Capstone Project - Draft 4

WeWork company was incorporated in the year 2010 and was labeled one of the future drivers of the world economy. However, nine years down the line, the company was reported to be on the brim of collapse due to a loss of $9 billion in the wake of the company’s ambitious plan to go public. This paper sought to establish the business model utilized by WeWork by examining its strategic plans to determine what went wrong for the company that was considered to have one of the world’s most ambitious business plan. The study employed the online or literature research methodology and it was established that some of the strategies that were applied by WeWork were the cause of the company’s downfall in 2019. It was recommended that research and market analysis is an important tool when it comes to decision making and therefore it is essential to report factual figures and conduct thorough research.

Strategic management is critical for companies to remain competitive in the global industry. Creation of an effective plan is critical since it ensures the proper alignment of a company’s activities to its expected outcomes. Strategic management is critical for any business since it ensures a business gets operated based on environmental conditions. Sustainability is connected to strategies of businesses since it ensures businesses are able to survive in different conditions. Decision-making is a strong basis of company improvement since it promotes sustainability regardless of operational factors (Kitsios et al., 2019). A company that offers unique, quality, and affordable goods and services, is most primed to succeed within their respective industries. A good business idea must strive to fill an existing gap that exists in the industry and make money in the process, generated through revenues. WeWork is a company that came up with a splendid masterplan that sought to fill and address an urgent need for working space for small and medium-sized companies that could not afford a premise by themselves.

WeWork is a company that provides shared coworking spaces to small and medium enterprises that are not in a position to afford them. The company was founded in 2010 and currently has its headquarters in NYC. The company provides a shared workspace to companies that are starting up at relatively lower costs than that they would spend while looking for a space of their own. This is an effective strategy since there are many existent and startup companies available in the current environment. The majority of such companies aim to promote high profits while using minimum operational costs. Due to the company’s structure, it has been able to increase its profits with shared workspaces being valued to as high as $47 billion.

In 2019, the company required to raise $4 billion to promote its expansion to different locations and to increase its market share through IPO. To ensure it raised the money required, WeWork listed its shares in the public stock exchange markets. The strategic move provided the company with 1.54 billion in revenue. The operations were ineffective since the company encountered $9 billion in losses. The outcome caused the company to suspend its IPO plans.

WeWork is an American company that established its niche in the real estate market. It was established in 2010 in SoHo, New York, United States. Its niche is in providing flexible shared workspaces for technology startups. It also provides services for other enterprises. It has specialized in designing and building workspaces, both physical and virtual, which are shared. In addition to this, it also offers office services for technology startups and companies. With WeWork, all the needs when it comes to office space for all types of companies can be met (Aydin, 2019).

WeWork was founded by Adam Neumann and Miguel McKelvey. However, from the beginning, it is Adam Neumann who took the reins of the company and he became its CEO. However, he was forced to resign in 2019 because of mounting pressure from investors. He also gave up the majority voting control in the company on 26th September 2019. Miguel McKelvey is still working in the company and he is the chief culture officer (Aydin, 2019).

The initial idea that the cofounders had was providing the office space as part of an ecosystem. In addition to the offices, they would also have apartments and gyms. This way, their concept was aimed at promoting communal life. The company was successful from its inception as it turned a profit just a month after it was launched. Within the next 2 years, the company had opened up four more locations. With the help of Benchmark, the company got funding of $17 million which further helped to accelerate its growth. It opened its first international office in London in 2014. Today, the company has over 800 office locations (Aydin, 2019).

GreenDesk was the first real estate venture made by the cofounders. It was founded in 2008 and it was an early incarnation of WeWork. The mode of operation of the company was sustainable shared office space. It has recycled furniture, free-trade coffee and there were green office supplies. The customers were called members and renting of office space was done every month. The facilities they offered included fully furnished offices, conference rooms, high-speed internet, printing, other utilities, and a well-stocked kitchen. The company thrived even when the real-estate market was failing. In 2010, the cofounders sold their stake at GreenDesk and founded WeWork (Aydin, 2019).

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WeWork's business model is based on generating revenues through the process of renting office spaces for organizations and SMEs (Davis, 2019). The company’s mission is centered on its capability of provide flexible methods of business operation. The company targeted startups mainly because they rewire favorable operational methods for businesses. The company also targets small businesses and sole proprietorship companies that do not require very large premises for operation. WeWork provides insurance related to health, dental, disability, life, and mental care to promote the effective delivery of business operations. From this perspective, the company promoted favorable working conditions that ensure any business is capable of achieving high profits.

