Beware the potential for death spirals, and the bigger you get the harder they are to see. Early on, this is easy; last long enough to get to a profit. Later, if you have several products and you're allocating overhead among them, you could be tempted to cut the one with the worst margin. Then the overhead gets reallocated to the other products and pushes a second line underwater.
If your output requires direct labor, it IS possible to sell your way into a death spiral because labor is short-run inelastic.
Know your experience curve and know where you and your competitors are on it. If the curve has flattened and you're not the winner, find a new curve.
I played a version of this on Zoom as part of a Columbia University program [1] designed to simulate the conditions of re-entry from prison, which have considerable structural similarities to poverty and homelessness. The Zoom game is based on one played in person with "stations" representing different institutions and "tokens" representing stuff like money, birth certificates, ID cards, etc. Your hypothetical scenario is quite a lot like the mechanics of this game. I'm working on building a single-player software version of it because the live simulation is rather difficult to stage!
A little oral airline history — I was a student at Washington University in St. Louis in 2002 and 2003, studying EE and CS. I struggled, not with the material, but with my own personal issues and the fact that my girlfriend was 600 miles away in Minnesota. I dropped out of school and took a job at US Airways as a baggage handler so that I could fly for free. I learned SABRE fast, and wrote a little web app in PHP to help me memorize airport codes. (AVP = Scranton Wilkes Barre. Fifty years from now, this might be my dying thought.)
A year and two promotions later, I had dropped out and transferred "upstairs" to a generalist customer service job. I moved to Minneapolis, just an hour from my girlfriend, and worked as a ticket agent, gate agent, and baggage service agent. At that point I knew five distinct SABRE subsystems very well. Ticketing, gate, baggage, ramp (DECS), and flight operations (also DECS) are all handled differently in SABRE. I learned intuitively how VCRs work and could "pull" them out of defunct reservations and "push" them onto new ones, which made me the fastest re-booker at the station. I could sell a Zed fare in 30 seconds, and almost never needed to hand over a paper ticket to a customer, which meant that my end of day report was usually clean. In retrospect, SABREs green screen commands formed kind of a functional language in a real-time Vim-like environment.
I was laid off from US Airways in the wake of its America West reverse merger. I took a job with Carlson Wagonlit as a corporate travel agent. Carlson used a complicated mid-2000s web app instead of SABRE or Amadeus, and ultimately I was able to automate a large part of my job with an HTA application (JavaScript with system privileges on Windows NT). After I showed my work to our IT department at the insistence of my supervisor, who thought I was breaking the rules, a mid-career developer took me aside and gave me stern advice to leave Carlson immediately and seek employment as a programmer. I had no idea that software skills were worth anything, and quintupled my income overnight.
Fifteen years later, I remember the feeling of throwing bags onto conveyor belts like it was yesterday. I loved that job, and I loved SABRE.
That developer really did you a favor! Something similar happened to me-- I didn't realize I could get a job without a comp sci degree, and now I'm a senior engineer/"tech lead", whatever that all means.
All I know is my users are happy and my test cases are passing.
I agree that a more practical future is likely if the government backs off its subsidies of "normal" college experiences. What we have in the U.S. is essentially collusion between higher ed and government to place excess value on such a normal college experience. This might not be such a bad thing, given the research outputs of many universities that benefit both from outright government grants, and implicit sponsorships in the form of student debt that carries interest rates lower than any private competitor could carry.
My reading of the front matter is that, in essence, our present regime of student creates a problem of adverse selection. Adverse selection exists when two parties want to make a deal (sign a student loan), but one party knows much more about future performance than the other (the student). This makes transactions inherently very risky, as anyone who has taken private student debt understands as a fact of their interest rate. The US government bears the adverse selection risk in the interest of macroeconomic strength.
But what if private parties could accept equity? That's to say, a percentage of all future salaries, as opposed to debt, which is a fixed amount per year on some schedule that produces interest income for the payee. The authors of this paper primarily found that private information — i.e. I know that I can earn a good salary with or without college, or conversely, I fear that I cannot — drives "Willingness to Accept" loans and thus prevents private markets that fund college tuition from taking hold. They appear also to support an expansion of college equity positions on the part of the government, although I did not dig deeply into that position.
