Co-Working In A Post-WeWork Era | Hacker Noon

June 22nd 2020

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@Avi ZoltyAvi Zolty

Avi Zolty is the founder of EarFleek. Previously founded & Exited: Skurt, Beatdeck.

The past few months of COVID-19 has all but certainly put the nail in the coffin for WeWork. In addition to the stress placed on the U.S.

Economy (and capital) of which WeWork executives were hoping to leverage despite the late-2019 disastrous “almost-IPO” – the past few months have proven that WeWork was not able to live up to it’s anti-fragile expectations a-la Regus in the last recession.

But does this mean Coworking is dead? I think not.

Coworking itself as a new way to think of real estate (and business for that matter) can and will be successful. As more and more people self-identify as entrepreneurs and freelancers a new market need for space is created.

These new start-up businesses and solopreneurs still need space to work out of with flexible terms and a la carte services and amenities.

Where WeWork failed was neglecting this core need of the every-day new business in order to appeal to the more tech-focused and VC-backed market.

By offering open floorplans, free beer and primary-market footprints, WeWork set the standard for what Coworking should look like – and it looked a lot like the tech offices of the VC-backed world.

Unfortunately, this ostracized the more sustainable and long-term small businesses that cared more about their bottom line than free beer; who wanted more privacy than what fits into WeWork’s open-floorplan taste.

The end result was WeWork built beautiful buildings catered to an audience that could afford it. An audience that was mostly white-collar businesses often reliant on funding.

The problem for WeWork is that these new software businesses fit the mold of their target demographic a bit too well. With a “move it or lose it” attitude these businesses either saw quick growth (allowing them to move past WeWork) or failed quickly. With the resulting high churn, WeWork’s LTV calculation got tricky.

I like to believe that in the beginning, WeWork made an honest mistake. Calculating LTV can be tricky with a subscription business.

WeWork developed the concept of ‘stabilized occupancy’ – the point in which a building was filled and would assumedly remain so, but with the high-churn, it took to maintain these customers and the expensive cost (TI) to build these locations – WeWorks CAC to LTV ratio took a nosedive.

As time wore on, WeWork started doing funky things on their decks to justify this phenomenon: enter ‘community adjusted EBITDA’. By suggesting that the upfront marketing costs were to help build a community, WeWork hid their CAC to LTV problems.

Perhaps the best (worst?) thing WeWork did, was market this to real estate investors. Possibly the more subscription-experienced tech money would have caught this earlier- But the more fiscally conservative real-estate investors were a bit more naive.

Most of this money missed the dotcom bubble(s) by sticking to the tried and true safety of real estate. In many ways, WeWork was the first taste real-estate money had of the ‘hockey-stick’ silicon valley growth – packaged up in a palatable model they could stomach.

The rest was history.

But what does that mean for working today?

I believe there is still hope for Coworking hidden in what WeWork did wrong. By focusing on CAC to LTV one must optimize for three things:

1) The ability to get a large number of customers affordably. The easiest way to do this is to compete with the market on price

2) Have extremely low overhead (so no fancy build-out)

3) Attract customers who are likely to stay with you for a long time (thus lowering churn).

I think the solution for this lies in warehouses. By breaking up warehouses and putting in offices, a Coworking company can arbitrage the value of a square foot to a small business just looking for a space to operate.

TI can (and will) be negligible and the customers looking for no-frill services are likely to be more sustainable tenants than the traditional WeWork licensee.

Perhaps most importantly, warehouse Coworking also introduces the most important amenity WeWork missed the boat with respect to Access to warehouses!

E-Comm is one of the fastest-growing business sectors, and the core needs of these businesses (loading docks, scalable/flexible warehousing, access for forklifts) WeWork couldn’t provide.

Time will tell.

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Avi Zolty is the founder of EarFleek. Previously founded & Exited: Skurt, Beatdeck.


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