How Did WeWork’s Adam Neumann Build a $47B Company?
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Plus, not to mention, back in my day, when you did a startup and got funding from your rich uncle (not Uncle Rich), you grew your startup from your apartment, and when you outgrew that space, you got a bigger apartment. (ala Silicon Valley style)
I dunno, I can't put my finger on it, but I think this whole thing is a massive game of charades...
That said, I "worked" in a WeWork for about 6 months and it was just terrible. Tiny offices, lots of visual distractions, lots of noise, many parties. I wouldn't ever do it again.
If BigCo has exhausted the talent in their city they have three options left: employ remote workers, pay people to relocate, or open satellite offices and pay a little more than then the local businesses to get people. WeWork is enabling the last option at scale. Renting managed office is a viable business model that's been happening for decades.
Whether there's enough of a market to make WeWork work is another question, but there might be. Anecdotally, a large insurer recently opened a new office in my city here in the UK because they've had 40 open positions in their London office for years. They've already filled half those positions. They wouldn't have done that without renting a large office on a business park.
Paying people to relocate from a small city to the most expensive place in the country is exceptionally difficult and expensive. Many developers here in the UK see London as a really bad place to live unless you're paid more than £100,000. Developer wages in London are often not £100,000.
Though obviously somebody must have crunched the numbers and decided these WeWork things are a cheaper bet.
But compared to a decent traditional office, they are:
- noisy (always someone phoning while walking around because they couldn't get a booth, even when recruiting or doing otherwise sensitive discussions)
- more agitated (at a point there was people trying electric scooters in the corridor)
- some offices are just gloomy (some don't have any windows, with no natural light coming in from any direction)
I think we could see them as the McDonald of offices: a know quantity that passes some threshold. It's better than a random sandwich place next to a tourist trap, but not as good as a decent well managed (although slightly pricier) restaurant.
Same (London, Shoreditch). Additionally we had relatively frequent and loud noises from the ceiling ("eeeeeNNGNGNGNGNGNNG") which they couldn't fix. But not once did they suggest we move offices to any one of the 30+ empty ones downstairs.
It's a terrible place to work. We recently moved out of the shared, fixed desk room which was relatively quiet into a glass office. There is no sound insulation whatsoever, you can hear every recruiter on the floor speaking their patter down the phone (loudly, because they have earbuds in) on repeat all day every day.
I also think WeWork will collapse eventually, it's just so clearly unsustainable. Maybe the hope is that they become 'too big to fail' first?
VCs are paying the rent silly. It's VCs all the way down.
Facebook - was profitable and only IPOd because they had to. They had too many investors.
Apple - IPOd in the 80s
Amazon - maybe
Netflix - wasn’t seen as a tech company. Their business was just shipping DVDs.
Google - was a clear leader and already profitable at their IPO.
On to FANG IPOs. If there weren't people saying they were overvalued at their IPO, their underwriters would have done a very bad job.
Facebook[0] - 'The problem is that the smart money on Wall Street simply doesn't think the company's prospects justify the $105 billion that the offering price implied. And no wonder. That values the company at 108 times 2011 earnings, requiring almost ridiculous financial growth to make sense.'
Amazon[1] - 'Online bookseller Amazon.com's push to sell some 3 million shares for as much as US$13 per share would value the company at $300 million - a pretty penny for a firm that lost about $6 million last year. And Amazon.com's prospectus suggests those losses could grow larger. Bill Bass, an analyst at Forrester Research, attributed the high valuation to "Internet inhalant" - the extra high that Net-related stock offerings can carry with investors. "Some people smoke Internet inhalant and their judgment gets bizarre," Bass said.'
Netflix[2] - 'Netflix is not profitable with an accumulated deficit of $141.8 million. The company had $4 million in operating losses on $30.5 million in revenue for the quarter ended March 31 on $20.4 million in operating losses on $17.1 million in revenue for the same time period the year before.'
Google[3] - '"Although Google enjoys faster growth and higher profitability, we see several risks to its valuation, which may mean the stock ultimately trades at a discount to its peers," says Susquehanna Financial Group analyst Marianne Wolk.'
[0] - https://www.sfgate.com/business/article/Facebook-IPO-undersc...
[1] - https://www.wired.com/1997/03/amazon-com-high-on-ipo-so-is-i...
