Why this popular company is facing criticisms to issue IPO from experts and investors?

A New York Based Company that was founded in 2010 has been facing criticisms from experts across the world since it announced to issue IPO for the general public. WeWork defines itself as a revolutionary company that provides workplace to start ups and several tech based companies throughout the world. The idea seems quite extraordinary for the aspiring millennial and Generation z. For instance, if you are looking to establish a company and lack seed funds in the early stage of your start up, you can use the work place provided by WeWork for a stipulated period of time. WeWork provides both physical and virtual shared spaces and several other required office services. The company runs with 5000 employees spread around 32 countries in 280 office locations.

Photo: The Atlantic

Like every other aspiring entrepreneur, Adam Neumann, an Israeli military, visited New York in 2001 with dreams and hopes as he started a a company named Krawlers that targeted crawling babies as their customers and sold clothes with padded knees. Naumann had keen interest in real estate. He always got excited about the real estate industry. He and his cofounder Miguel McKelvey, who was an architect, worked in the same building. Naumann further went on to ask the landlord of the building about the building and several real estate questions. The landlord replied “You are a person working in baby clothes. What would you know about real estate?” In reply, Naumann told the landlord “Your building is all empty. What would you know about real estate?” Post the conversation, he and his cofounder worked on the deal to prove the landlord wrong and established a real estate business called Green Desk.

Photo: Tech Central

Green Desk is simply an early life of WeWork. Green Desk provided customers with co-working office spaces, furnished rooms, office supplies, high speed internet, conference rooms, stocked kitchens etc. Individuals and companies could lease a desk or an office room on a monthly basis and pay back to the company a higher amount of lease. Green Desk soon started becoming a community. After the 2008 financial crisis ended, a lot of those who were sent away from their jobs started their own companies from Green Desk in 2010. As the economy fastened post the crisis, the Green Desk community grew bigger. The founders then realized that members from Green Desk were looking for a community. Then, the founders sold their Green Desk and started WeWork with $300000 in hand, a very poor credit score and no building. Somehow the founders convinced a landlord to rent them a floor for their business. That’s when the first office of WeWork was established. It was located in SoHo with 3000 square feet. Nine years later, the company now handles around 46.63 million square feet. After one month in operation, the company made a profit out of its new office. The founders always wanted to provide a shared workspace to members with several facilities such as gym, apartment, coffee shop, barber shops, etc. In 2014, the company opened its first international office at London.

In August, 2019, the company announced that it was going for an IPO to raise funds from the public. However, further analyzing its financial statements, the company’s reports revealed loss for over three years. In 2018 alone, the company revealed a loss of $1.6 billion on the revenue of $1.8 billion.

However, the concern simply is not about company’s loss but also its business model. With a lot of speculation going on about recession and financial crisis, experts questions company’s plans during such time of crisis. When an economy goes into crisis, a lot of companies go shut down and new companies do not evolve. WeWork have long term commitments with several building owners and then sub leases companies to tenants for short term charging higher rents. This plan can completely backfire at the time of economic crisis as WeWork will have a lot to pay to the property owners and emptying offices during the economic downfall.

Photo: vox.com

Even experts from US central bank have shown wary about the idea of co-working spaces. A lot of issues also revolve around company’s corporate governance. Recently, the board members of the company forced CEO Neumann to step down from the position of CEO. Post the criticism from a lot of investors, the decision to go into IPO of the company has been halted till October. However, the question now lies how the company will come back into track. When the business model is itself flawed and has come this far, it becomes difficult to completely shut down and even grow. In its early days, companies like Uber had also faced a lot of criticisms. Still a lot of investors have predicted that there will come a point when Uber and several other riding business companies in US have to become one. They do not have any option in the future as now members of the community (riders) are asking for part of shares in the company. 

The issues of companies like WeWork and Uber are of major concerns to an economy like Nepal. A lot of startups and tech companies are evolving in the valley every single month. There are a lot of instagram accounts that claim to be in e-commerce business. But will an economy sustain based on such companies. Undoubtedly, these companies are doing a great work, digitalizing shopping experience and making it convenient for the customers. However, a lot of complexities can come around in the latter days of the company. In such cases, the founders of these companies should be far sighted and consider the worst case scenario of their businesses during crisis. Pathao and Tootle have been our daily routine and have made it a lot convenient to travel around. These companies have helped a lot s school going kids, specially abled customers, etc. However, how would have Pathao and Tootle served their customers during the blockade assuming that if more than 50% of general public were dependent in their services for day to day commute?

WeWork is simply an example of accompany told to be wrong in its business model. Its future now lies in the hands of new CEOs. The upcoming days will be a good watch for these companies. These companies might bring new perspective in doing business and their success might be a precedent to the aspiring startups throughout the world. Yet the doubt remains. 

Source: Business Insider