In 2017, WeWork Revealed Its Grand Plan: World Domination
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When 2017 began, WeWork was grappling with perhaps the first halting year of its existence, after it missed revenue and growth goals in 2016. But the giant now valued at $20B responded with a deluge of activity, aimed at spreading its reach — and its thousands-strong member network — into every facet of modern life.
This year alone, WeWork bought its first property, launched a fitness brand, acquired a coding academy, partnered with Airbnb to tackle business travel, announced plans to start a school, bought Meetup and raised $4.4B to fund it all. Even that merely scratches the surface of what WeWork is calling its "biggest year yet."
The company was founded in 2010 when Adam Neumann and Miguel McKelvey sold its predecessor, Green Desk, and used the proceeds to open a co-working space with a fresh design in SoHo. Neumann was selling baby clothing at the time, and McKelvey was working as an architect on American Apparel stores.
It expanded rapidly, opening a handful of co-working spaces in Manhattan before branching out to Washington, D.C., and San Francisco. Cities like Los Angeles and London followed suit.
In 2013, WeWork had just nine locations. At the end of 2016, WeWork had 111 locations in 33 cities, doubling its location count from 2015, including the company's first locations in South America and Asia. This year, WeWork hit the 200-location milestone, and now has co-working locations in 64 cities.
In December 2016, WeWork had fewer than 1,900 employees. Now it has more than 4,000 people on its payroll.
From Co-Working To WeEverything
The business model started simple: rent underused office space, pay for a cheap but slickly designed renovation, chop it up into tiny, glass-enclosed offices and charge a hefty premium.
Co-working space run by third-party operators like WeWork is 50% more profitable than traditional office space. The scalability and viability of the business model seemed foolproof, especially considering the waiting list for many of its spaces.
WeWork's first capital raise came before McKelvey and Neumann even had a lease. As McKelvey told the story on the "How I Built This" podcast, the two met their initial partner, Joel Schreiber, at a business meeting. Schreiber pushed to be an investor early on. Initially dismissive, McKelvey said, the pair decided to ask for an outlandishly high number, expecting the investor to say no. Without a lease signed for a space, let alone members in a location, they took a $15M investment at a $45M valuation around 2010.
With just a few dozen co-working locations, that valuation skyrocketed to $16B in 2016.
The company started to scale up, launching WeLive in 2016. It had planned to open a handful of new locations, but cost overruns and issues with its first two WeLive spaces, on Wall Street and in Virginia, led the company to pause the division's growth.
As 2017 began, WeLive was sputtering and the co-working space was drawing questions for just how profitable it could ultimately be. But in February, whisperings began that a Japanese partner would infuse the capital for WeWork to reverse its fortunes.
It took six months, but with SoftBank's Vision Fund's $4.4B investment, WeWork is now valued at $20B, higher than the most valuable office REIT in the country, Boston Properties (whose chairman, Mortimer Zuckerman, was also an early investor in WeWork).
The numbers were so outlandish, they led to a detailed Wall Street Journal investigation, published Oct. 19, that questioned whether WeWork was built to last. After all, there are co-working companies — Regus, in particular — with far more locations valued at a fraction of WeWork.
“WeWork is nothing but Regus with a paint job,” Frank Cottle, chairman of shared workspace provider Alliance Business Centers, told the Journal.
Three days before the story came out, WeWork officially opened its first fitness space, which it dubbed Rise by We, at 85 Broad St.
Four days after the story came out, WeWork announced its acquisition of Flatiron School, with plans to roll out the coding academy across its network in 2018. The move was aimed to fuel a talent pipeline to its tech-focused member companies.
One day later, WeWork and its joint venture partner Rhône Capital announced their $850M purchase of the Lord & Taylor flagship store on Fifth Avenue.
The press release for that deal, struck with Lord & Taylor's parent company, Hudson's Bay Co., included a quote from Neumann that showed he has far higher ambitions for WeWork than a co-working company that dabbles in co-living.
“The trend of urbanization is something we must all recognize and understand," Neumann said in the release. "There is no reason why retail space should not be part of that movement ... WeWork’s role in this big trend will be to reimagine and reshape places so as to foster collaboration, innovation and creativity. Retail is changing and the role that real estate has to play in the way that we shop today must change with it. The opportunity to develop this partnership with HBC to explore this trend was too good to pass up."
Two weeks later, WeWork announced WeGrow, a pilot elementary school program helmed by Neumann's wife, Rebekah. The program had already launched with seven students, including the eldest Neumann child, and will eventually be housed at the Lord & Taylor building WeWork will repurpose to serve as its global HQ.
New initiatives are still coming. The WeLive program is back with WeWork WeLive Seattle, a ground-up development that will include the biggest WeLive yet, plus several floors of co-working.
Earlier this week, Wired reported WeWork quietly launched a startup incubator, dubbed Area 51 Paradise Ranch, at its Hudson Square location.
It already had a startup guidance program, called WeWork Labs, and serves as a de facto incubator for startups all over the world through its co-working model. But Area 51 is the first time it has dedicated resources and real estate to actively participate in the growth of its member companies.
WeWork Membership Goes Big, And Global
Today, WeWork has more than 175,000 members, up from 45,000 in December 2015. Its members range from someone renting an apartment at the WeLive in Arlington, Virginia, to an IBM worker at the building the computer giant leases entirely from WeWork in Greenwich Village, in a deal struck in April.
IBM's signing was considered a landmark deal: it was the first lease WeWork signed to manage a 70K SF building on behalf of one company. That it was one of the country's iconic businesses made it all the more validating. In November, WeWork reportedly agreed to a similar deal with Amazon in Manhattan's Herald Square, this time for 122K SF.
