We are all getting used to the big red signs in shop windows advising that they are closing down. I bet there will be a few shops and companies closing down in the New Year. Get the final gasp of cash that is fluttering about over the festive season then shut up shop. It has always been a retail pattern of behaviour that is sad to see.
Now it seems that the closing down signs are now affecting one industry that we all thought was booming. That industry goes by several names, from rent-a-desk, to serviced office to co-working space. Ostensibly it is short-term office leasing. But, for some, the business models don’t add up.
WeWork, a leading global player in this area, is in big trouble. It is losing billions of dollars every quarter. The long awaited “tech” IPO never came to fruition and its colourful CEO has now stepped down. For many that is corporate parlance for “out the door”.
The big backer behind WeWork, Softbank, took a $9.2 million write down – and that is after putting $10.3 billion into the company through both common and preferred stock. That game is up as Softbank dig in deep and hard to get a grip of this cash-burning co-working offering. It is not the only co-working space to be downsizing. Rocket Space in London is also giving up the ghost.
Rocketspace Inc, a San Francisco-based WeWork rival, is pulling out of its UK business. Rocketspace expanded across the pond in 2017 with huge fanfare as a Silicon valley player. It came to the UK via its CEO, Duncan Logan, to continue its expansion and become an integral part of the start-up, scale-up jamboree that has been taking place. But, alas co-working has the closing down signs up. Why is this?
It's no wonder the wheel are coming off
WeWork and Rocketspace offer tremendous high technology environments for start-up, growing businesses and traditional tech offerings to rent. Their spaces, and many like them, offer super-duper broadband and stylish surroundings. Combined with this there are hot desks, meeting rooms and concierge services. Of course, in many a co-working space there is the hipster beer tap, attached to a keg where co-workers can sink a cold one after a hard day hustling and sparking.
Visiting these places a decade ago in New York City and Boston, the beer tap was a must. It represented entrepreneurship, drive and suave millennial sophistication. In essence, just like the ping pong table, it was a gimmick to lure in tenants who would be willing to pay up. But, the paying up bit got lost in translation somewhere.
These offices wanted to attract top talent. They wanted to market themselves as the places to be. There one could find hot start-ups with unicorn ambitions. One could mix with investors who would be willing to back you on the spreadsheet you inked on the whiteboard. Mentors with grey hair, grey suits and big cheque books who could make introductions to more wealthy individuals would walk the halls. Add in early stage venture capital and angel networks attending pitch nights and the scene was set for a self-perpetuating entrepreneurial organism, where term sheets and cap tables told of unsustainable and, in many cases, ludicrous valuations. It’s no wonder the wheels are coming off the bogey.
As WeWork downsizes dramatically and Rocketspace disappears from the UK, it is not something to be celebrated. Indeed, the opposite, as having some pixie dust from Silicon Valley has given life to entrepreneurs. Employees are losing their jobs and the “ecosystem” is beginning to feel a little jittery. As these rent-a-desk business models can’t seem to turn a profit, it may also be a signal that the decade of start-up, hipster entrepreneurs and crazy money is over.
One just needs to look at Silicon Valley, which has lost $100 billion in value from unicorns over the last year, including WeWork. Perhaps it is time to come back to reality, forget the beer tap and revert to business fundamentals.
- Jim Duffy MBE, Create Special.