
WeWTF, Part Deux - pierre_vannier
https://www.profgalloway.com/wewtf-part-deux
======
seibelj
The last WeWork I went into felt super impersonal. If I was to be a solo
freelancer, I’d have to work somewhere communal because I hate working at
home, but WeWork doesn’t have the vibe of coworking. More like ultra-cubicles
where talking to other people is even harder.

Second, there is definitely a question mark on companies that have their main
office at WeWork, like “this is temporary until we actually make money”. And
as WeWork is forced to charge more, and the glut of office space hits (I see
endless cranes over the Boston skyline) it will be not much more expensive to
get the real thing.

The long term tenants at WeWork would be satellite offices of a major company,
so if company X wanted to move into a new city they would hire sales people
and put them into a WeWork for when they aren’t out meeting clients. Otherwise
everyone else is temporarily embarrassed while they plan on moving up.

~~~
sroussey
I know they are known for hot desks and all, but that actually accounts for
very little of their square footage. For a solo freelancer it is a nice to
have.

But have 6 people and growing, then it’s a different world. Hard to find
places that aren’t WeWork. Get to 14 and growing still, and you are doing
leases for expected size (say 65) and a long term lease. So you are getting
much more than needed. Then you grow faster and you need an office for 200 and
you still have your old 5-10 year lease for 65 and now you have to sublease
that out and get your next 10 year lease, hopefully in a place with an option
to expand. And you probably have that 12 person office lease too if you
weren’t able to get out (we were in this story).

~~~
mdorazio
Who the hell is signing 10 year leases? 5 is standard. And why don't you have
a good relationship with the landlord? I've always been able to upgrade to a
larger space without needing to hold onto the previous lease long-term (just
until another tenant is found).

Granted, if you need truly flexible amount of space on a sub-yearly basis
(both up and down), WeWork or other co-los are a better model despite the huge
price premium, but I genuinely don't understand the demonization of the
traditional office leasing market that WeWork supporters bandy about.

~~~
dannyw
We are moving to a more flexible world, eg AWS. It’s not unreasonable to seek,
prioritise and expect flexibility in office space.

Why _do I_ have to sign a 5 year lease?

~~~
manigandham
You don't. There are tons of flexible space options and have been for a very
long time. WeWork is nothing new, just an expensive and shiny veneer over
existing services.

------
bambax
WeWTF Première Partie is here:

[https://www.profgalloway.com/wewtf](https://www.profgalloway.com/wewtf)

It's just as fun to read. It contains this sentence: _Adam 's wife is Gwyneth
Paltrow's cousin, meaning Adam is two degrees removed from Goop, an assault on
humanity._

But the gist of Part Deux is really that the F in WTF stands for Fraud. Let's
hope this story ends with some jail time for the main characters.

------
tgsovlerkhgsel
What makes WeWork so unique and powerful that it managed to paint itself as a
unicorn?

AirBnB has network effect for the huge market of "a place to sleep at while
travelling". This requires matching customers with providers frequently, and
the same customer will use the same platform and a different provider.

Uber has the same for "a car to take me somewhere". Again, repeat customers,
different provider every time.

WeWork seems to be... a company that runs coworking and office spaces. What
advantage does it have over any other company that runs coworking spaces? Why
would a customer choose them over any other coworking space/landlord in a city
where they want a coworking space/office? Most customers don't make that
decision often enough for WeWork to benefit from any sort of lock-in/network
effect. Why do/did people ascribe more value to WeWork than to a random
collection of coworking spaces with the same square footage? (Did they?)

~~~
wpietri
I think Uber is a big cause of the problem here.

Companies like Google and Facebook got investors thinking that a tech thing
that a lot of people used must be worth a lot of money.

Uber came along and legitimately made something that a lot of people loved,
and if you didn't look too hard, it looked like a tech thing. Plus it spent
years getting bigger and bigger rounds of investment, so it looked like a rock
star. Everybody wanted to be "Uber for X", never mind that Uber was losing
money hand over fist, still does, and may never stop.

WeWork went with the same formula, hoping to cash in similarly: Uber for
office space! Shiny thing that people like in a market that is a pain in the
ass! Amazing growth! Sure, the technology gloss was a little thinner, a little
hazier. But the CEO was even more arrogant, more of a performative visionary
than Kalanick, so that compensated for a while.

Unfortunately for WeWork, Lyft and Uber IPOd and didn't do so well. Tesla's
not looking so healthy either, and let's not forget Theranos. So investors are
starting to get wise to the fact that even if a "tech visionary" has gotten
investment, grown quickly, and gotten a lot of good press, it doesn't mean
it's a good stock to buy.

So yes, from an analytical perspective, it makes no sense. An oversupply of
investment money and tech hype meant a lack of discipline, meaning a dreamer
or a scammer (if in the end there's a difference) could try to build an
empire, and investors would either fall for it or believe that they had a good
chance of cashing out in an IPO before the house of cards collapsed. (For a
parallel example, consider Groupon, which is now trading at 10% of its IPO
price.)

