“I’m working on a start-up idea”; “I’m looking for a job in a start-up”. Common, somewhat nauseating answers to the question of what people are doing for the summer here at HBS.
Only, these answers aren’t unique to business school students, nor is it a recent phenomenon.
Economies run on small businesses. Every year hundreds of thousands of companies are ‘born’ and ‘die’ in the US, as shown in the exhibit below – in 2013 over 400,000 new companies were registered:
It’s also a global truth – in the UK, a company was started every minute.
When companies start out on this process they face a tremendous amount of uncertainty, challenges and issues.
WeWork tries to resolve some of these issues.
The WeWork business model is very simple – they rent office space at scale, split it up and rent it out to smaller organizations with margins attached.
- Creating value: WeWork focuses on creating value for organizations in two broad ways. Primarily, they provide small organizations with greater flexibility. Offering short term lets that roll month to month removes a key pain point of small start-ups of when they can commit to an office. Secondly, they create a network around all of the organizations that they have working in their offices, creating a community of innovative people to discuss business ideas
- Delivering value: WeWork provides a fully stocked office space that includes desk space, wi-fi, coffee machines, meeting rooms and social areas. They provide everything that organizations need, in the scale that they require them. It’s a network effect
- Capturing value: The capturing part is easy. WeWork has the scale to rent large scale office space at a cheap price. They break it up into start-up sized pieces and rent it out at a premium. WeWork does not buy the offices so they do not have to carry heavy assets on their balance sheet, but they do commit to long term leases
It’s a simple arbitrage model. So what about their operating model has made them so successful and convinced investors to value them at $10bn?
Office space design
First and foremost, WeWork provides the product that their clients demand –a fully stocked office space, different sizes based on your organization size and no long term commitment. It’s that innovation that remains core to their success.
The exhibit to the left shows a floor plan for the first floor in the Seattle office. You can see the diversity in options available, from single desk spaces to a space that can accommodate up to ~20 people. It’s configurable beyond that as well.
Additionally, everything in a WeWork has been carefully designed to encourage people to meet. Hallways are narrow, the kitchen area is small and all glass above chest height is transparent.
Encouraging people to connect is important to building their competitive advantage.
Flexibility and pricing
The monthly price plan is a huge plus for their clients. On top of that, there are multiple options in terms of intensity of use of the shared resources.
A small client that doesn’t need big meeting rooms can pay for them as they are required.
Network and community building
With so many entrepreneurs and small business people in one roof, when you join a WeWork, you join a large network of creative, business people. This creates a huge potential upside for collaboration, innovation and business dealing.
Don’t forget – a lot of start-ups are not the sexy tech based that HBS students dream of joining. A large number of them are single person law firms, accounts and professional services that have gone out on their own. When you sign up to operate out of a WeWork, you gain an instant pool of potential clients.
WeWork is also about having fun – there are plenty of communal events. The communal kitchen area has free beer for people to toast the end of the week, day, lunch or hour.
Trips are also arranged for people to interact outside of the office environment. Bringing everyone together helps to make it a fun environment to work and a place that people enjoy going into work.
It’s 2015 – so that means there’s an app for it.
The WeWork app helps to make things easy for their companies, they can book meeting rooms and connect with the broad network, asking questions, engaging in discussions and finding someone with the expertise that they require.
Finally, it’s fast becoming a global model – with offices across the US and now locations in Amsterdam, London and Tel Aviv, you have an instant network of people in these locations and a place to work if you find yourself there.
So where can WeWork go now? And what’s to stop competitors?
The network is key to ensure WeWork has competitive advantage. This model is relatively easy to replicate, but hard to execute well. The more people see a value in being a part of the WeWork community, the longer they will be willing to pay a premium on their rent.
Additionally, things that could help ensure the sustainability of WeWork in the long run:
- Strategic partners: There are a core group of things that start-ups require: legal advice, accountants and investors. The more WeWork can begin to start these introductions, they could look to diversify their revenue stream
- Longer term rentals: One core risk is the danger of a significant down turn in the economy and WeWork not renting out their space. For organizations that have more secure cash flows they could offer longer term rentals to help provide some mitigation
- Data: As they continue to expand, the data they have on the organizations will become a large resource that they could look to
As with every network based business, they come with risks of distracting from their core business model and need to be balanced carefully.
Small Business Association
US Census data