Complexity is the interaction of fundamentals. Understand the fundamentals and maybe you can understand the complexity. My investment mentor told me diversification is safe, but investors that specialize can make faster gains. They understand an industry and its fundamentals. Who, what, when, where, why, and how combined becomes the important question:
What are they doing there? (the when is binary, recession yes/no).
I first heard about WeWork as some rising tech company, looked into it, saw they're a privately owned subletting company and moved on. Not interested.
Does a small company really need office space? It's a luxury, mostly vanity, unless you are a brick and mortar operation that needs exposure to the public. Glow Worm's strategy doesn't require an office and I prefer being a responsible steward of funds over showboating. Office space comes with a lease, utility costs, travel costs (depreciation of personal or commercial vehicles, insurance, repairs, maintenance, fuel, parking fees) If you rely on public transit then increase the amount of TIME it takes to get to the office. Some of these costs can be deducted, but the time is lost. Also, maybe you don't think about this because it's accepted as a given, but these costs are also pushed onto your employees. Home office space can be deducted too without incurring additional costs. I'd rather teach my employee to take the deduction than make them incur these fees, at this stage of the company. Want a place to get your mind in work mode? Public libraries are one option.
The first lawyer I hired I also fired because of this philosophy. He charged $295 an hour, prorated for 6 minute intervals. He wasn't worth that amount, but he had high overhead. He had a brick and mortar location located next to a bank in a shitty strip mall. It made him seem less professional compared to the phone interview. After finalizing some paperwork, he offered to take me next door to open my business bank account.
"What incentives does that bank offer for my business? What are their terms and fees?" I asked.
"Oh, I like them. I'll go there with you and sign you up. I'll do all the paper work. It can be tricky if you don't have the right paperwork." He said.
"I appreciate that offer, but I will do my diligence. How many days until we get a response?" I asked. He told me and that was my deadline to complete the market research.
The three options, for anyone interested 1) Online Only 2) Traditional Bank 3) Credit Union. I looked into online only, fee free banks. I inquired about their business model and found my privacy was at risk and they didn't have the same fraud protections or rapid response as a traditional bank. I found a traditional bank that would be fee free with a minimum amount and offered $500 incentives to pay for equipment I needed to buy anyway. The minimum amount was $1500 daily that resulted in an additional $200 bonus. That's a better return on that capital compared to keeping it in an interest accruing savings account. Basic stuff.
"Hello [lawyer] I've found the bank I want to do business with. Are you still willing to come with me to help set it up? I will drive." I wrote in an email.
"LOL Sorry Aaron, I meant at the bank next door. I have an account there. I'm a bit too busy to go for a ride but thank you. I wouldn't recommend that bank. They don't have a lot of locations." he responded.
George Carlin has a joke about a business advertising 76 convenient locations.
"Bullshit, there is ONE convenient location and 75 inconvenient locations."
A business entity isn't real. It's an agreement between the founder(s) and their government. A shared illusion that can organize people to create real things. An office provides that psychological value of making it seem more real. One of the enticing things about running a business is getting approved for a loan that you are not personally obligated to repay. I made it a priority for Glow Worm to get a loan asap to start building the entity's credit history. The approval of that loan made the business more real to me.
What value does WeWork offer? In my opinion, not much. If they're working towards profitability then they will charge their customers more for the sublet than the customers could have paid directly to the property owner. If WeWork is grabbing for market share then they will operate at a loss. They are investing in someone else's property using debt. Sure, they can liquidate furniture, but they can't recoup painting, electrical wiring upgrades, flooring improvements etc. Do they offer chic, ready to move in office environments? Sure, but the aesthetics and designs are subjective. Is this needed? You know my answer.
Instead of focusing on fundamental, tangible products that deliver value, I should have convinced some Japanese banker about some bullshit crystal energy and failed my way to becoming a billionaire. The tech is the wireless healing rays. Cutting edge.
That banker was bamboozled. Who knows how many others drank the cool aid? People wonder how smart people can fall for these kinds of charismatic bullshitters. It's happened before and it will happen again because how we are wired. We make our decisions based on emotion and then rationalize the bullshit to fit the emotions. I highly recommend reading and understanding "Thinking Fast and Slow." You should be aware of the cognitive processing, to at least use defensively. These concepts are being leveraged on large scales. One example is free to play mobile gaming with micro-transactions.
One topic discussed in that book is intuitive substitutions. When a question is hard and requires effort (resulting in a physical pain and stress response), then people can easily, unconsciously substitute the hard question with an easier question. The important business question of, "What are they doing there?" can be substituted for "Do I trust this person? Does this person make me feel comfortable, at ease?" A hard, time consuming logical question is replaced with an emotional one that can be quickly answered.
In the book "In Cognito" Dr. David Eagleman mentions a case study of a woman that suffered brain damage. She lost her ability to process emotions. She didn't become a Vulcan like logical super being. Instead, she spent her days largely doing nothing. When you have to decide which shirt to wear, green or blue, and they are objectively equal, the tie breaker will be the emotional connection you have to a particular color. The emotion is what will cause you to reach out towards one of the shirts. Without the emotional tie breaker this woman didn't wear clothing if the temperature was comfortable.
What does that have to do with the WeWork investors? They're not different than the average person. The difference between those powerful decision makers and the average person isn't intelligence, it is risk tolerance. They aren't necessarily more intelligent. They might be, but that's not what drives their decisions. They're comfortable with taking more risk than the average person. They are still susceptible to all the cognitive short cuts the average person is. They met someone with confidence and charisma. They were put at ease. They substituted the question, "What are they doing there?"
I have no proof whether the lawyer I mentioned earlier was getting a kick back from the bank next to his office. I do know that his answers involved substituting my original questions. I do know that he was trying to put an easy path in front of me, "I will open the bank account for you", and put up barriers towards what I should have been doing, "it's tricky to do without the right paperwork." I make cognitive short cuts all the time. I'm no better than the average person in that regard. However, when I have to make an important decision I will take my time and go through a check list of my cognitive biases. I feel like it is the right way to do things, but it's never made me a billionaire.