I disagree a bit. The positionning of WeWork was so similar to a tech startup I rmb being like "oh right they do 0 technical innovation and 100% lease-fu" when it started being discussed at the IPO.
It feels I wasnt alone and many more intelligent people also realized this IPO was nonsense.
I don’t think people were overly critical because of the “fake it till you make it” bits. Rather I think they were critical of what appeared to be a serial hypocrisy between what was being preached about “the we generation” and what he was actually doing behind the scenes. That’s what the “Billion Dollar Loser” mostly focuses on. The S1 was also one of the most jaw droppingly bad S1s in the history of IPO attempts, which caused potential investors to flee literally overnight.
Yes the IPO proved not only Neumann insanity but moreover Masayoshi Son's inability to do due diligence in his adrenaline rush-saudi funded "we must spend this whatever the cost" decisions.
I think it s safe to assume whatever Son funds now is first probably not profitable and second trapped into vast amount of money to spend without a ROI plan, increasing the overall debt burden of the business.
In other words, you can make money probably by shorting Son's investments. Maybe even Alibaba, who never planned for regulatory compliance and making money even without trapping clients, will turn out to have been a silly idea in hindsight.
The danger of this shit is that its stopped being a choice. 10 years ago I had a choice I could pick „safe“ non-startup style business to work for. No anymore now every young person that has come into the field sees acting recklessly and being a douche totally cooly and our management have drunk Jeff Sutherlands coolant. I fantasize about becoming a bee rancher in southern Germany.
I certainly don't get it. You're paying out $X in leases and getting $Y for the sub-leases. Volume doesn't help when you're selling $5 bills for $2.50. And nobody is paying $6 for the $5 bill some time in the future.
It’s an old business model (Regis was doing this for years). If done well it can work, but is not without risk. This business model gets destroyed during downturns or the extremes of a pandemic since they’re left holding long leases that nobody wants when the customers simply walk away. Knotel imploded quickly once the pandemic hit.
WeWork locations were arguably much nicer than your typical “coworking” offering at the time, but doing well in this business requires tight cost controls and meticulous attention to the details of managing the business. WeWork’s corporate culture was effectively the opposite of those things.
If the company, in its current form, can get its costs under control and streamline operations then it could survive and be profitable long term… but at the end of the day this is a boring real estate arbitrage business and ultimately a market commodity.
The balance is probably hard to find: to get into the insane risk of locking the best locations in the expectation later your market shares will allow you to price them right requires cowboy management, while making any money in real estate scalping at large scale require ultra boring micro accountancy.
So regus cant do it, they want to make money more safely, and WeWork cant do it, they wanted to change the world (sigh).
Last I checked Regus (and WeWork!) have actually done quite well in the pandemic, because lots of companies are letting long-term leases expire and leasing flexible short-term space like Regus/WW instead.
> Volume doesn't help when you're selling $5 bills for $2.50.
Were they really leasing places for less than they were worth? I thought the problem was more that they were spending outrageous amounts of money on overhead, and taking on massive amount of risk because they had long term commitments on their lease, but their tenants could drop at any time.
_Billion Dollar Loser_ documents that many, or perhaps most, of their buildings were leased for more than the sum of the individual rents they could collect on the spaces they made available. This is particularly true in non American markets where the coworking model didn’t work well.
The obvious problem being that whereas the marginal costs of scaling a webapp to an extra million users are trivial, the marginal costs of scaling out an extra million sq ft of office space are extremely high.
Oh yes, it was a dumb idea (although they planned to recoup the cost from bigger tenants in a way that was less dumb than it sounds). But that was the "poor business model" part of WeWork. I think, even if they were profitable, the risk they were assuming was prohibitive. And the self-dealing by the CEO would have prevented me from investing in them in any way.
WeWork was following a traditional (and valid) business model, but they managed to get Softbank to value them as a tech company. That valuation was unwarranted, and ended up with Softbank losing a ton of money.
Without Softbank's money, WeWork was nothing, but none of those five lessons relate to how to find a deep-pocketed VC willing to give you billions of dollars to grow a low-margin, capital-intensive, non-tech business.
It seems absurd to suggest any of the lessons are applicable outside the the very specific time and place of WeWork's initial growth. "Just be confident you can raise a billion dollars for a bullshit idea and it'll happen" doesn't work if there's nobody handing out billion dollar investments to people with bullshit ideas.
Something similar holds for Theranos: if people had done their homework instead of throwing insane amounts of money at this without any skepticism at all due to fear-of-missing-out then there would have been a much more quiet ending to that story. And in a way this is probably Holmes' best defense against the shareholder claims (of course, she still did lie to them): none of them did their part.
When there is a transaction of this magnitude, normally both parties have duties: the one party has a duty to inform, the other party has a duty to investigate. Here both parties failed, not just one.
