Just a few weeks ago, WeWork was one of America’s hottest startups: now, it’s fighting for its survival
Hi there, thanks for joining us once again for Plain English. I’m Jeff; JR is the producer; and you are listening to the best podcast for learning English. Today is Episode number 203 and that means all our resources are available to you at PlainEnglish.com/203. Just as a reminder, the resources include a free word-for-word transcript, and Plain English Plus+ members have access to video lessons, translations, flash cards, and a fast version of this very episode.
Coming up today: One of the world’s hottest new companies, We Co., which owns the WeWork coworking offices, has suffered a stunning fall from grace. Just two months ago, it seemed to be on top of the world; today, its founder and CEO has been kicked out and the company is fighting for its survival. We’ll talk about the drama behind the WeWork on today’s episode. And the English expression we’ll talk about is “fall from grace.” It’s Thursday, so we have a song of week.
Real quick, before we dive into the main content: Are you part of our e-mail program? If not, then you’ll want to head to PlainEnglish.com/mail and sign up. Twice a week, JR sends out additional episode resources to thousands of your fellow listeners. The emails have a summary of the episode, links to English articles about the main topic, and an explanation of another English word or phrase. Make sure to get all those free resources by signing up at PlainEnglish.com/mail.
Once high-flying WeWork is fighting for its survival
If you live in a capital city around the world, you may have heard about WeWork, the fashionable, tech-savvy co-working office firm that promised to revolutionize the way, well, we work. The company was set to go public in September and it would have been the year’s second-most-valuable IPO, or initial public offering, behind only Uber. Now, its founder has been kicked out and it was, until recently, in danger of running out of money.
What in the world happened?
Here’s a quick history. WeWork is a pioneer of coworking office space. In a traditional office, a company rents a suite—it can a small suite, just a few thousand square feet, or an entire skyscraper. And the company’s employees all work in that space. That works well for companies that can afford a big space, and that can afford to sign a long-term lease.
But it doesn’t work as well for individual freelancers or small teams, especially startups. Those smaller individuals want the trappings of a traditional office—desks, conference rooms, phones, a receptionist, a coffee machine, whatever—but they can’t afford to sign a five year lease, buy or rent all the furniture, set up utilities, all the expensive and exhausting things involved in setting up an office.
A coworking space aims to solve that problem. WeWork is the one who signs a long-term lease with the landlord, the building owner. WeWork turns around and rents space to freelancers and small teams by the desk. Essentially, they sell a membership, and as a member, you have the right to come into their office full of freelancers and small teams, and set up at a desk. You can upgrade to have a private office, or a section of a WeWork floor, et cetera. As a member, you have rights to shared spaces like conference rooms if you need it. And it’s flexible—you pay monthly just for what you need, and you don’t have to worry about long-term contracts or the headaches of furnishing an office.
Coworking as a concept is popular around the world. WeWork itself has over 800 locations in over 100 cities worldwide. They’re in big and even medium-sized cities in the US; Mexico’s three biggest cities; five cities each in Germany, Brazil, and the UK; and they’re huge in Asia, with outposts all over China, India, and Japan. Smaller coworking offices are in all those cities and more. If you live in even a medium-sized city, search Google for your city name and the word “coworking” and you’ll probably find something.
WeWork has positioned itself as the premium coworking office. Their spaces are well-designed, with modern, comfortable furniture; they have premium coffee available; and they often have events where freelancers can connect and network after hours. They often have the best locations in their respective cities.
WeWork attracted a lot of investment as it grew. Its charismatic founder, Adam Neumann, and its premium brand seduced a number of early investors into giving it more and more money, in exchange for small percentage ownerships. The Softbank Vision Fund, a Japanese investment fund that primarily manages money from the Middle East, invested $10 billion in WeWork for about a quarter of the company’s shares.
I’m going to round the numbers a bit to make it easy to understand. SoftBank invested about $10 billion for less than a one-quarter share in the company. That means that SoftBank thought the company as a whole was worth more than $40 billion. If you pay $10 billion for a quarter of something, you’re saying the whole is more than $40 billion. In this case, the actual number was $47 billion—a number that, you will soon learn, will be written into the history books.
WeWork was hurtling towards an IPO, an initial public offering, in September. If you want to go public, if you want to sell shares in your company on the stock market, then you have to open up the doors to the public, and disclose a lot of information about your business. That’s only fair: a private company can do what it likes with its finances, but if you want to sell shares, small percentages of your company to the public, then the public should be able to see what they’re buying.
The public saw, and it was horrified. It turns out that those center-city locations with premium coffee are expensive to run—and they’re not profitable. WeWork wasn’t charging enough to cover its expenses at its existing locations, and at the same time, they were spending lavishly on opening splashy new locations. WeWork took in about $2 billion in 2019 and spent almost twice that much money. The only reason it could continue to stay in business is because investors like Softbank continued to give it money, believing that one day it would be profitable. But the company failed to convince big investors that it ever could be profitable. WeWork realized that if it went public—if it sold shares on the stock market—it wouldn’t go well. Existing investors would lose, not make, money from that scenario. They paused plans for their public offering.
The problem was, their whole business relied on new investment in order to continue operating. Without new investors giving them money, they were facing a real possibility of running out of money by early 2020, if not earlier. Softbank, which had already invested a lot of money, decided it needed to take over. They will invest more money to keep the lights on, but they’re insisting on changes. They kicked out the eccentric founder and CEO, installed their own boss, and is now setting about cutting costs and stopping the bleeding.
The company is now worth about $9 billion—a stunning 80 percent drop in value in just a few weeks, after the public got a whiff of the company’s true financial position.
Every economic cycle tends to have one outrageous story that marks the end of the good times. Before the financial crisis of 2008 here, the story was people who had no money and no job getting loans for enormous, luxurious houses. In the bubble in internet stocks in 2000, the poster child was Pets.com, which was richly valued despite making a loss on every sale: the dot-com in its name convinced people it must be a valuable company. Maybe WeWork will be the emblematic story of this economic cycle, who knows.
What I never understood about WeWork was how it would weather a recession. Its customers are freelancers and small teams. In a recession, those are the people who get hurt. For them, WeWork is a luxury. A freelancer can work at home if his income gets cut. I thinking coworking is a great idea, but the companies need a plan for the next recession.
Great stories make learning English fun
