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Was WeWork Ever Going to Work? (nytimes.com)
24 points by pseudolus 12 days ago | hide | past | web | favorite | 53 comments

This isn't the best article, but there's a point that I think is useful:

> 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.

When people hear about typical con games, like the Pigeon Drop [1], their reaction is often, "Thank goodness I'm so smart I'll never fall for a con!" But that's incorrect. Maybe I wouldn't fall for that con, but that just means the con wasn't for me.

Things like Theranos and WeWork fooled people who were plenty smart. But they are, like everybody, trying to model the world using 3 pounds of meat. It's not enough. We take shortcuts. And all of those shortcuts have flaws.

One of our industry's collective flaws is a belief in the genius, that revolutionary smart guy who's just so smartily smart that they see things the ordinaries don't, and will therefore be very successful. But that leaves us vulnerable to people who perform the tropes of genius. Hands up everybody who's had to work with an "architect" like that.

Another is of course the genius entrepreneur, who has a grand vision to transform the world. As we can see, investors just love that. They've been trained to love it by all the "genius entrepreneur" stories that are generated by finding somebody successful and then filling in the narrative mad-lib with events from their lives. And of course, finding that "genius" entrepreneur lets investors see themselves as geniuses of a different kind. It lets investors justify their belief they deserve to be super rich.

Let's hope things like Uber and Theranos and WeWork put enough holes in that myth that we'll stop being vulnerable to people who put on the genius outfit and do the genius performance. Because personally, I've been tired of it for years.

[1] https://abc7news.com/news/vallejo-man-loses-$10000-in-pigeon...

I think it's pretty unfair to lump Uber (which really has transformed the world in a real way) with Theranos (outright fraud) and WeWork (possibly a viable but semi boring business that got way over hyped).

Uber wasn’t really what transformed the world, it was just an emergent property.

What changed taxi transportation was ubiquitous personal computers with detailed screens, network connectivity, and GPS in literally everyone’s pocket.

As soon as it was technically possible to press a button on a portable device you already have and see a little car coming towards you on a map, hundreds of startup founders were going to try to do it, and did.

Before that something like Uber was impossible, after that it was inevitable. Just like something like YouTube and something like Netflix were inevitable.

That’s not to discount the very impressive work it takes to be the winner in such a fast moving market. But it’s not reasonable to credit them with the world transforming innovation, it was just the next logical step in an ongoing progression.

Did smartphones transform the world or were they just an emergent property of improved touchscreen and battery technology?

Like...I get what you are saying and I agree that something like Uber was inevitable. But someone still has to go out and do it.

Every big business idea in inevitable in it's time. The trick is being first to grow large and take the market. Often people try out the exact same ideas but they are too soon so they run into problems. Timing matters so much as well as the ability to raise money when it is a big idea

Your argument means no business success deserves any credit, they all just inevitable .

Nah. Some businesses are genuinely innovative from a technical or structural standpoint.

Ford comes to mind, or Google. They had very strong competitive advantages due to a technically superior process or product. Cars and search engines were probably inevitable, but Ford and Google moved the technology forward a whole generation.

Uber made a pretty rudimentary mobile application, their real competitive advantage had more to do with success in financial sophistication and compliance/regulatory avoidance.

Google is just AltaVista with a slightly better algorithm. It wasn't the first search engine nor the first to offer ads on search or on the web. It just won the market and it was just as inevitable as Uber is. I even know a guy who was analyzing backlinks to rank search results before Google's PageRank paper.

I do not know the context of Ford.

That's far from true. Did you actually use pre-Google search engines? Google was a huge step forward in user experience. And I think they achieved that through significant innovation not just in algorithms, but in using commodity hardware and ops innovations to greatly increase the amount of computation they could use for a given search. And they didn't just have one clever idea; they built an organization that could keep having and applying clever ideas.

