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Inside WeWork’s $20B Valuation: Is It Really Worth It?

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In 2010, WeWork opened their first space in New York City. Eight years, and many billions later, WeWork is now the most hyped startup in the world.

By definition, WeWork’s model is ridiculously straightforward. WeWork is an office leasing company…that doesn’t own any properties.

What WeWork does is this:

They take up big commercial leases. They then decorate the space in their signature style with beer and coffee on tap. From there, WeWork rents out the same office space to freelancers, startups and smaller businesses in smaller chunks and month-to-month.

Despite not holding any assets initially (though that’s changing), WeWork has grown at a frenetic pace nonetheless. From nearly $1M in seed funding back in 2011, WeWork jumped to $1.5B three years later before peaking at the huge current $20B valuation.

By comparison, major property owner REIT SL Green — which actually owns real estate — is valued at $8.9B.

This insane level of growth has led to industry chatter that WeWork could be overvalued. In fact, others say their real valuation figure is $3B, based on revenue metrics of competitors like IWG and Regus.

Not to mention this: WeWork isn’t even profitable.

To make some sort of sense of all this, let’s take a look at their model, what they’re up to, and what’s in store for the coworking giant.

Creating efficient ecosystems

No longer a new entrant to the shared office space economy, WeWork aims to be the go-to platform for businesses.

Or as they say, in the WeWork Manifesto: First, Office Space. Next, the World.”

Rather than just offering space, WeWork’s business model enables startups to focus on driving their business through the community of startups in their spaces.

One of its primary goals is to create an ecosystem that provides a range of services—right from free drinks to conference rooms and wireless services.

From the standpoint of managing space, WeWork has an efficiency that would make any slumlord green with envy (and that’s a compliment): WeWork has one workstation for every 50 square feet.

Phenomenal growth

Crammed up space aside—the companies seem to like working side-by-side, WeWork’s disruptive model has played host to over 250,000 members across 22 countries.

Most analysts remain upbeat about its momentum, as well. Especially with its plans to open almost 400 offices across 27 countries in 2019. A move that will double the number of members year-over-year.

Co-working to ‘co-living’

The next business vertical is the co-living one with their WeLive concept. Their first one opened in 2016 right above an existing WeWork office on 110 Wall Street in New York City.

With WeLive, WeWork offers furnished, move-in apartments with a similar ethos to the office space—just show up with your bag and you’re ready to live.

The rents for these apartments will be inclusive of internet connection and cleaning services, with similar short-term month-to-month leases.

The company’s “WeLive” business model can be a high growth segment for WeWork. The co-living vertical might offset any decline in demand from commercial businesses.

But are they profitable, though?!

No. We mentioned that. But they don’t necessarily want to be. And they are hacking their top line revenue substantially.

An increase in occupancy rates has led WeWork to squeeze more revenue out of existing markets. Rapid expansion also played a major role in revenue growth.

Strategic choice or not, WeWork continues to book losses and burn cash. In the first six months of 2018, WeWork posted losses of $723M on revenue of $764M.

This does not concern investors as they are looking at the huge market opportunity available for WeWork. Japan-based Softbank, one of the largest investors in WeWork, has invested a whopping $4.4B in the company.

(That’s another story we will tell another time. Including how CEO Adam Neumann rode with the Softbank boss and signed a $3B investment deal on a digital cocktail napkin right there.)

The money backers expect WeWork’s valuation to reach $35B in the next round of funding.

This would put WeWork above other unicorns including Airbnb ($31B) and SpaceX (approx. $22B), making it the second-most valuable start-up in the United States behind Uber.

ENTREPRENEURS

INTERVIEW: Founder of $310M Clothing Line Bonobos On The Best Way To Raise Money (And No, It’s Not VC)

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When Andy Dunn graduated from Stanford, the aspiring entrepreneur kickstarted a menswear company from his small apartment in New York. The clothing line, Bonobos, started off with a simple idea — selling chino pants.

Ten years later, the company was acquired by Walmart for $310M. According to Dunn, the key to raising funds does not always hinge on money. Here’s how he did it.

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ENTREPRENEURS

Here’s How Apple’s CEO Tim Cook Starts His Day (And What He Does Might Surprise You)

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Apple has became a trillion-dollar company. Despite the tech giant’s great numbers, how does its CEO Tim Cook actually start his day?

In a recent Axios interview, Cook revealed he starts each day just before 4 a.m. with a strict morning routine.

What that consists of might surprise you: He reads user comments about Apple products.

“I like to take the first hour and go through user comments and things like this that sort of focus on the external people that are so important to us,” Cook says.

In other words, he reads comments from fans, trolls and everything in between.

You’d think the CEO never bothers to read stuff like that; that he’d have an assistant ready to give him the rundown.

“And then I go to the gym and work out for an hour because it keeps my stress at bay.”

Workouts can be super critical. Billionaires and other successful entrepreneurs cite fitness as a key component to their success (and overall sanity).

“I seriously doubt that I would have been as successful in my career (and happy in my personal life),” Branson once wrote in a blog post. “If I hadn’t always placed importance on my health and fitness.”

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ENTREPRENEURS

Investors Reveal: 3 Major Mistakes Aspiring Entrepreneurs Make

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There’s an old saying about first time entrepreneurs—they don’t know what they don’t know. 

No matter what field you are in, or what type of business you own, it is so important that you understand some of the mistakes that tend to plague so many entrepreneurs in today’s market.

There is one main mistake you can avoid from the jump. But it’s the same one many founders miss, investor Sebastien Eckersley-Maslin says.

“Most people come up with a solution first, without thinking through the problem,” Eckersley-Maslin told CNBC.

More often than not, aspiring entrepreneurs come up with a great idea…only to discover there’s no need. 

This looks pretty obvious, at first, but you’d be amazed to know how many people overlook it. So what are the right moves to make?

Here are some common mistakes aspiring entrepreneurs make.

1) Underestimate the amount of time it takes to learn a new industry

“One dumb mistake I made is to underestimate the barrier and knowhow when entering into a new industry,” says Zhifei Li, Founder & CEO of the Beijing-headquartered Mobvoi, the maker of the smartwatch called Ticwatch.

“Irrelevant experience can be a burden,” Zhifei Li, Founder & CEO of Mobvoi & Ticwatch. “Stay humble, stay hungry.”

 

2) Holding on to an under-performing employee for too long

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Chris Myers, the CEO and co-founder of the Denver-based financial tracking and analytics tools for small businesses BodeTree, says he held on to an under-performing employee for too long.

“I hesitated to take action, instead holding out hope that somehow the individual would fix their behavior and get back on the right track,” says Myers. 

3) Launching a company with no customer validation

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Victor Chang’s first startup idea, LifeCrumbs, a social journaling app, seemed brilliant to him. But Chang never tested it with potential consumers and that was, he says, a “terrible mistake.” He spent five months building the app in stealth mode.

“This hurts a lot because when we finally launched the service, we realized this isn’t what the customers were looking for!” In hindsight, Chang says, LifeCrumbs wasn’t different enough from existing products to be successful.

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