💰 From $0 To $47B And Back Again

It’s 2010 and Adam Neumann has just signed a lease in NY for his first building.

This is the official start of WeWork - “the coworking space that accelerates the new world of how people work”

With remote work on the rise and lease interest rates low after the 2008 financial crisis…

WeWork sounded like the best idea of the 21st century.

In its first year, WeWork had tons of big-name investors like Benchmark, SoftBank, and Goldman Sachs lining up at their doorsteps.

By 2019 they were valued at $47B.

But last November, WeWork filed for bankruptcy.

What happened?

To be honest, it was a secret no one knew the answer to for a while.

But after some digging, I’ve realized we should have seen it coming since day 1.

Here’s what we got for ya:

• 🌎 The “WeGeneration”

• 💥 The Fall Of WeWork

• 🧠 What We Learned

Read Time: 5 min 9 sec

🌎 The “WeGeneration”

When I was in Medellin, WeWork was like my second home.

There I met other entrepreneurs, got free coffee and beer, and not to mention an awesome view…

So when people talk about the ‘WeGeneration’ I see its appeal to young entrepreneurs.

“We call it ‘The WeGeneration.’ It’s a community. It’s being surrounded by like-minded individuals. The WeGeneration inspires people to work harder, spender more time at work, and just have fun doing it.” - Adam Neumann

But to investors, there was another reason they found the idea of WeWork so irresistible.

WeWork was pitched as a tech company. Neumann saw his business as the Uber of the taxi industry. Or the Airbnb of the hotel industry.

The idea: Make billions by leveraging other people’s assets and skip out on the liability of owning them

It was genius…

From 2010 to 2011, WeWork doubled in size. By 2015 WeWork quadrupled its valuation at $10B.

By 2019 they had 485 locations around the world.

This told everyone 2 things:

1. WeWork was very successful

2. There was a high market demand for remote work

As more and more big-name investors funded WeWork, every investor had a bad case of investor FOMO.

But it turns out, free coffee with stellar views isn’t enough to keep a business afloat and investors interested…

Especially if its operation cost totals up to $219K per hour.

And this is the start of how WeWork crashed and burned.

More on this:

• A breakdown of WeWork’s 2018 finances and how they were losing over $219K an hour

• How Subway used the same rapid expansion tactic to convince investors to give them money

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💥 The Fall Of WeWork

In 2019 WeWork publicly filed for an IPO which exposed all of its finances.

Everyone expected a goldmine.

Instead, they found that WeWork lost over $1.9B the previous year.

Yikes.

Since 2019, their valuation has continued to tank…

This is mainly due to the business model itself.

As I said earlier, WeWork was pitched as a no-risk model by calling themselves the Airbnb of coworking.

But that wasn’t exactly true.

While WeWork did not technically own the buildings, the company was locked into 15-year leases.

So instead of being a tech company, they were more like over-glorified landlords.

Here’s a brief overview of how the company makes money:

1. WeWork receives a big check from an investor

2. WeWork signs a 15-year lease for a building

3. WeWork furnishes it, adds a few coffee machines, and sells short-term subleases to remote workers.

4. To break even on their lease, WeWork needs an average of 67% occupancy. Anything over is profit.

But let’s say there’s a natural disaster in an area and fewer people need remote work…

Or something like Covid hits and no one wants to leave their house…

WeWork is then stuck with a $10M+ lease that they don’t have the money for.

As of 2017, WeWork owed more than $47 billion in future lease payments.

Which is very risky.

So even though WeWork’s valuation was skyrocketing via big investors…

Until 2019 no one had looked into the debt WeWork was racking up by signing new leases with no rock-solid way to pay for them.

And like a catastrophic cherry on top…

Neumann also started two new businesses using the same model - one an elementary school named WeGrow and an apartment complex named WeLive.

Neumann was also:

• Taking out million-dollar personal loans from WeWork with 0% interest

• Buying buildings and then leasing them out to WeWork for 3x more than the average lease in the area

• Charging his company over $5.9M to use the trademarked “WE” name

And that’s how WeWork fell.

Let’s talk about the 3 takeaways I got from this that you should look out for in your business.

More on this:

• Why SoftBank keeps bailing out WeWork (3 min)

• A peak into life inside WeLive (5 min)

🧠 What We Learned

#1 - Money makes you dumb

By 2019, Softbank had pumped $18.5B into WeWork. Billions more were made by other investors…

All before WeWork had proven itself as a sustainable business.

All Neumann knew was that he was making money. This pushed him to sign more leases and make emotional moves.

When you have money, it can act as a bandaid on deeper wounds for your business.

Pay attention to what’s really making money in your business.

#2 - Don’t make bets you can’t win

Neumann split his company into three very different markets:

1. WeWork - Coworking

2. WeLive - Apartments

3. WeGrow - Elementary schools

How could Neumann expect to win when competing with market leaders who give 100% of their resources to their one market?

Neumann was making bets that he could not win.

#3 - Not everyone is meant to be a CEO

As with GoPro and Shopify, not every founder is meant to stay CEO.

In the beginning, you wear all the hats of your business. But as you grow and need to expand, it’s worth evaluating if you have the skill set to manage a company.