Harvard Case - The Harder We Fall: The We Company's 2019 IPO Fiasco
"The Harder We Fall: The We Company's 2019 IPO Fiasco" Harvard business case study is written by Sarit Markovich, Evan Meagher. It deals with the challenges in the field of Strategy. The case study is 19 page(s) long and it was first published on : Jan 20, 2021
At Fern Fort University, we recommend a comprehensive strategic overhaul for The We Company, focusing on addressing the core issues that led to the 2019 IPO fiasco. This overhaul should prioritize a shift towards a more sustainable business model, improved corporate governance, and a renewed focus on value creation for all stakeholders.
2. Background
The We Company, parent company of WeWork, experienced a dramatic fall from grace in 2019, culminating in a failed IPO. The company's rapid growth, fueled by aggressive expansion and a seemingly innovative business model, masked underlying weaknesses in its financial performance, corporate governance, and leadership.
The case study highlights key issues:
- Aggressive Expansion: WeWork's rapid expansion into new markets and property types created significant financial strain and operational complexities.
- Unconventional Business Model: The company's reliance on long-term leases and a heavy dependence on external funding created a precarious financial position.
- Questionable Corporate Governance: Lack of transparency, questionable accounting practices, and a lack of independent oversight raised concerns among investors.
- Leadership Challenges: Adam Neumann, the charismatic founder and CEO, exhibited questionable leadership practices and a lack of focus on long-term sustainability.
3. Analysis of the Case Study
To understand the root causes of the IPO fiasco, we can utilize several frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High, as the shared workspace market is relatively easy to enter with limited barriers to entry.
- Bargaining Power of Buyers: Moderate, as customers have options for alternative workspace solutions.
- Bargaining Power of Suppliers: Moderate, as landlords and property developers hold significant leverage.
- Threat of Substitutes: High, with options like traditional office spaces, co-working spaces, and remote work arrangements.
- Competitive Rivalry: High, with numerous competitors vying for market share in the rapidly growing shared workspace market.
b) SWOT Analysis:
Strengths:
- Brand Recognition: WeWork built a strong brand image and a loyal customer base.
- Community Building: The company fostered a sense of community among its members.
- Innovation: WeWork introduced innovative workspace concepts and services.
Weaknesses:
- Financial Performance: High operating expenses, low profitability, and heavy reliance on debt.
- Corporate Governance: Lack of transparency, questionable accounting practices, and a lack of independent oversight.
- Leadership: Adam Neumann's leadership style and questionable decisions.
Opportunities:
- Global Expansion: Expanding into new markets with high growth potential.
- Technology Integration: Leveraging technology to enhance services and improve efficiency.
- Diversification: Expanding into new business lines, such as residential spaces or educational facilities.
Threats:
- Economic Downturn: A potential economic downturn could negatively impact demand for shared workspaces.
- Competition: Intense competition from existing and emerging players in the shared workspace market.
- Regulatory Changes: Changes in regulations could impact the company's operations.
c) Value Chain Analysis:
WeWork's value chain was characterized by:
- Inbound Logistics: Sourcing and securing property leases.
- Operations: Designing, building, and managing workspace facilities.
- Outbound Logistics: Providing access to workspace facilities and services to members.
- Marketing and Sales: Attracting and retaining members through marketing and sales efforts.
- Customer Service: Providing support and services to members.
d) Business Model Innovation:
WeWork's initial business model, focused on community building and flexible workspaces, was innovative. However, the company's rapid growth and focus on expansion led to a lack of focus on profitability and a reliance on unsustainable practices.
e) Corporate Governance:
The case study highlights significant shortcomings in WeWork's corporate governance, including:
- Lack of Transparency: Opaque financial reporting and a lack of clear information about the company's operations.
- Questionable Accounting Practices: Use of non-GAAP metrics and aggressive accounting practices that inflated the company's valuation.
- Lack of Independent Oversight: A lack of independent board members and a concentration of power in the hands of Adam Neumann.
