He's correct that really good businesses tend to start during recessions. Starting a business during a Roaring Twenties style economy when you could literally support yourself with a ridiculous idea like selling pet rocks will not test your business model and help you find its weaknesses. A la some African saying to the effect that "Calm seas don't produce skilled sailors."
I learned a lot and I am a bit envious of his acerbic wit. I feel like that's more acceptable from a man, but sarcastic contempt was pretty much my default as a teen and I sometimes think I've become a bit too PC over the years.
I did too, and have started looking at some of his other recent posts. I think they will well repay the effort. For example, this from the one on "Mueller and Night Invasions":
"As a kid, I would digest my stomach waiting in the living room, after school, for my mom to get home so I’d tell her I had lost another $33 jacket. My 8-year-old spent $44 for an in-app Princess Celestia Pony and, when confronted, beamed with pride, as spending money is a new skill he’s mastered, similar to math or (not) feeding the dog. It took just one generation for spending money to evolve from a crime to a competence."
What's "PC" ? Did you mean PC as in "PC vs Mac" boring/conformist vs cool?
IMO, you should be yourself, unless you’re a dick in which case, don’t be yourself. It may feel oppressive to you, but frankly, I don’t ... care, and neither does the rest of society which is why your approach doesn’t get you far. Hopefully this framing is illustrative.
I think it's a bit more complicated and nuanced than that, though I don't really think this is the time or place for me personally to try to get into it in a substantive way.
I generally shoot for genuine respect of people. I far prefer the company of authentic but socially awkward people to superficially smooth con artist types.
If one can combine authentic respect with smooth language, they are basically hitting international diplomat levels of social interaction. Awesome if one can pull that off, but quite oppressive to expect it as a default for being able to interact with others at all.
Which is why PC culture is very often toxic: In a world where asking for both is very often asking too much, it usually prioritizes style over substance.
You will note that HN doesn't require PC language. The mods will not come down on you for casually swearing. They will come down on you for ad hominems.
It's a good standard, imo.
The fact is that while everyone is entitled to speak freely Nobody is entitled to a platform. You have to earn your platform. You earn it through the way in which you present your ideas, which is particularly true for challenging ideas.
I mostly don't suffer from this issue. It's a genuine concern that if you can't speak certain words, then you can't think certain thoughts and you may not be able to feel your own feelings.
I spent a lot of time in therapy. I feel fairly comfortable with myself.
It's a topic I should perhaps explore more sometime, but I have had a really rough month, I'm still exhausted and I've got a looming deadline, so now is not the time for that.
That's the strong Sapir-Whorf hypothesis and it's not been a serious linguistic theory for nearly about a century now. It's not a concern.
You might have been thinking about the weak Sapir-Whorf hypothesis, which is about the much more reasonable idea that linguistic structure merely influences thoughts and decisions. Except that it's such an obvious no-brainer, it's hardly worth mentioning. Also it makes it quite a leap to go from there to being unable to feel your own feelings (again, instead of influencing ones feelings).
(see https://en.wikipedia.org/wiki/Linguistic_relativity )
On the other hand, speaking about being genuine: I personally believe that being PC is about being sensitive and aware of other people's feelings, to genuinely spend the effort to understand why or why not something would be offensive to people. And with understanding, you'll find that your language changes (just like it changes when you become friends with someone). That is really taking the substance over just the style.
And personally, I have found that cultivating this awareness in myself has allowed me to actually think MORE thoughts, and feel MORE feelings. Claiming it does the opposite is not helping. This is a matter of feeling comfortable with the other person's feelings, not about yourself.
I'm not making some mental leap. I'm describing first-hand experience of things I've had to overcome.
Your experience of life doesn't negate my experience of life.
Are you saying that you're incapable of non-narrative thoughts?
It's a bit like that.
This is extreme. Adam’s self-dealing is abundantly disclosed. There is no evidence he is acting in bad faith. (Versus being deluded himself.)
Lots of businesses leverage paper-thin margins. Lots of businesses borrow short and lend long. Lots of businesses, particularly real estate businesses, feature self-dealing and family control galore. American corporate law goes out of its way to avoid criminalising stupidity.
There is a chance WeWork attains enterprise lock-in sufficient to let it weather a storm. There is a chance it expands cross-selling to bring its books into the black. These chances are slim. But they’re clearly disclosed.
Self-dealing, as in how the founder leases his building to his firm, or how he owned and sold the We trademark to his own firm? I wouldn't call that 'stupidity'. In fact, it sounds very smart, for the founder. And unethical bordering on criminal.
