Via https://newsapi.org online business online marketing online business opportunities Can Miguel McKelvey Build the ‘Culture Operating System’ at WeWork?


Via https://newsapi.org online business online marketing online business opportunities

How deeply does the culture of a startup matter? Can it be shaped? Professor Jeffrey Rayport discusses WeWork cofounder Miguel McKelvey’s innovative role in building a company culture to support rapid growth.

Brian Kenny: For nine seasons, Michael Scott and his team at Dunder Mifflin Scranton’s regional office entertained television viewers with their squirm-inducing take on an office culture that was, by any standard, highly dysfunctional.The Officedebuted in the US in 2005 as a reboot of a British sitcom, immediately struck a chord with audiences because, let’s face it, we can all relate at least a little bit. And since we spend about one third of our lives at work, the culture and physical environment of the workplace really matter. It’s a topic that gets a lot of attention. Amazon currently lists over 9,000 books on workplace culture. Google lists over 64,000 academic and scientific articles on the physical and mental impact of office lighting and furniture. It’s not just an academic concern. PwC’s 2017 report on the workforce of the future revealed that millennials and Gen Z place company culture and environment very high on the list when considering jobs. They care deeply and they set the bar high. Today, we’ll hear from Professor Jeffrey Rayport about his case entitledWeWork. I’m your host, Brian Kenny. And you’re listening to Cold Call.

Jeffrey Rayport is an expert in online media and ecommerce with a focus on new business opportunities enabled by emerging digital technologies. Jeffrey, thanks for joining me today.

Jeffrey Rayport: It’s a pleasure to be here Brian. Thank you.

Kenny: Can you tell me who’s the protagonist in this case and what’s on their mind?

Rayport: The protagonist of this case is Miguel McKelvey, who many people will know as one of the two cofounders ofWeWork. His partner, Adam Neumann, is the more visible of the two. Adam is CEO. And Miguel, just until the time of the case, is the architect and chief creative officer as well as cofounder of WeWork. And the case presents him in a new role, chief culture officer.

Kenny: For those who don’t know, what is WeWork?

Rayport: WeWork is the leader in a real estate category referred to as the serviced office leasing market.

Kenny: That’s catchy.

Rayport: It is catchy and it’s actually been a moribund sector for a very long time. People will know it from the dominant player in the category, Regus, now called IWG. Regus rents short-term leased office space for scenarios, if you’ll forgive me, a little like the television show you referenced at the front end. Meaning that these are gray, Formica-laden spaces with indoor or outdoor carpeting. And they’re pretty generic corporate environments. IWG is the leader in the space. WeWork is number two. But WeWork is really known as the pioneer in a new category that is referred to as, “co-working.” Co-working is an interesting term coined in 2005 by a software engineer named Brad Neuberg, referring to the idea of independent workers sitting in the same place.

Kenny: How did you hear about WeWork and what prompted you to write this case?

Rayport: I met Miguel McKelvey at a tech conference in Brooklyn, that I was moderating… He mentioned his new role as chief culture officer. I pulled him aside afterwards and said, “Listen, I’ve never met anyone who was a chief culture officer. What in the world does that mean?” That was the genesis of this case study.

Kenny: I wasn’t aware of WeWork’s meteoric rise … and the really interesting challenges they’re facing. The cofounders have interesting backgrounds. Can you tell us how their life experiences led them down this path?

Rayport: Adam and Miguel could not be two more different guys, but thinking about their life stories, they’re eerily running in parallel until the day they meet. Miguel was born in Eugene, Oregon. He grew up not with one mom but with a bunch of mothers, as he referred to them, in a commune. This is a bunch of women, essentially a matriarchy, that ran a big collective family. He helped earn his keep because they started a newspaper called theEugene Weekly. He learned a lot about business and entrepreneurship, watching his mother and the other mothers get this off the ground.

He went to the University of Oregon, was trained as an architect, got out of school and went to Japan just to think about life. Wound up starting a business, an English-as-a-second-language website called English Baby. After raising venture dollars, he returned to the US and thought maybe it was time to work as an architect. He wound up at a firm in Brooklyn that had just done a deal to build out stores for a brand that became iconic: American Apparel. Over the next five or six years, Miguel was partly an architect, designer, general contractor, and a business guy helping them open 180 retail stores across the United States.

So, switch to the other universe. Adam Neumann grew up in Israel, spent five years as an officer in the Israeli Defense Force, came to New York, started a couple businesses, one of which was designer shoes for women that had spike heels that could collapse and turn into flats. That failed, kind of interesting.

Kenny: Exactly what you would expect a former officer of the Israeli army to get into.

Rayport: Well, those who have seen pictures of Adam Neumann… He’s a fairly glamorous, long-haired guy. His sister is a supermodel, or was at the time. And so, he saw her changing shoes frantically for photo shoots and thought, “I can do something to solve this problem.” He went on from there to baby clothing. Some will know the old brand Crawlers, which were baby pajamas with knee pads and elbow pads. But Adam was still restless at the point when he and Miguel met each other in Brooklyn in the late aughts. They started Green Desk, which was an eco-friendly co-working environment. They did it with a landlord who owned the building they started in. The two of them were walking in Brooklyn one night and looked at each other and said, “You know what? This landlord is only interested in making co-working spaces in the buildings he already owns. We have a vision that this could change work, the world of work, on a global basis. We’ll never scale with this construct.” So, they sold Green Desk to the landlord and took the few million dollars of proceeds from that sale and plowed them into the first WeWork, which opened in lower Manhattan in 2010.

Kenny: And what does a WeWork space look and feel like? What’s special about it?

“Many Fortune 500 companies view WeWork environments as a way to attract millennial talent.”

Rayport: That is a great question because if somebody dropped you in one WeWork [building] and you to look around, you would see a bunch of open space with closed offices with glass partitions, floor-to-ceiling glass, lots of plants, lots of eco-friendly details, lots of exposed brick, exposed HVAC systems in the ceiling. In the common area, you would find a way to have an espresso coffee. There’s always beer on tap. There are a bunch of tables. There’s stylish music playing. They’re interestingly hip environments, but they are optimized for the world of work, but work in a new paradigm that is what you’d think about moving into if you were a new card-carrying member of a lower Manhattan, a Tribeca office for Google or Facebook. You would expect to be it to be open loft space. There would be enclosed spaces you could go into for private conversations. But in general, that is the new way in which the world works in the tech sector. And WeWork has attempted to create, if you will, a multi-tenant platform for that kind of concept.

Kenny: This is really appealing to millennials, Gen Z, and the way that they want to go to work and the kind of environment they want to be in.

“Many Fortune 500 companies view WeWork environments as a way to attract millennial talent.”

Rayport: Hugely so. Many Fortune 500 companies view WeWork environments as a way to attract millennial talent. WeWork spaces, at the time we wrote the case, spring of 2018, had about 210,000 members. About 25 percent of those were people part of Fortune 500 workforces where somebody said, “Gee, we’re General Electric and we have a bunch of people sitting in Springfield and productivity is way down. What if we airlifted 120 of them and put them into a WeWork? Let’s perform a kind of classic Hawthorne Experiment type thing. Let’s put them in a different environment, pay attention to them in a different way and see if productivity goes up.”

The Fortune 500, Fortune 1000, companies are voting with their feet by putting elements of their workforce in there to see what happens. They’re finding very favorable results. It started as something that attracted, if you will, small- and medium-business startup folks, millennial talent; it’s become a much broader demographic swath of the working world.

Kenny: In your view, how disruptive is this to commercial real estate? And as they bring people into these places, how does it work for the brands of the firms that are moving people in? Because I would imagine that millennials and Gen Z are flocking to places that they feel support them in this way.

Rayport: It’s a fascinating development in the world of commercial real estate. To give you a sense of the scale of it, the current estimate is that there were about 14,000 co-working spaces in the world at the time of the case. Obviously, only a few have scaled to the visibility of say an IWG or a WeWork, or WeWork’s closest competitor, a new firm, venture-backed, relatively young firm, called Knotel.

The scale of this kind of working environment is stunning. There are today in Manhattan, one borough of New York City, more than 50 WeWork co-working spaces. The current estimate is between 18 and 19 percent of all commercial office space in the city of London is now dedicated to co-working, either tenants or landlords. So, it’s a very big deal to be able to find this alternative kind of environment for work. As a result, yes, companies that situate themselves in these kinds of environments, which tend to be smaller and medium sized, are not at the point where they are a scaled venture that can produce an environment bespoke for themselves. It is much easier to rent office spaces and service, so to speak, than it is to build it. Or if you are a big legacy organization where your office looks likeThe Officeon television, then how do you wave a magic wand and get a big change for a group of people within your workforce? One way is to put them into a space like this.

Kenny: The case gets into the rapid growth of WeWork. They grew at an extraordinarily fast pace from their founding in 2005. But just the co-working thing turns out not to be enough. You’ve got two serial entrepreneurs here. Apparently, they’re still thinking about other ideas. Talk a little bit about the ways they started to branch off of the WeWork idea into other areas.

Rayport: To your point about how fast this has grown, the first WeWork opens in 2010. By the time we wrote the case in 2018, there were 242 of them, of which 50 plus were in New York City, but they span the globe. Almost a quarter-million people are in these spaces, so it’s already a significant phenomenon, funded by almost unprecedented levels of venture investment. At the time we wrote the case, they had a $20 billion valuation, having raised $8.5 billion worth of capital to fuel this growth.

Having that much capital has allowed them to begin to think about adjacencies. The most important of them is something called WeLive, which is a residential operation. There are two of them, one in the New York area, one down in DC, at the time of the case, that allow people essentially to check into a complete life that is in many cases co-located with WeWork co-working spaces. But co-living spaces sound just like what the name implies. They are usually multiple bedroom suites. You can live with roommates, you can live on your own, but there are a bunch of communal areas and services that are typically associated even with high-end condominium developments, common kitchens, catering, game spaces, work spaces, and so forth.

Kenny: That gets back Miguel’s upbringing, You think about him growing up in that commune-type environment. Right?

Rayport: Absolutely. And I should say that the fascinating thing about Miguel and Adam Neumann, just back to your original question of how these guys have commonality, is that Adam grew up in Israel, where he spent a great deal of his life living on a kibbutz. He was living in a commune. They are brothers from a different mother, as the millennials like to say, in having this kind of shared experience of living and working. And it won’t surprise you to hear that they also have created something calledWeWork Labs, which is essentially an incubator-like space for startups, WeGrow, a project of Adam Neumann’s wife Rebecca, which is about creating a new form of education for early-stage humans, otherwise known as preschool and grade school. There are a lot of things that they’re doing to experiment.

Back to our discussion of who the comps are, if IWG is the comp, IWG has about a 21 percent share of this serviced office leasing market. WeWork, apples for apples, has about a 4 percent market share. Now, here’s the funny thing. You’ve got 20 percent share and you’ve got 4 percent share, for round numbers. And yet, IWG is a public company that has a market cap at the time of the case of around $2 billion. WeWork, at the time of the case, has a private market valuation of around $20 billion. So now you ask what is the value of each additional share point to WeWork carved out of IWG? Well when a share point moves from IWG to WeWork, it’s 50 times more valuable.
It’s remarkable that they’ve taken a space that is a pretty generic commoditized business, and found a way to inject enormous value.

Kenny: Do you think they can sustain it? Are they trying to do too much with all this We stuff? The brand, by the way, works beautifully across all those platforms. And this gets into the heart of the case, which is really about how you scale a culture to be able to support this kind of rapid growth.

Rayport: Adam Neumann himself says, “Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?” His view is there is no way you could argue for that kind of value. And his point, which is consistent with Miguel’s view, is that what is driving that valuation is what Adam refers to as their culture and their spirituality.

Another way of looking at it as to say that, in technology terms, everyone is familiar with PCs as hardware and the operating system that sits on top of the hardware to essentially help it run. The operating system is in itself a platform for a bunch of software applications like the Microsoft productivity suite that we all know of Word, PowerPoint, Excel. And then, of course, on top of those applications sit what we refer to these days as apps, lightweight things like macros that you build on top of Excel. Miguel and Adam’s point is that office space is the commoditized platform, the personal computer hardware, that today nobody other than Apple can generate a margin from their sales. It used to be that Microsoft could build a fortune selling an operating system. Well that’s become largely generic. And in the case of mobile devices, it’s not as if Apple or Google make money off the iOS or Android operating systems. The money is moving up the stack from hardware to operating system to software applications to lightweight apps. And their argument is that some combination of community, of spirituality, of culture, is in the applications layer, or OS; that is where all the value in commercial real estate going forward will come from.

“Adam Neumann himself says, ‘Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?'”

Kenny: How have they thought about applying that theory to WeWork?

