Co-working space provider WeWork is expecting a significant raise in funds at a valuation of $35B. This lists WeWork as one of the most valuable disruptive US startups. Backed by Japanese multinational SoftBank Group, WeWork is maximizing its resources and expanding in the US and other countries. It is positioning itself to be much more than an office provider, with the strategic goal of building a community.
WeWork operates similarly to Airbnb, where flat owners or renters lease their units at much higher prices. While it is the leading shared offices provider since opening its first location in New York in 2010, it has drawn ire for packing numerous people in a small amount of space. However, WeWork believes this kind of tightly packed working environment fosters engagement and collaboration within their highly creative network and community.
Despite expensive membership costs and crowded offices, its membership base has grown. Because of diverse amenities, partnerships, and office design, WeWork is known as a starter office for small companies and entrepreneurs. And with more funding from SoftBank, it has increased its square footage by opening more offices and therefore its member base. This also allowed WeWork to speed up construction and operational efficiency. It also gives its members flexibility to stay in different locations. This gives WeWork higher occupancy rates, its main revenue driver.
WeWork’s business model comes with risk, and skeptics worry they are exposed to market shifts. The company lease spaces for 10 to 15 years, which requires hundreds of millions of dollars in future rent, regardless of economic changes. Within this period, many small businesses and business owners may go out of business or could find better, cheaper alternatives than WeWork. The other viewpoint is that their leases and strong customer retention will generate more revenue than its costs.
To reduce overhead risk, WeWork targets enterprises as its clients. It has also shifted from leases to co-management deals where landlords pay for the renovation and building. They then split membership profits. As they have consistently received funding, they have developed the power to purchase whole properties. WeWork is also moving toward implementing longer lease terms to year(s) instead of monthly renewals with a reward system to strengthen its stability in the industry.
WeWork’s main obstacle in their expansion boils down to simply the number of locations and leases they can sign. They partnered with Factual, a location data company that measures location viability based on proximity to amenities and businesses. Factual said their partnership with WeWork has increased the number of WeWork locations in 12 months.
Data and technology play a big role in building once WeWork acquire new offices. They acquired Case inc., which uses building information modeling in construction. Lots and buildings are scanned and shown in 3D to provide insights on time and costs for projects. They also acquired FiledLens, which allows for seamless communication between stakeholders in the construction of their offices by tracking communications. These tools in workspace design significantly cut costs, which is favorable to WeWork’s enterprise clients.
With these tools at its disposal, WeWork is also able to increase space efficiency from small desk spaces to big meeting rooms, ensuring each part of a room is productive for its specific use. They also capitalize on machine learning through a neural net that collects information about existing building layouts and room usage and people interaction. They can, therefore, predict how each floor and room must look like based on verified data.
Expanding the Brand
As WeWork receives more funding from its investors, it is working on its stance to buy, build, and partner. It is also diversifying the brand by positioning the company as a complete office provider. Members can avail of office and software basics like MS Office, Slack, and InVision. They have also established online academic services like Flatiron School, a coding academy, and 2U, which is in partnership with top colleges and university.
WeWork is also busy adding four different companies to its portfolio. First, WeLive, membership-based, dorm-style, communal apartments that can be rented on a monthly basis. Second, Rise by We, a spa and gym in New York City. Third, WeGrow, a private elementary school with an entrepreneurial approach in New York City. And finally, WeLabs, which does partnerships with local accelerators and incubators.
Increased WeWork Valuation
The company raised a total capital to date of $4.6B in the US, with another $1.4B spread across branches in Asia. It has proven that it can expand at scale; expanding up to 1M square feet per month and designing specifically for productivity. It has control of the complete building lifecycle and has mastery of data-informed design and construction. While WeWork has its fair share of critics, it is definitely changing the way businesses and people view and use workplaces. And for as long as WeWork follows its long-term strategic initiative to attract more enterprise clients and continues to improve its technological efficiency in office design, its multibillion-dollar valuation is well grounded.