I really enjoyed the acerbic and colorful style of this article, but wouldn't have enjoyed it nearly so much if it were all style and no substance. He's clearly knowledgeable, though I know the style of writing isn't the usual fare for HN.
He's correct that really good businesses tend to start during recessions. Starting a business during a Roaring Twenties style economy when you could literally support yourself with a ridiculous idea like selling pet rocks will not test your business model and help you find its weaknesses. A la some African saying to the effect that "Calm seas don't produce skilled sailors."
I learned a lot and I am a bit envious of his acerbic wit. I feel like that's more acceptable from a man, but sarcastic contempt was pretty much my default as a teen and I sometimes think I've become a bit too PC over the years.
> I really enjoyed the acerbic and colorful style of this article
I did too, and have started looking at some of his other recent posts. I think they will well repay the effort. For example, this from the one on "Mueller and Night Invasions":
"As a kid, I would digest my stomach waiting in the living room, after school, for my mom to get home so I’d tell her I had lost another $33 jacket. My 8-year-old spent $44 for an in-app Princess Celestia Pony and, when confronted, beamed with pride, as spending money is a new skill he’s mastered, similar to math or (not) feeding the dog. It took just one generation for spending money to evolve from a crime to a competence."
We've all become too PC and the stains of that culture are bursting out the sides in unexpected and colorful ways. It's oppressive to be PC and we haven't acknowledged that side of it well enough. (Oppressive to the person constantly censoring themselves in the name of PC)
I don't understand why all analysis of the craziness that is The We Company is filled with opaque language and colorful mind bending terms.
The company is a fraud, it should be explained with facts, and clear simple language. Everything else is just muddying the water.
This is extreme. Adam’s self-dealing is abundantly disclosed. There is no evidence he is acting in bad faith. (Versus being deluded himself.)
Lots of businesses leverage paper-thin margins. Lots of businesses borrow short and lend long. Lots of businesses, particularly real estate businesses, feature self-dealing and family control galore. American corporate law goes out of its way to avoid criminalising stupidity.
There is a chance WeWork attains enterprise lock-in sufficient to let it weather a storm. There is a chance it expands cross-selling to bring its books into the black. These chances are slim. But they’re clearly disclosed.
I'm genuinely curious, mind you I haven't read much about Wework.
So, I can understand how a company like Theranos is fraud, because they are lying and have no product.
But, I've used wework successfully, I know a lot of people using wework successfully. They have a product that works and that people pay for. How can such a company be a fraud?
I know almost nothing about finance, and the only things I had to look up in the linked post were "EBITDA," "DJIA" (which turns out to just be an acronym for the Dow Jones) and "flywheel effect." Seems pretty plain to me.
A lot of the behaviors of the founder seem outrageously fishy, however they are legitimately filling a rapidly growing need. At this very moment I have the WeWork Toronto locations page open as I contemplate biting the bullet on a private office there just to get out of the home office occasionally.
How is it fraud? Investors make idiotic investments. Nobody is being forced to buy shares of WeWork, and all the financials are there. It’s not like WeWork is lying about financials.
I'm not sure there's fraud here. It's more akin to voting for Trump to "Make America Great". It's purely a pr / sales-pitch and if people decide to invest they may lose their money or they may not. If I believe the S-1 it pretty clearly lays out the shadiness and ridiculousness of the company without being fraudulent.
> Adam also owned the rights to the "We" trademark, which the firm decided they must own and paid the founder/CEO $5.9 million for the rights. The rights to a name nearly identical to the name of the firm where he’s the founder/CEO and largest shareholder.
Adam controls the majority of voting right to the company and the board (made up of VCs) doesn't want a messy legal fight since they stand to lose money if We tanks. So a moderate amount of graft is tolerated since the alternative is less desirable.
This guy has become a multi-hundred-millionaire by renting out office space under a business model that appears to make no financial sense. Because "tech company". It's utterly bonkers.
This is a classic due-diligence item during early funding rounds - up there with "does the company actually own its domain name or do one of the founders own it"?
I suspect either due-diligence caught it and decided to live with it after some negotiation, or they missed it - oops!
