Before WeWork gunned for an IPO, the company was dazzling. It had made itself the second most valuable US tech startup at the time, with a valuation of US$47 billion. It had 485 locations across 28 countries in mid-2019.
WeWork made itself the first name on anyone’s mind when they thought of coworking.
But when they filed to go public, holes in the picture came to light. Investors realised the company’s corporate governance was in a mess. More notably, WeWork was losing way too much money to justify the gargantuan valuation. They lost almost US$2 billion on a US$1.8 billion revenue in 2018.
News of the canned IPO was shocking, but not really surprising.
It was generally known that WeWork was a long way from profitability, leaving people uncertain about their business model and how they would eventually turn things around.
And because the company groomed its public image to be synonymous with coworking, the skepticism around WeWork may even fall on the industry in general.
Did WeWork land in this crisis purely because of its own internal issues, or because coworking is unviable?
To be fair, I have wondered if firms like WeWork were all, by nature, only able to burn money until the trendy idea of coworking bursts like a bubble one day.
However, if we look beyond WeWork, the picture is quite different.
We don’t even have to look for another Western giant. Singapore also has birthed a coworking company with a sizeable presence in its own regional context.
While WeWork spreads its locations globally, Singapore-based JustCo is focused on being a leading operator in Asia Pacific.
JustCo has been around since 2011, only a year shorter than WeWork, and has 40 locations in eight cities.
We reached out to JustCo’s Founder and CEO Kong Wan Sing to get an idea of how the business is doing.
First, Wan Sing lays down the foundation of how their model works:
“Coworking space operators like JustCo disrupt the commercial real estate industry. The model breaks the walls of traditional offices, and offers flexibility and community to individuals and businesses in a collaborative workspace,” he says.
Fundamentally, this is no different from WeWork.
Both companies operate by buying or renting large offices or entire commercial buildings, segmenting and redesigning the spaces, and then renting it out again to individuals and enterprises.By doing this, they split and distribute the hefty costs of commercial real estate into smaller pieces that make more financial sense for each tenant.
Both companies operate by buying or renting large offices or entire commercial buildings, segmenting and redesigning the spaces, and then renting it out again to individuals and enterprises.
By doing this, they split and distribute the hefty costs of commercial real estate into smaller pieces that make more financial sense for each tenant.
One difference though: According to Wan Sing, “JustCo is a profitable business”.
In fact, he claims his company has never encountered a time when it had to endure a status of being financially unviable while slogging its way towards a promised land.
If that’s the case, why is there such a stark difference?
One possible factor is the way both companies fund their operations and growth.
Wan Sing shares that JustCo heavily focuses on partnering local landlords and developers, and it appears that these partnerships are where most of their external financing comes from.
Their investors include Singapore’s sovereign wealth fund GIC, multi-national property company Frasers Property Limited, and one of Thailand’s largest real estate developers, Sansiri.
These partnerships have been central to JustCo’s expansion. For example, JustCo has coworking centres in China Square Central (Singapore) and Samyan Mitrtown (Thailand), which are both owned by Frasers Property, and Seoul Finance Centre (South Korea), managed by GIC.
JustCo’s most recent US$74 million funding round led by Japanese construction giant Daito Trust is also helping them open “seven to nine new centres in Tokyo” over the next two years.
Wan Sing also talked about this in an interview with Forbes, saying, “I want strategic partnerships rather than a financial investor.”
From what can be publicly seen of WeWork, they position themselves more as a tech startup.
And while they also do have some land developers as investors, they seem to mainly bring in investment banking and venture capitalist firms onto their cap table, the most prominent being SoftBank.
These investors are able to throw huge bucks at the startup, but perhaps they may not be as crucially involved in the industry to provide more practical value to WeWork’s operations.
When asked what has kept his company going for eight years and counting, Wan Sing repeatedly mentions “discipline” and “prudence”.
He says that their mentality behind expansion is not just about rapidly covering as much ground as possible, but to approach it “in a disciplined manner together with [their] clients and partners”.
When expanding regionally, our approach is to practise financial prudence, by only focusing on expansions and projects that are expected to meet a certain profitability. Kong Wan Sing, Founder and CEO, JustCo
When expanding regionally, our approach is to practise financial prudence, by only focusing on expansions and projects that are expected to meet a certain profitability.
“Our projects are approved through a stringent process that involves business plans, proposals, and feasibility studies to make sure that potential risks are actively managed,” says Wan Sing.
JustCo’s approach does feel a bit more ‘traditional’, compared to how tech startups now tend to target aggressive growth first, and profitability second.
Perhaps for them, this method helped to keep the coworking model sustainable over time.
JustCo is simply one example of a coworking company that seems to have found a way to make it work.
James Tan, Managing Partner at Quest Ventures, shares the view that coworking is not just a fad or trend that will fizzle out despite WeWork’s current struggles.
In fact, he says the idea of “placing people from different companies to work together in the same environment is not new”.
Before WeWork, there were already companies like Regus (now IWG), founded in 1989 in Belgium, and Australian Servcorp, operating since 1978, which have both provided shared office spaces.
What changed with new entrants such as WeWork was their self-positioning as technology startups thereby commanding tech-level type of growth and valuations.James Tan, Managing Partner, Quest Ventures
What changed with new entrants such as WeWork was their self-positioning as technology startups thereby commanding tech-level type of growth and valuations.
Other reports have similarly questioned why WeWork should be considered a tech company, and whether classifying it as such is enough to justify their huge valuation.
For one, Vox wrote:
What makes WeWork worth more, the company seems to be saying, is that it’s a tech company — meaning its innovation and flexibility make it better than a regular real estate company.That’s a tough argument to make, given that for a long time, IWG has had substantially more square footage and more customers, and has actually made a profit — yet its market cap is just 8% of what SoftBank’s latest funding round thinks WeWork is worth.Vox, 14 August 2019
What makes WeWork worth more, the company seems to be saying, is that it’s a tech company — meaning its innovation and flexibility make it better than a regular real estate company.
That’s a tough argument to make, given that for a long time, IWG has had substantially more square footage and more customers, and has actually made a profit — yet its market cap is just 8% of what SoftBank’s latest funding round thinks WeWork is worth.
Strip away the allure of the ‘tech startup’ term, and we may get a more balanced image of WeWork as a company.
In James’ opinion as an investor, what went wrong for WeWork boils down to “hubris from the top”.
When corporate governance wasn’t handled well, rank and file employees now have to suffer the blows of massive layoffs, even though “most of them had no part in the excess we read of”, he adds.
Indeed, WeWork is now, under new leadership, desperately shedding off whatever excess bulk they can, including shutting down their premium private elementary school WeGrow and selling off startups they previously acquired.
We’ve seen WeWork as the face of coworking for long enough, but the industry as a whole clearly isn’t the problem.
Coworking is actually a great solution that opens up commercial real estate to be affordable and accessible to many more people.
We’re willing to bet it’s here to stay for good, and even WeWork could have another shot at it if they’re now rethinking the way they use their resources.
Featured Image Credit: The New Yorker
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