But it was also innovative in business terms. Search at the time was monetized like media properties: running a lot of ads that were at best tangential to what users were doing. They instead recognized that a lot of search wasn't great for monetization, but some of it -- where users were looking for something that could be purchased -- was very valuable. So instead of banner ads and all that nonsense, the ended up with AdWords. And instead of selling it via media sales execs, they made a self-serve bidding platform.

If Google had just had a slightly better algorithm, any of the better funded players could have taken them down. But Microsoft has been trying for years to break in and Google still has 90% of the market.

Goto.com did keyword ads well before Google. I think you are just forgetting history to make Google seem super unique.

Uber didn’t transform the World. They offered cheaper taxis. Now wework actually transformed the world by bringing cheaper and flashier rental office space which has revolutionized the way most people use rental office space... /s Though in truth, neither did anything of notice. They used VC to undercut the market in a non-sustainable fashion.

Yes, Uber did use VC to undercut the market. Yes, they went around taxi regulations and labor laws.

But Uber was the first to successfully deliver taxi via app, which did actually transform the world.

Did you take a taxi any time before uber came along? Unless you’re in a major city (NY, LA, London), or are somewhere like an airport, you’d need to call them, potentially hours in advance in rural areas, and organize a pick up. Knowing if you should tip or not was always confusing, the fares were expensive, and you had no real way to address grievances against the driver, unless they do something illegal and get pulled over.

Nowadays, almost every taxi company has an app, which emulates all the same functionality as Uber. Uber’s way of changing the world was one of user experience and logistics. Not the actual transportation, which as you call out, existed long before.

Sure. Uber definitely did better taxi dispatch. But if Kalanick had kept working on Red Swoosh, does anybody really believe taxi dispatch today would be just like it was in 2005?

I'd say no. The cab industry was already tracking vehicle GPS circa 2005: http://www.taxi-library.org/mccurdy.htm

Google Maps Android launched in 2008. It doesn't take a genius to say, "What if..." And people did. Like this 2010 paper about experiments with Java apps to do taxi dispatch in Singapore: https://pdfs.semanticscholar.org/dddc/21e65523932240164d2bb4...

So people are giving Uber credit for something that would have happened anyhow. And they're doing that because Kalanick was the one most willing to burn money and break laws, not because he was such a creative genius.

Uber did not just offer cheaper taxis. A taxi company has staff and cars that cost money to own, run, and maintain which effectively means a taxi company any never meet peak demand and make a profit.

Uber can meet demand since they don't own the cars nor the staff. The system automatically scales, something taxis can't do.

That is the innovation, not apps. Plenty of taxi companies all over the world had apps before Uber even existed.

That wasn't actually Uber's innovation. Ubercab's notion was to use limos, etc.

Taxis only really worked in a few large US cities before Uber.

Now I can get an Uber almost anywhere.

Uber coverage is still fairly limited with plenty of cab companies operating in areas they don’t. https://www.uber.com/global/en/cities/

In 2012 there where 233,900 cabs in the US which seems limited, but they would work very long hours. Uber’s actual change was mostly around increasing peak availability, but not nessisarily total availability as 1/2 of their drivers average 1 to 15 hours each week.

I didn't check exhaustively but I looked at all the cities in South Carolina (the state that I am from) in that list and if you click through you'll see that the areas they are talking about actually pretty much cover the whole state.

If that's getting done for SC (a relatively un-dense state) I think they're covering pretty much everywhere in the US.

TBH I think the page you linked to is more about SEO than about Uber's actual coverage.

Can you tell me a specific place that has good coverage from cabs where Uber doesn't operate?

For larger areas I am not seeing Charleston WV on their list of cities. Though this would be easier if they showed a single map across the US.

Think smaller, Charles town WV official population 5,957 has taxi service. Edit: that was under the Baltimore map even though DC was closer. https://www.uber.com/global/en/cities/baltimore/

Fair enough. There are indeed some very small towns where Uber hasn't changed anything. Despite that, I stand by my assertion that the company changed the world in a real way.

I also think they'll get the the Charles Town WVs of the world at some point.