In this case, the builds are the low-multiple assets and they're being separated out from the high-multiple asset which is the management company.
It's a despicable fraud and would be completely illegal if we had a functional SEC. They are just amping up the Uber-style con game to the next level.
There will be dozens more scam companies like this until someone finally cracks the whip, so get used to it.
Last I checked, being up shit creek without a paddle isn’t illegal.
The problem with criminalising stupidity is differentiating genius and idiocy is often only possible ex post facto. We let investors take informed risks with their own capital. The SEC’s main job is making sure companies selling securities truthfully represent themselves.
There are many business models I never thought would work but which, due to scale, clicked. I’m sceptical about WeWork. But the way for them to die is for them to starve to death. If the Saudis (and Kazakhs?!) want to give them money, so long as they aren’t creating negative externalities, I don’t see the problem.
The SEC used to prevent companies from listing that were obvious scams. They simply need to start doing their jobs again, it's not a tricky differentiation problem or moral quandry that we need to bust out latin to explain.
The VCs went into this with their eyes open and probably information rights.
The public has been told this stock features a CEO who scammed his own company out of licensing fees for the name, and features abundant self-dealing for leases of buildings he owns. Anyone who invests has been warned.
I’m not saying WeWork isn’t a fraud. I’m saying we have no evidence it is one.
People can reasonably disagree about whether a business model is sustainable. A bunch of people have bet one way. A bunch will bet the other. I don’t like WeWork, but I don’t like this idea that if outsiders disagree with the sustainability of a business model the government should shut it down.
If WeWork can realise cross-selling opportunities or unique leverage, through scale, over its lessors, it could work. It’s one thing to say something is stupid. It’s another to shut down the debate.
So, I can understand how a company like Theranos is fraud, because they are lying and have no product.
But, I've used wework successfully, I know a lot of people using wework successfully. They have a product that works and that people pay for. How can such a company be a fraud?
Fraud, put simply, is lying with material consequences. If Apple said their iPhone can fly you to the moon, and you bought it on that basis, you were defrauded. That the product does a bunch of other useful things is irrelevant.
That said, I agree with you in us having insufficient evidence to label WeWork a fraud. They’re aggressively disclosing their weaknesses. No evidence of deception.
Disclaimer: I am not a lawyer. This is not legal advice. Don’t toe the line with fraud.
Or possibly, if you sued Apple for that, your suit would be dismissed because Apple's statement was "mere puffery": an advertising claim so outlandish that no reasonable person would be expected to take it seriously.
A famous example is Leonard v. Pepsico, Inc., where a Pepsi TV commercial showed some of the things you could get by redeeming Pepsi Points that you earned with your purchases. It begins with:
75 PEPSI POINTS
7,000,000 PEPSI POINTS
John Leonard wanted that Harrier, so he sent PepsiCo a certified check for $700,000, minus $1.50 for the 15 Pepsi Points he already had, plus $10 shipping and handling.
When PepsiCo returned the check instead of sending his jet, he sued. Here's the commercial and the rest of the story:
(I'm not commenting on WeWork, only on the lunar iPhone example.)
Agreed. The example was facetious.
The underlying point, that a company producing a useful product can still commit fraud, to customers and/or to investors, stands.
If you bought it to go to the moon, it doesn’t work as promised. If the lie was wilful, that’s honest-services fraud.
Less facetious of an example: you sell a company that makes lots of money but has a material liability on its books. The liability can’t kill the company. But you intentionally hid it from a buyer. The company still generates all those dollars. But your hiding this material fact from the purchaser is fraudulent.
Disclaimer: I am not a lawyer. None of this is legal advice.
Investments can be shoddy without being fraudulent.
It’s up to you to evaluate the investment in question and decide whether you wanna invest.
Wework isn't so much a fraud as the next pets.com waiting to happen.
* EBITDA or Earnings Before Interest, Tax, Depreciation and Amortization. It's pretty much the net (before-tax) income of the company (per year), but after expenses that are easy to calculate (like employees' salaries and rent).
* DJIA or Dow Jones Industrial Average. It seems to be an index of the stock market, meaning a number calculated from the price of a selected number of stocks (in practice, 30 large US companies).
* The Flywheel Effect. I guess to understand this one you need to understand what a flywheel is, it seems to be a pretty heavy wheel. The metaphor here is that building a successful company is like pushing a massive wheel for a very long time until it catches some momentum and roll by itself?
"Similar to the DJIA, last-round private valuations are harmful metrics that create the illusion of prosperity."
A lot of people just wish the DJIA 30 would disappear from popular use. It's a harmful metric that gives the illusion of prosperity.
