The History of WeWork and Why You Shouldn’t Follow Their Business Model
According to the National Association of Realtors, commercial real estate in the United States is a $1 trillion industry. That includes office buildings, retail centers, warehouses, and other properties.
In recent years, the industry has been growing as the economy has picked up speed. In addition, employment growth has led to more businesses needing space, and rising real estate values have made an investment in commercial property more attractive.
One of the biggest trends in commercial real estate is the rise of co-working spaces. These shared office spaces are popular with startups and freelancers who want the benefits of an office without the cost or commitment of leasing their own space.
WeWork, one of the most prominent players in the co-working space industry, has been at the forefront of this trend. The company has raised billions of dollars from investors and was valued at $7 billion as recently as January 2019.
However, WeWork’s rapid expansion may have been its undoing. The company has been losing money for years, and it has been accused of fraud by investors, enough to bring in professional lawyers specializing in fraud. As a result, investigations are being held, and it’s not looking good for the company. Here’s what you need to know about WeWork and why you shouldn’t start a business like this.
The History of WeWork
WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey. The two were friends who had met while working at a previous startup. They came up with the idea for WeWork while they were both working out of coffee shops and realized a demand for shared office spaces.
WeWork started small, with just a few locations in New York City. But it quickly began to expand, first to other cities in the United States and then to other countries worldwide.
The company raised billions of dollars from investors, including Japanese conglomerate SoftBank.
However, WeWork’s growth was not profitable. Instead, the company was losing money hand over fist, and it became clear that it would need to raise more money to keep the lights on.
To bring in more cash, WeWork decided to go public through an Initial Public Offering (IPO). This is where a company sells shares of itself to the public for the first time.
The IPO Filing
WeWork filed its IPO paperwork with the US Securities and Exchange Commission (SEC) in December 2018. However, the SEC raised concerns about the company’s business model and profitability. In particular, they were worried about how much control Adam Neumann had over the company.
As a result of these concerns, WeWork delayed its IPO. The IPO was eventually scrapped altogether, and WeWork instead accepted a $5 billion bailout from SoftBank. This deal gave SoftBank a majority stake in the company and effectively removed Adam Neumann from power.
WeWork’s Currently Struggling
Since then, WeWork has been trying to right the ship. It has laid off thousands of employees and pulled out of plans to expand to new locations.
But the company is still bleeding money, and it is not clear how long it can keep this up.
Investors have also accused the company of fraud, alleging that it misled them about its financial condition. Investors are now letting their lawyers investigate the company for fraud. But the problem isn’t just mainly legal when it comes to WeWork. The business model isn’t also made to profit.
The Problem With WeWork’s Business Model
WeWork’s business model is simple: it leases office space from landlords and then subleases that space to its customers.
The problem is that this model is not sustainable in the long run.
First of all, WeWork has to pay its landlords whether or not it can find tenants to sublease the space. This means that if WeWork’s occupancy rates drop, the company will still be on the hook for rent.
Secondly, WeWork has to spend a lot of money on renovations and furniture for each new location. This is a huge expense that most traditional office landlords do not have to worry about.
And finally, WeWork’s customers are mostly small businesses and startups that may not be around in a few years. This means that WeWork could be stuck with a lot of empty office space if there is an economic downturn or if its customers go out of business.
The Bottom Line
WeWork has been through a lot in the past few years, and it doesn’t look like things are going to get any better anytime soon. The company is struggling to keep its head above water, and it faces investigations for fraud. WeWork’s business model is also not sustainable in the long run.
It seems likely that WeWork will not be around for much longer. So, if you’re thinking about starting a business in the co-working space industry, you might want to think twice. WeWork’s story is a cautionary tale of what can happen when a company expands too quickly and doesn’t have a clear path to profitability.