How to lose $42 Billion in one month


I am describing the implosion of WeWork, a co-working company that had attempted to go public in August.  

Faced with heavy scrutiny, they withdrew their offering and ultimately their valuation was cut down to as low as $10 billion from $47 Billion. Two months later, the majority owner, Softbank, took over the operations and assigned WeWork a $5 Billion evaluation. That is a loss of $42 Billion…on paper!

Since Christmas is a time of reflection, I thought this story worthy of more thought.

Coincidentally, this news came to my attention while reading “Our Great Purpose” by Ryan Patrick Hanley. It is an analysis of the two books written by Adam Smith, who is famously known as the Father of Capitalism.

Born in 1723 in the area of Edinburgh, Scotland, Smith became a professor at the University of Glasgow in 1751. He was chiefly a teacher of moral philosophy and later would pen two books, The Theory of Moral Sentiments and Wealth of Nations.

1.    Why did the WeWork story intrigue me?
2.    How is it relevant to Adam Smith?

As a business owner who provides financing services for equipment dealers and business owners who are their customers, I encounter many entrepreneurs who are all striving to manage and grow their companies. While I have witnessed a few that failed, it is tough to grasp a loss on such a large scale.

What would Adam Smith think of this seismic loss?

The basic tenet upon which capitalism is built, according to Smith, is that humans are by nature, “first and principally recommended to their own care; and he is most fit to take care of himself than of any other person”. However, Smith expanded on this thought, saying, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him”.

Did self-interest drive the founder of WeWork to grow at such an exponential rate that the whole system collapsed under its own weight? Was he missing the opposing instinct to be interested in the care of others, such as the 2,400 employees that lost their jobs and those who lost their investments?

Ebenezer Scrooge may have found the answer on Christmas Eve in the famous play by Charles Dickens, The Christmas Carol. To quote Mr. Scrooge at the end of the play:

“Merry Christmas to all and to all a good night.”

Cheers,

Kevin F. Clune, CLFP
Clune & Company LC