What is WeWork and what does WeWork do?
Before discussing Business Model Of WeWork first see discuss a little about WeWork. WeWork started in the year 2010 by Adam Neumann, and Miguel McKelvey is a real estate company they offer co-working spaces on rent.
In their model, they first take a whole building on lease then after they transform the whole building provide to startups, companies, and freelancers on rent.
They existed in more than 800 locations all over the world which includes more than Countries and also more than 15,000 workers.
And also they are the most valuable startups in the US with a valuation of $47 Billion and that they didn’t even take huge time, not even a decade.
Before WeWork
Before WeWork, Neumann and Miguel have started a company in the year 2008 called GreenDesk where they help small business and independent professionals for eco-friendly co-working spaces on rent.
And after a successful two years, they sold the company and got a great exit, and then they started WeWork in 2010.
The Founders
Adam Neumann
He is the CEO and co-founder of WeWork. It is Neumann who’s storytelling techniques and strategies made WeWork a $47 billion company.
He also works as an advisor to many different startups and also owns the company Egg Baby which is a children’s clothing company.
He is the owner of many different organizations but he is most active in New york. And he has also turned the 25 floors huge Woolworth building into a residential place.
Miguel McKelvey
The chief creative officer of WeWork has also developed some of his own companies like Generation Design Company which he invented in the year 2007.
And he started his entrepreneur journey in 1999 and co-founded the company Version.
At Jordan Parnass Digital Architecture he has worked as a project manager from 2004 till he co-founded Seven Plant Chain of green general stores in portland.
How Much Funding WeWork Has Raised?
In the year 2010, the company raised the amount of $41 million, and post the funding the valuation of the company was $440 million.
So this was just the start for the company, then in the next funding round the company raised the amount of $156.4 million from Aleph.
Then in their next funding round they raised the amount of $198.8 million and raised the valuation to $4.8 billion.
In their next funding round in June 2015, WeWork raised an amount of $433.9 million which made their valuation $10.2 billion.
Then in July 2015 they again raised a huge amount of $750 million from Honey Capital and Legend Holding which made their valuation of $15.8 billion.
Then after 2 years in 2017, they raised a huge amount of $2 billion from primary venture partners, Softbank Group, Alpha JWC Ventures, Syren Capital Advisors, Catalyst Ventures, and StraightPath Venture Partners and after that funding their valuation raised to $21.2 billion.
And in their next funding round they received an amount of $5 billion from Softbank group which makes their valuation $47 billion one of the most valued startups of the US.
But in their next funding they raised again $5 billion from Softbank but this time their valuation fell from $47 billion to $7 billion.
So now let’s see why their valuation fell from $47 billion to $7 billion.
Their Fall
First Reason – Wrong Business Model
The main earning source of WeWork is from the place they give on rent to the small companies and freelancers.
If you see their places they are huge and very good looking, but they provide a huge open area like there are no couches, common areas, discussion areas and they do not charge a single penny for those areas.
Places like the US and NewYork a small area are very costly and WeWork does not use those areas to generate money so they lose money.
The second thing is they take the building on lease for 15 – 20 years but a freelancer and company can book his place for even a month so because of that they don’t have the idea about how much they will earn from a particular customer.
If you see their IPO documents in 2018 their revenue was $1.8 billion but if you see their losses it $1.6 billion, companies become unicorns when they reach the valuation of $1 billion but WeWork was totally in the next level they became a unicorn in losses.
Second Reason – Adam Neumann Himself
We must appreciate him as he built a company with a valuation of $47 billion but if you see the behavior of the CEO of a $47 billion company it was literally unbelievable.
According to sources he owns a jet of $60 million, he has opened a spa in his offices with an ice bath, and he too many properties of very high cost and this all from the money of his investors and one thing he did that not even the CEO of profitable companies can do he bought the We of the WeWork and company buy back the We from its own CEO for $5.9 million and also many building which WeWork has taken on lease Adam Neumann has already invested on those properties so if you see here only Adam Neumann is becoming profitable and not his company.
And it is like he already knows that the company is going to disrupt as he just before the IPO he sold his stock of $700 million.
But a huge question raised here is why no one was stopping him and the reason for that was that WeWork has dual-class shares which means one vote of Adam Neumann was equal to 20 votes of other shareholders’ votes so because of that board can not fire him without Adam Neumann’s permission.
Third Reason – Focused on unrelated Businesses
As they have acquired and invested in many different businesses which were totally unrelated to their businesses and because of that their resources and concentration has distributed to different sectors which were a great reason for the fall of their business.
Different companies that have acquired Flatiron school which was providing coding classes, Mission You which was an alternative to college education, Conductor, Spacious so these all are totally unrelated to their business so also don’t get any benefit from these acquisitions and ultimately they lose their money only.
Current Situation and Strategies
The reason behind becoming this much huge company and reaching a valuation of $47 billion in SoftBank as they have made huge investments in WeWork.
So after the fall and cancellation of the IPO SoftBank has taken over most of the stakes of the company and also taken the decision of investing $9.5 billion as they have already invested billions of dollars so if they do not support the company right now their billion of investment will go into vain.
They also buy back $3 billion and also about to invest $5 billion so that company can sustain properly and can also restructure the company properly.
They also took off the differential voting right from Adam Neumann by giving him $1.7 billion. And they also decided to fire many of their employees as they can not sustain this much huge staff.
WeWork hasn’t fired those employees as literally they did not have that much money to give to their employees.
SoftBank is also about to shut down all the unrelated businesses acquired by WeWork so that they can focus on their core business and they will slow down their growth rate and focus on becoming profitable.
Conclusion
Only a huge investment can not make a company profitable. You have to focus on your core business properly.
Also, your vision should not be about acquiring more and more companies but to become profitable with your core business.
Everyone should have equal rights so that if someone is not performing well others can also take decisions. We hope WeWork now does well and becomes profitable soon.
So if you have any question related to business model of WeWork feel free to ask in the comment section.