Business Valuation

What are the key issue(s) in the case?

The trend of office sharing or in other words Co-working space has picked up big time over the last few years. There are hundreds of companies who are offering co working spaces for start-ups and freelancers. The business model is pretty simple and straight forward, all you have to do is get a big space, renovate with some technology and rent out to small start-ups and other individuals. There are few big names in the industry, like Regus, WeWork, Impact Hub and many more. In this article, the policies and strategies being opted by WeWork are being critiqued.

WeWork is considered to be one of the big companies when it comes to coworking space providers. However, on so many things the business has made bad decision and its whole strategy is something that would make one wonder. WeWork has done no innovation, instead it has copied an already existing business model, that involve acquiring big office spaces, make it tech savvy and further lease it out.  

After going through the case in detail, there are so many issues that one can easily highlight. The first and the most prominent issue is the fact that the business acquire big space as compare to its competitors and that too on long term basis. Acquiring big spaces to be able lease them out is not a problem, however not being able to generate revenues and profit out of it is a major concern. Acquiring offices on long term basis will definitely give them the benefit to reduce the rent price, however at the same time it’s a big risk as in case of economic recession the business would be left with big buildings and office spaces with no tenants. According to the article the average lease period is 15 years, which is a very long period and 71% of its operating lease obligation will be due in 2024. 

Few of the other issues that were very prominent in the case were the involvement of the company CEO Adam Neuman on so many occasions that were directly benefitting him. For example, many of the office buildings where the company was operating as a tenant were actually owned by the CEO Neuman. Not only he had many of his properties being leased to WeWork from where he was getting rent for number of years, but at the same time he was also able to borrow multiple loans to his personal LLS (We Holdings LLC) with a very low interest rate. On top of all this many of the business top positions were given to family members, for example Rebekah Paltrow, the wife of Neuman was not only the co-founder of WeWork but also was made CEO of the company’s education business WeGrow. Another major issue in the case is not having any corporate governance, this was so evident from the fact of having dual-class shares that give total control of the company to founders while preventing any public investors to have their say in it.