They also own Meetup.com a great organization that is not doing well. Now I know why.
5
Property management company we work never had a chance of being the next Google.
5
The author left out one vital piece of info - how much money Adam Neumann walked with. Almost a billion dollars. Just think, if the IPO worked, everyday investors would have been fleeced too. Just wait for the fall out - lets see what happens to all of the employees and the empty office spaces yet to come.
12
Conventional office life is awful. Working from home now that makes sense. WeWork sounded like a loser when I read about it last year. I'm all for new things but this was not a new model. Shared office space has been around for decades. Tech investors should not have been so easily fooled. The author is right that there is a class of people out there who can sell (even these smarty pants techies) a bridge in brooklyn.
9
Well Gina,
Perhaps you should visit Rhinebeck NY, where there is coworking and event space co-operatively owned by a handful of co-investors.
People can join monthly without any long term contract, for very little money at the lowest level. The gig economy is here to stay no doubt,
I haven’t seen anyone there walking around barefoot— the occasional black turtle neck sure, but rather people who find the philosophy of a coworking space just what they need to have a beautifully designed, out-of-home, low-cost place to conduct business and network with some pretty great folks, and support “community.”
There are different ways to skin a cat (sorry for the adage, PETA).
9
WeWork was an old idea, hyped by a self-dealing "tech" evangelist (who was actually just an office sublessor), armed with billions of VC dollars by sovereign wealth funds that need massive value increases to move the needle on their returns. It is also the dumbest thing you can do in finance - borrow (lease) long and lend (sublease) short.
As with some of their brethren, the goal is to squeeze the juice out of these companies pre-IPO through share sales on the secondary market and pumped up valuations via Amway-style follow on VC rounds where each subsequent party recruits new "smart money" to impute imaginary and arbitrary valuations.
Constrained resources creates focus and discipline. Handing over billions for "blitz-scaling" creates frauds and $60 million dollar jet purchases and massive loans to founders who have yet to prove they can do anything other than spend other peoples money on parties, perks, and personal enrichment. Today's starts are more about a strong PR campaign than they are about innovation.
WeWork is not Amazon, it has not created something new like Cloud Computing or Prime. It is a Regus Business Center with kegs and poseurs. I think their needs to be investigations, especially into ARK - the VC's allowed this to happen and it is time for them to be questioned along with bankers at Goldman and JP Morgan. I can't believe they were just about to unload this debt bomb onto the small retail investors at a value of $60 - $90 BILLION. It is worth zero.
19
WeWork is too real estate heavy. It’s true that the average worker is being pushed out of office space and into the cold without the infrastructure of services an office provides. WeWork didn’t understand that the office itself is not the problem. It’s everything inside the office.
But they were on to something. And someone else will come along with a coworking idea that is far more effective.
Don’t be naive though. VCs are fabulous at building up “genius” CEOs just to cut them down. VC culture is to blame here. This guy has always been a loser. That was one hundred percent obvious from the get go.
Rather than spit on him, ask yourself what VC culture is doing to avoid creating a situation like this one.
The answer might surprise you. ...with a Pulitzer in hand.
4
Excellent commentary. But did we need the gratuitous slam at Fox viewers' gullibility? Refresh my memory: Did the Fox viewers breathlessly wait for Mueller to destroy Trump with his blistering expose of Russia collusion? For two years? Maybe replace "Fox viewers" with CNN junkies.
6
I was hoping it would go public last year so I could short it after the cult buyers were done.
2
Adam Neuman is not a prophet, as it turns out.
And his idea to make a Regus for the wannabe tech-bro who could not sustainably afford it was flawed from the outset.
What WeWork has is a portfolio of desirable properties primed for sale, at a moment’s notice. WeWork will be profitable finally, and only once.
1
You don't have to fool all of the people all of the time to be 'successful.' Just some of the people some of the time. Even then, your success (and those you fooled) is not guaranteed to last. Take a look at Bernie Madoff. Or Jeffrey Epstein. Or how about the current occupant of 1600 Pennsylvania Avenue?
5
It doesn't matter if WeWorked or not. Adam Neumann walked away with 750 million dollars.
9
After you get through all the smoke and mirrors and fancy talk the bottom line is that the big accomplishment of WeWork is to take the normally profitable business of being a landlord and turn it into a money loser.
9
Anyone experienced in real estate could see that WeWork was a failure in the making but NOT for the reasons so commonly stated that being the mismatch between their long-term leases and short-term subtenants.
At the end of the day real estate ownership is widely distributed among some very savvy investors. Virtually all of them could replicate the WeWork model in their buildings tomorrow IF they thought it made sense. Alas a lack of barriers to entry was WeWorks downfall as their margins were never going to be high enough to float that expensive boat.
6
The former Brooklyn Union Gas Company building—fronting on Montague and Pierrepont Streets in Brooklyn Heights—was apparently intended to be a WeWork site. There were "Coming Soon: WeWork" banners outside. Then, nothing for many months.
Now the banners read, "Space for Rent."
5
Bravo, Ms. Bellafante.
At the end of the day, we're all humans. Even those with buckets of money (whom we assume have magical insights beyond us mere mortals) are easily bedazzled by glossy self promoters and slick marketing.
1
I think you are being too harsh. WeWork was a great idea; the company is struggling because it does not understand how to price for affordability. I was very interested in using WeWork to launch satellite office space. When they came to Maryland, they tried to price their tiny offices at Manhattan rates. We were like, "You're kidding, right?" The office concepts of windows, light everywhere were great ideas---but so far above the market of what other shared offices and virtual priced in the DC metro area that I went elsewhere. I have a dedicated office with double windows for 1/2 of WeWork asked for a shared space. Neumann needed a class in Econ 101---demand driven pricing.
6
@Sierra I'm a Econ major and no, Neumann didn't need a class in Econ 101. He needs a class in How to Wake Up from Self Aggrandizement.
4
I'll add that your third paragraph is as brilliant as the first two. Add the name Adam Neumann to the list of people with odd or even bizarre ideas gaining entre to the highest echelons of the business elite simply by appearing to be wealthy. The late Jeffry Epstein fit the category, babbling nonsense in his later years, while supplicants still pretended to be entranced. Any of my undergraduate business students could have picked out the flaws in a business model that is essentially nothing more than arbitraging the difference between long term and short term lease rates. The model normally works fine, until those pesky short term revenues tank, but in We Work's case, it's not even clear the company could cover ongoing expenses. One has to assume that the elites did not bother to read news accounts of waste and questions about the We Work business model, going back more than a year. As you suggest, few people up there at the top of the meritocracy would challenge Mr. Neumann to explain what he does.
5
As a money manager who invests using a value philosophy, I can’t tell you how often my eyes roll when I hear an IPO pitch pummeling the words “disruptor, innovator, data analytics and ECOSYSTEM” down one’s throat. They seem to be buzz words for why a business bleeding cash indefinitely should be valued at the unicorn billion dollar valuations. At the end of the day, it’s been old fashioned greed driving the enablers of these deals, and decade low interest rates.
12
@ML Don't forget "machine learning" and "block-chain enabled"
7
@ML Amen. If anything, RUN, as fast as possible when anyone uses those words.
4
Brilliant opening two paragraphs and a great read. Thanks for making me smile!
4
Oh brave article! Now that the company has publicly begun imploding now you decide its time to raise this issue.
8
@Andrew I have in fact written skeptically about WeWork before.
27
The only thing that’s missing is his idea wasn’t innovative or breakthrough. Regus has been around for over twenty years doing the very same thing and when the dot come bubble burst the model became unglued as just like the S&L crisis of 1990 when your obligations are for decades (building leases) and your customers can bolt with a months notice just wait when wears in a economic contraction. Sure it was hip or cool with its design and vibe but it’s still a box of office space that requires near full occupancy. His great idea was the concept it was how to convince so many people to fund his flawed model.
4
@Andrew brave seems to be an insulting descriptor -- it's better than brave, it's practical, good sense.
