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How have we gotten to the point where a company that is considering a $10-46B IPO is in a position where 1/3 of its staff is redundant and can be laid off, wher

How have we gotten to the point where a company that is considering a $10-46B IPO is in a position where 1/3 of its staff is redundant and can be laid off, where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns, where bankers and consultants can come in and say yes deprive these 5000 people of their income and livelihoods because we need to give the founders and early investors an exit, where "tech" has come to be defined as a more flexible office space leasing model that scales quickly, where the brightest new students want to replicate another SV "tech" success by following the same playbook. There is something extremely wrong with the rate of innovation, productivity growth, the division of labor and capital, and the distribution of profits between labor and capital in developed countries today, and it's unsustainable.

chadlavi 7y ago
Any company's valuation is completely divorced from their actual ability to generate revenue, their efficiency as an organization, or the value they provide to their customers. Valuations are meaningless boasts. They're a con in the literal sense; it's a confidence game. The company's officers craft the best BS story they can, and see if they can convince any investors that the investors will make money off giving them some funding. It works a lot of the time! EDIT: the "thing that's wrong" is that money is not tied at all to innovation, growth, or productivity. It's just complicated, highfalutin horse betting.
cm2187 7y ago
I'd rather blame that on business models that are unsustainable and rely on VC and IPO money coming in to avoid bankruptcy. At this stage we are not very far from the structure of a ponzi scheme. In fact if the company is that close to bankruptcy, I am shocked that the listing authority even green lighted the IPO.
cjf4 7y ago
>where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns This hasn't happened, hence all the flailing.
- ralph84 7y ago
  This. I really don't get all of the clutching of pearls here. It's clear that investors aren't buying WeWork as-is and it's going to need radical changes to its valuation, management, and possibly business model to access public capital markets.
cortesoft 7y ago
> where bankers and consultants can come in and say yes deprive these 5000 people of their income and livelihoods because we need to give the founders and early investors an exit So if those 5000 people are doing work that is not valuable, we should keep paying them to do worthless work? There are a million worthwhile things we need people for, let's not pay them for busy work. This is why we need a good social safety net... those people should be let go, and find new productive work... but as you pointed out, that will be extremely disruptive to their lives while they find new work. If we could support them with a safety during that time, to prevent this business decision from depriving them of their livelihood while they found a new place where their labor was productive, we could be both economically and morally efficient.
- bgentry 7y ago
  I’ve found this to be one of the strongest arguments for a strong social safety net, at least one centered around helping people to find new jobs or be retrained for new careers. Taxpayers and the economy in general do not benefit from preserving unnecessary jobs (whether in the govt or the private sector). It would be much better if society accepted that job & career turnover are necessary to a healthy functioning economy and embraced that reality by countering the disruptive downsides. Even free market economists like Milton Friedman have argued for such programs. And at least for the time being, there is still plenty of work for people to do even if it’s different than what they were doing previously. The hard part of this is designing the system in a way that avoids inevitable abuse, and then convincing people that it does so effectively.
  - cortesoft 7y ago
    I sometimes think the fears of abuse are overblown... people would choose to spend $100 to prevent $10 of abuse. It should obviously be taken into consideration, but eliminating abuse should not be the #1 goal.
    - bgentry 7y ago
      Yes, I believe that as well (though I also don't think it means we should fully ignore actual abuse). You'll often see the perception/possibility of abuse touted as a reason to replace many/all of these situation-dependent welfare programs with a Universal Basic Income, where there is much less to abuse and thus less need to police it.
naravara 7y ago
>There is something extremely wrong with the rate of innovation, productivity growth, the division of labor and capital, and the distribution of profits between labor and capital in developed countries today, and it's unsustainable. The problem is the "innovation" is geared towards figuring out clever ways around constraints rather than creating or producing anything new. Sometimes those constraints are operational or logistical and circumventing them creates benefits. other times they're legal or regulatory and there for a reason and when you circumvent them you just end up screwing over the public.
iikoolpp 7y ago
> There is something extremely wrong with the rate of innovation, productivity growth, the division of labor and capital, and the distribution of profits between labor and capital in developed countries today, and it's unsustainable. It's almost as tens of companies doing the same work in parallel for the sole purposes of increasing their number ticker isn't very efficient.
ditonal 7y ago
The key thing that would make things better, is if engineers organized into some sort of professional association or trade union. I don't mean a technology focused organization like the ACM or IEEE, but a politically focused one. The reason engineers haven't been totally screwed is the explosive growth of the market in general. Engineers haven't been able to capture even a fraction of the value they've created, but fortunately attempts by capital to collude against labor have been undermined by the desperate need for more labor at various inflection points. Google, Apple, Adobe etc all colluded against labor, but then Facebook was desperately trying to catch up to Google and undermined that effort. That forced Google to give everyone an IMMEDIATE 10% pay raise and since then Google has attempted to pay "top of market". Besides Facebook specifically, people like Paul Graham of Y Combinator tried to sell the startup dream hard, which was hugely helped by huge IPOs of Google and Facebook, and what at the time looked like upcoming huge IPOs of Dropbox and AirBnB (which did eventually IPO but took way longer and were less amazing compared to Google/FB). This forced the big companies to try to improve compensation and work environment. There is a leaked email of Sergey Brin saying, he was concerned about Googlers leaving for Facebook but even more concerned about them leaving to create the