WeWork documentary explores a decade of delusion
newyorker.com
newyorker.com
Their chief was a rain maker shaman kind of character. His job was to do a literal rain dance, which in their old lives would have been to water crops. This dance would involve the entire tribe when times were tough. When the chief was interviewed he was sober about their situation. The new life they were forced into lead to depression for many of the young men in the tribe. He felt that his responsibility was to keep the young men dancing. This was better than them sitting around taking handouts from the government. They interspersed snippets of the young men talking about their chief and they all were positive, giving him much praise. The chief never missed a day of dancing, always had a positive attitude and this seemed to give them some hope.
The chief mentioned that his father had been the rain man before him, and his grandfather before that. He said that the secret of the rain dance was that no matter how long it takes, it will rain again. And what can you do until it rains? You might as well dance.
I often think of some forms of entrepreneurs/founders in this context. They are just like tribal rain men. If they dance long enough, it rains. They aren't really responsible for the rain but they keep everyone hopeful and around long enough that when it finally does rain everyone is ready.
The most glaring omission is that it doesn't stop to acknowledge at all the impressive growth that WeWork saw. Yes, there were all kinds of problems with the way they managed their growth, and some major challenges with the basic fundamentals of their model. But there were many (hundreds of thousands?) of real users in many cities paying them money for office space. To just write that off as "lol, you re-invented the office" is a little ridiculous. They made a product people loved, and that IMO genuinely was an order of magnitude better in user experience than most other short-term office space that existed at the time. It saved time on all kinds of things, from basic cleaning, coffee and tea, flexible meeting rooms and private phone booths, and a generally comfortable space to work in. Those are things that have real value to anyone who is busy working on their company and just wants a productive turnkey place to work. It's weird to write all that off as just shallow millenials being too vain to work out of a Regus (which is a company I had never even heard of before the documentary, despite having been in this position of needing a small short-term office space for my startup in the past).
Maybe I'm just a crazy, biased shill and a sucker for any startup story, but IMO it would have been a much better documentary if they delved into this side of the narrative - how did such an out of touch, seemingly crazy person manage to build an actually good product that found quick product market fit in the crowded real estate space?
WeWork would rent the office space, and then rent it out for less money than they were renting it. It's not hard to grow when you can raise billions to sell dollars for pennies.
I'm pretty sure I could sell millions of phones a year, just give me billions to buy those phones and then I'll sell them at a 90% discount and I'll dominate the phone market!
But at the end of the day they still had many thousands of happy small businesses paying them basically market rate prices for office space. I worked out of a wework space for 6 months in 2015, it was actually not the cheapest option we found but the convenience/amenities were worth it for us and we were happy customers.
That story was also in the New Yorker.
https://www.newyorker.com/magazine/2020/11/30/how-venture-ca...
But another way to say my criticism here, is that just pointing out that "____ fast-growing company was burning money and not profitable", is not necessarily the big scandalous indictment of the company that people like to pretend it is whenever some major flop like this happens.
You can find many headlines from 8-10 years ago about how Facebook, Tesla, Airbnb, Amazon, etc. (take your pick) are terrible businesses because they don't turn a profit, which obviously turned out to be very wrong.
>Neuner began hearing similar stories from other co-working entrepreneurs: WeWork came to town, opened near an existing co-working office, and undercut the competitor on price. Sometimes WeWork promised tenants a moving bonus if they terminated an existing lease; in other instances, the company obtained client directories from competitors’ Web sites and offered everyone on the lists three months of free rent. Jerome Chang, the owner of Blankspaces, in Los Angeles, told me, “My average rate was five hundred and fifty dollars per desk per month, and I was just scraping by. Then WeWork arrived, and I had to drop it to four hundred and fifty, and then three hundred and fifty. It eviscerated my business.” Rebecca Brian Pan, who founded a co-working company named Covo, said, “No one could make money at these prices. But they kept lowering them so that they were cheaper than everyone else. It was like they had a bottomless bank account that made it impossible for anyone else to survive.”