Yes, she definitely will not get away with it, but it will almost certainly be tried and has been one of the things that most professionals in the M&A field have been pretty surprised at: that none of the investors did their homework, they just believed her when she made her pretty strong claims.
You're forgetting the other half of SoftBank's strategy: that with a billion dollar cash injection, SoftBank could play kingmaker and decide the winners in any given market. SoftBank didn't just invest a billion dollars because they thought WeWork could win the market, they invested a billion dollars to make them the winners. Which SoftBank would then own the controlling stake of.
But, uh, yeah, turns out that didn't quite work. Turns out when you Silicon Valley tech executives a billion dollars, they don't really think too about long-term business plans. And a billion dollars dries up a lot faster than you think.
Well...yes and no. We can argue about whether Softbanks plan of handing out billions to let tech companies blitzscale and obtain market dominance via first mover advantage and network effects and the power of SaaS economics (good scaling; low capital intensiveness) and so forth was a good idea or not.
But WeWork was 1) not a tech company 2) had no hope of obtaining market dominance 3) wasn't the first mover 4) existed in a market with no network effects 5) wasn't a SaaS company but instead was in a capital intensive business that scaled linearly. No part of the Softbank plan applied here!
> Turns out when you Silicon Valley tech executives a billion dollars
What about when you hand some real estate developers...what did it end up being in the end? $18.5B dollars?
(On a similar note, in other markets - specifically ride hailing - Softbank picked multiple competitors in a single market and funded both sides ensuring no single market leader would emerge. Again, even if the core Softbank strategy would have worked, it can't work when you don't even try and follow it.)
There was a bit of a network effect. Business travelers could use WeWork office and meeting space in any city, so expanding that network of facilities increased the total value in more than a linear way. But of course that wasn't nearly enough to justify the valuation.
I'd agree with the other opinion here. If you want to decide the winner in the real estate market (i.e. corner it), you're going to need even more money than even what SoftBank was providing. It comes back to what the parent was saying. There's just no getting around the mismatch between the VC model of high-risk, high-growth versus the capital-intensive and low-margin business of real estate.
The fraud part wasn't "got investors to overvalue the company". That's salesmanship. It's the long term profitable leases with companies privately owned by the CEO (apparently purchased by him right before the lease was signed) that would make it fraud.
I love WeWork (am a happily paying member) because to date it’s mostly been a scam on the rich. Now that they’re public, some less wealthy people will have the opportunity to fall for the grift. But so far it’s been VC bozos footing the bill for really nice buildings for people like me to work in.
It’s not like Theranos, Uber, etc. that were harming normal people.
A good chunk of the money from SoftBank is coming from loans to SoftBank employees [0], who are just typical salarymen under extreme pressure by their employer. The house always wins.
Its easy to misinterpret your comment, but many people find the same sentiment elsewhere. When lyft (and maybe uber?) were subsidizing most rides, so you could get a ride for ridiculously cheap. For close to a year I took a lyft to and from work because it was cheaper than taking the bus. Same with moviepass - I was going to theatres and VCs were paying for it.
If you live outside of SF and aren't really concerned with tech/etc, there are definitely situations where the average person can directly benefit from VC funding and not feel bad about it.
A company that uses software automation to increase efficiency and improve margins at scale (thereby scaling non-linearly).
E.g. a company that uses people to calculate taxes is not tech, whereas a company that uses people and software to calculate taxes is a tech company if their use of internally-developed software gives them a significant competitive advantage over other companies in that market.
EDIT: Thinking about it a little bit more, a vegetable growing company is not a tech company unless they use software to drive down expenses so they can compete better, allowing their investment in software to give them a greater rate of return than a comparable investment in additional people/other capital. Typically the automation system is also licensed for sale externally at sub-linear marginal cost. This means that tech companies benefit from a faster rate of growth than a traditional capital-intensive business, while driving up productivity in their market.
>A company that uses software automation to increase efficiency and improve margins at scale (thereby scaling non-linearly).
WeWork probably qualifies then. With sufficient scale they could bring technology to bear in order to increase utilization of office space. Especially to global companies that have ever changing needs for office space around the world.
Of course, WeWork hasn't (AFAICT) accomplished that but theoretically they could.
It was a tech business from the beginning. The tech they had to develop back then is free and commonplace these days so someone doing the same today wouldn’t count as “tech” imho.
I'm not talking about growth though, I'm talking about marginal cost per service rendered. To serve twice as many people in a restaurant you need roughly twice the servers. You don't need twice the amount of programmers (and other workers) to serve Netflix to twice as many people.
You are talking about the internet, though, which has experienced non-linear growth and obviously allows for an new means of communication and distribution. (Eventually it will not be "new" anymore.) Feel free to provide an example of a "tech" company that uses software automation to decrease marginal cost without relying on the internet for communication/distribution.