~~~
bob33212
I think Apple is a bigger driver of the investment than Google or FB. When the
first IPOD came out few investors saw that Jobs was executing on a vision that
would create a trillion dollar company. Those same type of investors are
afraid of missing the next Jobs. A CEO is better off taking actions which will
cause investors to think she may be the next Jobs.

And they are right to be afraid, engineering advances can be unpredictable.
What if a AI developer at TSLA discovers a new approach to reinforcement
learning tomorrow? Or what if Holmes had found the Einstein of blood science?

------
AJ007
The biggest non-financial red flag for me was the glass office walls. None of
WeWork’s non-corporate customers are doing anything remotely sensitive or
important. During a downturn, these people will decide to go back to free
Starbucks to hang out.

~~~
bastawhiz
In fairness, you can have the glass frosted

~~~
effingwewt
I think that was OP's point, if they were doing anything sensitive they would
at least require soundproof frosted glass rooms.

On the other hand, I can't imagine anyone with sensitive information working
out of a shared workspace just because ofbthe ease with which a room or whole
floor could be bugged.

~~~
alexis_fr
Having sensitive information happens very fast when you start selling to
Fortune 500 companies.

------
sword_smith
> So, the mother of all party crashers took a dump in the We IPO punch bowl.
> The crasher? Math.

I laughed out loud when I read this.

------
reuven
I'm curious: If WeWork is found to be completely bad/rotten/fraudulent, then
what happens?

I'm not saying that this is the case. But I'm wondering what sort of impact
that would have on thousands of businesses that rent/use their offices, as
well as the many buildings that depend on WeWork paying rent to stay afloat.

How much of an impact would this have on the global economy, or at least on
the tech and/or real-estate sectors?

~~~
brown9-2
what makes you think fraud has occurred?

~~~
hossbeast
The content of the article?

------
muglug
Worth reading to the end for a beautiful section on humility.

------
jpalomaki
Isn't this whole valuation thing for companies like Wework a bit problematic.
I assume most (all?) of the existing shareholders can't sell their shares even
if they wanted when new founding rounds take place.

Now we get a new investor, who might acquire a relatively small part of the
company for crazy price per share. Then we state that the total value of the
company is now total_number_of_shares*crazy_price_per_share.

And of course even for the investor it might make sense to pay extra for the
investment. If you have for example participated in previous funding rounds
with lower price, it may make sense to pay overprice in the subsequent rounds,
since that might make your existing share more valuable.

~~~
rgoldste
Yes. Here’s a paper that dives into some of these points and a few others.

[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455)

------
umeshunni
The medium post linked to in Galloway's article is also a good read -

[https://medium.com/@henry.hawksberry/is-we-work-a-
fraud-5b78...](https://medium.com/@henry.hawksberry/is-we-work-a-
fraud-5b78987d3e61)

~~~
fastball
You just need to ignore the terrible proof-reading.

~~~
jannes
Do you work for We Work?

~~~
fastball
??

No? I enjoyed the article. But it has a ton of mistakes. The last two
paragraphs are literally repeated, in addition to all the spelling / grammar
mistakes. Many people have also pointed this out in the comments of the
article, and somehow the author hasn't fixed it.

------
DebtDeflation
>the lines between vision, bullsh*t, and fraud are pretty narrow. I can’t wrap
my head around what’s gone on here. Something is wrong. Something stinks.

I had a similar thought a few weeks back. If they're willing to cavalierly
expose this craziness in the S1, what else is going on there that we don't
know about.

~~~
pat87
It’s not that they’re willing but more like had to.

They need the extra cash from the IPO, and they have to disclose the craziness
in the S-1 otherwise it’s plain fraud.

------
caseyf7
Here’s Part 1:
[https://www.profgalloway.com/wewtf](https://www.profgalloway.com/wewtf)

------
cmarschner
There‘s another few positive effects from WeWork that has been overlooked so
far: It‘s a one-stop shop for startups that expand internationally.

When my company started building an office overseas, they looked first at a
new development built by a pension fund. Long story short our company would
have had to have a facilities person locally for months on end to coordinate
this. Lots of things lost in translation - the construction and real-estate
industry have many local norms and cultures. For example, the US facilities
people assumed to have many flexibilities how the office would be built out
while the local landlord had more of a “take it as it us or go away” attitude
- which is how real-estate deals are done in this city. Negotiations dragged
on for months. Project got delayed. It was a nightmare, we didn’t know where
people would be working as our team was growing.

