Even in an Existential Crisis, WeWork Continues to Grow

WeWork was facing a different sort of meltdown on Tuesday at its office space in San Francisco’s North Beach neighborhood: A plant-based frozen yogurt machine was on the fritz. As its owner frantically searched for the WeWork facilities manager, dozens of entrepreneurs milled about in the communal kitchen, sampling products from local food-tech startups, some of which now call this office space home. Employees of a company that makes moringa chips wore laurel wreath crowns meant to evoke their product. Moringa, the new kale.

Everyone was celebrating the opening of WeWork’s new Food Lab, a food-centric startup program that provides office space and networking opportunities. Housed in an existing WeWork, just blocks from the San Francisco Bay, the space could eventually seat 100 employees. It launched last week with about 50 from several startups, ranging from an organic baby-food subscription service to a blockchain company for food traceability. As they mingled, founders shook hands and stole glances at name tags, which included the prompt: “If I were a food, I would be ____.”

At the big party, the mood was festive. It didn’t feel at all like the evening’s host had spent the previous months in a free fall. Here, the only crisis was fixing the frozen yogurt machine.

Elsewhere, the cracks were showing. In September, just as the company filed its paperwork to go public, WeWork’s valuation plummeted from $47 billion to beginning to talk about bankruptcy. It shelved its IPO plans. Its cofounder and former CEO, Adam Neumann, has been accused of, among other things, self-dealing, referring to maternity leave as “vacation,” and of driving his company into the ground before parachuting away with $1.7 billion. SoftBank, which has invested billions in WeWork, addressed the fiasco in its earnings call on Wednesday. “In the case of WeWork, I made a mistake,” said Masayoshi Son, SoftBank’s CEO.

For many remaining in the WeWork universe, the future looks uncertain. Just days before the Food Labs event, an internal memo had leaked and revealed WeWork’s plans to outsource much of its support staff, including all of its custodial workers. One employee described those plans to Business Insider as an “internal shitshow.” Rumors circulated that the company plans to lay off another 2,000 employees, but does not currently have the cash to afford the severance packages. Meetup, which WeWork had purchased for $200 million in 2017, also announced plans to lay off 25 percent of its staff, including many of its engineers. And there were hushed murmurs inside the various coworking spaces. One startup employee, who works out of the WeWork near Rockefeller Center in New York, complained that in the height of the WeWork drama it had stopped serving its iconic fruit water.

None of this was apparent at the new Food Labs space, which was bustling with people and excitement. (In the communal kitchen, a large jug of water contained sliced oranges, cucumbers, and lemons.) WeWork views the Food Labs program, like many of its other recent investments, as a way to expand and diversify what it does with its spaces. In that view, these types of programs are the thing that bring WeWork into the future. Skeptics might see the final swan song for a company in rapid decline.

WeWork launched its Labs program about two years ago. The vision: provide dedicated space to early-stage startups, most of whom are preseries A and have fewer than 10 employees. WeWork sits the founders at desks near each other, pairs them with mentors, and offers programming—say, a blockchain workshop—tailored to their needs.

Food Labs, the first industry-specific WeWork Labs, came out of a corporate decision to change how the company sourced food. WeWorks no longer spend money on meat or poultry. Single-use plastics have been eliminated from daily operations, and it’s made a commitment to be carbon neutral by 2023. Inspired to meet those goals, the company committed to meeting some of the startups in the space. Now, it invests $1 million in early-stage food and agriculture startups through its new Food Labs Accelerator, and offers desk space and community membership through the broader Food Labs program.

WeWork launched Food Labs this spring, along with a dazzling space in Manhattan, next to the High Line; it has plans to further extend the Food Labs program in Austin. Each space is tailored to the “entrepreneurs working to address the biggest challenges in food today,” with special programming for the startups that apply to work there.

In the San Francisco Food Labs, there is room for up to 100 people. The main appeal seems to be proximity to other founders in the space, and the chance to mooch free coffee and fruit water in WeWork’s stylish office space.