[2] - https://money.cnn.com/2002/05/23/markets/ipo/ipos/index.htm
[3] - https://knowledge.wharton.upenn.edu/article/lessons-from-goo...
Just watch.
Also, want some more downside protection but want to bet on the market? Check out Fidelity's contrafund.
(I'm guessing here that Craigslist and Facebook will survive.)
Craigslist over the past 2 years has had zero issues, I've interacted with fairly even keel 40+ year old people that are easy to work with. The "no lowballers, I know what I got" crowd has mostly departed Craigslist.
Plus the management isn't particularly scrupulous with how they allocate those funds. The CEO, for instance, buys property himself and then rents it to WeWork (for a profit obviously). VCs let him get away with it because their business is no longer to fund and help create sustainable companies, but rather to gather as much money into a "unicorn" as they can and then pawn it off to the public markets who ultimately pay the bill.
The second kind sit in the shared desk area and basically dick around all day. They attend all the community events and use WeWork as mostly a networking/dating hub. Who they network with, I have no clue.
The third kind are companies with satellite offices in WeWork. GoDaddy works out of my space and has taken over an entire floor. Curiously, these are now the largest client type by far. Three floors in my space were earlier dedicated to independent workers and small startups.
But now, WeWork opened three more floors of space, and of the six floors, four are occupied entirely by large companies.
This was interesting to me. I've seen wework turn corporate often. Startups are great candidates: they want to offer good offices and not worry about big moves, contract negotiations, get good branding, etc.
But that is a small market..
I worked in a recently furnished office two years ago, there was a sizeable effort to make it an attractive work place but it still slightly paled compared to wework in terms of pure office space.
I'm just saying that this entire community feels very bearish on WeWork, but there is some method to their madness
A few experiences I’ve had:
1. WeWork holds lots of events like “Dog of the Month.” Meanwhile, there are empty desks everywhere and the printer doesn’t work.
2. I cancelled and no one ever followed up to ask why or try to keep me as a customer (see above).
3. The spaces are always too loud and chaotic. Every attempt is made to maximize rentable space that is never rented. American Airlines offers more bathrooms per passenger than WeWork has for its tenants.
4. I was able to cancel to $550 / month dedicated desk membership and get a year of hot desk membership for FREE thanks to a new promotion with American Express. AMEX snd WeWork should not have opened this generous deal to existing WeWork customers. This is very poor revenue management and shows the shortsighted approach the company has toward growth.
The real estate owners couldn’t be bothered to do this because they make too much money by doing nothing to bother with doing something for an extra $47b (a rounding error on the value of global commercial real estate)
The huge fundraising rounds are an important part of this because the hype is important for making it seem like a cool place which is essential to the economics.
Add in some founder god complex which is not really necessary or sufficient for a successful startup but does seem to be often present.
If I manufacture a widget for $1 and sell it for $.50 then my unit economics are negative and, unless I manage to either lower manufacturing costs or raise prices I am in trouble forever.
If I manufacture a widget for $1 and sell it for $1.50 then my unit economics are positive. My company might still be unprofitable due to other expenses though (R&D, Marketing, whatever). This is the situation that WeWork is in.
But this is hilarious number fudging, because obviously a lot of marketing budget is recurring and goes towarss retaining existing customers and should go into a unit cost metric.
They do the same thing that uber did, which is pretending that they can magically 'scale' and that they are a tech company, when in reality they are a real estate business siphoning money out of investors, pretending their losses are somehow magically going to turn into profit.
I don't think you are aware of the difference. EBITDA takes overhead into account and is not unit economics.
I'm in St Petersburg right now and the taxi outside the train station quoted an initial rate of EUR 50 to drive a grand total of 6km (after haggling, "just" EUR 30).
I booked an Uber (operated under Yandex Taxi in Russia now) and the total price was just EUR 5
Take stodgy, often scammy, and downright consumer unfriendly industries, add transparency and accessibility to them, and viola - you have a unicorn.
And, maybe some day, actual profits.
The "stupidly" part comes in when you realize that maybe the cabbie had a better grasp of the economics of his business when he accepted your bid of 30 EUR. The gig economy people driving you for a fraction of the 5 EUR you paid might come to the same conclusion sooner or later.