1
It always seemed to me that while Starbucks on Tues and Grandma's on Thurs might be inconvenient, they are both free (or the price of a pricy cup of Joe) while We Work is hundreds a month. For someone struggling to start a business that's serious money.
Additionally, while comradery might sound nice on one level, there is always the risk of co-sharers who are noisy, disruptive, and distracting, i.e., not everyone else will be quiet when I want quiet and be read to socialize when I'm ready.
Many folks who work alone actually are more productive when doing so and/or find their 'being with people' adequately provided in a place like Starbucks (out around people, but in your own little world).
18
Excellent article! I’m hearing some interesting things about We Work.
Goldman initially had estimated the value of the Company at $90 billion.
JP Morgan bankers believe it’s a lost cause that the Company’s business model is not sustainable.
SoftBank May have liability for We Works leases.
There have been fraudulent transactions taking place routinely between the CEO and the Company.
It’s not a matter of if, but when, the Company files for reorganization, or liquidation.
6
Why aren't we satisfied with a good idea, even a great idea, that promises only modest financial success to an individual or small group? Why does every 'next best thing' have to make hoards of hedge fund managers more money?
22
@farhorizons 'Cuz that's how capitalism works, especially in the Trump era.
2
@farhorizons Hordes of VC's and Mega-Angel Investors. Hedge Fund managers will make their money when they short the stock post-IPO.
3
Tech investors buy lottery tickets. They accept many risky WeWorks, hoping to find one Google or Facebook. They're aware that most of these investments, like lottery tickets, aren't going to pan out.
Had you seen Steve Jobs wandering, barefoot, around Reed College, would you have called his mother?
1
@Robert the problem with WeWork is that it is not a tech company at all. It’s just pretending to be one in order to get investors to buy in at ever-higher valuations.
13
So let me understand: WeWork is struggling. Someone else tried an education idea that failed. Thus, you conclude that all investors are fools?
The only way forward is by trying new things. When you do this, some (if not most) will fail. Investors understand this and take the risks. Some investors believed in the education company. Others believed in WeWork. And many others believed in neither. Most importantly, however, is that the exact same can be said about every other company, both successful and unsuccessful.
See, that’s the funny thing, we don’t actually know the future and different people have different views as to what it will look like.
1
@Aaron Except this was a successful business concept... in the late 80's and early 90's. Leasing shared office space with a board room and administrative services was a thing.
Among the many mistakes here was limiting WeWork to start ups. I worked as an executive admin. We had tech start ups, an escrow company, attorneys, wholesale jeweler, etc... Our tenant turnover rate was roughly 30%. It was an idea not a brand.
These days people work from home so often or in casual offices, they hardly need an office in a high rise. It's still a workable independent small business model and tenants would network with each other.
8
@Aaron we don’t know the future and improbable ideas do, occasionally, succeed. However, anyone whoever tried to run a new business, with their own money, could see the benefits of this model were intangible at best and way overpriced.
3
@Aaron You miss the point. Those who try new things but also "think wearing a turtleneck will make them Steve Jobs" are doomed to fail. That's a salient point this article makes.
7
I’m sticking to a no load , low fee REIT fund that can absorb losses such a WeWork when they tank. Don’t make big bucks, but don’t lose them either!
2
At first glance, most clinicians would attribute his notorious actions and proclamations to full blown mania. Mental illness, whether producing ‘genius’ or extreme disorder and disruption, is illness.
“Would you make him a branch manager at Staples? Or would you call his mother?”
That you raised the choice to ‘call’, demonstrates it was in your realm to weave into your reporting. The stigma and tendency to accept this as baseline behavior when ‘successful’, only proves we have yet failed again. For the sake of himself and his family and friends, I hope he gets the professional help he needs.
4
@Nick Not everyone is mentally ill. We've all heard tales of wealthy eccentrics. I used to know a guy who went barefoot everywhere. He carried a note from the health department with him stating there was no law against it even in restaurants. He certainly wasn't mentally ill.
Call me crazy, but I’d rather invest in a company whose plan didn’t seem to be “take over such and such industry”.
6
Speculators look ahead; that is their economic function. And of course most possible futures never come to be and most speculators lose money most of the time and the rest of us get to shake our heads at them.
Sometimes though they get it right, usually due to dumb luck, and the human race gets richer. It's what separates us from our ancestors from 1800.
2
Like so many startups these days... what is offered by WeWorks is not something unique or new. Rather, they simply found a clever way to bundle an old approach to office sharing and present it via a cleverly marketed approach that appeals to the younger business people in the market (ie: app enabled, standardized, and predictable in terms of what you get for what you pay).
This is not innovation, and it's not even really "disruptive", it is simply clever marketing. As for the deposed CEO... he is, and always has been a crackpot.. but you know what.. crackpots are often among the best at clever marketing of something old as something completely new and delightful.
11
"When WeWork came into being nine years ago, it arrived as a fresh idea"
There was nothing new about that idea nine years ago.
17
I did not follow WeWork very closely but it seemed to follow the Theranos model. Both had founders who held some kind of charisma that motivated employees and captivated investors. I can’t see that charisma in either founder but it undeniably exists. Both promised to reinvent/disrupt (choose your buzz word) an industry. In both case, there was no there there. Theranos’ technology never worked. WeWork is no different than dozens of shared office space companies. The model can work but it does not warrant huge investments or astronomical valuations.
Investors were not scared away by the risk factors set forth in the prospectus. Those are standard legal disclosures-earthquakes, general economic conditions, flood risk, etc. Existing investors got in, likely due to one part FOMO and one part greater fool. A successful IPO would have delivered those greater fools. Unfortunately, during the IPO prep someone pointed out that the emperor is naked. Now who is the greater fool?
When WeWork is no longer cool and hip, the established companies like IBM will no longer be interested. IBM was surely looking to dress up its old, tired image with the WeWorks vibe.
Is this a good time to reflect on the dot com bust? How much of our current economy is built on a great economy? In other words, products, services and companies that can only exist while the economy is booming. Pets.com? Chewy? Foolish investments in eye popping dollar amounts?
6
Unless government intervenes, market capitalism is very efficient at separating fools from their money. Often those fools are poor, but sometimes they are rich. A strong case can be made for government protecting the poor from predation. I'm less sympathetic when rich people (who assume they are the smartest people in the room just because they have some money) fall into a trap and then come crying to the rest of us for a bailout. One can hope that we learned something from the erroneous bailouts of Wall Street and "too big to fail" banks one decade ago and we won't make that mistake again. If nothing else, the Treasury and the Federal Reserve no longer have the resources to intervene on that scale as temporary budget deficits and liquidity injections have become permanent rather than being unwound after the last crisis passed.
2
Big promises. No profits. Calm reassurances. Haven’t we seen this movie before?
6
The elites, the 1%, have redistributed the wealth of America upward, and now they have too much money so they end up wasting it on nonsense like WeWork and Theranos.
It's time to restructure the tax system and minimum wage to more money goes to the lower and middle classes, who will put the money to productive use.
17
@B.
Exactly. Why should we subsidize upper class speculation with public funds (tax avoidance)?
In my view, all income from any source should be taxed the same and on a very steep, progressive scale. Put money in lower and middle class pockets, and let the market figure out the best investments without the distortions of the current system.
7
The writer of this article has a fundamental misunderstanding of venture capitalism and business and general, and an elitist world view.
VCs invest in 10 companies and expect at least half to fail. Bill Gates, Steve Jobs and Larry Ellison were all eccentric college dropouts. For every scam artist like Holmes, there are two entrepreneurs creating jobs and making a difference. For every WeWork, there are two disrupters that make money and change daily life.
4
Charlatans have always existed, continue to exist and will continue to exist as long as human beings are around. Would love to see investors and even SoftBank get their money back from WeWork and Adam Neumann personally. I suspect it's in arcane lock ups and offshore. Years of litigation to come.
4
I have worked at a couple of healthcare technology “disruptors” after a long career at Health Plans (aka insurance companies). The arrogance I see in this segment of the healthcare sector is stupendous; people who have an interesting concept who believe they are going to get fabulously rich by creating a sexy sounding “solution” but have absolutely no idea how the “system” works and no respect for how complicated it is.