The most interesting part of this article is the term "Community Adjusted EBITDA". It's not a term invented by the Prof but something used by WeWork. I remember Warren Buffett/Charlie Munger calling EBIDTA as bulls* earnings [1]
but community adjusted EBITDA just smells like someone in Enron got hired by the We company recently. It almost feels like We IPO is the bellwether for an upcoming crash :-(
> "More than its cash-burning ways, WeWork’s IPO will test investor tolerance for made-up accounting metrics. You might recall “Community Adjusted EBITDA,” the gauge WeWork devised to measure net income before not only interest, taxes, depreciation, and amortization, but also “building- and community-level operating expenses,” a category that includes rent and tenancy expenses, utilities, internet, the salaries of building staff, and the cost of building amenities (which WeWork has described as “our largest category of expenses”)." [0]
Hahaha. I think its pretty fair to say that this is not a Generally Accepted Accounting Practice measurement. (non-GAAP)
I've only visited a We Work location once, but it really felt like a VC funded startup - particularly the amenities. Without the amenities, it would have been just another depressing office.
Twice this week I’ve heard of EBITDA, the last conversation while taking an outdoor break with a coworker bemoaning some head scratching strategy choices from management where I work.
When bonds worth $14 trillion are in negative territory and when the 30-year US treasuries are at historical lows this is what happens, i.e. people are ready to throw money away at almost anything that flies and moves, as long as there's a chance of double-digit returns. In other words we live in crazy times, and as such crazy prospectuses like the one published by WeWork fit the current financial narrative perfectly.
Has anyone seen good coverage of WeWork as an investment?
All my favorite finance meme accounts are tearing this to shreds too.
The only people I’ve heard be excited are the WeWork employees, and you can practically never get the employees to have a counter view on this even if they don’t get stock. I dont mean in like “I dont want to rock the boat” way, but more in an common ignorance of personal finance let alone investing way. They also arent really the investing class, so far they dont really understand the memes aside from the comments like “is this company run by Congress?” Not WeWork specific they just arent investors or financial professionals.
What do the “members” think? Is there any “yes I cant wait to align my interests with my favorite coworking space by investing in their future growth” sentiment? Im just not around those people so I dont know
WSJ and Bloomberg have been ripping on this for over a year, and now with the S-1 out Hackernews and finmeme accounts are ripping it too
I work in a Wework office and wouldn't touch Wework as an investment with a ten mile pole. It's just an office. A bit more expensive than other coworking spaces. There literally nothing special about it, except that it never turned a profit.
I like that they at least pretend to care about the environment. I'd like it better if they actually did things to lower the energy use of their buildings.
The problem they have is that you can’t save this business by clapping louder. Either it starts generating profits or it’ll go out of business. I am just personally surprised that Adam Neumann isn’t getting the kind of negativity Elizabeth Holmes got. Perhaps after it goes down, who knows, but his activity has been sufficiently shady that it should be drawing more fire.
It’s likely that the company itself is weirdly cult-like and actively manages out any employees who don’t drink the kool-aid. The vegan thing is a small hint to this.
I work out of a WeWork location sometimes. I don't like the product and only work out of WeWorks because I need to for my job. I would never choose to be a "member" on my own.
Here's why I'm not a fan: The interiors are cheesey, badly designed, and generally seem poorly built (things are janky and break way too easily). It's often hard to find a good place to work in the common areas - pop music is blasting in the main common areas and the few phone booths and quiet corners are often full (people sometimes just work in phone booths, which is annoying). The fact that you have to pay to use conference rooms (at least with my company's contract) and you have to pay for granola bars and other snacks feels kinda nickel-and-dimey. (There is free coffee, and free beer but during the workday I'm not usually looking to drink a pint.) Also there's a theme of forced happiness everywhere (the mugs all say "do what you love" or "always half full"), which feels at best like vapid corporate fluff and at worst kinda cult-like, but either way it's mildly off-putting. Finally, they often invite salespeople from different companies to set up tables in the common area to sell/advertise random stuff, which isn't that big a deal but monetizing their tenants' attention during their work day kinda seems at odds with "building a community" and "elevating consciousness" and all.
I like the concept of a global coworking space network. I'm just not a fan of WeWork's implementation.
My bet is that in ten years WeWork will end up a bit like Groupon is today - still going, but far from the world-changing force they were once hyped to be. Of course, a lot of weird stuff can happen and maybe they'll end up dominating the worlwide office market, or maybe they'll flame out spectacularly in a couple of years.
