Hey guys, it's Sasha Shares and we work have just been halted from trading on the New York Stock Exchange. As everyone is expecting an immediate fining for bankruptcy, the company has been in D trat for some time now, so it was really a matter of when not if we work with collapse. But it appears the Day of Reckoning is today and Wei Workk is expected to file for chapter 11 bankruptcy any minute As I'm recording this video, we work shares traded at $520 2 years ago and just before the trading was suspended, the stock was sitting at 84. Before going bankrupt, Wework had already announced that they would not be making the next interest payment to their bond holders.

And generally speaking, if you can't pay the interest on your debt, you are what is technically known as completely screwed. Before they stopped being able to pay interest on their debt, Weor had already announced that they would go and renegotiate all of their office leases so that they could dramatically reduce the cost of their operations. The slight SN mag with this ingenious master plan was that the owners of the buildings the ones that were charging the rent where we work had those offices largely told Weor that they can go themselves and pay the amount that they were contractually obliged to. Wework is yet another example of this new business strategy dubbed Blitz scaling.

The general thesis is that making money as a business is for losers. a far better, far more efficient, and faster strategies to scale as quickly as possible so that you can have millions of customers in no time because you know you're giving them everything so cheap. and then you can start thinking about maybe making a business profitable Adam Newman The founder of Wework is one of the many entrepreneurs of this new generation who follow this new strategy because they all watched The Social Network movie back in 2010 and it worked out so well for Mark Zuckerberg so they all decided to do the same exact thing. The great thing about the strategy of not making any money is that you can take your company public, sell a load of your stock, and be incredibly Rich for the rest of your life without your company ever making profit, and in many cases with your company going bankrupt shortly after, you've made an insane, life-changing amount of money.

as long as you can build a cult following, tell people that it's the future bro. Getting your company to a say $50 billion valuation is a lot easier today than it was back in the Stone Age when you know companies operated on a for-profit basis. The Social Network Movie came out in O Oober 2010, which just happens to be exactly when Wework was founded and they opened their very first shared office space in Manhattan a few months later in April 2011. As of the end of June 2023, the company that is currently valued at 44 million had Acur $16.8 billion worth of losses, $13.3 billion worth of long-term leases that they cannot afford, and another $2.9 billion in long-term debt debt.

When I started my Strategy Consulting company 10 years ago, my first office was in Wework. It was great. The fees were very reasonable. you could pay for a small office and then use the vast public areas to work as and where you want.

Coffee was quite decent and it was free. There was beer on Tab and that was also free and you didn't have to sign any kind of long-term contracts. didn't have any kind of commitments whatsoever. As a startup that is really good because you have the flexibility and you can ditch.

We work whenever you want, but the problem is that we work spent a lot more money on their offices. They gave a whole load of stuff for free, they had much higher running cost and charged less money for their offices than their competitors. which perhaps makes it not very surprising that they got a huge number of customers really quickly. This is the whole point of this new way of doing business.

It doesn't matter if you lose a load of money because your company valuation does not care if you make any profits. It doesn't care if you even theoretically can make profits. The valuation doesn't care if you have a viable business model. The valuation really only cares about how many customers you have and how fast those customer numbers are growing.

The problem with many Blitz skating business models is that there is no profitable business At the end of the road. Nowhere that you can see the business would be actually making money. The going was easy enough and the growth was there. While interest rates were at zero, the economy was booming and funding was very easy to get.

but eventually you have to show your card and in Wework's case, they had nothing. Wework became the largest real estate tenant in many cities around the world, including London. Wework had apparently leased 777 buildings around the world and was still losing colossal amounts of money even at this stage of their growth cycle on revenues of $844 million In the second quarter. This year, we workor managed to lose $397 million.

That's a minus minus 47% margin, and the problem is that opening new offices wasn't going to solve this problem. Scaling even further was just adding to the problem rather than making it any better. In the last quarter for which we have data, we work had $725 Million worth in cost of Revenue the cost of running the offices that they leased, and another $156 million in depreciation and amortization. So just the cost of maintaining of the offices and depreciating the coffee machines and the beer taps was more than the total revenue that the company was collecting.

And this is before any of the operational cost of actually running the business. One of the biggest investors in Wei work was SoftBank a company known for investing in all the shiniest and most popular tech companies because it's the future bro. SoftBank even paid Adam Newman the founder of Wei Work $1.7 billion to step down from the board in 2019 and forced him to sell most of his stock, leaving him with only 10% of the company. If you're wondering what Adam Newman is doing now, He recently set up a new company called Flow which will solve US housing shortage through technology, providing equity for renters and a new type of social interaction.

Basically the genius idea behind this verbal diarrhea is to apply the highly successful Wework business model that works so well for offices to residential property. In July Adam Newman said that Flo had only two choices, compete with Wei workor or partner with it I Guess it turns out that he missed the third choice, which is going bankrupt alongside Wework. Investors in Wework have now all but certainly lost all of their money. Since 2011, Wework has raised over 22 billion dollar worth in capital across 23 funding rounds.

Startups using Wework offices are apparently still able to enter the buildings right now, but if I was one of those startups I'd probably be moving all of my stuff out in double time before your key card magically stops working and the landlords turn up and take possession of the offices with all of the free beer taps and all of your stuff inside. Wew Work has only been a public company for 2 years, going public via a spa merger in October 2021. In the 2 years since we workor went public, the company has lost 99.8% of its share price. A lot of new investors flooded the stock market in 2020, and in 2021 after free investing apps like Robin Hood turned up at the same time as the pandemic causing a huge surge in the valuations of tech stocks in 2021.

But now many of the companies that were particularly popular at the time are queuing up to file for bankruptcy. we work. The free Beap company is going down today and tomorrow could be Pelaton, the world's most expensive code hanger company. Most of the tech companies employing the blitz scaling strategy of losing as much money as possible were founded after the financial crash, so none of these companies have ever operated through an economic downturn.

Many of the employees, including many of the management of these companies, have never operated through an economic downturn. None of these companies have ever seen interest rates that were above 0% They all got very comfortable with operating on free debt, and the businesses only survived this long because there was this endless number of venture capital companies playing a game of musical chairs, investing in funding rounds after funding rounds at Skyhigh valuations of businesses that had no plan to ever be profitable because if wework was to ever decide to actually become profitable, it would have to either cut a huge part of their running cost you know, remove the free beer tabs and that probably would not be very highly welcomed by the armies of startups that occupy the Wework offices or they would have to significantly increase the price. The likelihood is if they wanted to actually make a profit, if they actually wanted to make it work commercially, they would probably have to do both. And if they did both, they would just become another office real estate company like Regis which is incidentally where my company had its second ever office.

Unsurprisingly, First coid, and then the economic downturn has meant that we work has struggled with occupancy rates. I Guess this maybe would be apparent if we work ever thought about this fact that you know normal offices have leases with minimum terms measured in years instead of days and more importantly, why that might be. And of course, this, this existential problem that you can't bring your puppy to Wework. So what kind of office is it? If you're not even allowed an office dog, Wework is not the first company that went bankrupt after their business strategy didn't planned to make any profits and they won't be the last.

The good thing about times of economic uncertainty is that garbage companies get flushed out As we're seeing right now, and after every flush comes a new era of even greater economic wonder. And Discovery making no profits is a little overdone and a bit cliche now, so maybe the next cool thing will be to make no Revenue at all. Think how quickly you could Blitz scale if your customers don't even need to whip out their credit card.