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WeWork is a useful product. Office real estate is broken for startups. Landlords make us take 5-10 year leases when startup planning horizons are almost never l

WeWork is a useful product. Office real estate is broken for startups. Landlords make us take 5-10 year leases when startup planning horizons are almost never longer than 18 months. WeWork earning 30-40% margins by allowing us to take shorter terms that better fit our needs. Should be a good business.

cm2012 7y ago
The issue is if the global economy downturns fewer people want to rent short term, WeWork is still committed to paying the long term lease costs.
- shartshooter 7y ago
  Short term rentals are an inferior good. An economic downturn could lead to more business for them
  - greglindahl 7y ago
    Past experience says WeWork will end up bankrupt. "This time it's different"
  - Gene_Parmesan 7y ago
    Any earlyish startup (smaller than a certain size) that's facing cash flow problems during a larger economic downturn would likely just move to a remote-only model, maybe with very short-term rentals for high-stakes meetings. No, it's not ideal, but if the survival of the business is at stake, cutting out your coworking fees seems like the easiest way to reduce overhead. I'm no economist, but to me, it seems that short term rentals can't be an inferior good if a large percentage of startups are already currently using them. You'd need a majority of them to be leasing a traditional office space in order for coworking to be seen as a viable lesser option. And I don't really see larger, more established startups that do have traditional office space (like Duolingo for instance) moving out into a WeWork.
    - rhizome 7y ago
      Any earlyish startup (smaller than a certain size) that's facing cash flow problems during a larger economic downturn would likely just move to a remote-only model, maybe with very short-term rentals for high-stakes meetings. Do you know any companies that have made this kind of transition?
      - ghaff 7y ago
        I'm not sure the combination of downturn and co-working spaces pitched for relatively short-term startup spaces has existed before. I would note that I know of larger companies that are shifting people to remote who don't consistently use their assigned office space if capacity has gotten tight.
    - golemiprague 7y ago
      In a small startup the cost of one employee is usually much more than the cost of renting desks so I don't see how moving to work from home will solve the problem, cutting 20% from everybody's salaries will give you better results.
  - notahacker 7y ago
    Not when the companies that wish they could shorten their lease terms tend to be stuck with them (and sometimes, after shedding some employees, with a lot of additional space they could let out short term...). WeWork also isn't at the cheap or flexible end of the short term office space rental market - it's very much a product designed to appeal to a particular type of company starting out. They could pivot, but so could other people with office space they can't lease out...
mychael 7y ago
> "product" They're a glorified landlord, not a product.
dreamcompiler 7y ago
Sure it's useful. And there's also no barrier to entry except enough capital to buy or lease a building. If WeWork goes under, the need will be met by others.
wpietri 7y ago
Right, that's the theory, which is how they got this far. But that's not a new thing; companies have been in the same business for years. WeWork's valuation is wildly out of proportion to its competitors. WeWork probably does have an advantage specifically for tech startups. But startups are definitionally not a large market, nor are they generally a good one. When we're small, we're cheapskates. And then we pretty quickly either go out of business or become like other companies, willing and able to deal with building owners directly. It's high churn, which is expensive. Startup investment is also pretty cyclical; anybody who was around after Bubble 1.0 knows how quickly the party stops when investors get nervous. So WeWork has a lot of long-term commitments, with no obvious way to cover them in the next recession. And since we're already in the longest peacetime economic expansion, the possibility of recession is definitely on investor's minds.
- hn_throwaway_99 7y ago
  > But that's not a new thing; companies have been in the same business for years. WeWork's valuation is wildly out of proportion to its competitors. I take issue with the "people have been doing the same thing for years" take, when most hugely successful start-ups tend to be small tweaks on established ideas. Take AirBnB. Peer-to-peer short term rentals existed on the Internet in the form of sites like VRBO since the late 90s, but AirBnB's relatively small changes (mainly ensuring that the financial transaction occurred completely on their platform) allowed for the sea change of urban short term rentals. While I'm bearish on WeWork for the same reasons as many other people, I think there is certainly room for a consolidated business of month-to-month office rentals that offers a branded experience.