Uwe Reinhardt, the late Princeton University economist used to say that “every dollar of waste, fraud, and abuse in healthcare is someone’s dollar of profit”. Many of these disruptors are certainly contributing to cost increase through waste.
Data and technology have tremendous potential for positive innovation, but there are no magical shortcuts to be delivered by narcissists who can charm people into investing in “pay no attention to the man behind the curtain” ideas.
6
Is there a lesson in this about marketing over substance that applies to Trump and Epstein?
2
"What the ordinary person might interpret as a con game or sheer lunacy, the heavily credentialed investor, with his TED Talk understanding of things, will reliably regard as brilliant eccentricity."
I read this article even though the off-putting photograph showed the subject wearing one of those call-center-rep/TED Talk microphones; a functional accoutrement that also functions as the stage jewelry of the innovative-disruptors during their ambulatory orations in front of their massed acolytes during the dispensing of the kool-aid.
6
Is this article really about WeWork and Mr. Neumann? Or should this be an OpEd piece, "Modern capitalism’s fundamental myth is that acquiring money is the equivalent of achieving success."? One needs to look no further than Uber and Lyft for additional examples. The Uber cofounder Garrett Camp just bought a $72.5 million mansion in Beverly Hills and the company has yet to make a profit. You want to know how this really works? Just read Bad Blood.
7
I liked this article! I appreciate any writing in the times that questions the 'meritocratic' systems in place. I have no issue with the times adopting an anti-meritocratic lens for all its coverage.
2
Myths and reality are not unlike stories or ideas that make it or fail in print or media. You give me a deadline and I’ll bet on a correlation.
WeWork was never anything more than a pile of subleases that lost money. It's very existence was a product of the low bond rates today (dumb capital chasing yields). Fortunately WeWork collapsed before it was able to get out its IPO and hurt retail investors, but the retail losses are going to be huge at other similar debt-zombie companies.
5
It was refreshing to see leaders in the tech industry blow the whistle on this highly over rated company.
Not often mentioned, but a key element in the early days of WeWork, was the addition of free beer in the work place. Beer of course, like all alcohol, is a hard drug, potentially addictive and potentially deadly. We are hearing many stories about how Neumannn loves expensive Tequila, etc., but the free beer actually created a lot of the usual problems associated with it - sexual harassment and rape, fights, etc. etc. Alcohol, of course has somehow escaped the drug label it does wear, so WeWork didn't have advertise "Free Drugs at Work", which they were in fact offering.
8
Capitalism in the era of consumerism is 95% a succession of cons and pyramid schemes built on the lie that we can always have 'more' (of whatever) and should want that. So in that context none of these ridiculous hussles should surprise anyone. How else can you explain the success of something as utterly useless and redundant as Facebook?
5
WeWork is a proto-fascistic structure that is given political cover by the plausible deniability in all its public relations pap it smears everywhere that "work will set you free," the quote over the gates of Auschwitz.
Part of me being a progressive liberal is my abhorrence of neoliberals. In "Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan," Taylor C. Boas & Jordan Gans-Morse, February 21, 2009, the authors mention: "We show that neoliberalism has undergone a striking transformation, from a positive label coined by the German Freiberg School to denote a moderate renovation of classical liberalism, to a normatively negative term associated with radical economic reforms in Pinochet’s Chile..."
I strongly believe the nexus of Sheldon Wolin's notion of "Inverted Totalitarianism" and the inversion of the word "Neoliberal" are one in the same phenomenon, and that the insipid pervasive nature of the change can be most clearly seen in the transformation of work as exemplified by the WeWork corporation and the manner by which it is described in this and other articles.
Orwell could not have ever been so cynical to think the American Dream would have become construed over the years to not set us free to enjoy the fruits of our labor but to enslave us to "enjoy" being labored? Just the name "WeWork" carries huge baggage of the fascist period between WWI and WWII from Spain to Russia. "Work will continue until profit improves."
4
@Chris
define for me 'freiberg' economics, in your terms.
please cease throwing others' words around.
The genius of "entrepreneurs" like Holmes and Neuman is for spinning a story for investors and making themselves rich. These folks have been around forever and are the stuff of theater and novels--rainmakers, prophets, faith healers, fast-talking salesmen selling the "think system" to make small town boys into a marching band. What was Bernie Madoff but a smooth-talking sales guy selling a dream to get rich? Neuman & Holmes and others prey on the greed of investors, knowing how much they want to be in on the next zillion dollar idea. In spite of our sophistication, we're just as gullible today as we were 100 years ago.
3
Adam Neumann is a (now former) CEO for the Trump era -- essentially a narcissistic, self-dealing con man with autocratic tendencies and the ability to talk as if he personally invented the wheel. Sound familiar?
4
Wework is untested by an uninflated market cycle. It’s ability to may survive a true downturn, in a business cycleay he is final undoing, it’s a fundamental gap in their plan, when all short term leases all head to the exits at once.
2
People who have read the Lowenstein biography of Buffett wouldn't be surprised by this kind of thing.
"Buffett noted that spectacular sums were being made “in the chain-letter type stock-promotion vogue. The game is being played by the gullible, the self-hypnotized, and the cynical.”
"Fred Carr, anointed by Business Week in May, quit in December, leaving the Enterprise Fund stuffed with illiquid letter stock. It would fall 26 percent in 1969 and by more than 50 percent before the carnage stopped.65 Cortes Randell’s National Student Marketing was modestly revalued, from 140 to 3½, taking the Harvard endowment along for the ride.§ The Dow Industrials closed out 1969 at an even 800. And the slaughter went on. By May 1970, a portfolio of every share on the stock exchange was down by half from the start of 1969.66 Four Seasons Nursing Center—darling of the ’68 garbage market—fell from 91 to 32. Electronic Data Systems plunged 50 points on a spring day—reducing the fortune of its Napoleonic founder, H. Ross Perot, by a cool $445 million. The Ford Foundation portfolio was shattered, forcing McGeorge Bundy to swallow a severe helping of humble pie."
Lowenstein, Roger. Buffett: The Making of an American Capitalist . Random House Publishing Group. Kindle Edition.
Lowenstein, Roger. Buffett: The Making of an American Capitalist . Random House Publishing Group. Kindle Edition.
"Krawlers"? Neumann clearly doesn't have kids, or if he does, didn't pay much attention to them in babyhood. Babies crawl for about a month, as a brief development step toward walking. Much as how, presumably, many of his freelancer and startup clients intend to use temporary office space only... temporarily, until their business grows or they are hired on somwhere full-time.
Now, in a country with single-payer health care that's not tied to a specific employer and a stronger safety net--in short, a country in which people can afford the luxury of flexibility--his WeWork idea might have had legs. Too bad he tired to start it here.
2
At some point tech investors will have to stop buying into the nonsense of “disruption” and “reinvention.” It seems that all a tech con artist has to do is claim her app that buys dog food will “change the world,” or better, “save the planet,” and everyone buys it.
The other day I saw an ad on tv for socks where the Ted Talk-ready founder with the usual bathos-heavy and probably bogus origin story claimed that his socks will save the planet. Socks!
I know people are out to make a buck. But does everyone else always have to be so gullible?
4
My hats off to the Neumann's as a great success story - millions in the bank and multiple personal real estate in lucrative locales. He and his wife (Paltrow's cousin) made a killing off of this legal VC pyramid scheme: from series A to potential IPO; helps when you have prototypical waspy Jobish S.V. looks stirred with eccentric neo-hippy flare, along with wife's ivy connections to make that sales pitch.
What the VCs bought into was not the actual business, but the subconscious yearning for something greater than themselves rather than just a going concern to mint money. All the Neumann's did was delivering a cocktail of aspiration and inspiration packaged it as "WeWork" to soothe these poor souls seeking meaning in their empty lives while playing to their hubris.
Just like Theranos, "WeWork" as a story did what it intended to do, and you need a great story teller to do that. As a business, that is another matter. So, Buyer be Aware - not only what you are buying, and from whom, but why are you buying.
