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Executive Summary 

This strategic audit examines the rise and fall of WeWork, a once-prominent player in the flexible workspace industry. Founded in 2010, WeWork experienced rapid global expansion but faced significant challenges due to its flawed business model, characterized by long-term lease obligations juxtaposed with short-term client contracts. This mismatch led to financial instability, exacerbated by the COVID-19 pandemic, which shifted work preferences towards remote and hybrid models. 

Leadership and governance failures, particularly under former CEO Adam Neumann, further undermined WeWork's stability. Neumann's autocratic control, extravagant spending, and poor oversight from the board contributed to unsustainable business practices and a failed IPO in 2019. These issues culminated in a Chapter 11 bankruptcy filing in 2023. 

The external environment analysis highlights intensified competition, regulatory challenges, economic downturns, and evolving social preferences impacting the industry. Internally, WeWork's strengths in brand recognition and global presence are counterbalanced by weaknesses in financial stability and operational efficiency. Opportunities lie in adapting to hybrid work models and leveraging technology, while threats include strong competitors and ongoing financial strains. 

To bridge these gaps, the audit recommends a multifaceted strategic approach: 

Business Model Revision: Transition from long-term leases to flexible, revenue-sharing agreements to mitigate financial risks. 

Technological Integration: Develop proprietary technology platforms incorporating AI and machine learning for space optimization, smart building systems, and digital tools catering to remote and hybrid work. 

Market Consolidation: Focus on profitable markets and exit underperforming locations to streamline operations. 

Strategic Partnerships: Collaborate with technology and real estate firms to enhance service offerings and expand the customer base. 

Cultural Transformation and Rebranding: Shift towards transparency, sustainability, and customer-centric values to rebuild trust and align with strategic goals. 

Implementing these recommendations positions WeWork to navigate current challenges, redefine its market presence, and achieve sustainable growth. 

Introduction 

WeWork, once a symbol of innovation in the flexible workspace industry, has experienced a dramatic rise and fall.  Founded in 2010, the company rapidly expanded its global footprint, offering innovative co-working spaces that catered to startups and freelancers.  However, WeWork’s aggressive growth strategy, coupled with a flawed business model, led to mounting losses and a failed IPO in 2019. In 2023, these challenges were cumulated in a Chapter 11 bankruptcy filing. Even its major investor, Masayoshi Son, the founder of SoftBank Group (Son, 2020), recognized the investment as a “foolish” mistake. This strategic audit aims to leverage a mixed research method to conduct a comprehensive evaluation and provide solutions for achieving sustainable growth based on analytical insights..This strategic audit aims to leverage a mixed research method to conduct a comprehensive strategic audit and provide solutions for achieving sustainable growth based on analytical insights.   

Figure 1 ("MarketsCharted: The Rise and Fall of WeWork" by Pallavi Ra) illustrates WeWork’s valuation from 2011 to 2023.  

Literature Review 

To conduct a thorough strategic audit on WeWork, intensive research is required to formulate research questions, hypotheses, and methodologies.  In this section, critical evaluation and synthesis of the findings from various sources will be presented to provide an overview of WeWork’s current state and flaws.   

Technology or Business Models? 

Johnson (2018) argues that digital growth is driven more by innovative business models than by technology alone. He explains that while technology is a critical enabler, it is the design and implementation of a robust business model that determines long-term success. The article highlights examples of companies like Slack and Domino’s, which have effectively combined technology with innovative business strategies to achieve significant growth. Johnson emphasizes that leaders should focus on how digital tools can be integrated into business models to create new value propositions and sustainable competitive advantages.  

In next Section “WeWork’s Failure”, business model is listed as the most fundamental flaw. WeWork's downfall was not due to a lack of technological innovation but rather a misguided business strategy that failed to generate sustainable profits. The company’s model, which was based on leasing large amounts of office space and then subleasing it to tenants, did not allow for the scalability and flexibility typically seen in successful tech companies. Moreover, WeWork's aggressive expansion and inability to adapt its business model to changing market conditions further exacerbated its financial instability. WeWork's experience serves as a cautionary tale for other companies, illustrating that no amount of technological prowess can compensate for a flawed business model.  

Is WeWork a Tech Company? 

In HBR “No, WeWork isn’t a tech company”, Govindarajan and Srivastava (2019) argue that WeWork should not be classified as a tech company, despite its claims and the high valuation it seeks. The authors explain that a modern tech company typically features low variable costs, minimal capital investments, extensive customer data utilization, network effects, and an ecosystem that drives expansion at little cost. WeWork, primarily a real estate company, does not meet these criteria. The authors assert that WeWork's business model, which requires significant capital investment and has high operating costs, aligns more with traditional real estate companies rather than tech firms. This misclassification has significant implications for its valuation and investor expectations. 

Should the CEO also be the Board Chair? 