  - gamblor956 7y ago
    There's also the important bit where VRBO attempted to comply with local hoteling regulations and AirBnB just ignored them or even actively encourage hosts to ignore the law.
    - davinic 7y ago
      I used VRBO often before AirBnb existed and I never experienced anyone collecting hotel taxes or attempting to be in compliance. Do you have a source for this claim?
rossdavidh 7y ago
I actually agree, but I don't see any reason why they should be a $40B company. Forbes or Bloomberg or someone compared them to other companies in the space, and valued them at $4B or so. That is still a great opportunity...unless you have invested $10B to get there. It's not that there is no need for what WeWork does; it's that they do it too expensively, and are valuing themselves far too high.
sremani 7y ago
Prof.Damodharan has an excellent valuation on WeWork. The bottomline is WeWork as an $8 Billion company would be appropriate valuation. Yes, WeWork has market-fit, no one denies that. Their problem is governance and risk management. On top of it, how would an unprofitable company with massive debt and contract obligations do during a down-turn.
hbbio 7y ago
There is clearly a market for WeWork... and many competitors. WeWork is and will be a great company, no matter what. WeWork main competitor is Regus, founded in 1989. Regus is now present worldwide with revenues of 2.535 billion GBP (2018). Their market cap is a mere 3.68 billion! There are also tons of smaller companies in that sector which are not international (mostly 1/2 countries) with much lower valuations. So, the business model is fine, the market fine, the room to expansion here (especially with growth of remote work). Just the previous valuation wasn't.
- marcinzm 7y ago
  >WeWork is and will be a great company, no matter what. That depends on their financial state. If they over expanded with the expectation of future capital to cover future contractual costs then they'll need to find a way to cover those costs without funding. That could be impossible without declaring bankruptcy.
- chrisseaton 7y ago
  Have you ever been in a Regus office? They're horrible spaces. They don't get it. WeWork is a lot nicer. That's why they're worth a lot more.
  - hbbio 7y ago
    Yes, I did rent an office from Regus a few years ago... and it did look horrible! But for the difference in valuation, that's an easy thing to do in a LBO: Hire a Chief Design Officer! Thanks to WeWork maybe, their new offices are better: https://www.regus.co.uk/offices/united-kingdom/county-edinburgh/edinburgh/office-space/edinburgh-spaces-lochrin-square https://www.regus.co.uk/offices/united-kingdom/county-edinbu...
  - cure 7y ago
    Yeah. Regus offices are dreadfully bland. Also, they nickel and dime you for every little thing (you want an hour of wifi for that meeting room you booked? it's going to cost you...). Regus is also very expensive, as office space goes.
ineedasername 7y ago
Sure, that can all be true, but is there really enough "startup" business to really justify the growth expectations, or even the current valuation?
wasdfff 7y ago
What happens to wework when landlords one day offer leases directly to wework tenants? I’m not sure why landlords aren't doing that right now. Use wework to fill the building, then go around them to get more cash by leasing directly to the tenants. Tenants might even see rents lower.
shp0ngle 7y ago
It's not a terrible business indeed. And I think the bigger scale can help here. But it's also a very risky business, requiring a lot of capital, and it's not at all a SaaS business. The valuation was crazy.
mvkel 7y ago
That's the optimistic approach. Shopify went through something similar -- offering their product for free, taking a cut of any transacted products. But they realized that it incentivized companies who, deep down, knew they would never make a dollar. So it was okay to sign up for the 'free' ecommerce software, because they were never going to make a dime. It also _dis_incentivized companies that were actually selling things, because taking a cut of every transaction is too expensive if you're really driving volume. In short, WeWork is attractive to companies that, deep down, know they aren't going to grow. These companies minimize long-term exposure by paying more short-term. The companies that are _confident_ they will grow have no problem signing 5-year leases. It's the long-term prudent thing to do, and drastically cheaper.

