How WeWork Plans To Be Profitable in 2021
By: Joshua Vandebrake
Tags: Entrepreneurship, Venture Capital, Startup, Leadership, Business

“Everybody thought WeWork was mission impossible. [That we had] zero chance. And now, a year from now, you are going to see WeWork to basically be a profitable venture with an incredible diversity of assets.” — Marcelo Claure, Executive Chairman of WeWork

Shortly after Adam Neumann stepped down as CEO, SoftBank placed a new Executive Chairman in charge of WeWork. Who better to put than SoftBank Group’s own Chief Operating Officer, Marcelo Claure? Even better when his credits include turning Sprint around and later negotiating its merger with T-Mobile.

Among many other things, Marcelo Claure apparently excels at taking floundering businesses and turning chaos into structured, profitable order.

But How Did WeWork Turn Around?

This is nothing short of a miracle, given what the business has been through since filing its S-1, plus the fact that we’re in the middle of a global pandemic, but the new leadership made massive structural changes and seems to have fundamentally changed the business in ways that turn it eventually into some sort of success story. Maybe not the $47 billion success story some people thought it would be, but a success nonetheless.

Part 1: Massive Restructuring + Cost-Cutting

These structural changes started with massive, aggressive cost-cutting — including roughly 8,000 jobs. Prior to its fall, WeWork employed over 14,000 people; today, that number is a much lower 5,600. This number was only just reported, so Wikipedia hasn’t even updated their page yet.

In addition to cutting its workforce, WeWork negotiated or terminated a large number of its expensive leases including in New York and Baltimore.

Further, they sold off many non-core business units that they’d short-sightedly scooped up leading up to IPO. Unfortunately for the original founders and investors of those businesses, these purchases had largely taken place in all-stock or mostly-stock deals when WeWork still had a sky-high valuation; meaning the stock they were paid for their companies are now worth pennies for every dollar.

Part 2: Environmental Factors + New Deals

A curious side effect of the COVID pandemic is how it’s increasing pressure on commercial real estate. This, I would guess, has made it somewhat easier for WeWork to renegotiate some of their huge, long-term lease contracts.

And as workforces have been forced to move to a remote environment, companies are starting to see the value of flexible office space. And not just small startups. Even the big players searching for solutions. In the past month alone, WeWork has reportedly signed new lease contracts with Microsoft, Citigroup, Mastercard, and ByteDance (TikTok’s parent company).

To top it off, an internal memo (seen by the Financial Times) tells employees that the massive restructuring the company embarked on in February is over; after 8,000 cuts, they are not letting go of any more people. I can only imagine the wave of relief sweeping over each remaining employee, knowing they made it through the most turbulent time in the company’s history.

This same memo states that WeWork has spent more than $20m to renovate spaces to distance customers from one another, and it further encourages employees June was the company’s best sales month since February.

Given the changing work environment, plus high demand for quality workspaces that are sanitized and make people feel comfortable, this all makes a little more sense.

Things really are starting to look up.