WEWORK & 10 FUNDAMENTAL QUESTIONS

WEWORK & 10 FUNDAMENTAL QUESTIONS

By: Kourosh Maheri

1-Stakeholders

Who are the constituents served by WeWork? What is the value proposition to each?

By Crawling 3 gigabytes of text on the internet relying on ten search engines suggests the below map as the main relations of the term WeWork. The main constituents of WeWork can be categorized into main three ones as C-Level, board & Management, customers, and employees of WeWork

 

Screenshot 2020-01-21 at 17.01.31Screenshot 2020-01-22 at 10.22.55

Figure 1. WeWork stakeholder’s map by Comprehensive Mining, Crawling, Arranging, Extracting and Review of Web Data (3 Gigabytes of Text Results) on the term WeWork & Stakeholeders (Kourosh Maheri, 2020)

 

 

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Figure 2. WeWork Membership by Industry Adapted from Deskmag, HOK, MSREI Strategy, as of September 2018 Via MORGAN STANLEY INVESTMENT MANAGEMENT

 

 

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Figure 3. Employees are Rising share of Coworking Memebrs. Adapted from The Economist, MSREI Strategy, as of September 2018. Via MORGAN STANLEY INVESTMENT MANAGEMENT

 

  • C-Level, board & Management Two people had been the key people in the recent history of the company: Adam Neuman (WeWork ex-CEO) and Masayoshi Son (SoftBank CEO)
  • Vision Adam Neuman initially did well at Communicating his vision. Japanese executive Masayoshi Son’s vision was aligned with the Neuman. Masayoshi explicitly trusted in Neuman. Softbank pumped the money into WeWork. Time changed things drastically, and the situation ended up with Son’s apologies for his faith in Neuman.
  • Management WeWork suffered a weak management team. Decision makings were accompanied by poor project management practices and more than expected delays in company milestones. Adam Newman’s spending strategies have been questioned several times.
  • Board members The board did not see IPO goes public with Adam Neuman in a chair. In 2019, A member of a board broke his silence; Mr. Schwartz, the 65-year-old former Goldman Sachs Group Inc., said: “I’ve stayed silent too long.”
  • Core Values and Objectives There has been a misalignment between the organization’s leadership style and its core strategic objectives and values. Lack of organizational commitment was another negative outcome. Adam Neuman tried to spread a belief that WeWork cares about its people
  • like he does care about my employees. The ending of the story was different. He left the company receiving his consulting fee, leaving employees in a purgatory. All these made the employees less trustful of being a part of the WeWork’s constituents.
  • Customers of WeWork To understand who is/will be a customer of WeWork, we need to understand what are the solutions offered by WeWork. According to the WeWork official website, The members are indeed the stakeholders who benefit from WeWork solutions.
  • Employees of WeWork WeWork with 15000 employees is a challenging place for its stakeholders to stay focused. The decisive point to consider is that employees were the competent stakeholders and committed human capital for the initial days of WeWork activity; This changed
    overtime. WeWork continues layoffs of thousands of workforce sent the worst message to the possible future workforce and current ones; There would be a big concern about security and care for every WeWork Worker, on the other side, skilled employee acquisition is increasing, and this affects WeWork Financial situation.

 

2-Valuations

Was WeWork’s $20 billion valuations justified?

  • Cash/Finances Since the fall in price, WeWork is running low on Cash. Finances have become more problematic. A cash shortage is a key factor when we talk about WeWork’s valuation. The cash shortage or insufficient current assets have been negatively affecting the liquidity position and harming the overall WeWork’s performance. WeWork valuation depends on how WeWork deals with the market, rising lease prices, getting more members to pay debts, and become a financially healthy company. Market insider indicated that investors are more skeptical than ever if WeWork will be able to pay back its debt. Summing up, WeWork doesn’t have a strong financial position; The weak financial position may prevent further investments.
  • WeWork Value and IPO WeWork is an excellent example of how to lose 39 billion in 6 weeks. WeWork’s failed attempt to go public led to a decreased valuation and diminished company potentials for further investments and growth. There was a correction in the market value, caused WeWork losing 17 percent of its value. The aforementioned signifies that the valuation was not right; 47 billion called IPO. WeWork overvalued initial public offering (IPO) made things more complicated for WeWork. It caused WeWork value dipped significantly in 2018. The withdrawn IPO caused the company to see its valuation chaos and lost $1.9B in 2018. The false valuation happened before (e.g., Uber, Endeavour Group Holdings).

