Does The WeWork Business Model Work?

I believe that in order for any business or non-profit to succeed in achieving their mission, they need to have one underlying constant. Make more money than you spend. I apply this in my personal life and especially in any business venture that I am part of. I realize that in the real-world things are not that simple. There are times when you invest all your profits in an effort to grow the business or you invest upfront in an effort to jumpstart the demand. After all the hard work there becomes a point where the business must achieve profitability and provide a return back to the owners. I understand that to some entrepreneurs this business model is not exciting but to me and my colleagues this is the way to build a truly sustainable business model.

Since 2015 my partners and I have been building COhatch in good ole' Central Ohio, we have been watching the WeWork's of the world come into cities, rent substantial footprint of Class A office space in desirable downtown locations and set up shop as they are currently doing in our hometown of Columbus. Their locations look great and they offer what seems like a solid portfolio of office spaces and hot desks. But with all of the beautiful spaces are they building a lasting community among their users.

My partners and I did not get into the co-working space because we wanted to take over the world. We were not looking to build Columbus's next unicorn. Our hearts were true that we selfishly wanted to work in our neighborhoods and be part of communities in which we live, but we did not see organizations designed to achieve that goal. So, we took a small underutilized former warehouse in the quiet neighborhood of Worthington. Before the space was underutilized as a warehouse, it had real history as the town’s local theater. As we worked to reactivate this space we came to the realization if we truly wanted the space to be special, we needed to put focus on a space were the real community could grow. To achieve this we committed to developing a business model that was open and affordable not only businesses, but to non-profits, associations, and individual community members. 

Fast forward to 2019 and we have an offering that compares to large coworking spaces. We offer private offices, shared offices and event spaces, but unlike any of the other spaces out there we are part of our communities through our members. We operate as an extension to their home, their neighborhoods, their businesses and their families. Our goal is for our members and users of our off-site meeting and events spaces to not only meet in our spaces, but to get out and have a meal at one of the local restaurants, grab ice cream from a local ice cream shop, to grab a drink in one of our local watering holes and to make a purchase from a local maker. Our spaces are also used in off hours as an extension of our members’ homes for birthday parties, family events, fundraisers, religious uses and more.

So back to the question does the WeWork business model work? Simply put, WeWork is a broker. A middleman. They rent space from developers for X and bring in a multiple of X through their monthly rents. The delta between the two is the $’s they have to offer services, perks, local staffing and corporate governance, etc... There is nothing wrong with this model as long as there is enough left over for them to provide a return back to their shareholders that have invested in their global domination through the phenomenon, we have labeled as coworking. Each user/member brings in a certain amount of revenue that they are trying to optimize through their additional services or business models, like WeLive, WeGrow, and Rise By We.

Can this model work, absolutely? The biggest question I see is has WeWork built enough trust and loyalty in its member base and communities they are part of to allow their model to push past a cool place to go to work.  The biggest value their model provides is the ability to use their network of spaces in cities across the globe, like a hotel hotel chain for coworking. But let's keep in mind that Marriott which has almost 7000 locations worldwide and a profitable business model has a market cap of $43 billion on $21 billion in revenue in 2018. WeWork has revenue of $1.8 billion on a $2 billon loss. What is a reasonable valuation on a company that spends more than it makes?

My COhatch partners and I are passionate about repurposing spaces and activating a community. As our society continues to evolve into the into the digital space, it is more important than ever that our children have quality time with their parents. We are all overworked and over-scheduled. Instead of spending hours in the car commuting to and from work, we want and need the ability to be there for families and neighbors if and when they have needs. Whether you live in New York or Columbus, Ohio, most of us live in our bubble. Our daily routines are all unique to us, but the establishment you go to grab a coffee, to workout, to pray, to grow our businesses, to volunteer and most importantly to engage with your family and friends are typically better when they are woven into the fabric of your community. 

As we continue to expand, let me be crystal clear that we are not expanding to trying to dominate the coworking space. We are expanding in an effort to become an extension of your community and our community. The most important piece of achieving this goal is the members of your community. We do not want to change who you are but to help you embrace and evolve your community in a way we haven’t seen since the early community halls of small-town America. We want to help to repurpose your historical buildings and spaces, evolve the spaces that are facing challenges and to partner with you to make your world a more enjoyable and purposeful place to live. 

So does WeWork’s business model work? I am not providing financial advice, but it is not an investment that I would make at any of the valuations that have been mentioned in the news over the last year. I would however invest in humanities belief that we should all interact, yes digitally, but in real life. Work should be part of our lives and convenient to our lives. We should not have to go out of our way to be part of a social community, it should be part of the fabric of the community. I would place my bet on real community versus the idea of a community that looks great in the brochures. 

Ryan Fogelman, JD/MBA is passionate about building innovative companies, products and solutions. He is one of the Co-Founders and CSO of COhatch; VP of Strategic Partnerships for Fire Rover; and VP of Strategic Partnerships for Re-Grip/Preval. Ryan's products have won two Edison Innovation Awards in the Industrial Safety and Consumer Products categories and have been Awarded the Retailer Products of Year in 2016 and 2019.