Rupert Dean on why WeWork 'failed' and what we can learn from their journey

WeWork’s IPO did not go as planned but this is not a result of bad product, or necessarily a broken model, but at the heart of it is a business that lost sight of its purpose, and instead become caught up in the superficial private company world of misaligned valuations, corporate greed and management PR disaster – and the world has most certainly, had enough of these..

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Back in 2008 when Adam Neumann and Miguel McKelvey first developed the idea for WeWork after brainstorming how they could rent out empty office space to other companies, the result was ‘Green Desk’ - an earth-friendly co-working company.  Whilst this venture was just the first seedling in the now monolithic WeWork empire, it serves as a simple reminder that the business wasn’t always motivated purely by dollar bills.

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And in fact, whilst WeWork no longer describe themselves as ‘earth-friendly’ their mission does hint at a working towards a greater purpose - to create a world where people work to make a life, not just a living.  And to build a community in which you join as individual, ‘me’, but where you become a part of a greater ‘we’.

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In the beginning, when WeWork was the underdog, the competitor brand seeking to disrupt an old-fashioned industry, this purpose was a beacon - a unifying rallying call to entrepreneurs seeking a new way to work and collaborate.  It made them authentic and aspirational – providing brand enhancement for entrepreneurs united in a genuine community.

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So of course the financial success soon followed.

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The Product is Good

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The product itself is/was good and was simple. I went into my first WeWork five years ago and have been to many since.  It is full of engaged community members who won’t let you say a bad word about the business. There is a community feeling which, whilst potentially bordering on over familiar, is embracing. There is always a sense you are one step out of University, but that’s exactly the market they went for and helped.

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The staff overwhelmingly love it. It’s a cool place to work, they are paid well and the annual WeWork events are incredibly extravagant – flown for free, major artists performing, free food and obviously copious alcohol.

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Of course there are operational gripes around acoustics, membership pricing, a ‘club 18-30’ vibe etc but why go there is you are expecting anything else.

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So what went wrong?

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The model began to change. There were concerns about over exposure to ‘entrepreneurs’ which magnified the buy long, sell short risk. They went after the “Enterprise Clients” and became worried about their brand being too associated with the Club 18-30 tag. They decided to do other things like WeLive and WeGrow.

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Then there was the valuation…

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By 2018 WeWork was reportedly the biggest office tenant in Manhattan, overtaking JP Morgan, the investment bank, and with a valuation of US$47 billion.

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Valuation is murky. In the private market, it can be as simple as what one counterparty is willing to pay. If you get lucky, you can sell the dream to the same investor multiple times at an ever increasing rate.

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But surely red flags appear when you see an ever-increasing debt line, good will line, Community based EBITDA and other unscrupulous accounting metrics?

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Surely this is compounded further when your CEO is flying around on private jets, doing deals with his own buildings, selling back the brand and living a lifestyle that questions morality and magnifies feelings of corporate greed and get rich quick schemes.

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We Have All Had Enough Of It

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So, when it comes to putting your head above the parapet and going public, people won’t see the product and the community – they will see a greedy, over inflated, get rich quick scheme with zero positive social impact.

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We have had enough of companies who have used money to only build yet more money at all costs; this story can’t be sold to those who, post 2008, now judge companies on honest things like governance, disciplined approach to business plan, fiscal responsibility and social and environmental impact.

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They were onto a good thing, they had a great product, they had a positive purpose, they had something amazing to build on but they fell victim at an alarmingly quick rate to the same thing that financial institutions did in 2007/8. The fact that their majority shareholder was so complicit in this just highlights that some institutions just have not learnt.

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What does it mean for business of the future?

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The lessons to be learnt from WeWork’s failures, go beyond just co-working.

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It may have been more than 25 years since John Elkington coined the ‘triple bottom line’ and ten years since Simon Sinek delivered his now-viral TED talk on starting with ‘why’, but these ideas continue to motivate many businesses with a genuine desire to do things better, an aim to enrich rather than exploit the world.

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It would now seem unusual if a corporate CEO didn’t espouse the importance of purpose. Yet in treating purpose like a plaster to patch over bad habits, WeWork, along with many others, missed the point.  Purpose should be rocket fuel for your company. It should inspire, and focus energies, drive you to challenge the shortcomings of your industry and create more innovative products.  

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Here’s our advice on how businesses should be turning their purpose into a competitive advantage, by getting it right from the outset:

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1. If you see purpose as a way to make a profit, then your purpose is making a profit.

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There are huge commercial opportunities in trying to solve social and environmental problems, but you’ll be more likely to succeed in those markets if you’re not motivated by the financial prize.

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2. Challenge the status quo

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Purpose-led businesses are in a powerful position to challenge the unsustainability, inertia and greed of incumbent companies. What are the major shortcomings of your industry and why aren’t others addressing them?

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3. Love the problem, not the solution

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Your products change, your purpose doesn’t. What needs do you meet? What benefit do you create for the world in meeting this need? Don’t get fixated on just one possible solution to a problem, the one you happen to own.

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4. Make it bigger than you

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The most effective purpose will be one which serves to benefit something greater than itself. Tesla’s mission is not to make the best selling electric cars, but to accelerate the world’s transition to sustainable energy. What are you fixing or enriching?

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Getting purpose right from the outset, and being loyal to your principles, is the thing that will generate ongoing trust and like-ability, that will differentiate you from the crowd, and give you the guiding beacon you need to achieve your long-term mission - whether that’s financial or not.

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