Small Business Labs

WeWork Files to Go Public

WeWork released its S-1, which is the legal document a company files prior to going public, this week.

WeWork going public is a bit of a watershed moment for the coworking industry. It's the first of the new wave of coworking spaces to do so.

It's also a highly watched and controversial company, particularly due to its high private valuation and steep losses. Because of this interest, the S-1 filing is getting a lot of attention.

Our favorite part of the S-1 is the description of WeWork's mission. Key quote:

Our mission is to elevate the world’s consciousness.

Pretty lofty ambition for a company that rents commercial office space. But we agree the world's consciousness could use some elevating. 

The topline numbers show that WeWork's membership numbers and revenue have doubled every year for the last 3 years.  The S-i reports that:

• Q2 2019 membership of 527,000, up from 268,000 at the end of June 2018 and 401,000 at the end of December 2018.
• Revenue has grown from $436 million in 2016 to $1.82 billion in 2018 and they look to be on track to double revenue again this year.
• WeWork operates 528 spaces in 111 cities across 29 countries (click to enlarge the WeWork S-1 chart below for more details)

Their operating losses have also increased quite impressively, from $396 million in 2016 to $1.69 billion in 2018. They too are on pace to double this year.

But hey, it's not like it's easy or cheap to raise the world's consciousness. 

To help investors swallow the losses and cash burn, WeWork is planning to raise $6 billion in debt prior to going public. This, coupled with their current cash position of $2 billion, would give them a few years of cushion to get to profitability - or at least become cash flow positive. 

See these articles for more details:

Axios: WeWork files for long-awaited IPO

CNBC: WeWork reveals massive $900 million loss in filing to go public

Tech Crunch: WeWork reveals IPO filing

The Axios Pro Rata podcast also has a good review of the S-1.

"The Venture Capitalizaton of Belonging"

Fast Company's Social clubs died out in America. Now, venture capital is bringing them back provides an interesting look at the changing landscape of American social clubs.

The article starts by pointing out the long decline in the membership of traditional clubs. Key quote:

"Over the last few decades, sociologists and political scientists have found that American clubs of all stripes–from youth service clubs to bowling leagues–have experienced steep declines in their memberships. ... The Freemasons has lost 3.8 million members since the late 1950s. The Elks ... has seen its membership drop from 1.6 million in 1980 to 803,000 in 2012. The Rotary only has 330,000 members now and only 10% of them are under 40."

It then covers various kinds of new types of clubs that are mostly in urban areas and cater to those with relatively high incomes:

"These are stylishly designed, members-only spaces that often come with a high price tag, thereby limiting membership to the wealthy and privileged. There are social clubs like Soho House, Spring Place, and the Battery, which serve as gathering spaces for well-heeled professionals.

There are special-interest clubs like The Cultivist, which, for $2,200 a year, gives art-lovers access to museums and galleries without the hassle of making bookings. There are private gyms like Equinox and Peformix House where you can work out with celebrity coaches using top-of-the-line equipment. There are beautiful coworking spaces like WeWork, the Wing, and the Riveter."

The broader point of the article is that the new wave of clubs need to charge high prices because they are ventured backed, have lots of amenities and high costs. This is very different from the traditional grass roots, self-organized clubs where membership is either cheap or free. 

Our favorite quote is final sentence in the article:

"But we need to ask ourselves: Are we, as we are building community, creating a Tocquevillian society full of associations, or are we creating the Gilded Age of Louis the 14th.”"

Good question - and one that can easily be asked more broadly about income equality in America.

We've long covered the shifting nature of social clubs. This is due to our coworking research.

We've also dug into the topics of loneliness and belonging. This is because solopreneurs, remote worker and home-based workers report loneliness and lack of belonging among their biggest work challenges. We also look at these topics because of the community building aspects of coworking.  

Because of this, we've been exposed to some fascinating work on these topics.

A great example is the How We Gather project, which is a collaboration between Harvard Divinity School, the Fetzer Institute and the On Being project. 

It's an extension of a Harvard Divinity School report that looked at declining church membership.

It too is called How We Gather and it has become a very influential paper on this topic.