next Facebook. The VCs and founders got, far, far too greedy and used tools like common vs preferred shares, liquidation preferences, delayed IPOs, and short exercise windows to totally eviscerate the very dream they were supposedly selling. It took a bizarrely long time for the labor class to realize that this was going on. People today still comically overvalue the value of their ISOs, and a major role of a startup CEO is to attempt to dupe young engineers into buying that debunked dream. In 2019, I think people are finally "getting it" and flocking to companies like Google and Facebook that are paying huge RSU packages to retain engineers while startups are having trouble hiring. Both the big companies and the startups were upset and thrown off course by the election of Trump over Clinton. Clinton, whose campaign was hugely influenced by Google/Alphabet chairman Eric Schmidt, was planning on pushing to massively raise the visa limit to flood the labor market with H1B engineering talent. Even if H1B are paid market rate, their influx will of course increase supply and drive down what that market wage is, and of course not being citizens they have very low political power (this is one of the reasons why, I believe to the extent we do let in technology talent, we should offer them a path to citizenship ASAP). The lobbyists tried to convince Trump on the same thing - if you paid attention, during one of the debates he started talking about the importance of Silicon Valley importing talent. He later backtracked on that point on Facebook, after his campaign advisors pointed out that when one of your central campaign platforms is "build a wall to stop immigration", suddenly pivoting to an open-borders H1B stance is going to hurt your campaign. So the H1B cap has remained relatively untouched for 4 years, which Google/FB/YCombinator/Andreesen Horowitz/Greylock Ventures and the rest of the usual suspects were not planning for. My prediction is, between the VCs digging in their heels on fixing their equity offers and in general keeping up with Google/FB on liquid compensation, tied to the housing crisis in the Bay Area and other hot tech markets, the consolidation of most top engineering talent to FANG companies and a startup dark ages that's mostly about flipping crappy web/mobile apps to greater fools with little technological value will continue on for a few years. The two biggest things that will get the pendulum swinging away from that is, if engineers and other tech workers organize into a professional political association, or if there's another huge technological market growth that forces someone to undercut the collusion of capital against labor. Only the professional association/trade union that can negotiate with the Googles/FBs/Andreesens of the world with some serious bargaining chips (for example, an SRE strike at Google or FB) will offer lasting stability and prosperity to the engineering class. Anything short of that will just be engineers capturing bits of huge bursts of economic growths that come from time to time, and it's very difficult to predict when and where those huge bursts will arrive. It's almost a certainty they will come sooner or later, but they could be much sooner or much later. The safer, smarter bet for the engineer labor class is to organize.
Gibbon1 7y ago
My take is these companies are ultimately machines for laundering central bank liquidity.
- dehrmann 7y ago
  Funny how inflation is "low," but tech wages and housing in tech hubs has ~doubled since 2009.
  - Gibbon1 7y ago
    I saw a graph showing total inflation (not just rates) of various sectors since 2010 or so. Wages and toilet paper are up maybe 17%. While rents, stocks, bonds and real estate are up 150-250%. That's the effect of unconstrained central bank liquidity injections. I think the SV unicorns are also an effect of that too.
spookthesunset 7y ago
> where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns Quite the opposite, I'd say. I'm pretty sure the problem is the investors and bankers came in and said "are you kidding me? this is a garbage-tier investment, call us back when you make X,Y & Z changes!"
christophilus 7y ago
> where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns I have literally not heard a single investor say anything positive about WeWork. It's probably the most negative sentiment I've ever heard pre-IPO-- granted, I've only been actively investing for a short while.
xxxpupugo 7y ago
> How have we gotten to the point where a company that is considering a $10-46B IPO is in a position where 1/3 of its staff is redundant and can be laid off I don't think those are contradictory to each other. And in WeWork's case, they were posed to 45B IPO, now it is down to 10B, the trajectory is now totally different, as with the staff that needed.
ravenstine 7y ago
Step 1: Take an idea that already exists and try to make it hip and cool Step 2: Come up with a business name that starts with "i", "we", "me", "face", "my", "yes", "go", or "insta", and ends with a word representing the product. Or start with a word representing your product and end it with a things like "hub", "beat", "bot", "desk", "X" or "r". Or just misspell an existing word. Step 3: Create an atmosphere that's superficially new, hip, open-minded, on-demand, and "with it". Wildly exaggerate how your business is going to disrupt things, going as far as to claim that you want to transform your business into a global village that everyone will want to live in. Insist that everyone will want to live and work on a YesBizz campus, drink YesBizz coffee, and eat YesBizz pancakes. Remember, you aren't just a business; you're a way of life. Step 4: Go mad with investor money. Expand as much as you can while there are no consequences and checks are flying. Channel your inner megalomaniac. The bigger your business makes itself, the more investors will believe in it and the harder it will be for them to pull out. You're on track if you've got offices on every continent, even in countries that don't actually demand your product. Step 5: Once reality begins knocking at the door, it's time to let out one of your first death shrieks by announcing an IPO valued more than most Silicon Valley unicorns. Just ride this one out and if things don't work out you can resign with a sweet golden parachute. If you did everything right, you'll still end up with a lot more money in your bank account than when you started, even if your empire is now burning down.
- corodra 7y ago
  This would be hilarious if it wasn't true. But sadly, it is true. There was a really good, and very serious video comparing Regus and WeWork. They went over what you just said, more or less.
  - DavidHm 7y ago
    Do you by any chance have a link to that video, or remember the name? I'd very very curious to see it.
- Legogris 7y ago
  Spot on. But you forgot -ify.
acchow 7y ago
> because we need to give the founders and early investors an exit Here's your mistake. The failed IPO is a symptom, not a cause. Now they're trying to fix this broken company. There were still too many people believing in the fantasy before.

