Ever since its first years since inception, the startup has got everyone’s attention. It might have been the persona of Adam Neumann, its CEO, that played a big part in selling the vision of the company to everyone. But more about Neumann later. Now it’s worth mentioning that WeWork was quickly backed by well-known investors like J.P. Morgan, Goldman Sachs Group, and Wellington Management.
In just 4 years, WeWork got the title of “The fastest-growing lessee of office space in New York” - Forbes, 2014, and things were looking great for Neumann’s company which was valued at around $ 4.5 billion. With him at the helm of the company, the company was expanding fast and undergoing a very substantial series of private funding.
By 2016 WeWork was already valued at $ 10 billion and was getting so hot that the next few years got the attention of everyone. By 2017 Softbank got invested, putting up $ 4.4 billion for WeWork and raising the company’s valuation to $ 20 billion.
The business culture that WeWork created was, to say the least, questionable, but nobody seemed to pay attention to the availability of alcohol at work, long working hours, and parties. Not to mention the very expensive business model that wasn’t going to scale revenues fast enough to catch the phase with which they were burning money.
So, relying much of its growth on private investments was not a red flag for anyone, as a business needs to spend to increase revenue in the future. At least in theory, right? But what happens if one operates in the real estate markets and starts its activity exactly after the Global Financial Crisis of 2008? If you thought that problem would occur along the way - you’re right.
WeWork had a business model based on leasing properties rather than owning them - a strategy very useful when thinking about expanding in hundreds of locations in just a few years - but when they started the business, the prices of properties were low. As the market rejuvenated and prices started to surge, the company’s customers had to bear the cost by paying extra. But that wasn’t even the biggest problem with the WeWork business model.
Looking back on the events of the past decade, we can see clearly that a CEO can influence the performance of a company, even if it is on its way to becoming a mammoth. And unfortunately, in this situation, Adam Neumann was only dragging the multibillion Unicorn company down.
Neumann assumed a potential market for shared workplaces that would raise trillions of dollars, and he envisioned himself as the first “trillionaire” on the planet. While he was doing all of that, he was creating an increasingly questionable profile for himself. He became highly controversial, with employees reporting that he was coming to work intoxicated or leaving meetings because he wasn’t feeling like it. Additionally, Neumann and his wife are nowadays known for firing people for reportedly “giving bad vibes”.
Controversies started to really roll up when Adam Newmann bought a $60 million private jet to fly around the world as he pleased causing the WeWork scandal. If that was not weird enough for a startup owner whose company was going through a period of “cutting costs”, he was even suspected of transporting weed with his plane – also not helping with the WeWork scandal that was surrounding the startup. Even more so, to show his true “hustling mentality”, the guy trademarked the word We and sold it to his own company for almost $6 million. Talking about great leadership…
But the year 2019 came, and SoftBank reinvested at the beginning of the year, adding another $2 billion to their WeWork investment which was already adding up to $10 billion. That was part of a plan of the investment group to acquire the company from Neumann for a supposed sum of $100 billion. But as they decided not to go forward with that idea, WeWork decided in August 2019 that it was time for them to go public to gain the funds they needed to fund their operations further. Remember, they were not that profitable in their financials since they were generating billions in revenues but were spending even more.
A Bloomberg report released that summer estimated the company at around half it’s supposed to be worth. So Adam Neuman decided to do what every CEO would do when his company files its S1 to go public - he sold $700 million of his stock…
In September, the company saw not only a postponement of its initial IPO but also a turmoil of nightmare events that eventually led to Adam Neumann stepping down from the helm of the company and SoftBank acquiring some 80% of the company for around $8 billion.
It’s true – charismatic founders and great storytellers are an important part of the success of a startup. They come with the vision, they plant the idea in the minds of everyone, and get people to put their trust in them and their company. But when such talented founders turn out to be really bad examples of leaders, a really big question mark appears on the future projections of their companies.
.webp)
.webp)
.webp)
.webp)