Just because those drivers don't factor in things in legal or financial hindsight doesn't mean they won't need it, or that it won't go seriously wrong when that need gets called on.
Take someone else’s money, spend it aggressively, pretend like you can fix things in the future, and viola - you have a unicorn.
If an Uber driver is driving with a car that they were already going to own anyway, they only need to cover the variable costs.
A have one minor vehicle tax that is fixed
Instead of trying to figure out the actual difference yourself, you can simply look at what people are willing to pay for a car which is the same year but has different amounts of mileage. The literal resale value of your car changes drastically depending on mileage, that is the actual unrealized cost most of these ride sharing services exploit.
I build an office building and spend $100M. I “hemorrhaged cash” yet I own an asset that’s going to throw off cash flow for years.
It’s the same thing with WeWork on a smaller scale. They spend $5M to build our office space to own an asset that’s going to throw off cash flow for years.
Albeit a much higher yield for a much shorter term.
Their asset is what’s known as a leasehold interest. Riskier and shorter duration than owning real estate, but still an asset making this cash hemorrhaging talk complete bosh.
Most viable businesses with a steady revenue stream can afford to rent office space and furnish it on their own. But the self employed folks -- the web designeers, SEM experts, and various other professionals without a steady employer need a place to work. For some, working from home is not an option due to regulation or family consideration etc. For most, working from a coffee shop is a very bad idea for various reason including ergonomics. WeWork fills this niche. Is this a $47B niche ? very unlikely .
I think the Short Answer is that the solo renters are the sizzle and the Fortune 500 is the steak.
If the answer is "wework allows us to be elastic with real estate as our needs shift", then WeWork will be in for a lot of hurt at the next recession. If the answer is "we are using a lot more remote or geographically-diverse staffers, and WeWork allows us to have small office space available all over the world", they might do okay. The single-company WeWorks described in the article lean towards the former, though.
It's very rational -- if you are an "intrapreneur" and wanting to break out your team from the mothership, it's probably easier and faster to get your office space at a WeWork. Plus, you get a recruiting / lifestyle / hipness benefit from getting to be downtown with exposed brick, instead of out at the suburban office park with the sea of landscaped parking lots.
But my sense is that it's a high-beta customer base. When times are good and there's lots of corporate cash for high-urgency, high-concept stuff like innovation teams and new product skunkworks, a $25k/month WeWork bill is peanuts. When times get tight, that's going to dry up fast.
Similarly high beta on VC-backed startups. That cohort is pretty cyclical, though it won't disappear completely. I predict a similar % of Series Seed/A startups would still opt for a WeWork in a venture downturn as do today (but there will be many fewer of them).
Much lower beta on satellite offices and smaller professional services type groups -- they'll still show up to work, as it's a primary office for their primary business.
Wild card on the bootstrap / solo / freelancer stuff.
Also (IMO) sort of a wild card on the larger corporate buyouts of an entire floor or location. In crowded cities it really can be worthwhile to pay for the branded facilities management as the locations WeWork acquires are quite good.
However, and here's the big however. My understanding is that We's leases are LONG term and tend to have escalator clauses (they owe more rent to the landlord in the later years, faster than inflation). Which generally means their supply / cost structure is as good today as it's ever going to get. If the topline gets hit, which in a recession it surely will, the bottom line will take a double whammy as the escalators kick in.
Think of it like having 3-year Reserved Instances in AWS instead buying your own hardware and running your own data center. Which would you choose today?
Yes, but do they want to?
My experience is that companies increasingly want to focus on their core competencies and nothing else, especially if the non core areas come with overhead in the form of full time employees. I could easily see non-HQ locations outsourced to a company like WeWork. For a satellite office of 50 people there is hundreds of thousands of dollars in annual overhead that could be drastically slashed by a local provider operating at much vaster scale. Less liability and variability for the employer and the employees likely end up with a better quality work environment.
For example, to your point, that 50 person satellite office probably needs a full-time office manager and then all the costs that percolate upstream associated with having a full-time office manager and another lease to manage/office to service.
It may be worth it to have your own location with your own branding etc. Or you may just want a location where a bunch of employees can work, have meetings with customers/partners, etc. with minimal hassle.
What WeWork offers to small businesses is quite valuable: an instantly-obtainable month-to-month lease, at relatively reasonable rates, with all standard office amenities (most notably Internet access) included. You can decide you need an office for your business on a Monday and have a better office on Tuesday than most of your local peers. Even better, you can quickly scale that office up to completely private offices or down to shared space.
