New York was a sorry place in 2010. Its biggest industries had been felled by the twin blows of the financial crisis and digital disruption. Retrenchment in finance, media and advertising created a purgatory of jobseekers, elbowing for room in every Starbucks, hoping for meetings that didn’t always happen.

Not a bad idea, then, to lease out some cheap office space, trick it out with WiFi and coffee machines, and rent it out piecemeal to these lost souls. To give them the dignity of a desk and a community while they sorted through their dreams.

This was the genesis of the first WeWork, on the corner of Grand and Lafayette Streets in New York’s SoHo. The company has since grown enormously, of course. There are now 64 WeWork spaces in New York alone, and hundreds more around the world. Its name has become synonymous with a new way of working: informal, collaborative and spirited to the point of intoxicated. Its founders built a culture high on booze, bro-hugs and venture capital that drove the company to a peak valuation of $47bn in January this year.

It is worth pausing to reflect on the entrepreneurial genius of WeWork before concluding, in the wake of Tuesday’s announcement that the company is delaying its initial public offering, that it is the symbol of a tech bubble about to burst. Co-working spaces were a terrific idea that met a particular need when real estate was cheap and the economy changing. WeWork nailed it.

It now has 834 locations open or soon to open in 126 cities around the world. It is the largest private tenant in Manhattan, and the largest corporate office occupier in London. Its revenue last year was $1.9bn, and it is reported to have more than 12,000 employees.

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But somewhere amid all that growth, its culture went nuts. It wasn’t enough to be a brilliant office subleasing company with a knack for design and marketing. WeWork began thinking it was a genuine platform business. If they could lease people offices, surely with enough bravado they could also sell them insurance, banking services, apartments, software — even private education for their children.

But the prospect of an IPO focused minds, and that $47bn valuation has now reportedly shrunk to closer to $15bn. Investors have been asking why WeWork’s chief executive, Adam Neumann, has sold so many of his shares already; why he was allowed to rent out buildings he owned to WeWork; how he could have sold the rights to the word “we” to his own company; and why his wife was given such enormous power to choose his successor.

They are trying to figure out how WeWork still manages to spend nearly twice what it makes each year. And whether supply of its spaces now exceeds demand. How else to explain falling occupancy and revenue per renter?

And the IPO documents don’t even touch all the media reporting on WeWork, which has portrayed a company run amok, where executives offered people tequila during their interviews, and took the staff off for elaborate summer camps involving drum circles and axe throwing. All in the name of building a company to “elevate the world’s consciousness”, to “create a world where people work to make a life, not just a living” and, most cloyingly of all, to “operationalise love”.

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Anyone who has been watching WeWork closely will have been aware of its nonsense for years. But Mr Neumann is a terrific salesman and in a world of $100bn venture funds, he could soak up capital like few others.

He convinced investors that his leasing firm had the growth potential of a tech firm. Forget all those tedious real estate businesses with their linear growth paths and simple-minded models of revenue per square foot. WeWork was going to build the world’s first “physical social network”, generate network effects and grow exponentially.

Come again? There would be algorithms and artificial intelligence and big data to inform WeWork’s understanding of how people worked. And the Red Hot Chili Peppers playing at corporate events. By that fifth tequila, investors lost all grip on reality. Maybe this really was the next Facebook. Mr Neumann certainly behaved with all the bravado of a tech mogul. He raised $12bn to build his vision.

However, attitudes have changed since Lyft and Uber went public, and promptly plummeted in value. The gold rush has slowed. WeWork is now in a scramble to get to that IPO. It needs cash to fund its growth, to keep adding space and renters in the hope that those elusive network effects kick in. It doesn’t have Silicon Valley’s boosters pumping it up. Its current shareholders are probably going to be heavily diluted if the valuation keeps falling. Large credit lines are contingent on a big equity raise and it’s all getting desperate.

But here’s the kicker for critics. WeWork isn’t the pets.com of 2019, a bellwether for a dysfunctional market. There is a real business here, serving a real need. It’s certainly not a $47bn business, and probably not even a $15bn one. It is facing intense competition. Its accounts need adult supervision. But Mr Neumann will probably emerge from it all a billionaire. His tenants, gigging and hustling around WeWork’s free kombucha taps, can only dream.

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The writer is author of ‘What They Teach You at Harvard Business School’



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