What Brooklyn’s Small Businesses Can Learn From WeWork’s Troubles

Neil Carlson is Cofounder and CEO of Brooklyn Creative League.

Brooklyn Creative League office by Jenni Walkowiak/with permission

I should probably start with the disclaimer that WeWork is a competitor of ours in New York, although WeWork executives would probably not say the same about us. I started my coworking company, Brooklyn Creative League, in 2009, a few months before Adam Neumann and Miguel McKelvey launched WeWork. Back then, both companies were initially both in the business of providing office space and building professional communities for freelancers, small companies, and startups. By the end of 2017, our erstwhile local competitor was operating 10 million square feet of office space across 163 locations in 52 cities worldwide, compared to our single 20,000 square foot location in Gowanus. WeWork had a valuation of $20 billion, and a new mission: to “elevate the world’s consciousness.” Meanwhile, our valuation was…not $20 billion. Likewise, our mission was, and still is, more prosaic. BCL builds extraordinary coworking spaces and cultivates authentic professional communities.

I watched the company’s meteoric rise with a combination of fear and disgust as they built what many observers considered a predatory business. Like many venture-backed unicorns, WeWork engaged in what Matt Stoller calls “counterfeit capitalism.” In a recent blog post, Stoller notes that, rather than compete on the basis of quality, WeWork used billions of dollars of investors’ money to “underprice competitors in the co-working space market, hoping to be able to profit later once it had a strong market position in real estate subletting or ancillary businesses.”

It didn’t work out that way. In the run-up to WeWork’s IPO earlier this month, retail investors balked at the $47 billion valuation, opaque financials, shabby governance, and executive self-dealing. Last week, Neumann stepped down as CEO, but that may not be enough to save the company. WeWork is bleeding cash, executives are jumping ship, the president of the Boston Fed recently warned that the company’s implosion could kickstart a new recession. Tempting as it might be to bask in schadenfreude—particularly for a company whose leadership team so richly deserves what is coming to them—it’s wiser to sift through the ashes to see what lessons other business owners can learn from WeWork’s flameout. Here are three takeaways.

An inclusive culture is a healthy culture.

When you’re building a company, culture and people are the twin pillars supporting growth. Yet, for all WeWork’s talk about community and consciousness, the company’s corporate culture was notoriously bro-y. Until just earlier this year, the board of directors was comprised exclusively of men. Likewise, the company faced a boatload of sexual harassment suits, along with a raft of wage-and-hour suits. If you want to build a resilient, durable team and a healthy corporate culture, try building a diverse leadership team and a healthy corporate culture. According to a recent study by the Boston Consulting Group, companies with diverse management teams had revenues that were 19 percentage points higher than those of companies with below-average leadership diversity.

Build community at a human scale.

As the sociologist Robert Putnam has noted, the decline of organized religion and civic organizations have left us feeling increasingly isolated, lonely, and bereft of meaning. Like other brands that place community at the center of their business models—SoulCycle, CrossFit—WeWork realized that their core customers are hungry for community. But community doesn’t scale like software, and there is an outer limit to the number of genuine, meaningful relationships human beings can maintain with one another. As the British anthropologist Robin Dunbar observed, once a group gets beyond 250 members, the social glue that binds communities together starts to break down. Put another way, you can build a global real estate network, but if you want to have a community, best to keep it small enough so the members of that community won’t feel awkward sharing a drink if they run into each other at the local bar. Here at BCL, our current and future spaces are under 20,000 square feet and have under 250 members, and we focus on building one-to-one relationships based on shared values, reciprocity, and trust.

Be wary of overly aggressive growth.

Over the past few years, Brooklyn has emerged a hub of the innovation economy, not just in New York, but also nationwide. As venture capital pours into the borough’s startup community, founders should be wary of following in WeWork’s venture-backed template. Like the unicorns that preceded it, WeWork’s valuation was based on the premise that it could disrupt, and subsequently dominate, a massive global industry. Similar to Amazon (retail) and Uber (transportation), investors backed WeWork because the company promised to transform the United States’ $16 trillion commercial real estate industry. If your main goal is to dominate a market, you need to do it quickly and aggressively so you can achieve monopoly status–and rake in the lucre that accrues to monopolists. Brooklyn’s startup community should think long and hard about the risks of hyper growth, even if it means turning down funding. Better to outlast the competition through disciplined and steady growth. That’s how you build a durable business and a resilient economy.

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Neil Carlson

Neil Carlson

Co-Founder & CEO of Brooklyn Creative League. After moving to New York in 2001, Neil worked as an independent writer, policy researcher, and communications consultant to foundations, nonprofits, and sustainable businesses. His work focused on developing business and investment models that embody the principles of local ownership, environmental sustainability, and fairness for owners, customers, vendors, and contractors.

Comments

  1. I run a 20-member coworking space for writers and other creatives in Ditmas Park Bklyn, and couldn’t agree more.

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