In HBR "Why the CEOs Shouldn't also be the Board Chair", Mandato and Devine (2020) argue that combining the roles of CEO and board chair can lead to significant governance challenges and conflicts of interest, as evidenced by several high-profile corporate failures. They highlight the case of WeWork under Adam Neumann, who held both positions during his tenure. Neumann's dual role allowed him to make unchecked decisions, such as investing in non-core ventures like a meat-free New York City elementary school and a surf lagoon manufacturer in Spain, while the company continued to suffer severe financial losses, spending two dollars for every dollar earned. This misalignment of corporate vision and strategy contributed to WeWork’s operating losses exceeding $4 billion. The authors suggest that separating the CEO and board chair roles can provide the necessary checks and balances to avoid such governance failures. 

Are VCs Rewarding Self-Presentation over Qualifications? 

Piazza, Reese, and Chung (2022) explore how venture capitalists (VCs) tend to prioritize entrepreneurs' self-presentation skills over their actual qualifications when deciding on investments. Their research, based on an analysis of over 4,000 firms and their founders, reveals that charismatic self-presentation often outweighs the importance of experience or technical expertise. The authors suggest that this bias could lead to suboptimal investment decisions, as VCs may overlook more qualified but less charismatic entrepreneurs. This phenomenon was evident in the case of WeWork, where Adam Neumann's charismatic self-presentation and visionary storytelling attracted substantial VC investments despite the company's flawed business model and significant financial losses. The study calls for greater awareness of these biases and suggests that VCs consider more objective criteria in their decision-making processes. 

Based on the literature review, this strategic audit will continue to analyze WeWork’s failure, risks and opportunities, and provide strategic solutions. 

WeWork’s Failure 

Part one: Business Model 

WeWork’s fundamental issue lies in its flawed business model, which centers on the misalignment between long-term lease obligations and short-term client contracts. This model exposes the company to significant financial risk, particularly during market downturns or shifts in consumer behavior.  Pandemic further exacerbated the situation.  

Lease Obligation: WeWork’s long-term leases, often spanning 10-15 years, require substantial upfront capital and ongoing payments.  As of 2019, the company had lease commitments totaling approximately $47 billion (Wolverton, 2019).  

Revenue Volitivity: In contrast, WeWork’s revenue streams are based on short-term memberships, typically ranging from month-to-month to one-year contracts.  This disparity creates a high degree of revenue volitivity.  For instance, if occupancy rates drop by just 10%, the company’s revenue could decline by over $200 million annually, given an average revenue per member of around $6,000/year. 

Occupancy Rate: To break even, WeWork needs to maintain an occupancy rate of around 70% to 80% across its locations, However, fluctuating demand, particularly during economic downturns or shifts towards remote work,, can cause occupancy rates to fall below this threshold, exacerbating financial loss.  

Operating Loss: WeWork’s operational inefficiencies and high fixed costs have led to significant losses.  For example, in 2018, the company reported an operating loss of $1.9 billion against a revenue of $1.8 billion, highlighting the unsustainable nature of its current business model (Wolverton, 2019).  

Cost Structure: WeWork’s cost structure includes high leasing costs, significant capital expenditures for space buildouts, and ongoing operational expenses.  The company’s ability to cover these costs is highly dependent on maintaining high occupancy rates and attracting new members, which is challenging in a competitive market.  Pandemic exacerbated the dire situation.  

Part 2: WeWork’s Leadership & Governance Failure 

WeWork’s leadership and governance failures are rooted in the autocratic and extravagant leadership of co-founder Adam Neumann.  These failures were embodied in several key areas: 

Former CEO Adam Neumann’s Autocratic Control: Adam Neumann, the co-founder and former CEO, exercised near-absolute control over WeWork through a special class of shares that provided him with majority voting power. This structure allowed him to make significant decisions unilaterally, often without adequate oversight or input from other stakeholders.  It also fostered a culture where questioning his authority was discouraged, leading to unchecked and often reckless business practices (Wolverton, 2019). 

Reckless Spending and Visionary Overreach: Neumann’s leadership style was characterized by extravagant spending and visionary ambitions that often-lacked pragmatic grounding.  He invested company resources in ventures far outside WeWork’s core business, such as a wave poll company, and purchased a $60 million private jet for personal and company use.  These expenditures drained company resources and distracted from the core business of providing flexible office spaces (Zeitlin, 2019).  His focus on rapid global expansion, often at the expense of financial sustainability, further worsened the company’s problems.   

Poor Governance and Lack of oversight: Neumann’s vision for rapid global expansion led to WeWork taking on $47 billion in lease obligations, far outpacing demand. The board of directors, composed largely of Neumann’s allies, failed to provide the necessary checks and balances, allowing these risky strategies to continue unchecked. This governance failure was highlighted when WeWork’s IPO filings exposed massive financial losses and questionable business practices, leading to a dramatic reduction in the company’s valuation and Neumann’s eventual ousting (Wolverton, 2019; Zeitlin, 2019).  

