WeWork Dropped the Best Idea They Had

Summary

WeWork pivoted from offering shared business services to focusing on real estate, a decision that may have contributed to its challenges and overlooked a potentially lucrative opportunity in automating standardized business processes for startups.

Abstract

WeWork initially aimed to provide shared office spaces along with centralized business services like accounting, HR, and legal assistance for a flat fee, allowing startups to concentrate on their core competencies. This innovative approach addressed the common non-core issues that startups face, such as managing P&L, payroll, and sales activities. However, WeWork shifted its focus to the real estate aspect of the business, driven by the desire for a higher valuation under the leadership of Adam Neumann. This strategic move, while leveraging the strong brand and good margins, led to an overambitious valuation and possibly the neglect of a promising business model centered around shared services. The article suggests that WeWork could have thrived as a single-digit billion-dollar business by sticking to a scaled-back strategy that included the shared services element, which had the potential to automate and streamline business processes through software integration and partnerships with tech companies.

Opinions

The author believes that WeWork's initial emphasis on shared services was its best idea, addressing a real need for startups to outsource non-core business functions.
WeWork's decision to focus on real estate was influenced by the pursuit of a high valuation and may not have been the most sustainable strategy.
The article posits that WeWork could have been successful with a more modest valuation and a dual focus on both real estate and shared services.
The author suggests that WeWork missed an opportunity to lead in the automation of business services by leveraging its network of tenants and integrating software solutions.
There is an opinion that WeWork's property business could have been complemented by significant margins from automating shared services.
The author predicts the rise of consultancies that offer assistance with core business services, emphasizing automation, and sees this as a missed chance for WeWork.
The article implies that WeWork's attempt to position itself as a tech company could have been more credible with a stronger focus on providing software-based business services.

WeWork Dropped the Best Idea They Had

The initial emphasis of WeWork was not property but shared services. The idea was this — all over the world, startup founders are trying to figure out some very specific things — how to roast the best coffee beans, how to use AI in BtoB, or any other myriad of generally very focused problems.

On top of this, they all have to deal with the same set of standardised issues — managing a P&L, sorting payroll, staying on top of their sales activities. And for many of them, they are facing these issues for the first time.

The initial pitch for WeWork was that, as well as a shared office space, the company would centralise some of these services and offer them to tenants. Imagine being a tenant in a building with an amazing accountancy firm, an amazing HR consultancy, and a best in class law firm, all of whom know your business and take care of all those issues for you for a flat fee, allowing you to focus on those coffee beans you’ve been importing.

Ultimately, they doubled down on the real estate element of the business. This makes sense with what we now know about Adam Neumann — chasing the maximum possible valuation, it made sense to focus on the business of property rather than the business of complex business services.

Obviously, things haven’t gone so well for WeWork. Arguably, this focus on the bricks and mortar element would have made sense if they hadn’t been so ambitious with their valuation — they built a great brand and had some good margin, so probably could have built a single-digit billion-dollar business with only a paired back version of their strategy.

But I also think they could have been wrong to abandon the shared services element.

The initial insight — that so many small businesses grapple with services that are neither a core competency nor need reinventing for each entity — seems like one with legs.

How many businesses have failed, not because they didn’t have a great idea, but because they didn’t know how to accrue revenue properly? Or PR? Or build a website?

It also would have allowed them to build the software element of their business. They have been widely mocked for their attempts to pitch WeWork as a tech company, but imagine if the shared services side of their business included software — maybe an acquisition like LawPath, or maybe just revenue share deals with companies like Salesforce — they could have figured out entirely new ways to automate these services and show significant margins alongside the property side of their business.

I broadly subscribe to the Andreessen Horowitz view that as time passes, software will take over more and more businesses that were thought of as needing human intervention. We’ve seen elements of sales taken on by companies like Salesforce, accounting by Xero, and now even more human heavy industries like legal are being automated.

I think WeWork had a truly unique opportunity to leverage their network of tenants to lead this process of automation whilst also offering a helping hand to their tenants as they each scale.

I also think we’re going to see the rise of consultancies founded on this very premise — assistance with the management of core business services, with a strong preference for automation.

WeWork might have missed their chance. But it’ll be interesting to see if anyone else takes on the challenge.