The company’s business model is focused on customers segments of individuals and enterprises. The majority of individuals are people that adopted new entrepreneurial perspectives and require favorable conditions. Enterprises are also involved whereby they require letting of office spaces to promote start up business operations. The company serves small and medium businesses that require office space. The company provides offices and conference rooms depending on the types of business operations conducted in the area. The business model of the company focuses on development of business operations using available technology companies that require minimal spaces since most operations are conducted online.

The company offers competitive pricing since it provides contracts using the measurement of office space required by any business. The company further provides amenities that promote business operations in area since it is possible for enterprises to operate with the he help of existing support team. The company offers internet, equipment, and support team help that ensures the cost of the rental space covers all components of business operations. The company’s business focused on international relations that further promoted operations in more geographical locations. The availability of many offices and enterprises under one roof provided the company with effective methods of operations since it is possible for business relationships to get developed in the areas.

The company’s proposed plan was effective since it ensured new and registered business would acquire a conducive environment for business. The company derives its business viability and business model by renting big office spaces at a wholesale price. It is possible to take advantage of economies of scale by negotiating different prices for the premises. WeWork applied a strategy of partitioning the space, then renting it to startups and SMEs who then pay a higher price per cubic meter. In this process, the company is able to generate the revenues required to run its operations and make profits.

The company has expanded and it has a worldwide reach with offices in developed countries such as the United States, the United Kingdom, Canada, Germany, and more than 37 countries worldwide. Therefore, the company has an international status which many companies in the field do not have. The company’s value was approximately 47 billion dollars at the beginning of 2019. The company has major stakeholders such as Adam Neumann, JP Morgan, and SoftBank who contribute to the success of the company. The services that they offer are economical and inexpensive and this has helped to attract the market of young freelancers, entrepreneurs, and startups. The company has targeted various market segments and hence it has reached a lot more people and diversified its sources of revenue. The company also has in-house advertising which enables it to effectively carry out its marketing campaign and advertisement (Shaw, 2020).

The weaknesses of WeWork is that the working environment is very intense and maybe a source of stress for their clients. Newcomers may struggle with adjusting to the shared workplace because of the familiarity among the people that have worked there longer. The affordable amenities sometimes lead to overcrowding. In-house marketing sometimes does not portray the exact image of the workspaces. The goals of the tenants and those of the company are not aligned and this class may prove problematic to the company (Shaw, 2020).

The opportunities at WeWork include providing an independent mail system. Currently, the mailing services are in terms of receiving, however, if they incorporate on-demand mail receiving and delivery, they can attract more users. The company can maintain a record of the interests and preferences of the consumers and consequently design offices that meet this. The greatest demand in the present is home offices. Global expansion is a positive thing; however, it might be strenuous to the company. Therefore, there is the opportunity to merge, acquire, or partner with other brands and companies to make the process less strenuous (Shaw, 2020).

Two major threats are facing WeWork. First, there are major competitors in the industry such as Office Max, Office Depot, and Regus. These companies offer similar products and services as WeWork. To overcome this threat, the company should aim at differentiating itself from others by offering unique experiences to its tenants. Some consumers are attracted to products that are highly-priced and if they are priced lowly, they appear to be of low quality. Therefore, the company should also offer products which cater to these market (Shaw, 2020).

The mission statement of WeWork is to build more than beautiful, shared office spaces where a community can be built. It is a place where a person joins as an individual and becomes a part of a greater community. It is a place where success is redefined and measured by personal fulfillment and not just the bottom-line. The main objective of WeWork is to create a community-based business that is based on putting passion, people, product, and product before profit. The strategies that are employed by the company are delivering an amazing member and employee experience, earn the right to be the partner of choice, execute the core business brilliantly, building by building, grow and expand geographically smartly and profitably, create and sell valuable new products and services and monetize spaces, and operate with an ownership mentality. To be able to implement the strategies and achieve high performance within the company, the compensation model includes a competitive base salary, an annual bonus, and long-term incentives. This encourages the employees to work hard and be able to achieve the set objectives and execute the strategies of the company.

Political factors do not seem to have a significant impact on WeWork. Political turmoil and trade wars have significantly affected the employment rates within countries. Many people are unemployed leading to an increased venture into freelancing. This has increased the number of customers of WeWork who utilize the shared working spaces. Economic factors significantly affect the operations of WeWork. There is an emergence of the gig economy which has increased the number of freelancers and work-from-home positions and hence an advantage to the company. The home environment is not conducive for working which leads them to companies such as WeWork. There is also an increase in disposable income and hence professionals are looking for setting up their own offices (Bush, 2019).

