Here are a few lessons to learn from the failure of Wework’s IPO;
Essentially WeWork didn’t realize that effective corporate governance was very important for both its IPO and reputation. Leaders of startups should incentivise far more effective governance and proper practices as it plays a vital role in serving both the members of the company and its shareholders
Branding isn’t all
There is a difference when it comes to valuation between being a tech company and a non-tech company.
WeWork tried to proposition itself as a tech company whereas it doesn’t manufacture technological software or hardware but rather it deploys data and analytics tools and technology to make more effective decisions.
Nowadays, almost every company uses technology in some way or another to aid their business operations.
Tech companies are invested in differently than non-tech companies. Although it usually takes a while for a tech company to return a profit, Tech companies are valued using their potential because reach is almost unlimited and they are capable of producing high margins while non-tech companies are valued using mostly their assets, revenue and profits.
This brings to another co-working company, IWG plc, formerly known as Regus which had 3300 locations while WeWork managed 848 locations, and guess what, IWG is profitable, however it was valued at about 4 billion dollars while WeWork was valued at 47 billion dollars.
Why? Because unlike IWG, WeWork has managed to make itself look like a tech company, even though it’s just a tech-enabled one thereby giving it accessibility to cheap capital and investments.
However, no matter how much it tried to escape the real estate label, even by changing its name to ‘The We Company’, it was still a landlord company that rents out co-working spaces to freelancers and enterprises.
Profitability is key sometimes
WeWork essentially convinced investors without making any money or proving the viability of their business model. A business model that has been proven to fail countless of times.
WeWork took a rather scattershot approach towards its ventures.
Short term profit, long term debt
WeWork essentially puts itself into long term debt for short term gains.
Critics argued that this was a very flawed business model and worried how it would fair in a time of recession or economic downturn. It could lose a lot of the money it gets from its leases which lasts a few months but will still be obliged to pay the property owner as they’ve signed years long leases.
Whether WeWork bounces back and files for a successful IPO is unsure at the time, but the above lessons can be learnt from the mistakes it made.