Cofounded by Adam Neumann and Miguel McKelvey in 2010, WeWork began with a simple idea – to create beautifully designed shared workspaces for entrepreneurs, startups, and freelancers. And for the first few years, it seemed like they could do no wrong.

WeWork was growing at breakneck speed, opening swanky new coworking locations across the globe. Valued at $47 billion at its peak in January 2019, WeWork was the poster child of the sharing economy and the marvel of Silicon Valley.

But just months later, they were filing for an IPO and it all came crashing down. Lawsuits, scandals, insane spending, and questionable management led investors to sour on the company. By September 2019, WeWork withdrew its IPO filing, Neumann was ousted as CEO, and the company was fighting for survival.

So how did things go so wrong so fast? Let’s take a look under the hood to understand the factors that led to WeWork’s epic rise and fall.

WeWork’s Meteoric Growth Story

WeWork began by offering small shared workspace rentals to entrepreneurs and startups in New York City. Their unique “designed spaces” with cool interiors, free beer, and arcade games became an instant hit.

Within a few years, WeWork was opening locations across the US and internationally. Fueled by billions in venture capital, they kept expanding aggressively into new markets.

Some key factors driving WeWork’s early growth spurt:

• Flexible short-term leases: Unlike traditional long-term office leases, WeWork offered flexible month-to-month memberships. This appealed to startups and individuals.
• Hip coworking spaces: Their funky, artsy interiors with beer on tap and leisure spaces fostered community and attracted members.
• Tech-enabled: Easy online membership, networked printers, WiFi, and conference rooms enabled a seamless coworking experience.
• Efficient use of space: WeWork optimized the use of space by leasing unused office inventory and filling it with members via short-term rentals.

By Q1 2019, WeWork had 425 office locations in over 100 cities across the globe. Membership was up to 466,000, with strong revenue growth annually.

For a while, everything was going great guns. But dark clouds were looming on the horizon.

Warning Signs Begin to Emerge

A number of concerning factors came to light as investors took a closer look at WeWork before its planned IPO:

• Huge losses: WeWork was growing rapidly but losses were ballooning at an alarming rate too. The prospectus showed losses of $1.9 billion in 2018 on revenue of $1.8 billion.
• Questionable metrics: WeWork claimed questionable metrics like “community-adjusted EBITDA” which excluded basic expenses to inflate its performance. This raised eyebrows.
• Self-dealing: CEO Adam Neumann made millions leasing his own properties back to WeWork. He also got $5.9 million for use of the “We” trademark. His control over the board enabled such self-dealing.
• Reckless spending: WeWork splurged recklessly on over-the-top parties, private jets, and opulent offices. This raised concerns about mismanagement.
• Unsustainable model: Some experts questioned whether WeWork’s model of signing long-term leases and renting out short-term was viable. Escalating lease costs could squeeze margins.

Once the euphoria tapered off, WeWork’s shaky fundamentals, lack of a path to profitability, and mismanagement became apparent. The company had overexpanded and was burning through cash at an alarming rate.

The Botched IPO and Neumann’s Ouster

In August 2019, WeWork filed for an IPO valuing itself at $47 billion. But the prospectus was met with widespread skepticism and concerns.

Major red flags for investors included:

• WeWork’s mounting losses, lack of profits, and vague path to profitability
• Neumann’s conflicts of interest and shady self-dealing transactions
• WeWork’s precarious financials and risk of failing in an economic downturn

The company tried desperately to drum up investor interest and salvage the IPO. But it kept plunging in valuation as investors got cold feet.

It reached breaking point when Neumann was interviewed on stage in September 2019 while visibly intoxicated. He made outlandish claims about WeWork’s potential and his ambition to become the leader of the world, president of the United States, and even king of the world!

This was the final nail in the coffin. The IPO was shelved within days as investors rushed for the exits. Neumann was forced to step down as CEO. WeWork was in free fall.

Scramble for Survival Under Softbank Lifeline

After a failed IPO, WeWork found itself cash-strapped and on the brink of collapse. Valuation crashed from $47 billion to just $8 billion.

Japan’s Softbank, already a major WeWork investor, stepped in with a lifeline. A $9.5 billion rescue package gave WeWork a chance at survival.

But it came at a cost. Neumann departed with an outrageous $1.7 billion golden parachute. Thousands of employees were laid off in the restructuring.

New management refocused on WeWork’s core business of renting out office space. They exited side businesses like the experimental “WeLive” shared housing project.

Though no longer teetering on the brink, WeWork still faces an uphill battle to stabilize its losses and steer toward profitability. Its original stratospheric ambitions of becoming a global platform disrupting how people work live and learn are now a distant memory.

Key Takeaways from WeWork’s Spectacular Crash

Looking back, what can we learn from WeWork’s extraordinary rise and fall? Here are some key takeaways:

• Growth without sound fundamentals is dangerous – WeWork focused on rapid growth and market share at the cost of weak unit economics and massive losses. Frenzied growth without a path to profitability is a recipe for disaster.
• Erratic leadership is toxic – Neumann exhibited many red flags – self-dealing, conflicts of interest, hard-partying lifestyle. His leadership style hurt WeWork and sowed distrust.
• Profitability matters – WeWork boasted impressive metrics like memberships and locations. But flimsy contrived metrics like “community-adjusted EBITDA” cannot substitute for cold hard profits.
• Private valuations ≠ reality – WeWork’s stratospheric $47 billion valuation on paper quickly crumbled because it was built on fluff rather than fundamentals.
• Economics of business model should add up – WeWork’s model of long-term leases and short-term rentals is inherently high-risk. Market changes can quickly skew math against you.

WeWork offers some invaluable lessons for startups. Sustainable business models, strong unit economics, and sound leadership ultimately matter more than hype, valuation, and growth at any cost.

WeWork’s crash course serves as a cautionary tale for unicorns chasing frothy valuations over fundamentals.