Examples: I take a loan with 1 million a month in interest payments and I "invest it" and "earn" 1 million a month. EBITDA: 1 million a month. Amazing! Real world, net zero.
I buy a 20 million dollar piece of equipment that lasts 20 years. From it, I "earn" a million a year. EBITDA: great! Real world, net zero.
For instance, Companies A and B are competitors in the same market and both have a million dollars in annual revenue and earnings of $100K. Are they both worth the same? What if I told you that Company A has no debt, and is depreciating its assets at an accelerated rate (ie is "paying off" its capital investments rapidly) while Company B is loaded up with massive debt and is depreciating more slowly? That changes the picture a little bit, doesn't it? This is why you have different metrics. Think of them as clues in a detective story rather than horses in a race.
> although it has some uses in comparisons
So we agree about that. In terms of EBITDA's "other uses" your example proves my point? From an EBITDA perspective, those companies look the same, so if you want to paint a rosy picture and you're the company with lousy financials, EBITDA is your go-to metric for your talking points.
Dow jones compiles indices on several sectors, not just the Industrials. Hence the four letters in the acronym.
"The Dow" or "the Dow Jones" always means DJIA.
It comes up in their articles sometimes, and is probably why they prefer to refer to the DJIA as a measure of market price than the SPX.
We have lots and lots of words; I don't believe this BS phrase fills an otherwise unfillable gap.
Fraud is Theranos. We seems more of a BetterPlace - delusional, charismatic founder + too much money - sound business model.
It's not fraud until someone wins in court. And not all cases of fraud are pursued.
Moreso, the author's point is that other businesses that have these long-term depreciations trade their equity at a much smaller revenue multiple. He's basically saying, you can't escape the fundamentals.
you don't hedge against decreases in demand via financial instruments, instead you:
1. hedge against decrease in demand through diversification of services; if wework sells some property management software (for example) then that might be more recession-resistant than their actual leasing business.
2. hedge against decrease in demand through long-term contracts: getting IBM to sign a 10 year lease (for example) is usually a safe bet that you'll have a tenant through the recession; on demand hot desks are much less safe
3. hedge against cost increases using financial instruments: most corporations doing hedging are hedging against commodity price changes, e.g. airlines buying oil futures or mcdonalds buying beef futures. similarly, wework might buy kombucha or aluminum cup futures, but there is no derivatives market for on-demand desks :)
of course, there are different perspectives on this. matt levine has a really interesting column about the different philosophies of where diversification belongs, at the corporate level or at the investor level: https://www.bloomberg.com/opinion/articles/2019-04-09/ceos-l.... my finance classes were relatively recent so you might be able to tell my bias.
I don’t know if the math adds up, but I think it deserves studying.
I’m not looking to hedge against all kinds of customer flight with an instrument, that’s clearly foolish as you noted. But particular events can be hedged.
If you could hedge a recession, we’d have no recessions :)
Hedging only works if you have short time durations (eg you wanna hedge specifically in October, because you have a big bill due then), or if you’re the one providing the hedge and capturing the Volatility Risk Premium.
"We Work" can have a built-in cushion against smaller recession events - long-term leases, being able to predict which percentage of short-term leases will dry up, cash reserves, some sort of counter-cyclical lease agreement (e.g. with repo companies), counter-recession marketing/education/etc program (e.g. "let's beat recession together by sticking together!" or some such).
Where the hedge is coming in is making sure that the company does not end up upside down if recession hits harder than the built-in cushion can absorb. They could be buying 12 month S&P500 options on a rolling basis - buy a new batch every month as the previous batch expires. The idea is not to get paid each time SPY drops 5% down, but to get paid when it drops 35% down signaling an actual market crisis and have enough time/money to survive the hit.
I don't know if it makes sense as I'm just making this up as a I go, but your criticism is selling the idea short. Ahem.
But no, you cannot hedge away risks of a recession - for cheaper than what a recession would cause.
I have absolutely no doubt that I've missed some good ones, but that's how WeWork made me interested in something that I'd put off for so long -- really nice looking interiors in great parts of town/great buildings. They are in no way a tech company, however their aesthetic and values do more closely mirror tech companies than a lot of their competitors that are low cost satellite office providers for low-tier organizations.
We have private offices, better views, zero annoyance from fellow lessees (nobody leaning over to sell us insurance while we have headphones on, or harassing us about their recruiting services), pay half the rent (even less, now that we signed a long-term lease, previously we were month-to-month).
As far as I can tell, the WeWork across the street has a nicer interior and better coffee. That’s it. That’s all.