The social factors impact WeWork where the workspaces offer an aspect of social interaction which lacks in online work. It helps to bridge the gap between independent working and workplace interaction. Technology has been a great driver of success at WeWork. Technology has made remote working possible and hence more professionals can utilize the WeWork working spaces. The cost of technology is also significantly low which has led to their high adoption. Remote work tools such as Slack, Google Docs, and Trello have also enabled remote working and consequently brought more customers to WeWork (Bush, 2019).

The company has faced many legal challenges and there is a need to address the issues. First, the aspect of liability sharing where in case of any problems, who will be held responsible. The company operates on space that it has leased which makes its business that of subletting. This may be legal in some areas but it is considered to be a questionable practice in other locations. To be able to avoid such problems, the company needs to buy the spaces in areas where subletting is not legal. The company's business model is environmentally friendly as it reduces the use of resources such as electricity. Most of its customers are those that work on digital platforms which reduces the need for paperwork and this contributes to a greener environment (Bush, 2019).

The company operates mostly in leased spaces and it begins paying its lease once it signs the contract. However, occupation cannot be carried out unless the building is renovated to meet the aesthetics of WeWork, a period referred to as ‘fit-out.’ This usually takes four to six months and full occupation does not take place immediately after the fit-out period passes. The first few months of operation show the revenues being less than the costs incurred. This s because of the fit-out period. However, the company can break even soon after full occupancy is achieved as the rent is more than the costs incurred. With more time, the company begins to generate great revenue that accounts for the company's profits. The early losses are typical of any business and not unique to just WeWork. Therefore, the numbers are okay when the company ventures into new territories. The company also generates financing from funding rounds and the sale of bonds (Edwards, 2017).

The rules and regulations of WeWork are as follows (Terms and conditions):

a) The members have to be at or above the legal drinking age within the jurisdiction where they are located unless stated otherwise.

b) The account password or keycard should not be shared with anyone else.

c) All the fees are non-refundable and are paid in the local currency of the location of the company.

d) There are additional services that can be offered either in connection with a premise, service packages, or any other offerings.

e) The clients may be held liable for the repair cost of any damage caused to the premises and/or items by the client, their invitees, or pets.

f) The clients may not take, copy or use any information either directly or indirectly that belongs to other members.

g) Pets can only be brought to premises where they are allowed.

h) The company is not liable for the actions of other individuals that are sharing the workspace.

The success of the company made Neumann the talk of the town. Everyone was fascinated by how he could transform the freelance-desk sharing concept to becoming one of New York’s biggest private office tenants. The preliminary hype over the real – estate startup may be liable on a consensual phantasm between the founders and investors. The organization has been making efforts to scramble for cash since the attempt to get into the stock market. The hype was both in the publishing sphere and the company sphere.

The company had a corporate drinking culture as it was providing unlimited alcohol supply within its workspaces. Members had unlimited access to beer and wine. However, this policy was later changes and they were limited to four-once pours per beers in a day which could only be accessed between noon to 8pm on weekdays (Holmes, 2019). The summer camps served as venues for enjoyment rather than relaxation and advancement of the company (Meltzer, 2014). It was free entry for the already working employees, aiding the company to maintain its employees working under difficult circumstances both physically and mentally. The company mainly dwelled on the party culture and this was greatly influenced by the hype they received.

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WeWork was founded in New York but it has expanded to the international space. Now, they are offering subscription options for use of international offices. This is important for members who need a place to work for a short time when they are on a trip abroad as well as local people.

WeWork’s expansion to Europe contributed to the ballooning of the business of Co-working space. It has set up workspaces in London, Manchester, and Moscow. However, competition in Europe is stiff because of other major players in the industry such as IWG Plc and local startups (Mathis, 2019).

To expand to Southeast Asia, the company set aside a budget of $500 million. This is because the co-working space in the region is already well established. New companies that venture require extensive capital and manpower to be able to succeed. The expansion to Asia was a success until they formed WeChina, a subsidiary of WeWork (Mehl, 2019).

Its expansion to South America began in Argentina and Brazil. However, it first opened its first two locations in Mexico City. The other locations were Buenos Aires opened in May 2017, Sao Paulo in June, and Rio de Janeiro. By 2017, the company was also considering opening its offices in Lima, Peru, and Bogota, Colombia.

