Yesterday, in a bid to save itself, the We Company pushed out CEO and cofounder Adam Neumann.
Neumann, who remains non-executive chairman and We’s largest individual shareholder, told employees in an all-staff memo Tuesday that “our business has never been stronger, but since the announcement of our IPO, too much of the focus has been placed on me.”
Investors, rivals, and even many employees are applauding Neumann’s departure, and many would certainly agree with the latter part of the former CEO’s quote. “Enough of this ‘saving the world business,'” says Santosh Rao, who covers pre-IPO startups as head of research at Manhattan Venture Partners—making reference to Neumann’s stated ambition that We’s mission has been to elevate the world’s consciousness. “Investors are saying, ‘Show me the money.'”
But ousting Neumann doesn’t fix We’s troubles. The company has $1.3 billion in long-term debt (as of June 30, 2019) and $47 billion in lease obligations over the next 15 years. As of August, it had $2.5 billion in cash. Its IPO prospectus revealed that the company loses a dollar for every dollar it makes.
The company will require a massive restructuring to start to address these issues.
WeWork’s efforts to be a global coworking player, expanding into regions such as China and Russia via joint ventures, present an acute challenge, insiders say. Already, landlords in these markets are calling rivals to ask whether they are ready to take over its leases if necessary, sources say.
While expansions into early elementary private school education (WeGrow), communal apartments (WeLive), and a luxury gym (Rise by We) are all potential candidates to be shuttered, they’re all rather small. Of these initiatives, WeLive is the largest, with two locations. On the other hand, Powered by We, the company’s big bet that it can design, manage, and program large enterprises’ office spaces, is struggling significantly, sources with knowledge of the matter indicate, and it would be more challenging to unwind given marquee clients such as Microsoft, Salesforce, and Pinterest.
The most obvious cost-cutting effort—a mass layoff—is also not a panacea. On Tuesday, The Information reported that We could fire as many as 5,000 employees, a third of its workforce. Even that may not be enough, say industry sources, suggesting that a more radical reduction would be necessary. Any layoff, though, will require severance and other payments that would require significant cash outlays of several hundred million dollars.
A spokesperson for We declined to comment.
These decisions are now the responsibility of We’s new co-CEOs, Artie Minson and Sebastian Gunningham. Both men are We insiders who until now have been largely behind the scenes. Minson, age 48, had been the company’s CFO and co-president and a key player at the company for the past four years. He helped negotiate its deals with SoftBank that raised over $10 billion. Gunningham, 57, joined WeWork last year after a decade at Amazon where he’d run its marketplace business and was a close advisor to CEO Jeff Bezos. His official title, according to We’s S-1 document, was chief automation officer. He’d been tapped to oversee efforts to use technology to streamline the process of leasing buildings and developing real estate.
What Minson and Gunningham do to cut losses and project focus in an effort to instill confidence in investors has to happen quickly. If the company goes public in 2019 and raises $3 billion in the IPO, it unlocks an additional $6 billion credit line. That $9 billion would give them some breathing room to turn the company around.
In We’s IPO prospectus, one of the company’s stated risk factors was Neumann’s ongoing employment as CEO: “Our future success depends in large part on the continued service of Adam Neumann, our cofounder and chief executive officer, which cannot be ensured or guaranteed.”
With Neumann’s exit, the company will now test whether this was boilerplate or prophecy. He may be out, but the drama at We is only just beginning.