"Sell me this pen" - Wolf of Wall St.
3
AirBnB is an example of redefining and expanding the existing market space. VRBO and others had the market. AirBnB made it about not just vacation houses, but renting out your spare bedroom or your apartment while you're away. Swimply is trying this with pools... Clever.
1
...and for this we lost Lord & Taylor
11
WeWork is a good idea, but like many good ideas, can’t survive unless delivering to investors who don’t care about creating community. Things that help regular people don’t give rich people enough money and are doomed- what a sick system.
2
Poorly written with obscure, hard to follow references. Overly complicated sentence structure and ultimately inconclusive. A boring, difficult read that answers nothing.
1
Umm it seems to me this article applies with even greater force to Masayoshi Son. Write another article about SoftBank and the Vision Fund and also look into their overseas funds and the massive debt and why the US financial oversight rules don’t allow Son to seat board members on the start ups he funds
Maybe for once the newspapers can see a wave coming before the tsunami hits the coastline
2
I had never heard of WeWork before this article.
1
Isn't WeWork just a glorified sub-leaser of office space?
3
After the smoke and mirrors and fancy talk, the major accomplishment of WeWork is to take the normally profitable business of being a landlord and make it a money loser.
3
There are shared office spaces all over the SF Bay Area that are doing fine. I don't think these places are hoping to cash in on a bajillion bucks. I think they have a modest ambition to offer affordable office space to small and new operations.
5
The next clever marketing approach around office space for the tech savvy customers will be:
Turn-key offices for startups, where a new startup can rent complete turn key business office needs, and can expand and contract them on a monthly basis with a company that handles all the little nitty gritty logistics required to allow the startup and it's staff to stay focused on their business, rather then where the desks, phones, internet, coffee, office suppliers, etc. are located and kept stocked.
There is clearly an opportunity here; companies spend crazy money on office space that is empty most of the time
And tech can help optimize space, as it does factories and inventories
But at the end of the day it is a real estate play. Not a whiz bang we-created-a-new-world play that investors claim it to be. It reminds me a lot of WebVan from the dotcom era
8
I still don’t get why WeWork is called a tech company. It’s a space rental company. Sure, It has an app, but so does Delta and Whole Foods. Doesn’t make them tech companies.
30
Disruption is not Innovation
The chatty girl or the fidgety boy in my wife's middle school classroom is a disruptor, but there's no innovation going on.
And so it is with many of these business disruptors- they upset the established market, but do they innovate for the long haul? Usually not, and their balance sheets say so.
What is needed is true innovation, and that often comes from the stability of a boring company that has been grinding away quietly for years.
All that said, some services like the taxi industry, deserved a disruption. Now if we can get some true innovation...
8
@Karl Smith The taxi industry needed improvement. As every woman who values her safety knows (some because they've been raped before), crashing the taxi industry so that women are increasingly dependent on random strangers is a disruption but not an improvement.
11
As someone who has been an artist, graphic designer, videographer and small creative business owner all their life the idea that WeWork is or ever was aimed at us is laughable. We make a useful group to point at and even harness as we have driven real estate booms from Soho to Chelsea, Williamsburg to Bushwick. We have always worked in industrial buildings in cheap neighbourhoods divided up to small independent spaces. We didn't ever have communal lounges, beer taps or rentable conference rooms. WeWork was aimed at tech bros. And amongst the people I know who use it they and high income professionals like architects and computational linguists are the people who occupy these spaces. Simply because underlying these types of business is an inmate conservatism that desires a corporate environment long before the company is large enough to generate one. I'm delighted that this unicorn has been identified for what it is and I look forward to it going out of business quickly. Not out of schadenfreude but because we need that space. Independently organised and rented at many different levels of price and quality. There is a crisis in New York and elsewhere of a lack of cheap manufacturing, office, creative and maker spaces where people can experiment with starting business and getting them going to a level where they could even think about affording a WeWork space. The venture capital behind WeWorks hoovering up of all desirable office space deserves to be slapped back down.
28
Lastly yesterday was manufacturing day. Yes manufacturers need a day to be celebrated these days. If you go to any of the advocates for small business and manufacturers in NYC they all ask for the same thing—cheap space. Yet WeWork can't make money? It's a total failure of capitaism.
3
@Philip Riley I completely agree; I've worked at WeWork's around the world and realized they are all the same. I would prefer to work out of a coffee shop or local co-working space any day. WeWork's business model and culture have been flawed from the outset. I'm not sad to see them go down in flames, although I feel bad for some of the employees.
5
@Philip Riley
I think it was aimed at the wannabes
This is just from using my own eyes and not a scientific investigation. When I visit the bigger town 30 miles away, I see lots of people using the computers in the public library or bringing their own computers to the library. If they need a photo copy machine, a printer, or a fax machine, they are there. The visitors build a community with others working in the library. There is no rent. If you don't pay rent, you can afford to buy lots of fruit water.
The other people I see are working in a coffeehouse. They bring their computers and stay for hours. (I stay for hours, too. My writers' critique group meets there.)
IBM couldn't put 400 people in a library or coffeehouse, but it seems wasteful to spend hundreds of dollars to rent a communal workspace for one person. If I rented a place to work, I'd want it to be quiet and private.
7
@Linda
Okay but as somebody who occasionally likes to duck into a coffeehouse for a good cup of coffee and a sweet it can be frustrating to find a seat and a little bit of table space because people are sitting there for hours. And often I am the one spending more money than they are! I don't do this as often anymore because of this.
18
@FerCry'nTears As a person who works from home (in order to have a quiet workspace), I sympathize with you on the coffeehouse crowding problem. But every so often I need a workspace other than home (the building turns off the water all day to do major repair or the a/c breaks or whatever). It's a long way to the office (2 hrs by subway on a good day), and yes, I start considering the coffeehouses within easy walking distance of home as an alternative. What else can I do?
Personally, I think WeWork is way too expensive. And I don't understand how they are better than the noisy busy open office that I hate and wish to avoid in the first place.
3
@Linda. There's nothing worse than when a client decides to schedule a meeting in a coffeehouse. It's invariably a wasted hour - eating and talking at the same time, constant interruptions from wait staff, taking notes on your knee, no space on the tiny table for your papers, noise from other groups attempting the same thing. By contrast, a quiet dedicated boardroom is heaven.
2
I think the model is sound as a generic corporate leasing business, but not as tech company with an outsize valuation.
You would expect tenants to pay a modest premium for a lease that is terminable at will, where WeWork takes the long term lease commitment off your hands, spreading the risk among many tenants in many markets.
But sounds like WeWork loses money on every lease, which doesn't quite make sense--taking all the risk and losing money in the process. They must think they are digging a competitive moat, but like Uber, the moat likely is illusory.
So zoomed in, WeWork might be a flawed business. Zoomed out, are all, most or many tech companies overvalued? Not sure but from what I understand VC funds have outperformed both the stock market and private equity over the last decade, but subject to more risk and volatility.
1
Obviously everyone is terrified of missing the next Amazon, which lost money for years and years before its current existence as an unchoppable money tree.
I would also like to remind people that in a ponzi scheme like Uber or WeWork, it's profitable for everyone except those left holding the bag in the end. I think a lot of investors in WeWork didn't have faith in the business model itself, but rather that they would be able to get through the IPO - cha-ching! - and then push the losses onto uninformed retail shareholders.
Oops.
29
The thing that amazed me, walking around NYC the past couple of years, was how many buildings had WeWork plaques on the ground floor. Sometimes it seemed like every other one. I had thought of it as an outfit for hipster entrepreneurs who liked hanging around and drinking cappucino with other hipster entrepreneurs, and was very surprised when I started seeing their plaques on high-end office buildings in midtown. But I guess that's the type of space clients like IBM want.
2
After the nation's 15 years of experimentation with "disruptive innovation", at last we see that you can't fool all the people, all the time. Give me a solid company with experienced management to invest in, instead of VC funded, repackaged "old school" services like WeWork (it's just real estate leasing in small pieces!) run by someone who wants fame and zillionaire status. A few innovators made billions in the last decade, but most others lost their shirts. Question one for investors: has the company been around for a long time, and will it last into the future, and who's running it? After all, you are investing in skilled people running the place, not just the idea.