For startups that straddle food and technology, there aren’t many spaces like this. “In Silicon Valley, it’s all tech tech tech,” says Santiago Merea, the cofounder of Raised Real, the baby food subscription service, which is part of WeWork’s Food Labs in San Francisco. As far as food companies go, Merea says networking is especially important. He’s looking for better ways to source ingredients, new partners for packaging, and other forms of collaboration—like, hypothetically, working with the blockchain firm in the Food Labs program to give parents more information about where their kids’ food is coming from. WeWork gives him all of that, plus a place to house his employees.

There are other benefits too. Raja Ramachandran, the cofounder of Ripe.io, the blockchain company, says bringing his employees into the WeWork ecosystem allows more flexibility on where they work. They don’t all have to be in the San Francisco space, since WeWork offers desks around the country. That can allow a startup to be more nimble as it expands into new markets. Similarly, Merea says his company used to rent out an office in a building nearby, but it was expensive. Renting desks at WeWork made more sense for his employees, who don’t all work 9 to 5 and who are scattered.

Most importantly, though, WeWork subsidizes the desk space for its Food Lab participants. In San Francisco, Food Lab companies pay between $300 and $600 per employee—about half the market rate for a hot desk.

For early-stage startups, it’s an attractive deal. The question, then, is what WeWork gets out of this, especially as the company struggles to profit from its ever-expanding empire.

WeWork makes even less money per Food Lab employee than on regular members. But the company views the program as an investment in its future. “The hope for WeWork, from a business angle, is that these startups will grow, and then they’ll take office space in three, four, five cities across WeWork,” says Tessa Price, the San Francisco Food Lab manager. She added that the Food Labs program allows WeWork to be more flexible with its space—for example, by taking “a large private office and instead of filling it with one member, or not filling it at all, we can fill it with 35 amazing, innovative brands who are going to grow within our ecosystem.”

Expansion is part of the WeWork ethos. It’s also, arguably, what helped get the company into its current state of disaster. As the company grew, its ambitions stretched beyond mere office space. WeLive, the co-living business it launched in 2016, offered serious subsidies on rent to fill up its buildings, then planned to slowly raise the rates. But its plans haven’t totally worked out. WeLive hasn’t expanded past its first two locations, in New York City and Northern Virginia, and recently stalled its plans to expand internationally. WeGrow, an experimental for-private school, opened in 2018 with a similar expansion strategy, but that hasn’t panned out either. WeWork announced that it will close next year.

In its IPO filing, the company admitted that projects like these “may not generate meaningful revenue or cash flow” and “may be unable to achieve profitability for the foreseeable future.” And in Softbank’s earnings call Wednesday, Son stated that the company would like to “terminate” such noncore, unprofitable businesses.

Even WeWork’s core business has raised doubts. In New York, WeWork is the city’s largest office tenant with nearly 9 million square feet of office space. And yet the company continues to swallow up real estate. Dock 72, a new building in the Brooklyn Navy Yards, opened two weeks ago. A New York Times reporter who visited the space observed that it’s far from full, and raised questions about whether or not the company would be able to turn a profit on the 220,000 square feet of space.

Son compared WeWork’s newer, emptier office spaces to, of all things, unripe apples. “Green apples will turn,” he said. “Actually, the color indicates the opposite, but green apple will be in red, and a better and tasteful apple will come to us.” Translation: The new offices may be losing WeWork money now, but the company is betting that eventually those spaces will fill up and start bringing in money.

Whether those new investments pan out will be a concern for the company’s new CEO and its investors—but not for the startup employees at the new Food Labs. If the Food Labs program implodes, they’ll just find another place to house their growing businesses. As they milled about the opening event sampling dried seaweed snacks and shaking each others hands, none of these questions hung in the air. WeWork’s existential threats were somewhere far, far away.

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