And it’s way more expensive and has a way more distracting culture.
This is all nice for customers, but makes for a shitty investment.
WeWork doesn’t have any real competitive advantage when you want to turn it into a healthy, profitable company. Then it will just be any other coworking space; perhaps a more fancy one, but also more expensive.
Starbucks has no real competitive advantage over Local Coffee Co. other than great location, decor and brand appeal too. Thats what OP argues were the deciding factors for them. To attribute nice decor as being nothing more than a sunk cost is erroneous at best.
Clearly Wework has at least some economies of scale, but as for purchasing power not so much. The mass importation, distribution, and sale of a perishable agricultural product is a whole different kind of thing.
WeWork is an international brand. Can you name another coworking space in nearby [state/country]? On the other hand there’s prob a WeWork there with a certain consistency wrt quality that you’d expect.
But the lack of examples doesn’t support the argument the way you think it does.
That means it’s very much an open question if this model could ever be successful. Unlike chain food/beverage which is a highly proven business model.
Good for them, but what’s that worth exactly? Having brand recognition is not at all the same thing as a barrier to entry of a market, or a network effect.
The market for shared or managed office has very low barriers to entry and modest network effects. Thus making the concept of a monopoly in this market more than implausible.
If Starbucks spends less money buying coffee, that means they can afford to spend more money on nice decorations (and better real estate, more ads/PR to increase brand presence, etc.) than Local Coffee Co. The real estate/furniture is presumably a relatively small portion of the operating costs of a coffee shop, so e.g. buying 10% cheaper coffee beans could mean getting a location that's two times as attractive to customers.
WeWork might not be able to do that as easily because for them, the real estate and furniture is their only product.
Personally for me ability to order Starbucks coffee online and have it ready when I get to the store is a game changer + consistent user experience. Local coffee shops are always hit/miss.
WeWork won't be able to maintain their venture-capital-fueled level of spending forever. Starbucks' economies of scale aren't a one-time "build the brand" thing, they're a constant source of capital that allows them to continually build and maintain storefronts better than Local Coffee Co can.
I can totally see a world where WeWork, forced by the public markets to attempt to reach profitability, stops putting as much money into their buildings and furniture as they currently are. Then, the next real estate firm disguised as a tech startup can raise private money at a forty-eight million dollar valuation, build even nicer offices, and eat their lunch.
> They have the first mover advantage.
I am not convinced the first-mover advantage is very significant in the short-term office rental industry! WeWork got a lot of customers by selling nice offices at below cost, even though other players in the space had been around longer. Who's to say another company couldn't do the same thing?
WeWork has 10-15% gross margins.
"Gross margin is a company's net sales revenue minus its cost of goods sold (COGS). The gross margin represents the amount of sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells."
(I understand that most WeWork locations should look about the same, so…)
I still don't get how their "private" offices have glass panes for walls. That's horribly unconducive for work.
I visted the WeWork office on Bloor last year, and it was more like a party than I would like. Seems like a great place to meet a future spouse. Not necessarily a great place for quiet, deep work without noise.
They have a lot of social events. Seems to be their big selling feature. So if you are looking to prospect for customers like a real estate agent or something, maybe it's worth it.
We ended up at iQ offices, much quieter than WeWork. Workplace One's new location also seemed pretty compelling, just not in as good a location for those of us commuting on the go train. If internet speeds are important, make sure to ask about that, because most of the offices we talked to had pretty shit speeds.
On the other hand the fraud is wrapped in the most delicious of absurd flfftery that it's a pleasure to try to ape it.
A conversation about fraud often litigates whether or not omission is a form of lying.
since it looks like you've spent some time on this, would you care to take a shot?
The fact that you stated "The company is a fraud", before saying that this should be stated plainly. Since you didn't say something like "...from my point of view I certainly have the impression that..." or something like that. Since you spoke definitively, I assumed you have a definite opinion you formed somehow.
Really? How is this sort of shenanigan allowed?
This alone should be a massive turn-off for investors, nevermind this kind of personal eccentricity that makes this absolutely insane.
Which situation you are in, and whether shareholders would be turned off by majority ownership, is context specific.
For example, I think SpaceX would be a less attractive stock if there were only minority stockholders, and having Elon as the majority holder makes it more likely to succeed at going interplanetary, rather than just milking a traditional orbital business model.
If your investment thesis depends on a bold bet like that, a single majority shareholder you trust would be a comfort.
I agree with your larger point though.