It also inspired coworking pioneer Tony Bacigalupo to create The Gathering Summit, which is an online conference that brings together community builders from all over the world to learn from and support each other.

The list of presenters at the Gathering Summit is a who's who of the experts these topics. So if you're interested in this area, visit the Gathering Summit homepage. 

The need for belonging and community is part of being human and it impacts many aspects of our lives and work. Included are impacting the future of work, the future of small business and the future of self-employment and the gig economy.

So we will continue tracking and reporting on this topic.

Coworking Software Provider Essensys Goes Public

Essensys, which is based in London and describes itself as providing "The world's leading coworking software and technology to power your workspace business", went public this week on the London Stock Exchange.

The company sold GBP28 million (about $35 million) worth of stock to the public and garnered a marketcap of GBP83.5 million (about $104 million). 

The stock had a good opening, ending the first day of trading up 15%. 

Essensys isn't a big company. They had revenues in the $20 million range in 2018 (the financials below are from their prospectus). But they're growing nicely and forecasting strong growth over the next few years. 

In a world where WeWork is raising billions of dollars and has a marketcap of $47 billion, Essensys's IPO almost seems quaint. 

But the fact that a software company that positions itself as a "pure play in the high growth flexible workspace industry" can go public is another sign that coworking has entered the mainstream. 

Accor Hotels Major Coworking Push

Accor, which is a large French multi-national hotel and hospitality company, announced a plan to develop 1200 coworking spaces over the next 3 years.

If they do it, they will become the leading coworking brand in Europe by 2022 and one of the largest in the world. 

Accor is planning on rolling out 3 different types of spaces under the brand name Wojo:

Wojo Spots: touchdown spaces located in the lobby's, restaurants and bars of Accor hotel properties and meant to appeal to those who need a place to work while traveling.

Wojo Corners: dedicated coworking spaces located in Accor hotels designed to appeal to locals as well as travelers who need more privacy than provided by a touchdown space.

Wojo Coworking Spaces:  large stand-alone coworking spaces located in commercial buildings that provide both workspaces and hospitality services ((bars, lounges, kitchens).

Coworking is part of Accor's broader "augmented hospitality" strategy designed to engage consumers where they live, work and play. 

We find this strategy quite interesting because it's based on one of our favorite trends, work/life integration. It's also another example of hospitality and coworking merging. 

The short Accor video below explains their coworking push in more detail.

GCUC 2019 - Coworking's Surge Continues

The 2019 U.S. version of the Global Coworking Unconference Conference Series (GCUC) happened last week in Denver. Over 500 attendees showed up to discuss the state of the coworking industry and learn from one another.

It was clear from the discussions and presentations that the state of the coworking industry is excellent.

The industry continues to grow at a rapid pace, niche and independent coworking spaces are thriving, and the big coworking chains continue to expand. 

One thing that caught our eye was the number of attendees from coworking spaces serving new industry segments and vertical markets.

A good example is Palletized, a coworking and cowarehousing space that provides logistics services and warehouse space in addition to office space. This vertical market is quite large and because of ecommerce, growing quite rapidly. And now there's a coworking option for this industry. 

Coworking rapid growth has been driven by 3 waves of customers. The first group were freelancers and independent workers who were coworking's first customer base. Quickly following them were startups and micro businesses. More recently large corporations have embraced coworking.

Going forward we think all three of these groups will continue to drive coworking's growth. But we also see a fourth wave emerging. This wave will be driven by niche and vertical market growth (like Palletized) and geographic expansion. 

Coworking started in the urban cores of large cities. But now it's diffusing across geographies into the suburbs, smaller cities and even into rural areas. 

These areas, BTW, are the home to most Americans. About 98 million Americans live in urban core counties. But 175 million live in suburbs and small metro areas and 46 million live in the nation's rural counties. 

This means coworking is just starting to expand into markets where 2/3rds of Americans live and well over half work. 

Bottom line - the industry has a lot of room to grow.

Allwork's articles GCUC 2019: What Coworking Members Really Want and GCUC 2019: Is the Coworking Market Saturated? - quick answer - no - nicely covers several of the panels and related discussions.

We "borrowed" the picture above from Allwork's GCUC coverage.

