But let’s try, because in WeWork’s epic rise and fall, there is a vital lesson for small business people. Consider:
- WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey. Their big idea was this: Because office space in New York is so expensive and finding, furnishing, and maintaining a nice office was cost prohibitive, WeWork would buy or rent offices, make them cool, and then lease shared office space to tenants. The idea took off.
- By 2014, WeWork was considered “the fastest-growing lessee of new office space in New York” and was on track to become “the fastest-growing lessee of new space in America.”
- By January 2015, WeWork had 51 coworking locations across the U.S. and Europe - twice as many as in 2014. WeWork was named one of the “most innovative companies” of 2015 by Fast Company magazine.
- In 2016, the company raised $430 million in investment capital and had a valuation of $10 billion.
- In 2018, SoftBank invested $3 billion in WeWork, and another $2 billion a year later.
- In January 2019, WeWork was valued at $47 billion. Its IPO prospectus said, in part, “Our mission is to elevate the world's consciousness.”
And that is when the wheels began to fall off.
So flush with money was WeWork that it started spending in extravagant, crazy ways. How crazy? Let me share a personal story:
Two years ago, I was asked by WeWork to attend its Creator Awards in New York. It was a wild night; unlike anything I had ever seen, and emblematic of everything that was to go wrong.
WeWork’s CEO Adam Neuman was supposed to award one winner $1 million, that, in and of itself was wildly extravagant. But so overwhelmed was he by the 13 finalists, that he spontaneously decided to award a second winner another $1 million, and then he decided to give each runner up about $250,000 each.
The $1 million night became a $4 million night, and it happened in 45 seconds.
Multiply that by private jets, excessive growth (We Work bought the storied Lord & Taylor building on 5th avenue for its headquarters for $850 million) and crazy policies (Neumann sold the “We” trademark to his own company for $5.9 million) and you can see why its plan for an IPO in 2019 started to go up in smoke. In a few short months, WeWork’s profligate spending came under intense scrutiny and before long:
- Its $47 billion valuation fell to $8 billion in nine months
- Neumann resigned as CEO
- The IPO was shelved
- SoftBank took control of the company
What Went Wrong (Besides Everything)?
First, obviously, their spending was out of control, but it was more than that. Clearly, Neumann never graduated from the entrepreneur stage to the businessperson/CEO stage.
Entrepreneurs like Neumann are necessary. Their vision, passion, and energy are needed to get a company launched. But that is not enough. Vision doesn’t pay the bills. Before long, if you want to last, you need to learn and master the more mundane parts of business – law and taxes, insurance and finances, hiring and firing, and so on. WeWork never did.
Second, WeWork grew too big, too fast. That too is a danger to be avoided. Scaling a business is not easy. To go from one person (where most business start) to 2 to 10 to 100 and beyond requires planning, infrastructure, training, policies, financing and much more. Most of all, it requires time. Setting the foundation in place properly is the best way to create lasting success. Moving too fast allows one loose Jenga piece to topple the whole structure.
Third, hype and hyperbole do not a business make. Oh sure, we all like buzz and attention, and that can help grow a business but attention, if not managed, is just so much hot air.
Example: I once helped a pizza joint get the attention of a local food critic. One Friday, the critic wrote a glowing review of the restaurant. That weekend, the place was slammed, but because they weren’t ready, they didn’t have enough wait staff, ran out of dough, and pissed off a lot of customers.
Buzz can be a buzzkill if not managed properly.
The moral? Grow fast and furious, get high on your own success, get into debt you can’t manage, over promise and under deliver, and you will go from we work to no work in a hurry.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss.
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