Satisfaction & Customer service

Another factor which is setting the WeWork’s value is its service quality and customer satisfaction. High-quality services increase brand loyalty and improve WeWork-Tech performance in the competitive commercial real estate market. These days searching the name WeWork brings more results whether the company is stable and around its real value rather than showing a solid and reliable firm.

The co-working environment might not be for everyone. Overtime, co-working can become a norm, not a different type of working and as an alternative. Some members might not be satisfied by this normalization of the WeWork Co-Working concept. It may trigger the negative word of mouth about the business and affected business growth and also the service quality.

Solutions

  • The WeWork valuation mainly relies on the solutions and the quality of providing them. According to WeWork website, WeWork Solutions are as below:
    • Private Offices
    • Private Offices are inside a WeWork building, with shared access to premium
      facilities and conference rooms.
    • Office Suites for large teams, featuring private meeting rooms, executive offices, and
      operational support.
    • “Headquarters,” which are configurable office space on a private floor with private
      entrance, branding, and amenities.
    • “Custom Buildout” is an ideal personal office created with the help of WeWork’s design and real estate experts
  • Co-working Space Options are divided into two categories as “Hot Desk” and “Dedicated Desk”:
    • A “Hot Desk” will give us access to shared workspace and conference rooms in a WeWork building of choice. “Dedicated Desk” is Desk space in a lockable office, with 24/7 access to premium amenities and conference rooms.
    • Labs Desk: Join a community of early-stage startups. Memberships include desk-space, mentorship, and education.
  • On-Demand Access
    • Global unlimited access to a network of more than 500 WeWork locations around the
      world.
    • “We Membership” is an obtained workspace without the time and geographical
      limitations across WeWork’s global network of locations.
    • “Event Space(s)” are private venues designed for events of all kinds, from
      conferences to celebrations.
  • Idea and Licenses
    Owning different intellectual property rights gives WeWork an upper hand when it comes to business model protection and licensing. Although It does not serve as a hard limitation for other companies who want to copycat the services. However, a unique and exclusive product offering makes it difficult for competitors to imitate.

 

3-Barriers

What are WeWork’s barriers to entry?

Like any other business, WeWork has had its barriers to entry, but mostly unique initial barriers compare to what other competitors offer, as the concept of the WeWork business has been disruptive. However, WeWork’s current barriers are more known to other competitors. These include rising lease costs and running costs.

  • Trust WeWork is gaining the lost trust. After moving the Chairman out. The board will possibly look for substitutes of different actors who bring trust into the eyes of the society.
  • Diversity Workplace diversity can also act as a significant business strength, particularly when the organization intends to operate in the international market. Nevertheless, WeWork issues are cross national boundaries and dealing with cultural diversity. The globalization of the company was parallel to numerous local and international limitations by different governmental and private entities.
  • Customer acquirement The WeWork market is becoming so competitive besides the spending habits, and financial status of customers bring more risk and makes it harder for companies like WeWork to recognize and be prepared for them. In short, customer acquisition is becoming increasingly costly.
  • Financial Markets It is not only about the company but the financial markets, which also made the future of the WeWork. Another melt-up of the financial markets is expected (2020) more than ever. The market has shown significant signals of sudden drops in the second half of 2019, while Feds started to pumping more into the system. These suggest a probable catastrophic failure and melt-up of stocks in the market. Following the financial markets, another strike in the real-estate sector is plausible.

 

4-Benefits/Risks shared office space

What are the benefits/risks of shared office space?

Shared office spaces are perfect for flexible work. The user may not be accountable to the classic office border and limitation. There will be less limitation of time, a place for the user. Shared facilities mean less office expenditure, less responsibility for the office equipment, installation costs, and less tedious task of setting up, arranging cleaning things. It also saves a lot of money for its users. Private facilities and utilities are costly to get, maintain, and use.

Noteworthy, the shared environment brings synergic productivity to its users. Coworking brings better networking can bring more knowledge and also help a user find opportunities. Coworking with like-minded people, collaborations, and networking will help individuals to learn new skills and acquire new knowledge. People at coworking and shared offices are professionals. Working together with networking with professionals can promote business and increase growth. Emotional support by the like-minded people and professionals, which usually may guide for free, offer free consulting sessions. Time to time events at some coworking locations is another benefit of the coworking and working at Shared offices. We have to consider that more productivity equals more success.

