In securing a $10 billion valuation in its latest funding round, WeWork joined the ranks of elite venture-backed companies to be valued in the tens of billions. But unlike Uber, Dropbox, SpaceX and most other startups in the category, WeWork’s success has not been driven by superior technological innovation. Its business model is frankly quite easy to replicate. To understand why WeWork has worked so well, we must explore the company’s highly effective alignment between its operating and business models.
WeWork’s business model is fairly straightforward. It takes out long-term leases on large office spaces, subdivides them into several parcels and then charges monthly memberships to a broad range of entrepreneurs and companies who occupy the space. The relative simplicity of this model and the surge in global entrepreneurship is why there are close to 6,000 shared office operations around the world today. However, none are nearly as successful as WeWork which now leases more than 3.5 million square feet and serves more than 25,000 members around the world.
Having proven the co-working space concept, WeWork must continually strive to differentiate itself. This is where WeWork’s operating model, centered on tangible investments in facilities and intangible investments in the user experience and their human capital, becomes a source of competitive advantage.
WeWork is very thoughtful about site selection. They often choose to locate in gentrifying or distressed neighborhoods where they can negotiate discounted leases, promising landlords that they will boost the overall attractiveness of the site with their presence. They only open offices where they believe there is potential for sustained and vibrant entrepreneurial hubs.
WeWork is also very methodical about the design and layout of each location. Miguel McKelvey, one of WeWork’s co-founders, comes from an architecture background and helps ensure that the key elements of the flow, look and feel of the space is replicated in each new site. Enter one and you’ll be immediately captivated by its aesthetics.
For co-founders Miguel McKelvey and Adam Neumann, WeWork is more about building community than it is about leasing office space. A powerful component of the user experience is the access it provides to a community of entrepreneurs who look out for each others. To help foster a greater sense of community, each WeWork location hosts a variety of events which leverage common spaces that often include amenities such as games and beers on tap. Users derive value from the business leads their fellow community members might provide or from the laughs they share over a game of shuffleboard in the common space.
Hiring and training new employees is another key component of WeWork’s operating model. The co-founders still interview every new employee to ensure they believe in their mission of community, as was the case with my friend who was hired as an operations lead earlier this year after a lengthy vetting process. My friend’s first week on the job was spent with the team responsible for opening WeWork’s first location in a major US city. This is a critical part of employee training because each new site has to successfully replicate the user experience. In each new location, the hiring of the “community manager” (note the title is not office manager) is instrumental.
WeWork has achieved phenomenal success in a short period of time. A large part of their success is attributable to how they align their provision of office space to their core operational pillars of community, design and thoughtful selection of sites and employees. These operational strengths have allowed WeWork to continue its rapid and profitable expansion. Some investors are concerned that an economic downturn or drying up of venture funding will leave WeWork with long-term leases on spaces that it can’t rent out. However, WeWork’s operating model bolsters its business model – the user experience and physical design of each site is so compelling that the company is likely to prove the long-term viability of its business model when it withstands an economic downturn.