Community Lenders Creating Community Spaces - Credit Unions are Opening Coworking Spaces

CreditUnions.com's article 3 Ways to Connect Through Coworking Spaces provides an excellent example of how coworking is spreading across industry verticals and niche markets.

The article highlights 3 credit unions that have opened coworking spaces. Key article quote on these spaces:

Three credit unions are building their own shared space models that reflect each institution’s strategic approach to serving their field of membership while branding themselves as not only community lenders but also community leaders.

CommunityAmerica Credit Union($2.7B, Lenexa, KS) has rented a chunk of the WeWork shared office building in a hip section of downtown Kansas City, MO, to use as work space for its own employees and for community lunch-and-learn and happy hour-style events. The picture below shows a lunch-and-learn session at the space.

Digital Federal Credit Union($8.5B, Marlborough, MA) has created the DCU FinTech Innovation Center, which it describes as a “non-profit, mission-focused fintech accelerator” in downtown Boston. 

Vermont State Employees Credit Union($778.2M, Montpelier, VT) has filled extra space in a new branch in rural Bennington, VT, with local entrepreneurs and other tinkerers and thinkers who now occupy a shared space dubbed the Lightning Jar. 

Credit unions have always been about community.

Most started as small, local savings and loan co-ops. And they continue to be member owned non-profits. 

So it's no surprise the industry is starting to extend their community efforts by embracing coworking.

This is also yet another example of the growing number of differentiated and niche coworking spaces. 

Colliers on Coworking - It's "Established, Expanding and Evolving"

Colliers International, a global real estate services and investment management company, recently released their 2019 U.S. Flexible Workspace Outlook Report.

According to the report's introduction, its purpose is "to help office occupiers and investors alike to better understand:

• The rationale behind using flexible workspace
• Examples of leasing models
• Types of experience models
• The volume and characteristics of flexible workspace in leading U.S. markets
• Key issues facing the sector"

This by itself is quite interesting.

It wasn't that long ago when real estate investors, enterprise occupiers and the services firms, like Colliers, that work with them weren't interested in coworking. 

But coworking and flexible workspaces have reached the size and scale that its impacting and even changing commercial real estate. So now there's lot of interest from these firms.

The growth of flexible workspaces is nicely shown in the report chart below. The amount of coworking and flexible workspace in 19 major U.S. cities grew by almost 50% in the 18 months between 2016 and Q2 2018. 

Despite this growth, coworking comprises only 1.6% of commercial office space. This means it still has a lot of room to grow.

Other key report highlights include:

• Flexible workspace continues to grow at a rapid pace, now accounting for one-third of office leasing in the last 18 months alone (bolding ours; we think it's an important point). 
• Firms are leasing shared space for everything from surge space to touchdown space for traveling executives to incubators for new products and project teams, among others.
• Flexible workspace providers are shifting their focus to target larger corporations and enterprise clients.
• Flexible workspace is impacting traditional leasing models and firms’ occupational portfolios, together with the nature of how office space is designed and utilized. Traditional owners are responding with their own flexible space and lease options.

Overall the report is quite good and well worth reading for anyone interested in coworking/flexible workspaces or the commercial real estate sector.

Coworking Goes to the Dogs (it had to happen)

Allwork's DOG-FOCUSED COWORKING: A Q&A WITH WORK & WOOF FOUNDER JILLIAN DRETZKA talks about Work & Woof, a combo coworking and doggie day care space in Austin, Texas.

Dog friendly coworking is common.

But Work & Woof takes it to a whole new level. Over the half of the facility's space is an interior play yard for the dogs. There's outside play spaces too.

Work & Woof also offers grooming and doggy day care. Key quote from the article on these services:

"We do everything but cutting on-site, so nail trim, baths, blowouts, brushing, we do in that back room. We also do daycare for the day, so you don’t have to cowork and leave your dog, you can just leave your dog."

One-third of Work & Woof's members are dog entrepreneurs. The space even hosts dog entrepreneur meetups. 

Regular readers know we closely follow both the pet humanization trend and the growth of niche and specialized coworking spaces. 

And from our point of view, it was just a matter of time before these trends merged. 