Check out the Odd Lots podcast episode: The Bullish Case for WeWork. Personally, I don't see it -- but capital is so cheap and WW brand so strong that they may be able to pull a rabbit out in a downturn.
I think I might be the only person on HN optimistic about WeWork.
Remote work is on the rise here in the US. Startups and entrepreneurship continue to grow. Finding traditional office space sucks and is a massive waste of money, and probably always will. Co-working spaces make sense, and it’s baffling to me that it wasn’t the default way to work in 2010, when I started programming, let alone 2019.
I feel like if somehow fast food hadn’t been invented til now, and MacDonalds just got started, we’d be reading pessimistic threads about how it’s a real estate business masquerading as a food business and is destined for collapse.
But like, it actually does work, as a business, to provide some necessary service (office space, food) at scale with a big central marketing apparatus. The fundamentals here seem sensible to me.
The current system was ripe for a fantastical display of absurdity, and maybe this is it. It's startingly familiar given the current US political situation.
Blackadder finds himself in a situation that quickly becomes increasingly unbelievable. Finally he recognizes he is in a dream, and he wakes up in disappointment. I'm still waiting to wake up.
bull hypothesis: the office space industry is very large but fragmented. wework becomes the central hub in a worldwide network of tenants and landlords.
bear hypothesis: wework is an overhyped-regus with a frail capital structure, no scale or network effects, and dangerous liabilities. it will likely collapse during a recession.
questions for investors:
1. how much flexibility/escapability does wework have regarding leases and liabilities? in particular, how much control do they have over cash flows to avoid disaster during a recession?
2. how much does it cost and how long does it take for enterprises like cisco and ibm to open new offices: (1) with wework; (2) with regus or another wework competitor; and (3) without any outside assistance? how about for companies with 100-1000 employees?
3. what is the current breakdown, lifetime value, and retention rate for wework members among solos, startups (2-99 employees), mid-sized companies (100-1000 employees), and enterprises (1000+ employees)?
4. cashing out $700mm seems like a red flag if you believe the company is worth much more. what percentage of equity does this represent for the founder? is cashing this much out normal for large IPOs? by comparison, how much did zuckerberg, hastings, and bezos cash out at IPO?
question for others: what are the first questions you would research on wework?
speculation on the origins of this ... in the San Francisco Bay Area, over the last twenty years, many ordinary downtown office+retail buildings became empty, due to some combination of suburban sprawl, loss of mom+pop retail, excessive rent-seeking and urban decay. Meanwhile, tons of twenty-somethings were arriving with a backpack and a laptop .. it was too fast and fluid for anyone to want an "address" .. so, the idea of flexible techie office "pop-up" shared spaces was obvious. Some tried it alone, and some tried to brand it with extras .. and FAILED FINANCIALLY.. practical people, who did try. If you have not failed this way, then you do not know how painful it can be, at the small business level.
At any rate, from one point of view, this WeWork thing is just the oversize "winner" from New York City, in this dog race. Like commercial fishing, and some kinds of investments, lots of ordinary efforts fail for no good reasons, then some pig comes along and gets the momentum.
Can anyone knowledgeable talk about what happens in a severe business downturn with We? They have most likely setup separate LLCs for each building’s 10-15 yr lease. Do the LLCs isolate We enough so that LLCs can declare bankruptcy and the building owners or banks or creditors don’t go after the mothership We?
Loved this article. Entertaining and informative (as someone not very informed on WeWork).
> Ms. Neumann created controversy when she went on CNBC and said: “A big part of being a woman is to help men [like Adam] manifest their calling in life.”
In what kind of twisted society does a statement like that create "controversy"? I'm a man, and I've always felt that in my relationship it is my duty to bring out the best of my woman and enable her to reach her full potential. Are my fellow men outraged as well? Only in America does an innocuous statement like that generate controversy (unless of course this is just a couple random tweets that the media is trying to turn into a big controversy to generate ad revenue).
The author of the article is a professor of marketing so I'd be interested to learn his opinion on WeWork's marketing instead of accounting, corporate structure and governance.
Adam's unconventional moves appear extremely outlandish when spelled out in the S-1 disclosures, but because I have no position I just find it entertaining. I'm looking forward to the conference calls.
