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> The most glaring omission is that it doesn't stop to acknowledge at all the impressive growth that WeWork saw. WeWork would rent the office space, and then r

> The most glaring omission is that it doesn't stop to acknowledge at all the impressive growth that WeWork saw. WeWork would rent the office space, and then rent it out for less money than they were renting it. It's not hard to grow when you can raise billions to sell dollars for pennies. I'm pretty sure I could sell millions of phones a year, just give me billions to buy those phones and then I'll sell them at a 90% discount and I'll dominate the phone market!

tshaddox 5y ago
Assuming that they actually were routinely renting out office space at a loss, then you’re certainly correct. VCs could also use their money to throw big extravagant parties with free food and entertainment, and they’d also get lots of people to show up!
- nickelcitymario 5y ago
  Even that's hard to nail down, because their cost to revenue isn't 1:1. Their cost renting a space was fixed. Their revenue renting it out was variable. If they simply couldn't rent out enough of the space to be profitable, that's not scandalous. That's just the risk you take in any business. But if they were renting out the space at rates that could never become profitable, then it is scandalous, because they're burning money by design.
cactus2093 5y ago
If they were truly selling their median office lease for pennies on the dollar, for a 90% discount, that would have made for a fascinating story as well. I haven't seen anything to indicate that was the case, by all accounts they did seem to generally be near break-even on at least a large number of their leases. But then they spent a ton of money on faster growth via setting up new space ahead of demand, marketing and acquisition spending, and bigger discounts/perks for big flagship deals. But at the end of the day they still had many thousands of happy small businesses paying them basically market rate prices for office space. I worked out of a wework space for 6 months in 2015, it was actually not the cheapest option we found but the convenience/amenities were worth it for us and we were happy customers.
- CalChris 5y ago
  I haven't seen anything to indicate that was the case, by all accounts they did seem to generally be near break-even on at least a large number of their leases. That story was also in the New Yorker. https://www.newyorker.com/magazine/2020/11/30/how-venture-capitalists-are-deforming-capitalism https://www.newyorker.com/magazine/2020/11/30/how-venture-ca...
  - cactus2093 5y ago
    Looks like an interesting read but I'm not able to read it at the moment as I'm out of articles for the month. But another way to say my criticism here, is that just pointing out that "____ fast-growing company was burning money and not profitable", is not necessarily the big scandalous indictment of the company that people like to pretend it is whenever some major flop like this happens. You can find many headlines from 8-10 years ago about how Facebook, Tesla, Airbnb, Amazon, etc. (take your pick) are terrible businesses because they don't turn a profit, which obviously turned out to be very wrong.
    - dralley 5y ago
      You should bookmark it, it's a good read. >Neuner began hearing similar stories from other co-working entrepreneurs: WeWork came to town, opened near an existing co-working office, and undercut the competitor on price. Sometimes WeWork promised tenants a moving bonus if they terminated an existing lease; in other instances, the company obtained client directories from competitors’ Web sites and offered everyone on the lists three months of free rent. Jerome Chang, the owner of Blankspaces, in Los Angeles, told me, “My average rate was five hundred and fifty dollars per desk per month, and I was just scraping by. Then WeWork arrived, and I had to drop it to four hundred and fifty, and then three hundred and fifty. It eviscerated my business.” Rebecca Brian Pan, who founded a co-working company named Covo, said, “No one could make money at these prices. But they kept lowering them so that they were cheaper than everyone else. It was like they had a bottomless bank account that made it impossible for anyone else to survive.” >Neuner began slashing NextSpace’s prices and adding amenities—free beer; lunchtime classes on accounting, coding, and chakra cleansing—but none of it mattered. WeWork’s prices were too low. By the end of 2014, WeWork had raised more than half a billion dollars from venture capitalists. Although it was now losing six million dollars a month, it was growing faster than ever before, with plans for sixty locations in more than a dozen cities. >Meanwhile, one of Silicon Valley’s most prominent investors, Bruce Dunlevie, of the venture-capital firm Benchmark, had joined WeWork’s board of directors. Benchmark, founded in 1995 in Menlo Park, had funded such Silicon Valley startups as eBay, Twitter, and Instagram. Dunlevie admitted to a partner that he wasn’t certain how WeWork would ever become profitable, but he was taken with Neumann. Dunlevie said to the partner, “Let’s give him some money, and he’ll figure it out.” Around this time, Benchmark made its first investment in WeWork—seventeen million dollars.
Sohcahtoa82 5y ago
Ah, the classic "We take a loss on every sale but make up for it in volume" strategy?
mimixco 5y ago
Exactly. A money-losing company that grows isn't any accomplishment. MoviePass comes to mind.
- mrkramer 5y ago
  If a core business has huge potential money-losing company growing is accomplishment. Amazon comes to mind.
mrkramer 5y ago
That's called dumping it is a short term tactic to win market share but not by any means long term strategy.