7
"data-junkie"
I've been searching for the correct term for those who think all they need is enough 'data' for a successful conclusion (I'm going to steal it). 'Data' is no substitute for knowledge, logic and intuition; it is, at best, a means to (possibly) confirm or deny the results of a reasoned thought process, but, perhaps more importantly, something to blame--'The data was wrong'--when a thought process goes bad.
11
@Bob S, using enough variables you can get anything to correlate.
1
I’m a musician. But I’ve got good friend I met through music who is a successful business person.
I’d talked to my friend a few months ago about WeWorks. He just laughed and said it was, in his view, almost valueless, and that the types of companies he instead invests in (and sometimes buys) make “boring” things like railroad car wheels, or provide “boring” back-office services to other “boring” companies.
He then told me it was those “boring” investments that helped him recently buy a $9 million summer home.
22
In the early 1990's I worked for a company who's founder was exceptionally good at making money for himself. He had a talent for convincing others to buy into whatever he was selling. He also perceived himself to be a expert deal maker and was never satisfied until he talked a supplier into cutting their prices or delivering on an impossible schedule.
However, he wasn't particularly good a running a profitable business; he lead three companies into bankruptcy in the time I knew him.
It seems we are a culture who is susceptible to these individuals. As evidenced by the many so called "tech" companies with "big ideas" and little substance, as well as our current president.
20
WeWork is a REIT and has never been a "High Tech" company - the only folks that didn't realize this were the original investors.
19
There’s nothing wrong with the WeWork model. The issue is valuation There is demand for short term space. And landlords generally can’t be bothered. It’s not their model. Enter WeWork. Where it went off the rails is there never was a discipline to generate cash, nor a rational valuation of its prospects ever to do so.
16
@LongTimeFirstTime Yes, important to note that landlords can't be bothered with short-term office space. And for many startups, it is helpful to be able to make a short term commitment, and to only rent a large cubicle-sized office with walls. Beer is an odd add-on, but many of the other things make perfect sense to share. And libraries and coffeehouses can be nice, but without the stability of a space like this.
2
The spaces are unarguably beautiful, and it's certainly fun to rub elbows with energetic entrepreneurs-to-be in the common areas, but for a startup of any kind, adding $350 a month to your overhead ought to be a function of how much revenue you are already generating. If you aren't generating enough revenue to pay all your bills, mortgage, health insurance, and daily expenses, then you SHOULD be working in your basement or a nearby coffee shop, not stealing from your company so you can hang out with the cool kids.
36
I just gotta say, the interior design and staff at WeWork locations are really nice. Their approach seems more like the Nordstrom’s of temporary office space, not the tech.
11
I had only a passing knowledge of WeWork but I do remember thinking that the special sauce seemed to lacking from the business model. There are incubator spaces all over. What made this version special? Also, it seems to me that people who are looking for the security of a national brand are going to have trouble working for themselves. I realize that for the most part such people do not choose to embrace a gig existence but they don't seem like a very steady market either.
7
Uber,We work etc is just used a temporary emptiness of fast catching up to technology. In many part of the worlds Uber type application is available for ordinary taxies. Why do you need Uber?
These companies cannot live long, idea may be innovative but it is not original, it is generic.
8
Absolutely! I have never used Uber or Lyft, but have used FlyWheel - the app for hailing taxis. It’s so depressing to be on SF and it seems like 3 out of 4 cars have Uber or Lyft (usually both) stickers on them.
2
Can we please stop calling We a tech company? That was a lie they used to juice valuation. Really, what's their tech? Renting office space? Mom and pop motels have just as much or more. How can they possibly be compared to, say, Google, or Apple, or Amazon?
38
There is a business model here. Many small and large companies need short-term office space for many different reasons and many self-employed people also want this flexibility. On the landlord side, you can charge more for this flexibility and can run things similar to a gym--you rent to way more individuals (members) than could fit into the space if they were all there full-time. Assuming you can keep your employee and build-out costs low enough, you should be able to turn a nice profit. My bet is that WeWork is bleeding cash mostly due to rapid expansion and wouldn't be surprised if some properties are quite profitable on a standalone basis. There are other players in this space that are making money. So I think that the author is too dismissive of the potential here, despite making some solid points about some investors' lack of common sense. Going into this space might be a natural expansion for a company like Starbucks. They have the real estate and build-out expertise. They could launch Starbucks Office: a larger Starbucks that in addition to selling coffee rents out cubicles, conference rooms, printers and high-speed internet.
25
@CW Your points are all true, but running shared office space is something almost any landlord can do. It does not require expertise that is unique to WeWork. My small college city has had shared office space and incubator space for about 20 years. The only part that impresses me about WeWork was the scale.
2
Yes, the building model is called commercial real estate. With a ton of hype around community and big data layered on top, but nothing of the value that the company's valuation suggested. The company has also never weathered a downturn and the need for office space shrinks during the lean years.
2
There are many people in Silicon Valley who never understood WeWork or Theranos or frankly many other startups. In fact, most of the money that went to Theranos was non tech, non valley money ( Rupert Murdoch put in 100m).
The beauty of the system is that it does create game changing innovation, jobs and very successful companies. But you can’t have these huge successes without many (and some huge) failures.
22
@BR Don't put an office space rental company in the same category as a gigantic medical technology FRAUD.
Lying to investors may be what they have in common, but Theranos actually damaged people's health, not just investor's wallets.
4
We have tried these "smart" workplaces for years. They just do not work.
In our firm we have been coming back to individual rooms.
We do provide technology consulting and development work for various firms.
The WeWork concept is a sham. It would work for a while, but not for a long time.
12
The media, the public, investors, all of us, continue to mistake great marketing yarns for innovation.
28
Ha. All these visionaries are the new middle men except extracting a small cut to provide a service they heavily discount the original product/service losing billions with the hopes of eventually dominating market share. This is based on the false beliefs of what Amazon is or did. The VCs look at this as simply buying way OTM call options Relatively cheap when compared to total return and you only need to get maybe 2 out of 10 correct to be rich. Who cares about the damage the other 8 cause?
9
I’m sorry but office locations with supplied phone, machines, receptionist, etc has been around for a long time. I’m tired of these people ‘ reinventing ‘ nothing and becoming billionaires. Let’s see now, we have razors, socks, cameras, etc all being done this way. There is nothing new here. Sad.
37
@Thoughtful1 month to month? Or with an annual commitment?
1
I think we work just repackaged an old idea of
Leasing and renting office space as making it more fun and give people a community if they signed up for membership. It could have worked or it might still work but not as a billion Dollar market value on the stock market. It appears that there is a lot money out there looking for a good place to invest. Someone will take over as a CEO with a MBA giving press conferences in an Armani suit, not bare foot and things will look very differently to existing and future investors.
9
@Newscast2. It actually shows the vacuity of most investors because our universities, both Research 1 and Research 2, host researchers working on brilliant stuff that needs start-up capital - things like alternative energy, alternative materials, alternative transportation, data science. All these projects go begging for dollars because American investors are captivated by barefoot snake-oil salesmen. Learning about things you don't know can make you feel diminished and American investors would rather be the brainy ones. Guess who's interested in significant American research? The Chinese.
21
I am an architect who works in the commercial office interiors sector in Manhattan. I think there is still plenty of room in this marketplace for WeWork as mentioned in the article for 'institutional' members. Think of the typical process for renting and fitting out an office space: identifying, leasing, designing, then building and furnishing a space (8 months minimum and huge cash outlay) for which the typical lease period is ten years. This represents a huge logistical and financial headache for a lot of companies and the solution has to work well for a company for a decade. WeWork and its ilk offer turnkey, furnished solutions of a certain quality (love or hate their aesthetic, it will at least look better than the majority of bland sublets elsewhere in the market). For companies that need expansion space for a year or two, and especially those with a millennial-heavy work force used to open office environments, they can move in immediately without the hassle of building a space themselves. Landlords themselves are not typically in the business of building and furnishing short term spaces, much less managing coffee, printers, and security, hence the market for a middleman willing to do so and take their cut. That being said, there has been chatter in the industry for years about how over-extended the company is. It will be interesting to see how WeWork will re-structure and the effects it will have on Manhattan real estate.