And that's at best. But I think a collapse is more likely. Uber may also be losing a ton of money, but they have enormous pricing power over their major raw materials, namely individual drivers and their cars. But WeWork is renting space from hard-bitten landlords run by professionals, and those companies have plenty of alternative tenants if they don't like WeWork's terms. At some point I think there's going to be a mismatch between their short-term income structure and their long-term obligations to the space owners, and then it's going to be a big old mess.
WeWork on the other hand seems like they have a solid product?
Maybe they are not profitable, and maybe the business model makes no sense and will never be profitable. In that sense then maybe you are right?
But in the mean time, the product they are selling works for their customers and there is high demand at the current price point (which is already insane imo).
1. Start a shiny business that attracts customers. Never mind that you're losing money per customer.
2. Get some big investors. You are now valued at 2-digit-billion dollars.
3. Talk about IPO. The general investing public has heard about your shiny service/product because the news talks about how shiny and hip you are (are MSNBC just idiots so easily distracted?) and the public are about to bite!
4. IPO. Big investors cash out. Mom-and-Pop investors lose money.
5. Profit! For you and your big investors.
I see similar talks about Uber, and yet I can't imagine such a product failing due to the number of happy customers.
This is a stock sale. The "mom and pop investors" buy into it with full knowledge of what they're buying. It might be a bad investment, but I don't see where the fraud comes in? I'm not convinced that WeWork is a sustainable business which is why I won't invest in it. Others might disagree.. we'll find out down the road who is right.
And no, mom-and-pop investors don't have full knowledge, not like insiders do. The fraud would come in if the insiders are being anything less than perfectly honest about current condition, future prospects, or their expectations.
Of course, this might not rise to the level of criminal fraud. But when you look at something like Groupon, which fell 90% quite quickly, and which had insiders taking money out early on, it's reasonable to suspect that at least some insiders knew what they were selling to the public was dubious, but did it anyhow.
Groupon is still a functioning business, of course, with something like $2bn/year in revenue. And WeWork might end up a functioning business as well, just like its competitors. But I think its best case is to end up like those competitors, which all have thin margins and look like regular old businesses, not profit fountains like Google, etc.
Comparatively, the money WeWork's customers spend on WeWorks would be considered opex, for those whos budgets are big enough for the distinction to be material.
Is WeWorks hacking corporate America's budgeting practices, doing what AWS did for rack space?
If a recession hits, or even if there's just a glut of rental office space because other players overinvest, then WeWork may not be able to fill their spaces, which they've mostly committed to on long-term leases. Their costs are fixed in the short term, but their revenue could be highly variable.
It's true that in the longer term the market for large blocks of space follows economic cycles, so if they are looking to expand during a recession, they can get a good price. But why would they do that? Since their business model is all about flexibility, they will be harder hit by recessions than both property owners and other people who need large blocks of space.
With something like WeWork I can just come in no matter if I have a 10 or 100 person team.
Were I work we have moved the HQ 3 times in 4 years with substantial cost. We now have a couple of international locations and all of them are under WeWorks roofs. We are glad to not be dealing with the office burden abroad.
Up until 100 employees in the same location, I'd chose WeWork any day and concentrate on my product. I have been to lots of CoWork spaces, they all don't work long-term and are only good for fairly small teams. WeWork on the other hand is also good for bigger teams.
I suspect either due-diligence caught it and decided to live with it after some negotiation, or they missed it - oops!
In that case wouldn't he simply have to divulge that fact early on in the decision-making process? "Guys, maybe I should recuse myself on this decision since I'm in a bit of a conflict..."
Investors gave Adam virtually unchecked power over their capital.
Hahaha. I think its pretty fair to say that this is not a Generally Accepted Accounting Practice measurement. (non-GAAP)
I've only visited a We Work location once, but it really felt like a VC funded startup - particularly the amenities. Without the amenities, it would have been just another depressing office.
0 - https://qz.com/1685919/wework-ipo-community-adjusted-ebitda-...
Thanks for the explainer link.
However, 'We' has it's own EBITDA-sounding metric where they exclude so many expenses it is laughable.
All my favorite finance meme accounts are tearing this to shreds too.
The only people I’ve heard be excited are the WeWork employees, and you can practically never get the employees to have a counter view on this even if they don’t get stock. I dont mean in like “I dont want to rock the boat” way, but more in an common ignorance of personal finance let alone investing way. They also arent really the investing class, so far they dont really understand the memes aside from the comments like “is this company run by Congress?” Not WeWork specific they just arent investors or financial professionals.
What do the “members” think? Is there any “yes I cant wait to align my interests with my favorite coworking space by investing in their future growth” sentiment? Im just not around those people so I dont know
WSJ and Bloomberg have been ripping on this for over a year, and now with the S-1 out Hackernews and finmeme accounts are ripping it too
Think they’ll retract the S-1 and stay private?