The company’s downfall underscores the importance of aligning business practices with sustainable financial strategies and maintaining robust governance structures to prevent similar crises in the future (Reuters, 2023; BBC, 2023). 

External Environment Analysis 

Part 1: Industry Analysis 

The flexible workspace industry, in which WeWork operates, has experienced significant shifts, particularly due to the impact of the COVID-19 pandemic. The demand for co-working spaces initially plummeted as remote work became the norm, leading to a decline in occupancy rates across the industry. Although there has been a gradual recovery with the rise of hybrid work models, competition remains fierce, with major players like Regus and new entrants offering more flexible and cost-effective solutions. WeWork's ability to differentiate itself in this crowded market is critical for its survival and growth (Smith, 2023). 

Part 2: PESTLE Analysis 

Political: Changes in zoning laws and regulations, especially in major urban centers, have impacted WeWork’s expansion plans. Additionally, varying government responses to the pandemic continue to influence the demand for office spaces. 

Economic: The global economic downturn and increased inflation have reduced business spending on office spaces, pressuring WeWork to offer more competitive pricing or flexible terms to attract tenants (Johnson, 2023). 

Social: Shifts in work culture, including the preference for remote or hybrid work, have reduced the demand for traditional office spaces. Companies are now seeking flexible solutions that align with the changing expectations of their workforce. 

Technological: Advances in communication technology have facilitated remote work, diminishing the necessity for physical office spaces. However, technology also presents opportunities for WeWork to enhance its service offerings through digital platforms and smart building integrations. 

Legal: WeWork faces legal challenges, including lease obligations and potential litigation from landlords due to the restructuring of contracts during its bankruptcy proceedings (Husch Blackwell, 2023). 

Environmental: Sustainability is increasingly important to tenants, with a growing demand for eco-friendly office spaces. WeWork must adapt by implementing green initiatives to remain competitive. 

Part 3: Competitive Analysis 

WeWork operates in a highly competitive environment, with major rivals like Regus (IWG) and new entrants offering flexible, cost-effective solutions. Regus, a veteran in the flexible workspace market, benefits from a diversified portfolio and a more conservative growth strategy, focusing on financial stability. In contrast, WeWork has struggled with high fixed costs and a riskier business model. Additionally, niche co-working spaces are emerging, catering to specific demographics or industries, which further intensifies the competition (Smith, 2023). To stay competitive, WeWork must leverage technology, enhance customer experience, and offer value-added services tailored to the evolving needs of remote and hybrid workers. 

Internal Environment Analysis 

SWOT Analysis – To analyze WeWork’s internal environment, we used SWOT to illustrate its strengths, weaknesses, opportunities, and threats.  

Strengths: WeWork’s brand recognition and global network of co-working spaces are significant strengths, allowing the company to attract a diverse clientele. Additionally, the company’s early entry into the flexible workspace market has given it a competitive edge in understanding customer needs and preferences (Jones, 2023). 

Weaknesses: WeWork's reliance on long-term leases paired with short-term client contracts has led to financial instability. The company's culture, once viewed as innovative, has also been criticized for fostering unsustainable business practices, leading to leadership turmoil and a damaged reputation (Husch Blackwell, 2023). 

Opportunities: The rise of hybrid work models presents an opportunity for WeWork to redefine its service offerings. By focusing on flexible, short-term leases and integrating more digital tools for remote work, WeWork can cater to the evolving needs of businesses (Brown, 2023). 

Threats: The company faces significant threats from competitors in the flexible workspace industry, such as Regus and other new entrants. Additionally, the ongoing financial strain due to its bankruptcy and lease obligations poses a critical threat to its survival (Husch Blackwell, 2023). 

GAP Analysis 

The strategic audit of WeWork reveals several critical gaps between the company’s current strategy and the demands of the market. 

Financial Stability: WeWork's reliance on long-term leases is misaligned with its fluctuating short-term revenue streams. This mismatch has been a significant factor in its financial instability, leading to the recent bankruptcy filing (Husch Blackwell, 2023). 

Operational Efficiency: Despite efforts to streamline operations, WeWork’s cost structure remains high relative to its competitors, making it difficult to achieve profitability. 

Market Positioning: The company’s original branding as a high-growth tech company no longer aligns with market realities. WeWork needs to redefine its value proposition to remain relevant in a more competitive and cost-conscious environment (Brown, 2023). 

Leadership and Culture: The leadership turmoil and a culture criticized for unsustainable practices have eroded stakeholder trust. There is a gap in the alignment between the company’s cultural values and the strategic direction necessary for long-term success (Smith, 2023). 

Customer Needs: As the demand for hybrid and remote work solutions increases, WeWork’s current offerings do not fully meet the evolving needs of its customer base. This gap in product-market fit requires the company to innovate and adapt its service offerings to stay competitive (Jones, 2023).