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Business Unusual

WeWork hopes to fix old office problems with big data, disruption and community

11 September 2019 7:15 PM

The We Company is due to list later this year but there are big problems with its valuation and business model.

No business starts with the objective to have big offices and lots of staff, they are looking to have lots of customers and sell lots of product or services. But founders can rarely do that all themselves, this is where the need for staff comes in and staff need somewhere to do the work.

This is a brief look at how that has changed (or not) and where it may be heading.

Office work has traditionally been clerical when business functions from manufacturing and sales needed to be managed with paperwork being processed and stored. The typical layout was rows of desks like a schoolroom which had no privacy or allowed personalisation.

A cubicle enclosure was suggested to improve on this, but thanks to poor implementation resulted over time in stereotypical cubicle becoming the norm.

Once computers allowed for clerical work to become digital, less staff and space were needed.

But the rise of computing brought disruption to the office. Innovation was no longer the preserve of large companies, it was small start-ups that offered the most creative options. The need to find collaborators, typically computer-based, saw small companies looking for options that enhanced interaction but still provided peace and quiet.

That could easily be arranged, but landlords would typically want a standard lease of at least a year which was a major commitment for a small company that might grow rapidly and need to move or fold and want to avoid a long lease.

Collaborative workspaces were the answer and began to appear from the mid-2000s.

When two entrepreneurs wanting to both create something with a communal feel and had access to a vacant building, Green Desk was born in 2008. It proved a success and set the stage for them to create the company they are best known for today - WeWork.

This is both a look at WeWork, now called the We Company and collaborative workspaces and short term leases in general.

Turning office space into a service

Office rentals were not typically seen as a service but rather a long term cost to house and operate a business. Choosing a location and planning for growth or downturns make choosing a lease a real challenge.

If you could get short leases, it would typically come at a premium. Landlords and developers are focused on getting the leases, they are less invested in how well the spaces work for the staff that work in their buildings.

It appears that there was room for disruption and WeWork have managed to not only attract billions in investment despite losing billions each year, but it has also planned an IPO that should make the founders and investors billions more.

There is just one problem with this, while the nature of the company is of a disruptive start-up, it is being viewed by stack market investors to be just another office rental company. When compared to their main competitor, the International Workspace Group, formerly Regus, which has more office space in more cities and countries and makes a profit. It has a market cap of 3,5 billion, We company has been valued at 10 times that.

READ: Where you work is getting complicated. Which do you prefer?

Is We Company disruptive?

There is a good argument to say yes. It has been a powerful driver of the membership option to lower lease rental terms. Their basic package is a month to month option which is now copied by competitors.

Rather than simply reducing lease terms the company does create workspaces rather than just supply the empty spaces. Their designs look similar to the attractive environments created by the likes of Google and Apple. They say they want to build a community of workers not simply a place where you work. A third of the space is communal but only 10% is open, the way that has been constructed is to draw workers to use the space for meetings and collaborations while still allowing for privacy and quiet when you need it.

The venues have food, fast wifi and document services as standard. Their real skill has been in taking care of the details that make the lives of freelancers and small companies much easier.

Their business model is simple, negotiate a long and reasonable lease with a landlord then create a space that workers would want to use. They pay a premium for access and short term contracts. Since 2017 they have also partnered with developers and landlords who cover the cost of the furnishing then share the revenue.

In this respect, they have created a model that makes office space rental a service, but not all landlords will be convinced and prefer to get the agreed rental.

The next layers are also impressive. They have created a We operating system that is used in their buildings allowing members to access and book their venues, sign up for additional services like software and travel management, accommodation and even wellness.

This and their efforts to optimise their workspaces and track their use has attracted larger companies to offer their staff access to WeWork locations or have WeWork upgrade and manage their office space.

I think this might be its best prospect for the future because the current model leaves the company highly exposed to an economic downturn and the typical profile of those with memberships are likely to be affected first and very negatively in a downturn. Some looking at the inverted bond yield curve think a recession is on the way which may see it fail.

READ: Working from home or from the office, which is best?

WeWork employs 15 000 staff in the same environments they create for their members.

Beyond office space

Assuming it does manage to avoid the downturn, the company is looking to expand into the other needs of a modern worker. WeLive is a venture to furnish and run accommodation that is also communal, it offers a smaller living space at a lower cost but with more shared space for relaxing and mingling with other residents.

Got kids, WeGrow will take care of their education.

Looking for love, try Meetup

They will even help you grow your business with Conductor.

The news coverage about the company is focused on its sustainability and the low-level scandals involving the founders. The potential IPO appears to at best come at a revised valuation that may only be half its January $47 billion valuation or may even be postponed.

The challenge if public funds are not sought is that the company may burn through its cash before being able to become profitable.

Even if it does fail, the approach they are taking will be copied by others and We clones will likely start to offer the same services. In the long run, this will have a positive impact on the less than ideal environments many workers find themselves in. For cities and countries wanting to boost their entrepreneur and start-up economies, this is an important company to watch.

Click on the link below to hear more...

11 September 2019 7:15 PM

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