Have you read "Super Pumped"? I'm pretty comfortable putting them in the same bucket: which is "genius/asshole founder hyping an unlikely future to get gobs of venture capital". Uber still hasn't turned a profit, and may never because it has no moat. I expect that in ~15 years, Uber will be in the same bucket as Groupon: things that everybody was excited about for a while but are at best minor players in their space.

I also think you're giving Uber way too much credit. They are the dominant player because Kalanick was unusually terrible and because his investors gave a terrible person a lot of money. He didn't invent remote taxi dispatch (which was a telephone-era innovation) and he wasn't first in the anybody-with-a-car-can-be-a-taxi game (which was Lyft). He was just more willing to break laws and be a dick to competitors.

I believe that if Uber hadn't appeared on the scene, things would be about the same (by which I mean we'd have people ordering rides via smartphone) but in a healthier way (by which I mean not burning billions per year, less worker exploitation, fewer negative externalities, and healthier municipal regulation).

So I'll give plenty of credit to the smartphone pioneers, especially Palm and Apple. But not much to Kalanick.

I think the Kalanick you describe here is a ruthless businessman that veers across the line into asshole and that's...not great.

But again, it's not the same thing as Holmes (fraudster) or Neumann (purveyor of fantastical bullshit).

Time will tell. Uber and WeWork are both bets on the ability to get monopoly-level pricing power on a major chunk of economic activity, just like Google and Facebook did. Neither one has a valuation that makes sense without that pricing power, and both of have been trying to buy it via liberal application of investor money. But in both cases, they've never turned a profit and there's no obvious moat.

I agree that WeWork's vision is now more obviously likely to fail than Uber's. But WeWork's transition from hero to goat happened quite recently. Uber got a cash infusion from their IPO that gives them something like 18 months runway, but with their stock down 30% from IPO, they can't do that forever. We'll see what happens when they have to break even. Especially if they have to start paying their workers fairly. And if the margins in that business turn sufficiently positive, I expect people will be eager to compete.

And even if they do manage to pull it together, I'm still comfortable putting Uber in that category, as Kalanick wasn't just an asshole, but a willful criminal who got his money through the same performative asshole/genius shtick. He may ultimately get away with it. But I think he's decreased the likelihood people will fall for it again.

Good point. I was going to ask why OP mentioned Uber.

To me, a big part of the problem is that investors are all trying to find the next super unicorn to make their fund numbers work out, so there’s a built-in incentive to bet on big visions even when they’re likely to be bullshit. This gets compounded by the fact that you don’t actually have to build a sustainable company, you just have to pump it long enough to get your investment return courtesy of the public markets and then who cares about the company’s fate? See, for example, Groupon. I distinctly remember doing a startup incubator back when it was about to IPO and everyone was breathlessly encouraging us to be more like Groupon.

The VC model is fundamentally susceptible to this stuff.

Also, I have to point out that, like the "pigeon drop", this kind of appeal to VC's relies on their greed overwhelming their skepticism. If you really, really want it to be true (that you are about to get much richer), it's easier to convince yourself that it's true. Which makes it even easier for the one gaming you to be convincing; they really just have to get out of the way an allow you to convince yourself.

If you're not desperately trying to convince yourself that this is an opportunity to make a lot of money, it's not so convincing.

It's awkward when "smart" people rely on the virtue signalling of other "smart" people in order to make the assumption they're smart.

This is a little more than just a matter of the intrinsic fallibility of human nature. There's also a structural flaw in capitalism itself that allows these massive wastes of resources to be perpetuated: https://en.wikipedia.org/wiki/Greater_fool_theory

I don't think it's fair to call this a flaw in capitalism. Valuations are only as rational as the fallible humans making valuation decisions. Imagining a capitalist system composed of all rational actors, this problem would disappear completely.

This isn't a structural flaw in capitalism, that's expecting too much of capitalism.

It's definitely a flaw in capitalism, because we concentrate decision-making control for large sums of capital (that is, yesterday's labor [1]) in the hands of a small number of people. And quite often those people are irrationally greedy sociopaths who are comfortable with, say, burning billions of dollars on the off chance that it will get them very rich.