>Neuner began slashing NextSpace’s prices and adding amenities—free beer; lunchtime classes on accounting, coding, and chakra cleansing—but none of it mattered. WeWork’s prices were too low. By the end of 2014, WeWork had raised more than half a billion dollars from venture capitalists. Although it was now losing six million dollars a month, it was growing faster than ever before, with plans for sixty locations in more than a dozen cities.
>Meanwhile, one of Silicon Valley’s most prominent investors, Bruce Dunlevie, of the venture-capital firm Benchmark, had joined WeWork’s board of directors. Benchmark, founded in 1995 in Menlo Park, had funded such Silicon Valley startups as eBay, Twitter, and Instagram. Dunlevie admitted to a partner that he wasn’t certain how WeWork would ever become profitable, but he was taken with Neumann. Dunlevie said to the partner, “Let’s give him some money, and he’ll figure it out.” Around this time, Benchmark made its first investment in WeWork—seventeen million dollars.
I am always amazed at how far you can go by just putting all your skill points into Charisma and nothing else. These are supposedly smart investors and all it takes is a smooth talker and boom! $17M just like that. More money than I’ll ever see in my entire life. This guy has generational wealth now, and normal working schmucks like me will need to work till we are 80.
Their cost renting a space was fixed. Their revenue renting it out was variable.
If they simply couldn't rent out enough of the space to be profitable, that's not scandalous. That's just the risk you take in any business.
But if they were renting out the space at rates that could never become profitable, then it is scandalous, because they're burning money by design.
The basic model is to take distressed real estate, chop it up, sublease it and use some of the money to set up a mid high end space with plug and play offices, community events and a doorman. It works, but it is not easy to execute properly.
In non-commercial terms, it's a nicely appointed doorman building with utilities included and an indoor gym vs a no frills apartment.
So you can expect to pay more - the question is how much more.
For the wework tenant, the cost/benefit should include the price of outfitting an office as well as internet and the benefits the perks provide for employee satisfaction, recruitment and retention. So if you can put a value on that and push it over the time period of the lease, you can do the math on how much more you'd be willing to pay.
For the company running the offices, a lot depends on what deals you can cut with building ownership - for example, a lot of buildings will give you 6-12 months or more free while you remodel, so if you get that done quickly you end up with 3-6 months free; you can use that over the life of the lease to increase margins or have space where you can offer rebates to your customers as well; though that depends on how quickly you can fill the offices.
This was one of the things that I think is killing wework - they started signing deals with buildings without negotiating hard and they gave too much stuff away in contracts with their own customers.
But it's interesting what they did with their real-estate by repackaging it as the "Cloud Computing" of office space. Fundamentally, they solved the issue of selling office space to folks who either needed to add capacity in a short time or who just had to go month to month because no landlord would talk to them (a startup with N months of runway might not be the best tenants. Prime real-estate is rented out with leases that are in the 5+ years durations).
Their network was also an interesting feature: For folks traveling for business it might be an interesting value proposition to be able to just go to any of their locations worldwide. That's a real differentiator from most coworking spaces around (I'm thinking Hanahaus and the likes) that only have in the single digits locations.
WeWork managed to get itself in the media. That's the only difference I can see.
As an aside, iOS and Nevermind are both horrible for getting any visibility on a search engine...
Regus is huge (wikipedia says over 3000 spaces as of 2019), but it is no surprise that most people - outside of traditional, multinationals corporations- have heard of it. Regus started as a serviced-office, which serves a very different market than coworking spaces - though now the two have blurred.
If you're a small business or start-up, Regus isn't the place. It's incredibly expensive and very conservative looking. My company's Regus space (for 4 people, as it was a new country office) in Malaysia costed us as much our eventual +20 person office space.
I've worked from numerous Regus spaces via multinational consultancy I used to work with. They were always in prime, high-end locations and incredibly stuffy. Regus offices (felt like, pre-WeWork) a place to impress bankers and and Fortune500 clients. Regus has remade themselves because of WeWork, which is an improvement.
