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The big problem with WeWork as a business model is that they don't really benefit from economies of scale. The biggest ongoing cost for WeWork is leasing the o

The big problem with WeWork as a business model is that they don't really benefit from economies of scale. The biggest ongoing cost for WeWork is leasing the office space. This cost doesn't go down just because WeWork has some brand recognition. Even worse, there's nothing stopping a property owner from operating their property as a co-working space themselves, cutting WeWork out of the equation. It's not that WeWork couldn't be profitable. But it was never going to pull in the profits of a successful tech company.

sklargh 4y ago
This is correct and only one half of the downsides of WeWork’s model. WeWork assumes the risk spread between a traditional commercial lease and a basket of short-term leases. The stability and creditworthiness of the short term leases is up for debate. So as they scale they’re signing up for a huge liability with a fairly uncertain stream of cashflows on the other side. Since there are only so many high-quality businesses that want temporary office space at a WeWork in a given area they also need to accept additional risk as they grow revenue regionally. Add to this the intense correlation of WeWork’s customer base to firms dependent on VC$ and you’ve got a lot of correlated risk sitting on one side of a nasty liability. Not good stuff.
- prottog 4y ago
  > you’ve got a lot of correlated risk sitting on one side of a nasty liability Not only was WeWork's customer base dependent on VC money, so was WeWork itself! So it's really VC money going around in circles until the music stops, which is now. It reminds me of that old joke: startups are an inefficiency imposed on the transfer of wealth from VCs to landlords.