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What Does WeWork Debacle Mean For Entrepreneurs?


So that looks like the end of the coworking industry. WeWork’s travails in attempting to go public have shown that the model doesn’t work: coworking spaces are economically unsustainable. It was a nice thought for a few years, but now we’ll all return to being serious adults.


Coworking is bigger and stronger than WeWork. It would be a serious mistake to equate WeWork’s style, over-the-top CEO behavior, and bemusing S-1 filing with the coworking movement in general. WeWork is indicative, however, of the industry’s growth and the potential for continued growth.

Since 2015, coworking space square footage has more than doubled, to over 80 million in the U.S. Globally, space opening grew by 15% in 2018. A few months ago, that pace had slowed but was still on track for nearly 10% growth this year. Interestingly, most of that growth in new spaces (two-thirds of it) is driven by new coworking companies rather than existing companies. Purely on the basis of the stock and flow of coworking spaces, WeWork does not define the industry. There are plenty of “independent” coworking spaces out there.

Based on underlying trends in the workforce, it looks like that growth in new spaces and square footage is not only justified but also necessary. There’s a question, in fact, as to whether existing growth is fast enough.

Globally, just under half (46%) of organizations globally use virtual teams. A similar share (43%) of the American workforce currently has some degree of location flexibility. More than two-thirds of people globally work away from their organization’s office at least once per week. It’s not just startups or freelancers. Large companies such as Google have determined that remote work can be effective and are making it easier and more accessible.

Coworking spaces can be part of the solution when organizations using remote and virtual teams need to overcome the challenges that such teams come with. They can increase collaboration, relationship-building, and productivity. Investors clearly haven’t lost the appetite for coworking, putting tens of millions of dollars into other coworking spaces companies this year alone.

Where is Coworking Headed?

If you’re a business owner or entrepreneur, a coworking space can be the solution to finding the right type of physical space. Because you can rent a desk or office for a short period of time, it brings flexibility not found in typical office leases. This was evidently a semi-obvious insight that WeWork has not applied to itself. The company has “a mismatch that is at the heart of the business model, where WeWork has locked itself into making the renovation costs up front and the lease payments for many years into the future, but its rental revenues will ebb and flow, depending upon the state of the economy.” Other coworking companies also operate through long-term leases, putting an albatross around their neck.

What appears to be happening is an evolution of the coworking landscape toward a “hotel-flag” model with “differentiated brands,” as Launch Pad founder Chris Schultz has observed. Ironically, just as SoftBank–the largest investor in WeWork’s parent company, We Co.–pushed the expected IPO valuation down, they invested in Oyo, one of the hottest companies in India. Oyo is a budget hotel chain rapidly expanding beyond South Asia into the U.S. and Europe. That is, it’s a specific brand identity in a crowded space.

And coworking is getting crowded with large commercial real estate companies entering the market. That crowding, however, is geographically uneven. In cities like New York, Austin, and Denver, new coworking spaces are opening every 7.5, 15, and 17 days, respectively.

What’s generally not on that list, in the United States, are midsized cities that haven’t kept up with the big metros but that have strong fundamentals to support growth. That should be a big signal to investors and governments, for whom the pertinent question might be, who or what will be left standing when the recession eventually hits?

Answer: the coworking spaces that are focused on “the rest,” that have a strong and compelling identity, and that add value beyond space.

What Should Entrepreneurs And Others Do?

So what should entrepreneurs, freelancers, remote workers (not to mention investors, economic development officials, corporate leaders), and others look for when it comes to navigating the coworking space world?

Look for community. That may sound like one of WeWork’s fluffed-up declarations. But in a non-winner-take-all industry of diverse brands and identities, self-selection drives growth. And those coworking spaces with the clearest and most compelling identity–that is, the community they offer and build–will outperform for their investors and customers.

Launch Pad, for example, says it is “building the world’s strongest community of people working entrepreneurially.” Others, like CO+HOOTS in Phoenix, are focused on entrepreneurs and startups. Still others gear themselves more toward the executive-suite crowd. In all likelihood, every coworking space will include the word “community” in its marketing materials. Your task is to figure out which one will be the right fit for you.

Understand the model. You have your own business or work portfolio to worry about, so you can’t be worrying about the health of your office space, too. It’s important to figure out if the coworking space where you’re located operates on the mismatched WeWork model or something more sustainable and fully aligned. You don’t want to be blindsided if (or when) your coworking space runs into trouble itself.

Buy more than a desk or office. Any type of coworking space customer should look for additional value layers that a coworking space might offer. Yes, one aspect of this is the amenities: good coffee, ping pong tables, happy hours, and so on. But what other resources can they make available? What connections and networks will a particular coworking space open up and increase access to?

Source: Forbes – Entrepreneurs
Author: Dane Stangler, Contributor