cm2012 7y ago

The issue is if the global economy downturns fewer people want to rent short term, WeWork is still committed to paying the long term lease costs.

shartshooter 7y ago
Short term rentals are an inferior good. An economic downturn could lead to more business for them
- greglindahl 7y ago
  Past experience says WeWork will end up bankrupt. "This time it's different"
- Gene_Parmesan 7y ago
  Any earlyish startup (smaller than a certain size) that's facing cash flow problems during a larger economic downturn would likely just move to a remote-only model, maybe with very short-term rentals for high-stakes meetings. No, it's not ideal, but if the survival of the business is at stake, cutting out your coworking fees seems like the easiest way to reduce overhead. I'm no economist, but to me, it seems that short term rentals can't be an inferior good if a large percentage of startups are already currently using them. You'd need a majority of them to be leasing a traditional office space in order for coworking to be seen as a viable lesser option. And I don't really see larger, more established startups that do have traditional office space (like Duolingo for instance) moving out into a WeWork.
  - rhizome 7y ago
    Any earlyish startup (smaller than a certain size) that's facing cash flow problems during a larger economic downturn would likely just move to a remote-only model, maybe with very short-term rentals for high-stakes meetings. Do you know any companies that have made this kind of transition?
    - ghaff 7y ago
      I'm not sure the combination of downturn and co-working spaces pitched for relatively short-term startup spaces has existed before. I would note that I know of larger companies that are shifting people to remote who don't consistently use their assigned office space if capacity has gotten tight.
  - golemiprague 7y ago
    In a small startup the cost of one employee is usually much more than the cost of renting desks so I don't see how moving to work from home will solve the problem, cutting 20% from everybody's salaries will give you better results.
- notahacker 7y ago
  Not when the companies that wish they could shorten their lease terms tend to be stuck with them (and sometimes, after shedding some employees, with a lot of additional space they could let out short term...). WeWork also isn't at the cheap or flexible end of the short term office space rental market - it's very much a product designed to appeal to a particular type of company starting out. They could pivot, but so could other people with office space they can't lease out...

mychael 7y ago

> "product" They're a glorified landlord, not a product.

dreamcompiler 7y ago

Sure it's useful. And there's also no barrier to entry except enough capital to buy or lease a building. If WeWork goes under, the need will be met by others.

wpietri 7y ago

Right, that's the theory, which is how they got this far. But that's not a new thing; companies have been in the same business for years. WeWork's valuation is wildly out of proportion to its competitors. WeWork probably does have an advantage specifically for tech startups. But startups are definitionally not a large market, nor are they generally a good one. When we're small, we're cheapskates. And then we pretty quickly either go out of business or become like other companies, willing and able to deal with building owners directly. It's high churn, which is expensive. Startup investment is also pretty cyclical; anybody who was around after Bubble 1.0 knows how quickly the party stops when investors get nervous. So WeWork has a lot of long-term commitments, with no obvious way to cover them in the next recession. And since we're already in the longest peacetime economic expansion, the possibility of recession is definitely on investor's minds.

hn_throwaway_99 7y ago
> But that's not a new thing; companies have been in the same business for years. WeWork's valuation is wildly out of proportion to its competitors. I take issue with the "people have been doing the same thing for years" take, when most hugely successful start-ups tend to be small tweaks on established ideas. Take AirBnB. Peer-to-peer short term rentals existed on the Internet in the form of sites like VRBO since the late 90s, but AirBnB's relatively small changes (mainly ensuring that the financial transaction occurred completely on their platform) allowed for the sea change of urban short term rentals. While I'm bearish on WeWork for the same reasons as many other people, I think there is certainly room for a consolidated business of month-to-month office rentals that offers a branded experience.
- gamblor956 7y ago
  There's also the important bit where VRBO attempted to comply with local hoteling regulations and AirBnB just ignored them or even actively encourage hosts to ignore the law.
  - davinic 7y ago
    I used VRBO often before AirBnb existed and I never experienced anyone collecting hotel taxes or attempting to be in compliance. Do you have a source for this claim?

