Profitability Problems: 4 Valuable Lessons Startups Can Learn from WeWork

WeWork’s rapid expansion made it a darling of the startup world. However, beneath the surface, the company was struggling with profitability. Its rapid growth came at a cost, and its cash flow problems eventually caught up with it. Although WeWork is still around, it’s much smaller than it was at its height in 2019.

Whether you’re a startup growing from a serviced office in Brisbane or a cafe in Boston, WeWork’s fall from grace presents valuable lessons for avoiding profitability problems. Below are four of the most profound:

1. Grow sustainably, not rapidly

Countless startups dream of becoming the next unicorn company. However, growing too rapidly can strain your resources and cause profitability problems. Shortly after its failed 2019 initial public offering (IPO), WeWork’s valuation dropped nearly $37 billion in a matter of months.

If you want to avoid this kind of catastrophe, you need to let go of the idea of growing rapidly. Instead, focus on growing sustainably. Start with a solid plan and realistic growth targets to ensure you have the proper resources to support your expansion. In addition, avoid overextending yourself by not taking on more than you can effectively manage. It’s better to cultivate steady growth rather than jeopardize everything by expanding too rapidly.

2. Be transparent with investors

Investors require transparency. They need to understand what your business does and how the financials work to make informed investment decisions. WeWork’s lack of transparency with investors—especially during the lead-up to its 2019 IPO— resulted in a huge loss of confidence that eroded the company’s valuation.

To avoid that, be transparent with investors. Provide regular updates on your startup’s performance. Rather than trying to hide uncomfortable challenges or setbacks, account for them and share your plans for addressing them. Most importantly, give detailed financial reports so investors can understand how their money is being used. The trust you’ll build by adhering to these rules is essential for long-term success.

3. Pay attention to cash flow

The lifeblood of any business, including nascent startups, is cash flow. Keeping a close eye on your startup’s cash flow enables you to quickly grasp if you can cover your expenses. WeWork struggled to pay careful attention to its cash flow, resulting in a significant profitability problem.

To manage your startup finances effectively, start by getting a handle on your cash-flow cycle—how long it takes to create a product, sell it, and receive payment. This helps you anticipate any potential shortfalls and take action to address them. In addition, keep track of your expenses and seek extra funding or cut costs if need be.

4. Foster a positive company culture

A positive company culture is essential for startups. It helps to attract and retain top talent, and it also contributes to profitability. During its turbulent rise, WeWork had a strong (and notorious) company culture, but whether the hype-filled culture was positive is highly debatable. Indeed, many of the more toxic elements decreased profitability.

Building a positive company culture starts by defining your company’s values and mission. Ensure everyone in your startup understands, agrees, and supports these values. From that foundation of support, you can foster a positive work environment by encouraging open communication and collaboration. Don’t be afraid to recognize and reward employees for their contributions, and provide plenty of opportunities for growth.

WeWork’s dramatic rise and fall from fame and fortune provides many valuable lessons for nascent startups. By growing at a sustainable rate, being transparent with investors, paying attention to cash flow, and fostering a positive company culture, you can avoid some of their pitfalls and strive toward long-term profitability.