Rayport: The interesting challenge … is to say, “If this is where the magic is, call it valuation, call it anything you want, but this is what is driving the meaning of the brand … then actually that’s $15 billion or $20 billion worth of cultural value. We need to figure out what it is.” The thing that caught my attention in those initial conversations with Miguel was that we were talking about the role of culture in startups. In general, startup culture is associated with the founders. It’s often associated with the creation myth around the early days of how the business got off the ground. And in general, people lament the fact that as businesses grow and scale, the culture gets diluted. Now it’s 2,000 people and we’ve lost our soul. And Miguel said to me, “I completely disagree with that. Culture is not a game of nostalgia. Culture is a tool. It’s an instrument you use to drive a business to scale. You have to constantly design and redesign culture for each additional level up that the organization makes in scale or reach or impact or value.”

Kenny: How was he doing that at WeWork?

Rayport: The fascinating thing about Miguel is that he is, first and foremost, an architect and a designer. In the same way that one would think that if you wanted to determine, say, the culture of a workspace, it might have a lot to do with whether the space was open or closed, whether it had shared desks, whether the walls were vibrant or they were bare brick, or whether there was music playing or not playing or whatever. His point of view is that is the culture is susceptible to design in the same way, and that actually designing space is one significant lever on culture, but that there are a number of other levers that look more organizational or managerial. And all of them are susceptible to management control. Put it a different way. What they’ve evolved is something that they call the culture operating system at WeWork, or the Culture OS, for short. Let me quote to you the eight pillars of the cultural, or Culture OS, at WeWork. They are:

  • Purpose, and that’s the obvious sort of why do we matter to ourselves in the world?
  • Leadership, which is how did the senior people deliver on the purpose of the organization?
  • Space, what we were just talking about, but it’s not just office space, it’s design of the online community and all of the other aspects that define the space.
  • Citizenship, which is how do all of us contribute to the values of the community.
  • Connection, building relationships with one another.
  • Performance agility, this is something, a very interesting concept Miguel originated, where he’s essentially saying that change on the inside of the organization is faster than change on the outside of the organization, meaning that you’re proactive, not reactive in the way that you perform.
  • Talent, obviously find good people, grow them, et cetera.
  • And finally, Platforms, sort of what are the systems, tools, et cetera, that enable the environment and all the rest of it?

The reason I wanted to go through those one by one is, first of all, to give you and our listeners a sense of these are the building blocks of the Culture OS, but also to say that what’s remarkable about that list is there’s not a single word on it that I’ve ever seen on a list of corporate values. My interpretation of this is that things like passion and integrity and teamwork and excellence and commitment, those are perfectly useful descriptors of cultural outputs, but that our friend Miguel as a designer was saying, “I get it, that we want those outputs. But what I’m interested in as a designer, as a manager, as a leader, is to figure out what are my levers? What are the inputs? How can I actually shape the culture that I want?”

His point would be that of course you celebrate integrity and teamwork and excellence, but you’ve got to start by serving the people who are going to wind up forming the teams, aspiring to excellence, and exemplifying integrity. His point being that as opposed to this being some mystical thing that people can engage in arm waving about, it’s actually something very practical, as opposed to taking it as something that is an act of God or nature that just happened to us. Our culture happened to us because we were 2,000 people and now suddenly we turned into a different kind of organization. He’s saying, “Wait a second, you can craft this. You can make the culture you want. And because you’re making it to order, you can make it to fit the size and characteristics of your organization.”

Kenny: Therein lies the other business idea that Miguel has, being a serial entrepreneur. He’s going to try and not just make this work at WeWork, but he thinks there is a model that can be replicated in other places too.

Rayport: You mean by other geographies?

Kenny: No, I actually mean in other organizations. One of the things the case alludes to is that Miguel is thinking about taking the show on the road a little bit.

Rayport: Absolutely. So I’m glad you are focused on that. The presenting issue in the case is the question of whether WeWork brings something to market that they referred to PxWe, which is short for “powered by We.” And as you said, it’s all part of a very elegant brand family: WeWork, WeLive, WeGrow, powered by We. But the idea here, going back to our hypothetical example, GE, is that if they take 120 workers and put them into a space in lower Manhattan. The workers turn out to be three times as happy and four times as productive. And the question is, I’ve got 10,000 people back where those came from, what do I do for them?

So, two choices. One is to take the 10,000 and break them up into groups and put them into the 50 WeWorks all over Manhattan, but that’s huge amount of dislocation and also obviously cost. The alternative is to turn to WeWork and say, “Can you do for my workforce, in situ, what you would have done for them if they’d moved their locus of work into your co-working environment?” The question is, do you bring a product or an offer like this to market? Miguel’s view is that this is completely consistent with the goals of the venture. Does it mean that you give up some element of control? Be careful what you wish for.

You might get a consulting business. The other side of it though, and this is what Miguel argues, is that his mantra is that work, because it’s your life, better be something that you love. Even today, where WeWork is now a quarter million people in those WeWork office co-working environments, that is obviously a minuscule percentage of all the people who go to work every day who get out of bed and think about the commute, think about the eight hours in their cubicle, and say, “Wow, I hate going to work. I hate my job.”

His view and Adam’s view, because these are kind of messianic guys, they want to rescue the human race from the tyranny of the misery of the work we don’t like. They believe they can transform a lot of that work by injecting a different Culture OS into those offices and creating a different kind of human experience of work.

Kenny: They’re the antidote to Dunder Mifflin.

Rayport: That is exactly right. We spend a lot of time in our entrepreneurship curriculum asking of any given business, what’s the total addressable market? Clearly co-working is going to be a niche for a very long time in the world of commercial office space. But if it’s possible to bring the cultural or human experience of co-working into the rest of the world, as opposed to hitting the 20 percent, now you’ve hit 20 plus 80 percent is your addressable market. And it looks like at least five to 10 times as large depending on how you do that math. If you’re in the change the world business, which they are, that’s very compelling.

Kenny: Have you discussed this case in class? I know it’s a new case.

Rayport: I have taught it several times in the MBA program in the context of our scaling technology ventures course, and also with executives five, 10 years out of MBA program training, who are scaling entrepreneurs.

Kenny: Have there been many participants that you’ve taught it to who have actually worked in a WeWork space?

Rayport: Among our MBA students, it was interesting. I’d say about 10 percent, based on a show of hands in the classroom, had been in Regus or IWG spaces. And about 35 or 40 percent were familiar with direct experience inside WeWork spaces. When we taught this on the HBX Live (online) platform, we had an entire team of five who were participating in the case discussion from their offices inside a WeWork. It was very meta.

Kenny: Jeffrey, thank you for joining me today.

Rayport: Brian. Thank you for having me.

Kenny: If you enjoyed this episode of Cold Call, you should check out our otherpodcasts. After Hours features Harvard Business School faculty dishing on the latest happenings of the crossroads of business and culture, and Managing the Future of Work features experts discussing how to survive and thrive in the age of artificial intelligence and learning machines. Subscribe to these and others on Apple Podcasts or wherever you listen. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.

Interview recorded November 19, 2018. The transcript has been edited for length and clarity.

Kenny: In your view, how disruptive is this to commercial real estate? And as they bring people into these places, how does it work for the brands of the firms that are moving people in? Because I would imagine that millennials and Gen Z are flocking to places that they feel support them in this way.

Rayport: It’s a fascinating development in the world of commercial real estate. To give you a sense of the scale of it, the current estimate is that were about 14,000 co-working spaces in the world at the time of the case. Obviously, only a few have scaled to the visibility of say an IWG or a WeWork, or WeWork’s closest competitor, a new firm, venture-backed, relatively young firm, called Knotel. But the scale of this kind of working environment is stunning. And to give you a couple statistics. There are today in Manhattan itself, one borough of New York City, there are more than 50 WeWork co-working spaces.

In London, the current estimate is between 18 and 19 percent of all commercial office space in the city of London is now dedicated to co-working either tenants or landlords. So, it’s a very big deal to be able to field this alternative kind of environment for work. And as a result, yes, companies that situate themselves in these kinds of environments, which tend to be smaller and medium sized, are not at the point where they are a scaled venture that can produce an environment bespoke for themselves. It is much easier to rent office spaces and service, so to speak, than it is to either build it. Or if you are a big legacy organization where your office looks likeThe Officeon television, then how do you wave a magic wand and get a big change for a group of people within your workforce? One way is to put them into a space like this.

Kenny: The case gets into the rapid growth of WeWork. They grew at an extraordinarily fast pace from their founding in 2005. But just the co-working thing turns out not to be enough. You’ve got two serial entrepreneurs. Apparently, they’re still thinking about other ideas. Talk a little bit about the ways they started to branch off of the WeWork idea into other areas.

Rayport: To your point about how fast this has grown, the first WeWork opens in 2010. By the time we wrote the case in 2018, there were 242 of them, of which 50 plus were in New York City, but they span the globe. Almost a quarter-million people are in these spaces, so it’s already a significant phenomenon, funded by almost unprecedented levels of venture investment. At the time we wrote the case, they had a $20 billion valuation, having raised $8.5 billion worth of capital to fuel this growth.

Having that much capital has allowed them to begin to think about adjacencies. The most important of them is something called WeLive, which is a residential operation. There are two of them, one in the New York area, one down in DC, at the time of the case, that allow people essentially to check into a complete life that is in many cases co-located with WeWork co-working spaces. But co-living spaces sound just like what the name implies. They are usually multiple bedroom suites. You can live with roommates, you can live on your own, but there are a bunch of communal areas and services that are typically associated even with high end condominium developments, common kitchens, catering, game spaces, work spaces and so forth.

Kenny: That gets back Miguel’s upbringing, if you think about him growing up in that commune-type environment. Right?

Rayport: Absolutely. And I should say that the fascinating thing about Miguel and Adam Neumann, just back to your original question of how these guys have commonality, is that Adam grew up in Israel, where he spent a great deal of his life living on a kibbutz. He was living in a commune. They are brothers from a different mother, as the millennials like to say, in having this kind of shared experience of living and working. And it won’t surprise you to hear that they also have created something calledWeWork Labs, which is essentially an incubator-like space for startups, WeGrow, a project of Adam Neumann’s wife Rebecca, which is about creating a new form of education for early-stage humans, otherwise known as preschool and grade school. There are a lot of things that they’re doing to experiment.

But the main event is in the co-working spaces themselves. Back to our discussion of who the comps are, if IWG is the comp, IWG has about a 21 percent share of this serviced office leasing market. WeWork, apples for apples, has about a four percent market share. Now, here’s the funny thing. So, you’ve got 20 percent share and you’ve got four percent share for round numbers. And yet, IWG is a public company that has a market cap at the time of the case of around $2 billion. WeWork, at the time of the case, has a private market valuation of around $20 billion. So now you ask what is the value of each additional share point to WeWork carved out of IWG? Well when a share point moves from IWG to WeWork, it’s 50 times more valuable.
It’s remarkable that they’ve taken a space that is a pretty generic commoditized business, and found a way to inject enormous value.

Kenny: Do you think they can sustain it? I mean, are they trying to do too much with all this We stuff? The brand, by the way, works beautifully across all those platforms. And this gets into the heart of the case, which is really about how you scale a culture to be able to support this kind of rapid growth.

Rayport: Interestingly, Adam Neumann himself says, “Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?” His view is there is no way you could argue for that kind of value. And his point, which is consistent with Miguel’s view, is that what is driving that valuation is what Adam refers to as their culture and their spirituality. Another way of looking at it as to say that, in technology terms, everyone is familiar with PCs as hardware and the operating system that sits on top of the hardware to make it … essentially to help it run. The operating system is in itself a platform for a bunch of software applications like the Microsoft productivity suite that we all know of Word, PowerPoint, Excel. And then, of course, on top of those applications sit what we refer these days to as apps, kind of lightweight things like macros that you build on top of Excel. Miguel and Adam’s point is that office space is the commoditized platform, the personal computer hardware, that today nobody can sell and make any … other than Apple, nobody can actually generate a margin from the sales of hardware. It used to be that Microsoft could build a fortune selling an operating system. Well that’s become largely generic. And in the case of mobile devices, it’s not as if Apple or Google make money off the iOS or Android operating systems. The money is moving up the stack from hardware to operating system to software applications to lightweight apps. And their argument is that some combination of community, of spirituality, of culture, is in the applications layer, or OS; that is where all the value in commercial real estate going forward will come from.

“Adam Neumann himself says, ‘Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?'”

Kenny: How have they thought about applying that theory to WeWork?