On the other side, there are some risks and issues associated with coworking. These are mainly regarding security and privacy. Data breaches are more possible when connecting to public Wi-Fis. Public Wi-Fi can be risky if the user does not have enough technically skilled and knowledge to secure her/his system by using a firewall, the VPN connection, etc. Generally, systems connected to public Wi-Fi are more vulnerable. If the Wi-Fi facilities are not set up well, hackers and attackers can use public Wi-Fi to hack into the victim’s system. Coworking areas are different on how secure they are. Device and equipment theft is possible. The local laws, internal regulations may limit accessibly to cameras if a theft happens. Not every coworking space is equipped or allowed to install the cameras, and in not all cases, you can access the recorded camera video and recognize the thief to find your device. Overhearing, intellectual property theft may happen. The scenarios are when you try to discuss a private matter or a new design idea or mentioning important information over the phone. Coworking spaces currently do not provide the same insurance and legal protection for the members as a company or entity does. However, this may change in the near future as more insurance companies are offering packages for freelancers.

The costs of food, cafe, beverage, and other products are usually more than shops and fast food, coffee/food company, coffeehouse chains, or the food prepared at home.

5-Scale vs Profit

Why has WeWork scaled so quickly—undercutting its profits?

Trendy and Social-Power: WeWork became a trendy concept among working generations for a better next thing. It helped the company to increase its members, for example, WeWork has doubled its members between 2016-2017 and was proposing a membership of 400,000 in 2018.

The scalability capabilities of WeWork were another reason that WeWork scaled so quickly. According to Steve King, partner of Emergent Research, WeWork has the capabilities to build a space at half the time and 70% of the cost of a real estate company, due to its economies of scale. Members and regular services use are the fundamentals of WeWork profitability.

6-Technological

What are WeWork’s technological innovations?

The significant WeWork’s challenges/risks are about its competitors, environmental issues, regulations, and limitations.

7-Success

Why has WeWork been successful to date?

WeWork introduced a new concept of offices and real estate. It merged the culture of personal space with benefits of social working and environment while having the freedom to choose and flexibility of working place. Offices, bailouts, spaces,on-demand access, the flexibility of working are the core success points of WeWork. The changing customer needs, tastes, and preferences have been opportunities helping WeWork to do well in periods. A recent by Inc.com research indicates that more people prefer the co-working space. Moreover, the increasing growth of the world population, an increase in office renting prices, particularly in the existing or potential customer segments, are factors of WeWork growth.

8-Challenges/Risks

What are WeWork’s greatest challenges/risks?

The significant WeWork’s challenges/risks are about its competitors, environmental issues, regulations, and limitations.

  • Competitors WeWork has an easy to replicate the business model. Since the start of the company. We have seen powerful competitors in the market; it makes the marketing strategies harder to be able to communicate the Brand Values. Some competitors such as Tech-Parks, Regus, Cawrks, Awfis & Smartworks are some external factors that affect WeWork potential market over the long run. The increasing number of direct and/or indirect competitors that are copycatting the same services in an indirect competition affects the organization’s ability to sustain and expand the customer base.
  • Pricing/Services WeWork is challenging with the pricing factor. There are some Competitors with lower pricing. Noting some WeWork services, It is challenging to cope with some of the newcomers based on their pricing and creatives solutions they offer. WeWork should consider the current competitors are offering cheaper solutions (e,g, The Wing, KettleSpace, Compass, The Farm). Pricing should help the firm to stand among the competitors. Pricing and service offerings should be definite to satisfy the needs and expectations of the customers while bringing the profit to the company. It should also help the company to stand on a line to secure the firm against external threats and factors such as an increase in real estate prices, which may affect the availability of assets in key cities.
  • Environmental The environmental concerns have affected the brand image in today’s competitive market. In the early months of operations, WeWork was being criticized by the environmentalists for its poor waste management practices and the inability to integrate sustainability in business operations. Environmentalists suggested that WeWork should work faster to build its role in social sustainability. They emphasized that the WeWork community voice should be a pattern for moving toward sustainability. WeWork’s first global sustainability leader, Lindsay Baker, explained how the sustainability function and social issues are interconnected. One of the long term challenges of WeWork is to make its infrastructure enabled and ready for people to follow a healthy, balanced lifestyle. As an example, the recent environmentalist comments are about the WeWork meat-free policies as people can eat meat at WeWork, but WeWork isn’t spending the company money on meat. Starting the new decade, WeWork will possibly convenient time to empower its position when it comes to environment-related issues.
  • Regulations and limitations  There are some policies by governments and entities limiting the expansion of the WeWork into some countries. Some of these policies are regulations to protect the local service providers, governmental subsidies, which are all important external factors for WeWork. The changing regulatory framework besides new stricter regulations could be a significant threat to WeWork in the commercial real estate sector. It makes legal standards more challenging and complicated for WeWork. The changing rules and regulations may result in expensive lawsuits.
  • World economy Recession may strike WeWork as people may downsize their usage. The deteriorating economic conditions and rise in inflation increases affect business performance when they directly influence the customers’ spending patterns and purchasing power; as a result, it affects the WeWork’s profitability.