This is not an authoritative synopsis, I am merely an MBA with a long history in tech and an abiding interest in economic policy.
>That's to say, a percentage of all future salaries, as opposed to debt, which is a fixed amount per year on some schedule that produces interest income for the payee.
You're talking about income taxes right? The education would then be paid with negative income tax credits.
I think that's a point that the authors of the paper are eager to test. If you believed you could escape a personally forecasted career trajectory by accepting an education instrument that was available as equity but not as debt, would you?
I'm also not sure that a world that honors personal bankruptcy can be so simply associated with indenture.
You're not wrong but you're probably trying to argue this is morally wrong. If it is morally wrong so are any loans for people to build human capital or skills, e.g. ones to go to university/college.
Prior to announcing that they were shutting down hire, you had to call to cancel so they could convince you not to. Now that it's sunsetted, they changed the rules so you can do it within the console so they don't have to listen to you yell at them about how annoyed you are about them shuttering yet another great product.
My company (alley.co) is a satisfied Hire customer, and we are 70+ people, all of whom are in professional tech roles. We're definitely still in the SMB category, and since we're a consultancy and have no outside investors, we're likely to remain in that category. We're a remote company, so our signal to noise ratio in applicants is low, and we really need solid filtering tools for the first round of reviews.
Hire works really well for us since we're on G Suite for everything else. I'm about as annoyed about this sunset as I was annoyed about the sunset over Google Inbox. Google's commitment to building tools to make digital life easier is really faltering. We used a handful of Hire competitors before settling on Hire... hopefully the year before EOL will be long enough for one of them to emerge as the best alternative for us.
The"real business" of WeWork et al seems to be selling an entrepreneurial vibe to big companies. Lots of folks in my distributed company work at WeWorks around the country, and most of their neighbors work for big companies. One of my colleagues is almost fully surrounded by a Dish Network call center. WeWork will even custom build for big customers — in fact, their Enterprise landing page is a good an index to their view of the future as anything: https://www.wework.com/enterprise
I think the Short Answer is that the solo renters are the sizzle and the Fortune 500 is the steak.
The question is, why would a F500 company rent space from WeWork at a double-digit markup when they can do it themselves? This is not super hard or special stuff, and F500 companies need to do it enough that they can maintain the expertise.
If the answer is "wework allows us to be elastic with real estate as our needs shift", then WeWork will be in for a lot of hurt at the next recession. If the answer is "we are using a lot more remote or geographically-diverse staffers, and WeWork allows us to have small office space available all over the world", they might do okay. The single-company WeWorks described in the article lean towards the former, though.
The answer is - these are not core office buildings for those F500's. They want capitally efficient (e.g. minimal up front investment), fast to market and appealing to a desired workforce. GE wanting to set up a R&D center to hire 100x 25-40 year old developers in Austin? Great model. When we hit a recession, those are the first jobs to go and then they have preferable (e.g. not left sitting with the asset) ways of winding those centers down if needed.
Think of it like having 3-year Reserved Instances in AWS instead buying your own hardware and running your own data center. Which would you choose today?
In my limited experience -- there's a lot of corporate "innovation groups" or SWAT team kind of things that get put into a WeWork.
It's very rational -- if you are an "intrapreneur" and wanting to break out your team from the mothership, it's probably easier and faster to get your office space at a WeWork. Plus, you get a recruiting / lifestyle / hipness benefit from getting to be downtown with exposed brick, instead of out at the suburban office park with the sea of landscaped parking lots.
But my sense is that it's a high-beta customer base. When times are good and there's lots of corporate cash for high-urgency, high-concept stuff like innovation teams and new product skunkworks, a $25k/month WeWork bill is peanuts. When times get tight, that's going to dry up fast.
Similarly high beta on VC-backed startups. That cohort is pretty cyclical, though it won't disappear completely. I predict a similar % of Series Seed/A startups would still opt for a WeWork in a venture downturn as do today (but there will be many fewer of them).
