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Venture Growth and Development

WeWork Case Study Analysis
Herve Kubwimana
Cardiff Business School.

This section will also make a comparison of WeWork to other highly valued companies and seek to understand what makes them so interesting to investors. 2016) Business Model WeWork targets members coming from different industries but technology companies occupy the single largest industry with around 20% of its clients.  Community: WeWork hosts hundreds of events each month including product demos. who pay a monthly fee to access the platform. IT support.1. 2015). Europe and Israel – twice as many as it had at the end of 2014. printers and copiers. referrals through the ecosystem and this has resulted in an increasing demand for WeWork space with minimal spending. This model benefits everyone as members receive high-quality affordable services. dedicated offices (15%). services and community. We will start by giving the company’s overview and the people behind its success as well as its business model. and strategy online newspapers articles. Each location is populated with members. WeWork had 60 coworking locations in across the U. These feature high speed internet. Then I will progress by exploring its growth context by trying to understand how a company that didn’t exist 6 years ago has succeeded in creating the hype in big cities revolutionising how people work. (WeWork. . WeWork entered the New York market at an opportune moment. we will review WeWork’s future trajectory by looking into its revenue generation and its market valuation but at the same time identifying the challenges that are ahead of the company. all included with the membership averagely price at $600/member/month. Thirdly. WeWork has engaged up to its 40. we will base on authoritative business. 2014)  Services: WeWork leverages its 40.000 members who connect and network through its mobile application. meeting rooms offices suppliers. freelancers. and legal services. During our work. other coworking spaces (19%). WeWork attracts them using a business model that is built upon on three pillars: space. 2015). (WeWork. when the economy was beginning to recover.. lounges and meeting spaces that are shared among members. To establish locations. 2014). and services for entrepreneurs. (Rice. 2014)  Space: As of December 2015. (Appendix A) and it is headquartered in New York City. Introduction In this essay I am going to interpret venture growth and development success using the case of WeWork─ a 6 years old American company that provides shared workspace and apartments in around 60 locations across the world.S. WeWork enters into long-term lease agreements for centrally located commercial office spaces and transform them into thoughtfully designed kitchens. (WeWork. service providers get a powerful distribution channel and WeWork earns revenue without the challenges of product development. (WeWork. guest speakers and happy hours. company offices (10%) and coffee shops (6%).000 community members to partner with established service providers to offer its members access to essential business services as health care. We will close by exploring what is next for WeWork 3-5 years ahead. In this section we will explore how WeWork became a category creator. payment processing. member panels. payroll. projects. These members join WeWork after leaving a variety of other workplaces including home (41%). 3. 2. Founded in 2010 by Adam Neumann and Miguel McKelvey. start-ups and small businesses. etc. inventor and overhead. financial. the value also increases by sourcing talent. It negotiates below market rates for members while securing a revenue or profit sharing arrangement with the service provider. Company Overview: WeWork WeWork is an American company which provides shared workspace. (Fortune. WeWork’s Growth Context WeWork was launched during a downturn of the global economy which allowed the company to sign tenant-favourable leases in world class locations and assets. As the community grows. community.

no matter the size of the team Discounts on meaningful services such as healthcare.S. (Harvard Business Review. thus cutting on expenses. web hosting. In the case of WeWork. These start-ups needed each other as they feed off each other and want to belong to something. this shows us clear strategy to exploit market opportunities.to encourage connections Profit Model Members’ monthly fees to access the platform Negotiating below market rates for members while securing a revenue & profit sharing arrangement with the service provider. payment processing. 13 companies (Appendix B) that were instrumental in creating their categories accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth over those three years. 2013). companies from 2009 to 2011. Now WeWork is the fastest-growing lessee of new office space in New York and the US as it spreads to cities such as Austin and Chicago. Research has shown that within the 100 fastest-growing U.. WeWork understood it and exploited it by providing a platform to work from that also serves as a community of like-minded professionals to belong to. Europe and Israel A digital app that lets you connect and work virtually with other members around the world Events . This is also one of the reasons sharing economy companies such as AirBnB and Uber have gained momentum.formal and informal . etc. Their decisions are now mainly based on convenience.000 to 40. There is an increasing change on ways people live and work especially millennials. This is how WeWork positioned itself as a category creator in the office real estate industry: Breakthrough Product Innovation A Better Experience to members Flexible membership for people on the go. Breakthrough Business Model Innovation Production Model Take long-term leases with property owners guaranteeing up to 1 year free rent Revamp the office and create a coworking space for many people Distribution Model Offices in 60 coworking locations in across the U. Millennials value platform that allow them to connect with each other and they just want access over .S. Amsterdam and Tel Aviv. it quickly positioned itself as a category creator by filling needs that consumers hadn’t realized they had. travel. there was a new generation of freelancers and entrepreneurs or starting companies working from home which meant loneliness and no human contact and it was difficult to make personal connections when working in isolation (Rice. For a business that doesn’t own any properties. gym memberships. Rent at $350/mo for 24/7 access to a dedicated desk or private office for teams. (Harvard Business Review. Over the past 12 months the company has tripled its membership from 14. Price and Value Innovation Rent at $45/mo for full access to the benefits of membership with flexible access. not to mention London. HR solutions. (Harvard Business Review. Whilst WeWork entered the real estate industry. 2016). Research shows category creators are either solving new problems that can’t be solved by existing solutions or cultivating large and active ecosystems.000 and expanded to 60 locations from 21 today and 9 just 2 years ago. they’ll have better chances of success if they also create a new business model. 2013). 2016). (Konrad.During this time there were empty buildings as most companies were struggling. Network with like-minded entrepreneurs Promote services and find new clients Search for business and service listings that can help your business grow Benefit Enhancement Big-company benefits and perks. 2015). experience and value for the money. Although companies can create new categories through new products alone.

