The rise and fall of WeWork has captivated headlines over the past few years. Once valued at nearly $50 billion, the shared workspace provider’s fortunes took a sharp turn in 2019, culminating in a bankruptcy filing on November 6, 2023.

As CEO of JBS Corp, an accounting and advisory firm serving the Merrimack Valley business community, I have reflected extensively on WeWork’s journey. Their experience provides invaluable lessons for companies balancing growth and profitability.

By understanding missteps made by predecessors, today’s enterprises can chart smarter courses and build resilient models for long-term success. The insights we gain today will strengthen our collective prosperity tomorrow.

Too Long; Didn’t Read

• Growth Strategy: WeWork prioritized growing as quickly as possible, without planning for uncertainty and worst case scenarios. 
• The COVID-19 Pandemic: While no one could have predicted a global pandemic, it is important for businesses to err on the side of caution so they can be ready for situations like these that may arise. 
• Rising Interest Rates: With rising rates, WeWork’s debts were turned into crushing liabilities.
• Capital Constraints: WeWork wasn’t able to raise much-needed fresh capital through their stock.

About WeWork

What is WeWork?

WeWork is a shared workspace company that rocketed to prominence in the 2010s by providing flexible office spaces to individuals, startups, and enterprises. Founded in 2010 by Adam Neumann and Miguel McKelvey, WeWork grew rapidly by leasing buildings and partitioning them into modern communal offices.

Who is Adam Neumann?

The visionary co-founder and CEO, Adam Neumann, was instrumental in driving WeWork’s meteoric expansion across the globe. With his charismatic leadership and savvy marketing, Neumann attracted billions in investment that propelled WeWork’s valuation to $47 billion by 2019. However, Neumann’s hard-charging style and unchecked growth also set the stage for WeWork’s dramatic fall when it filed for bankruptcy in 2023.

An Aggressive Growth Strategy

In 2017, WeWork had under 300 locations; in 2019, they had 850. From 2017 to 2019, WeWork grew their locations by over 200%! The company’s ambition to spread quickly across the country led to the acquisition of considerable debt as it opened new locations at a breakneck speed. This aggressive growth strategy was a double-edged sword – while it brought exponential growth in terms of new spaces, it also amassed a debt load that the company’s revenues simply could not sustain long-term. At JBS Corp, we advise our clients that growth must be strategic and measured against the company’s ability to manage debts effectively.

For WeWork, overly optimistic projections collided with the hard truth of their balance sheet. Revenue growth did not materialize as planned, while fixed costs and interest payments weighed heavily. Expanding too rapidly put WeWork on shaky financial ground. Their lesson is one every business should take to heart – understand the long-term market outlook and don’t spend too much before seeing an impressive return.

External Factors: COVID-19

In early 2019, WeWork was valued at $47 billion, but when COVID-19 became a serious concern in early 2020, the company took a turn for the worse. As a provider of shared office spaces, WeWork relied heavily on workers congregating closely within its locations. However, due to social distancing protocols and office shutdowns, tenant occupancy plummeted in WeWork spaces.

With far fewer tenants to generate revenue from leased desks and offices during the early stages of the pandemic, WeWork’s cash flow took a major hit. The abrupt loss of income exposed the vulnerabilities hidden beneath WeWork’s rapid expansion, including its substantial debts and reliance on consistent tenant revenue to stay afloat. COVID-19 ultimately accelerated WeWork’s path to financial turmoil. This crisis vividly demonstrated how external shocks can profoundly disrupt operations and finances, even for well-funded enterprises like WeWork. It serves as a reminder that businesses must build adaptability and safeguards to navigate the unexpected.

Rising Interest Rates

As interest rates climbed, so did WeWork’s costs to service its existing debts. Rising rates can swiftly turn manageable debts into crushing liabilities, highlighting the critical need for prudent financial planning and a keen eye on market trends. This is something we make sure to mention to the business owners we work with. 

For WeWork, ballooning interest payments were simply unviable given declining revenues. It serves as a stark reminder that market cycles can have a profound impact. Companies must factor in rate hike cycles and evaluate debts through that lens.

Capital Constraints

WeWork’s inability to raise fresh capital through their stock was the final blow in a series of financial setbacks. When the public markets turn wary of risk and capital dries up, even previously successful companies can find their lifelines retracted. This starved WeWork of much-needed working capital.

This situation serves as a reminder to all businesses that capital fuels growth, but it must be cultivated strategically – with an eye on revenue trajectory, a plan for sustainability, and building investor confidence. When the tides change, companies without a robust capital strategy will struggle to stay afloat.

Learning from Bankruptcy

As we reflect on these factors, it is crucial to remember that bankruptcy is not synonymous with failure. Rather, it’s a strategic step towards restructuring and renegotiating debts. It allows companies to recalibrate their financial strategies, re-engage with vendors on different terms, and emerge stronger.

Is WeWork Still in Business?

Despite filing for bankruptcy in November, WeWork is still in business with 182 locations in the US (as of Jan 16, 2024). While no company wants to file for bankruptcy, if it does happen, the best you can do as a business owner is learn from it. WeWork is working to strategically position itself for a sustainable future.

Takeaways for Your Business

For us in the Merrimack Valley and beyond, WeWork’s situation serves as a learning opportunity. It teaches us the importance of strategic growth, preparedness for external shocks, vigilance over interest rate impacts, and the careful cultivation of capital. Let’s take these lessons to heart as we continue to navigate the complexities of business growth and sustainability.

Our Coworking and Office Space

At JBS Corp, we recognize the value of collaborative workspaces. That’s why we designed our own coworking area, tailored to the needs of the Merrimack Valley business community. By creating a shared office option for local entrepreneurs right here in our region, we help foster innovation and growth. If you would like to become a member of JBS CoWorks, contact us today!