Why WeWork works so well

WeWork’s finely-tuned operating model has helped fuel its rapid ascension into the leading provider of co-working space

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.

PROCESS

Facilities

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.

people

User Experience

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.

Human Capital

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.

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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.

Sources:

http://www.forbes.com/sites/alexkonrad/2014/11/05/the-rise-of-wework/

http://www.businessinsider.com/wework-business-model-2015-7?r=UK&IR=T

http://www.wsj.com/articles/valuation-of-shared-office-provider-wework-soars-to-10-billion-1435181485

https://www.wework.com/mission?ref=ftr

http://www.miamiherald.com/news/business/article40777815.html

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6 thoughts on “Why WeWork works so well

  1. Really interesting stuff and great company selection. Do you think there’s a network effect at hand here as well? My sense is that entrepreneurs want to be surrounded by other successful entrepreneurs, so in facing growing competition, WeWork will succeed if startups feel that the community/ecosystem WeWork has built is a differentiating factor – the open spaces and some of the other aspects you mentioned definitely help build that ecosystem. It remains to be seen if this will become commoditized.

  2. Very good post! This is an extremely interesting business, both for its novelty and astonishing simplicity. I think that technology has also been one of the most fundamental vectors of the operational model. WeWork created several internal tools/platforms to make the life of its start-up customers easier — such as the internal social network and the cloud hosting services. This is a fundamental anchor for them to be pioneers in creating the so-called network effect, which will provide them with a future enormous competitive advantage.

  3. Great overview of WeWork. I’d be curious to know how exactly they’re able to turn neighborhoods around just by opening a location. Must be some collaboration with the cities/neighboring companies?

    Like you mentioned, they do an amazing job building a community for their members. If I recall correctly, one of their most compelling differentiators at launch was a services platform where members could barter with each other. For example, a photographer could offer to help an e-commerce entrepreneur take product photos in exchange for the entrepreneur helping the photographer with marketing. Given the type of customer that WeWork targets, this system is very attractive. Offering communal beer on tap is likely another key selling point 🙂

  4. Love this post! In addition to the technology platforms someone mentioned above, I think something really interesting they provide to community members are options / recommendations to access shared services like accounting, HR, and legal. Also, not sure if you saw how WeWork launched WeLive but would love to hear your thoughts on the differences and similarities between the operating models for the co-working and co-living spaces.

  5. Thanks for the post. I whole-heartily agree with your assessment with WeWork and the success they have had to date. You touched on this at the end, but I would be very interested to learn more about what the company is doing (if anything) to protect itself from the inevitable real estate downturn we will see in the next 2-4 years. San Francisco, with office prices per sq ft now higher than Manhattan, is witnessing an eerily similar rise in real estate prices as it did during the dot-com bubble, after which the market massively corrected. Once prices turn, WeWork will be either stuck with high inventory or forced to rent space at a big discount, making their previous investments money losers. Furthermore, if most of their customers are tech start-ups, their cyclical risk to real estate is heightened, as the number of tech-start ups dwindles rapidly in down markets when VC funding dries up. It will be interesting to see what happens in the next downturn and if they can whether the storm.

  6. Great post – and this has given me even more reason to admire WeWork! I agree with your point on facilities. Having visited several WeWork locations myself, I’ve seen just how thoughtful and creative the design teams are in constructing the work spaces. This has been a strong point of differentiation and allowed them to capitalize on the growing desire for flexible, livable, aesthetically-pleasing work spaces. In a way, WeWork is pioneering a revolution of corporate America’s bleak white-walled office culture. Interestingly, this doesn’t necessarily leave the corporate companies behind though. WeWork Boston has several rooms that are actually held by Boston-based insurance companies that do have their own buildings in the city. These companies see the value in having access to WeWork’s colorful spaces for employee satisfaction, and also to the WeWork community events for client relations and recruiting purposes. WeWork is an even more interesting company when we consider that it is a startup for the sake of other startups. This concept is the result of the recent eruption of startups – a true snowball effect and proof that these cultural trends are here to stay and can create even more business!

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