Why was WeWork such a huge flop?

Q: Why was WeWork such a huge flop?

It’s easy to be a critic. But WeWork’s big “flop” really came from just 1 factor … it ran out of investors that bought into its dream.

The bear case is/was easy:

  • WeWork was burning more cash than it brought in in revenue:
  • Crazy self-dealing with CEO, and lack of any seeming controls.
  • Potentially way over-paying for some properties.
  • A business model of turning long-term liabilities into short-term, at-risk payments.
  • A “hot desk” and low-end customer segment that couldn’t make money.
  • A public comp that didn’t support the valuation.

And yet … and yet … investors aren’t stupid. There also a bull case to be made:

  • Some of fastest revenue growth in history.
  • A chance to disrupt one of the oldest, most inflexible, and most inefficient markets in the world — commercial real estate.
  • Strong brand and true demand. Folks stay:
  • The times are right. WeWork isn’t your father’s crummy coworking space. With every company adopting distributed teams across many cities and offices, WeWork is a beneficiary and enabler of this massive and growing trend.
  • Starting to go much more enterprise and leasing true offices to quality, long-term, blue chip companies. The unit economics are positive here. This is starting to work:

In a lot of these seemingly crazy B2C bets, since the Web 1.0 days and including Amazon, you’re betting that by fueling crazy growth, you sustain high burn on the way to building a huge brand and moat that has better margins at scale.

Enough folks believed. Super smart folks. Until the numbers just got too scary. And there weren’t enough public company investors to … believe.

It was close to happening. A little less hubris. A tiny bit less spend, to support a lower valuation would have helped. Probably less Softbank craziness.

But it really only flopped once the believers ran out.

They may be back, with another 24 months of improving margins. We’ll see.

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Published on January 5, 2020

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