What WeWork Got Right
Last week, I joined my fellow ZEOs at Zuora to celebrate our new HQ. It’s a really exciting time. We’ve got a great new building with all sorts of cool amenities, our name on the outside, and plenty of space to grow.
Having a chance to design our own space, we recognized that our employees want something very different. Call it the Starbucks effect — we’ve all become used to working out of coffee shops and airport lounges and hotel lobbies, and the idea of sitting at the same desk 8 hours a day, 5 days a week no longer makes sense. So our new office has a mix of desks, shared workspaces, private cubbyholes, lounges, and more.
Which got me thinking of WeWork.
Now, the current narrative of WeWork has it eclipsing Theranos as the debacle of our times. And yes, the story sure has it all: ridiculous investor hype, nutty corporate governance, delusional narcissism, a failed IPO, you name it.
But here’s the thing: WeWork is far from dead. They’ve got a new CEO — Sandeep Mathrani, a seasoned real estate executive. Softbank took over the company last October, with $5 billion in new financing. They plan on being cash flow positive by 2022. They’re selling the Gulfstream.
Clearly the final chapter is yet to be written, and maybe the company will never live up to its original hype. But here’s the thing: was WeWork right?
I decided to grab coffee and pose the question to my Aussie friend, Marcus Moufarrige. Marcus has been in the Service Office space for at least 25 years, as the COO of ServCorp. He’s currently got a new startup, ility, one of the “proptech” companies we work with that includes The Wing, Rentpath, Boomtown, Move Inc., View the Space, iSqFt, and more. Here’s an edited transcript of our conversation:
Marcus, what is going on with commercial real estate? The lease contract I just signed felt like a 10-year prison sentence! We’ve got this great new 21st Century workspace, but the paperwork involved felt like it was from the 19th Century.
This industry is a slow-moving beast. HBR did a survey of how digitization is affecting various industries, and I believe commercial real estate was ranked down there with hunting and fishing, and well below mining.
Here’s how commercial real estate basically works: a landlord sells you access to a concrete box for 10 years, then they disappear for nine years, and on the tenth year they fix up the lobby and ask you for another 10-year lease.
Sounds like how the software industry used to work, with Oracle and SAP! You know, it’s almost like today’s employees want their workspace to operate like a series of on-demand apps: productivity, exercise, cuisine, professional development, socializing, volunteering, etc.
Agreed. There’s clearly a disjoint between the way that commercial real estate operates today, and a younger workforce that is asking for flexibility as well as opportunities for culture and community. And most large commercial landlords are pretty clueless about how to offer those things. They’re happy to take their twenty percent a year.
Let’s talk about WeWork. We’ve all read the stories. But while I was reading all this stuff, I also had a feeling that there was a lot of “piling on” happening. Journalists love stories about tech companies going down in flames. So what did WeWork get right?
If you put aside all the well-documented nonsense, the premise of WeWork is fundamentally correct: workplace trends are changing dramatically, and companies are going to have to change the way their offices operate if they want to keep attracting new talent. But there’s a lack of tools that allow them to do that effectively. Commercial real estate is far from digital, and far from flexible. What WeWork did is give these stuffy, old-school property owners a new ability to accommodate lots more short-term clients, and open up more revenue opportunities in the process. So now instead of selling ten years, you can sell ten hours.
I agree. I think WeWork clearly saw these trends coming before a lot of other companies, and they deserve credit for that. And they obviously have enough of a business in place that a turnaround effort could be successful. So given all that, why can’t more property owners be more like WeWork? I mean, without all the craziness, obviously.
Well, the problem was that they don’t have a real platform to automate all these new services and building options. Now it’s absolutely true that you can get a higher yield, or revenue per square foot, from short-term commercial tenants that want all sorts of nice amenities. But you’re going to have lots more service overhead to keep those tenants happy, to keep all that free kombucha flowing! So you need real automation to make that happen. Otherwise, you’re just throwing bodies at the problem.
This issue cuts across every industry. Without automation you can’t spin up new services, you can’t test the market, you can’t scale. You wind up spending tons of resources propping up your back office, when you should be focusing on creating a great service. That’s why I started my company.
It’s also why I started mine. Going back to that HBR study, when I was thinking about starting a proptech startup, I was looking at other industries that had successfully navigated the shift to digital. And clearly the entertainment industry has been very successful in that regard. The shift to streaming has clearly invigorated that entire space, but what made it possible was the digital rights management layer.
Right. Instead of focusing on unit sales in retail stores, the industry started selling the digital rights to these assets, which allowed them to price and package these rights in all sorts of new ways. They could act less like vendors, and more like utilities. If more building owners start thinking this way, they’re going to be able to command more revenue per square foot.
Exactly. So what commercial property managers need is the same thing, taking that same basic concept and applying it to buildings. Think of it as “physical rights management”.
How about an example?
Let’s say your tenant wants a long-term lease for stability’s sake, but they also want 20 hotel desks and 30 gym memberships and 80 hot lunches and 60 extra parking spots for a big six-month project.
Right now they are on their own, they have to work with all sorts of individual vendors and contracts. It’s a huge expensive hassle. But what if the property owner could provide all these services, and enable their tenants to simply consume these physical rights as they need?
And, let me guess, that’s what your new company, ility is focused on?
Well, of course! We’re building a physical rights management platform that enables any property manager to be just like WeWork. But better.
We’re seeing this happening everywhere — just look at transportation, retail, travel. Today’s consumers want customization, flexibility, and constant improvement. And they’re looking for outcomes, without the hassle of asset management. Thanks Marcus!
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.