Rayport: The interesting challenge … is to say, “If this is where the magic is, call it valuation, call it anything you want, but this is what is driving the meaning of the brand … then actually that’s $15 billion or $20 billion worth of cultural value. We need to figure out what it is.” The thing that caught my attention in those initial conversations with Miguel was that we were talking about the role of culture in startups. In general, startup culture is associated with the founders. It’s often associated with the creation myth around the early days of how the business got off the ground. And in general, people lament the fact that as businesses grow and scale, the culture gets diluted. Now it’s 2,000 people and we’ve lost our soul. And Miguel said to me, “I completely disagree with that. Culture is not a game of nostalgia. Culture is a tool. It’s an instrument you use to drive a business to scale. You have to constantly design and redesign culture for each additional level up that the organization makes in scale or reach or impact or value.”

Kenny: How was he doing that at WeWork?

Rayport: The fascinating thing about Miguel is that he is, first and foremost, an architect and a designer. In the same way that one would think that if you wanted to determine, say, the culture of a workspace, it might have a lot to do with whether the space was open or closed, whether it had shared desks, whether the walls were vibrant or they were bare brick, or whether there was music playing or not playing or whatever. His point of view is that is the culture is susceptible to design in the same way, and that actually designing space is one significant lever on culture, but that there are a number of other levers that look more organizational or managerial. And all of them are susceptible to management control. Put it a different way. What they’ve evolved is something that they call the culture operating system at WeWork, or the Culture OS, for short. Let me quote to you the eight pillars of the cultural, or Culture OS, at WeWork. They are:

  • Purpose, and that’s the obvious sort of why do we matter to ourselves in the world?
  • Leadership, which is how did the senior people deliver on the purpose of the organization?
  • Space, what we were just talking about, but it’s not just office space, it’s design of the online community and all of the other aspects that define the space.
  • Citizenship, which is how do all of us contribute to the values of the community.
  • Connection, building relationships with one another.
  • Performance agility, this is something, a very interesting concept Miguel originated, where he’s essentially saying that change on the inside of the organization is faster than change on the outside of the organization, meaning that you’re proactive, not reactive in the way that you perform.
  • Talent, obviously find good people, grow them, et cetera.
  • And finally, Platforms, sort of what are the systems, tools, et cetera, that enable the environment and all the rest of it?

The reason I wanted to go through those one by one is, first of all, to give you and our listeners a sense of these are the building blocks of the Culture OS, but also to say that what’s remarkable about that list is there’s not a single word on it that I’ve ever seen on a list of corporate values. My interpretation of this is that things like passion and integrity and teamwork and excellence and commitment, those are perfectly useful descriptors of cultural outputs, but that our friend Miguel as a designer was saying, “I get it, that we want those outputs. But what I’m interested in as a designer, as a manager, as a leader, is to figure out what are my levers? What are the inputs? How can I actually shape the culture that I want?”

His point would be that of course you celebrate integrity and teamwork and excellence, but you’ve got to start by serving the people who are going to wind up forming the teams, aspiring to excellence, and exemplifying integrity. His point being that as opposed to this being some mystical thing that people can engage in arm waving about, it’s actually something very practical, as opposed to taking it as something that is an act of God or nature that just happened to us. Our culture happened to us because we were 2,000 people and now suddenly we turned into a different kind of organization. He’s saying, “Wait a second, you can craft this. You can make the culture you want. And because you’re making it to order, you can make it to fit the size and characteristics of your organization.”

Kenny: Therein lies the other business idea that Miguel has, being a serial entrepreneur. He’s going to try and not just make this work at WeWork, but he thinks there is a model that can be replicated in other places too.

Rayport: You mean by other geographies?

Kenny: No, I actually mean in other organizations. One of the things the case alludes to is that Miguel is thinking about taking the show on the road a little bit.

Rayport: Absolutely. So I’m glad you are focused on that. The presenting issue in the case is the question of whether WeWork brings something to market that they referred to PxWe, which is short for “powered by We.” And as you said, it’s all part of a very elegant brand family. All of this, we work, we live, we grow, powered by We. But the idea there is that if, going back to our hypothetical example, GE. They take 120 workers and put them into a space in lower Manhattan. The 120 workers turn out to be three times as happy and four times as productive. And the question is, I got 10,000 people back where they came from, what do I do for those 10,000? So, two choices. One is to take the 10,000 and break them up into groups and put them into the 50 WeWorks all over Manhattan, but that’s huge amount of dislocation and also obviously cost. The alternative is to turn to WeWork and say, “Can you do for my workforce, in situ, what you would have done for them if they’d moved their locus of work into your co-working environment?” The question is, do you bring a product or an offer like this to market? Miguel’s view is that this is completely consistent with the goals of the venture. Does it mean that you give up some element of control? Be careful what you wish for.

You might get a consulting business. The other side of it though, and this is what Miguel argues, is that his mantra is that work, because it’s your life, better be something that you love. Even today, where WeWork is now a quarter million people in those WeWork office co-working environments, that is obviously a minuscule percentage of all the people who go to work every day who get out of bed and think about the commute, think about the eight hours in their cubicle, and say, “Wow, I hate going to work. I hate my job.”

His view and Adam’s view, because these are kind of messianic guys, they want to rescue the human race from the tyranny of the misery of the work we don’t like. They believe they can transform a lot of that work by injecting a different Culture OS into those offices and creating a different kind of human experience of work.

Kenny: They’re the antidote to Dunder Mifflin.

Rayport: That is exactly right. We spend a lot of time in our entrepreneurship curriculum asking of any given business, what’s the total addressable market? Clearly co-working is going to be a niche for a very long time in the world of commercial office space. But if it’s possible to bring the cultural or human experience of co-working into the rest of the world, as opposed to hitting the 20 percent, now you’ve hit 20 plus 80 percent is your addressable market. And it looks like at least five to 10 times as large depending on how you do that math. If you’re in the change the world business, which they are, that’s very compelling.

Kenny: Have you discussed this case in class? I know it’s a new case.

Rayport: I have taught it several times in the MBA program in the context of our scaling technology ventures course, and also with executives five, 10 years out of MBA program training, who are scaling entrepreneurs.

Kenny: Have there been many participants that you’ve taught it to who have actually worked in a WeWork space?

Rayport: Among our MBA students, it was interesting. I’d say about 10 percent, based on a show of hands in the classroom, had been in Regus or IWG spaces. And about 35 or 40 percent were familiar with direct experience inside WeWork spaces. When we taught this on the HBX Live (online) platform, we had an entire team of five who were participating in the case discussion from their offices inside a WeWork. It was very meta.

Kenny: Jeffrey, thank you for joining me today.

Rayport: Brian. Thank you for having me.

Kenny: If you enjoyed this episode of Cold Call, you should check out our otherpodcasts. After Hours features Harvard Business School faculty dishing on the latest happenings of the crossroads of business and culture, and Managing the Future of Work features experts discussing how to survive and thrive in the age of artificial intelligence and learning machines. Subscribe to these and others on Apple Podcasts or wherever you listen. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.

Interview recorded November 19, 2018. The transcript has been edited for length and clarity.

Jeffrey Rayport is an expert in online media and ecommerce with a focus on new business opportunities enabled by emerging digital technologies. Jeffrey, thanks for joining me today.

Jeffrey Rayport: It’s a pleasure to be here Brian. Thank you.

Kenny: Can you tell me who’s the protagonist in this case and what’s on their mind?

Rayport: The protagonist of this case is Miguel McKelvey, who many people will know as one of the two cofounders ofWeWork. His partner, Adam Neumann, is the more visible of the two. Adam is CEO. And Miguel, just until the time of the case, is the architect and chief creative officer as well as cofounder of WeWork. And the case presents him in a new role, chief culture officer.

Kenny: For those who don’t know out there, what WeWork is, can you just sort of describe what they do?

Rayport: WeWork is the leader in a category that in the real estate industry is referred to as the serviced office leasing market.

Kenny: That’s catchy.

Rayport: It is catchy and it’s actually been a moribund sector for a very long time. People will know it from the dominant player in the category called Regus, now called IWG. Regus rents short-term leased office space for scenarios, if you’ll forgive me, a little like the television show you referenced at the front end. Meaning that these are gray, Formica-laden spaces with indoor or outdoor carpeting. And they’re pretty generic corporate environments. IWG is the leader in the space. WeWork is number two. But WeWork is really known as the pioneer in a new category that is referred to as, “co-working.” Co-working is an interesting term coined in 2005 by a software engineer named Brad Neuberg, referring to the idea of independent workers sitting in the same place.

Kenny: How did you hear about WeWork and what prompted you to write this case?

Rayport: I met Miguel McKelvey at a tech conference in Brooklyn, that I was moderating… He mentioned his new role as chief culture officer. I pulled him aside afterwards and said, “Listen, I’ve never met anyone who was a chief culture officer. What in the world does that mean?” And that was the genesis of this case study.

Kenny: I wasn’t aware of WeWork’s meteoric rise, so really interesting challenges they’re facing. The cofounders have interesting backgrounds and I’m curious if you can tell us, you know, how their life experiences led them down this path and to the concept for WeWork.

Rayport: Adam and Miguel could not be two more different guys, but thinking about their life stories, they’re eerily running in parallel until the day they meet. Miguel was born in Eugene, Oregon. He grew up not with one mom but with a bunch of mothers, as he referred to them, in a commune. This is a bunch of women, essentially a matriarchy, that ran a big collective family. He helped earn his keep because they started a newspaper called theEugene Weekly. He learned a lot about business and entrepreneurship, watching his mother and the other mothers get this off the ground.

He went to the University of Oregon, was trained as an architect, got out of school and went to Japan just to kind of think about life. Wound up starting a business, an English as a second language website called English Baby. And after raising venture dollars, he returned to the US and thought maybe it was time to work as an architect. He wound up at a firm, having moved to New York, in Brooklyn, that had just done a deal to build out stores for a brand that became iconic: American Apparel. Over the next five or six years, Miguel was partly an architect, designer, general contractor, and a business guy helping them open 180 retail stores across the United States.

So, switch to the other universe. Adam Neumann grew up in Israel, spent five years as an officer in the Israeli Defense Force, came to New York, started a couple businesses, one of which was apparently designer shoes for women that had spike heels that could collapse and turn into flats. That failed, kind of interesting.

Kenny: Exactly what you would expect a former officer of the Israeli army to get into.

Rayport: Well, those who have seen pictures of Adam Neumann. He’s a fairly glamorous, long-haired guy. His sister is a supermodel, or was at the time. And so, he saw her changing shoes frantically for photo shoots and thought, “I can do something to solve this problem.” He went on from there to baby clothing. Some will know the old brand Crawlers, which were baby pajamas with knee pads and elbow pads. But Adam was still restless at the point when he and Miguel met each other in Brooklyn in the late aughts. They started a business called Green Desk, which was an eco-friendly co-working environment. They did it with a landlord who owned the building they started in. The two of them were walking in Brooklyn one night and looked at each other and said, “You know what? This landlord is only interested in making co-working spaces in the buildings he already owns. We have a vision that this could change work, the world of work, on a global basis. We’ll never scale with this construct.” So, they sold Green Desk to the landlord and took the few million dollars of proceeds from that sale and plowed them into the first WeWork, which opened in lower Manhattan in 2010.

Kenny: And what does a WeWork space look and feel like? What’s special about it?

“Many Fortune 500 companies view WeWork environments as a way to attract millennial talent.”

Rayport: That is a great question because if somebody dropped you in one WeWork [building] and you to look around, you would see a bunch of open space with closed offices with glass partitions, floor-to-ceiling glass, lots of plants, lots of eco-friendly details, lots of exposed brick, exposed HVAC systems in the ceiling. In the common area, you would find a way to have an espresso coffee. There’s always beer on tap. There are a bunch of tables. There’s stylish music playing. They’re interestingly hip environments, but they are optimized for the world of work, but work in a new paradigm that is what you’d think about moving into if you were a new card-carrying member of a lower Manhattan, a Tribeca office for Google or Facebook. You would expect to be it to be open loft space. There would be enclosed spaces you could go into for private conversations. But in general, that is the new way in which the world works in the tech sector. And WeWork has attempted to create, if you will, a multitenant platform for that kind of concept.

Kenny: So this is really appealing to millennials, Gen Z, and the way that they want to go to work and the kind of environment they want to be in.

Rayport: Hugely so. And many Fortune 500 companies view WeWork environments as a way to attract millennial talent. WeWork spaces at the time we wrote the case, spring of 2018, had about 210,000 members. And about 25 percent of those 210,000 are people who are part of Fortune 500 workforces where somebody said, “Gee, we’re General Electric and we have a bunch of people sitting in Springfield and productivity is way down. What if we airlifted 120 of them and put them into a WeWork? Let’s perform a kind of classic Hawthorne Experiment type thing. Let’s put them in a different environment, pay attention to them in a different way and see if productivity goes up.” And the Fortune 500, Fortune 1000 companies are voting with their feet by putting elements of their workforce in there to see what happens. They’re finding very favorable results. It started as something that attracted, if you will, small- and medium-business startup folks, millennial talent; it’s become a much broader demographic swath of the working world.

