WeWork is among the leading share-workspace company in the world. It has been showing a positive rate of growth since its inception. However, in recent years, poor governance and financial performance have been a major concern, which led to the postponing of its IPO. The investors realized that the organization’s valuation was $47 billion and had been making losses (Why Wework’s Business Model Is Risky). Additionally, WeWork’s business is risky, which does not give investors an incentive to buy shares.
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The WeWork business model is about renting office spaces through long-term lease contracts. It rents large buildings that are strategically positioned at cheap rates. The company then re-rents them to small businesses, individuals, and start-ups at higher charges to generate revenue. WeWork offers flexible terms to the clients, making it attractive to individuals and businesses with a non-permanent area of operation. Persons and organizations can hire the spaces ranging from hours to months. It offers different plans to its clients, including we membership, hot desk, dedicated desk, and private offices (Why Wework’s Business Model Is Risky). The business model is risky because WeWork takes spaces at a price without any guarantee that it will have customers.
It is challenging for the company to be profitable because of increasing international competition and changes in the business environment. WeWork is already operating in debts, and much of the office spaces it has rented have not been hired. The firm’s competitors and new entrants in the market, such as KNOTEL, offer similar services at more affordable and flexible terms (Why Wework’s Business Model Is Risky). As a result, the company will continue losing clients to the rivals. The rise of internet connection across countries for domestic use is an important factor hampering the demand for office spaces. Individuals can work remotely from their homes, minimizing the need for businesses to rent large workplaces to accommodate their employees. Therefore, WeWork will continue having losses since its rental fee obligations are more than ten times higher than the revenue it generates from customers.
The interesting peculiarities about WeWork are related to the way the company operates, which may have contributed to the losses it has been recording in recent years. According to the firm’s business model, they hire office spaces and rent them to the customers. Remarkably, WeWork leases buildings for an average of 15 years, whereas members’ average rate of occupancy at a cost is 15 months (Why Wework’s Business Model Is Risky). Such a plan is interesting because it shows the highest level of optimism despite the increased risks for incurring financial damage in the event of changes in the business environment, natural or human-made disasters, or such pandemics as Covid-19. The company’s hopefulness is also a remarkable phenomenon, which is evident since it continues to operate even though it recorded a significant loss in 2018, when it generated revenue of $1.8 billion and a net loss of $1.6 billion (Webb 11). Indeed, WeWork is confident that it will become profitable in the future.
WeWork’s board of directors fired Adam Neumann as a CEO because of his eccentric behavior and accusation of drug use, which was in the public domain. His lifestyle raised questions about his interests in the company. He was using expensive private jets on his trips to different countries, paid by the company, despite knowing the company was experiencing financial crisis. During the summer of 2019, he was smoking marijuana while in Gulfstream G650 private jet (Brown 1). The incident annoyed the jet owner since he feared the consequences of trans-border marijuana shipment. The occurrence was also detrimental to the company’s reputation if he continues to be the CEO. Therefore, they had to fire him to protect the WeWork status and interest of stakeholders.
Brown, Eliot. “How Adam Neumann’s Over-the-Top Style Built WeWork. ‘This is not the way everybody behaves.’”. WSJ, 2019, Web.
”Why Wework’s Business Model Is Risky” WSJ. 2019, Web.
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Webb, Kevin. “11 Mind-Blowing Facts about WeWork’s Global Business as It Prepares for a Massive IPO”. Business Insider Africa, 2019, Web.