WeWork – A Cautionary Tale For All PropTech Players
As the year of 2019 draws to a close, it’s hard to forget one of the biggest lessons learned in the business world: WeWork’s failed IPO at USD 47 billion leaving SoftBanks to intervene with a ‘stimulus package’, which leaves WeWork at a valuation today of USD 10-12 billion.
For those interested in reading more into WeWork’s story, here are some informative pieces: Feedough’s “WeWork Business Model”, an in-depth analysis on WeWork’s business model; Harvard Business Review’s “No, WeWork Isn’t A Tech Company. Here’s Why That Matters”, which breaks down WeWork’s ‘taboo’; and Bloomberg’s video “The Spectacular Rise and Fall of WeWork” to get a better grasp of the situation.
From this saga, we hope PropTech players take a step back and re-evaluate three important lessons:
1. Are you In the tech business or real estate business
Many start-ups often frame themselves as tech companies in hopes to obtain a higher valuation from a larger pool of potential investors. A business should only be classified as tech-driven only if the core business is selling tech as a product or service, as the high valuations associated with technology companies are their ability to generate enormous profits and scale at a fast speed with relatively low investment. In our view, WeWork is not a tech company and they should be frank with their investors to manage expectations.
2. The potential impact of the proprietary technology
It is hard to understand how much tech has played a part in WeWork’s business. WeWork claimed that they employed data analytics and another smart tech to improve the efficiency of their spaces, how people use their spaces, and where to build next. Yet, isn’t this the knowledge and insights provided by real estate experts (such as brokers)? While we associate the utilization of technology as helping businesses make better decisions, there is a vast array of tech companies that don’t necessarily deliver on this promise - WeWork included.
3. The recession threat
Some people argue that the sole reason WeWork failed was because of bad timing - this is partly true as WeWork is a subleasing business - while others argue WeWork failed to build proprietary technologies to protect itself during a recession - partly true assuming you agree WeWork utilizes technology in its core business.
In our view, WeWork’s expansion into other types of real estate improves diversification depending on its mix. For example, expanding the number of gyms increases risk during a recessionary period, as their occupancy suffers on account of fewer active memberships. However, owning hospitals and public-funded schools would be ‘defensive’ and improve WeWork’s resilience during a recession as these segments would ‘operate as normal’. If WeWork were developed as a technology company, they should have allocated more attention and effort on developing tech to lower their cash burn to ensure their clients stick around during bad times.
WeWork is a big lesson that should not be ignored. We hope PropTech players have not lured down a similar path in losing sight of their core focus: building technologies that impact and transforms the real estate industry.
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