Airbnb CEO: These are 2 things that caused WeWork's fall

Airbnb CEO Brian Chesky at The New York Times Dealbook event on November 6, 2019.
Credit: Mike Cohen/ The New York Times

Airbnb co-founder and CEO Brian Chesky says he has made it clear to his employees and investors that he plans to take the company public in 2020, despite the varying levels of success with tech IPOs this year.

But Chesky says he won't make the same mistakes that co-working company WeWork and its co-founder Adam Neumann made with the company's ill-fated IPO. After WeWork withdrew its IPO filing in September, SoftBank agreed to take a majority stake in the company, resulting in Neumann's exit, layoffs and the unicorn start-up once valued at $47 billion, is now worth less than $5 billion, reports Markets InsiderWeWork also said Friday there will be changes to the business, including the company divesting "non-core businesses" (including its investment in The Wing) and reducing its head count.

Speaking at The New York Times DealBook conference in New York City on Wednesday, Chesky said he believes two main things contributed to WeWork's fall.

Not all tech companies are created equal

Shortly after WeWork filed its IPO in August, the company faced intense scrutiny about its finances and its inflated valuation of $47 billion. For instance, The Financial Times reported July that despite WeWork's high valuation and growth, the 9-year-old start-up was losing cash fast — roughly $219,000 an hour to be exact. What's more, in 2018, the company disclosed that its losses and revenues both doubled from the year before to $1.9 billion and $1.8 billion, respectively. According to FT, while WeWork projected $3 billion in revenue in March, it lost $700 million in the first quarter of 2019. 

According to Chesky, the first lesson here is that not all tech companies are the same. Some are good businesses, and some are not.

He says historically, investors would value companies at a one or a zero — meaning its either a tech company or its not a tech company

"I think that people used to believe that every company was a tech company," Chesky said at the DealBook conference. "We now realize that is not that they aren't a tech company, it is that tech companies live on a continuum," he said.

"The best way to understand the continuum is your gross margins or what is your gross profit. Some [companies] like Microsoft and these really big tech firms have really high margins and other companies [have] really low margins. And I think that's the first lesson of WeWork," Chesky said.

In this case, WeWork — whose main business model is to lease or buy office space and transform it into smaller offices to rent to small business owners or start-ups — is a low margin business, meaning its service sells for very close to the price that it costs the company to get the real estate it leases out.

(Additionally, skeptics of WeWork have defined it more as a real estate company than a tech company. This despite WeWork's attempt to position itself as a tech company: As far back as 2014, Neumann has been on the record saying that the company "happens to need buildings just like Uber happens to need cars, just like Airbnb happens to need apartments." And in its S-1 IPO paperwork WeWork used the word "tech" 123 times, according to CBInsights.)

Founders need to be thoughtful about their actions early on

Chesky, who started Airbnb in 2008 when he was 26, says the second big lesson is that founders have to be really thoughtful with their actions early on.

"I used to get advice from somebody [that said], imagine everything you do will be on the cover of The New York Times, because one day it very well could be," Chesky said.

That is what happened to Neumann, who co-founded WeWork in 2010 when he was 30.

On Saturday, The New York Times ran a cover story entitled, "Adam Neumann and the Art of Failing Up," which reported Neumann engaged in inappropriate antics like installing an infrared sauna and a cold plunge pool in his Manhattan office that was paid for with company funds, and that he personally trademarked the term "We" to have WeWork buy it from him for $5.9 million worth of stock (which he later gave back).

According to The Wall Street Journal, Neumann made millions on the side by leasing buildings he partly owned back to WeWork and he cashed out $700 million in stock options before the company's IPO.

Neumann even reportedly had been dubbed a "party boy," for smoking weed and giving out tequila shots to employees after discussing layoffs.

Chesky says founders sometimes forget that everything they do will eventually come back to them and they will have to deal with a huge amount of scrutiny.

"It's also easy to underestimate the amount of responsibility we have. Most people never intend to have as much responsibility. You have an idea. You build something. You launch it, then one day you have all this adulation," Chesky said at the DealBook conference.

Chesky says he has learned that people will say all these "incredible things about you," both good and bad, when your company starts to take off. But he always tries to remember something he was told early on: "You're never as good as they say you are, and you're not as bad as they say you are. So kind of find the average of those two things."

He says as a founder of a company — Airbnb is now valued at around $35 billion and Chesky's personal net worth is hovering at more than $4 billion, according to Forbes — he is realizing more and more that he has a significant amount of responsibility to not only his company, but to be a good example for the world.

On Wednesday, Chesky announced Airbnb will now conduct a comprehensive review of every property listed on its platform, including checking the accuracy of photographs, addresses and other information posted after five people were killed at a house party in an Airbnb rental in California on Oct. 31.

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