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Desk-hire and a beer flatrate – how to build a 16 billion dollar company Written by Christina Kyriasoglou on 3. May 2016

Adam Neumann’s first creation was not exactly an explosive idea. He tried selling baby clothes with kneepads as protection for crawling infants. The concept not only lacked a pinch of rock’n’roll, but there were also problems in the implementation: “We had problems with the fit,” says the US entrepreneur with Israeli roots in Fast Company. After some time, Neumann buried the small Brooklyn-based company. According to his wife the failure made him thin, nervous and dependent on cigarettes.
But Adam Neumann courageously tried again. Today, nearly a decade later, the founder has created one of the most successful startups on the market right now: WeWork. In the latest round of financing in March, well-known investors like Goldman Sachs and Fidelity valued the startup at 16 billion US dollars. And so far, the investors believe in the high value of the company. While the financial investor T. Rowe devalued its shares in Uber and Airbnb by six percent, it added to WeWork’s valuation, increasing it by 14.5 percent.
The business model of WeWork is quite simple: the company leases office space, builds a modern coworking area and rents out the spaces for significantly more money. In Times Square in New York, for example, WeWork rented for 58 US dollars per square meter – and rents out for 160. The profit margin is believed to range – depending on the city – between 30 and 60 percent.

WeWork has just started in Berlin

There are now a total of 80 WeWork spaces in 23 cities. Just yesterday, two offices in Berlin opened up which marks the first WeWork spaces in Germany. Around the world, the company has 50,000 members – members they call customers.
But why opt for WeWork? There are now numerous different coworking providers in tech hubs around the world, but Neumann and his co-founder Miguel McKelvey have managed to create an almost cult-like belief in the WeWork community. They lure members with amenities such as a beer flat rate. But above all, it has become an image thing for members that work there. They help each other out and contribute.

A photo posted by WeWork (@wework) on

Both founders even have a name for it: The WeGeneration. These are people who want to do cool things and love their work, says Neumann. The belief in this commonality is an important recipe for success for WeWork – when this idea is taken to the extreme, it gives the company huge sales.
The community concept driving Neumann and McKelvey has gone so far that they now offer members the ability to live together, so-called Co-Living. In WeLive’s fully furnished apartments sometimes even bedrooms are shared, which does not leave much privacy. So far, the company only offers living space on Wall Street in Manhattan: A bed costs at least $1,375 per month, a “Private Unit” at least 2,550 US dollars. According to Fast Company nearly 70 places will be added over the next two years. According to Neumann, the dream is to even build whole neighborhoods – WeCities: “The question is not if, but when.”
Sounds utopian? For the founders, the concept is obvious. As a teenager, Neumann lived for a few years in a kibbutz in Israel. It’s a community in which the members are equal and many public institutions are organized collectively. When he moved to New York to join his sister in 2001, he competed with her about who would find friends more quickly in the large apartment building she was living in. For him, it seemed to push against the grain than the residents in the elevator did not speak with each other. Founder McKelvey lived with his mother in a collective in Oregon and grew up there.
The WeWork founders got to know one another when Neumann was building his baby clothing company. McKelvey worked in the same building as an architect and since the office had empty space, the idea for the first coworking space came up. Green Desk was started in 2008 and succeeded quickly. They sold the company to the building owner and took the money to start WeWork.

Cleaners Scandal

On the way to building the 16 billion dollar company – during which they collected seven funding rounds and 1.4 billion dollars of venture capital – not everything always worked out. Last summer, the company made headlines because of the cleaning staff employed by WeWork. In New York, the cleaners made just ten dollars an hour, without social security or paid holidays. And by this time WeWork was already valued at ten billion dollars. When the employees which were hired through a subcontractor wanted to form a union, the subcontractor lost its assignment and more than 100 workers their jobs.
After long protests against the New York headquarters and discussions with the union leaders, CEO Neumann finally decided to set most of the workers at an hourly wage of 15-18 US dollars. The billows smoothed out. “You expect [Neumann] to be this stubborn, strong-willed guy, it’s my way or the highway”, a WeWork manager says to Fast Company . “And he’s the opposite. He really takes it in. He will immediately shift if he thinks he’s wrong and you can prove it through logic.”
Perhaps this is the reason why Neumann is so successful. Since the scandal of summer 2015, WeWork has been profitable. And yet there are doubts about the business model and the high valuation. “Their multiples are more like a tech company than what a real estate company would get,” says real estate expert Charles Clinton to Fast Company. “There’s a feeling that that doesn’t really make sense.”
And what if we are headed for a big crash and there is a burst of the tech bubble? Can startups still afford the high WeWork rent? The company is not worried. According to BusinessInsider, they say only a small proportion of the tenants are startups. Sitting, for example, in the WeWork San Francisco rooms are companies like Merck and American Express.
The two founders have worked very hard at success, but Neumann does not talk about figures and business plans – he portrays himself a visionary instead, someone who connects people and makes life better, as he preaches to the New York Times. “If you understand that being part of something greater than yourself is meaningful and if you’re not driven just by material goods, then you’re part of the We Generation.”
This article was originally published on Gründerszene.

Images: WeWork