WeWork ventured into Africa in 2019 with South Africa being the first country where they set up their offices. It partnered with Redefine Properties, a South African real estate company to set up its first location in Johannesburg. They viewed South Africa as the gateway to the rest of the world and establishing offices there would help in the expansion to the rest of the continent (Reuters, 2019).

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What do you do when you have a great business idea and it is operational but lacks the required amount of money to rent a premise? To answer this question, it is imperative to assess whether business operations require physical spaces or if they can work on online platforms. WeWork considered this metric when promoting its operations as it ensured it provided companies that required physical space affordable rental spaces. A significant number of organizations, especially SMEs are currently grappling with the same question. The business environment has been exposed to many operational issues that require enough funds for maintenance. As such, it is imperative to promote business operations using affordable methods of operation.

New businesses require conformity to federal taxes, industry licenses, insurance, and publication of the businesses (Porteous, 2020). As such, it is critical for all the businesses to plan an effective technique of promoting business continuity. Many organizations fail to realize their potential due to financial problems that they encounter during the first few years of their inception. It is common for businesses to close down soon after inception due to lack of funds to promote operations. It becomes difficult to provide employees with expected remuneration when the business environment is exposed to adverse methods of operation. WeWork analyzed such factors when it adopted its strategy so that new businesses would have an effective environment for operation.

WeWork represents a company that has sought to reduce the financial baggage of renting a premise for the small businesses. The company operated as an office startup that promoted operations for businesses that could not afford to rent out large spaces (Zeitlin, 2019). The strategy has been effective since it ensures businesses are able to operate regardless of environmental conditions. As a business on its own, WeWork company has been able to make progress, profits, and losses. It is imperative to examine WeWork’s strategy to determine how it makes profits. The appropriate research question is: How did WeWork apply its operational strategy to promote profits and what issues caused it to encounter losses?

Creation of a global presence is important for any company since it provides a method of acquiring many customers and generating more revenue. Global presence further promotes company operations since it is possible to gain knowledge concerning diverse methods of operations when a company collaborates with businesses that serve diverse clients. WeWork promoted its operations by adopting global expansion and ensuring it acquired “$3 to $4 billion” using an IPO strategy. The company promoted its global presence through such techniques since it was possible to create effective outcomes. The company’s proposal was strategic yet it failed in its desire to produce more profits (Boyte-White, 2020).

Globalization is critical for any business as it promotes growth in all aspects of businesses. The technique is critical since it promotes business operations based on the availability of capital, comprehension of business relations, and development based on acquisition of knowledge related to better business performance (Verbeke et al., 2018). WeWork is connected to the promotion of globalization since it aims to improve businesses’ operations by assessing their current operations and determining future viability. The future of any company is dependent on its capability to generate revenue and store profits. WeWork adopted this technique since it ensures the company’s its rents office space for encounter favorable operational environment.

WeWork promoted its global presence through adoption of the effective strategy of expansion that exposes companies to diverse methods of gaining profits. The strategy was effective since it provided a larger market for the company to pick from. Creation of a global presence is effective since it further provides the company with a larger area to collect revenue compared to local businesses. This also ensured that the company diversified its sources of income by market. For example, WeWork continued to make enough profits even when there was stiff competition from other businesses in Europe and these sales and revenues came from countries such as America. In this regard, a global presence promotes the company’s profits since it is exposed to diverse companies.

WeWork company's main business was to offer rental space for many businesses that were unable to afford to rent their own premises within cities. The company conducted assessment of cities and determined that the rent was not affordable for the majority of startup companies. In this regard, the company found a strategic location where it was possible for it to rent and purchase a large office space and divide it according to the needs of customers. In doing so, the company was able to bring together many businesses and organizations under one roof. The subdivided office spaces promoted the company’s mission of increasing economic growth regardless of tough business environments. The enterprises that rented those spaces found it easy to generate revenue since it was possible to increase profits in areas that seemed unfavorable for new businesses.

WeWork was able to generate high revenues using the technique since there were many companies in the target locations. It was possible for the businesses to collaborate and to gain much profits based on the availability of diverse business areas. The companies that rented the office spaces were exposed to favorable environments since it was possible to create effective business operations. The business acquired new connections in the premises which promoted increase in professionalism. It was possible to establish a strong organizational culture since the company enhanced its social awareness skills through the strong connections.

WeWork found a business opportunity whereby it provided the businesses with services such as printing, office cleaning, and even the front office management. This created profitable outcomes since WeWork charged the companies for the paid services. It was easy for the company to acquire strong operational techniques by enhancing its connections with existent companies. The co-working-space-as-a-service was effective since WeWork had high capability of gaining new customers due to its public and social awareness.

