WeWork Inc., the company that tried to revolutionize the way people work, filed for bankruptcy on Monday in a New Jersey courthouse. Started by ex-CEO Adam Neumann and his business partner Miguel McKelvey, WeWork was once valued at $47 billion during its peak success.
In its Chapter 11 bankruptcy petition, WeWork listed its assets at $15 billion and stated the company has more than $18 billion in debt. The company also has an average of $100 million in unpaid rent.
Current WeWork CEO David Tolley stated, “WeWork is requesting the ability to reject leases of certain locations, which are largely non-operational, and all affected members have received advanced notice.”
The bankruptcy filing signifies a major fall for a startup company that once promised to “raise the world’s consciousness” and upend the way people work by creating nontraditional office spaces. Let’s get into how a global office-sharing conglomerate came crashing down.
What is WeWork?
Despite promoting itself as a tech company, WeWork is a real estate company offering freelance workers and startups swanky office space to pursue entrepreneurial endeavors. WeWork leases buildings and divides them into office spaces to sublet to members who want to avoid paying for permanent office space. The company is headquartered in New York City and has offices all around the world. According to CNN, WeWork locations outside the US and Canada are not part of the bankruptcy proceedings.
WeWork caters to young professionals with flexible workspace needs who want to save money on something other than permanent office space. According to its website, WeWork’s vision is to create environments where people and companies can cooperate and do their best work.
A former architect for the company described to the New Yorker what it was like when she initially walked into WeWork’s Chelsea location. She said the “vibe” was magnetic. “There were endless seating options: booths, extra-large couches, café-style tables. A barista whipped up lattes with vegan milk, and the central pantry offered wine, beer, and kombucha on tap. It’s bright and bustling, she went on. People are chatting in small groups or having coffee and working on a laptop. You’re convinced that they are busy and doing things well. It’s interesting because that’s what they were selling: this energy, this magnetic, productive buzz.”
And people bought into this energy. WeWork became one of the fastest-growing companies in the world. Founded in 2011, by 2019, WeWork was valued at $47 billion. Unfortunately, as fast as the company rose to fame –it came crashing down just as quickly. This is partly due to the company’s founder and infamous CEO –Adam Neumann.
Who is Adam Neumann?
Popularized in the Apple TV show WeCrashed, Adam Neumann is a cofounder of WeWork and the ex-CEO of the company. Together with his wife Rebekah Neumann, Adam and business partner Miguel, launched the startup in 2011. It grew at a rapid pace, and WeWork went on to become the most valuable startup in the United States. WeWork became known as a disrupter in the office market by taking “long leases on large properties and renting the space to multiple smaller businesses on more flexible, shorter arrangements.” Media outlets called Adam Neumann a unicorn. His magnetic personality allowed him to successfully court major investors, including SoftBank, “venture capital firm Benchmark, and major Wall Street Banks, including JP Morgan Chase.
Adam Neumann’s flamboyant (sometimes erratic) personality defined WeWork’s brand. He wanted to dismantle the traditional way office space was used and create an environment that would bring people together so they could do their best work. He is a charismatic, Israel-born entrepreneur, who wanted to change the world through his vision of shared workspace. His wife Rebekah inspired Neumann from the start, and she believed that through their company, they would “elevate the world’s consciousness.”
Forbes featured Neumann on the cover of its magazine in 2019 when WeWork was valued at over $47 billion, and he became a total celebrity compared to the likes of Elon Musk and Steve Jobs. Featured on the cover of Vanity Fair, Neumann once said WeWork would eventually be valued at ten trillion dollars.
Unfortunately, the faster WeWork grew and increased revenue, the faster it racked up huge losses –losing millions of dollars each year. WeWork’s Board and investors grew weary of Neumann’s lavish lifestyle and believed he was running the company more like a fraternity than a business. Revelations about “Neumann’s pursuit of swift growth at the expense of profits” and information about his eccentric behavior came to light. The media pitted him as a national embarrassment –right when WeWork considered going public. Fearful that Neumann could not lead WeWork into its next business phase –the Board ousted him as CEO.
The 2019 IPO launch never happened because “the proposed share sale imploded spectacularly after investors questioned the company’s hefty losses and balked at Neumann’s management style and corporate governance lapses.”
Adam Neumann was replaced as CEO by Sandeep Mathrani, who tried to correct the company’s bad habits, but it never fully recovered after Neumann left.
Why did WeWork File for Bankruptcy?
A few reasons. Neumann racked up a ton of debt while he was CEO, and it took years to try and reposition the company. Then, in 2020, the coronavirus pandemic took the world by storm, and office spaces closed as people went to work from home. The company tried to “amend its leases and restructure its debts,” but it continued to decline as rapidly as it grew.
WeWork took on billions in debt to “amass its large portfolio of leased office space.” However, primarily because of the pandemic, the demand for shared office space “never reached the level necessary to match the large acquisition WeWork made. Not having enough tenants meant WeWork could not offset its losses or pay its sizable rent payments on the offices it had already leased.”
“By 2021, estimates of WeWork’s value had fallen as low as $10 billion. The company finally went public through a merger with a blank-check acquisition company in October of that year.” However, because WeWork had too many signed leases and too few tenants to fill the office space, the debt they accumulated “pushed the company into bankruptcy.”
The rise and fall of WeWork is a cautionary tale “regarding a period of low-interest rates in the 2010s that spurred a flood of investment into startups.” But just as quickly as WeWork rose to fame, the company’s irresponsible spending and rapid growth rate led to its crash.
WeWork’s Future and Adam Neumann’s Flow
When news broke that WeWork filed for bankruptcy, Adam Neumann said it was “challenging” for him to watch from the sidelines and that he was “disappointed” by the bankruptcy. He accused WeWork of “failing to take advantage” of its potential.
“‘As the cofounder of WeWork who spent a decade building the business with an amazing team of mission-driven people, the company’s anticipated bankruptcy filing is disappointing,’ said Neumann in a statement on Monday.”
Where is Adam Neumann now? He is still an entrepreneur and, in fact, “he could soon be taking on his former company WeWork.” Four years after being ousted as CEO, he started a new venture called Flow –described as a “residential consumer-facing real estate company.” According to Forbes, Flow has already raised $350 million, and Neumann said his new company will either “compete or partner” with WeWork. It will be interesting to see where Neumann’s next venture takes him, and whether he can reclaim his “unicorn” status.
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Sources:
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https://www.cbsnews.com/news/wework-bankruptcy-filing-coworking-office-space/
https://www.newyorker.com/culture/culture-desk/the-rise-and-fall-of-wework
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https://www.nytimes.com/2023/11/06/business/wework-bankruptcy.html
