them — something they sorely neglected in the past.
Until then, we’re looking forward to Apple TV+’s new show, WeCrashed, which documents the rise and fall of WeWork.
Originally published at https://www.latana.com.