4. Recommendations
To address the challenges and ensure a sustainable future, WeWork should implement the following recommendations:
a) Strategic Realignment:
- Shift to a Sustainable Business Model: Focus on profitability, reduce reliance on debt, and prioritize long-term growth over rapid expansion.
- Improve Corporate Governance: Establish a strong and independent board of directors, implement transparent financial reporting, and adopt best practices for corporate governance.
- Focus on Value Creation: Prioritize the needs of all stakeholders, including employees, members, investors, and the community.
b) Operational Improvements:
- Optimize Operations: Streamline operations, improve efficiency, and reduce costs.
- Leverage Technology: Invest in technology to enhance services, improve customer experience, and optimize operations.
- Diversify Revenue Streams: Explore new revenue streams beyond traditional workspace rentals, such as offering additional services or expanding into new markets.
c) Leadership and Culture:
- Strong Leadership: Appoint a CEO with a proven track record of success in building sustainable businesses.
- Culture of Transparency and Accountability: Foster a culture of transparency, accountability, and ethical behavior.
- Employee Empowerment: Empower employees to contribute to the company's success and create a positive work environment.
d) Financial Management:
- Focus on Profitability: Prioritize profitability over rapid growth and ensure financial sustainability.
- Reduce Debt: Reduce reliance on debt financing and explore alternative financing options.
- Improve Financial Reporting: Adopt best practices for financial reporting and ensure transparency and accuracy.
e) Marketing and Brand Management:
- Strengthen Brand Image: Reinforce WeWork's brand image as a provider of high-quality workspace solutions and a strong community.
- Target Niche Markets: Identify and target specific market segments with tailored offerings and marketing campaigns.
- Leverage Social Media: Utilize social media platforms to build brand awareness, engage with customers, and promote the company's values.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of WeWork's current situation, considering the following factors:
- Core Competencies and Consistency with Mission: The recommendations align with WeWork's core competencies in community building and workspace design while focusing on a more sustainable and profitable business model.
- External Customers and Internal Clients: The recommendations prioritize the needs of both external customers (members) and internal clients (employees), fostering a positive experience for all stakeholders.
- Competitors: The recommendations address the competitive landscape by focusing on differentiation, innovation, and a sustainable business model.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve financial performance, increase profitability, and enhance shareholder value.
6. Conclusion
The We Company's 2019 IPO fiasco was a result of a combination of factors, including unsustainable growth, questionable corporate governance, and leadership challenges. By implementing the recommendations outlined above, WeWork can address these issues, achieve long-term sustainability, and regain the trust of investors and stakeholders.
7. Discussion
Alternative options include:
- Sell the company: This option would provide immediate financial relief but would also result in a loss of control and potentially a significant reduction in value.
- Continue with the current business model: This option is highly risky and unlikely to be successful given the company's current financial situation and the challenges it faces.
Risks and Key Assumptions:
- Economic Downturn: A potential economic downturn could negatively impact demand for shared workspaces.
- Competition: Intense competition from existing and emerging players in the shared workspace market could erode market share.
- Regulatory Changes: Changes in regulations could impact the company's operations and profitability.
8. Next Steps
To implement the recommendations, WeWork should:
- Develop a detailed strategic plan: Outline specific goals, objectives, and action steps for each recommendation.
- Establish a dedicated implementation team: Assign responsibility for each recommendation and track progress.
- Communicate effectively with stakeholders: Keep stakeholders informed about the company's progress and address concerns.
By taking these steps, WeWork can transform itself into a more sustainable and profitable business, ensuring a brighter future for the company and its stakeholders.
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Case Description
The case describes WeWork's by-now-infamous fall from grace, during the turbulent autumn of 2019. Governance, financial strategy, and ethics are all prominent themes. WeWork had been a dominant player in the coworking office space market and had tried to create an ecosystem that allowed tenants of its office space to collaborate easily with one another, as well as one that offered third-party services. The case allows instructors to discuss commercialization strategies, boundaries of the firm, and issues related to investors in private versus public markets.
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