Anybody remember the dot.com boom?
Thursday, September 27, 2018
Opinion: Jamie Vine, CEO (Originally published on LinkedIn)
I have been fairly outspoken about the sustainability of WeWork. It seems I am not alone.
So here's the thing; everyone invested in the dot.com boom because they didn't want to miss out on an opportunity they didn't understand. People were investing in the market access that the internet could provide without paying too much attention to the business fundamentals of the online platform or the people they were investing in.
The accelerating generational shift in which Millennials and Generation Z will become the vast majority of the decision makers/workforce is underway and there are many theories and much research about how this will affect the way we do business, but in reality nobody knows.
WeWork has been selling the solution to getting Millennials and Gen Z to engage in the workforce/workplace and investors have been lapping it up without really understanding the problem WeWork are solving (or asking if there is one) and without paying any attention to the business fundamentals. Sound familiar?
WeWork is nothing new. It is serviced offices (without the service) and the serviced office business model principles still apply. They are blaming growth for their cash burn, but I am yet to see a report that shows how the operating business is performing once the growth spend is removed. They do not show any breakdown in member take-up by category (i.e. full-time/part-time/social memberships), so their occupancy claims are more than questionable.
They are living in hope that one day they will generate more income than their vast fixed costs.
To real estate agents they are a fee (generally a big fee), and as such they are being promoted by agents to landlords without the agents having any concern for where WeWork's members are going to come from or whether or not their business model is flawed.
To landlords, they are a large tenant with deep pockets that can make the WALE look great and improve their asset value overnight, but what happens if there is a hole in their pocket? and that hole is getting bigger by the day?.
(by the way the dot.com boom imploded overnight)