Harvard Case - WeWork: Tech Comes to Commercial Real Estate
"WeWork: Tech Comes to Commercial Real Estate" Harvard business case study is written by Gur Huberman, Lisa Shaforostova. It deals with the challenges in the field of Entrepreneurship. The case study is 32 page(s) long and it was first published on : May 21, 2018
At Fern Fort University, we recommend that WeWork focus on refining its business model, prioritizing profitability over rapid growth, and building a more sustainable and resilient company. This involves a multi-pronged approach encompassing operational efficiency, strategic partnerships, and a shift in its growth strategy.
2. Background
WeWork, founded by Adam Neumann and Miguel McKelvey in 2010, disrupted the traditional commercial real estate industry by offering flexible and collaborative workspaces. Its innovative concept, fueled by a strong entrepreneurial spirit, attracted significant venture capital and achieved rapid growth. However, WeWork?s aggressive expansion strategy, coupled with its unique business model, led to concerns about its financial sustainability and corporate governance.
The case study focuses on WeWork?s journey from a promising startup to a company facing scrutiny and a failed IPO attempt. It highlights the challenges of balancing rapid growth with profitability, managing a complex business model, and navigating the complexities of going public.
3. Analysis of the Case Study
Strategic Analysis:
- Disruptive Innovation: WeWork successfully disrupted the traditional commercial real estate market by offering a flexible and collaborative workspace solution. This innovation resonated with a growing segment of the workforce seeking alternative work environments.
- Growth Strategy: WeWork?s aggressive expansion strategy, fueled by venture capital, enabled rapid growth but also led to unsustainable financial practices. The company focused on acquiring new members and expanding its footprint, prioritizing growth over profitability.
- Business Model: WeWork?s business model relied heavily on long-term leases and short-term membership contracts, creating a mismatch in revenue streams and expenses. This model was susceptible to market fluctuations and economic downturns.
- Organizational Culture: WeWork?s culture, characterized by its entrepreneurial spirit and rapid growth, fostered a sense of innovation but also created a lack of financial discipline and oversight.
Financial Analysis:
- Venture Capital Funding: WeWork raised significant funds from venture capitalists, enabling its rapid expansion. However, this reliance on external funding contributed to its financial vulnerabilities.
- Profitability: WeWork struggled to achieve profitability due to its high operating costs and aggressive expansion strategy. The company?s reliance on short-term membership contracts and long-term leases created a mismatch in revenue and expenses.
- Valuation: WeWork?s valuation, based on its rapid growth and potential, was inflated and did not reflect its actual financial performance. This inflated valuation contributed to its failed IPO attempt.
Marketing Analysis:
- Branding: WeWork successfully built a strong brand image based on its unique workspace concept and collaborative culture. Its marketing efforts focused on attracting a diverse range of users, including startups, freelancers, and large corporations.
- Market Segmentation: WeWork targeted a specific market segment of individuals and companies seeking flexible and collaborative workspaces. Its marketing campaigns emphasized the benefits of its unique workspace environment.
4. Recommendations
1. Refine the Business Model:
- Focus on Profitability: Shift from prioritizing rapid growth to achieving sustainable profitability. Implement cost-cutting measures and optimize operations to improve margins.
- Improve Revenue Streams: Explore new revenue streams beyond membership fees, such as offering services like event spaces, co-working facilities, and digital marketing solutions.
- Reduce Reliance on Venture Capital: Focus on generating internal cash flow and reducing dependence on external funding.
2. Implement a Strategic Partnership Approach:
- Strategic Alliances: Form strategic partnerships with real estate developers, technology companies, and other businesses to leverage their expertise and resources.
- Joint Ventures: Explore joint ventures with established companies to expand into new markets and access new customer segments.
- Franchise Model: Consider a franchise model to accelerate expansion while reducing financial risk.
3. Shift Growth Strategy:
- Targeted Expansion: Focus on expanding into markets with strong growth potential and a high demand for flexible workspaces.
- Organic Growth: Prioritize organic growth through customer retention and word-of-mouth marketing.
- Sustainable Growth: Implement a sustainable growth strategy that balances growth with profitability and long-term sustainability.
4. Enhance Corporate Governance:
- Financial Discipline: Implement stricter financial controls and oversight to ensure financial transparency and accountability.
- Board Composition: Diversify the board with experienced executives with expertise in finance, real estate, and technology.
- Leadership: Appoint a CEO with a proven track record of managing large, complex businesses and a focus on profitability.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: WeWork?s core competencies lie in its innovative workspace concept, strong brand image, and ability to attract and retain members. The recommendations aim to leverage these strengths while addressing the company?s weaknesses.
- External Customers: WeWork?s target customers are individuals and companies seeking flexible and collaborative workspaces. The recommendations aim to meet their evolving needs and preferences.
- Competitors: The recommendations consider the competitive landscape and aim to differentiate WeWork from its competitors by focusing on profitability, strategic partnerships, and sustainable growth.
- Attractiveness: The recommendations are expected to improve WeWork?s financial performance, increase its market share, and enhance its long-term sustainability.
6. Conclusion
WeWork?s journey highlights the challenges of balancing rapid growth with profitability, managing a complex business model, and navigating the complexities of going public. By refining its business model, prioritizing profitability, and building a more sustainable and resilient company, WeWork can overcome these challenges and achieve long-term success.
7. Discussion
Alternatives:
- Acquisition: WeWork could be acquired by a larger company with the resources and expertise to manage its operations and achieve profitability.
- Liquidation: In a worst-case scenario, WeWork could be liquidated, but this would result in significant losses for investors and employees.
Risks and Key Assumptions:
- Market Volatility: The recommendations assume that the market for flexible workspaces will continue to grow, but this is subject to economic fluctuations and changing work patterns.
- Competition: The recommendations assume that WeWork can effectively compete with existing and emerging competitors in the flexible workspace market.
- Execution: The recommendations assume that WeWork can effectively implement the proposed changes and achieve the desired outcomes.
8. Next Steps
- Develop a detailed business plan: Outline the specific steps and timelines for implementing the recommended changes.
- Secure funding: Seek additional funding from existing investors or new investors to support the transition to a more profitable and sustainable business model.
- Implement cost-cutting measures: Identify and implement cost-cutting measures to improve profitability.
- Form strategic partnerships: Identify and engage with potential partners to leverage their expertise and resources.
- Refine marketing strategy: Adjust marketing efforts to focus on profitability and sustainable growth.
- Monitor progress: Regularly monitor progress and adjust the plan as needed.
By taking these steps, WeWork can transform itself from a company struggling to achieve profitability to a sustainable and successful business in the evolving world of work.
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Case Description
In February 2018 New York-based coworking company WeWork was valued at approximately $20 billion, making it the fourth-most-valuable start-up in the U.S., behind only Uber, Airbnb, and SpaceX. WeWork had experienced explosive growth since its 2010 founding, however it was revealed, during a private bond offering in mid-2018, that the company had posted a net loss for 2017 of $884 million. WeWork's founders insisted that the company's reliance on innovative technology-along with its mission to "create a world where people make a life, not just a living"- would secure its future success. This case outlines WeWork's business model and growth strategy and asks students to consider whether its market position is unique and defensible-and whether or not its valuation is overstated.
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