It's the community
Being surrounded by a group of like-minded individuals
Being part of something bigger than yourself inspires people to work harder, spend
more time at work, and just have fun doing it.
These are the words of Adam Neumann
controversial founder of the infamous shared workspace provider, WeWork.
As entrepreneur becomes an ever more fashionable job title,
remote working grows in popularity and employees place greater value on
flexibility, WeWork seemed the perfect answer. Set to be the poster boy for tech
startups and the gold standard of scalable modern businesses, WeWork has
gone from a forty seven billion dollar valuation to less than ten billion
dollars in the space of just a few weeks. So how did the future of the workplace
become a financial failure and a cautionary tale for future ambitious startups?
Here's How It Happened.
Neumann was born in Tel Aviv, Israel in 1980 and
moved to New York when his parents divorced at the age of seven.
After four years, he, his mother and sister all moved back to Israel. Upon their return, the
family settled in a kibbutz from the Hebrew word for group or gathering.
A kibbutz is a collective community in which all labor and wealth is shared by the group.
Populations usually span between 100 and 1000 residents and
kibbutz life will usually center around agriculture so the settlement can remain
completely self-sustaining. It's highly likely that the communal kibbutz
lifestyle provided the inspiration for what Neumann would create twenty years later.
After serving five years in the Israeli Navy, Neumann was once again back in New York
to study at the Zicklin Business School and over the next few years he
founded several unsuccessful companies including Krawler, that designed baby's
clothes with built-in knee protection. In 2008, Neumann and co-founder Miguel
McKelvey started Green Desk, eco-friendly community-focused shared workspaces.
The pair soon discovered that their appeal was the focus on community, not the environment,
and so sold their shares in the business to create WeWork in 2010.
The simple business plan involved taking out long term leases on office buildings
typically around 15 years on average and then subletting these to entrepreneurs
and small businesses on a monthly basis. The first shared office space was in the
Soho neighborhood of New York and investors piled in as WeWork continued
to open more co-working space across America.
The shared working environment proved popular especially in dense cities where
rents are high and workspace is hard to come by. In 2014, WeWork saw a funding
round raise 17 million dollars as it opened its first international office in London.
As WeWork grew, the members went from 90 percent entrepreneurs and small
businesses to providing work space to 23% of fortune 500 companies.
Neumann began to diversify the WeWork brand, launching we live two years later
offering living space and shared apartments under the same communal
principles as WeWork. These living spaces provided just 180 square feet of
personal space compared to the US national average of 450 square feet per person.
But the sites also offer access to communal facilities such as a gym
movie room or library among others which are not include it in the measure of
individual space. Neumann's natural charm and charisma won over more venture
capital and investment firms. With SoftBank's CEO
Masayoshi Son a strong admirer, committing 18 billion dollars to WeWork
over a number of years, with SoftBank's CCO even incorrectly noting that this
was greater than the GDP of his home nation of Bolivia.
2018 saw the creation of WeGrow, a private elementary school based on the values of entrepreneurship.
This is far from your typical Elementary School. Their website reads: "Students will
learn about the interconnectivity of the universe and nurture their connection
with the planet and all living things." Adam Neumann's wife Rebekah Neumann was soon appointed CEO,
with Rebekah herself quoted as saying "there's no reason why
children in elementary schools can't be launching their own businesses".
But WeWork's application to launch its IPO in August 2019 saw the house of cards
begin to fall. At the time, WeWork was the largest office occupier in both
London and New York with the company aiming for a valuation of around 47 billion dollars.
But in their S-1 form, which companies are required to complete
before their stocks can be listed in a national exchange, the extent of WeWork's
losses was shared and met with widespread scrutiny.
It was revealed that the company was losing $2 for every $1 in revenue. Part of the problem,
was WeWork's 15 year leases on their buildings, while only charging
members on a monthly basis to use their facilities, creating a huge disparity
between WeWork's future obligations and the revenue committed by tenants.
But just as worrying was the behavior of Neumann as CEO who had taken out millions
of dollars in loans from we work with interest rates as low as 0.2%.
Neumann had also spent 60 million dollars on a company private jet and 80 million
dollars on 4 personal properties around the country. In September 2019
WeWork's Board of Directors asked Neumann to stand down and he agreed.
SoftBank then agreed a three billion dollar bailout package to help keep
wework afloat however on April 1st 2020 like a bad April Fool's joke
SoftBank withdrew its rescue package throwing WeWork's future into the unknown.
And that's how it happened.
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