Kenny: In your view, how disruptive is this to commercial real estate? And as they bring people into these places, how does it work for the brands of the firms that are moving people in? Because I would imagine that millennials and Gen Z are flocking to places that they feel support them in this way.

Rayport: It’s a fascinating development in the world of commercial real estate. To give you a sense of the scale of it, the current estimate is that were about 14,000 co-working spaces in the world at the time of the case. Obviously, only a few have scaled to the visibility of say an IWG or a WeWork, or WeWork’s closest competitor, a new firm, venture-backed relatively young firm, called Knotel. But the scale of this kind of working environment is stunning. And to give you a couple statistics. There are today in Manhattan itself, one borough of New York City, there are more than 50 WeWork co-working spaces.

In London, the current estimate is between 18 and 19 percent of all commercial office space in the city of London is now dedicated to co-working either tenants or landlords. So, it’s a very big deal to be able to field this alternative kind of environment for work. And as a result, yes, companies that situate themselves in these kinds of environments, which tend to be smaller and medium sized, are not at the point where they are a scaled venture that can produce an environment bespoke for themselves. It is much easier to rent office spaces and service, so to speak, than it is to either build it. Or if you are a big legacy organization where your office looks likeThe Officeon television, then how do you wave a magic wand and get a big change for a group of people within your workforce? One way is to put them into a space like this.

Kenny: The case gets into the rapid growth of WeWork. They grew at an extraordinarily fast pace from their founding in 2005. But just the co-working thing turns out not to be enough. You’ve got two serial entrepreneurs. Apparently, they’re still thinking about other ideas. Talk a little bit about the ways they started to branch off of the WeWork idea into other areas.

Rayport: To your point about how fast this has grown, the first WeWork opens in 2010. By the time we wrote the case in 2018, there were 242 of them, of which 50 plus were in New York City, but they span the globe. Almost a quarter-million people are in these spaces, so it’s already a significant phenomenon, funded by almost unprecedented levels of venture investment. At the time we wrote the case, they had a $20 billion valuation, having raised $8.5 billion worth of capital to fuel this growth.

Having that much capital has allowed them to begin to think about adjacencies. The most important of them is something called WeLive, which is a residential operation. There are two of them, one in the New York area, one down in DC, at the time of the case, that allow people essentially to check into a complete life that is in many cases co-located with WeWork co-working spaces. But co-living spaces sound just like what the name implies. They are usually multiple bedroom suites. You can live with roommates, you can live on your own, but there are a bunch of communal areas and services that are typically associated even with high end condominium developments, common kitchens, catering, game spaces, work spaces and so forth.

Kenny: That gets back Miguel’s upbringing, if you think about him growing up in that commune-type environment. Right?

Rayport: Absolutely. And I should say that the fascinating thing about Miguel and Adam Neumann, just back to your original question of how these guys have commonality, is that Adam grew up in Israel, where he spent a great deal of his life living on a kibbutz. He was living in a commune. They are brothers from a different mother, as the millennials like to say, in having this kind of shared experience of living and working. And it won’t surprise you to hear that they also have created something calledWeWork Labs, which is essentially an incubator-like space for startups, WeGrow, a project of Adam Neumann’s wife Rebecca, which is about creating a new form of education for early-stage humans, otherwise known as preschool and grade school. There are a lot of things that they’re doing to experiment.

But the main event is in the co-working spaces themselves. Back to our discussion of who the comps are, if IWG is the comp, IWG has about a 21 percent share of this serviced office leasing market. WeWork, apples for apples, has about a four percent market share. Now, here’s the funny thing. So, you’ve got 20 percent share and you’ve got four percent share for round numbers. And yet, IWG is a public company that has a market cap at the time of the case of around $2 billion. WeWork, at the time of the case, has a private market valuation of around $20 billion. So now you ask what is the value of each additional share point to WeWork carved out of IWG? Well when a share point moves from IWG to WeWork, it’s 50 times more valuable.
It’s remarkable that they’ve taken a space that is a pretty generic commoditized business, and found a way to inject enormous value.

Kenny: Do you think they can sustain it? I mean, are they trying to do too much with all this We stuff? The brand, by the way, works beautifully across all those platforms. And this gets into the heart of the case, which is really about how you scale a culture to be able to support this kind of rapid growth.

Rayport: Interestingly, Adam Neumann himself says, “Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?” His view is there is no way you could argue for that kind of value. And his point, which is consistent with Miguel’s view, is that what is driving that valuation is what Adam refers to as their culture and their spirituality. Another way of looking at it as to say that, in technology terms, everyone is familiar with PCs as hardware and the operating system that sits on top of the hardware to make it … essentially to help it run. The operating system is in itself a platform for a bunch of software applications like the Microsoft productivity suite that we all know of Word, PowerPoint, Excel. And then, of course, on top of those applications sit what we refer these days to as apps, kind of lightweight things like macros that you build on top of Excel. Miguel and Adam’s point is that office space is the commoditized platform, the personal computer hardware, that today nobody can sell and make any … other than Apple, nobody can actually generate a margin from the sales of hardware. It used to be that Microsoft could build a fortune selling an operating system. Well that’s become largely generic. And in the case of mobile devices, it’s not as if Apple or Google make money off the iOS or Android operating systems. The money is moving up the stack from hardware to operating system to software applications to lightweight apps. And their argument is that some combination of community, of spirituality, of culture, is in the applications layer, or OS; that is where all the value in commercial real estate going forward will come from.

“Adam Neumann himself says, ‘Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?'”

Kenny: How have they thought about applying that theory to WeWork?

Rayport: The interesting challenge … is to say, “If this is where the magic is, call it valuation, call it anything you want, but this is what is driving the meaning of the brand … then actually that’s $15 billion or $20 billion worth of cultural value. We need to figure out what it is.” The thing that caught my attention in those initial conversations with Miguel was that we were talking about the role of culture in startups. In general, startup culture is associated with the founders. It’s often associated with the creation myth around the early days of how the business got off the ground. And in general, people lament the fact that as businesses grow and scale, the culture gets diluted. Now it’s 2,000 people and we’ve lost our soul. And Miguel said to me, “I completely disagree with that. Culture is not a game of nostalgia. Culture is a tool. It’s an instrument you use to drive a business to scale. You have to constantly design and redesign culture for each additional level up that the organization makes in scale or reach or impact or value.”

Kenny: How was he doing that at WeWork?

Rayport: The fascinating thing about Miguel is that he is, first and foremost, an architect and a designer. In the same way that one would think that if you wanted to determine, say, the culture of a workspace, it might have a lot to do with whether the space was open or closed, whether it had shared desks, whether the walls were vibrant or they were bare brick, or whether there was music playing or not playing or whatever. His point of view is that is the culture is susceptible to design in the same way, and that actually designing space is one significant lever on culture, but that there are a number of other levers that look more organizational or managerial. And all of them are susceptible to management control. Put it a different way. What they’ve evolved is something that they call the culture operating system at WeWork, or the Culture OS, for short. Let me quote to you the eight pillars of the cultural, or Culture OS, at WeWork. They are:

  • Purpose, and that’s the obvious sort of why do we matter to ourselves in the world?
  • Leadership, which is how did the senior people deliver on the purpose of the organization?
  • Space, what we were just talking about, but it’s not just office space, it’s design of the online community and all of the other aspects that define the space.
  • Citizenship, which is how do all of us contribute to the values of the community.
  • Connection, building relationships with one another.
  • Performance agility, this is something, a very interesting concept Miguel originated, where he’s essentially saying that change on the inside of the organization is faster than change on the outside of the organization, meaning that you’re proactive, not reactive in the way that you perform.
  • Talent, obviously find good people, grow them, et cetera.
  • And finally, Platforms, sort of what are the systems, tools, et cetera, that enable the environment and all the rest of it?

The reason I wanted to go through those one by one is, first of all, to give you and our listeners a sense of these are the building blocks of the Culture OS, but also to say that what’s remarkable about that list is there’s not a single word on it that I’ve ever seen on a list of corporate values. My interpretation of this is that things like passion and integrity and teamwork and excellence and commitment, those are perfectly useful descriptors of cultural outputs, but that our friend Miguel as a designer was saying, “I get it, that we want those outputs. But what I’m interested in as a designer, as a manager, as a leader, is to figure out what are my levers? What are the inputs? How can I actually shape the culture that I want?”

His point would be that of course you celebrate integrity and teamwork and excellence, but you’ve got to start by serving the people who are going to wind up forming the teams, aspiring to excellence, and exemplifying integrity. His point being that as opposed to this being some mystical thing that people can engage in arm waving about, it’s actually something very practical, as opposed to taking it as something that is an act of God or nature that just happened to us. Our culture happened to us because we were 2,000 people and now suddenly we turned into a different kind of organization. He’s saying, “Wait a second, you can craft this. You can make the culture you want. And because you’re making it to order, you can make it to fit the size and characteristics of your organization.”

Kenny: Therein lies the other business idea that Miguel has, being a serial entrepreneur. He’s going to try and not just make this work at WeWork, but he thinks there is a model that can be replicated in other places too.

Rayport: You mean by other geographies?

Kenny: No, I actually mean in other organizations. One of the things the case alludes to is that Miguel is thinking about taking the show on the road a little bit.

Rayport: Absolutely. So I’m glad you are focused on that. The presenting issue in the case is the question of whether WeWork brings something to market that they referred to PxWe, which is short for “powered by We.” And as you said, it’s all part of a very elegant brand family. All of this, we work, we live, we grow, powered by We. But the idea there is that if, going back to our hypothetical example, GE. They takes 120 workers and put them into a space in lower Manhattan. The 120 workers turn out to be three times as happy and four times as productive. And the question is, I got 10,000 people back where they came from, what do I do for those 10,000? So, two choices. One is to take the 10,000 and break them up into groups and put them into the 50 WeWorks all over Manhattan, but that’s huge amount of dislocation and also obviously cost. The alternative is to turn to WeWork and say, “Can you do for my workforce, in situ, what you would have done for them if they’d moved their locus of work into your co-working environment?” The question is, do you bring a product or an offer like this to market? Miguel’s view is that this is completely consistent with the goals of the venture. Does it mean that you give up some element of control? Be careful what you wish for.

You might get a consulting business. The other side of it though, and this is what Miguel argues, is that his mantra is that work, because it’s your life, better be something that you love. Even today, where WeWork is now a quarter million people in those WeWork office co-working environments, that is obviously a minuscule percentage of all the people who go to work every day who get out of bed and think about the commute, think about the eight hours in their cubicle, and say, “Wow, I hate going to work. I hate my job.”

His view and Adam’s view, because these are kind of messianic guys, they want to rescue the human race from the tyranny of the misery of the work we don’t like. They believe they can transform a lot of that work by injecting a different Culture OS into those offices and creating a different kind of human experience of work.

Kenny: They’re the antidote to Dunder Mifflin.

Rayport: That is exactly right. We spend a lot of time in our entrepreneurship curriculum asking of any given business, what’s the total addressable market? Clearly co-working is going to be a niche for a very long time in the world of commercial office space. But if it’s possible to bring the cultural or human experience of co-working into the rest of the world, as opposed to hitting the 20 percent, now you’ve hit 20 plus 80 percent is your addressable market. And it looks like at least five to 10 times as large depending on how you do that math. If you’re in the change the world business, which they are, that’s very compelling.

Kenny: Have you discussed this case in class? I know it’s a new case.

Rayport: I have taught it several times in the MBA program in the context of our scaling technology ventures course, and also with executives five, 10 years out of MBA program training, who are scaling entrepreneurs.

Kenny: Have there been many participants that you’ve taught it to who have actually worked in a WeWork space?

Rayport: Among our MBA students, it was interesting. I’d say about 10 percent, based on a show of hands in the classroom, had been in Regus or IWG spaces. And about 35 or 40 percent were familiar with direct experience inside WeWork spaces. When we taught this on the HBX Live (online) platform, we had an entire team of five who were participating in the case discussion from their offices inside a WeWork. It was very meta.

Kenny: Jeffrey, thank you for joining me today.

Rayport: Brian. Thank you for having me.

Kenny: If you enjoyed this episode of Cold Call, you should check out our otherpodcasts. After Hours features Harvard Business School faculty dishing on the latest happenings of the crossroads of business and culture, and Managing the Future of Work features experts discussing how to survive and thrive in the age of artificial intelligence and learning machines. Subscribe to these and others on Apple Podcasts or wherever you listen. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.

