Adam Neumann, as portrayed by Jared Leto in the new Apple+ limited series "WeCrashed," is in the hot seat at the start of the show's season finale as questions arise about whether he's capable of running a public company.
That stems from the aftermath of WeWork's unconventional S-1 filing as it prepares to go public. The filing — full of colorful pictures — outlined WeWork's mounting monetary losses as it raced to double its real estate footprint in a year, regardless of the cost. Take a deep breath — as Neumann must do many times in the eighth episode, titled "The One With All the Money" — if you haven't watched the show and stop reading now.
I watched this week's episode with Flip Howard, founder and CEO of Dallas-based WorkSuites, a coworking space provider getting ready to expand outside its home state of Texas for the first time. WorkSuites is working on deals in the Atlanta and Phoenix areas, with the locations expected to open by year's end if all goes well.
Howard said most entrepreneurs are executives with bold, risk-taking swagger, but those qualities don't always align with what it might take to be at the helm of a publicly traded company. For example, Neumann is undaunted in the dramatization as his investors tell him to postpone the initial public offering, including JPMorgan Chase Chairman and CEO Jamie Dimon.
"If we don't postpone, we'll have to lower the valuation," Dimon said, adding the valuation would drop from $47 billion to closer to $20 billion. Then, using the nickname for a rare tech company that has an initial offering of more than $1 billion, he points out: "It's a tough time to be a unicorn. There's a lot of scrutiny out there, with Uber, Lyft, Peloton and Slack all underperforming post-IPO. The unicorn stampede has become a bloodbath."
Neumann disregards the advice and continues to move ahead with an IPO even in the face of a Wall Street Journal article questioning whether he would ruin the future of the company. WeWork's board votes to oust Neumann as CEO, but his majority stake allows him to hold fast. In the series, Neumann and his wife, Rebekah, portrayed by Anne Hathaway, find themselves alienated from their investors, who are getting increasingly angry, and their employees, who seem disenfranchised and no longer believing in the mission of the company.
It takes tense negotiations between WeWork's major investor, SoftBank Chairman and CEO Masayoshi Son, who can't afford for WeWork to fail because the investment bank is raising a second investment fund, and Neumann, who is considering stepping aside for a price, before a deal is made. Neumann secures a billion-dollar-plus golden parachute.
For WorkSuites' Howard, he said those in the national flexible office space industry weren't surprised to hear about WeWork's financial struggles as it sought to go public in 2019. For many industry executives, he said, it was more, "What took so long?" Part of the disconnect was WeWork trying to classify itself as a technology firm even though it's a real estate company, Howard said.
"Tech companies can grow their revenue by outgrowing their expenses," he added. "They have their thing, and they can sell it to more people. We can't. I don't blame Adam for getting as much money as he could to grow his dream. I blame the people giving him the money."
The fallout from the pandemic the following year, with lockdowns to mitigate the spread of the contagious virus and people hesitant to gather in large groups, brought similar occupancy and cash-flow problems even to those in the industry who had been more conservative with their growth plans and capital. Even though the hardships weren't self-induced as they were with WeWork, the fallout of the pandemic still upended what would otherwise be a growing industry, forcing the closing of coworking locations and pushing some out of the business.
For WorkSuites, the pandemic came along at an inopportune time, with Howard, shortly before the pandemic, spending his liquidity buying out a business partner and any profits heading straight to growing the 21-location portfolio in Texas.
"Before COVID, we were 95% full and we dropped from 70% to 75% during the pandemic and we're now halfway back at 85%," he said. "Every month is a little better than the month before, but we haven't had the tidal wave we've been told is coming."
This year, WorkSuites is returning to growth mode with a handful of leases in the works, and Howard expects the company to grow by about 20% to 25% each year for the foreseeable future.
Here are his thoughts on the finale of the "WeCrashed" series:
- Businesses can't both lose money and expand. If your business is losing money, opening more locations of an unprofitable business won't help. Executives need to make sure their revenue exceeds expenses.
- Don't sign leases without the money to pay for them. With Neumann leaving WeWork as CEO, the new chief executive finds himself in a sticky situation with only two months of capital remaining to keep the company in business. This has WeWork making a knee-jerk move to stop construction immediately on locations.
- Never try to double your real estate in a year. Be ready for the next COVID-19 variant. You can also aggressively grow by 20% to 30% without putting it all on the line, Howard said. "Maybe that's why I'll never be on TV."