rossdavidh 7y ago

I actually agree, but I don't see any reason why they should be a $40B company. Forbes or Bloomberg or someone compared them to other companies in the space, and valued them at $4B or so. That is still a great opportunity...unless you have invested $10B to get there. It's not that there is no need for what WeWork does; it's that they do it too expensively, and are valuing themselves far too high.

sremani 7y ago

Prof.Damodharan has an excellent valuation on WeWork. The bottomline is WeWork as an $8 Billion company would be appropriate valuation. Yes, WeWork has market-fit, no one denies that. Their problem is governance and risk management. On top of it, how would an unprofitable company with massive debt and contract obligations do during a down-turn.

hbbio 7y ago

There is clearly a market for WeWork... and many competitors. WeWork is and will be a great company, no matter what. WeWork main competitor is Regus, founded in 1989. Regus is now present worldwide with revenues of 2.535 billion GBP (2018). Their market cap is a mere 3.68 billion! There are also tons of smaller companies in that sector which are not international (mostly 1/2 countries) with much lower valuations. So, the business model is fine, the market fine, the room to expansion here (especially with growth of remote work). Just the previous valuation wasn't.

marcinzm 7y ago
>WeWork is and will be a great company, no matter what. That depends on their financial state. If they over expanded with the expectation of future capital to cover future contractual costs then they'll need to find a way to cover those costs without funding. That could be impossible without declaring bankruptcy.
chrisseaton 7y ago
Have you ever been in a Regus office? They're horrible spaces. They don't get it. WeWork is a lot nicer. That's why they're worth a lot more.
- hbbio 7y ago
  Yes, I did rent an office from Regus a few years ago... and it did look horrible! But for the difference in valuation, that's an easy thing to do in a LBO: Hire a Chief Design Officer! Thanks to WeWork maybe, their new offices are better: https://www.regus.co.uk/offices/united-kingdom/county-edinburgh/edinburgh/office-space/edinburgh-spaces-lochrin-square https://www.regus.co.uk/offices/united-kingdom/county-edinbu...
- cure 7y ago
  Yeah. Regus offices are dreadfully bland. Also, they nickel and dime you for every little thing (you want an hour of wifi for that meeting room you booked? it's going to cost you...). Regus is also very expensive, as office space goes.

ineedasername 7y ago

Sure, that can all be true, but is there really enough "startup" business to really justify the growth expectations, or even the current valuation?

wasdfff 7y ago

What happens to wework when landlords one day offer leases directly to wework tenants? I’m not sure why landlords aren't doing that right now. Use wework to fill the building, then go around them to get more cash by leasing directly to the tenants. Tenants might even see rents lower.

shp0ngle 7y ago

It's not a terrible business indeed. And I think the bigger scale can help here. But it's also a very risky business, requiring a lot of capital, and it's not at all a SaaS business. The valuation was crazy.

mvkel 7y ago

That's the optimistic approach. Shopify went through something similar -- offering their product for free, taking a cut of any transacted products. But they realized that it incentivized companies who, deep down, knew they would never make a dollar. So it was okay to sign up for the 'free' ecommerce software, because they were never going to make a dime. It also _dis_incentivized companies that were actually selling things, because taking a cut of every transaction is too expensive if you're really driving volume. In short, WeWork is attractive to companies that, deep down, know they aren't going to grow. These companies minimize long-term exposure by paying more short-term. The companies that are _confident_ they will grow have no problem signing 5-year leases. It's the long-term prudent thing to do, and drastically cheaper.