At a pick of its growth. is the 11th most valuable start-up in the world. (Lee. (Kosoff. 4. 2015). This means that WeWork needs to diversify its client base and include more corporate companies as clients. Most of its clients are tech start-ups and if the markets slow down. 2015). 2016). WeWork’s finances would be in jeopardy. and subletting it to tenants. 2016). but carries significant risks. WeWork’s ambitions didn’t end at the office.C where tech. if revenues don’t rise astronomically as projected.  Also.ownership which WeWork sorted out and offer to its customers instead of being just another landlord.000) of this market which would generate $1 billion in annual sales. (Gelles. (Parietti. WeWork didn’t invent co-working but it was a fast follower and understood that the demand for office space will go very high especially with the rising number of freelancers. Once again WeWork is exploiting another opportunity in the market: it is targeting office blocs and shopping malls that have been abandoned by the defence industry hit by the crisis.2 million in profits in 2014 and the company is projecting operating profit of $1 billion by 2018 on revenue of $3 billion. which has raised $969 million (Appendix C) in funding at a $10 billion valuation later last year. 2015). (Nicolaou. (Kosoff. By offering to its members access to essential business support services. While WeWork’s long term leases protect it if rents rise. specialised skills as well as backward and forward linkages. Freelancers and entrepreneurs love these places as they offer knowledge spillovers. Like WeWork. 2016). WeWork operates a fairly traditional real estate business: leasing office space. Borrowing notes from WeWork's idea that collaboration between neighbouring entrepreneurs happens due to wall-free proximity. some investors are worried that if the market faces difficulties. WeWork effectively create a supportive and appealing environment to its members and this attract more members. However. The initial thought behind WeLive was to include housing space and WeWork office space in the same building. WeWork’s Future Trajectory of Growth WeWork made a $75 million in revenues with a $4. Regus. advertising. redesigning it. (Parietti. if demand slumps. (Rice. 2016). 2015). convert them into micro apartments in cities like New York and D. For instance the company estimates that small and medium enterprises─ which it targets─ to have 12 million potential members only in the US and aim at 1% (120. Regus expanded rapidly during the dotcom boom. This huge valuation makes differentiate the company to its main competitors including Regus─ that went bankrupt in 2003 before getting on track again. often on monthly contracts. thus unable to pay the rent. or occupancy levels drop. contractors and entrepreneurs that are almost of a third of the labour force. Later in 2015 the company launched WeLive─ a total immersion product that combines office space and micro-apartments. 2015) Here we also identify WeWork’s strategy of using agglomeration economies by expanding to cities that are considered as innovative clusters. This is a very interesting proposal for the freelancers living in big and expensive cities: their workday increasingly become longer and longer and making it easier for them to have a work-life balance at the same time eliminating commuting looks very appealing. they will be unable to raise funding. media and internet employers are recruiting extensively but struggling to find affordable housing for their staff. (Nicolaou. the WeLive apartments might foster a sense of community that urban living lacks. It has since diversified its tenants and taken on more flexible leases to prevent a repeat. This not only create economies of scale for WeWork but also occasions internal economies of scales for its members and their start-up companies that grow at same time by taking advantage of this clustering. has been doing the same thing for 26 years — and knows that this model might work well when the tech industry is booming. WeWork presents a few risk especially considering its industry:  For all the hype. This puts the company on the same level as big commercial landlords such as Boston Properties─ the largest real estate company. Its main rival. WeWork. the story could be different. . but went bankrupt in 2003 after the bubble burst and its tech customers pulled out. It also puts the company on the same level as other sharing economy tech companies such as Uber and AirBnB that are revolutionising the way people use transport and travel respectively.