29
@AH I agree that here is a market for what they do but We Work does not have a moat. It's pretty easy to replicate what they do if you find one good designer and architect.
They have nothing that is proprietary except for branding.
25
@AH While it may make sense for the "enterprise member" to have the flexibility of a short term expansion space, already fitted out - in order to provide that in the manner wework has, is NOT economically viable for WeWork. They spend gobs of money building out the space, take on the risk of upward only lease obligations for 10-15 years, and are subject to the risk of major fluctuations in their membership base - and the downward pressure on those rates - along the way. Just because the end product for the user is attractive and makes sense does not mean that its economic or profitable for the provider of that service.
13
@Steve I agree, WeWork takes on all the risk and cost associated with leases and buildouts, which is great for their renters who need decently designed, short-term spaces for 3-5 years rather than 10. My point is simply there is a strong market for what they provide and other companies like Regus, who focus solely on the enterprise-type client, manage to do exactly this model, profitably. Regus is a much more cautious, slow-expansion model with a more 'corporate' typology, aimed at more traditional tenants like investment firms and lawyers. WeWork has attempted to capture a different (and riskier) area of the short-term tenant market. It's unclear from WeWork's SEC filing if the enterprise portion of their business has greater profit potential and it's the rent-a-desk locations that hemorrhage more money with greater turnover, but that seems possible. So my expectation would be they reposition their company to focus on profitable locations for enterprise members and scale back in places they aren't seeing profit. Or they fold completely under the weight of their debt and have a huge negative effect on the NYC real estate market as a whole (given they are the largest single tenant in the city). As I said, it will be interesting to see what happens now that reality has set in.
6
"Disrupter" and "influencer" are two of the words that are going to end up on the cultural scrapheap of this decade. I only heard about WeWork in the news when the CEO ceremonially banned its employees from consuming meat products. Now that I hear that it is just a real estate racket, I am not surprised that investors have finally wised up.
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I have worked for startups and have seen many more during my career. Most startups fail because they are built on faulty business assumptions or wild optimism that simply does not make sense. Uber has been one of my favorite examples. The taxi business has always been an employer of people at the bottom of the economic chain who were exploited. While the owners of taxi companies did make money it was insane to believe that there was any way to make more money in the taxi business by forcing a new class of exploited workers to use their own cars. There seemed to be a belief that workers would make more money, fares would be reduced and Uber would make huge profits. The system only kept going because investors kept pumping in more money. In my experience successful disruptive startups are companies founded by experts in a field who understand it well enough to understand its inefficiencies. The failures come from people who's real skill is spining stories for gullible investors. A lack of real expertise helps these people because it keeps them from being conflicted by reality as they spin their stories. They get funding because income inequaltiy has concetrated wealth so much that the rich can waste money on bad investments will little personal consequence.
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@JS "They get funding because income inequality has concentrated wealth so much that the rich can waste money on bad investments will little personal consequence."
This is the most insightful comment by far. Too much money in too few hands produces exactly this kind of behavior. It's a cancer on our society, and it's slowing killing everything honest and valuable in our nation.
10
@JS Good stuff!
3
It's such a wild experience to read the ideas of people who make money from WeWork office spaces vs. knowing what it's really like to work in one. Adam Neumann talked about changing the way people work with these spaces, when anyone who has ever had the misfortune of being forced to work in one knows how awful they are. There's no "collaboration", there's alienation and distraction. The only people who like these arrangements are company CFOs who are happy to save money on real estate and furniture. And those CFOs? They have an office with walls and a door...
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So much easier and cheaper to go work at my local coffee shop. I've been doing it for years and buy enough to not feel at all guilty.
32
Why is everybody-including some of the people commenting-referring to WeWork as if it were a tech company? It is not. It is a real estate company, leasing out space the old fashioned way, by showing it to renters. Providing printers etc does not make this a tech company any more than an airline using radar and computers is a tech company. I raise this because it points to the effectiveness of Neuman’s babble-even the debunkers are taken in.
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@Fred Shapiro - You are correct but I would argue that it is a tech company in that it gathers data on use patterns and uses it to design the most efficient layouts to maximize revenue. I would have thought that this data would also have value to someone, although I am not imaginative enough to know how. The We-Work model of minimizing space per user is similar to the airline industry.
3
@julernie - if this company's use of data is similar to what airlines have been doing for years, then why does it make them a tech firm instead of an airline?
15
@b fagan Given that WeWork will fly away with a lot of investors money, maybe it's both?
8
Many, if not most of these executives are just taking up space and their 'success' is just being lucky in that larger economic forces lead to profits. Several research studies have shown that there is very little evidence that chief executives are directly responsible for the success of a company. A few are - Steve Jobs being an example of a person who had a different and clear idea (the look and feel and intuitive functionality of computers) of a way to do things that led to the success of a company.
But most just make up silly narratives for mundane ideas or reorganize companies in a way that is little more than a roll of the dice. If they roll a 12, they declare themselves geniuses and demand half a billion dollars a year.
18
Fascinating article, and thank you. I’m sure there they’ll be a book and a movie.
4
We work bought the old Lord and Taylor flagship store on 5th Ave in NYC. I was sad to see the “everything must go” signs on the windows, the warehouse atmosphere in the lovely 100year old store towards the end and the half finished gutted building as it no wonder stands. I imagined they are in the processing of removing any signs of the building’s lovely past and adding paper thin cubicle walls, hundreds of charging stations and whatever elsewhere We Work deemed is necessary for 21st Century “innovative” work space. Ironically the store was there for over 100 years, and the new incarnation of the building, may never ever one to fruition.
What will happen to that building no work that We Work seems to be imploding? Will it just sit half finished and forlorn, another empty storefront in the widening inventory of empty NYC’s empty retail spaces, although on a larger scale? If not what will it become? Will it become something that will enhance the street or it’s residents? An art space perhaps, with affordable housing on the top floors? An extension of the nearby library with movie theaters? I can dream. But based on what’s happening here, probably in the end it will become, just what the city doesn’t need, luxury condos, with a bank and drugstore on the ground level. I can hardly wait.
31
@Miriam The building isn't a public utility. Perhaps the local residents should band together and invest their own money in buying it if they want "an art space perhaps, with affordable housing on the top floors". Absent that, the owner who's made its investment in buying the property is going to do what all investors do: seek the highest return on that investment.
11
@Miriam I have wondered the same about the Lord & Taylor building. I have also wondered what happened to those beautiful plaques in the vestibule with the names of all the military veterans who worked there.
I would love to know the whole story of what happened there. Originally L&T was going to keep the store on a few lower floors. Did they succumb to the lure of the We Work cash because it was easier than figuring out how to stay relevant in the new economy? I do love the store and hope they can innovate and keep the current stores alive, but that remains to be seen.
3
Nothing like a fashion and TV critic to badmouth tech investors with her extensive knowledge of...what exactly? Anyway, public tech investors were prepared to short this stock into oblivion and clearly hadn't fallen for the Softbank, VC and JP Morgan velvet rope valuation fantasy they had created. Hence the failed IPO attempt.
24
This reporter knows a lot about how people fall for things. The worlds of TV and fashion are sound spaces in which to develop an eye for frauds and cons and those who look to be told what's cool. And narcissists.
3
@TL I think her point had more to do with the Softbanks of the world than those who shot down the IPO. But post-IPO investors can also get carried away - see the great rant against Uber elsewhere in the comments.
1
I’ve worked in a couple of small software startups. People sometime celebrate and throw big parties when they get a venture capital investment. That’s like celebrating when you get a juice loan from a guy you met in a laundromat: VC investors are in it for the money, and you’ll need to pay it back sometime. Get to work: use that money wisely.
