26 Sep Rule #2 might have saved WeWork
Fresh off a cross country plane, I arrived at my sisters to take care of her kids while she and her husband went to a conference. We sat down with the kids, around the ages of 5 and 3, and she explained that I may have different rules than theirs. So two wide-eyed kids looked at me and asked “what are your rules?”
Not prepared for this at all, my Leo Burnett account executive training kicked-in and I improvised, “what do you think the rules should be?” The 5 year old quickly announced rule #1: “we will have a McDonald’s happy meal.”
The 3 year old paused and thoughtfully put his finger on his nose like old St. Nick. Then he raised that finger to point to his head “remember to think!” he yelled, with a big smile.
Thrilled, since that could apply to just about anything, I accepted this as rule #2.
What would have happened if Softbank, JPMorgan, and the WeWork Board (thanks Scott Galloway) had followed rule #2?
Adam Neumann had a dream that young people could “do what you love” instead of working for the shareholder driven corporate world which industrialized every job function, reducing their parents to replaceable parts of an assembly line, and which collapsed in 2008.
WeWork took advantage of the corresponding collapse of the commercial office real estate market in Manhattan to negotiate a favorable lease and sublet at a premium to young people dreaming of doing what they loved.
Coincidentally, the incestuous Manhattan “creative” industry – publishing, advertising, media – whose business model suffered from digital disruption, was laying-off and relying on the GIG economy to shift labor costs from fixed to variable expenses, giving young gigsters the funds to pursue their dreams on the side.
Instead of working from home, these young gigsters paid membership fees to Adam and hoped to be discovered by the Venture Capital investors they imagined roaming the halls of WeWork.
To keep the dream going, Adam built the illusion of a community, with retreats and by implying gigsters would find work from fellow WeWork members who could afford offices at WeWork.
Adam was encouraged by young peoples’ response to the promise of pursuing their “happy job.” Softbank and JPMorgan saw an evangelist who could sell a dream.
But no one applied rule #2.
If they had, they would have realized that banking on young GIGsters with no money and lots of student debt wasn’t a good idea for anyone. It set these kids up to be exploited by big companies – giving away ideas on spec to get a gig – and being paid at least 120 days later, essentially financing public companies at no interest, for the benefit of shareholders. Working for founders or VCs was no better – then gigsters made even less and never saw their equity turn into cash.
If SoftBank or JPMorgan executives had been honest with themselves about their own challenges building teams of employees, they would have recognized that building a sense of community among unaffiliated me-generation denizens is frikkin’ impossible. And if they had wandered the halls of WeWork and met the people who could afford an office, they would have realized that anyone with a going concern already has tried and true professional service relationships. There were no community business prospects for the gigsters or WeWork itself, when it bought service companies to create new revenue streams.
If they had to pay for their own healthcare, Softbank and JPMorgan executives would have realized that after Obamacare went into effect, it killed affordable healthcare for the self-employed. If you made enough money to pay the WeWork Membership fees, you didn’t qualify for the discounts and you were paying 3 times more for healthcare than you were before. That’s why many former WeWork members now have a full time job.
These were the facts I recognized when we started a shared workspace in 2015. We anticipated everything but the consequences of Obamacare.
With all this working against him, Adam smartly pivoted to being a real estate design and tech company for corporations looking to attract employees who were once WeWork members.
But to maintain the veneer of attracting the gigsters, allegedly, WeWork created the community adjusted EBITA, paying brokers 100% commissions to realize 80%+ occupancy rates to finance rapid expansion on this house of cards!
We weren’t in the real estate business. We were reasonably successful entrepreneurs who had experienced what happens when smart people come together and share what they know – as long as they follow rule #2: remember to think. That’s the only house rule we need to have here. Entrepreneurs and intrapreneurs in corporations enjoy turnkey resources in a friendly community in which to nurture ideas.
We have a going concern at the unit level driven by membership fees and meeting room fees from creative-minded business professionals, both entrepreneurs and corporate innovators, with mature business ideas and integrity. We care about our members’ and corporate guest success. Because when they are successful, we will be successful.
That’s why they stay. Even when the roof leaks and fire alarms go off. Even when an unscrupulous competitor tried to poach them, except for two and then one returned.
“Continuing learning” is what’s next. We are partnering with General Assembly and others to offer their workshops. And we’re developing our own team-building experiences to help breakdown the barriers to collaboration. Because we’ve experienced just how vitrified those barriers have become.
If you are still wondering what my rule was when I took care of my sister’s kids . . . rule #3 was: when I serve a meal you will say “oh Kathy, this is wonderful.” That still happens when my niece and nephew, now adults, share a meal with us. And that’s what happens when someone shares their day with us at COMRADITY.