I like that they at least pretend to care about the environment. I'd like it better if they actually did things to lower the energy use of their buildings.
That's kind of true-by-definition; you can't have fraud without being deceptive.
If they (clearly) disclose all they do, it can’t be fraud.
The metrics employees consider are just very far removed from anything that matters for making shareholders money. Its like listening to the most retail of retail investors, where sentiment is “hey I know that brand and dont hate them” invest
And yes, sure, sprinkle a little vested interest on top of that, and possible career derailment if your colleagues hear you till you get a perfect storm of no objective reasoning. The issuer side of an offering like this is always a good hand, the employee side is decent too unless you have to buy your own stock options.
I worked as a software engineer at WeWork for a bit and no other startup or tech company has come close to the cultishness that Neumann is trying to cultivate there.
Some highlights from my brief time there:
- mandatory spiritual guidance at a company summit where the “guru” enforced the importance of one’s place in the organization
- mandatory attendance at “Summer Camp”, a weekend long music festival with excessive drinking
- mandatory attendance of a talk led by Neumann and transferred to Deepak _fucking_ Chopra at Summer Camp
- the Meetup founder displaying a picture of the twin towers, post plane crash, on a giant screen at Madison a Square Garden during a company summit
And these were just the noteworthy events that rose above the background noise of “What insane thing will Adam Neumann say this time?” each time an all-hands was held.
Where can I send my resume?
>and transferred to Deepak _fucking_ Chopra
It's not clear what that would mean for SoftBank but it can't be good. All VC funds are looking for an exit, Vision Fund is no different.
Here's why I'm not a fan: The interiors are cheesey, badly designed, and generally seem poorly built (things are janky and break way too easily). It's often hard to find a good place to work in the common areas - pop music is blasting in the main common areas and the few phone booths and quiet corners are often full (people sometimes just work in phone booths, which is annoying). The fact that you have to pay to use conference rooms (at least with my company's contract) and you have to pay for granola bars and other snacks feels kinda nickel-and-dimey. (There is free coffee, and free beer but during the workday I'm not usually looking to drink a pint.) Also there's a theme of forced happiness everywhere (the mugs all say "do what you love" or "always half full"), which feels at best like vapid corporate fluff and at worst kinda cult-like, but either way it's mildly off-putting. Finally, they often invite salespeople from different companies to set up tables in the common area to sell/advertise random stuff, which isn't that big a deal but monetizing their tenants' attention during their work day kinda seems at odds with "building a community" and "elevating consciousness" and all.
I like the concept of a global coworking space network. I'm just not a fan of WeWork's implementation.
My bet is that in ten years WeWork will end up a bit like Groupon is today - still going, but far from the world-changing force they were once hyped to be. Of course, a lot of weird stuff can happen and maybe they'll end up dominating the worlwide office market, or maybe they'll flame out spectacularly in a couple of years.
It's obviously a more visible brand for people working in a particular area of the tech industry than most real estate brands, but that's a different issue than brand strength in real estate.
And get their next cash infusion from where, exactly? If they manage to find even more private investors, that might be an option, but would probably hurt their image more than the negative press around the S-1.
Or try to become profitable really quickly?
Remote work is on the rise here in the US. Startups and entrepreneurship continue to grow. Finding traditional office space sucks and is a massive waste of money, and probably always will. Co-working spaces make sense, and it’s baffling to me that it wasn’t the default way to work in 2010, when I started programming, let alone 2019.
I feel like if somehow fast food hadn’t been invented til now, and MacDonalds just got started, we’d be reading pessimistic threads about how it’s a real estate business masquerading as a food business and is destined for collapse.
But like, it actually does work, as a business, to provide some necessary service (office space, food) at scale with a big central marketing apparatus. The fundamentals here seem sensible to me.
Coworking will grow and prosper. WeWork, I don't know. I don't know how long any company can survive the egregious investor-fleecing WeWork's founder seems to wantonly engage in. Perhaps if a clear stop is put to that, and if every other part of the business plan goes flawlessly, then it has a future.
But coworking is about alot more than WeWork, and the industry will do fine whatever WeWork's shenanigans imply for the latter's future. There are currently around 20,000+ coworking spaces worldwide, of which less than 5% are WeWork's:
All this reminds me of Blackadder 2, Ink and Incapability. https://en.wikipedia.org/wiki/Ink_and_Incapability
Blackadder finds himself in a situation that quickly becomes increasingly unbelievable. Finally he recognizes he is in a dream, and he wakes up in disappointment. I'm still waiting to wake up.