chadlavi 7y ago

Any company's valuation is completely divorced from their actual ability to generate revenue, their efficiency as an organization, or the value they provide to their customers. Valuations are meaningless boasts. They're a con in the literal sense; it's a confidence game. The company's officers craft the best BS story they can, and see if they can convince any investors that the investors will make money off giving them some funding. It works a lot of the time! EDIT: the "thing that's wrong" is that money is not tied at all to innovation, growth, or productivity. It's just complicated, highfalutin horse betting.

cm2187 7y ago

I'd rather blame that on business models that are unsustainable and rely on VC and IPO money coming in to avoid bankruptcy. At this stage we are not very far from the structure of a ponzi scheme. In fact if the company is that close to bankruptcy, I am shocked that the listing authority even green lighted the IPO.

cjf4 7y ago

>where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns This hasn't happened, hence all the flailing.

ralph84 7y ago
This. I really don't get all of the clutching of pearls here. It's clear that investors aren't buying WeWork as-is and it's going to need radical changes to its valuation, management, and possibly business model to access public capital markets.

cortesoft 7y ago

> where bankers and consultants can come in and say yes deprive these 5000 people of their income and livelihoods because we need to give the founders and early investors an exit So if those 5000 people are doing work that is not valuable, we should keep paying them to do worthless work? There are a million worthwhile things we need people for, let's not pay them for busy work. This is why we need a good social safety net... those people should be let go, and find new productive work... but as you pointed out, that will be extremely disruptive to their lives while they find new work. If we could support them with a safety during that time, to prevent this business decision from depriving them of their livelihood while they found a new place where their labor was productive, we could be both economically and morally efficient.