Is it "product-market fit" if the company is literally buying that growth? Or does it become true "fit" once you can monetize those users reliably?
Ex: I buy a butt-ton of Airpods, put them in glass cases, and give them out on a nice table outside my house - for free. If I go out of stock on my first day outside, does that indicate "product-market fit" for my glass cases? (Answer: not really)
Its impressive if you can do that in a way that creates long term value but just spending it isn't hard.
Sorry to be somewhat off-message for HN, if there are "major challenges with the basic fundamentals" who actually cares how many users they have, and how happy they were with the product?
If you look at Tesla, Facebook, Google, etc. none of them had great fundamentals at startup. Facebook and Tesla didn't even have great fundamentals when they went public.
Sorry, but who (with a straight face) can claim WeWork was genuinely "exploring a new space"?
Regus has been offering temporary office space since 1989 (when Adam Neumann was aged 10?).
Oh, there was never a DJ nor free beer at Regus. I'm sure that makes all the difference, though.
https://www.nytimes.com/2021/03/26/business/WeWork-Spac-ipo....
Yeah, their valuation is down a lot from what they were going for with the initial IPO, but it is still providing a very valuable service. This isn’t like Enron or Theranos where the company is fraudulent, it’s a real, valuable business that was overvalued for a while.
Overall, WeWork is a success, not a failure. If it were in Europe, it would be one of the most successful European startups in years.
Source: https://www.crunchbase.com/organization/wework/investor_fina...
Definitely a success for him. Not so much his investors. But it was obviously money they could afford to lose, so I guess I don't feel too bad for them.
One of those investors was Prince Muhammed bin Sultan of Saudi Arabia, also known as “bonesaw”. What price a peaceful nights sleep?
They turned 20+ billion into < 8 billion. That's a success similar to the joke about how the easiest way to make a small fortune is to start with a a large one.
SPACs have a long and well-earned reputation of being associated with fraud so perhaps it's too soon to conclude that WeWork is unlike Enron and Theranos.
I think the use of past tense here is unwarranted. I'm sure there are many WeWorks and Theranoses still out there right now.
If we don't have examples of WeWorks, it's not built into the process to sus them out.
Something built on sand will ultimately collapse - and smart money shouldn't build on that particular patch of sand again (it'll find other ones).
Many of whom are SaaS companies and who receive hundreds of millions of dollars of investment on what merit? Good story? Sexy products? Expensive growth? Look at us we are next Oracle or Salesforce.
A quiet working space in a fancy office building in the most upscale commercial area of the city with tech company amenities included is going to realistically cost a lot more than $200/month. There is a reason WeWork set billions of dollars on fire.
One company tried to open a space like that for individual office rentals out in suburbia where I am.
Monthly price was more than half my monthly mortgage payment, I'm not going to do that for a tiny bit of office space.
I suspect that unless employers are happy pay for it the price I'm willing to pay wouldn't float these companies...
However, once this all settles down and I know what the conditions are it will probably be reinvested in a dedicated office space, either in a larger home or possibly a garden room.
Fundamentally though, WeWork was a middle man, and one that shifted as much liability towards the landlords as possible. While you can debate how much value they added, I don't think it's a stretch to say that their valuation far exceeded the actual value they brought to the table. Fundamentally though, space is far more of a commodity than WeWork would have you believe, and in an economy situation where people aren't co-working or that there's a lot of unleased space on the market, WeWork's proposition is certainly depleted.
Combine the inflated view of their value with feel-good marketing about changing the world, unrealistic valuations and shadiness from the founders and ownership, and you get a company that went far beyond where they should have and duped a number of investors along the way.
I think naive investors propelled the failure of WeWork in a way that throwing cash at the company made them think they are going to succeed. It is akin to a teacher telling a bad student "don't worry you are not that bad" or "don't worry you are good" just to make him or her feel better or to incentivize them to work harder.
They had a desirable product for a reasonable price, and I enjoyed working out of WeWork spaces.
It seems like the only truly delusional party was well-capitalized investors throwing money at an (poorly executed) old-school business model with a thin veneer of innovation.