tshaddox 5y ago

Assuming that they actually were routinely renting out office space at a loss, then you’re certainly correct. VCs could also use their money to throw big extravagant parties with free food and entertainment, and they’d also get lots of people to show up!

nickelcitymario 5y ago
Even that's hard to nail down, because their cost to revenue isn't 1:1. Their cost renting a space was fixed. Their revenue renting it out was variable. If they simply couldn't rent out enough of the space to be profitable, that's not scandalous. That's just the risk you take in any business. But if they were renting out the space at rates that could never become profitable, then it is scandalous, because they're burning money by design.

cactus2093 5y ago

If they were truly selling their median office lease for pennies on the dollar, for a 90% discount, that would have made for a fascinating story as well. I haven't seen anything to indicate that was the case, by all accounts they did seem to generally be near break-even on at least a large number of their leases. But then they spent a ton of money on faster growth via setting up new space ahead of demand, marketing and acquisition spending, and bigger discounts/perks for big flagship deals. But at the end of the day they still had many thousands of happy small businesses paying them basically market rate prices for office space. I worked out of a wework space for 6 months in 2015, it was actually not the cheapest option we found but the convenience/amenities were worth it for us and we were happy customers.

CalChris 5y ago
I haven't seen anything to indicate that was the case, by all accounts they did seem to generally be near break-even on at least a large number of their leases. That story was also in the New Yorker. https://www.newyorker.com/magazine/2020/11/30/how-venture-capitalists-are-deforming-capitalism https://www.newyorker.com/magazine/2020/11/30/how-venture-ca...
- cactus2093 5y ago
  Looks like an interesting read but I'm not able to read it at the moment as I'm out of articles for the month. But another way to say my criticism here, is that just pointing out that "____ fast-growing company was burning money and not profitable", is not necessarily the big scandalous indictment of the company that people like to pretend it is whenever some major flop like this happens. You can find many headlines from 8-10 years ago about how Facebook, Tesla, Airbnb, Amazon, etc. (take your pick) are terrible businesses because they don't turn a profit, which obviously turned out to be very wrong.
  - dralley 5y ago
    You should bookmark it, it's a good read. >Neuner began hearing similar stories from other co-working entrepreneurs: WeWork came to town, opened near an existing co-working office, and undercut the competitor on price. Sometimes WeWork promised tenants a moving bonus if they terminated an existing lease; in other instances, the company obtained client directories from competitors’ Web sites and offered everyone on the lists three months of free rent. Jerome Chang, the owner of Blankspaces, in Los Angeles, told me, “My average rate was five hundred and fifty dollars per desk per month, and I was just scraping by. Then WeWork arrived, and I had to drop it to four hundred and fifty, and then three hundred and fifty. It eviscerated my business.” Rebecca Brian Pan, who founded a co-working company named Covo, said, “No one could make money at these prices. But they kept lowering them so that they were cheaper than everyone else. It was like they had a bottomless bank account that made it impossible for anyone else to survive.” >Neuner began slashing NextSpace’s prices and adding amenities—free beer; lunchtime classes on accounting, coding, and chakra cleansing—but none of it mattered. WeWork’s prices were too low. By the end of 2014, WeWork had raised more than half a billion dollars from venture capitalists. Although it was now losing six million dollars a month, it was growing faster than ever before, with plans for sixty locations in more than a dozen cities. >Meanwhile, one of Silicon Valley’s most prominent investors, Bruce Dunlevie, of the venture-capital firm Benchmark, had joined WeWork’s board of directors. Benchmark, founded in 1995 in Menlo Park, had funded such Silicon Valley startups as eBay, Twitter, and Instagram. Dunlevie admitted to a partner that he wasn’t certain how WeWork would ever become profitable, but he was taken with Neumann. Dunlevie said to the partner, “Let’s give him some money, and he’ll figure it out.” Around this time, Benchmark made its first investment in WeWork—seventeen million dollars.

Sohcahtoa82 5y ago

Ah, the classic "We take a loss on every sale but make up for it in volume" strategy?

mimixco 5y ago

Exactly. A money-losing company that grows isn't any accomplishment. MoviePass comes to mind.

mrkramer 5y ago
If a core business has huge potential money-losing company growing is accomplishment. Amazon comes to mind.

mrkramer 5y ago

That's called dumping it is a short term tactic to win market share but not by any means long term strategy.