WeWork isn’t your sugar daddy anymore

November 18, 2019
WeWork isn’t your sugar daddy anymore

Anyone starting a business, especially in tech, faces the big question around the start of their journey - to try to find investment, or to bootstrap and generate revenue from customers early on?

It’s certainly something we’ve wrestled with at Workio - being a SaaS tech company with a strong product vision and team, and a huge potential market, we thought we’d be an attractive investment opportunity and set off down that road. However, the risk appetite in the UK investment scene for our (very) early stage hasn’t matched our expectations so far. Angels and ‘pre-seed’ VCs here wanted to see product and revenue traction first.

Of course this may be because we haven’t done a good job of explaining the opportunity and our approach at realising it, or because our approach is not attractive enough, but regardless, it’s been an educational process to get ‘interesting, but too early’ responses from investors.

We’re very grateful that we had some initial investment from friends and family, and a great group of outstanding people giving their time, advice, and support to try to help us succeed, but we haven’t been able to find that significant chunk of investment money to move us forward in one big leap.

So we’re taking it step-by-step, getting our product out there and finding customers and users who are wanting to make work better.

It’s all a double-edged experience - direct contact with real customers, understanding their needs and how our product meets those (or doesn’t yet), real revenue, and cutting our cloth on the cost side of the business to keep going without that slug of investment money to provide a runway for us while we find product-market fit.

On reflection this is in many ways a benefit - now that we are focusing not on investment but on sales and product, we’re having to be disciplined and rigorous in everything we do. With investment on board, there would be a temptation to loosen the purse strings and put off those difficult decisions around focus, potential pivots, and judging our success or failure over time.

In that context, it’s with a sense of schadenfreude that we look at the fallout from the WeWork debacle.

Of course, it’s been covered extensively, in Recode, the New York Times, the Economist, the FT, and by the doyen of the unicorn takedown Scott Galloway in his blogs and podcasts, but for those who don’t keep an eye on the tech IPO press, there’s a great video giving an overview of what went down here from Bloomberg.

The tl;dr version is: too much money pumped in, too little oversight and governance, too many parties, a private jet, a wave pool company, and a CEO (Adam Neumann) who ran the company for his own benefit rather than that of shareholders and who has now been paid off with around \$1.7 billion to get him to quit.

I think that’s what you call ‘failing upwards’.

So now, the second order effects of WeWork’s meltdown are rippling in both directions from WeWork itself - up the chain to SoftBank, its major source of funding (to the tune of \$18.5 billion and counting…), and down the chain as WeWork announces its intention to sell off their ‘non-core investments’ such as companies like Meetup, Managed by Q, and the infamous wave pool company Wave Garden, which were acquired by WeWork itself using some of Softbank's money.

In anticipation of this shakeout, Meetup is beginning to charge attendees \$2 to RSVP to an event to increase revenues, and has laid off around 25% of its workforce. Flatiron School, another WeWork acquisition now on the block, also recently laid off ‘dozens’ of employees.

These shifts are sensible responses to the change in resources available to the former recipients of WeWork’s largesse. WeWork had been a sugar daddy to these non-core acquisitions and projects like WeLive (a co-living venture) and WeGrow (“WeWork’s conscious entrepreneurial school” according to its listing on Google).

While the sugar daddy analogy is a highly charged one, it does seem apt. The purity of the expression of power through money in real-world sugar daddy relationships does closely mirror the interplay between VCs and young companies taking on investment in recent years.

It’s about power and control, but also recklessness. It’s a frisson of risk for people who could, and do in the case of SoftBank’s investors at least, write off the value of billions of dollars in bad investments one day and still be rich the next.

There seems to be a turning tide in tech and startups at the moment. We’ve noticed recently that other companies in the SaaS space are, quite rightly, reviewing their revenue models and cost bases, trying to put themselves on a more sustainable footing.

In just a few examples, Typeform has become much more restrictive in terms of what is on offer in the free version of the product, and other SaaS tools are reining in their free versions to push users to pay sooner in their journey with a product. And the tech layoffs at SoftBank-connected firms including Uber and Fair, as well as UiPath and others show a sudden concern for profit which has been entirely lacking until the WeWork implosion in September.

The era of the sugar daddy is over. It feels like, as the Warren Buffett saying goes, “only when the tide goes out do you discover who’s been swimming naked”. The tide is turning, and lots of companies are trying to get their trunks on.

This is why that question we started with - to raise or to bootstrap - is more important now than ever. The great Jason Fried and David Heinemeier Hansson of Basecamp put it typically acerbic fashion in their book Rework, where they make the case that outside money should be Plan Z for a business.

Regardless of our own view, the universe seems to be pushing us to bootstrap, and on reflection this may well be a blessing.

For Workio, for now, it’s about providing a valuable service to people who will pay more for it than it costs us to provide. When you put it like that, business really is simple, isn’t it?

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