I worked for WeWork for a short period of time during one of the SoftBank rounds, and one positive unconventional thing the company did was give employees with vested options the opportunity to cash out alongside Adam, rather than being forced to wait until post IPO lockup.
Well, I live in the mountains in Central Arizona, so no WeWork offices near me (Phoenix and Los Vegas are the nearest). I would be tempted, even though I am mostly retired, to use a shared office space. I have a great home office but I still like to go to the library, or to a coffee shop, to write or work.
It just seems like WeWork should charge a little more to nail down profitability.
> In 2025, every Fortune 500 company will have 10k+ remote workers, and every purchasing department will approve a reimbursement for WeWork with no questions asked.
The actual bull case for WeWork is similar to Uber: there may be a massive trend, and WeWork is positioning itself to be the winner. With Uber it's the push to self-driving cars, and with WeWork it's the corporate move away from massive campuses and office buildings. In this new landscape, WeWork has extremely strong branding, experience, and a valuation that suggests it is the biggest player in the space.
I skimmed at the S-1 filing .. they list 400k members for 2018, and revenues of $1.8B, so Average Revenue Per Member is $4500 USD.
Now the gross margins look terrible, but the sell is probably this: how hard is it to monetize 500k users (Q1 2019 numbers) who land up and work out of your managed premises everyday?
[+] [-] DoreenMichele|6 years ago|reply
He's correct that really good businesses tend to start during recessions. Starting a business during a Roaring Twenties style economy when you could literally support yourself with a ridiculous idea like selling pet rocks will not test your business model and help you find its weaknesses. A la some African saying to the effect that "Calm seas don't produce skilled sailors."
I learned a lot and I am a bit envious of his acerbic wit. I feel like that's more acceptable from a man, but sarcastic contempt was pretty much my default as a teen and I sometimes think I've become a bit too PC over the years.
[+] [-] pdonis|6 years ago|reply
I did too, and have started looking at some of his other recent posts. I think they will well repay the effort. For example, this from the one on "Mueller and Night Invasions":
"As a kid, I would digest my stomach waiting in the living room, after school, for my mom to get home so I’d tell her I had lost another $33 jacket. My 8-year-old spent $44 for an in-app Princess Celestia Pony and, when confronted, beamed with pride, as spending money is a new skill he’s mastered, similar to math or (not) feeding the dog. It took just one generation for spending money to evolve from a crime to a competence."
[+] [-] JumpCrisscross|6 years ago|reply
https://m.youtube.com/user/l2thinktank
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] buboard|6 years ago|reply
[+] [-] simonebrunozzi|6 years ago|reply
What's "PC" ? Did you mean PC as in "PC vs Mac" boring/conformist vs cool?
[+] [-] tfha|6 years ago|reply
[+] [-] mola|6 years ago|reply
[+] [-] JumpCrisscross|6 years ago|reply
This is extreme. Adam’s self-dealing is abundantly disclosed. There is no evidence he is acting in bad faith. (Versus being deluded himself.)
Lots of businesses leverage paper-thin margins. Lots of businesses borrow short and lend long. Lots of businesses, particularly real estate businesses, feature self-dealing and family control galore. American corporate law goes out of its way to avoid criminalising stupidity.
There is a chance WeWork attains enterprise lock-in sufficient to let it weather a storm. There is a chance it expands cross-selling to bring its books into the black. These chances are slim. But they’re clearly disclosed.
[+] [-] baby|6 years ago|reply
So, I can understand how a company like Theranos is fraud, because they are lying and have no product.
But, I've used wework successfully, I know a lot of people using wework successfully. They have a product that works and that people pay for. How can such a company be a fraud?
[+] [-] paultopia|6 years ago|reply
[+] [-] avip|6 years ago|reply
Fraud is Theranos. We seems more of a BetterPlace - delusional, charismatic founder + too much money - sound business model.
[+] [-] endorphone|6 years ago|reply
[+] [-] gumby|6 years ago|reply
On the other hand the fraud is wrapped in the most delicious of absurd flfftery that it's a pleasure to try to ape it.
[+] [-] simplecomplex|6 years ago|reply
[+] [-] _bkyr|6 years ago|reply
[+] [-] logicallee|6 years ago|reply
since it looks like you've spent some time on this, would you care to take a shot?