To put it gently, the jury is still out on whether WeWork is charging an amount, given its number of subscribers at each level of service, to make the company profitable. It seems totally fair to predict that it'll turn out to be a house of cards.
It does not, on the other hand, seem fair to suggest that WeWork isn't offering something that people want.
If WeWork isn’t charging people enough to be profitable, there is no way of knowing whether WeWork is offering something people want - at a price they are willing to pay.
The thing is: there's very little competitive advantage in that.
Having 'cool decor' is less valuable to larger companies, and it's not as though other entities can't duplicate that if they want.
Other, more established firms can inch their way into copying some of WW's mojo, and compete on price, which the CFO's of said companies will appreciate.
Landlords will do it quickly and cheaply if it's part of a contract.
I was thinking AaaS -- Aviato as a Service.
Every one of the startups in this space either disappears, or pivots their focus to larger spaces designed for meetings, events or shoots. For example there's https://breather.com in the US and https://www.vrumi.com in the UK. The cheapest space on vrumi is far more expensive than WeWork.
This becomes more obvious when you leave the rich tech bubble of SF.
As the existing startups have proven, there’s no market for individuals renting houses to work from, the economics don’t work. A day pass at WeWork is cheaper than every listing on Vrumi.
Another consideration is that private homes-as-workspaces can offer some incidental cost savings in the form of things you get with residential zoning like (usually) free parking and a car-based commute that does not follow urban congestion patterns. Say you need to work within 40 minutes of Paris or downtown LA in order to make the odd off-hours mixer or client meeting, but your daily workflow can be conducted entirely within a single dedicated space out in the burbs, priced comparably to the shared desks at a WW location and more comfortable or in a more walkable area than a typical industrial park.
Thanks!
When you are a large company in WeWork, you set the culture (e.g. noise) and you have personal relationships with the WeWork staff - which makes things run smoother.
From reading the comments it seems many people have had lack-luster experiences. Especially those who hired a single desk and have been forced to interact with the community. And imho the community is pretty unique:
I remember knocking off work at 7pm, and hearing there was free beers. I wandered over in a work-daze. As I approached the door, it opened and out poured hi-energy EDM, accompanied by a large group of happy, shout-chatting drunks. I slid around them and entered what was more "club at 1am" - rather than "knock-off drinks". I mean there was flashing lights, a DJ, and a decent sound system. What I was most amazed by was passing multiple people who seemed to be rolling hard. It was definitely impressive, but after coding for 10 hours straight it was not what I needed, so I grabbed a fist of and Heineken backed out.
The thing that always stuck with me, was the implicit agreement by all-attending, that they were all going to go _hard_ as soon as they knocked off work. I provide no judgement, just an account of something I'd never seen in inter-office culture. Note: I never personally saw that level of revelry again.
Simple.
(Also, see Uber, Lyft and other ponzy scheme based companies)
This is not OK.
When the music stops though things get real ugly real quick.
Not if you're positioned as too-big-to-fail [1] and can force a government bailout.
[1] https://www.cbinsights.com/research/report/wework-strategy-t...
This is what happens when VCs keep funding these loses for a decade. We saw the same thing with Uber, pushing Uber eats as if it’s going to take over all food, meanwhile there has been like 3-5 startups already doing that at a very easy to value valuation.
Anyway, I’m not buying.
Edit: I’m referencing the following from the article
>>”He is known for making bombastic pronouncements, like this one at an all-company event last year: “There are 150 million orphans in the world. We want to solve this problem and give them a new family: the WeWork family.” In L.A., Neumann told his employees that the newly formed We Company would now have three prongs — WeWork, WeLive, and WeGrow — with a single, grandiose mission: “to elevate the world’s consciousness.””
"WeWork’s $47 Billion Dream: The Lavishly Funded Startup That Could Disrupt Commercial Real Estate"
https://www.cbinsights.com/research/report/wework-strategy-t...
Next business idea. WeX. Just put We in front of every building name and get richer just from branding.
https://en.wikipedia.org/wiki/IWG_plc
About $3 Billion in revenue, been around since 1989. Not considered hip, no glass partitions, but actually profitable.