Meanwhile I figured WeWork would open their first offices in the city. I
connected them to facilities. Turns out we already rent a space in NYC - so
connect them to the rep, moved in within two months. Problem solved, and the
product we get (AC everywhere, office design) is a few notches better than
what we would have gotten elsewhere.

WeWork also said once the office size gets stable they could build one out for
us - with our brand and separate entrance. So, I see it more as an outsourcing
shop for facilities departments, whose moat is the experience of doing this at
scale - internationally and for many customers. If they get their act together
this could be just as viable of a strategy as it was for KPMG, Deloitte et al.
in accounting.

------
tempsy
I’d also argue that WeWork isn’t necessarily optimized for remote work e.g.
they are optimizing for longer term office tenants who buy the actual offices
and not just a hot desk because those make more money and it’s a more reliable
source of income.

If true remote work becomes a bigger reality then you’d expect to see a
greater share of workers who only need a hot desk and not one of the glass
cubes, which have smaller margins and easily switched out with a Starbucks.

~~~
sroussey
There are lots of 20, 40, 80 person offices and I don’t think they are going
to Starbucks.

------
capableweb
> • Focus on margin expansion vs. growth. We has a differentiated product in
> the marketplace, and should command a premium.

Hm, what exactly does WeWork do that is so unique? Sounds like a regular real
estate company except they are targeted towards tech startups.

~~~
fullshark
Brand is worth something. WeWork offices are designed to be appealing to young
people (free beer, group activities etc) which makes it appealing to
businesses. Also in real estate location, location, location is a
differentiator.

~~~
eternalny1
No more free beer:

[https://www.vox.com/the-goods/2018/10/31/18049142/wework-
bee...](https://www.vox.com/the-goods/2018/10/31/18049142/wework-beer-wine-
policy)

~~~
ineedasername
But kombucha!

Really, The whole booze on tap in the work environment never made any sort of
sense to me. It seemed like a short-term recipe for poor productivity (I could
be wrong though) and worklplace conflict, and a long-term recipe for lawsuits
10 years out when alcoholics sue for their work environment facilitating or
causing their condition. (yes, it's happened before, breweries used to allow
it, but stopped)

------
hintymad
If I were a We engineer, I would leave the company immediately after learning
that the CEO ripped off millions of dollars from his very own company. I just
can't see how that level of greed can help build a successful company.

~~~
ineedasername
Do they even need (or can obtain) any sort of top talent engineers? It just
doesn't seem like there's much opportunity in the way of interesting tech
problems being solved there. Nothing that bog standard middle-of-the road
talent can't handle with plenty of time to also go retro with some local LAN
Doom thrown in. Actually, getting the original running and wiring up the
office through some old T-10 hubs (full duplex!) might be more challenging.

------
lordnacho
Is We a big enough part of vision fund to take it down in some way? Even just
as an embarrassing loss? His other two predictions sound plausible.

~~~
mighty_bander
If there really has been fraud at this scale, and nobody at the Vision fund
noticed or cared, the issue is not one of solvency.

~~~
goatinaboat
We don’t know that they didn’t. They might just not have cared so long as the
plan to dump the stock on retail investors and cash out themselves was on
track.

~~~
mighty_bander
Hence the prediction of their demise.

------
rolltiide
I only know a couple of WeWork employees and they are totally divorced from
any of this.

Its a mixture of not following any financial publications, not understanding
financial terms and thus the memes, seemingly no emphasis on IPO at work (this
I find harder to believe, maybe the word is mentioned but its white noise if
the financial literacy is really that low), and then sprinkle the “cult of
CEO” where everyone pretends to be there for the vision instead of 15 months.

The margin call is going to be a rude awakening.

------
michaco33
Does Softbank have more than ~$10bn to lose here, or is that it? Are there any
extra liabilities they've underwritten?

I loved the article, but even if it were valued at $0, would that decimate and
"shutter" the Vision Fund?

~~~
windsok
Written months before the wework stuff started coming out:
[https://capitalistexploits.at/hold-my-
beer/](https://capitalistexploits.at/hold-my-beer/)

~~~
teuobk
This is positively shiver-inducing.

------
bogomipz
The post states:

>"The firm will be forced to sell equity/issue debt at a price substantially
lower than they had anticipated."

What is this "selling debt" referred to here, is the basically a bond? Would
it be a bond that's backed by equity? Something else entirely?

~~~
JumpCrisscross
> _What is this "selling debt" referred to here, is the basically a bond?_

Yes, issuing bonds or taking out a loan from a bank.

