The WeWork saga continues as the co-founder and CEO, Adam Neumann, stepped down yesterday amid a torrent of corporate and personal scandal in the wake of the firm's postponed IPO; which Scott Galloway described as 'flinging feces at retail investors visiting the unicorn zoo'!
This may just be another story of an over-indulgent startup with cult-like deference to leadership; but the sheer scale that WeWork managed to grow to means its future has implications for the proptech industry, co-working, and commercial real estate markets in numerous major cities.
In the startup-friendly city of London, for example, WeWork owns or leases more real estate than anyone except the UK government. Its 528 facilities around the world represent prime real estate concentrated in major economic hubs. While the company is not expected to disappear overnight, some form of reorganisation (corporate speak for downsizing) is now inevitable, which has the potential to shake up leading commercial real estate markets.
Tech-news portal, the Information, reports that post-Neumann discussions have already begun between the We Company, its major investors, and associated banks. They say there are strong suggestions that the firm will lay-off approximately 5,000 employees, one third of its total workforce.
"Other ideas include slowing expansion plans and shutting side businesses related to education or housing, said a person close to the company and a person familiar with the matter. The moves would be aimed at restoring investor confidence as the company looks to save its initial public offering or raise funds privately," The Information claims.
WeGrow, the company's education arm headed by Neumann's wife Rebekah, and WeLive, a flexible residential offering, appear to be on the chopping block as the strategy is expected to focus on the firm's core business - office space rental. However, much of the former optimism surrounding the company came from its strategic acquisitions in the proptech space, where the We Company appeared to be positioning itself to sell its iconic office culture to the wider market with data-driven analytics services.
"The shift towards workplace analytics has been positively received by investors in a way that residential and education initiatives have not. Teem, Elucid, and Managed by Q [acquisitions], in combination with WeWork’s global presence and access to a seemingly endless pot of gold provided by Softbank, creates a serious commercial real estate services proposition for investors," we wrote in a May article announcing the company's IPO intentions. A move towards technology service provision surely cannot now come quickly enough for a company now reeling from weeks of negative PR and legitimate questions about their current business model.
In June, we reported on the firm as it announced its intention to move into the smart cities space, "a direction that when considered alongside other strategies, suggests bold and far-reaching ambitions for the firm. It seems like WeCompany won’t just provide a space for the startup-gig-freelance community but rather provide the startup-gig-freelance lifestyle to cities across the world."
Whether this was all part of the post-IPO strategy or held back by a CEO with one hand on the wheel, another in his pocket, and his head in the clouds, is not yet clear. What matters now is how the We Company cleans up the mess and salvages what they can from a rapidly sinking ship.
Neumann said he was “proud of this team and the incredible company that we have built over the last decade,” when the story was first announced by the Wall Street Journal yesterday.
“While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction (said with no sense of irony despite his name being mentioned 169 times in the S1 document), and I have decided that it is in the best interest of the company to step down as chief executive,” he said in a statement that also clarified that Neumann will continue with 'We' as non-executive chairman.
For the rest of the sector, what happens to Neumann and WeWork as a company is somewhat irrelevant. The growth of the proptech industry and the availability of flexible office space will continue unabated for those hungry markets.
Some companies always stumble and fall as emerging markets correct and strengthen to ensure sustainable growth. However, valued at $47 billion barely a month ago, with a strong proptech portfolio and a huge presence the commercial global real estate market, a collapse of the We Company would leave a big hole to fill. Potentially triggering a disruptive phase of correction where some of the firm's competitors are no doubt waiting patiently to seize the opportunities.