[+] [-] dlgeek|6 years ago|reply
Really? How is this sort of shenanigan allowed?
[+] [-] marcinzm|6 years ago|reply
[+] [-] navigatesol|6 years ago|reply
[+] [-] juliusmusseau|6 years ago|reply
I suspect either due-diligence caught it and decided to live with it after some negotiation, or they missed it - oops!
[+] [-] JumpCrisscross|6 years ago|reply
Investors gave Adam virtually unchecked power over their capital.
[+] [-] n-exploit|6 years ago|reply
[+] [-] DannyBee|6 years ago|reply
[+] [-] ggg3|6 years ago|reply
[deleted]
[+] [-] vmurthy|6 years ago|reply
[1] https://www.forbes.com/sites/brentbeshore/2014/11/13/ebitda-...
[+] [-] csours|6 years ago|reply
Hahaha. I think its pretty fair to say that this is not a Generally Accepted Accounting Practice measurement. (non-GAAP)
I've only visited a We Work location once, but it really felt like a VC funded startup - particularly the amenities. Without the amenities, it would have been just another depressing office.
0 - https://qz.com/1685919/wework-ipo-community-adjusted-ebitda-...
[+] [-] dvtrn|6 years ago|reply
Thanks for the explainer link.
[+] [-] paganel|6 years ago|reply
[+] [-] rolltiide|6 years ago|reply
All my favorite finance meme accounts are tearing this to shreds too.
The only people I’ve heard be excited are the WeWork employees, and you can practically never get the employees to have a counter view on this even if they don’t get stock. I dont mean in like “I dont want to rock the boat” way, but more in an common ignorance of personal finance let alone investing way. They also arent really the investing class, so far they dont really understand the memes aside from the comments like “is this company run by Congress?” Not WeWork specific they just arent investors or financial professionals.
What do the “members” think? Is there any “yes I cant wait to align my interests with my favorite coworking space by investing in their future growth” sentiment? Im just not around those people so I dont know
WSJ and Bloomberg have been ripping on this for over a year, and now with the S-1 out Hackernews and finmeme accounts are ripping it too
Think they’ll retract the S-1 and stay private?
[+] [-] adrianN|6 years ago|reply
I like that they at least pretend to care about the environment. I'd like it better if they actually did things to lower the energy use of their buildings.
[+] [-] projektfu|6 years ago|reply
[+] [-] philwelch|6 years ago|reply
[+] [-] goatinaboat|6 years ago|reply
It's not clear what that would mean for SoftBank but it can't be good. All VC funds are looking for an exit, Vision Fund is no different.
[+] [-] skewart|6 years ago|reply
Here's why I'm not a fan: The interiors are cheesey, badly designed, and generally seem poorly built (things are janky and break way too easily). It's often hard to find a good place to work in the common areas - pop music is blasting in the main common areas and the few phone booths and quiet corners are often full (people sometimes just work in phone booths, which is annoying). The fact that you have to pay to use conference rooms (at least with my company's contract) and you have to pay for granola bars and other snacks feels kinda nickel-and-dimey. (There is free coffee, and free beer but during the workday I'm not usually looking to drink a pint.) Also there's a theme of forced happiness everywhere (the mugs all say "do what you love" or "always half full"), which feels at best like vapid corporate fluff and at worst kinda cult-like, but either way it's mildly off-putting. Finally, they often invite salespeople from different companies to set up tables in the common area to sell/advertise random stuff, which isn't that big a deal but monetizing their tenants' attention during their work day kinda seems at odds with "building a community" and "elevating consciousness" and all.
I like the concept of a global coworking space network. I'm just not a fan of WeWork's implementation.
My bet is that in ten years WeWork will end up a bit like Groupon is today - still going, but far from the world-changing force they were once hyped to be. Of course, a lot of weird stuff can happen and maybe they'll end up dominating the worlwide office market, or maybe they'll flame out spectacularly in a couple of years.
[+] [-] 40acres|6 years ago|reply
[+] [-] methodover|6 years ago|reply
Remote work is on the rise here in the US. Startups and entrepreneurship continue to grow. Finding traditional office space sucks and is a massive waste of money, and probably always will. Co-working spaces make sense, and it’s baffling to me that it wasn’t the default way to work in 2010, when I started programming, let alone 2019.
