WeWork isn’t working, but co-working is
The pulling of WeWork’s IPO, and the possible slide into bankruptcy of this disruptive “unicorn” is salutary. Yet the principles and future of co-working are assured as business embraces the “gig economy,” entrepreneurial start-ups and other SMEs. But the co-working concept has been tarnished by the hubris WeWork’s co-founder, Adam Neumann.
Offices - RIP
Offices processing mountains of paperwork are history. Computerization and communications have banished paper and distance making the office increasingly redundant. “Office units,” on bleak industrial estates, was unappealing compared to shared, renovated, city-center space creating communities and cross-fertilization of ideas, and that have ping-pong tables, pinball machines and “on-tap” skinny latte. Co-working was born. Last year some 18,700 co-working spaces were operating globally, expected to reach 22,400 by the end of this year. Start-ups, fintechs and small, energetic, entrepreneurial businesses are blossoming everywhere promising not only profits, but a less straight-jacketed working environment. But co-working deters these risky fledglings from committing to long-term leases, creating growing opportunities for firms, like WeWork, assuming the risk of longer commitment and breaking it down into short leases.
“If we continue to grow at an accelerated rate, we may be unable to achieve profitably at a company level for the foreseeable future.”
If you intend to change the world the first requirement is to have a messiah – or to be one. And that appears to have been the choice of Adam Neumann, the co-founder of WeWork. The second requirement is to satisfy due diligence. That is something major investors like Masayoshi Son of SoftBank and Saudi Arabia as well as bankers and underwriters, including J. P. Morgan Chase and Goldman Sachs, were blinded from undertaking by the “inspirational” Mr. Neumann. How else is it possible to explain WeWork’s valuation of close to $100 billion* when the firm said in its SEC filing statement, “We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitably at a company level for the foreseeable future.”
In the same way failing banks mismatch long-term liabilities with short-term assets, WeWork’s business model was flawed. Its SEC statement said, “We may not be able to continue to retain existing members, most of whom enter into membership agreements with short-term commitments, or to attract new members in sufficient numbers or at sufficient rates to sustain and increase our memberships or at all.” But financial fragility was not the half of it: marijuana, tequila induced hangovers stalling meetings with major investors and an eccentric, tightly-controlled financial structure was too much for investors. The IPO was pulled. The value of the company reduced from the listing target of $47 billion to $15 billion. Its future may be in doubt but that of co-working seems assured.