But VCs have been delusional since the beginning of the post 2008 recovery. Uber, Lyft, WeWork. Sure, they lose money on every sale, but they’ll make it up in volume. Right? They don’t actually own the assets (cars, buildings) at the core of their businesses. Their executives’ business model (not the companies’ model) is to keep raising new rounds of capital financing until somebody other than them is left holding the bag.
Lyft and Uber sold their shares to unsuspecting investors on the public stock markets. WeWork stuck SoftBank with the declining value shares.
VC delusions are reinforced by the vast size of sovereign (government) and private funds. Those folks have successfully hoarded so much money that it’s hard to put it to work. VCs are under pressure from their investors to find companies to take their money. Dumb money crowds out smart money almost always.
The WeWork-triggered reckoning is, long term, good for honest entrepreneurs.
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@Oliver Jones, Everyone wants to emulate amazon and google and facebook, but since the rise of internet in the 1990s, with all the startups came and went, we are left with just one amazon, one google, and one facebook. Whatever happened to alta-vista (in search), yahoo (in search and portal), myspace, and the myriad of e-commerce purveyors, they all came and went, losing tons of money in between times. Investors got burnt big-time too during those spectacular past failures. Wework failed spectacularly, but at least it's only because VC's threw money at them without questioning the underlying business model. The Newmann guy is delusional, but those VC's who bought into his "vision" is just as delusional. Arguably, Theranos was even worse since E.Holmes defrauded and lied about about a product that never worked.
The joke is really on those investors and VC's who knew no better than the shotgun approach, throwing darts on walls and see which one sticks. In short, they are just clueless.
12
We Work competitors are running profitable businesses. It would be helpful for the author to explain why those companies can be successful while We Work is not.
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@Steve R Saw an article recently about a smaller British competitor. The competitor's business model includes selling substantial ongoing services to the renters, which We Work's does not.
7
There's so many things wrong with this article, but falling for a charismatic individual and greed happen across all all socio-economic groups. Even one of the Theranos whistleblowers, Tyler Shultz, who originally joined the company as a grad as he believed in the founder and her mission, only realised there were problems in the company after working there and being on the inside. I do think there is something to be said for the bigger the lie, the less likely people are to question it.
19
A friend of mine in big tech pointed out that the people who run these startups are really not as interested in their business working as much as being able to make a financial killing when someone buys them up or they go public.
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@Kevin
This IS indeed the business model underlying many startups.
I have personally known startup owners in Silicon Valley who from day one started their new company with only one purpose in mind --> exploit a business opportunity within an existing segment of a business market and do so with the intention of attracting a buyout offer from a larger company to obtain the fruit of the startups efforts.
This is extremely common in approach, and like all startups.. sometimes it succeeds and sometimes if fails. Funding firms will put money into these... specifically as speculation for that buyout transaction... which is where the funders make their investment return.
5
Office sharing was far from a fresh idea nine years ago — a thousand smaller companies, city governments and business support agencies have been doing it for at least 20 years. All WeWork added was spin and hubris.
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If they couldn't make money over the last few years, when times were really good, they're doomed if there's any kind of an economic downturn.
19
A feature of the 21st c. Is the mega-business that doesn’t make money. This is a logical evolution within a society whose government never intends to pay its bills.
37
@Kirk Cornwell Yes, and Amazon is a prime example.
1
WeWork provides huge advantages to individual entrepreneurs, small biz and medium size companies and this article ignores that. Chief among them is flexibility to grow shrink or move to another city without trying to break and negotiate a lease. And letting WeWork deal with office furnishing and infrastructure allows smaller companies to focus on the core mission.
WeWork may go down in flames but its biz model is conceptually sound.
12
The model has been around for years. There’s nothing new with the underlying concept. WeWork differs in having an app, larger flashy offices and delusional investors.
45
@Sheriff of Nottingham We work is easily findable--those other spaces are not. No credit check, etc. If you pay your first month's rent, you're in.
Do these spaces of 20 years ago provide that flexibility?
@Revvv Interesting claim you make about the We Work business model being "sound". So why are they losing money big-time?
2
Let's see how many years the former Lord & Taylor will be know that WeWork has tanked.
2
@New Yorker What??? This sentence makes no sense. How many years the former Lord & Taylor will be ... what? Empty? Is that where WeWork is in NYC?
I am an experienced investor with 30 years experience in evaluating individual stocks. For me, the most important thing about any company I might consider investing in is the business model: why would customers buy this product or service, and what value does it provide to them?
If you look at the early internet companies, like Amazon and Google, they provided value by eliminating the middleman. Amazon delivered goods directly to customers without physical stores, and Google delivered ads direct to customers through common platforms that they didn't need to own. This cut the costs of goods to customers, and cut the costs of advertising to advertisers.
Now look at companies like WeWork and Uber. They have essentially added another layer, a very expensive one, between the customer and the product. In the long run, customers could get a better price by dealing directly with the landlord or the cab driver.
So the theory that if it's delivered over the internet, it must necessarily be innovative and cheaper, is not necessarily true. Some products and services make economic sense, and some do not.
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@Jonathan
I'm not necessarily critical of your occupation or interests, but I am suspicious of our modern business environment in general, a world of 'business models', 'price points', algorithms, and the endless chasing of imaginary Hole Grails.
Even the companies you hold up as 'successful' are hardly that in terms of macro-cultural influence. Amazon doesn't cut out the middleman, they are the middleman, (while providing their utterly terrifying spy speaker for people's homes). They offer the illusion of savings, but people today are saving less than ever. Amazon is a cliff which encourages us to enjoy the view, but to ignore the precipice over which we are falling. Google doesn't deliver ads to us, it delivers us to advertisers. That's all we needed isn't it, more advertising?
Why couldn't Web search have been designed without a "business model", as a utility, sort of a yellow pages for knowledge in general? The influence of Big-Tech, and overnight billionaires in the Bay Area is horrifying.
That's what's wrong with people like Neumann. Steve Jobs, was controversial, but a seminal genius, and he had a net worth a tiny fraction of Jeff Bezos, who runs what is basically a glorified garage sale, or Buffet, who buys and sells money and serves no more purpose in society than the guy who guesses your weight at a Carnival.
66
@Sera Google, Amazon, and the others are simply surveillance companies, extracting data from people without consent or awareness, and selling that data to other companies.
16
@Jonathan
Amazon may have begun as a direct book seller that eliminated the middle man, but it has evolved into a giant that has "added another layer" by taking a cut from a massive percentage of every retail transaction in the USA. Many of its sales are now performed by third party sellers who use Amazon as access to customers or as a fulfillment service.
16
A good article and I thank NYT for printing it.
But missing in this mix is the critical news media and reporters who should have spotted this scam a long time back.
I think there is so much rose colored glasses or actually blindfolds about a Tech or a start up company.
It's like there is a coterie of followers like grandparents who see a young toddler grandkid as the next Einstein, Babe Ruth, Hillary or whatever.
The Tech startups are like a big another Jones cult.
All are willing and eager to drink that Koolaid.
I think media needs to be more responsible in piercing these bubbles, scams or Ponzi's - long before they become a no doc real estate lending bubble.
But as some one has said, we Americans never have met an excess we don't like.
27
@Neil So true...and it continues. Elon Musk has, for starters, fraudulently manipulated TSLA stock ("funding secured"), and illegally bailed out relatives by acquiring their bankrupt company (SolarCity). All while losing billions of dollars every year since going public. His cultlike following will continue to believe (and invest)...perhaps until the equity finally reaches fair value (zero).
1
WeWork’s business model is simple and makes a lot of sense. There’s a big and persistent disconnect between the way that office buildings are financed, which is very long term, and the way that most tenants would prefer to lease office space, which is very short term. If someone who holds a long term lease is willing to bet that they could continually find short term tenants who could be charged for the privilege of not signing a long term lease, they could make a lot of money. They’d be satisfying both ends and profiting from the difference. A classic arbitrage situation, in short. I thought that the multi-billion dollar valuation for WeWork was nonsense, but the basic idea of finding ways to make a profit in parts of the service economy that are underserved by traditional systems or markets is not nonsense.