9-Expansion

What are WeWork’s future expansion opportunities? What other markets should WeWork consider entering?

WeWork expansion can happen around its marketing activities, introducing the current services to get more customers.

  • Locations WeWork has a strong connection with the entrepreneurial ecosystem. In 2019, Its global expansion was planned beyond the current global locations described in the link below: “https://www.wework.com/locations” WeWork still faces another limitation acting in a limited number of cities. The recent news suggests that the expansion should be halted or slowed down heavily in 2020. On Jan 16, 2020, CNBC’s “Squawk Box” crew reports: WeWork only signed four new leases in the U.S. in the fourth quarter, as the company reeled in expenses following a SoftBank-led bailout. The geographic presence of WeWork in different regions plays an important but risky role in the future of WeWork; expansions may hit or heal the company’s current situation. Globalization and rising global interconnectedness help WeWork to get more into the international market, targeting more geographically.
  • Marketing Considering the commercial real estate, the emergence of social media marketing can be an excellent opportunity for WeWork if it can ensure a strong online presence on various social networking sites.
  • Other Markets WeWork is not a technology company. It is a modern company offering real-estate solutions in more advanced and disrupting means. What WeWork can do is to add more add-ons services which are offered in other markets, however suggesting other markets solutions and or multi-market solutions can be risky; it may boost the expansion of the company bringing much more profit or be another heavy hit to the fundamentals of the company; this is applicable as any other disruptive solution. Some examples of other markets that WeWork may enter are CRM, analytics, and AI. WeWork may add the CRM featured solutions with the help of AI for its customers, so the company offers not only the real-estate for the businesses but also the offering ways for entities to deal with their plausible customers; It can be done by the help of Artificial-intelligence powered apps.

10-Staying power

Does WeWork have staying power?

  • Foresight on WeWork As any foresight study, the future of WeWork can be envisioned by a detailed look into the current situation, external and internal factors, making the assumptions on the pathway ahead of the company, and then prioritizing them based on signals and also the signal senders of the foresight study. Then we can understand if WeWork has the WeWork staying power or not. Any further major moves should be very carefully studied and considered realistically to prevent any further loss. Expelling CEO out, overvalued estimation beside the IPO disastrous situation are important factors to consider when we talk about the future of WeWork. The expel of CEO might be necessary to get the reputation back but no enough to bring the company back to its top times in a short time. In Feb 2020, It was announced Sandeep Mathrani, a real estate veteran as a new CEO of WeWork. Although he rescued a company from bankruptcy before, it doesn’t mean that overnight, he can bring the shining days to WeWork. Summing up the main point from the previous questions, I can consider that WeWork has staying power. Yes, with more arduous effort.
  • Reputation It may gain its previous reputation gradually and over longterm. Not to mention the trust in Adam’s Plans affected Masayoshi Son’s reputation. The news revealed that its co-founder and former CEO Adam Neumann had engaged in questionable practices while leading the company affected the WeWork management reputation. As for example the jet purchase which then the executives have sold the $60-million jet, Neumann bought with company money.

 

References

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Farrell, M., & Brown, E. (2019, December 14). The Money Men Who Enabled Adam Neumann and the WeWork Debacle. Retrieved from https://www.wsj.com/articles/ the-money-men-who-enabled-adam-neumann-and-the-wework-debacle-11576299616

Hafiz, A. (2019, December 15). 10 Amazing Benefits of Coworking. Retrieved from https://coworkingmag.com/blog/benefits-of-coworking/

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Morgan Stanley. (n.d.). Coworking, Friend or Foe? -Morgan Stanley. Retrieved from https:// www.morganstanley.com/im/publication/insights/investment-insights/ii_coworkingfriendorfoe_us.pdf PDF

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