bgentry 7y ago
I’ve found this to be one of the strongest arguments for a strong social safety net, at least one centered around helping people to find new jobs or be retrained for new careers. Taxpayers and the economy in general do not benefit from preserving unnecessary jobs (whether in the govt or the private sector). It would be much better if society accepted that job & career turnover are necessary to a healthy functioning economy and embraced that reality by countering the disruptive downsides. Even free market economists like Milton Friedman have argued for such programs. And at least for the time being, there is still plenty of work for people to do even if it’s different than what they were doing previously. The hard part of this is designing the system in a way that avoids inevitable abuse, and then convincing people that it does so effectively.
- cortesoft 7y ago
  I sometimes think the fears of abuse are overblown... people would choose to spend $100 to prevent $10 of abuse. It should obviously be taken into consideration, but eliminating abuse should not be the #1 goal.
  - bgentry 7y ago
    Yes, I believe that as well (though I also don't think it means we should fully ignore actual abuse). You'll often see the perception/possibility of abuse touted as a reason to replace many/all of these situation-dependent welfare programs with a Universal Basic Income, where there is much less to abuse and thus less need to police it.

naravara 7y ago

>There is something extremely wrong with the rate of innovation, productivity growth, the division of labor and capital, and the distribution of profits between labor and capital in developed countries today, and it's unsustainable. The problem is the "innovation" is geared towards figuring out clever ways around constraints rather than creating or producing anything new. Sometimes those constraints are operational or logistical and circumventing them creates benefits. other times they're legal or regulatory and there for a reason and when you circumvent them you just end up screwing over the public.

iikoolpp 7y ago

> There is something extremely wrong with the rate of innovation, productivity growth, the division of labor and capital, and the distribution of profits between labor and capital in developed countries today, and it's unsustainable. It's almost as tens of companies doing the same work in parallel for the sole purposes of increasing their number ticker isn't very efficient.

ditonal 7y ago

The key thing that would make things better, is if engineers organized into some sort of professional association or trade union. I don't mean a technology focused organization like the ACM or IEEE, but a politically focused one. The reason engineers haven't been totally screwed is the explosive growth of the market in general. Engineers haven't been able to capture even a fraction of the value they've created, but fortunately attempts by capital to collude against labor have been undermined by the desperate need for more labor at various inflection points. Google, Apple, Adobe etc all colluded against labor, but then Facebook was desperately trying to catch up to Google and undermined that effort. That forced Google to give everyone an IMMEDIATE 10% pay raise and since then Google has attempted to pay "top of market". Besides Facebook specifically, people like Paul Graham of Y Combinator tried to sell the startup dream hard, which was hugely helped by huge IPOs of Google and Facebook, and what at the time looked like upcoming huge IPOs of Dropbox and AirBnB (which did eventually IPO but took way longer and were less amazing compared to Google/FB). This forced the big companies to try to improve compensation and work environment. There is a leaked email of Sergey Brin saying, he was concerned about Googlers leaving for Facebook but even more concerned about them leaving to create the next Facebook. The VCs and founders got, far, far too greedy and used tools like common vs preferred shares, liquidation preferences, delayed IPOs, and short exercise windows to totally eviscerate the very dream they were supposedly selling. It took a bizarrely long time for the labor class to realize that this was going on. People today still comically overvalue the value of their ISOs, and a major role of a startup CEO is to attempt to dupe young engineers into buying that debunked dream. In 2019, I think people are finally "getting it" and flocking to companies like Google and Facebook that are paying huge RSU packages to retain engineers while startups are having trouble hiring. Both the big companies and the startups were upset and thrown off course by the election of Trump over Clinton. Clinton, whose campaign was hugely influenced by Google/Alphabet chairman Eric Schmidt, was planning on pushing to massively raise the visa limit to flood the labor market with H1B engineering talent. Even if H1B are paid market rate, their influx will of course increase supply and drive down what that market wage is, and of course not being citizens they have very low political power (this is one of the reasons why, I believe to the extent we do let in technology talent, we should offer them a path to citizenship ASAP). The lobbyists tried to convince Trump on the same thing - if you paid attention, during one of the debates he started talking about the importance of Silicon Valley importing talent. He later backtracked on that point on Facebook, after his campaign advisors pointed out that when one of your central campaign platforms is "build a wall to stop immigration", suddenly pivoting to an open-borders H1B stance is going to hurt your campaign. So the H1B cap has remained relatively untouched for 4 years, which Google/FB/YCombinator/Andreesen Horowitz/Greylock Ventures and the rest of the usual suspects were not planning for. My prediction is, between the VCs digging in their heels on fixing their equity offers and in general keeping up with Google/FB on liquid compensation, tied to the housing crisis in the Bay Area and other hot tech markets, the consolidation of most top engineering talent to FANG companies and a startup dark ages that's mostly about flipping crappy web/mobile apps to greater fools with little technological value will continue on for a few years. The two biggest things that will get the pendulum swinging away from that is, if engineers and other tech workers organize into a professional political association, or if there's another huge technological market growth that forces someone to undercut the collusion of capital against labor. Only the professional association/trade union that can negotiate with the Googles/FBs/Andreesens of the world with some serious bargaining chips (for example, an SRE strike at Google or FB) will offer lasting stability and prosperity to the engineering class. Anything short of that will just be engineers capturing bits of huge bursts of economic growths that come from time to time, and it's very difficult to predict when and where those huge bursts will arrive. It's almost a certainty they will come sooner or later, but they could be much sooner or much later. The safer, smarter bet for the engineer labor class is to organize.

