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> The most glaring omission is that it doesn't stop to acknowledge at all the impressive growth that WeWork saw.

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!

Assuming that they actually were routinely renting out office space at a loss, then you’re certainly correct. VCs could also use their money to throw big extravagant parties with free food and entertainment, and they’d also get lots of people to show up!

Even that's hard to nail down, because their cost to revenue isn't 1:1.

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.

If they were truly selling their median office lease for pennies on the dollar, for a 90% discount, that would have made for a fascinating story as well. I haven't seen anything to indicate that was the case, by all accounts they did seem to generally be near break-even on at least a large number of their leases. But then they spent a ton of money on faster growth via setting up new space ahead of demand, marketing and acquisition spending, and bigger discounts/perks for big flagship deals.

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.

I haven't seen anything to indicate that was the case, by all accounts they did seem to generally be near break-even on at least a large number of their leases.

That story was also in the New Yorker.

https://www.newyorker.com/magazine/2020/11/30/how-venture-ca...

Looks like an interesting read but I'm not able to read it at the moment as I'm out of articles for the month.

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.

You should bookmark it, it's a good read.

>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.

> 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.”

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.

Ah, the classic "We take a loss on every sale but make up for it in volume" strategy?

Exactly. A money-losing company that grows isn't any accomplishment. MoviePass comes to mind.

If a core business has huge potential money-losing company growing is accomplishment. Amazon comes to mind.

That's called dumping it is a short term tactic to win market share but not by any means long term strategy.

I worked in this industry briefly - I'm pretty sure a wework successor or several will come out of it very successful, without the baggage that Adam Neumann brought, because the model is smart.

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.

Can you run this model without charging higher-than-market-rate leases and without relying on early stage startups that come with huge churn?

I'm not an expert but I think the 'higher than market rate' part is tough because you're offering services.

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.

WeWork is fundamentally real-estate, shouldn't trade at the multiples of a tech company.

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.

I dont understand all the fuzz about WeWork. I was renting Regus spaces here in Mexico when our startup started growing about 8 years ago. Here in my city there are at least 3 companies that offer ready-made spaces (Regus, iOS and a local one called Nevermind) that have been active for quite a while.

I discovered Regus on this very thread.

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...

The film makes brings up Regus and seems to point to the difference largely being marketing, especially to a younger crowd. Regus was portrayed as your fathers stodgy old sublet and WeWork s was where you’d want to rent to be around fun, beautiful people

> 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).

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.

It's a good point, but I think they touch on it a bit with the thread about user churn (which prompted WeWork to kick-out the company that published that analysis based upon some "happiness" clause violation...)

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)

It wasnt a good product. It was constantly losing money. Maybe you mean communal workplaces were popular and people liked them, but the way adam implemented it drove them into the ground

Lots of now very successful businesses were constantly losing money until they weren't. This is just not a compelling argument on its own.

I had someone tell me in the early 2010's that they expected Amazon to declare bankruptcy "any day now" since they supposedly hadn't had a single profitable quarter in their history.

I mean, if someone gives you a few hundred million dollars and you completely ignore costs and sustainability of the business, and I’m sure you could make it seem like you knew what you were doing for a few years too.

When soft bank is handing you billions it's not that impressive to grow. All you have to do is spend the money you are being handed.

Its impressive if you can do that in a way that creates long term value but just spending it isn't hard.

> Yes, there were [..] 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.

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?

When startups are exploring new spaces, there are always challenged with basic fundamentals. There's just too many uncertainties and unknown unknowns to nail down even remotely concrete projections. So VCs resort to other metrics (partnerships, engagement, team makeup, and most importantly growth) as heuristics for future value.

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.

> When startups are exploring new spaces [..]

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.

With all due respect, marketing does matter. Do you personally know a single person under 35 years who leased a Regus office? Lawyers excluded. It's like Buick.