A change in the flawed business model is what WeWork needs, not a change in leadership

With the ongoing buzz about the WeWork’s delayed IPO, questions are being raised about the company’s flawed business model and growing investor tensions.

Along with Adam Neumann stepping down from the role of CEO into the non-executive chairman, the company might be heading towards a serious catastrophe as pointed out by the evidence.

It ain’t worth 47 billion

The We Company had valued itself at US$47 billion after raising capital from the big fish Softbank.

But, as the company is getting closer towards listing itself in the stock market, the WSJ report has valued it at somewhere around the US$20 billion marks. Even those of you who are too lazy to do the math can see that it is less than half of the original valuation.

However, the problem runs much deeper than its valuation. Reports of losses of US$1.9 billion per year are rife with more losses predicted in 2020.

Compared to its main competitor IWG, a London-based company who seems to be cashing in on more profits and customers, the Silicon Valley-based company doesn’t seem to be not doing too well. IWG has had substantially more square footage and more customers, and has actually made a profit — yet its market cap is just eight per cent of what SoftBank’s latest funding round thinks WeWork is worth, according to Recode.

Also Read: What WeWork has taught me about people

Amidst recession

WeWork’s business model implies a real estate risk by leasing buildings to offer its clients flexible rents. While the tenants might trade down on WeWork’s funky workshops and events, the cost of these buildings remains fixed.

And in a recession-prone American economy, it might not be too sustainable after all.

WeWork is a hassle to SoftBank

The valuation will clearly affect the Japanese investment giant which along with its co-investors who had given nearly US$ 11 billion to the company, along with the US$1 billion they had committed through warrants, according to a Bloomberg report.

Zach Weinberg, the co-founder of Flatiron Health, which was acquired for US$ 2 billion last year warned against the perils of venture firms closing crazy deals at irrational prices. As he had said, the SoftBank-WeWork was one of the biggest in this league. It is not a healthy trend and what is happening to WeWork now is a resettling.

SoftBank is also currently the company’s highest external shareholder. While it might not be a massive loss overall compared to its assets, which include a US$122 billion investment in Alibaba as reported by Bloomberg, it will definitely affect how investors in the future view its potential.

The ripple effect

WeWork’s struggles at this point also direct towards a potential problem with the unicorn wave. It sees investors pumping cash into companies and startups with flabby financials, looking over the loopholes in business models.

In a past interview with e27, Mangrove Capital Partners CEO and Co-Founder Mark Tluszcz spoke of the “fake unicorn” phenomenon. Best known for his success in investing in Skype, the investor stresses that “many of these [billion dollars] companies will never get sold for the same price [they have raised funding in].”

He even went as far as likening it to celebrating victory at the World Cup “before even playing in the final.”

Also Read: WeWork Labs launches foodtech startup accelerator in Thailand

What happened to WeWork and other similar companies is definitely not the last of this wild phenomenon. The big question that we should ask ourselves is: How is this going to affect the tech ecosystem, particularly in Southeast Asia?

One angle that we choose is that investors, particularly those new to the tech scene, will be even more critical in eyeing a potential investor. Securing a unicorn status might have been the dream for many startups; we cannot deny that it is able to make a company looks great, speaking from a public relations perspective.

But the time is up. Founders need to learn to face reality and figure out creative ways to be sustainable.

This is especially important for the Southeast Asian coworking space scene. Recently, we have begun to see several consolidation moves, particularly in a big and competitive market such as Indonesia. Here, even household names such as Hubud has announced a merger with Dojo. We had also seen acquisitions even in cities outside of Java such as Medan.

This might sound worrying at a glance, but the more optimistic side of us sees many opportunities for growth.

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Image Credit: LiveKindly

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