Interview recorded November 19, 2018. The transcript has been edited for length and clarity.

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Brian Kenny: For nine seasons, Michael Scott and his team at Dunder Mifflin Scranton’s regional office entertained television viewers with their squirm-inducing take on an office culture that was, by any standard, highly dysfunctional.The Officedebuted in the US in 2005 as a reboot of a British sitcom, immediately struck a chord with audiences because, let’s face it, we can all relate at least a little bit. And since we spend about one third of our lives at work, the culture and physical environment of the workplace really matter. It’s a topic that gets a lot of attention. Amazon currently lists over 9,000 books on workplace culture. Google lists over 64,000 academic and scientific articles on the physical and mental impact of office lighting and furniture. It’s not just an academic concern. PwC’s 2017 report on the workforce of the future revealed that millennials and Gen Z place company culture and environment very high on the list when considering jobs. They care deeply and they set the bar high. Today, we’ll hear from Professor Jeffrey Rayport about his case entitledWeWork. I’m your host, Brian Kenny. And you’re listening to Cold Call.

Jeffrey Rayport is an expert in online media and ecommerce with a focus on new business opportunities enabled by emerging digital technologies. Jeffrey, thanks for joining me today.

Jeffrey Rayport: It’s a pleasure to be here Brian. Thank you.

Kenny: Can you tell me who’s the protagonist in this case and what’s on their mind?

Rayport: The protagonist of this case is Miguel McKelvey, who many people will know as one of the two cofounders ofWeWork. His partner, Adam Neumann, is the more visible of the two. Adam is CEO. And Miguel, just until the time of the case, is the architect and chief creative officer as well as cofounder of WeWork. And the case presents him in a new role, chief culture officer.

Kenny: For those who don’t know, what is WeWork?

Rayport: WeWork is the leader in a real estate category referred to as the serviced office leasing market.

Kenny: That’s catchy.

Rayport: It is catchy and it’s actually been a moribund sector for a very long time. People will know it from the dominant player in the category, Regus, now called IWG. Regus rents short-term leased office space for scenarios, if you’ll forgive me, a little like the television show you referenced at the front end. Meaning that these are gray, Formica-laden spaces with indoor or outdoor carpeting. And they’re pretty generic corporate environments. IWG is the leader in the space. WeWork is number two. But WeWork is really known as the pioneer in a new category that is referred to as, “co-working.” Co-working is an interesting term coined in 2005 by a software engineer named Brad Neuberg, referring to the idea of independent workers sitting in the same place.

Kenny: How did you hear about WeWork and what prompted you to write this case?

Rayport: I met Miguel McKelvey at a tech conference in Brooklyn, that I was moderating… He mentioned his new role as chief culture officer. I pulled him aside afterwards and said, “Listen, I’ve never met anyone who was a chief culture officer. What in the world does that mean?” That was the genesis of this case study.

Kenny: I wasn’t aware of WeWork’s meteoric rise … and the really interesting challenges they’re facing. The cofounders have interesting backgrounds. Can you tell us how their life experiences led them down this path?

Rayport: Adam and Miguel could not be two more different guys, but thinking about their life stories, they’re eerily running in parallel until the day they meet. Miguel was born in Eugene, Oregon. He grew up not with one mom but with a bunch of mothers, as he referred to them, in a commune. This is a bunch of women, essentially a matriarchy, that ran a big collective family. He helped earn his keep because they started a newspaper called theEugene Weekly. He learned a lot about business and entrepreneurship, watching his mother and the other mothers get this off the ground.

He went to the University of Oregon, was trained as an architect, got out of school and went to Japan just to think about life. Wound up starting a business, an English-as-a-second-language website called English Baby. After raising venture dollars, he returned to the US and thought maybe it was time to work as an architect. He wound up at a firm in Brooklyn that had just done a deal to build out stores for a brand that became iconic: American Apparel. Over the next five or six years, Miguel was partly an architect, designer, general contractor, and a business guy helping them open 180 retail stores across the United States.

So, switch to the other universe. Adam Neumann grew up in Israel, spent five years as an officer in the Israeli Defense Force, came to New York, started a couple businesses, one of which was designer shoes for women that had spike heels that could collapse and turn into flats. That failed, kind of interesting.

Kenny: Exactly what you would expect a former officer of the Israeli army to get into.

Rayport: Well, those who have seen pictures of Adam Neumann… He’s a fairly glamorous, long-haired guy. His sister is a supermodel, or was at the time. And so, he saw her changing shoes frantically for photo shoots and thought, “I can do something to solve this problem.” He went on from there to baby clothing. Some will know the old brand Crawlers, which were baby pajamas with knee pads and elbow pads. But Adam was still restless at the point when he and Miguel met each other in Brooklyn in the late aughts. They started Green Desk, which was an eco-friendly co-working environment. They did it with a landlord who owned the building they started in. The two of them were walking in Brooklyn one night and looked at each other and said, “You know what? This landlord is only interested in making co-working spaces in the buildings he already owns. We have a vision that this could change work, the world of work, on a global basis. We’ll never scale with this construct.” So, they sold Green Desk to the landlord and took the few million dollars of proceeds from that sale and plowed them into the first WeWork, which opened in lower Manhattan in 2010.

Kenny: And what does a WeWork space look and feel like? What’s special about it?

“Many Fortune 500 companies view WeWork environments as a way to attract millennial talent.”

Rayport: That is a great question because if somebody dropped you in one WeWork [building] and you to look around, you would see a bunch of open space with closed offices with glass partitions, floor-to-ceiling glass, lots of plants, lots of eco-friendly details, lots of exposed brick, exposed HVAC systems in the ceiling. In the common area, you would find a way to have an espresso coffee. There’s always beer on tap. There are a bunch of tables. There’s stylish music playing. They’re interestingly hip environments, but they are optimized for the world of work, but work in a new paradigm that is what you’d think about moving into if you were a new card-carrying member of a lower Manhattan, a Tribeca office for Google or Facebook. You would expect to be it to be open loft space. There would be enclosed spaces you could go into for private conversations. But in general, that is the new way in which the world works in the tech sector. And WeWork has attempted to create, if you will, a multi-tenant platform for that kind of concept.

Kenny: This is really appealing to millennials, Gen Z, and the way that they want to go to work and the kind of environment they want to be in.

“Many Fortune 500 companies view WeWork environments as a way to attract millennial talent.”

Rayport: Hugely so. Many Fortune 500 companies view WeWork environments as a way to attract millennial talent. WeWork spaces, at the time we wrote the case, spring of 2018, had about 210,000 members. About 25 percent of those were people part of Fortune 500 workforces where somebody said, “Gee, we’re General Electric and we have a bunch of people sitting in Springfield and productivity is way down. What if we airlifted 120 of them and put them into a WeWork? Let’s perform a kind of classic Hawthorne Experiment type thing. Let’s put them in a different environment, pay attention to them in a different way and see if productivity goes up.”

The Fortune 500, Fortune 1000, companies are voting with their feet by putting elements of their workforce in there to see what happens. They’re finding very favorable results. It started as something that attracted, if you will, small- and medium-business startup folks, millennial talent; it’s become a much broader demographic swath of the working world.

Kenny: In your view, how disruptive is this to commercial real estate? And as they bring people into these places, how does it work for the brands of the firms that are moving people in? Because I would imagine that millennials and Gen Z are flocking to places that they feel support them in this way.

Rayport: It’s a fascinating development in the world of commercial real estate. To give you a sense of the scale of it, the current estimate is that there were about 14,000 co-working spaces in the world at the time of the case. Obviously, only a few have scaled to the visibility of say an IWG or a WeWork, or WeWork’s closest competitor, a new firm, venture-backed, relatively young firm, called Knotel.

The scale of this kind of working environment is stunning. There are today in Manhattan, one borough of New York City, more than 50 WeWork co-working spaces. The current estimate is between 18 and 19 percent of all commercial office space in the city of London is now dedicated to co-working, either tenants or landlords. So, it’s a very big deal to be able to find this alternative kind of environment for work. As a result, yes, companies that situate themselves in these kinds of environments, which tend to be smaller and medium sized, are not at the point where they are a scaled venture that can produce an environment bespoke for themselves. It is much easier to rent office spaces and service, so to speak, than it is to build it. Or if you are a big legacy organization where your office looks likeThe Officeon television, then how do you wave a magic wand and get a big change for a group of people within your workforce? One way is to put them into a space like this.

Kenny: The case gets into the rapid growth of WeWork. They grew at an extraordinarily fast pace from their founding in 2005. But just the co-working thing turns out not to be enough. You’ve got two serial entrepreneurs here. Apparently, they’re still thinking about other ideas. Talk a little bit about the ways they started to branch off of the WeWork idea into other areas.

Rayport: To your point about how fast this has grown, the first WeWork opens in 2010. By the time we wrote the case in 2018, there were 242 of them, of which 50 plus were in New York City, but they span the globe. Almost a quarter-million people are in these spaces, so it’s already a significant phenomenon, funded by almost unprecedented levels of venture investment. At the time we wrote the case, they had a $20 billion valuation, having raised $8.5 billion worth of capital to fuel this growth.

Having that much capital has allowed them to begin to think about adjacencies. The most important of them is something called WeLive, which is a residential operation. There are two of them, one in the New York area, one down in DC, at the time of the case, that allow people essentially to check into a complete life that is in many cases co-located with WeWork co-working spaces. But co-living spaces sound just like what the name implies. They are usually multiple bedroom suites. You can live with roommates, you can live on your own, but there are a bunch of communal areas and services that are typically associated even with high-end condominium developments, common kitchens, catering, game spaces, work spaces, and so forth.

Kenny: That gets back Miguel’s upbringing, You think about him growing up in that commune-type environment. Right?

Rayport: Absolutely. And I should say that the fascinating thing about Miguel and Adam Neumann, just back to your original question of how these guys have commonality, is that Adam grew up in Israel, where he spent a great deal of his life living on a kibbutz. He was living in a commune. They are brothers from a different mother, as the millennials like to say, in having this kind of shared experience of living and working. And it won’t surprise you to hear that they also have created something calledWeWork Labs, which is essentially an incubator-like space for startups, WeGrow, a project of Adam Neumann’s wife Rebecca, which is about creating a new form of education for early-stage humans, otherwise known as preschool and grade school. There are a lot of things that they’re doing to experiment.

Back to our discussion of who the comps are, if IWG is the comp, IWG has about a 21 percent share of this serviced office leasing market. WeWork, apples for apples, has about a 4 percent market share. Now, here’s the funny thing. You’ve got 20 percent share and you’ve got 4 percent share, for round numbers. And yet, IWG is a public company that has a market cap at the time of the case of around $2 billion. WeWork, at the time of the case, has a private market valuation of around $20 billion. So now you ask what is the value of each additional share point to WeWork carved out of IWG? Well when a share point moves from IWG to WeWork, it’s 50 times more valuable.
It’s remarkable that they’ve taken a space that is a pretty generic commoditized business, and found a way to inject enormous value.

Kenny: Do you think they can sustain it? Are they trying to do too much with all this We stuff? The brand, by the way, works beautifully across all those platforms. And this gets into the heart of the case, which is really about how you scale a culture to be able to support this kind of rapid growth.

Rayport: Adam Neumann himself says, “Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?” His view is there is no way you could argue for that kind of value. And his point, which is consistent with Miguel’s view, is that what is driving that valuation is what Adam refers to as their culture and their spirituality.

Another way of looking at it as to say that, in technology terms, everyone is familiar with PCs as hardware and the operating system that sits on top of the hardware to essentially help it run. The operating system is in itself a platform for a bunch of software applications like the Microsoft productivity suite that we all know of Word, PowerPoint, Excel. And then, of course, on top of those applications sit what we refer to these days as apps, lightweight things like macros that you build on top of Excel. Miguel and Adam’s point is that office space is the commoditized platform, the personal computer hardware, that today nobody other than Apple can generate a margin from their sales. It used to be that Microsoft could build a fortune selling an operating system. Well that’s become largely generic. And in the case of mobile devices, it’s not as if Apple or Google make money off the iOS or Android operating systems. The money is moving up the stack from hardware to operating system to software applications to lightweight apps. And their argument is that some combination of community, of spirituality, of culture, is in the applications layer, or OS; that is where all the value in commercial real estate going forward will come from.

“Adam Neumann himself says, ‘Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?'”

Kenny: How have they thought about applying that theory to WeWork?