Of course, no decision-making apparatus is perfect. Our current version of capitalism with all its flaws might be the optimal way to run a society. But we should be clear-eyed about those flaws.

[1] https://www.brainyquote.com/quotes/abraham_lincoln_395631

The number of people making the decisions doesn't matter. Democratize things as much as you want and you'll often get irrational choices.

By your logic, literally every single endeavor that involves human decision-making is flawed in that exact same same way. Socialism is flawed because humans are in the loop. Representative democracies, monarchies, oligarchies, and anarchy are flawed because humans are in the loop. Both science and religion have the same flaw, because humans are in the loop.

It's not that it's untrue... It's just common to any venture where humans are in the loop, so it carries almost no information and isn't worth saying.

I guess capitalism is flawed because resources are not infinite? Is capitalism flawed because humans die? Is Usain Bolt flawed because he has only two legs?

>The number of people making the decisions doesn't matter. Democratize things as much as you want and you'll often get irrational choices.

Of course you will. The point about the greater fool theory is that the market system for equities generates a negative feedback loop rather than being dampened by rational actors in the system. This perpetuates an enormously wasteful misallocation of resources.

>I guess capitalism is flawed because resources are not infinite? Is capitalism flawed because humans die?

Something tells me that if I were talking about the soviet shoe factory principle you wouldn't be so eager to excuse socialist misallocation of resources. Could it be that your argument is based more upon tribalism than logic?

Yes, but the kinds of bad choices you get using different decision processes will be different. WeWork is a very capitalist boondoggle. It's not the kind of failure you'd see even in Mittelstand capitalism. Let alone Mondragon-style cooperatives, which could reasonably be called capitalist. And it's definitely not what you'd see in an ejido or a European-style commons.

American-style venture capitalism is almost unique in terms of the amount of resources a single person can allocate. I think only authoritarian regimes come close to letting one person decide to bet $12 billion on a poorly-considered vision.

>Imagining a capitalist system composed of all rational actors, this problem would disappear completely.

Yes, because it's pretty easy to imagine a functioning social system based upon people not being people.

>that's expecting too much of capitalism.

That irrational behavior in the wasteful allocation of resources doesn't generate a negative feedback loop that causes even more waste?

That irrational behavior in the wasteful allocation of resources doesn't generate a negative feedback loop that causes even more waste?

Who said it didn't? I think you're missing my point. The irrational behavior is a flaw. But it's not fair to call it a structural flaw of capitalism. The flaw is prior to capitalism. It's like saying toilets are flawed because people piss on the seat.

> Imagining a capitalist system composed of all rational actors, this problem would disappear completely.

No, not at all. The exploiters would just be better at exploiting.

Uh, what?

In finance and economics, the greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants.

By definition... the problem disappears if actors are rational. This is not a contentious matter of argument. It's in the definition.

Not really, unless you mean it in some sort of religious sense. You still have information asymmetries, power asymmetries, different priors, and bounded rationality. Plus the inherent limitations of any system of decision making.

WeWork could have been successful if they focused on the core business and operated lean and mean. While they didn’t invent the co-working space model there was certainly room to improve it.

However the company was just simply not run very well, was very unfocused on all sorts of random side businesses/acquisitions, and was massively bloated in terms of its team.

Ultimately it was a good idea poorly executed from a business standpoint. The market has clearly turned (for the better most would say) in that people want to see real businesses with real sustainable business models. Fruit water on tap and glossy marketing materials don’t replace the core fundamentals of a good business. It’s refreshing to see the market finally calling BS and expecting more.

I'm not buying the fact that co-working is an untenable business model. For small businesses, there is overhead in signing a long term lease, making sure that facilities are maintained, and that they are conducive to a productive working environment. I also definitely see value in having a community that spans different companies, as the mindshare must have benefits. From the perspective of a consultant/freelancer, I can't think of a better way to learn about potential clients' challenges and possible opportunities than having a conversation at the water cooler with them.WeWork isn't the only co-working space in town, but it has a tremendous amount of brand recognition in this space.