The definition you provided included this bit about "(thereby scaling non-linearly)". If actual growth does not matter and the only criteria are marginal cost reduction and automation that requires software, then why mention "scaling".
"Tech" companies are like pyramid schemes.^1 Unless there is growth, the "business" does not "work". This might have something to do with the fact that most of these companies do not generate enough revenue to survive, and rely on investment rounds to pay peoples' salaries.
1. Every participant had to recruit six new participants for the scheme to see any return from their own investment.
"Tech" companies are not self-sustaining, they cannot draw the requisite investment to survive, without "non-linear" growth.
Well it’s like “AI” these days: just another word for “software”. “Tech” companies are just companies that don’t act like 1960s-style businesses. Which is why NY can have a “Tech” hub (NY is a fine place without “Tech”). 99% of “tech companies” in NY (and a lot — I think majority — of SF) are retail businesses that may not have a storefront. That’s definitely the case for Berlin too.
There’s also an implication that they will scale faster than linearly.
Personally, I like working for business where actual technology is the differentiating feature, though they don’t always succeed. But money is hardly my main motivator.
i think it's way too soon to call it a failure. we work is still worth billions. Uber has been losing money forever but the stock is still above IPO price.
WeWork launched a $3 billion fund in 2019 to buy office space outright. Granted, this was right before they imploded so I'm not sure how far they got, but it definitely was a part of their plan.
Easy. Scam. At least in the sense that it exposed the scam that you need to have a viable business or even be a competent executive to raise gobs of venture capital.
This article seems to sort of pre-suppose that the target is billion dollar business, and describes Miguel's success at building a small enterprise as a failure. It wasn't. It was much more successful than WeWork.
There's also a lie at the core of most of these - having a grand vision, confidence moving mountains. Wework had a vision that they would deliver more than just office space, but when you have a vision for something you actually need to do it. At no point ever was WeWork delivering anything more than office space, and often it was delivering office space in much less efficient ways than it's competitors. Adam had confidence to move mountains- he told stories of becoming a billion dollar company and sure - he did work hard when he wasn't ripping off his own company or buying surf pools. But he wasn't working on a billion dollar company, he was talking about a billion dollar company, whilst working on a small office rental company.
Again with the blitzscaling point - blitzscaling is about scaling up to a global company so you beat your competitors to market. But office rentals aren't a new market, they're an established market. You can't beat Regus to market, they're already here.
And finally - trying to claim that WeWork raised standards for office rentals is just... bullshit. Yes, WeWork made the standard for office rentals getting $2 worth of office for $1 by burning investor capital. That's not innovation. Innovation is when you actually find an economic value. This is the core of the problem, any company can pursue the silicon valley playbook of bullshit, spending too much, and huge egos. The key point with WeWork is at every step of this they did it with a business that fundamentally didn't match what the founder told you it was. It didn't have market power and never could, it didn't have economies of scale and never could, it didn't innovate in regulatory arbitrage. It just did what its competitors were doing, but for more money.
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[ 2.8 ms ] story [ 124 ms ] threadThe dreams could be reachable or just a figment of the counterparties imagination.
Softbank happened to be the best counterparty at that time for many outlandish claims and imaginations.
Like the dog walking app. Or the super successful exit of Slack.
-
But everyone in tech always knew WeWork was NOT a tech company.
There were comparable publicly listed companies like Regus as compcos.
Softbank is a grown up company with many "successful" MBAs etc.
They all knew what they got into. The greater fool theory always works till you are the greater fool.
It feels I wasnt alone and many more intelligent people also realized this IPO was nonsense.
I think it s safe to assume whatever Son funds now is first probably not profitable and second trapped into vast amount of money to spend without a ROI plan, increasing the overall debt burden of the business.
In other words, you can make money probably by shorting Son's investments. Maybe even Alibaba, who never planned for regulatory compliance and making money even without trapping clients, will turn out to have been a silly idea in hindsight.
[1] https://www.barrons.com/amp/articles/softbank-posts-huge-gai...
WeWork locations were arguably much nicer than your typical “coworking” offering at the time, but doing well in this business requires tight cost controls and meticulous attention to the details of managing the business. WeWork’s corporate culture was effectively the opposite of those things.
If the company, in its current form, can get its costs under control and streamline operations then it could survive and be profitable long term… but at the end of the day this is a boring real estate arbitrage business and ultimately a market commodity.
So regus cant do it, they want to make money more safely, and WeWork cant do it, they wanted to change the world (sigh).
Were they really leasing places for less than they were worth? I thought the problem was more that they were spending outrageous amounts of money on overhead, and taking on massive amount of risk because they had long term commitments on their lease, but their tenants could drop at any time.
WeWork was following a traditional (and valid) business model, but they managed to get Softbank to value them as a tech company. That valuation was unwarranted, and ended up with Softbank losing a ton of money.