IBM and Amazon are two of WeWork's "enterprise members," or 1,000-plus-employee companies that house workers in WeWork's space. Before 2017, the division was a small, but growing, piece of WeWork's business model, and there were questions about how scalable the company was on the backs of mainly individuals or small companies.
Now, enterprise users are 20% of WeWork's user base and 30% of its monthly sales. The division grew 370% from 2016 to 2017, and more than 1,000 companies are enterprise clients.
Many of the enterprise users are satellite offices of multinational corporations in far-flung cities. Thirty-one cities around the globe welcomed their first WeWork this year, including Dallas, Detroit, Houston and Nashville in the U.S. and Paris, Beijing, Frankfurt, Toronto, Melbourne and Rio de Janeiro.
WeWork opened new co-working locations in 90 buildings this year as it strived to reach what WeWork's global head of real estate Matt Fry said at a Bisnow event was its 2017 goal: to triple its real estate activity.
WeWork's Acquisitions And Partnerships
That global push and expansion into different business lines is built on the back of acquisitions and partnerships.
This year, WeWork announced a $500M investment into Southeast Asia, which included the purchase price for SpaceMob, a similar company based in the area. That company's CEO, Turochas “T” Fuad, is now WeWork's managing director for Southeast Asia and is leading the expansion into Singapore — the first location there was WeWork's 200th globally — as well as its push into South Korea, Japan and farther into China.
WeWork bought two companies, Unomy and FieldLens, that it now uses to help sell, market, manage and build out its locations.
Its biggest splash was the acquisition of Meetup, one of the best-known early social networks that connects like-minded people in a geographic area. WeWork hosted 33,000 events in its spaces last year, and Meetup, which WeWork paid $30M to acquire in November, has about 35 million members. The synergy makes sense.
Not every move WeWork made seemed like an obvious decision. In early November WeWork announced it had partnered with Cheddar, which bills itself as a "post-cable news network." Cheddar will open digital studio spaces in WeWork locations and WeWork will help Cheddar scale its digital operations.
The week after the announcement, WeWork global head of mergers and acquisitions Emily Keeton appeared on the network, filming from the floor of the New York Stock Exchange, to discuss the company's acquisition spree.
"We think of our physical spaces as a platform," Keeton said. "We activate physical space. We think of our collaborations, partnerships and acquisitions to help us do that, so that for our members, we really bring the spaces alive."
Life for WeWork's spaces can come in many forms. WeWork announced a partnership with Samsung Oct. 30 that would bring Samsung-branded electronic care centers to WeWork locations. The concept, which draws inspiration from Apple's Genius Bar, is designed to allow WeWork members to get their tech fixed while they work at their desk or office in the building.
WeWork also is angling to find new members through fellow unicorn company Airbnb. The two announced Oct. 4 they were partnering to allow business travelers staying with Airbnb to easily reserve office space at a nearby WeWork.
Perhaps WeWork's most important partnership long term will be the one it struck with HBC alongside the Fifth Avenue real estate deal. WeWork plans to convert the top floors of a handful of HBC department stores — the first iterations will be in Canada and Germany — to WeWork spaces. The deals would lead WeWork members through the department stores on their way in and out of their offices, tempting them to buy merchandise at least twice a day.
"Our partnership with the WeWork team creates new opportunities for HBC to redefine the traditional department store by extending those communities and drive additional traffic to our stores, particularly as we add co-working and community space to existing, vibrant retail locations,” Hudson's Bay Executive Chairman and interim CEO Richard Baker said at the time.
Not The WeVil Empire, We Swear
People might wonder what one powerful, well-funded company could grow into with a theoretically limitless idea of what areas of life it can infiltrate. But while most of WeWork's deals this year were calculated business transactions, it also started several initiatives aiming to improve the communities it creates.
This spring, WeWork launched the Creator Awards in D.C., a program that invited entrepreneurs to apply with their ideas for funding. WeWork gave away $1.5M at the initial event, complete with a tequila shot toast, a hallmark Adam Neumann celebration. By the end of 2017, WeWork said it created 160 jobs through the Creator Awards alone after giving away $10.5M to young companies.
It also announced two major hiring initiatives aimed at fixing two of the country's biggest ills: quality of life for veterans and refugees. WeWork committed to hiring 1,500 of each over the next five years. It also started a Veterans in Residence program, a partnership with Bunker Labs that provides space and incubation service to veterans and veteran-owned businesses in 10 cities.
What about an encore?
WeWork declined to make any of its executives available to interview for this story. It has been guarded with the press ever since 2016 when its missed revenue goals became public.
WeWork has not released any tangible goals or targets for the new year, and in its 2017 year in review blog post, which it released Wednesday morning, the company only had this to say about the future:
"At the core of WeWork’s philosophy is our desire to do more, learn more, and positively impact society by leveraging the power of human connections. Each day, all around the world, we are inspired by our growing community of creators, the passion that drives their ideas, and the collaboration we are able to witness.
2017 was a milestone year for our team. We end this year stronger and wiser, with new partners who not only strengthen the impact we have, but share the belief that our actions speak louder than our words. We’re encouraged by what we have accomplished so far, and we are excited to continue on this adventure to humanize the way we work, live, and connect with the world."
What that will look like will likely continue to evolve, but WeWork dismisses the notion it will burn out.
In McKelvey's podcast interview, the interviewer, Guy Raz, raised Compaq as a comparison. The computer maker reached $1B in sales just a handful of years after opening in the mid-1980s, and a few decades later, it no longer exists. Could WeWork disappear in the same way?
McKelvey dismissed the question, and the valuation-gawking, in one breath.
"The value is irrelevant to the business problem," he said. "Who cares how much money you’re worth when you’re facing a business problem that is always evolving and that your primary interest is in solving. Our primary reason for existing is trying to help other people succeed. So our problem is if they change, we change."