WeWork is not feeling great about its chief executive officer these days. The company, which rents out workspaces with an urban-chic vibe to individuals and companies, is run by CEO Adam Neumann. He's garnered a reputation for questionable leadership, an ostentatious company culture, and a general penchant for grandiosity over substance. According to reports, some of WeWork's big investors and board members are now quietly discussing ways to, if not oust Neumann, at least cut his power down to size.

Unfortunately, it may not be enough. WeWork's problems likely go beyond the qualities of its CEO, to the basic nature of its business model.

Started in 2010, WeWork has been on a roll for years, and was set for a lucrative initial public offering this year. But that IPO is now on hold due to mounting criticism of the firm's finances. The company has grown like gangbusters, but it remains unprofitable: WeWork lost $1.6 billion last year, and $1.37 billion in just the first half of this year, even as its spending for the two time periods was $2 billion and $1.5 billion, respectively. The last big previous investment in the company valued WeWork at roughly $47 billion. Yet the latest assessments suggest a more accurate market value may be less than one-third of that; even efforts to rejigger the IPO to value the company at a mere $15 billion failed to bring investors back on board.

Needless to say, that's brought scrutiny to Neumann's leadership. There are questions about his uses of company funds, his inclusion of family members in the business, and even concerns about his drug habits. He personally owns trademarks on the company's brand, which WeWork paid him a cool $5.9 million for (he's hence agreed to return the money), and he owns a lot of the real estate that WeWork rents to run its business. The board is reportedly about to consider a proposal to downgrade Neumann to a nonexecutive chairman role. But thanks to his ownership of a special class of share, the CEO enjoys a veritable lock on the decision-making within the company, and it's not clear whether his power can be curtailed without his own consent.

The thing is, Neumann's leadership is not the sole problem with WeWork. The wackiness of his time as CEO may prove to be a kind of bright shiny bauble hiding the deeper structural problems.

As other observers have pointed out, WeWork actually owns very little of the real estate it leases out. Rather, it pays rent to landlords, and then charges rent to the various people and firms that use its workspaces — and at enough of a premium to both cover its operating costs and bring in a profit. That's hardly a crazy business model; the kind of short-term leases WeWork charges its customers are generally, as a matter of basic economics, more pricey than the long-term leases the company itself is paying. There's definitely a money-making opportunity there. The catch is that, if the economy ever turns south, all those short-term leases (which last weeks or months) can dry up a lot faster than the company's own long-term obligations (which last years), leaving WeWork's business model deep in the hole.

The Financial Times tried to clear up the viability of WeWork's business model by looking at how its mature workspace sites specifically are performing. But after going through WeWork's IPO documentation, the Times couldn't really make heads or tails of the numbers. When you combine that with the company's massive — and growing — losses, the fact that it only has $2.5 billion of excess cash on hand, and the growing expenses associated with marketing itself and keeping up its not-exactly-spartan amenities, WeWork begins to look more and more unstable; a company that could be knocked down by one strong gust of recessionary wind.

Granted, WeWork does have a few potential routes out of this mess. It's trying to get more long-term commitments from bigger corporate customers like IBM and Microsoft. That would balance out the mix of long- and short-term leases that WeWork is both paying and receiving, and stabilize its finances. Other stable companies, like Marriott, also lease the properties they then rent out to customers, and thus manage the real estate rather than own it outright. WeWork could yet evolve into a business model that makes sense over the long haul.

The difficulty is that such a business would be inherently modest. There's no way to know for sure, but analyses and comparisons to other companies suggest that a WeWork that made this transition would have a market value of $3 or $4 billion. And that's nothing like the valuations of $47 billion — or even $15 billion — that the company has been boasting.

In other words, WeWork is either a sensible or an exciting investment, but at a basic structural level it can't really be both.

Nor is the company alone in this. As far as their concrete business models go, a lot of the Silicon Valley titans, from Facebook to Uber, suffer from a similar problem: They can certainly work as normal meat-and-potatoes enterprises, but they can't do that while also justifying the absolutely insane market valuations they're garnering. Those valuations can only be justified by less-reputable long-term outcomes, such as the companies bigfooting their way into permanent monopoly positions, through a combination of anti-competitive behavior and gaming regulations.

In fact, back in 2018, the New York Times' Andrew Ross Sorkin suggested something similar might be afoot with WeWork: In certain real estate markets, the company may be such a big tenant that the companies its paying rent to can't afford to let it fail. If the economy goes into a downturn, and WeWork's finances go belly up, they might be forced to downgrade the long-term leases WeWork is paying them. If that happens, it would certainly be an argument for why higher stock market valuations of WeWork make sense — but only from a purely self-interested perspective. It's also an implicit admission that WeWork doesn't qualify as an example of healthy capitalist innovation.

From that perspective, it's actually weirdly appropriate that WeWork's CEO is a carnival-esque figure who comes off like he's selling snake oil. The thing to remember is that the snake oil doesn't magically turn into anything else when the salesman gets demoted.

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