If I Were Adam Neumann...
How to make a new WeWork work
Before I dive into this week’s newsletter, I wanted to thank you for all of the feedback last week. I’m so glad that you enjoyed my post. I received a particularly interesting comment, which I wanted to share with everyone.
Great pragmatic take!! A few thoughts: first, the “data as a moat” mentality will diminish in value as the amount of quality data needed to fine-tune a model shrinks (this is already happening). Second, RAG represents a fantastic use case for proptech for “BI on steroids”.
Excellent points. I do agree that over time, models will require less data. Yet the counteraction is that as industries become more and more niche, models will require more subsets of data. Take television programming. Everyone used to watch the same show, but as software capabilities grew, they enabled us to have more detailed and specific preferences. Now there's a market for a fantasy-thriller-miniseries in 1850s Britain (no idea if that exists in reality). To our contributor’s point, it will be interesting to see how much less data will be required over time.
As far as RAG as "BI on steroids", they are spot on. Check out this LinkedIn article and this blog post for how Retrieval-Augmented Generation (aka RAG) works. The idea is that you combine a LLM with specific context to accurately answer a prompt. Cheers to my reader for bringing this up, as AI generating BI is heading our way even faster than I realized.
Now, onto this week’s topic. I get to play the role of Office Futurist. I don’t have all the answers, and I don’t pretend to. That said, I very much enjoy daydreaming about the future.
I’ll admit that I didn’t watch this whole video. I’ve heard from colleagues who worked with Adam Neumann that he’s charming and enigmatic. Yet I can’t help but see him as Icarus. Regardless, he transformed the office industry by making coworking a viable segment.
What caught my eye in this interview was the tagline, “Adam Neumann, former WeWork CEO joins CNBC to discuss… his bid to buy back WeWork.”
Say he does buy back WeWork, saving it from bankruptcy. What should WeWork do differently going forward? Is our industry primed for shorter-term, flexible leases to take off? Or will WeWork tag along coworking growth rates, following the market of startups and freelancers?
If I were Neumann and bought back WeWork, here’s what I would do.
The Cloud Computing Analogy
Certain collaborative tasks are more productive in person.
A few of you may disagree with this statement, but I bet most of you will agree.
If I put on my founder/CEO hat and think about how to enable employees to be more productive while managing rental costs, then I would plan for occasional together-time. Many firms call these in-person meetings “onsites” or, confusingly, “offsites”.
I would ramp up spend during these onsites in the form of flights, hotels, meals, and if needed, meeting space. But if I had an office lease already, then that meeting cost is fixed, not variable.
What if I could turn my meeting space needs into a variable cost? 🤔
This is the essence of the original WeWork. I would only pay for the space when I needed it, and it would be configured for that specific onsite’s use case.
Sounds an awful lot like cloud computing.
Cloud computing vendors provide the physical machines that these virtual servers run on. This arrangement offers flexibility, allowing you to spin up, or down, additional virtual machines as needed.
We could reframe this quote as:
[WeWork] provides the [office space] that these [collaborative, in-person tasks need]. This arrangement offers flexibility, allowing [employers] to spin up, or down, additional [office space] as needed.
While servers and office space are both physical entities, they have at least two significant differences.
Speed → you can easily ramp up or down servers instantly, but you can’t rearrange office space instantly based on demand… at least, not yet
Mobility → it usually doesn’t matter where the servers are located as long as you have fast internet, but moving people to an office location is more time and cost intensive than moving servers via the internet
This doesn’t take into account the cost to retrofit office such that the space is truly flexible. I’m talking walls-and-furniture-moving-flexible. Like this video but for commercial.
What the designers in this video accomplished is incredible and forward-thinking. That said, I’d feel like Princess Leia and Han Solo every time the walls moved.
Walls moving should only happen when no humans are present in my humble (and admittedly claustrophobic) opinion.
Technology exists to make walls and furniture move, sense humans’ presences, and ramp up or down items based on demand. Lease terms are also getting shorter and falling below historical averages. Employers would—in theory—be open to truly flexible, cloud-computing-like software and leases.
To play devil’s advocate to myself, why wouldn’t this be the gameplan for the new WeWork?
The Confluence Necessary for a New WeWork to Work
WeWork’s first challenge would be the cardinal rule of real estate investing: location, location, location. Adapting space to the new WeWork model will only work insomuch as there is demand for office at that physical location. An office owner would need to have enough office to lease in the right locations and/or be part of a network that enables flexible leases.
Today, location and the quality of assets are the main drivers of lease price. With the new WeWork, demand also factors into price. Let’s say everyone wants to work from the office on Tue/Wed/Thu. The price of office space on those days will go up, and it will be cheaper to go into the office on Monday or Friday. We accept dynamic pricing in hospitality. Why not also deploy it to office?
Sidebar: Working from home remains the new normal, and as a result, we have too much office supply. Some office will need to be repurposed. Some employers will need to adapt their hybrid mandates. The new WeWork concept I’m describing is not a solution for the oversupply of office, simply a strategy to find balance by recalibrating demand.
Existing office also needs to be repriced (which is happening now) to account for increased costs. Expenses rise from the need for increased marketing and leasing due to shorter-term leases. Further, the new WeWork would encounter significant costs to retrofit buildings and build cloud-computing-like leasing software.
Next, our culture around office needs to change. Mandating in-office presence makes the best use of a fixed cost for the interim. Long-term, I think hope more and more employers will allow their teams maximum flexibility.
As mentioned in the podcast below, employees generally take less vacation when on an open vacation policy. I would bet good money that if people had the option to go to a local office with their colleagues AND they weren’t forced to, they would 1) be more productive in the office and 2) they would surprise you and go in more often.
I’d be interested in research on mandates as described above. DM me if you know of any!
Finally, the new WeWork’s adoption period would probably outlast its initial funding cycles. Investors would really need to believe in this new future of office. For example, Amazon pioneered cloud computing in 2006. My old PE real estate firm was an early mid-market mover to the cloud… in 2017.
Large-scale adoption takes time.
If I Were Adam Neumann…
The new WeWork theory presumes that you can raise the funds necessary for this vision to work. Further, it assumes you can create the cultural shift required to change how we think about office.
Adam Neumann raised $350 million from Andreesen Horowitz for his latest venture, and he forever changed how we thought about office space.
If I were Neumann, I would buy back WeWork. I would invest in a construction arm of the business to retrofit offices to be truly flexible. I would build cloud-computing-like leasing software with dynamic pricing. I would target medium to large businesses as my customers instead of traditional coworking customers: freelancers and early stage startups. And I would use the WeWork portfolio to test out my products, subsequently selling them as services to other office real estate owners. I would charge a membership fee to be part of the WeWork flexible lease network.
Technology is eating office, and if Moore’s Law rings true in CRE, we should expect a lot more change to come.
Jen’s Startup of the Week
I’m a big fan of the team at Rentana.io. The team consists of a former proptech entrepreneur who exited an AI startup to Appfolio, a former VC, and former Airtable and Stripe engineers.
Yes, revenue management software has been done before. But that doesn’t mean it can’t be done better.
Rentana’s latest UI is one of the more intuitive ones that I’ve seen in the space. Worth checking out.
Jen’s Reading Corner
“Fiction is the great lie that tells the truth about how the world lives.”
I recently read The Covenant Of Water by Abraham Verghese. It’s a wonderful story about the intertwined lives of individuals and families. We often forget about the impact we have on others, and this book is an important reminder.
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