Title: Revisiting WeWork: Operational Thinking as a Guidepost for Venture Capitalists

Estimated reading time: 6 minutes

In the world of venture capital, the tale of WeWork’s descent from a $47 billion valuation to the brink of bankruptcy is both a cautionary tale and a classroom. While the initial reaction might be to seek a scapegoat, the more constructive approach is to unearth the lessons buried in the rubble of such high-profile collapses. Particularly, how can VCs employ Operations Thinking to avoid the pitfalls highlighted by the WeWork scenario? Here’s an exploratory deep dive.

Lesson 1: Valuing Realism in Founder Stories
Optimism is the lifeblood of entrepreneurship, but unchecked it can lead to decisions detached from operational realities. Operations Thinking champions data-driven decision-making and measurable outcomes. It emphasizes the importance of robust operational metrics over charismatic storytelling. VCs can leverage this mindset to distinguish between founders who are grounded in operational excellence and those peddling overambitious visions.

Lesson 2: The Imperative of Solid Unit Economics
WeWork’s rapid expansion often came at the expense of ignoring the core tenet of unit economics. Operations Thinking insists on a granular approach to understanding the profitability and scalability of each unit within a business. This approach would have VCs demand clear, sustainable unit economics before opening the funding taps, ensuring that growth is not just attainable but financially sound.

Lesson 3: Corporate Governance as a Pillar of Stability
The absence of strong governance can lead to unchecked decisions that may not align with the company’s long-term health. Operations Thinking encourages the establishment of systems and structures for oversight. For VCs, this means insisting on a seat at the table or fostering environments where decisions are made with transparency and accountability, preventing the runaway train effect witnessed in over-leveraged startups.

Lesson 4: Due Diligence as a Shield
The glamour of innovation can sometimes overshadow the mundane but critical process of due diligence. Operations Thinking equips VCs with a framework to conduct thorough evaluations of business processes, supply chains, and financial projections. It’s a reminder that a good product or idea must be supported by a solid operational framework to succeed.

Lesson 5: Separating Hype from Value
The WeWork saga is a testament to the dangers of conflating hype with value. Operations Thinking is grounded in the lean principle of value creation — where every process and investment is scrutinized for its value-add to the customer and, by extension, to the business. VCs informed by this principle are better positioned to discern genuine value from market noise.

How can VCs integrate Operations Thinking into their practices?

1. Embed Operational Experts in VC Teams: Having team members with a deep understanding of operations can help assess the feasibility and scalability of startup models.
2. Focus on Operational Milestones: Tie funding to the achievement of operational milestones, not just market growth or product development.
3. Encourage Operational Transparency: Work with startups to build operational dashboards that offer real-time insight into the business’s health, beyond just the financials.
4. Foster a Culture of Continuous Improvement: Support startups in adopting methodologies like Kaizen, which focus on continuous operational improvements.
5. Use Post-Mortem Analysis: When startups do fail, perform detailed post-mortems that focus on operational failures to inform future investments.

In summary, Operations Thinking provides a disciplined, structured approach that can help VCs make wiser investments. It encourages a culture of realism, accountability, and continuous improvement, which can act as a counterbalance to the sometimes myopic enthusiasm for growth and innovation. The lessons from WeWork are stark, but they provide a rich soil for growth and learning. By adopting Operations Thinking, VCs can not only avoid the pitfalls of the past but also pave a more sustainable path to success for the startups they back.

The conversation about venture capital’s learnings from WeWork is far from over. As the industry continues to evolve, the integration of Operations Thinking might just be the beacon leading to a more stable, prosperous era for startups and their investors alike.