But history is littered with turbulent times, and compared to those times the present is a pleasant dream. Whether it turns nightmarish remains to be seen.
It's also on Hulu
bear hypothesis: wework is an overhyped-regus with a frail capital structure, no scale or network effects, and dangerous liabilities. it will likely collapse during a recession.
questions for investors:
1. how much flexibility/escapability does wework have regarding leases and liabilities? in particular, how much control do they have over cash flows to avoid disaster during a recession?
2. how much does it cost and how long does it take for enterprises like cisco and ibm to open new offices: (1) with wework; (2) with regus or another wework competitor; and (3) without any outside assistance? how about for companies with 100-1000 employees?
3. what is the current breakdown, lifetime value, and retention rate for wework members among solos, startups (2-99 employees), mid-sized companies (100-1000 employees), and enterprises (1000+ employees)?
4. cashing out $700mm seems like a red flag if you believe the company is worth much more. what percentage of equity does this represent for the founder? is cashing this much out normal for large IPOs? by comparison, how much did zuckerberg, hastings, and bezos cash out at IPO?
question for others: what are the first questions you would research on wework?
At any rate, from one point of view, this WeWork thing is just the oversize "winner" from New York City, in this dog race. Like commercial fishing, and some kinds of investments, lots of ordinary efforts fail for no good reasons, then some pig comes along and gets the momentum.
No. This is a known unknown.
On one hand, contracts get cancelled and WeWork defaults. On the other hand, WeWork’s aggregated buying power lets it renegotiate leases, passing the pain to landlords.
It took years. The property company would rather that floor to be empty earning no rent, than to cut a deal on it. And they won, the company paid their price and signed the long lease they wanted.
Property companies don’t blink. They will not cut WeWork any slack.
In 2000 I knew someone who called all their major vendors for datacenter space, etc, and threatened that if the landlords didn't cut the cost, he would go bankrupt. The response from 100% was "go ahead". To do otherwise would be philanthropy on their part.
> WeWork’s aggregated buying power lets it renegotiate leases, passing the pain to landlords.
Everything in real estate is driven by the valuation. This dictates lending terms, tenant acquisition, sales & marketing strategy, everything.
But valuations, fundamentally, are just numbers that an independent advisor plucks out of thin air. It's a difficult job that ends up being a mishmash of guesswork of what things could be rented for, and how much they will appreciate over the coming years, and tangible numbers around what other "comparable" properties are selling/renting for right now.
This isn't as nonsensical as it sounds. After all, an untenanted building clearly isn't "worthless".
Now owners have every incentive to push this valuation up. Actual yield (i.e. how much rent you are actually receiving at any given point in time) limits your flexibility to do so. It's difficult to convince the valuer that your space could be rented for $1000 psqm when it's already being rented out at $800 psqm.
Absurdly, it's much easier to convince a valuer that untenanted space could be rented at $1000 psqm. There's no direct evidence to the contrary, so the smoke and mirrors story is much more convincing.
This is why commercial landlords will almost always lose a tenant before dropping rents. The latter will crystallise a reduction in yield which immediately affects the property's valuation (and thus their sale prospects or leverage ratio).
It was incredibly eye-opening to see how much unreality goes on in real estate.
> Ms. Neumann created controversy when she went on CNBC and said: “A big part of being a woman is to help men [like Adam] manifest their calling in life.”
In what kind of twisted society does a statement like that create "controversy"? I'm a man, and I've always felt that in my relationship it is my duty to bring out the best of my woman and enable her to reach her full potential. Are my fellow men outraged as well? Only in America does an innocuous statement like that generate controversy (unless of course this is just a couple random tweets that the media is trying to turn into a big controversy to generate ad revenue).
Adam's unconventional moves appear extremely outlandish when spelled out in the S-1 disclosures, but because I have no position I just find it entertaining. I'm looking forward to the conference calls.
I worked for WeWork for a short period of time during one of the SoftBank rounds, and one positive unconventional thing the company did was give employees with vested options the opportunity to cash out alongside Adam, rather than being forced to wait until post IPO lockup.
It just seems like WeWork should charge a little more to nail down profitability.
I think this business model will continue to survive regardless of WeWork's success or failure here.
It seems like the valuation should be part commodity (the cost of the services provided), and part location (proportional to your local office real estate market). And maybe your size compared to your next largest competitor.
Now the gross margins look terrible, but the sell is probably this: how hard is it to monetize 500k users (Q1 2019 numbers) who land up and work out of your managed premises everyday?