Without Softbank's money, WeWork was nothing, but none of those five lessons relate to how to find a deep-pocketed VC willing to give you billions of dollars to grow a low-margin, capital-intensive, non-tech business.
It seems absurd to suggest any of the lessons are applicable outside the the very specific time and place of WeWork's initial growth. "Just be confident you can raise a billion dollars for a bullshit idea and it'll happen" doesn't work if there's nobody handing out billion dollar investments to people with bullshit ideas.
When there is a transaction of this magnitude, normally both parties have duties: the one party has a duty to inform, the other party has a duty to investigate. Here both parties failed, not just one.
But, uh, yeah, turns out that didn't quite work. Turns out when you Silicon Valley tech executives a billion dollars, they don't really think too about long-term business plans. And a billion dollars dries up a lot faster than you think.
But WeWork was 1) not a tech company 2) had no hope of obtaining market dominance 3) wasn't the first mover 4) existed in a market with no network effects 5) wasn't a SaaS company but instead was in a capital intensive business that scaled linearly. No part of the Softbank plan applied here!
> Turns out when you Silicon Valley tech executives a billion dollars
What about when you hand some real estate developers...what did it end up being in the end? $18.5B dollars?
(On a similar note, in other markets - specifically ride hailing - Softbank picked multiple competitors in a single market and funded both sides ensuring no single market leader would emerge. Again, even if the core Softbank strategy would have worked, it can't work when you don't even try and follow it.)
It’s not like Theranos, Uber, etc. that were harming normal people.
[0] https://techcrunch.com/2019/08/17/softbank-reportedly-plans-...
If you live outside of SF and aren't really concerned with tech/etc, there are definitely situations where the average person can directly benefit from VC funding and not feel bad about it.
E.g. a company that uses people to calculate taxes is not tech, whereas a company that uses people and software to calculate taxes is a tech company if their use of internally-developed software gives them a significant competitive advantage over other companies in that market.
EDIT: Thinking about it a little bit more, a vegetable growing company is not a tech company unless they use software to drive down expenses so they can compete better, allowing their investment in software to give them a greater rate of return than a comparable investment in additional people/other capital. Typically the automation system is also licensed for sale externally at sub-linear marginal cost. This means that tech companies benefit from a faster rate of growth than a traditional capital-intensive business, while driving up productivity in their market.
WeWork probably qualifies then. With sufficient scale they could bring technology to bear in order to increase utilization of office space. Especially to global companies that have ever changing needs for office space around the world.
Of course, WeWork hasn't (AFAICT) accomplished that but theoretically they could.
That growth will eventually level off.
The definition you provided included this bit about "(thereby scaling non-linearly)". If actual growth does not matter and the only criteria are marginal cost reduction and automation that requires software, then why mention "scaling".
"Tech" companies are like pyramid schemes.^1 Unless there is growth, the "business" does not "work". This might have something to do with the fact that most of these companies do not generate enough revenue to survive, and rely on investment rounds to pay peoples' salaries.
1. Every participant had to recruit six new participants for the scheme to see any return from their own investment.
"Tech" companies are not self-sustaining, they cannot draw the requisite investment to survive, without "non-linear" growth.
There’s also an implication that they will scale faster than linearly.
Personally, I like working for business where actual technology is the differentiating feature, though they don’t always succeed. But money is hardly my main motivator.
Uber/Lyft doesn't own cars.
WeWork didn't own office space. The idea was to build a AirBnB/Uber for office space.
There's also a lie at the core of most of these - having a grand vision, confidence moving mountains. Wework had a vision that they would deliver more than just office space, but when you have a vision for something you actually need to do it. At no point ever was WeWork delivering anything more than office space, and often it was delivering office space in much less efficient ways than it's competitors. Adam had confidence to move mountains- he told stories of becoming a billion dollar company and sure - he did work hard when he wasn't ripping off his own company or buying surf pools. But he wasn't working on a billion dollar company, he was talking about a billion dollar company, whilst working on a small office rental company.
Again with the blitzscaling point - blitzscaling is about scaling up to a global company so you beat your competitors to market. But office rentals aren't a new market, they're an established market. You can't beat Regus to market, they're already here.
And finally - trying to claim that WeWork raised standards for office rentals is just... bullshit. Yes, WeWork made the standard for office rentals getting $2 worth of office for $1 by burning investor capital. That's not innovation. Innovation is when you actually find an economic value. This is the core of the problem, any company can pursue the silicon valley playbook of bullshit, spending too much, and huge egos. The key point with WeWork is at every step of this they did it with a business that fundamentally didn't match what the founder told you it was. It didn't have market power and never could, it didn't have economies of scale and never could, it didn't innovate in regulatory arbitrage. It just did what its competitors were doing, but for more money.