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This guy has become a multi-hundred-millionaire by renting out office space under a business model that appears to make no financial sense. Because "tech compa

This guy has become a multi-hundred-millionaire by renting out office space under a business model that appears to make no financial sense. Because "tech company". It's utterly bonkers.

marcinzm 7y ago
It's basically a modern ponzi scheme as I see it. The VCs make money at the expense of people who buy post-IPO.
- projektfu 7y ago
  If it goes where I think it should, then it’ll be the IPO subscribers holding the bag.
- wpietri 7y ago
  Yeah, I think WeWork is at best the next Groupon: something that was made to seem just plausible enough at the time that the financiers made a bundle, but that rapidly turns into a minor-league business as the shiny wears off post-IPO. 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.
  - fragmede 7y ago
    If there's a recession that hits WeWork, those alternative tenants will also dry up, for the same reason. Companies won't want to justify a large capex investment into new office space, and cancel pending contracts for space that hasn't been built out yet. 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?
    - laurentl 7y ago
      The alternative tenants would also presumably rent the building rather than buy it outright. So it would still be opex.
      - aeyes 7y ago
        Don't underestimate the amount of time and money it takes to actually make an empty office space usable. And that isn't the worst of it. If you have a fast growing company you'll be moving or expanding your office space at least every other year. Or you can pay for lots of unused 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.
    - wpietri 7y ago
      I think you're mixing up a couple of issues. 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.
  - sroussey 7y ago
    Don’t underestimate the power of bankruptcy law, which is a plausible outcome. This is partly why real estate companies have lots of entities to use as firewalls and as leverage.
  - baby 7y ago
    I fail to see the comparison with Groupon. Most people who have used Groupon have mixed reviews about the product, it worked sometimes but most of the times it didn't. 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).
    - netsharc 7y ago
      To expand on your 3rd paragraph, maybe that's the Ponzi scheme, with big investors playing along: 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.
      - baby 7y ago
        This makes me wonder, how many companies in a similar position (great product with a good demand) have failed and shut down to the misfortune of its customers? I see similar talks about Uber, and yet I can't imagine such a product failing due to the number of happy customers.
        striking 7y ago
        https://thehustle.co/Doughbies-cookies-shut-down/ https://thehustle.co/Doughbies-cookies-shut-down/ is one that I know quite a few people feel strongly about.
        baby 7y ago
        It sounds like it was mostly about the founders not wanting to continue maintaining a business that was not a unicorn. There was someone else on HN that posted about a similar company but decided to buy back equity and continue maintaining it.
- avip 7y ago
  That's not fraud, that's business as usual. We are selling to willing buyers at the current fair market price
- hestefisk 7y ago
  Where is the Ponzi scheme element?
- deleted 7y ago
  [deleted]
sameers 7y ago
I believe it's "because on-tap kombucha." That's their secret sauce, or secret juice, if you will.

This guy has become a multi-hundred-millionaire by renting out office space under a business model that appears to make no financial sense. Because "tech company". It's utterly bonkers.

marcinzm 7y ago

It's basically a modern ponzi scheme as I see it. The VCs make money at the expense of people who buy post-IPO.

projektfu 7y ago
If it goes where I think it should, then it’ll be the IPO subscribers holding the bag.
wpietri 7y ago
Yeah, I think WeWork is at best the next Groupon: something that was made to seem just plausible enough at the time that the financiers made a bundle, but that rapidly turns into a minor-league business as the shiny wears off post-IPO. 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.
- fragmede 7y ago
  If there's a recession that hits WeWork, those alternative tenants will also dry up, for the same reason. Companies won't want to justify a large capex investment into new office space, and cancel pending contracts for space that hasn't been built out yet. 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?
  - laurentl 7y ago
    The alternative tenants would also presumably rent the building rather than buy it outright. So it would still be opex.
    - aeyes 7y ago
      Don't underestimate the amount of time and money it takes to actually make an empty office space usable. And that isn't the worst of it. If you have a fast growing company you'll be moving or expanding your office space at least every other year. Or you can pay for lots of unused 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.
  - wpietri 7y ago
    I think you're mixing up a couple of issues. 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.
- sroussey 7y ago
  Don’t underestimate the power of bankruptcy law, which is a plausible outcome. This is partly why real estate companies have lots of entities to use as firewalls and as leverage.
- baby 7y ago
  I fail to see the comparison with Groupon. Most people who have used Groupon have mixed reviews about the product, it worked sometimes but most of the times it didn't. 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).
  - netsharc 7y ago
    To expand on your 3rd paragraph, maybe that's the Ponzi scheme, with big investors playing along: 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.
    - baby 7y ago
      This makes me wonder, how many companies in a similar position (great product with a good demand) have failed and shut down to the misfortune of its customers? I see similar talks about Uber, and yet I can't imagine such a product failing due to the number of happy customers.
      - striking 7y ago
        https://thehustle.co/Doughbies-cookies-shut-down/ https://thehustle.co/Doughbies-cookies-shut-down/ is one that I know quite a few people feel strongly about.
        baby 7y ago
        It sounds like it was mostly about the founders not wanting to continue maintaining a business that was not a unicorn. There was someone else on HN that posted about a similar company but decided to buy back equity and continue maintaining it.
avip 7y ago
That's not fraud, that's business as usual. We are selling to willing buyers at the current fair market price
hestefisk 7y ago
Where is the Ponzi scheme element?
deleted 7y ago
[deleted]

sameers 7y ago

I believe it's "because on-tap kombucha." That's their secret sauce, or secret juice, if you will.