Rayport: The interesting challenge … is to say, “If this is where the magic is, call it valuation, call it anything you want, but this is what is driving the meaning of the brand … then actually that’s $15 billion or $20 billion worth of cultural value. We need to figure out what it is.” The thing that caught my attention in those initial conversations with Miguel was that we were talking about the role of culture in startups. In general, startup culture is associated with the founders. It’s often associated with the creation myth around the early days of how the business got off the ground. And in general, people lament the fact that as businesses grow and scale, the culture gets diluted. Now it’s 2,000 people and we’ve lost our soul. And Miguel said to me, “I completely disagree with that. Culture is not a game of nostalgia. Culture is a tool. It’s an instrument you use to drive a business to scale. You have to constantly design and redesign culture for each additional level up that the organization makes in scale or reach or impact or value.”

Kenny: How was he doing that at WeWork?

Rayport: The fascinating thing about Miguel is that he is, first and foremost, an architect and a designer. In the same way that one would think that if you wanted to determine, say, the culture of a workspace, it might have a lot to do with whether the space was open or closed, whether it had shared desks, whether the walls were vibrant or they were bare brick, or whether there was music playing or not playing or whatever. His point of view is that is the culture is susceptible to design in the same way, and that actually designing space is one significant lever on culture, but that there are a number of other levers that look more organizational or managerial. And all of them are susceptible to management control. Put it a different way. What they’ve evolved is something that they call the culture operating system at WeWork, or the Culture OS, for short. Let me quote to you the eight pillars of the cultural, or Culture OS, at WeWork. They are:

  • Purpose, and that’s the obvious sort of why do we matter to ourselves in the world?
  • Leadership, which is how did the senior people deliver on the purpose of the organization?
  • Space, what we were just talking about, but it’s not just office space, it’s design of the online community and all of the other aspects that define the space.
  • Citizenship, which is how do all of us contribute to the values of the community.
  • Connection, building relationships with one another.
  • Performance agility, this is something, a very interesting concept Miguel originated, where he’s essentially saying that change on the inside of the organization is faster than change on the outside of the organization, meaning that you’re proactive, not reactive in the way that you perform.
  • Talent, obviously find good people, grow them, et cetera.
  • And finally, Platforms, sort of what are the systems, tools, et cetera, that enable the environment and all the rest of it?

The reason I wanted to go through those one by one is, first of all, to give you and our listeners a sense of these are the building blocks of the Culture OS, but also to say that what’s remarkable about that list is there’s not a single word on it that I’ve ever seen on a list of corporate values. My interpretation of this is that things like passion and integrity and teamwork and excellence and commitment, those are perfectly useful descriptors of cultural outputs, but that our friend Miguel as a designer was saying, “I get it, that we want those outputs. But what I’m interested in as a designer, as a manager, as a leader, is to figure out what are my levers? What are the inputs? How can I actually shape the culture that I want?”

His point would be that of course you celebrate integrity and teamwork and excellence, but you’ve got to start by serving the people who are going to wind up forming the teams, aspiring to excellence, and exemplifying integrity. His point being that as opposed to this being some mystical thing that people can engage in arm waving about, it’s actually something very practical, as opposed to taking it as something that is an act of God or nature that just happened to us. Our culture happened to us because we were 2,000 people and now suddenly we turned into a different kind of organization. He’s saying, “Wait a second, you can craft this. You can make the culture you want. And because you’re making it to order, you can make it to fit the size and characteristics of your organization.”

Kenny: Therein lies the other business idea that Miguel has, being a serial entrepreneur. He’s going to try and not just make this work at WeWork, but he thinks there is a model that can be replicated in other places too.

Rayport: You mean by other geographies?

Kenny: No, I actually mean in other organizations. One of the things the case alludes to is that Miguel is thinking about taking the show on the road a little bit.

Rayport: Absolutely. So I’m glad you are focused on that. The presenting issue in the case is the question of whether WeWork brings something to market that they referred to PxWe, which is short for “powered by We.” And as you said, it’s all part of a very elegant brand family: WeWork, WeLive, WeGrow, powered by We. But the idea here, going back to our hypothetical example, GE, is that if they take 120 workers and put them into a space in lower Manhattan. The workers turn out to be three times as happy and four times as productive. And the question is, I’ve got 10,000 people back where those came from, what do I do for them?

So, two choices. One is to take the 10,000 and break them up into groups and put them into the 50 WeWorks all over Manhattan, but that’s huge amount of dislocation and also obviously cost. The alternative is to turn to WeWork and say, “Can you do for my workforce, in situ, what you would have done for them if they’d moved their locus of work into your co-working environment?” The question is, do you bring a product or an offer like this to market? Miguel’s view is that this is completely consistent with the goals of the venture. Does it mean that you give up some element of control? Be careful what you wish for.

You might get a consulting business. The other side of it though, and this is what Miguel argues, is that his mantra is that work, because it’s your life, better be something that you love. Even today, where WeWork is now a quarter million people in those WeWork office co-working environments, that is obviously a minuscule percentage of all the people who go to work every day who get out of bed and think about the commute, think about the eight hours in their cubicle, and say, “Wow, I hate going to work. I hate my job.”

His view and Adam’s view, because these are kind of messianic guys, they want to rescue the human race from the tyranny of the misery of the work we don’t like. They believe they can transform a lot of that work by injecting a different Culture OS into those offices and creating a different kind of human experience of work.

Kenny: They’re the antidote to Dunder Mifflin.

Rayport: That is exactly right. We spend a lot of time in our entrepreneurship curriculum asking of any given business, what’s the total addressable market? Clearly co-working is going to be a niche for a very long time in the world of commercial office space. But if it’s possible to bring the cultural or human experience of co-working into the rest of the world, as opposed to hitting the 20 percent, now you’ve hit 20 plus 80 percent is your addressable market. And it looks like at least five to 10 times as large depending on how you do that math. If you’re in the change the world business, which they are, that’s very compelling.

Kenny: Have you discussed this case in class? I know it’s a new case.

Rayport: I have taught it several times in the MBA program in the context of our scaling technology ventures course, and also with executives five, 10 years out of MBA program training, who are scaling entrepreneurs.

Kenny: Have there been many participants that you’ve taught it to who have actually worked in a WeWork space?

Rayport: Among our MBA students, it was interesting. I’d say about 10 percent, based on a show of hands in the classroom, had been in Regus or IWG spaces. And about 35 or 40 percent were familiar with direct experience inside WeWork spaces. When we taught this on the HBX Live (online) platform, we had an entire team of five who were participating in the case discussion from their offices inside a WeWork. It was very meta.

Kenny: Jeffrey, thank you for joining me today.

Rayport: Brian. Thank you for having me.

Kenny: If you enjoyed this episode of Cold Call, you should check out our otherpodcasts. After Hours features Harvard Business School faculty dishing on the latest happenings of the crossroads of business and culture, and Managing the Future of Work features experts discussing how to survive and thrive in the age of artificial intelligence and learning machines. Subscribe to these and others on Apple Podcasts or wherever you listen. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.

Interview recorded November 19, 2018. The transcript has been edited for length and clarity.

Kenny: In your view, how disruptive is this to commercial real estate? And as they bring people into these places, how does it work for the brands of the firms that are moving people in? Because I would imagine that millennials and Gen Z are flocking to places that they feel support them in this way.

Rayport: It’s a fascinating development in the world of commercial real estate. To give you a sense of the scale of it, the current estimate is that were about 14,000 co-working spaces in the world at the time of the case. Obviously, only a few have scaled to the visibility of say an IWG or a WeWork, or WeWork’s closest competitor, a new firm, venture-backed, relatively young firm, called Knotel. But the scale of this kind of working environment is stunning. And to give you a couple statistics. There are today in Manhattan itself, one borough of New York City, there are more than 50 WeWork co-working spaces.

In London, the current estimate is between 18 and 19 percent of all commercial office space in the city of London is now dedicated to co-working either tenants or landlords. So, it’s a very big deal to be able to field this alternative kind of environment for work. And as a result, yes, companies that situate themselves in these kinds of environments, which tend to be smaller and medium sized, are not at the point where they are a scaled venture that can produce an environment bespoke for themselves. It is much easier to rent office spaces and service, so to speak, than it is to either build it. Or if you are a big legacy organization where your office looks likeThe Officeon television, then how do you wave a magic wand and get a big change for a group of people within your workforce? One way is to put them into a space like this.

Kenny: The case gets into the rapid growth of WeWork. They grew at an extraordinarily fast pace from their founding in 2005. But just the co-working thing turns out not to be enough. You’ve got two serial entrepreneurs. Apparently, they’re still thinking about other ideas. Talk a little bit about the ways they started to branch off of the WeWork idea into other areas.

Rayport: To your point about how fast this has grown, the first WeWork opens in 2010. By the time we wrote the case in 2018, there were 242 of them, of which 50 plus were in New York City, but they span the globe. Almost a quarter-million people are in these spaces, so it’s already a significant phenomenon, funded by almost unprecedented levels of venture investment. At the time we wrote the case, they had a $20 billion valuation, having raised $8.5 billion worth of capital to fuel this growth.

Having that much capital has allowed them to begin to think about adjacencies. The most important of them is something called WeLive, which is a residential operation. There are two of them, one in the New York area, one down in DC, at the time of the case, that allow people essentially to check into a complete life that is in many cases co-located with WeWork co-working spaces. But co-living spaces sound just like what the name implies. They are usually multiple bedroom suites. You can live with roommates, you can live on your own, but there are a bunch of communal areas and services that are typically associated even with high end condominium developments, common kitchens, catering, game spaces, work spaces and so forth.

Kenny: That gets back Miguel’s upbringing, if you think about him growing up in that commune-type environment. Right?

Rayport: Absolutely. And I should say that the fascinating thing about Miguel and Adam Neumann, just back to your original question of how these guys have commonality, is that Adam grew up in Israel, where he spent a great deal of his life living on a kibbutz. He was living in a commune. They are brothers from a different mother, as the millennials like to say, in having this kind of shared experience of living and working. And it won’t surprise you to hear that they also have created something calledWeWork Labs, which is essentially an incubator-like space for startups, WeGrow, a project of Adam Neumann’s wife Rebecca, which is about creating a new form of education for early-stage humans, otherwise known as preschool and grade school. There are a lot of things that they’re doing to experiment.

But the main event is in the co-working spaces themselves. Back to our discussion of who the comps are, if IWG is the comp, IWG has about a 21 percent share of this serviced office leasing market. WeWork, apples for apples, has about a four percent market share. Now, here’s the funny thing. So, you’ve got 20 percent share and you’ve got four percent share for round numbers. And yet, IWG is a public company that has a market cap at the time of the case of around $2 billion. WeWork, at the time of the case, has a private market valuation of around $20 billion. So now you ask what is the value of each additional share point to WeWork carved out of IWG? Well when a share point moves from IWG to WeWork, it’s 50 times more valuable.
It’s remarkable that they’ve taken a space that is a pretty generic commoditized business, and found a way to inject enormous value.

Kenny: Do you think they can sustain it? I mean, are they trying to do too much with all this We stuff? The brand, by the way, works beautifully across all those platforms. And this gets into the heart of the case, which is really about how you scale a culture to be able to support this kind of rapid growth.

Rayport: Interestingly, Adam Neumann himself says, “Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?” His view is there is no way you could argue for that kind of value. And his point, which is consistent with Miguel’s view, is that what is driving that valuation is what Adam refers to as their culture and their spirituality. Another way of looking at it as to say that, in technology terms, everyone is familiar with PCs as hardware and the operating system that sits on top of the hardware to make it … essentially to help it run. The operating system is in itself a platform for a bunch of software applications like the Microsoft productivity suite that we all know of Word, PowerPoint, Excel. And then, of course, on top of those applications sit what we refer these days to as apps, kind of lightweight things like macros that you build on top of Excel. Miguel and Adam’s point is that office space is the commoditized platform, the personal computer hardware, that today nobody can sell and make any … other than Apple, nobody can actually generate a margin from the sales of hardware. It used to be that Microsoft could build a fortune selling an operating system. Well that’s become largely generic. And in the case of mobile devices, it’s not as if Apple or Google make money off the iOS or Android operating systems. The money is moving up the stack from hardware to operating system to software applications to lightweight apps. And their argument is that some combination of community, of spirituality, of culture, is in the applications layer, or OS; that is where all the value in commercial real estate going forward will come from.

“Adam Neumann himself says, ‘Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?'”

Kenny: How have they thought about applying that theory to WeWork?

