Why WeWork didn’t, and couldn’t, ever work
Gordon Young, editor-in-chief and co-founder of The Drum, works out why WeWork didn't work.
WeWork this week admitted it is at risk of going bust, and soon. It continues to hemorrhage cash, and customers continue to cancel subscriptions. Once valued at $47bn, it is now worth less than $300m.
In the annals of business history, its rise and fall stands as a cautionary tale - and one that is used to mock the judgment of tech VCs, who seem prepared to put truckloads of cash into mundane businesses based on the over-exuberant claims of entrepreneurs.
Other examples include Greensill, described as a ‘fintech disruptor’ but in reality a glorified lending shop; Peloton, a ‘tech company that merges the physical and digital worlds’ but an exercise bike maker that live-streamed videos and MoonPig, with its ‘proprietary algorithms’ which was a digital print business.
These investments have cost funds billions. But they pale into insignificance to WeWork, which once claimed to be ‘elevating the world’s consciousness.’
However, to elevate VC’s consciousness to the dangers of investing in guff, perhaps they should emphasize the core marketing principles - WeWork’s downfall can be traced back to mishaps across the key tenets of product, price, place, and promotion. Let’s look at this one by one.
Product: A vision misaligned with reality
WeWork’s product, centered around flexible and vibrant office spaces for freelancers and businesses, seemed promising at first glance. However, the ambitious expansion into various sectors, like WeLive and Rise by We, stretched the company’s focus. By diversifying beyond its core offering, WeWork diluted its brand identity and lost the initial appeal that made it a game-changer.
The company’s inability to effectively deliver on these tangential products tarnished its reputation and diverted resources from refining its core value proposition. In addition, its model of taking on long terms leases to rent out on a short-term basis proved unsustainable, as was its positioning as a tech company, which was hubris. This was always a property business that sought to charge a premium through features such as free beer taps.
Price: Scaling without sustaining
WeWork’s aggressive expansion strategy came with exorbitant costs, leading to sky-high valuations that were increasingly detached from its financial reality. The company’s pricing model was built on the assumption of perpetual growth, ignoring market fluctuations and economic downturns. The lack of sustainable pricing strategies led to unrealistic expectations, resulting in a precarious financial situation that couldn’t weather unexpected challenges. At one stage, it reported losses of $1.6bn on a $1.8bn turnover.
Place: Overexpansion and market saturation
In a bid to conquer markets around the world, WeWork embarked on a relentless expansion spree. This shotgun approach overlooked the importance of understanding local dynamics, cultural nuances, and varying demands. The result? Oversaturated markets, unoccupied spaces, and strained resources. WeWork failed to recognize that success in one location didn’t guarantee triumph everywhere; a one-size-fits-all approach was fundamentally flawed in an industry where location is pivotal.
Promotion: Hype versus substance
The WeWork narrative was once driven by charismatic co-founder Adam Neumann and amplified through lavish events and brand partnerships. However, a brand built on hype rather than tangible value was destined to crumble. The aggressive marketing campaigns overshadowed operational inefficiencies and failed to address growing concerns about the company’s viability. WeWork’s promotional efforts fell short in managing the widening gap between perception and reality. It broke the cardinal sin of assuming promotion was marketing.
The frustrating thing about WeWork is that - particularly in this age of remote working - it is fundamentally not a bad idea. But its mountain of debt, and huge liabilities, underline that that scale is not necessarily the panacea many in VC claim it to be. WeWork now lacks the agility to pivot, meaning it will likely be remembered as WeDidn’tWork.
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A serious rethink is needed in the venture capital world - financiers need to understand it is great marketing that builds great companies.