I feel like if somehow fast food hadn’t been invented til now, and MacDonalds just got started, we’d be reading pessimistic threads about how it’s a real estate business masquerading as a food business and is destined for collapse.
But like, it actually does work, as a business, to provide some necessary service (office space, food) at scale with a big central marketing apparatus. The fundamentals here seem sensible to me.
[+] [-] blunte|6 years ago|reply
All this reminds me of Blackadder 2, Ink and Incapability. https://en.wikipedia.org/wiki/Ink_and_Incapability
Blackadder finds himself in a situation that quickly becomes increasingly unbelievable. Finally he recognizes he is in a dream, and he wakes up in disappointment. I'm still waiting to wake up.
[+] [-] panabee|6 years ago|reply
bear hypothesis: wework is an overhyped-regus with a frail capital structure, no scale or network effects, and dangerous liabilities. it will likely collapse during a recession.
questions for investors:
1. how much flexibility/escapability does wework have regarding leases and liabilities? in particular, how much control do they have over cash flows to avoid disaster during a recession?
2. how much does it cost and how long does it take for enterprises like cisco and ibm to open new offices: (1) with wework; (2) with regus or another wework competitor; and (3) without any outside assistance? how about for companies with 100-1000 employees?
3. what is the current breakdown, lifetime value, and retention rate for wework members among solos, startups (2-99 employees), mid-sized companies (100-1000 employees), and enterprises (1000+ employees)?
4. cashing out $700mm seems like a red flag if you believe the company is worth much more. what percentage of equity does this represent for the founder? is cashing this much out normal for large IPOs? by comparison, how much did zuckerberg, hastings, and bezos cash out at IPO?
question for others: what are the first questions you would research on wework?
[+] [-] mistrial9|6 years ago|reply
At any rate, from one point of view, this WeWork thing is just the oversize "winner" from New York City, in this dog race. Like commercial fishing, and some kinds of investments, lots of ordinary efforts fail for no good reasons, then some pig comes along and gets the momentum.
[+] [-] wallflower|6 years ago|reply
[+] [-] JSavageReal|6 years ago|reply
> Ms. Neumann created controversy when she went on CNBC and said: “A big part of being a woman is to help men [like Adam] manifest their calling in life.”
In what kind of twisted society does a statement like that create "controversy"? I'm a man, and I've always felt that in my relationship it is my duty to bring out the best of my woman and enable her to reach her full potential. Are my fellow men outraged as well? Only in America does an innocuous statement like that generate controversy (unless of course this is just a couple random tweets that the media is trying to turn into a big controversy to generate ad revenue).
[+] [-] jasonmar|6 years ago|reply
Adam's unconventional moves appear extremely outlandish when spelled out in the S-1 disclosures, but because I have no position I just find it entertaining. I'm looking forward to the conference calls.
I worked for WeWork for a short period of time during one of the SoftBank rounds, and one positive unconventional thing the company did was give employees with vested options the opportunity to cash out alongside Adam, rather than being forced to wait until post IPO lockup.
[+] [-] mark_l_watson|6 years ago|reply
It just seems like WeWork should charge a little more to nail down profitability.
[+] [-] TAForObvReasons|6 years ago|reply
> In 2025, every Fortune 500 company will have 10k+ remote workers, and every purchasing department will approve a reimbursement for WeWork with no questions asked.
The actual bull case for WeWork is similar to Uber: there may be a massive trend, and WeWork is positioning itself to be the winner. With Uber it's the push to self-driving cars, and with WeWork it's the corporate move away from massive campuses and office buildings. In this new landscape, WeWork has extremely strong branding, experience, and a valuation that suggests it is the biggest player in the space.
[+] [-] carlsborg|6 years ago|reply
Now the gross margins look terrible, but the sell is probably this: how hard is it to monetize 500k users (Q1 2019 numbers) who land up and work out of your managed premises everyday?
[+] [-] The_Hoff|6 years ago|reply
[0] https://pod.link/1073226719
[+] [-] ErikAugust|6 years ago|reply
We all can poke fun at the marketing BS and founder antics but it’s just another investment to avoid for me.
[+] [-] buboard|6 years ago|reply
[+] [-] eaenki|6 years ago|reply