Rayport: The interesting challenge … is to say, “If this is where the magic is, call it valuation, call it anything you want, but this is what is driving the meaning of the brand … then actually that’s $15 billion or $20 billion worth of cultural value. We need to figure out what it is.” The thing that caught my attention in those initial conversations with Miguel was that we were talking about the role of culture in startups. In general, startup culture is associated with the founders. It’s often associated with the creation myth around the early days of how the business got off the ground. And in general, people lament the fact that as businesses grow and scale, the culture gets diluted. Now it’s 2,000 people and we’ve lost our soul. And Miguel said to me, “I completely disagree with that. Culture is not a game of nostalgia. Culture is a tool. It’s an instrument you use to drive a business to scale. You have to constantly design and redesign culture for each additional level up that the organization makes in scale or reach or impact or value.”

Kenny: How was he doing that at WeWork?

Rayport: The fascinating thing about Miguel is that he is, first and foremost, an architect and a designer. In the same way that one would think that if you wanted to determine, say, the culture of a workspace, it might have a lot to do with whether the space was open or closed, whether it had shared desks, whether the walls were vibrant or they were bare brick, or whether there was music playing or not playing or whatever. His point of view is that is the culture is susceptible to design in the same way, and that actually designing space is one significant lever on culture, but that there are a number of other levers that look more organizational or managerial. And all of them are susceptible to management control. Put it a different way. What they’ve evolved is something that they call the culture operating system at WeWork, or the Culture OS, for short. Let me quote to you the eight pillars of the cultural, or Culture OS, at WeWork. They are:

  • Purpose, and that’s the obvious sort of why do we matter to ourselves in the world?
  • Leadership, which is how did the senior people deliver on the purpose of the organization?
  • Space, what we were just talking about, but it’s not just office space, it’s design of the online community and all of the other aspects that define the space.
  • Citizenship, which is how do all of us contribute to the values of the community.
  • Connection, building relationships with one another.
  • Performance agility, this is something, a very interesting concept Miguel originated, where he’s essentially saying that change on the inside of the organization is faster than change on the outside of the organization, meaning that you’re proactive, not reactive in the way that you perform.
  • Talent, obviously find good people, grow them, et cetera.
  • And finally, Platforms, sort of what are the systems, tools, et cetera, that enable the environment and all the rest of it?

The reason I wanted to go through those one by one is, first of all, to give you and our listeners a sense of these are the building blocks of the Culture OS, but also to say that what’s remarkable about that list is there’s not a single word on it that I’ve ever seen on a list of corporate values. My interpretation of this is that things like passion and integrity and teamwork and excellence and commitment, those are perfectly useful descriptors of cultural outputs, but that our friend Miguel as a designer was saying, “I get it, that we want those outputs. But what I’m interested in as a designer, as a manager, as a leader, is to figure out what are my levers? What are the inputs? How can I actually shape the culture that I want?”

His point would be that of course you celebrate integrity and teamwork and excellence, but you’ve got to start by serving the people who are going to wind up forming the teams, aspiring to excellence, and exemplifying integrity. His point being that as opposed to this being some mystical thing that people can engage in arm waving about, it’s actually something very practical, as opposed to taking it as something that is an act of God or nature that just happened to us. Our culture happened to us because we were 2,000 people and now suddenly we turned into a different kind of organization. He’s saying, “Wait a second, you can craft this. You can make the culture you want. And because you’re making it to order, you can make it to fit the size and characteristics of your organization.”

Kenny: Therein lies the other business idea that Miguel has, being a serial entrepreneur. He’s going to try and not just make this work at WeWork, but he thinks there is a model that can be replicated in other places too.

Rayport: You mean by other geographies?

Kenny: No, I actually mean in other organizations. One of the things the case alludes to is that Miguel is thinking about taking the show on the road a little bit.

Rayport: Absolutely. So I’m glad you are focused on that. The presenting issue in the case is the question of whether WeWork brings something to market that they referred to PxWe, which is short for “powered by We.” And as you said, it’s all part of a very elegant brand family. All of this, we work, we live, we grow, powered by We. But the idea there is that if, going back to our hypothetical example, GE. They take 120 workers and put them into a space in lower Manhattan. The 120 workers turn out to be three times as happy and four times as productive. And the question is, I got 10,000 people back where they came from, what do I do for those 10,000? So, two choices. One is to take the 10,000 and break them up into groups and put them into the 50 WeWorks all over Manhattan, but that’s huge amount of dislocation and also obviously cost. The alternative is to turn to WeWork and say, “Can you do for my workforce, in situ, what you would have done for them if they’d moved their locus of work into your co-working environment?” The question is, do you bring a product or an offer like this to market? Miguel’s view is that this is completely consistent with the goals of the venture. Does it mean that you give up some element of control? Be careful what you wish for.

You might get a consulting business. The other side of it though, and this is what Miguel argues, is that his mantra is that work, because it’s your life, better be something that you love. Even today, where WeWork is now a quarter million people in those WeWork office co-working environments, that is obviously a minuscule percentage of all the people who go to work every day who get out of bed and think about the commute, think about the eight hours in their cubicle, and say, “Wow, I hate going to work. I hate my job.”

His view and Adam’s view, because these are kind of messianic guys, they want to rescue the human race from the tyranny of the misery of the work we don’t like. They believe they can transform a lot of that work by injecting a different Culture OS into those offices and creating a different kind of human experience of work.

Kenny: They’re the antidote to Dunder Mifflin.

Rayport: That is exactly right. We spend a lot of time in our entrepreneurship curriculum asking of any given business, what’s the total addressable market? Clearly co-working is going to be a niche for a very long time in the world of commercial office space. But if it’s possible to bring the cultural or human experience of co-working into the rest of the world, as opposed to hitting the 20 percent, now you’ve hit 20 plus 80 percent is your addressable market. And it looks like at least five to 10 times as large depending on how you do that math. If you’re in the change the world business, which they are, that’s very compelling.

Kenny: Have you discussed this case in class? I know it’s a new case.

Rayport: I have taught it several times in the MBA program in the context of our scaling technology ventures course, and also with executives five, 10 years out of MBA program training, who are scaling entrepreneurs.

Kenny: Have there been many participants that you’ve taught it to who have actually worked in a WeWork space?

Rayport: Among our MBA students, it was interesting. I’d say about 10 percent, based on a show of hands in the classroom, had been in Regus or IWG spaces. And about 35 or 40 percent were familiar with direct experience inside WeWork spaces. When we taught this on the HBX Live (online) platform, we had an entire team of five who were participating in the case discussion from their offices inside a WeWork. It was very meta.

Kenny: Jeffrey, thank you for joining me today.

Rayport: Brian. Thank you for having me.

Kenny: If you enjoyed this episode of Cold Call, you should check out our otherpodcasts. After Hours features Harvard Business School faculty dishing on the latest happenings of the crossroads of business and culture, and Managing the Future of Work features experts discussing how to survive and thrive in the age of artificial intelligence and learning machines. Subscribe to these and others on Apple Podcasts or wherever you listen. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.

Interview recorded November 19, 2018. The transcript has been edited for length and clarity.

Jeffrey Rayport is an expert in online media and ecommerce with a focus on new business opportunities enabled by emerging digital technologies. Jeffrey, thanks for joining me today.

Jeffrey Rayport: It’s a pleasure to be here Brian. Thank you.

Kenny: Can you tell me who’s the protagonist in this case and what’s on their mind?

Rayport: The protagonist of this case is Miguel McKelvey, who many people will know as one of the two cofounders ofWeWork. His partner, Adam Neumann, is the more visible of the two. Adam is CEO. And Miguel, just until the time of the case, is the architect and chief creative officer as well as cofounder of WeWork. And the case presents him in a new role, chief culture officer.

Kenny: For those who don’t know out there, what WeWork is, can you just sort of describe what they do?

Rayport: WeWork is the leader in a category that in the real estate industry is referred to as the serviced office leasing market.

Kenny: That’s catchy.

Rayport: It is catchy and it’s actually been a moribund sector for a very long time. People will know it from the dominant player in the category called Regus, now called IWG. Regus rents short-term leased office space for scenarios, if you’ll forgive me, a little like the television show you referenced at the front end. Meaning that these are gray, Formica-laden spaces with indoor or outdoor carpeting. And they’re pretty generic corporate environments. IWG is the leader in the space. WeWork is number two. But WeWork is really known as the pioneer in a new category that is referred to as, “co-working.” Co-working is an interesting term coined in 2005 by a software engineer named Brad Neuberg, referring to the idea of independent workers sitting in the same place.

Kenny: How did you hear about WeWork and what prompted you to write this case?

Rayport: I met Miguel McKelvey at a tech conference in Brooklyn, that I was moderating… He mentioned his new role as chief culture officer. I pulled him aside afterwards and said, “Listen, I’ve never met anyone who was a chief culture officer. What in the world does that mean?” And that was the genesis of this case study.

Kenny: I wasn’t aware of WeWork’s meteoric rise, so really interesting challenges they’re facing. The cofounders have interesting backgrounds and I’m curious if you can tell us, you know, how their life experiences led them down this path and to the concept for WeWork.

Rayport: Adam and Miguel could not be two more different guys, but thinking about their life stories, they’re eerily running in parallel until the day they meet. Miguel was born in Eugene, Oregon. He grew up not with one mom but with a bunch of mothers, as he referred to them, in a commune. This is a bunch of women, essentially a matriarchy, that ran a big collective family. He helped earn his keep because they started a newspaper called theEugene Weekly. He learned a lot about business and entrepreneurship, watching his mother and the other mothers get this off the ground.

He went to the University of Oregon, was trained as an architect, got out of school and went to Japan just to kind of think about life. Wound up starting a business, an English as a second language website called English Baby. And after raising venture dollars, he returned to the US and thought maybe it was time to work as an architect. He wound up at a firm, having moved to New York, in Brooklyn, that had just done a deal to build out stores for a brand that became iconic: American Apparel. Over the next five or six years, Miguel was partly an architect, designer, general contractor, and a business guy helping them open 180 retail stores across the United States.

So, switch to the other universe. Adam Neumann grew up in Israel, spent five years as an officer in the Israeli Defense Force, came to New York, started a couple businesses, one of which was apparently designer shoes for women that had spike heels that could collapse and turn into flats. That failed, kind of interesting.

Kenny: Exactly what you would expect a former officer of the Israeli army to get into.

Rayport: Well, those who have seen pictures of Adam Neumann. He’s a fairly glamorous, long-haired guy. His sister is a supermodel, or was at the time. And so, he saw her changing shoes frantically for photo shoots and thought, “I can do something to solve this problem.” He went on from there to baby clothing. Some will know the old brand Crawlers, which were baby pajamas with knee pads and elbow pads. But Adam was still restless at the point when he and Miguel met each other in Brooklyn in the late aughts. They started a business called Green Desk, which was an eco-friendly co-working environment. They did it with a landlord who owned the building they started in. The two of them were walking in Brooklyn one night and looked at each other and said, “You know what? This landlord is only interested in making co-working spaces in the buildings he already owns. We have a vision that this could change work, the world of work, on a global basis. We’ll never scale with this construct.” So, they sold Green Desk to the landlord and took the few million dollars of proceeds from that sale and plowed them into the first WeWork, which opened in lower Manhattan in 2010.

Kenny: And what does a WeWork space look and feel like? What’s special about it?

“Many Fortune 500 companies view WeWork environments as a way to attract millennial talent.”

Rayport: That is a great question because if somebody dropped you in one WeWork [building] and you to look around, you would see a bunch of open space with closed offices with glass partitions, floor-to-ceiling glass, lots of plants, lots of eco-friendly details, lots of exposed brick, exposed HVAC systems in the ceiling. In the common area, you would find a way to have an espresso coffee. There’s always beer on tap. There are a bunch of tables. There’s stylish music playing. They’re interestingly hip environments, but they are optimized for the world of work, but work in a new paradigm that is what you’d think about moving into if you were a new card-carrying member of a lower Manhattan, a Tribeca office for Google or Facebook. You would expect to be it to be open loft space. There would be enclosed spaces you could go into for private conversations. But in general, that is the new way in which the world works in the tech sector. And WeWork has attempted to create, if you will, a multitenant platform for that kind of concept.

Kenny: So this is really appealing to millennials, Gen Z, and the way that they want to go to work and the kind of environment they want to be in.

Rayport: Hugely so. And many Fortune 500 companies view WeWork environments as a way to attract millennial talent. WeWork spaces at the time we wrote the case, spring of 2018, had about 210,000 members. And about 25 percent of those 210,000 are people who are part of Fortune 500 workforces where somebody said, “Gee, we’re General Electric and we have a bunch of people sitting in Springfield and productivity is way down. What if we airlifted 120 of them and put them into a WeWork? Let’s perform a kind of classic Hawthorne Experiment type thing. Let’s put them in a different environment, pay attention to them in a different way and see if productivity goes up.” And the Fortune 500, Fortune 1000 companies are voting with their feet by putting elements of their workforce in there to see what happens. They’re finding very favorable results. It started as something that attracted, if you will, small- and medium-business startup folks, millennial talent; it’s become a much broader demographic swath of the working world.