If you're at all surprised that one-third of Work & Woof's members are dog entrepreneurs, see our Pet Trends section for more on the large and growing pet industry.

Why We Aren't Doing a Coworking Forecast This Year

This is the time of year we normally release our annual coworking forecast. And this year would have been our 10^th annual forecast (click here for our 2018 forecast).  But after a great deal of deliberation, we've decided not to do one this year. 

Don’t get us wrong. We’re still going to be researching coworking. We’re just no longer going to do an annual space and membership forecast.

There are several reasons for this:

First and foremost, we're no longer sure how to define coworking in a way that allows us to do a meaningful forecast.  As we pointed out last week, there's a lot confusion around what is and is not "coworking". 

We still like the definition we've used since 2010.  But the industry has continued to expand, evolve and mutate in a wide variety of ways. This is leading to new definitions of coworking, or at least the expansion of the definition to include a wide variety of spaces.

As Laurent Dhollande, Cloud VO CEO and long time flexible workspace expert, explained on the workspace-as-a-service LinkedIn group:

"... the terminology of “coworking" is now strongly identified with flexible and on-demand office spaces of all kind by landlords, brokers, large Enterprises, and the public at large ..."

He's right. And this means we no longer have a clear definition of coworking. And without a clear definition, it's hard to do a forecast. 

Secondly, however you define it, the global coworking industry is big and growing fast. It's always been very challenging tracking and forecasting the coworking industry.

It's been the forecasting equivalent of chasing a runaway train. And that train has gotten very big and is moving rapidly. 

For example, JLL is forecasting that there will be 13 million people working in coworking spaces in India alone in 2020. This is more members than we were projecting the entire world would have in 2020 just a couple of years ago. 

Coworking is also booming in China, Japan and many other places -  including New York, where CBRE data shows (click to enlarge the chart below) the demand for flexible space has dramatically increased in 2018.

The global coworking industry has reached a scale where we're no longer confident in our ability to collect and analyze the massive amount of global city-by-city and country-by-country data required to do an accurate forecast.

And last but not least, coworking is no longer emergent, it has emerged. As you can tell by our name, Emergent Research, our focus and expertise is on identifying, researching and forecasting emerging shifts and trends.

Because coworking is now a large, established global industry, it has attracted the attention of traditional industry analyst firms (CBRE, JLL, Yardi Matrix, etc.) that are better positioned to provide ongoing multinational coworking forecasts. 

As we said at the top of this article, we will continue our research on coworking.

We've always considered coworking a window into the future of work. It's a great laboratory for studying a wide range of emerging social, demographic, economic and technological trends. 

And we’ll keep providing updates on our research here and elsewhere.

Coworking is Disruptive Innovation

The term disruptive innovation was coined by Harvard professor Clayton Christensen and popularized by his classic 1997 book The Innovator’s Dilemma.

According to Christensen:

Disruptive innovation describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

The Christensen Institute adds that a disruptive innovation

... is formed in a niche market that may appear unattractive or inconsequential to industry incumbents, but eventually the new product or idea completely redefines the industry.

Coworking clearly fits this model.

The early coworking spaces (circa 2008) were targeted at a niche (freelancers and other independent workers) that was considered unattractive and inconsequential to the commercial office space industry, including the executive suites industry sub-sector. 

The spaces were also definitely low end.

The pictures below (click to enlarge) were taken in 2011 at Citizen Space, one of our favorite early coworking spaces. Located in an old building in a low rent SF neighborhood, you entered Citizen Space through a loading dock.

 

And inside it wasn't anything like today's coworking spaces.

 

But as Christensen points out in his 2015 HBR article What is Disruptive Innovation:

... as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. 

And while early coworking spaces weren't elegant, they delivered the functionality their overlooked customers were looking for at a price well below other alternatives.

Fast forward to today and it's clear coworking has not only become a successful industry, it's disrupting and changing the entire commercial office real estate industry.

Repeating a quote from our post yesterday:

Everything that we know about landlords and how workplaces are designed, built, managed and staffed is being disrupted ...

When we first started tracking coworking back in 2007 we thought it had the potential to disrupt the commercial office space industry. It's now clear it's doing so.