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@bendy, Its business model is all about just being a landlord. How novel is that?!? And we have no shortage of that, except that wework is able to undercut conventional landlords with low rent and free booze, all funded by idiotic VC's like softbank who was taken in for a ride by Newmann because he's able to drop the word "tech" in every sentence he utters?
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@bendy RE companies need long term leases to match their long term funding durations. Failing to do this guarantees insolvency come a serious recession.
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Having volatile revenues but largely fixed expenses is not a good business model. It's one destined to cause a sharp financial crunch at the first recession.
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I liked the article. I’m a Brit and I appreciate the quality of US journalism.
My take on WeWork is it’s a business model of two halves. On one hand, a rather traditional letting business for institutional tenants to help fill all that space.
Then on the other hand, the interesting initiative, which i consider to be more like a gym membership model....lots of desks and informal workspaces and other facilities that members can use when the wish to. The clever part is, like a gym, you oversell each property on the basis that not all members will use the facilities at the same times on
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The model is to lease long term from landlords and sublet short term to tenants, pocketing the difference. Very simple. But a tech guru soothsayer needs complexity to protect his mantle of authority. Complexity is the enemy of transparency and execution.
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All well and good when there is a steady supply of start ups and millennials seeking open office space and beer in the fridge. But what happens when there’s an economic slowdown or the demand for such facilities contracts? We Work is committed to long term leases while their tenants are committed on a monthly basis. That means a lot of office space could become empty very quickly.
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Seriously? This analysis is poorly thought out and ill informed. First, few in Silicon Valley saw WeWork as anything but garbage. Second WeWork is not a Silicon Valley company, it’s a New York company trying to masquerade as a Silicon Valley company. If you don’t think that NYC”s desperation to be seen as relevant in the tech revolution (hint: it still isn’t) doesn’t play into WeWork’s rise then your are naive. WeWork is not a tech company and many of us that work with real tech companies every day know that. Lastly, don’t think that investors are stupid for making that bet. VC’s make plenty of money selling bad ideas to someone else before everyone figures out the story is rotten - if only through the fees it charges on managed capital.
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@Mark
NYC isn't desperate to be seen as relevant in the tech revolution, because it already is relevant. Its the ninth-largest tech hub in the country and rapidly growing. Not bad for a place where tech isn't the number 1 industry.
And also, I don't see anywhere in this article or anyone calling WeWork a tech company. It says tech investors, which is true. Plenty of investors from the Valley funded WeWork.
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@Max
Tech hub is more about big tech company headquarters, which today in the U.S. means two metro areas:
1) San Francisco/Oakland/San Jose.
2) Seattle.
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@Polaris
what ?
Boston , Cambridge
MIT etc.
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Bottomline: Simply having money doesn't say anything about an individual's intelligence (or lack, thereof). Newmann is the latest exhibit of that. But, we all knew that long time ago, didn't we now. You don't need to look much further at the current occupant in the White House, who is more idiotic that a regular 12yo, even though he's the loudest bully in town.
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@tiddle I suppose rich people have a strong psychological need to believe that their wealth is deserved, that people are wealthy because of their merit. That would predispose them to being suckered by other rich people masquerading is brilliant innovators.
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He is barefoot (he has been photographed walking around Manhattan this way)
EWW! That alone would give me pause. It's not like our streets are hospital corridors.
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He is barefoot (he has been photographed walking around Manhattan this way)
EWW! That alone would give me pause. It's not like our streets are hospital corridors.
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This article is difficult to read, as if there were parts that were out of place. For example, after the mention of Elizabeth Holmes it goes to describe someone a heavily credentialed investor with disdain on Fox News. Who is this person ? Andrew Neumann is not an investor. The investor is Masayoshi Son. And there's a talk about ex-Google exec who tried to equip private schools with iPads. Umm, what does he have to do with the rest of the story ?
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@Martin Sometimes, rereading a paragraph or two will provide the clarity you seek.
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The promise of WeWork was what all investors are craving for, reaching multibillion valuation in just a few years. Sure, it's possible, it doesn't make it likely.
New rule: If company so-and-so gets reported on because of its stratospheric growth or its visionary founder, I'm just going to assume they're overvalued. I'll be happily be proven wrong, but there better be evidence supporting the claim and the valuation.
In short, it's time we become more Bayesian in our thinking with a prior that if the company looks too good to be true, it probably is.
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This piece fails to understand the basic business model of venture capitalism which essentially amounts to throwing eggs at a wall and hoping that some stick. In this respect it's not dissimilar from running a fixed income portfolio. To richen the overall yield mix you have to have some high risk bonds in the portfolio but not enough to sink the ship. Admittedly fund managers sometimes get the ratios wrong. Likewise venture capital investing. One can't afford to be left out of the next best great thing. At the end of the day this is why wealthy individuals or investor groups like hedge funds (and including university endowments) are able to extract returns that are not available to the small investor.
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“Modern capitalism’s fundamental myth is that acquiring money is the equivalent of achieving success.”
There are several fundamental myths about modern capitalism…
…but until the foundational myth of “The Founding of America” is very publicly, openly discussed and thoroughly debunked, nothing is going to change: “White Trash: The 400 Year Untold History of Class in America” (https://www.nytimes.com/2016/06/22/books/review-white-trash-ruminates-on-an-american-underclass.html?searchResultPosition=2)
If not the entire book, read at least the Introduction, “Fables We Forget By”.
“Every leap of civilization was built on the back of a disposable workforce…”
- Niander Wallace (Jared Leto), Blade Runner 2049
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Was the comment about Fox viewers essential to the story? I watch Fox business news and don’t consider myself a climate change denier or a birther. I also read the Wall Street Journal AND The New York Times, trying to understand both points of view. Perhaps you should as well.
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@Donald DeNardo I think it's fair to say that the majority of Fox viewers are climate deniers (or at least support politicians and political parties that are climate deniers) and support a political party led by a man who rose to power through advancing racist birtherism conspiracy theories. The writer is referencing the Fox audiences' susceptibility to falsehoods and comparing that to the same tendency in some liberals.
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@Donald DeNardo
If you think that climate deniers and births don't typically watch Fox news, I'm not sure you've been paying attention. No, not all Fox viewers are anti-scientific gullible idiots, but it helps.
Alas, Fox Business News is scarcely better, from what I see.
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She didn’t write “Fox Business News.” She was referring to the official network of climate change denial.
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Excellent analysis-- particularly like the Elizabeth Holmes comparison. So the question is -- what is the next one of these that will sucker very smart people to part with their money?
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@Steve The Trump re-election campaign.
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@Steve that would be SoftBank
I love the free rose cider. Sell the jet, leave the cider. And I'm not even a renter there.
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Disruption as an investment strategy has coincided with disruption as a governing strategy. Keep in mind that much of the investment in disruption didn't come from house money, it came from foreign governments such as the Saudis; house money from folks like Peter Thiel went into tech companies with a path to profitability, often based on government contracts, in the case of Peter Thiel, Palantir. Keep in mind that much of disruption as a governing strategy came from, that's right, foreign governments such as the Russians.
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WeWork was never a tech company. Why blame "tech investors" for a flawed real estate concept? At least support your assertion with some evidence of why We should be considered a tech co - patents, proprietary IP, anything?
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@Sunny It was invested in by tech-heavy silicon Valley venture capital, and also the Vision Fund, led by a tech billionaire, Masayoshi Son. It's valuation was clearly based on a sort of theory of tech disruption, which turned out not to be the case, however, as the article described.
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@mjw agree on the valuation based on "a sort of theory" - which is exactly the problem - there is no evidence to suggest We is a tech company. I keep looking and find none...! amazing how they pulled wool over so many people's eyes.
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The reason WeWorks has customers is that it sells a product for $1 that costs them $2. No wonder large companies buy into the deal.
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@Gary Tannenbaum This is the Uber model. Eventually, they will lose their way into bankruptcy.
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