Kenny: In your view, how disruptive is this to commercial real estate? And as they bring people into these places, how does it work for the brands of the firms that are moving people in? Because I would imagine that millennials and Gen Z are flocking to places that they feel support them in this way.

Rayport: It’s a fascinating development in the world of commercial real estate. To give you a sense of the scale of it, the current estimate is that were about 14,000 co-working spaces in the world at the time of the case. Obviously, only a few have scaled to the visibility of say an IWG or a WeWork, or WeWork’s closest competitor, a new firm, venture-backed relatively young firm, called Knotel. But the scale of this kind of working environment is stunning. And to give you a couple statistics. There are today in Manhattan itself, one borough of New York City, there are more than 50 WeWork co-working spaces.

In London, the current estimate is between 18 and 19 percent of all commercial office space in the city of London is now dedicated to co-working either tenants or landlords. So, it’s a very big deal to be able to field this alternative kind of environment for work. And as a result, yes, companies that situate themselves in these kinds of environments, which tend to be smaller and medium sized, are not at the point where they are a scaled venture that can produce an environment bespoke for themselves. It is much easier to rent office spaces and service, so to speak, than it is to either build it. Or if you are a big legacy organization where your office looks likeThe Officeon television, then how do you wave a magic wand and get a big change for a group of people within your workforce? One way is to put them into a space like this.

Kenny: The case gets into the rapid growth of WeWork. They grew at an extraordinarily fast pace from their founding in 2005. But just the co-working thing turns out not to be enough. You’ve got two serial entrepreneurs. Apparently, they’re still thinking about other ideas. Talk a little bit about the ways they started to branch off of the WeWork idea into other areas.

Rayport: To your point about how fast this has grown, the first WeWork opens in 2010. By the time we wrote the case in 2018, there were 242 of them, of which 50 plus were in New York City, but they span the globe. Almost a quarter-million people are in these spaces, so it’s already a significant phenomenon, funded by almost unprecedented levels of venture investment. At the time we wrote the case, they had a $20 billion valuation, having raised $8.5 billion worth of capital to fuel this growth.

Having that much capital has allowed them to begin to think about adjacencies. The most important of them is something called WeLive, which is a residential operation. There are two of them, one in the New York area, one down in DC, at the time of the case, that allow people essentially to check into a complete life that is in many cases co-located with WeWork co-working spaces. But co-living spaces sound just like what the name implies. They are usually multiple bedroom suites. You can live with roommates, you can live on your own, but there are a bunch of communal areas and services that are typically associated even with high end condominium developments, common kitchens, catering, game spaces, work spaces and so forth.

Kenny: That gets back Miguel’s upbringing, if you think about him growing up in that commune-type environment. Right?

Rayport: Absolutely. And I should say that the fascinating thing about Miguel and Adam Neumann, just back to your original question of how these guys have commonality, is that Adam grew up in Israel, where he spent a great deal of his life living on a kibbutz. He was living in a commune. They are brothers from a different mother, as the millennials like to say, in having this kind of shared experience of living and working. And it won’t surprise you to hear that they also have created something calledWeWork Labs, which is essentially an incubator-like space for startups, WeGrow, a project of Adam Neumann’s wife Rebecca, which is about creating a new form of education for early-stage humans, otherwise known as preschool and grade school. There are a lot of things that they’re doing to experiment.

But the main event is in the co-working spaces themselves. Back to our discussion of who the comps are, if IWG is the comp, IWG has about a 21 percent share of this serviced office leasing market. WeWork, apples for apples, has about a four percent market share. Now, here’s the funny thing. So, you’ve got 20 percent share and you’ve got four percent share for round numbers. And yet, IWG is a public company that has a market cap at the time of the case of around $2 billion. WeWork, at the time of the case, has a private market valuation of around $20 billion. So now you ask what is the value of each additional share point to WeWork carved out of IWG? Well when a share point moves from IWG to WeWork, it’s 50 times more valuable.
It’s remarkable that they’ve taken a space that is a pretty generic commoditized business, and found a way to inject enormous value.

Kenny: Do you think they can sustain it? I mean, are they trying to do too much with all this We stuff? The brand, by the way, works beautifully across all those platforms. And this gets into the heart of the case, which is really about how you scale a culture to be able to support this kind of rapid growth.

Rayport: Interestingly, Adam Neumann himself says, “Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?” His view is there is no way you could argue for that kind of value. And his point, which is consistent with Miguel’s view, is that what is driving that valuation is what Adam refers to as their culture and their spirituality. Another way of looking at it as to say that, in technology terms, everyone is familiar with PCs as hardware and the operating system that sits on top of the hardware to make it … essentially to help it run. The operating system is in itself a platform for a bunch of software applications like the Microsoft productivity suite that we all know of Word, PowerPoint, Excel. And then, of course, on top of those applications sit what we refer these days to as apps, kind of lightweight things like macros that you build on top of Excel. Miguel and Adam’s point is that office space is the commoditized platform, the personal computer hardware, that today nobody can sell and make any … other than Apple, nobody can actually generate a margin from the sales of hardware. It used to be that Microsoft could build a fortune selling an operating system. Well that’s become largely generic. And in the case of mobile devices, it’s not as if Apple or Google make money off the iOS or Android operating systems. The money is moving up the stack from hardware to operating system to software applications to lightweight apps. And their argument is that some combination of community, of spirituality, of culture, is in the applications layer, or OS; that is where all the value in commercial real estate going forward will come from.

“Adam Neumann himself says, ‘Look, a $20 billion valuation for a company doing commercial office space? Are you kidding me?'”

Kenny: How have they thought about applying that theory to WeWork?

Rayport: The interesting challenge … is to say, “If this is where the magic is, call it valuation, call it anything you want, but this is what is driving the meaning of the brand … then actually that’s $15 billion or $20 billion worth of cultural value. We need to figure out what it is.” The thing that caught my attention in those initial conversations with Miguel was that we were talking about the role of culture in startups. In general, startup culture is associated with the founders. It’s often associated with the creation myth around the early days of how the business got off the ground. And in general, people lament the fact that as businesses grow and scale, the culture gets diluted. Now it’s 2,000 people and we’ve lost our soul. And Miguel said to me, “I completely disagree with that. Culture is not a game of nostalgia. Culture is a tool. It’s an instrument you use to drive a business to scale. You have to constantly design and redesign culture for each additional level up that the organization makes in scale or reach or impact or value.”

Kenny: How was he doing that at WeWork?

Rayport: The fascinating thing about Miguel is that he is, first and foremost, an architect and a designer. In the same way that one would think that if you wanted to determine, say, the culture of a workspace, it might have a lot to do with whether the space was open or closed, whether it had shared desks, whether the walls were vibrant or they were bare brick, or whether there was music playing or not playing or whatever. His point of view is that is the culture is susceptible to design in the same way, and that actually designing space is one significant lever on culture, but that there are a number of other levers that look more organizational or managerial. And all of them are susceptible to management control. Put it a different way. What they’ve evolved is something that they call the culture operating system at WeWork, or the Culture OS, for short. Let me quote to you the eight pillars of the cultural, or Culture OS, at WeWork. They are:

  • Purpose, and that’s the obvious sort of why do we matter to ourselves in the world?
  • Leadership, which is how did the senior people deliver on the purpose of the organization?
  • Space, what we were just talking about, but it’s not just office space, it’s design of the online community and all of the other aspects that define the space.
  • Citizenship, which is how do all of us contribute to the values of the community.
  • Connection, building relationships with one another.
  • Performance agility, this is something, a very interesting concept Miguel originated, where he’s essentially saying that change on the inside of the organization is faster than change on the outside of the organization, meaning that you’re proactive, not reactive in the way that you perform.
  • Talent, obviously find good people, grow them, et cetera.
  • And finally, Platforms, sort of what are the systems, tools, et cetera, that enable the environment and all the rest of it?

The reason I wanted to go through those one by one is, first of all, to give you and our listeners a sense of these are the building blocks of the Culture OS, but also to say that what’s remarkable about that list is there’s not a single word on it that I’ve ever seen on a list of corporate values. My interpretation of this is that things like passion and integrity and teamwork and excellence and commitment, those are perfectly useful descriptors of cultural outputs, but that our friend Miguel as a designer was saying, “I get it, that we want those outputs. But what I’m interested in as a designer, as a manager, as a leader, is to figure out what are my levers? What are the inputs? How can I actually shape the culture that I want?”

His point would be that of course you celebrate integrity and teamwork and excellence, but you’ve got to start by serving the people who are going to wind up forming the teams, aspiring to excellence, and exemplifying integrity. His point being that as opposed to this being some mystical thing that people can engage in arm waving about, it’s actually something very practical, as opposed to taking it as something that is an act of God or nature that just happened to us. Our culture happened to us because we were 2,000 people and now suddenly we turned into a different kind of organization. He’s saying, “Wait a second, you can craft this. You can make the culture you want. And because you’re making it to order, you can make it to fit the size and characteristics of your organization.”

Kenny: Therein lies the other business idea that Miguel has, being a serial entrepreneur. He’s going to try and not just make this work at WeWork, but he thinks there is a model that can be replicated in other places too.

Rayport: You mean by other geographies?

Kenny: No, I actually mean in other organizations. One of the things the case alludes to is that Miguel is thinking about taking the show on the road a little bit.

Rayport: Absolutely. So I’m glad you are focused on that. The presenting issue in the case is the question of whether WeWork brings something to market that they referred to PxWe, which is short for “powered by We.” And as you said, it’s all part of a very elegant brand family. All of this, we work, we live, we grow, powered by We. But the idea there is that if, going back to our hypothetical example, GE. They takes 120 workers and put them into a space in lower Manhattan. The 120 workers turn out to be three times as happy and four times as productive. And the question is, I got 10,000 people back where they came from, what do I do for those 10,000? So, two choices. One is to take the 10,000 and break them up into groups and put them into the 50 WeWorks all over Manhattan, but that’s huge amount of dislocation and also obviously cost. The alternative is to turn to WeWork and say, “Can you do for my workforce, in situ, what you would have done for them if they’d moved their locus of work into your co-working environment?” The question is, do you bring a product or an offer like this to market? Miguel’s view is that this is completely consistent with the goals of the venture. Does it mean that you give up some element of control? Be careful what you wish for.

You might get a consulting business. The other side of it though, and this is what Miguel argues, is that his mantra is that work, because it’s your life, better be something that you love. Even today, where WeWork is now a quarter million people in those WeWork office co-working environments, that is obviously a minuscule percentage of all the people who go to work every day who get out of bed and think about the commute, think about the eight hours in their cubicle, and say, “Wow, I hate going to work. I hate my job.”

His view and Adam’s view, because these are kind of messianic guys, they want to rescue the human race from the tyranny of the misery of the work we don’t like. They believe they can transform a lot of that work by injecting a different Culture OS into those offices and creating a different kind of human experience of work.

Kenny: They’re the antidote to Dunder Mifflin.

Rayport: That is exactly right. We spend a lot of time in our entrepreneurship curriculum asking of any given business, what’s the total addressable market? Clearly co-working is going to be a niche for a very long time in the world of commercial office space. But if it’s possible to bring the cultural or human experience of co-working into the rest of the world, as opposed to hitting the 20 percent, now you’ve hit 20 plus 80 percent is your addressable market. And it looks like at least five to 10 times as large depending on how you do that math. If you’re in the change the world business, which they are, that’s very compelling.

Kenny: Have you discussed this case in class? I know it’s a new case.

Rayport: I have taught it several times in the MBA program in the context of our scaling technology ventures course, and also with executives five, 10 years out of MBA program training, who are scaling entrepreneurs.

Kenny: Have there been many participants that you’ve taught it to who have actually worked in a WeWork space?

Rayport: Among our MBA students, it was interesting. I’d say about 10 percent, based on a show of hands in the classroom, had been in Regus or IWG spaces. And about 35 or 40 percent were familiar with direct experience inside WeWork spaces. When we taught this on the HBX Live (online) platform, we had an entire team of five who were participating in the case discussion from their offices inside a WeWork. It was very meta.

Kenny: Jeffrey, thank you for joining me today.

Rayport: Brian. Thank you for having me.

Kenny: If you enjoyed this episode of Cold Call, you should check out our otherpodcasts. After Hours features Harvard Business School faculty dishing on the latest happenings of the crossroads of business and culture, and Managing the Future of Work features experts discussing how to survive and thrive in the age of artificial intelligence and learning machines. Subscribe to these and others on Apple Podcasts or wherever you listen. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.

Interview recorded November 19, 2018. The transcript has been edited for length and clarity.

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