4 lessons from WeWork fiasco
October 09, 2019
WeWork, a mega American co-working company filed its IPO this August and has been in the news since then.
In a month, the real estate company that gives shared spaces to tech startups and services, cuts its valuation down to $47 billion to as low as $10 billion, removed its CEO Adam Neumann and postponed its IPO.
This turmoil has kept WeWork from functioning smoothly and due to carelessly filing an IPO states the qualities of leadership and finances.
Here are the 4 lessons similar companies can learn from WeWork:
1. Build a strong foundation then plant your pillars
Without a strong foundation, one cannot succeed and will always be weak at its roots. The basics of business should always be strong.
This is where WeWork failed. The traditional model of co-working works in high EBITDA margins. Interest and Depreciation play a major role in the expense part when it comes to building a co-working company.
Tip: if one wants to fund a real estate company, one needs to see the cost of the economy’s unit cost and strategize a model by taking into consideration the expenses and the profit margins.
2. Look for long-term growth rather than a short term one.
WeWork’s big mistake was that it tried to lease buildings at a rate higher than the market could actually afford. It’s hurry nature to expand as quickly as possible made it’s business model weak and took a toll on its profitability.
Tip: For long-term growth, select the locations best for market fit, negotiate the rents and always take into account how one can expand slowly, giving out rents to shared spaces at affordable rates and leasing buildings in terms of long-term future growth.
3. When it comes to investors, a business should have good business ethics and company management.
When the IPO got filed, it created an outburst among the Founder of Softbank( WeWork’s investor) and Neumann. The relationship which started in India , according to WSJ, observed a fall over the issues of corporate governance and skewed voting rights.
Softbank’s own net worth is also under pressure due to WeWork.
To top that, the trust was destroyed when it came to selecting a new CEO for WeWork and making decisions without including the investors.
Tip: Keep an honest and straight-forward relationship with investors.
4. The boom on the real estate industry is still intact
As many businesses are being found every other day, they are in need of small office space for their small team to take off the business. They look for affordable rent in the right market place.
WeWork’s mistake can serve as a lesson for the real estate investors or people looking to build their business in co-working that manages capital at a slow and steady rate, build a strong business model and have a good business judgment.
Real estate investors or co-working companies should take lessons from these WeWork’s fiasco and build it’s long term plans for profitability.