What happened at WeWork?

WeWork has been lauded by many as one of the huge success stories of the 21st century. Before they came along, renting office space was run-of-the-mill, boring. You paid money, you got a room and installed some desks, some chairs, a printer. You moved in. That was it.

Not just an office space

WeWork, however, wants you to believe that you aren’t simply paying for space. Of course, you get a beautiful new office, but you are also paying to be a part of something new, part of a community of like-minded people. Indeed, part of WeWork’s mission is that it is “a place you join as an individual, ‘me’, but where you become part of a greater ‘we’.” WeWork positions itself amongst those big disruptors of this century – Netflix, Uber, even Facebook, and an IPO was a natural next step for this real estate/tech behemoth.

A failed IPO

Dreaming of a huge $47 billion valuation, the cash-hungry We Company, WeWork’s parent company, aimed to sell enough shares to raise $4 billion and had, according to the New York Times, ‘lined up a $6 billion bank loan that was contingent on the IPO’.  By the end of September, though, those heady days were over. WeWork discovered that investors were sceptical about their huge valuation, large amounts of debt and corporate governance issues. They pulled the IPO, Founder-CEO Adam Neumann was forced to step down, are looking at redundancies and are reconsidering their expansion strategy into China.

Positioned as a tech firm

So how did WeWork value itself so high? What was it doing right? A lot of it came down to brilliant brand-building and marketing. As touched on earlier in this piece and explored by Mark Ritson in this article, WeWork didn’t position itself as a real estate or office rental firm. It wanted to be seen as a tech firm, or, as Ritson says, there was a “vague, socially-constructed idea that this is another big disruptive tech firm with another massive IPO.” 21st century tech firms have of course seen phenomenal success over the past two decades, and many have an aura of community and purpose to humanise the vast profit they turn over. WeWork, with its mission to ‘Create a world where people work to make a life, not just a living” embodies that tech ethos, and as such pushes its community app. This wasn’t just a forward-thinking branding decision: if it worked, it was a sage financial decision, with tech companies raking in revenues far higher than those of more traditional businesses.

Shaky foundations

From the outside, this approach seemed to be working for WeWork: in the first half of 2019, for example, it earned $1.5 billion in revenue. However, the gloss loses its sheen a little when you discover that in the same period it lost almost $900m. And the sheen disappears completely in the context of information that it was looking to raise between $3 billion and $4 billion in debt to tide it over.

A future in debt

And that’s the key to this story: the losses and associated debt. While investors don’t necessarily insist that start-ups are profitable before they go public, it helps to be able to show a path to profitability. We Company’s revenue and operating losses are moving in tandem, rather than showing an increasing gap. They may find some cold comfort in the fact that they aren’t alone in this plight: ‘fellow’ disruptors Netflix and Uber, to name just two, show no sign of becoming profitable in the near or even mid-future. Netflix must continue its huge investment ($15 billion this year) into original content in order to survive stiff forthcoming competition in the shape of Disney, Amazon and Apple. To finance that, Netflix is estimated to have a debt of around $12 billion – and with a net income of just a twelfth of that, it seems unlikely that it will ever be able to pay that off. Pit Barrel Cooker / Pit Barrel Smoker – read full review at Cookerism.com. Pit Barrel Cooker is almost stupidly easy to cook with; the convection heat and airflow, and the way it burns smoothly through charcoal, are so consistent that this is probably the closest thing to automatic smoker you’re gonna find – aside from a pellet grill. When you’re ready to fire up the smoker, the first step is to adjust the intake vent at the bottom of the smoker so that it matches your elevation. the meat comes out just as juicy and tender as it would if were smoking at 225F for longer.

What does this all mean?

Is WeWork’s failed IPO the first sign of a difficult, uncertain future for the big disruptive organisations of the last 10 years? Perhaps the tech disruptors of the future will bring the focus back to business strategy and creating revenue streams. Brand positioning and purpose are of course crucial to a business’ success, but they must be founded in a robust business and financial strategy to guarantee success.

Disclosure: ECI Media Management’s UK office is a tenant of WeWork in London

Image: Shutterstock

ECI-THINKS Image
January 22, 2024
The cookie is finally crumbling The cookie is finally crumbling

- The death of the cookie has been a long time coming, but it seems that 2024 will be the year Google kills it off. Is the advertising industry ready?

Read more
December 18, 2023
The rise of the ad-dodgers The rise of the ad-dodgers

- By paying for ad-free subscriptions, affluent consumers are turning into ad-dodgers. What can marketers do about it?

Read more
November 27, 2023
Super-premium advertising opportunities: are they worth it? Super-premium advertising opportunities: are they worth it?

- Brands shell out millions for Super Bowl spots or Christmas ads, hoping to go viral and capture the zeitgeist. But are these super-expensive ads worth it?

Read more
October 2, 2023
Netflix gaming: a new frontier for the streaming behemoth Netflix gaming: a new frontier for the streaming behemoth

- Netflix's foray into gaming demonstrates its vision to remain a leader in the evolving entertainment landscape. Will it work?

Read more
September 1, 2023
X: Better to save X: Better to save

- Twitter has rebranded to X and new CEO Linda Yaccarino is attempting to woo advertisers back with brand safety initiatives. Is it enough?

Read more