It thus trades at about 1.2x annual revenue. WeWork's multiple is way higher.
WeWork might still be way overvalued in the private markets. But it could also be a lot healthier than its reported losses.
In other words, did they start a hip new WeWork-killer? Attempt to compete on price? Have special retention marketing campaigns to stave off clients from going to WeWork.
I am using their co-working in Copenhagen since a few months and quite happy so far.
That said, I found the WeWork in London extremely noisy and tight compared to my current space. It might be just a side effect of real estate prices in respective cities, though.
I mean, they can actually be more valuable than other such companies if they get the ambience right. Maybe that's what he meant. But if they're referring to the ambience as "spirituality", I cannot take them seriously. [Edit: And if by "spirituality" they mean something besides ambience, I still cannot take them seriously.]
If I had more faith in the market's rationality, I would short them as soon as they IPO...
Total tangent, but how much of the stock market do you think is fair? By fair I mean abiding by SEC regulations (and other obvious laws, such as regular fraud), versus unfair where people are using insider trading, trying to influence a short, or even have some ulterior motive perhaps related to politics?
Now I hope someone more knowledgeable than me chimes in with links to articles or papers, because I'd really love to learn more.
"Irrational" is values that are not based on a reasonable interpretation of the company's financial state and reasonably forseeable future. This is what I think is meant by the saying "The market can stay irrational longer than you can stay solvent."
"Unfair" means corrupt, rigged, or otherwise dishonest. I wasn't suggesting that. But like you, I'd love to see the results if someone can measure it...
I dunno, the Catholic church is doing just fine in terms of revenues and real estate assets, and that's just one example. Then again, religious organizations get preferable tax treatment...maybe WeWork will eventually pivot to religion down the road.
Maybe their investors saw value in their company culture?
"The Best Startups Work a Lot Like Cults" -- Peter Thiel
The fact that my friend, a total casual, is investing in Tesla and Apple via Robin Hood has me concerned the market is inflated with dumb money.
Now Beyond Meat, well, that's a different story haha.
Literally valuation based on 'spirituality'.
Not only do I call 'bubble' but also 'BS'.
Very wary of companies leveraging 'morality' in whatever form (esp. all the way up to 'Spirituality'), unless it's somehow deeply authentic (i.e. a company that makes 'green' eqipment can claim 'greeness' that's fine), and are something to be cynical about. I find it kind of repulsive.
My feeling is that WeWork must be the 'high tech startup' opportunity for all those non-tech 'Goop' reader types.
... like the NXVM of startup land.
Tony Robbins of working real estate + SoftBank.
“There are 150 million orphans in the world. We want to solve this problem and give them a new family: the WeWork family.” In L.A., Neumann told his employees that the newly formed We Company would now have three prongs — WeWork, WeLive, and WeGrow — with a single, grandiose mission: “to elevate the world’s consciousness.”
Just beautiful ...
WeWork’s size and scale could put it in a position to help deal with some of the world’s largest problems, like the refugee crisis, saying, “I need to have the biggest valuation I can, because when countries are shooting at each other, I want them to come to me.”
How does anyone take this guy seriously?
In the comments here there seems to be a lack of calling out on the so many of the gob-smacking authoritarian/hypocrisy red-flags going on here.
The guy's line is preaching morality, spirituality and inclusuion ... while doing the opposite i.e. dropping the least productive 20% staff every year? 'All dudes' in charge? (Nothign necessarily wrong there (maybe red flags), but it's definitely hypocritical)
All of the Kabbalah stuff and social preaching at offsites?
'It's like a capitalist Kibbutz' ... this is double-speak.
And that his background doesn't legitimately speak to any of this, i.e. total lack of legitimacy?
The trick to this kind personality is 1) words have no bearing on reality 2) total lack of self-awareness or consideration such that he can come across as 'honest' even when spouting garbage.
Who else could possibly be talking about 'saving the refugees of the world' like this with a straight face?
This guy is the Donald Trump of Vegans.
'Donald Trump of Vegans' is a nice line.
I can probably manage to avoid a down round for a while, but only if I don't run out of cash or accidentally IPO.
(Every month: "Hey, would you buy 1 (1.2x previous valuation)th of my company for a buck? Sign here. Thanks!")
"Revenue is flat but market cap is increasing 20% month over month!"