Summary

WeWork was co-founded in 2010 by Adam Neumann and Miguel McKelvey in New York City offering short-term leases to businesses in a co-working environment. Businesses like this were not a new idea but WeWork managed to appeal to a new market segment that valued amenities bundled with space. Due to the erratic management habits of Adam Neumann, the business garnered immense valuation that later diminished. After Neumann was ousted, Sandeep Mathrani was hired to turn the company around. Unfortunately, he was ultimately unable to do so. This analysis will examine how Neumann could have followed the five best practices of commercializing new products and appealed to market perceptions to have been successful. 

The five best practices of commercializing new products center around the idea that a company needs to position products to create value. The five tenants are defining their overall strategy, investing the right resources in R&D, creating the right mix of products in their portfolio, refining the development process to match the product, and a top-down approach to creating the appropriate culture for success.  

WeWork’s overall strategy was to lease space from commercial buildings, renovate and improve that space with amenities, then sub-lease the space back to new tenants. Neumann took a bet that this would entice tenants to use WeWork space over competitors and traditional landlords. He was infatuated with his idea and even likened the company to Facebook or Uber. Neumann was a charismatic and gifted salesperson, and his fanaticism was infectious. He gathered investor support, and his company was the most valuable in 2019 at $47 billion. He lacked strategy for growth and capital acquisition. Instead, he and others rallied around his vision rather than actual market testing. They fell for the developer’s curse. When Mathrani took over he implemented a strategy of cost-cutting by eliminating side investments and renegotiation leases while preserving landlord relationships. These measures saved $2.3 billion in recurring revenue costs. If Neumann had focused his strategy up front, he could have avoided the developer’s curse. 

Investing resources in the right way is critical for a new product’s success. However, WeWork’s incredible initial valuation led Neumann to spend a tremendous amount of money to keep the facade of his new company. He quickly opened locations in over 100 cities across the globe. These buildings were renovated to be luxurious, shiny, and modern. They also came with the notable amenity of free beer on tap to attract a younger crowd. It did not stop there, he even spent $63 million on a private jet to reinforce what he thought was showing commitment to his company’s long-term success. Neumann should have started with offices in major cities, tested the market to make sure these were successful, then expanded globally. He could have reached the much more appropriate $9 billion valuation without going bankrupt. 

Having a diversified portfolio helps hedge a company from financial difficulties during unforeseen events. This is a scenario that WeWork fell into during the COVID pandemic. As people were isolated to stop the spread of the disease there was no need for them to maintain their office spaces. They ended their leases while the company was still on the hook for the long-term agreements they made with landlords. WeWork did not have any other relevant product in their portfolio to maintain revenue during this time. Neumann did invest in a company that created artificial waves in 2016. This not only was investing resources in the wrong way, but it also was not an important part of having a diversified portfolio. While no one pre-pandemic had a crystal ball to see that employees would be working from home in the future, WeWork could have explored other opportunities to diversify its portfolio. One idea is offering short term housing leases that leverage the same quality and amenities that their offices did. Now that people were remote, they could work from anywhere. There was an opportunity for WeWork to facilitate exploring new cities that matched their core business value and fill a gap in the market. 

Having ideas is one thing but vetting ideas with a thoughtful and rigorous development process ensures the ones can be productized. There was a complete absence of any product development process with WeWork that qualified companies would flock to their offices. Neumann was lucky to receive the fanfare he did. With the fast changes that happened during the pandemic Neumann should have implemented a more agile approach to developing the services he was offering clients. Agile methodology means continuously improving based on customer engagement and market conditions. The benefit of having so many distinct locations is that he could have run many simultaneous tests at once and implement the ones that work the best. There was also the opportunity to provide location specific amenities that appealed to specific markets. What he was creating was a ‘new to firm’ and ‘new product for existing marketplace’. By being agile he could have learned about the and created minor enhancements or derivatives to his models while exploring ‘new to the world products’ that could set his firm apart from others in the shirt-term leasing space. 

One of the strengths Neumann brought to his company was his style of management. He was praised for the culture and climate he created for his employees and customers. He was also deeply involved with the company direction, albeit he could have had a better executive compass. This is one aspect the board of directors should have maintained when looking for a new CEO to replace Neumann. If Neumann was charismatic visionary and Mathrani was a stable pragmatic. While Mathrani remained positive through his tenure with WeWork he could have leveraged to goodwill Neumann’s charisma generated to help garner more support. 

WeWork could have had these concepts in mind and still not succeeded. The last piece to puzzle here is ensuring they can give customers what they want. Customers value what they have more than what they do not. This is called the endowment effect and working from home during the pandemic gave many something extremely valuable – time back in their lives. The amenities that the shared office spaces provided were vastly out shadowed by the loss of that free time from having to go back into the office. This is another area where feedback loops during the product development process would have shown Neumann and Mathrani how to adjust to the rapidly changing markets. They should have embraced changes that would make tenants feel at home when in the office. There is also the opportunity to work with companies who want to bring people back into the office. Once people distributed during the pandemic it would have been convenient to go into a local shared office space for their employer without having to relocate back or find a new job. 

It is easy to look backward and see what could have been done to save a business. Thankfully, there is plenty of learnings from WeWork’s failure that new businesses are leveraging to be successful. Understanding consumer behavior and implementing the five best practices for new product commercialization are an excellent way to establish and maintain a business.