Much lower beta on satellite offices and smaller professional services type groups -- they'll still show up to work, as it's a primary office for their primary business.
Wild card on the bootstrap / solo / freelancer stuff.
Also (IMO) sort of a wild card on the larger corporate buyouts of an entire floor or location. In crowded cities it really can be worthwhile to pay for the branded facilities management as the locations WeWork acquires are quite good.
However, and here's the big however. My understanding is that We's leases are LONG term and tend to have escalator clauses (they owe more rent to the landlord in the later years, faster than inflation). Which generally means their supply / cost structure is as good today as it's ever going to get. If the topline gets hit, which in a recession it surely will, the bottom line will take a double whammy as the escalators kick in.
So I'm not at a fortune 500 (fortune 1000 yeah) but we are expanding into a new city and waiting until our office population is enough to move into a full time space. I can not wait for that since we've completely outgrown their largest private office space and are spilling into random other offices here but it took a while to find the space we wanted and could grow into and do the build out. Flexport did that as well here in the city and moved into their own digs recently.
I clicked on this article since I know of a good example of a donor making things complicated and half-expected to see it here. When I rented my current NYC apartment in 2012, I googled my landlord, a man named Paul Bogoni, and found this atop the search results: https://law.justia.com/cases/new-york/appellate-division-fir...
The cases in the article don't quite approach this magnitude of conflict — what do you do when a donor defaults on a pledge? What do you do when a donor sues you because they're unhappy with how you spent their money?
>> what do you do when a donor defaults on a pledge? What do you do when a donor sues you because they're unhappy with how you spent their money?
Talk to a lawyer. Sometimes pledges are just empty promises. Sometimes they are actually contracts. The former can be ignored. The later must be handled by legal professionals.
Examples:
I promise to give you $100 = nothing.
I promise to match donations up to $100 = contract.
I promise to leave you $100 in my will = nothing.
Let my kid hang a painting in your gallery and get $100 in my will = contract.
The use of famous names can be tricky irrespective of whether they once donated or not. "The Micheal Jackson school of dance" ... expect lawyers. "The Trump memorial outhouse" = free speech ... also expect lawyers but feel good that you are in the right.
You have to engage in whatever fundraising efforts are necessary to obtain the first $100.
In this case, we both value progress in the philanthropic endeavor, so we make a contract: "if you generate $100 of investment in the endeavor for me, then I will invest $100 in the endeavor for you."
I am pretty confident such a contract would be legally defective and unenforceable in those terms. You raising money for yourself is not consideration that I receive, regardless of whether I think it's a good thing.
The contract is also between the donor and other donors that give on the belief that thier donations will be matched. Because of the promise (offer) they do something they otherwise would do (consideration). And they accept by giving the money.
To me, the most salient and remarkable aspect of this story is the upheaval among the rest of the team. I’ve found, in leading my own company, that the right decisions are typically met with comprehension and sometimes even relief. If you understand that CEOs are the last to know about problems, especially problems of culture, this makes intuitive sense. You, the CEO, sees something going sideways, you react, and the rest of the company is like, it’s about time you dealt with that!
But this sounds like the opposite problem, where the team doesn’t know that the managers have an issue. Such an incident would alarm me greatly, since I generally consider my team to be something of a Greek chorus, mourning my decisions before I even make them.
I read somewhere that Steve Jobs would figure out if a person was good or not by talking to the person's coworkers and saying the person sucks. If they vehemently denied it and stood up for the person, that was a sign the person was good. If they didn't, the person might indeed suck.
sooo... if the rest of the team posted a statement and people resigned...
That would only work if the people Steve Jobs talked to were happy to argue with Steve Jobs.
I'm 99% sure my reaction to that situation would be "I thought X is great, but if Steve Jobs says he's not then I'm probably wrong. I'd better just agree with Steve."
If your output requires direct labor, it IS possible to sell your way into a death spiral because labor is short-run inelastic.
Know your experience curve and know where you and your competitors are on it. If the curve has flattened and you're not the winner, find a new curve.