Over the next 30 minutes or so this guy explained to us non-scientists why he thought Theranos might very likely be a fraud. People nodded their heads and said "interesting" but I don't think anyone really took the guy very seriously. It's easy to dismiss such concerns from people in parallel startups as jealousy or misguided.
But the thing that has stuck with me since is that if a relatively junior guy working as in a startup lab had this insight about Theranos, why didn't all these major investors with world class experts know any better?
It seems to me the more interesting story in regards to WeWork and Theranos is why are the incentives in these investment funds not aligned with the purpose of rooting out such fraudulent or overblown claims.
I honestly could care less about the flamboyant personalities involved. The system failures are more interesting to me.
Theranos didn't really have any major Silicon Valley investors backing it. The usual VC firms stayed a mile away from day 1. It raised money instead from The Walton Family, Rupert Murdoch, Betsy DeVos, Walgreens, the Cox family, Carlos Slim and other random well-connected and influential personalities.
Few people will say this, but Theranos was actually a massive success for the Silicon Valley venture ecosystem. It proved that outsiders can't simply throw money at new startups and replicate their results. There is institutional knowledge, in-house teams (including top engineers) doing due diligence, mountains of data, trade secrets, IP, network effects and a lot more needed to be able to compete in that world. There's a reason why a16z, Sequoia, Khosla, Accel, KP, Greylock, Google all passed on it, despite the fact that Theranos and Holmes checked all the boxes for a no-brainer investment (Stanford-educated female founder, bio/health tech space, "changing the world" ambition, immense preexisting buzz).
I also found out today that Theranos' law firm was not a Silicon Valley law firm. They used a firm called Boies Schiller, which apparently is a firm famous for political connections and high stakes commercial litigation. They weren't really familiar with venture capital and startups it seems, and they facilitated a massive fraud ... either wittingly or unwittingly.
Regus, as pointed out, sold co-working space before WeWork and still does. They don't, however, sell religion and it's likely that any future co-working brand will forego that aspect, too. Of course, cult-like attraction does work for some companies... if you can get enough believers.
But that was the lie told - "We will have double-digit tech growth rates and market domination!"
Nope!
If you are a young founder or startup employee,I recommend learning every type of business moat there is and using that as a key criteria for evaluating opportunities. It won't guarantee success but it will filter out so much garbage.
I don't know much about the WeWork demographics. I wonder how many of these companies were venture-funded, self-funded... and how many were just elaborate schemes for burning through trust funds.
I'm sure many of them were hardworking people with legit businesses, and just saw this as a convenient and cool way to solve the problem of where to get their work done.
Meetup
Flatiron School
Wavegarden (Surfing Wave Pools)
https://news.ycombinator.com/newsguidelines.html
Edit: it looks like your account has been using HN primarily for ideological battle. That's one line at which we ban accounts, because it destroys what this site is supposed to be for.
https://hn.algolia.com/?sort=byDate&dateRange=all&type=comme...
If you'd please review the guidelines and stick to them, we'd appreciate it.
Don’t ever forget: for as much as they will try to make it seem like Silicon Valley is a true meritocracy, the #1 most common thing that successful entrepreneurs have is that they grew up rich.
Deleted comment
The wealth thing is unavoidable; what? people with no money and no connections are just magically going to start an enterprise?
There's no real consensus about it, though in the US it's fair to say that most Jews can be included under the "white" category.
I think it's evident that there is a genetic makeup that can be considered "Jewish", in that it ties back to the genetic make up of residents of Judea and Israel in 500bc, but 2500 years of exodus brings about a strong difference between the genetically Jewish, and the culturally/religiously Jewish. While we Jews were relatively good at keeping it in-the-tribe for those millenniums, a significant portion (maybe most) are mixed in with the genetics of their host nations. Even if they were always religiously and/or culturally Jewish, they might still appropriately identify as racially white, black, or other depending on their exodential* heritage.
