Global co-working phenomena, Wework’s founder Adam Neumann was asked by key investor Masa Son, “In a fight, who wins - the smart guy or the crazy guy?”

Wework founder Neumann responded "The crazy guy”

Masa agreed “You are correct, but Wework is not crazy enough."

WeWork is valued at over $20 billion US. It operates in 20 countries including Australia and has more than 250,000 occupants in its premises. Revenues are growing fast and are expected to top $2.3 billion US in 2018. Softbank, the Japanese technology group, led by Masa Son has invested $4.4 billion.

WeWork is expanding globally.  There are questions about its sky-high valuation based on how unique its business model really is. Skeptics claim that Wework does nothing more than commercial real estate arbitrage - lease a space, give it a makeover, then sublease it out to smaller  tenants. The company generally does not own its properties, so their balance sheet has very few tangible assets. Another concern is that many of WeWork’s tenants are unproven start-ups that statistically have a high probability of failing. A number of co-location office companies see themselves as potential competitors, seeking to replicate WeWork’s success.  This raises the key question of how defendable and unique is the Wework business model.

Grant Philipp, CEO of Office Hub, a local Wework fast-follower, does not share these concerns. He explains how Wework is creating an industry, “WeWork is selling the concept of co-working - even more than they are selling their own space. They’ve made the flexible office industry cool, young, fun and easy, to such a point that the very word “co-working” has become synonymous with WeWork’s styling and offering.”

Grant describes the current local market, “Their presence is therefore actually more beneficial than it is detrimental for other co-working providers - especially in a young market like Australia where awareness of shared space is relatively low.  Countless small-scale providers are benefitting from the associative WeWork effect.”

Wework were not the First Co-working Provider

Regus who has been long established in Australia has more tenants and more real estate than WeWork. However, Regus is valued at just $2 billion globally. Yet Wework has convinced its investors that they are under-valued at 10 times Regus.

Regus, who has been around for decades has a better claim than Wework to the invention of co-working. However, Wework has developed a formula that has attracted hordes of small businesses to offices that generally have the appearance of an old factory, some big common areas and background music.

Masa Son told Forbes Magazine "I thought the valuation had been too high for a company its size and that someone could easily copy it". Son concluded, "But no one could. The idea was easy to talk about but hard to execute - Wework has proved they can do what they say."

Grant Philipp agrees with Wework’s key investor, “This level of detail in curating a genuine community is powered by huge financial backing so it will be hard for others to replicate.”

“Our Australian market is still around five years behind the US, UK and Asia but we expect to see WeWorks in all major Australian cities within the next few years.”

Grant highlights Wework’s benchmark, “Having said that, vast flexible office demand is for private space (70%) over co-working space. So it makes the design of a co-working office vital. This is where WeWork gets it spot on.”

“WeWork's amazing spatial design of communal and co-working areas mixed with private suites is a big factor in the satisfaction of their members.”

WeWork is a business that combines elements of real estate, hospitality and technology that is now worth, in Australian dollars, much more than real estate giant REA Group and not much less than Telstra.

Allowing small business workers to experience the same work benefits as that enjoyed in large corporates might be part of the appeal of Wework. The office community social interaction found in large offices, is something that small business employees say makes them feel isolated in the workplace. Each WeWork has a “community manager” who keeps tabs on members of the co-workspace, makes introductions and organises social activities.

Grant from Office Hub says, “Previously small business would hold out in the home office for as long as possible. Whereas now co-working is a user-friendly, budget-friendly stepping stone that prepares and equips businesses for full commercial leases.”

Expectations of Designer Office

Demand for improved amenities and cool interior design is gradually becoming the norm. Employees, especially millennials, are expecting their office to match the same design standard as they expect in their homes.

The work landscape is evolving rapidly. Staff change employers much more frequently, jobs are more likely to be concentrated in the CBDs and technology is making it easier to work remotely. Suddenly the demand for co-working is real, and ready to be turned into a business.

Melbourne and Sydney tenants pay as little as $370 a month for a hot desk in a common area. Start-ups can pay a few thousand dollars for a private room on a monthly basis, and overseas some big companies pay millions of dollars a year for spaces that can hold many employees over multiple locations.

Co-working has had its share of complaints. One of the downsides of a communal work space is that the hygiene and dress code standards can vary greatly between co-workers from different organisations working alongside each other.  For some this can be a turn-off. 

However the lack of a dress code is not going to hold back WeWork.  It plans to win over corporate clients, by saving them money. Wework say because they are occupying so much space and buying so much furniture, they can renovate and operate an office for a fraction of the cost that companies would normally spend. They claim “We have economies of scale. We can cut your operational costs by 20 to 50 percent.”

Not Just Another Outsourced Service

The co-working industry argues that big companies have outsourced payroll processing, cleaning services and countless other services. It’s not too much of a stretch for corporates to outsource the design and operation of their offices to a company like WeWork.

Co-working is set to be a significant disrupter of the way people view the spaces in which they work. It might be dangerous to dismiss WeWork as just another overvalued start-up. Co-working offices can fit 2 to 3 times more people than the same sized conventional office. Co-working is shaping up as a big strategic threat to traditional office leasing. Wework claim to have invented a whole new paradigm for office workers that will change the world.