I don't think WeWork was doomed from the start. I think their execution was sloppy. I think they made some short-sighted financing decisions which they are paying for now. I think they have a long uphill battle, but I do think that there is something of value that they are providing.

I worked for a startup that was based on the east coast but trying to build their presence on the west coast. We looked into a lot of options including visiting several WeWork offices to look into having a virtual office or a mailing address at the very least.

We wanted to use WeWork but it was too expensive to be practical for us, and we ended up getting a deal with a local coworking space. I imagine this was the case for most startups looking to start an office out of WeWork.

So I'm inclined to agree with you that the demand was there, but the execution was poor.

For small businesses, there is overhead in signing a long term lease

That's not how most people use WeWork. 40% in my building (they have 2 floors) are long-term leases from big companies. I don't have anything but anecdotal evidence for my next statement, but I have a lot of data points: the rest are primarily remote workers for non-small businesses.

Of course, there are startups that use WeWork and others. I don't think they're the majority.

Not at those insane valuations, no.

The business model, at its core, is a fine one. But it's one that's already out there, working fine in a slow, normal, boring way for companies like Regus. I've used Regus spaces, they're fine. They're not cool, trendy startup collab spaces with beanbags and baristas, but AFAICT they are actually more conducive to real grown-up business use.

Maybe there is a market for a more startup-focused temporary office space business. But it's not one that's going to shake the foundations of the world, nor bring in 100x the investment for VCs.

Yeah, they just don't have much of a moat to allow them to command monopoly rents. Whatever innovations they introduce, others can copy, and most companies would just switch over to a cheaper provider once their WeWork lease comes up.

Not a WeWork fan, but why does it matter if Adam Neumann could be a branch manager at Staples?

Steve Jobs was known for walking around Reed College barefoot in the snow, but that didn't stop him & Woz from building Apple.

I got the impression that the author was arguing exactly against this kind of equivalency. People can be unusual and also successful. This doesn't mean that being unusual is a valid predictor of success. Also that its pretty ironic for something that would be seen as a potential red flag for someone making a relatively low risk decision (i.e. hiring a branch manager) would suddenly be viewed as an asset by someone making multi-million dollar investments. I'm not sure I agree with the premise that everyone is blinded by some "great man" theory of innovation except for we street-wise low-middle class. But I feel the point about the double standard is valid.

I will say two things. First it has been a real question whether WeWork made any sense forever and it is a real business case that you can analyze rationally and quantifiably.

Second this article is not that at all. It’s contribution was entirely in its headline. The rest of the article is a high school essay of rhetorical filler to meet the demand for anti-capitalist theatre.

While many would have the natural inclination to agree with the conclusion, this article is not the best example of the argument unless you are tracking the politics of society’s increasingly negative views of Silicon Valley.

Finally the New York Times style inspired me to write equally pretentiously. How did I do? :)

> 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.

Most people are more scared of looking silly than they are excited about getting rich. The handful who aren't occasionally make a bad investment (Theranos, WeWork, etc.) but also a lot of them become centimillionaires and billionaires.

I'm definitely in the "more scared of looking silly" category, but I like to think I also have the self-awareness to recognize this as a character flaw, and not broadcast it proudly and obliviously to the whole world in the NYT.

WeWork matched short duration assets to long duration liabilities. It was incredibly anti-robust and never going to work.

I don't think WeWork is anything special, but your argument is obvious and has been addressed: WeWork packages each lease in a separate legal entity so they're not that exposed to swings in individual markets. They also argue (maybe correctly) that in a recession they'd actually do better because companies would become wary of taking on long-term liabilities and prefer the flexibility of short-term leases.

Banks borrow short and lend long. It works out OK for them.

Banks have leverage. We Work does not: We Work can't rent out the same chair to 20 people at once.

Maybe not 20, but I expect that the WeWork hot desk membership does this to an extent. Remote workers don’t usually show up every day.

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