(Konrad. 2016). This can be explained by the fact that these start-ups are in a race to find new niches creating entirely new categories of products or services in order to fill needs that consumers hadn’t realized they had. they may never conduct a successful IPO. We have identified how WeWork placed itself as the company that understands the needs of freelancers that were working from home and that wanted personal connections. Research shows that many fast growing start-ups are missing their chance by staying private too long. As of now. in the form of leases paid to building owners or in revamping real estate properties when expanding to new places. It also shows that Start-ups have been in no rush to go public. it is still at a manageable enough size that it can tend to its brand and maintain high levels of customer service. whilst the company is looking promising as ever and with the model of sharing economies. (Harvard Business Review. The speed at which companies like WeWork─ that didn’t exist 10 years ago─ are growing is an example of how valuation is skyrocketing with start-ups. Research has proven that fast growing companies that go public between the ages of 6 and 10 years generate 95% (Appendix D) of all value created post-IPO. communities and an ecosystem to belong to. Building on the category creation argument. we see another pattern of the meteoric rise of these so called “unicorns”—private. 2016). it might not be a bad idea to contemplate going public whilst the company is growing rapidly. (Harvard Business Review. (Konrad. (Solomon. we find that they have all raised more capital than their cash flow statements and Profit & Loss accounts suggest is needed. Public investors want to see some upside. The challenge with this is that. it needs to diversify its clients and target more corporate clients. It is due to the highly competitive market of Venture Capitalists that are pumping funds to get in on the next Facebook or the next big thing and that is how an online grocer like InstaCart or WeWork can have billion-dollar valuations. 5. mutual funds. will WeWork go public? The company’s founders have given the prospect of an initial public offering some thoughts for the next two to three years but they remain tight-lipped on the topic. (Harvard Business Review. as the company start to tap into corporate markets─ which it has already started with companies like Merck. (Harvard Business Review. 2016). 2016) But unlike Airbnb and Uber. With its growth. In fact. Hiring the wrong community managers or automating too much would dilute its culture and cost the business too much. It took advantage of renting properties below market rates. so if unicorns remain private through too much of their growth phase. Pepsi and American Express being its tenants─ it risks to dilute its cultural balance and over-extending itself. and corporate VC firms. Considering the rate at which WeWork is growing and if it is to sustainably expand and venture into the apartment business. 2013). And the message is clear: category creators experience much faster growth and receive much higher valuations from investors than companies bringing only incremental innovations to market. This lead us to question is exponential growth and valuation and made us explore the reason behind it. If we compare WeWork to Uber or AirBnB. preferring to take advantage of plentiful private capital from hedge funds. 2016). . 2016). as shown above WeWork came at the time where companies were downsizing after the financial crisis and where most people were becoming entrepreneurs and freelancers. Many venture capitalists try to grow their companies quickly in order to raise as much capital as possible. thereby inflating their market caps. revamped them and rent them to a niche of freelancers and start-ups that don’t want to work from their homes or coffee shops and that need a likeminded community to belong to. WeWork incurs large fixed expenses. we have introduced WeWork─ a New York based Concept Company that offers coworking and co-living options to millennials that are freelancers. Conclusion In this essay. self-employed and contractors in big cities where rent is expensive. the challenges ahead and think of what the future looks like for WeWork. (Harvard Business Review. 2016). venture-backed companies valued at a billion dollars or more. Research shows that that investors are overpaying for equity in these so called “unicorns”. As discussed above.

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Benchmark.0b (June 2015) $969m 10. well-known brands of children’s clothing. Appendices A. Morgan Chase. 2010 Adam Neumann (co-founder) Regus Aleph. . (WeWork. Rowe Price. where he developed Egg Baby and Krawlers.. New Categories. Miguel earned his BA (Architecture) from University of Oregon. (WeWork. creative companies. Adam was Co-founder of the co-working space Green Desk. 2016) Latest valuation: Total equity funding: Valuation-to-funding: Rounds of funding (current): Location: Founded: CEO: Competitors: Investors: $10.3 to 1 6 New York.7. He is a multi-disciplinary designer and entrepreneur with diverse experience in architectural design. Fidelity Management. 2016) Miguel McKelvey. Rhone Group. design and construction activities. Adam has been creating companies in New York City for nearly 10 years.P. Co-founder and CEO As an entrepreneur in industries ranging from apparel to real estate. Previously. Harvard Management. T. WeWork Company information Founders Adam Neumann. Outsize Growth (Harvard Business Review. J.Y. 2013). Co-founder and Chief Creative Officer Miguel directs all architecture. Commonfund. which helped transform the DUMBO neighbourhood in Brooklyn into a hub for small. Adam also co-founded and ran Big Tent Inc. Jefferies Group. Goldman Sachs. N. Wellington Management B. construction management and web development.

5 billion $2.0 billion $1.0 billion April 2015 SpaceX $12. Change in Value Since IPO .3 billion January 2016 Snapchat $16.C.1 billion January 2015 Pinterest $11.0 billion $3.0 billion $7. 2016) Company Latest Valuation Total Equity Funding Last Valuation Uber $51.com.0 billion September 2015 Flipkart $15. All Companies valued at $10 billion and above as of February 2016 (WSJ.3 billion February 2015 Dropbox $10.4 billion August 2015 Xiaomi $46.0 billion $1.0 billion $607 million January 2014 WeWork $10.4 billion December 2014 Airbnb $25.0 billion $1.0 billion $4.2 billion March 2015 Didi Kuaidi $16.3 billion $3.0 billion $1.9 billion October 2015 Meituan-Dianping $18.0 billion $969 million June 2015 D.3 billion June 2015 Palantir $20.0 billion $1.