*If there's already a word for this, please share with me.
edit - You can write in "Jewish" but there's no "Jewish" box. This is why I turned against affirmative action (or taking account of ethnicity in any way). Jews are disproportionately rich and successful but they are "white" for the purposes of admissions. Meanwhile Asians, also disproportionately rich and successful, are "Asian". Why? Who makes these rules? Should anyone be making rules like that?
You could improve the situation by only providing ethnicity options that help the application (i.e. remove "Asian" and "white" and just stick to "black," "latino," "pacific islander," etc). This is definitely better but it's still bad in my opinion.
There's no consensus over whether Jewishness is an ethnicity or a religion either.
These are all reasons to stop asking these kinds of questions of people.
My point was that it would be an improvement to only include ethnicity options that help the application, so Hispanic/Latino would be included.
This language is also on-brand for The New Yorker, which is known for opinionated authors writing opinionated language.
There are more important things to worry about, to be honest.
https://www.logicallyfallacious.com/logicalfallacies/Proving...
Racism is prejudging someone.
Don't prejudge.
> These founders—mostly white men and women—wanted a place to work, but they also wanted membership in a club. Or was it a fraternity?
Systemic racism is an existing system in place that acts on racial data. Simple population density is you noticing that the majority of people around you are one color.
Rather than doing the fundamental analysis, investing without emotions, etc. - the market will keep rewarding "charismatic" and well-connected individuals with shitty-ideas and/or no business sense.
It's easy to scapegoat Adam Neumann or Elizabeth Holmes, and say they were sociopathic liars or the like - but these cases read like a market inefficiency in venture capital, rather than one-offs.
Having said that, the idea that the solution is fundamental analysis, investing without emotions, or what have you -- that all strikes me as a bit naive and without much evidence. The market is a Keynesian beauty contest first which serves the needs of humans, hence the existence of Veblen goods et al. It also strikes me as a bit naive that there's anything wrong with "charismatic" and "well-connected individuals" being in positions of leadership. Recruiting is the most highly leveraged thing early stage company leaders can do and is the flip side of fundraising -- so it only makes sense to have firm's leader excel at that.
I think we can critique Neumann and Holmes for being unethical fraudsters who deliberately misled their stakeholders without making a categorical error about corporate executives. I won't say that they're the exception and not the rule, but I will say they're not really the goal to aspire to.
Considering that venture returns have historically out-performed public markets[1], they're probably just that: one-offs. I think there's an argument to be made that Fed QE policies and junk bond bailouts have perhaps over-incentivized risky investments, but in aggregate venture capital has been "efficient" in the economical sense. Consider that the total investment into Theranos and WeWork are a rounding error as far as the total pie is concerned.
[1] https://cdn2.hubspot.net/hubfs/3925488/_Source%20of%20Truth%...
The VC and to some extent the Private Equity industry can subsidize money hemmoraging business models and fuel massive growth of bad unit economics until they dump them on the public. Uber and WeWork are just two high profile examples.
In fact, then openly admit they stay away from sustainable and profitable businesses in favor of massive subsidized “traction”.
That’s the loophole - same as colleges can jack up prices on liberal arts degrees and then student loans get bought by Freddie and Fannie.
Uber does not have bad unit economics in its core rides business. It makes profit on rides, and it loses it on trying to expand into food delivery. You can easily see it if you just look at their financial reports.
Certainly some segment of their core business is profitable. But at the end of the day, if all they have is a glorified cab company that is profitable in a few big cities and loses money everywhere else, that's not a story that sounds good to investors.
VCs need to make money first and foremost. I doubt they care about one Theranos out of every 1000 or even 100 companies they invest in (I refuse to compare Theranos and WeWork).
The idea that you invest in the team appears to be a winning strategy considering historical returns. So the question is, why would they change this?
Winning strategies can be an illusion, the smart money knows when to recognize luck.
Walgreens straight up fired the investigator who was telling them it was hot air.
You misunderstood the business model here. The plan was to dump it on retail investors, cashing out and leaving them holding the bag. It was just a longer “pump” phase than usual. The sociopaths here are SoftBank.
https://news.crunchbase.com/news/report-adam-neumann-benchma...