Another important strategy that WeWork employed was taking advantage of the economies of scale. “The economies of scale” is a technique of increasing output of a business by taking advantage of existent operations. The technique reduces the amount of per unit fixed cost by improving productivity of a company through distribution of fixed cost activities (“Economies of Scale”, n.d.). WeWork was able to enhance its fixed costs outcomes by maximizing profits yet it had purchased office spaces at a standards price. While the business rented apartments and bigger office spaces as a unit and on long-term leases, it rented out to its clients on a short-term basis and charged its services based on square units or time.

The economies-of-scale strategy adopted by WeWork was effective and enhanced its ability to create new business operations based on existent office locations. The company could reduce promotion costs since it was not mandatory to work with external companies to promote business operations. WeWork could simply inform their tenants about other business operations by communicating internally in all its office locations. Thereby, the clients who had rented out smaller units ended up paying more or higher per cubic meter. This promoted WeWork’s revenue since it conducted more businesses under one roof.

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The employees at WeWork feel abandoned and neglected as they have been left to bear the brunt of the failing company. The CEO responsible for the failure has left the company with a golden parachute of over 1 billion dollars. However, many employees have been rendered unemployed during these times. These are people who do not have a source of income and instead of being compensated for their hard work, the source of the problem is the one being compensated. This is very heartbreaking for the employees and may reduce employee commitment (Sharf, & Jeans, 2020).

The floodgates for lawsuits against WeWork and Neumann have opened. One WeWork employee Natalie Sojka filed a lawsuit in San Francisco County Superior Court against Neumann and SoftBank. This is just one of many disgruntled employees. The company is also facing other lawsuits from former executives. One of them is Lisa Bridges, a former senior vice president and the head of compensation (Mashayekhi, 2019). There are many lawsuits currently facing WeWork and going by its financial standing, it is difficult to determine whether or not it would survive.

Despite the brilliant strategies that WeWork company employed, it still went on to post losses that were estimated to be around $900 million (Boyte-White, 2020). The losses occurred during the periods that the company had applied strategies of improving existent operations. This was ironic since the company had forecasted that its IPO would generate billions in revenue. The operational tactics also seemed favorable since WeWork had acquired many clients. It is thus imperative to study the company to determine actions that led to the dramatic change of events.

The business model employed by the company seemed effective in theory and through analysis yet the models were expensive and limited connections with investors and clients (Gaddini & Cossu, 2019). The business model was centered on creating strong customer relationships through provision of services that seemed suitable to the existent business environment. The proposed model was effective and ensured WeWork was capable of charging its tenants more money by providing more services.

The strategy that was most disadvantageous was the company’s plan of charging spaces according to time. WeWork was an effective company that displayed much possibility of success yet its projected growth failed as it attempted to make more profits. The company did not fully comprehend that its customers were small businesses that required more attention and minimal operational costs. WeWork only focused on acquiring profits using its clients since it considered that it had provided them with affordable operational environments. The technique was highly ineffective since people found it hard to pay for high prices while remaining operational in business.

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Before the company decided to go public in 2019, it is reported that it had overestimated the needs and market base requirement for shared-office space. The news displayed the company’s ineffective method of dealing with business since it did not fully comprehend the market expectations. A common issue that causes small businesses to fail is lack of proper planning (Schaefer, 2020). The issues result in the adoption of a business model that is not suitable in the area suggested. This occurred in the case of WeWork since it projected that its business plan would produce high profits yet the IPO had opposite results. The outcome of the IPO revealed clearly that WeWork conducted ineffective research and thus required a different plan for operation.

The company provided an effective proposal for its investors by informing them of positive operational procedures. This led to an overstatement of the company’s share value and consequently when investors were scared away, the company lost direction and crumpled. Improper market research is dangerous for any business since it exposes a company to adverse operational procedures. Data is critical in the current environment since it promotes knowledge of the business environment (SBI, 2020). In the case of WeWork, data analysis is critical since it promotes an effective technique of understanding the business environment.

WeWork used the existent data effectively yet it got exposed to ineffective methods of operation. The issues reveal that poor market research is often engulfed and cannot get detected easily. WeWork had high hopes and possibility of gaining profits yet the outcome was unexpected. It is evident that market research is a critical process that requires proper analysis by all persons involved in improvement of a company. The needs of a workforce are determined using proper market research yet WeWork was unable to enhance its profitability.

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