WeWork may go down as the biggest tale of the consequences of exuberant boom-time `tech` investing. Founder Adam Neumann created a company that destroyed value at a blistering pace yet extracted over a billion dollars for himself
Having raised $21.7bn in funding over 22 rounds, and once valued at $47bn, the warnings started in earnest when the firm made a net loss of $397m in calendar Q2 2023 and found its stock trading at around 2% of its IPO price. When, a few months ago it appointed restructuring specialists firm Alvarez & Marsal, that was a sure sign that things were in a bad way
But there is one aspect of the WeWork saga that hasn’t been talked about until now…. And as you’d expect from us… Category. And from that point of view we think WeWork was doomed from the beginning
We have to admit that we have skin in the game, having once inhabited a WeWork office. OK – we were young, we were foolish…and didn’t know that wooden floors and paper-thin glass walls did not make for productive working spaces.
Maybe it was that experience and the events of recent months that made us think
From our point of view, the fundamental problem with WeWork wasn’t just a perfect storm of poor controls on investing combined with Masayoshi Son, or Masa Son to his mates, who runs investor SoftBank Group Corp, reportedly believing that Neumann was crazy, but thought that he needed to be crazier to achieve the returns needed on the billions Son was going to risk on WeWork and the impact Covid-19 would have on the world economy.
Not even the added factor that WeWork was valued as a tech play when it was a real estate business
It’s worth noting at this point, dear readers, that next time there is a tech boom and everyone wants to be thought of as tech be critica. A whiff of association with tech companies or investors is just not enough to cement yourself firmly in the tech value ecosystem, Think of Gorillas (food delivery), Glossy (make up boxes), Made.com (sofas) and may more tech wannabes that are now just footnotes in business history
No, what was entirely missed in Son’s approach or the boomtime groupthink is that there is NOTHING about WeWork that was, and is, fundamentally different to what already existed and had been pioneered by the likes of Regus and provided worldwide by scores of imitators. The model was the same. Basically: lease office buildings, improve the space and sublet it, flexibly, in small chunks.
To be fair, WeWork may have brought some macro-level benefits – legitimising basing a company in temporary accommodation, perhaps, causing some existing players to up their game,.. maybe.
But even as a real estate play WeWork was short on real value creation. It was an aggregation of shiny but marginal `betters`. Betters from free beer and pizzas (nothing is, of course – either the rents or the investors are paying for it) to trendy locations and GenZ – friendly designer workspaces all, of course, delivered at premium cost.
WeWork’s real advantage was that it was able to scale in an era of rising real estate prices by outspending every competitor to get in front of a generation of start-ups, many of whom were also busily spending their investors’ money to pay WeWork’s rent
But ultimately it may have done the tech industry from startups to investors a disservice as other financiers, lemming-like, poured money in similar property plays in the belief that another tech goldrush was on and so denying more deserving causes the investment
More importantly, has WeWork driven a fundamental and permanent change to the world of work? NO. Has it given any of us something that we never knew we wanted or cannot now do without? NO. Did it establish a new Category and deliver sustainable shareholder value creation? NO
There are more hard lessons to be learnt from the WeWork debacle. Don’t EVER confuse burning money to attract customers with creating real value for them. Don’t EVER confuse spending investors’ money on a chancy business hustle with the investment risks of creating game-changing tech
Most of all, don’t EVER confuse better with different. It’s difference that is the key to long term success. And that’s something you need to establish in your business strategy right from the beginning or it’ll bite you and your investors at a later date – as we believe WeWork’s debacle has so aptly demonstrated.