> In 2025, every Fortune 500 company will have 10k+ remote workers, and every purchasing department will approve a reimbursement for WeWork with no questions asked.
The actual bull case for WeWork is similar to Uber: there may be a massive trend, and WeWork is positioning itself to be the winner. With Uber it's the push to self-driving cars, and with WeWork it's the corporate move away from massive campuses and office buildings. In this new landscape, WeWork has extremely strong branding, experience, and a valuation that suggests it is the biggest player in the space.
But what does that mean, exactly? I mean, imagine I'm an employee of BigBank in BigCity. My options are work from their office in the centre of town, work from my house wearing my pyjamas or... get dressed for work and commute into the centre of town, and sit in a WeWork instead and then charge it back on expenses because... reasons? I have better coffee and better wifi at my house...
The WeWork I am at in London is filled with companies like this. Docker's UK team, PagerDuty's EU branch, more small quant teams than you can shake a stick at, etc.
You may have better coffee and wifi at your house, but the rest of your team is not interested in crashing in your kitchen all day...
UK retail is about to implode, so there's going to be plenty of competition in the co-working space as landlords and local business associations agree that reduced rent from light office occupancy is better than no rent from shops.
That may not quite serve the MidSizeMarket - but just as easily, larger competitors with stronger branding and sales efforts could move in. Especially after a downturn.
So WW is horribly exposed. It has no real first-mover advantage, no long-term loyalty from customers, and serious financial issues.
I can totally believe that their line of business will grow by a huge factor, but I don't believe that they will ever earn the out-sized margins to justify their current valuation. Their business can be replicated by anyone with a bit of capital to spend on leasing office space. They don't actually own most of their office space; they just lease it.
what about a consistent user experience? that might differentiate We from competitors: ease of use and familiarity of environment for the workers. I mean, I go into a Starbucks or a Target store and it looks familiar and I already know what I'm gonna get (another Starbucks).
Companies like BigBank will have offices in dozens of cities around the world with frequently shifting office needs. A WeWork type company can definitely fill a role for them. But that niche is already filled and it's a tough business. At this point WeWork is renting out space for less than they paid for it. Obviously that's good for market share but not a good sign for long term viability.
In fact the company I used to work for did just that. They rented 10 desks at a local co-working space in the next town over and told everybody who lived around there that they where free to work there if they didn't feel like making the 1 hour commute each way.
And, have you worked from home on any kind of permanent basis? I don't have a family but I still like to get out sometimes. If you have no room for a dedicated office, or if you have pets/family that can be a distraction from work, a collab space is desired.
As for individuals on their own, sure, if you are permanently working from home, a collab space is great if you don't have a dedicated office—but if WFH is a permanent arrangement, why wouldn't you rent space that includes a dedicated office instead of renting the two things separately with a commute between them plus probably paying a premium for shared office space since it will probably be in a more central, and expensive, location.
I mean, assuming We’s business plan isn't to continue to rent space at a loss forever, but to eventually make a profit.
As someone who's worked from home for ~3 years now (and with much better coffee and Internet), it's isolating, and I basically don't stand up from my home office for ~16 hours some days, since it's also where I happen to spend at least some of my free time.
Screw "third place", I don't even have a "second place". I live in Bentonville, AR and I cannot wait for the WeWork that was announced here to get built.
A ton of articles articles talk sideways at this idea, here are a couple (the second link is the most direct "answer" to your question but it's all interesting):
I'm not trying to assert "this is the truth", sorry if that's how I seemed. It's just my layman's take on the situation.
But, I’m not convinced that his 2025—6 years from now—vision is even approximately correct.
BigCorps are very price sensitive in the sense of minimizing cost per value and aggressively leveraging their size to do that.
They aren't price sensitive in the sense that if something has a value proposition that justifies the cost (even if it's not a short payoff, and even if it's a large absolute price) they have an easy time finding money.
They may also sometimes seem but to be price sensitive in the first sense because they tend to have lots of small fiefdoms where exceptions to aggressive optimization can survive as long as their shake is not too big and/or the right authorities have bought in, but that's an exception to the general rule and isn't going to cover a massive aren't of remote workers at each BigCorp.
The big bet on them I suspect is that any upcoming recession will probably lead to a lot of companies wanting to reduce their office costs. They may want to switch to WeWork managing their office spaces much like tech companies want to switch to Amazon Microsoft or IBM managing their IT infrastructure.
Second, Regus is larger (more revenue, more locations iirc). Regus is profitable.
That's just a direct coworking/office space globally company. WeWork isn't even a leader. It's just shiny bullshit.