~~~
bogomipz
Interesting, I understand how a bond would be considered selling debt but a
straight up bank loan is also considered selling debt? In the former there is
something being sold by the company but in the latter its actually being
something bought by the company. Are they both considered selling debt because
of how the accounting is done? Or am I being too literal with interpretation?
Thanks.

~~~
moltensodium
Bank loans are not that different from bonds, yes you are selling debt to the
bank who is buying it. Debt is an asset that is bought and sold around the
world just like stocks or magic cards.

Most loans are then immediately resold by your bank to some other bank, unless
you're at a tiny credit union it's unlikely the bank will keep that debt asset
on their books.

------
pcmaffey
If you mashed together the movies Wolf of Wall Street and Zoolander, you’d get
WeWork.

------
ladybro
Scott is a treasure. I love just about everything he writes.

'No Mercy, No Malice'

------
clircle
I hate graphs like the first one in this post. What is the graphical
representation of value? The area of the box or the width?

~~~
freyr
Area. Or width. It doesn't matter.

------
kwakuDompreh
The board needs to be removed first for this devaluation of pre IPO valuations
of WeWork! Too bad

------
55555
Scott Galloway is the Matt Levine of VC.

------
chx
As I was reading and reached:

> To be clear, I’m not a journalist, nor a forensic accountant.

Forensic accountant?? That reminds me of Snow Crash:

> When she says, "Do you have any relatives in Afghanistan?" that's like a
> code phrase, it tells all of her spook gear to get ready, shake itself down,
> check itself out, prick up its electronic ears.

~~~
dredmorbius
Forensic Accounting is A Thing:

[https://www.acfe.com/career-path-forensic-
accountant.aspx](https://www.acfe.com/career-path-forensic-accountant.aspx)

~~~
chx
Apparently my meaning got lost (as also visible from the downvotes). I meant
those two words made me immediately think of the dire conclusion drawn up
later: SEC investigation, crimes committed and so on.

~~~
dredmorbius
Ah, yes, quite.

------
JauntTrooper
This was a really striking sentence:

> We've witnessed a halving of journalists since 2008, while the number of
> corporate communications execs has tripled. In sum, the ratio of
> bullshit/spin to watchdogs has increased sixfold.

I personally know half a dozen former journalists that recently moved over to
PR, but I hadn't realized had much of a sea change it's been over the last
decade.

~~~
factorialboy
> We've witnessed a halving of journalists since 2008, while the number of
> corporate communications execs has tripled. In sum, the ratio of
> bullshit/spin to watchdogs has increased sixfold.

This assumes that journalists are capable of spotting (and willing to) spin /
bullshit in the first place.

~~~
myth_buster
Not sure whether trolling.

There has been some very good investigative journalism done in the tech
sector. Theranos/Uber/Tumblr comes to mind. Specially from media outlets
outside of the SV echo chamber.

~~~
jlarocco
Journalism is a big field. Just because journalists did a good job in three
situations you know of, doesn't mean the average quality is plummetting. As
counterexamples, they've done a terrible job investigating anything related to
Trump, Google, Facebook, Twitter, etc.

News outlets are too dependent on advertising, ratings, and public opinion
now.

------
rzzzt
The company name should be highlighted in the text somehow; in its current
form, it sounds like an eloquent Gollum's internal monologue in my head. I
found myself having to re-read quite a few sentences.

"We has gone from unicorn to distressed asset"

~~~
phyzome
Similarly, Yahoo insists on being called "Yahoo!" in their branding
guidelines, but it just makes the writer look like an idiot. There's no reason
you have to stick to the chosen name of a corporation if the chosen name is
cutesy and dumb. :-)

~~~
SilasX
Yes, and similarly for Apple’s insistence that you not use “the” with iPhone.
(Which Nintendo also did for the Wii.)

~~~
big_chungus
I've noticed this, bht ahve never been sure why. Maybe some marketing guy can
offer insight here? I don't see this making a huge difference. It seems as
though they want it referred to as a proper noun? I guess maybe it increases
significance or something?

Foreigners, does Apple do this in other languages, too?

~~~
hadrien01
They've tried it in France but it didn't work at all and was joked upon (among
other things). They now use a pronoun in marketing materials. Weirdly enough,
they insist on using 'iPhone' as a proper noun in Canadian French.

~~~
SilasX
Oh wow, they tried that in French, a language that more strongly demands
attaching "the" (le/la) to everything?

Btw, there was an interesting case where the inclusion of "the" in the French
version caused conflict:

[https://en.wikipedia.org/wiki/United_Nations_Security_Counci...](https://en.wikipedia.org/wiki/United_Nations_Security_Council_Resolution_242#French_version_vs._English_version_of_text)

(And I think you mean a definite article rather than a pronoun?)

------
amos19870630
This is brilliant writing. Please keep it up.

~~~
elpakal
I love Stratechery and had never heard of this. Definitely signing up to the
mailing list.

If anyone knows of any other tech/biz strategy readings like these, please
share!

~~~
moltensodium
This guy Galloway also does a podcast with Kara Swisher called Pivot which is
mandatory listening. They get silly but still shit on every bad actor in tech
so it's super entertaining.

