Here’s a question: If you have a laptop, a desk, a cellphone, and access to internet, water, and coffee, why would you spend hundreds of dollars a month to access those same things in another location? Especially if you’re setting up a fledgling new business and capital is tight!
I ask this question in light of SoftBank Corporation’s looming bailout for WeWork. As the Wall Street Journal reported on Tuesday, that bailout is expected to put $1.7 billion in the hands of founder Adam Neumann in return for him taking a back seat to the Japanese firm. SoftBank will also put in sufficient funding to keep WeWork’s head above water. At least for now. But I’m struggling to understand why SoftBank is putting even more money into WeWork (it has previously invested).
To succeed, WeWork requires tens of thousands of individuals to make the very odd choice I question above. Namely, the choice to pay hundreds of dollars, in some cases thousands of dollars, to do what they could do at home. And it seems that most folks agree with my skepticism.
After all, WeWork is in big trouble. Presenting itself for a looming IPO one month back, WeWork suggested it was worth $20 billion. But that value has now been set at “around $8 billion.” Why the big difference?
Well, presumably because most analysts can’t, like me, quite figure out why WeWork actually exists. Alternatively, analysts might be looking with a slightly raised eye at WeWork’s financial filings. While WeWork’s aborted IPO filing showed over 500,000 global memberships, it also showed a rather striking net loss of $689.7 million. Hardly chump change!
Clearly, SoftBank is assuming that WeWork can significantly boost its memberships. I’m not so sure. While WeWork has a snazzy, youth-friendly setup, it doesn’t seem to offer obvious value for money. My perusal of WeWork’s website showed that the lowest price in Washington, D.C. for one person to rent a so-called “hot desk” is $330/month, and $700/month for a private office. It’s not much cheaper in other entrepreneur-heavy areas. In Charlotte, North Carolina, the cheapest hot desk membership is $320/month, and the cheapest private office is $620/month. In Denver, it’s $290/month for a hot desk and $740/month for an office. That might not sound like a lot. But for burgeoning start-ups, it’s huge.
I’m struggling to see how WeWork can reach the scale it needs to prosper.
The critical problem: WeWork’s business model relies on persuading low-capital entrepreneurs to use their capital on unnecessary facilities, rather than on rapidly reaching cost-neutral revenues.
