I Don't Get WEWORK, Part 1
If you've spoken to me about wework, you know that I am not a fan despite the fact that I love what they are offering. Their offices are nice and trendy, and the idea is a good one. There is definitely a business there.
But is wework that business? I wonder. Wework is scaling stupendously fast, and spending outrageous sums doing so. When businesses spend money crazy amounts of money before realizing profit, how do we know that this huge investment will yield what they say it will? The amazing thing about tech/silicon valley/venture funding is that a lot of people are getting a lot of money to try to do really hard things. Highly predictable investments, even when extremely costly, are mostly pursued by large, traditional businesses. Oil rigs, for example, are extremely expensive and technically complex to get going, but the science and projects are well understood. Building an electric car company, an online only movie rental company, or an (for the most part) online only everything merchant, were not known well understood risks. Even if you could build a great electric car, no one really knew if people would want to buy one in 2009 or if they would rent their DVDs through the mail.
So wework is part of a breed of companies that take in large amounts of money to pursue projects with significant a priori possibilities for profit, but very poorly understood risk. Sometimes this works well (Amazon, Google, Tesla?, etc...) and sometimes it doesn't (Juicero, Theranos, Groupon, AOL? Yahoo?...). What sets these new companies apart from others isn't the fact that the risks they are taking are poorly understood, as virtually every original or new product has those challenges. The thing that sets them apart is that they need to spend hundreds of millions of dollars before they know if they are right. That's obviously not always true, and the minimum viable product philosophy is all about avoiding that mistake, but for the most part these businesses need a lot of money to do one (or more) of three things:
A. Develop a product
B. Scale up something that's already working
C. Achieve necessary scale
So which one is wework doing? Well lets first explore A. Wework obviously doesn't need outside funding to develop their core product. They know how to sign leases and redo office space to make it millennial cool, and they do a good job at it. Wework isn't like, for example, a biomedical company trying to develop a treatment for a specific ailment and is hoping that with enough funding and research they can develop something new. Nor are they like a Tesla, trying to build an affordable electric car and needing lots of money to try. Wework knows what their core product is and how to execute on it.
wework could argue that their core product is something else though. In this scenario, trendy and moderately affordable offices are just the lure to sell freelancers, small business and contractors a suite of goodies like banking, software and other small business needs. In this case wework is like early Facebook. Early Facebook had users but no way to make money off of them. Their core product wasn't Facebook so much as an online advertising space, which they built once they had the users. Maybe wework thinks that once they have this large international base of customers they can start monetizing them in other ways.
But I'm extremely skeptical of that. For one, why do people need services from wework when everyone else is offering them? There is no shortage of software and tools for wework clients and I don't really get the value add of bundling them all through wework. Do I really need my shared office to also manage my banking or my payroll software or my taxes? Why? These offerings could be viable streams of revenue, but I don't see them ever being enough to be more important than the revenue they are deriving directly from the shared office experience.
Moreover, if this is their plan, they are yet to execute on this part of it. If this is the case, wework is taking in billions of dollars, and spending them, without knowing what its path to profitability is. It's like early Facebook spending billions on ads to get everyone on Facebook, without actually knowing if there is even an ad market for their users. If wework really is spending this much money building offices and a brand without actually knowing how they will make money off their clients, they'd be insane - so lets give them the benefit of the doubt and assume they aren't.
So wework isn't a Manhattan project style business spending aggressively while they search for a breakthrough or relentlessly crush a cost curve. In the next part, I'll talk about what else wework could possible be.
But is wework that business? I wonder. Wework is scaling stupendously fast, and spending outrageous sums doing so. When businesses spend money crazy amounts of money before realizing profit, how do we know that this huge investment will yield what they say it will? The amazing thing about tech/silicon valley/venture funding is that a lot of people are getting a lot of money to try to do really hard things. Highly predictable investments, even when extremely costly, are mostly pursued by large, traditional businesses. Oil rigs, for example, are extremely expensive and technically complex to get going, but the science and projects are well understood. Building an electric car company, an online only movie rental company, or an (for the most part) online only everything merchant, were not known well understood risks. Even if you could build a great electric car, no one really knew if people would want to buy one in 2009 or if they would rent their DVDs through the mail.
So wework is part of a breed of companies that take in large amounts of money to pursue projects with significant a priori possibilities for profit, but very poorly understood risk. Sometimes this works well (Amazon, Google, Tesla?, etc...) and sometimes it doesn't (Juicero, Theranos, Groupon, AOL? Yahoo?...). What sets these new companies apart from others isn't the fact that the risks they are taking are poorly understood, as virtually every original or new product has those challenges. The thing that sets them apart is that they need to spend hundreds of millions of dollars before they know if they are right. That's obviously not always true, and the minimum viable product philosophy is all about avoiding that mistake, but for the most part these businesses need a lot of money to do one (or more) of three things:
A. Develop a product
B. Scale up something that's already working
C. Achieve necessary scale
So which one is wework doing? Well lets first explore A. Wework obviously doesn't need outside funding to develop their core product. They know how to sign leases and redo office space to make it millennial cool, and they do a good job at it. Wework isn't like, for example, a biomedical company trying to develop a treatment for a specific ailment and is hoping that with enough funding and research they can develop something new. Nor are they like a Tesla, trying to build an affordable electric car and needing lots of money to try. Wework knows what their core product is and how to execute on it.
wework could argue that their core product is something else though. In this scenario, trendy and moderately affordable offices are just the lure to sell freelancers, small business and contractors a suite of goodies like banking, software and other small business needs. In this case wework is like early Facebook. Early Facebook had users but no way to make money off of them. Their core product wasn't Facebook so much as an online advertising space, which they built once they had the users. Maybe wework thinks that once they have this large international base of customers they can start monetizing them in other ways.
But I'm extremely skeptical of that. For one, why do people need services from wework when everyone else is offering them? There is no shortage of software and tools for wework clients and I don't really get the value add of bundling them all through wework. Do I really need my shared office to also manage my banking or my payroll software or my taxes? Why? These offerings could be viable streams of revenue, but I don't see them ever being enough to be more important than the revenue they are deriving directly from the shared office experience.
Moreover, if this is their plan, they are yet to execute on this part of it. If this is the case, wework is taking in billions of dollars, and spending them, without knowing what its path to profitability is. It's like early Facebook spending billions on ads to get everyone on Facebook, without actually knowing if there is even an ad market for their users. If wework really is spending this much money building offices and a brand without actually knowing how they will make money off their clients, they'd be insane - so lets give them the benefit of the doubt and assume they aren't.
So wework isn't a Manhattan project style business spending aggressively while they search for a breakthrough or relentlessly crush a cost curve. In the next part, I'll talk about what else wework could possible be.
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