Gibbon1 7y ago

My take is these companies are ultimately machines for laundering central bank liquidity.

dehrmann 7y ago
Funny how inflation is "low," but tech wages and housing in tech hubs has ~doubled since 2009.
- Gibbon1 7y ago
  I saw a graph showing total inflation (not just rates) of various sectors since 2010 or so. Wages and toilet paper are up maybe 17%. While rents, stocks, bonds and real estate are up 150-250%. That's the effect of unconstrained central bank liquidity injections. I think the SV unicorns are also an effect of that too.

spookthesunset 7y ago

> where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns Quite the opposite, I'd say. I'm pretty sure the problem is the investors and bankers came in and said "are you kidding me? this is a garbage-tier investment, call us back when you make X,Y & Z changes!"

christophilus 7y ago

> where investors can look at that company and think it's a good and growing investment to sustain their public pension or hedge fund returns I have literally not heard a single investor say anything positive about WeWork. It's probably the most negative sentiment I've ever heard pre-IPO-- granted, I've only been actively investing for a short while.

xxxpupugo 7y ago

> How have we gotten to the point where a company that is considering a $10-46B IPO is in a position where 1/3 of its staff is redundant and can be laid off I don't think those are contradictory to each other. And in WeWork's case, they were posed to 45B IPO, now it is down to 10B, the trajectory is now totally different, as with the staff that needed.

ravenstine 7y ago

Step 1: Take an idea that already exists and try to make it hip and cool Step 2: Come up with a business name that starts with "i", "we", "me", "face", "my", "yes", "go", or "insta", and ends with a word representing the product. Or start with a word representing your product and end it with a things like "hub", "beat", "bot", "desk", "X" or "r". Or just misspell an existing word. Step 3: Create an atmosphere that's superficially new, hip, open-minded, on-demand, and "with it". Wildly exaggerate how your business is going to disrupt things, going as far as to claim that you want to transform your business into a global village that everyone will want to live in. Insist that everyone will want to live and work on a YesBizz campus, drink YesBizz coffee, and eat YesBizz pancakes. Remember, you aren't just a business; you're a way of life. Step 4: Go mad with investor money. Expand as much as you can while there are no consequences and checks are flying. Channel your inner megalomaniac. The bigger your business makes itself, the more investors will believe in it and the harder it will be for them to pull out. You're on track if you've got offices on every continent, even in countries that don't actually demand your product. Step 5: Once reality begins knocking at the door, it's time to let out one of your first death shrieks by announcing an IPO valued more than most Silicon Valley unicorns. Just ride this one out and if things don't work out you can resign with a sweet golden parachute. If you did everything right, you'll still end up with a lot more money in your bank account than when you started, even if your empire is now burning down.

corodra 7y ago
This would be hilarious if it wasn't true. But sadly, it is true. There was a really good, and very serious video comparing Regus and WeWork. They went over what you just said, more or less.
- DavidHm 7y ago
  Do you by any chance have a link to that video, or remember the name? I'd very very curious to see it.
Legogris 7y ago
Spot on. But you forgot -ify.

acchow 7y ago

> because we need to give the founders and early investors an exit Here's your mistake. The failed IPO is a symptom, not a cause. Now they're trying to fix this broken company. There were still too many people believing in the fantasy before.