Goodbye WeWork?

Adam Neumann (twitter)

Is WeWork, the company founded by the controversial Israeli entrepreneur Adam Neumann, about to shut down operations? Well, it looks that way. And the company once had an estimated valuation of $47 billion.

But this was never an actual value. The $47 billion was based on what Adam Neumann convinced investors to pay for whatever share in the company.

As the company’s shares continue to plummet, WeWork issued a statement saying it may not last another year. “Substantial doubt exists about the company’s ability to continue as a going concern,” it said.

This should not really comes as a surprise. WeWork never really had a viable business model. Office space sharing comes with quite a lot of risk. First, the company needs to fork over the money to lease all of that office space, even before it has any guarantee of subletting it all. Then, you have to find people willing to work in open spaces with a bunch of strangers.

At a WeWork office a person is not working alongside people from the same team or business. Ad they do not have a manager or anyone to talk with if another person causes problems.

The idea was that if so many people went out to work at a coffee shop it must be because they crave human interaction. So, they would all like the idea of working in a communal office space, right. Wrong. What happens if they don’t really like the other people there? Once you have paid the rent for your individual space you cannot just get up and leave and find somewhere else to go like with a coffee shop.

And then Covid hit and all those people had to work remotely, from home. And when the Covid crisis finally passed they did not exactly rush back to their old offices. It turns out, people like working from home and just need places to go for a bit during the day.

But most importantly, how could WeWork compete? If you own office buildings why lease space to WeWork when you can set up your own system of chopping up larger offices into smaller spaces. Why not cut out the middle man.

And that was another problem for how WeWork could ever turn a profit. The company would need to be certain to charge enough per space and always sell enough of its spaces just to cover the rent it pays to lease the offices.

So, the real question here is not why is WeWork failing, but how did it ever get off the ground in the first place?

In 2019, Neumann was forced out of WeWork, the company which he founded in 2010. After a meteoric rise, the entrepreneur was brought down after allegations of serious drug use and sexual improprieties were made. WeWork was forced to deal with sexual harassment suits. It delayed its planned IPO and laid off many workers.

But Adam Neumann reportedly walked away with a $1.7 billion deal. And so he used this money to acquire real estate and invest in a few new ventures.