- Shared office space firm WeWork is one of the most valuable startups in the world, with a valuation of $20 billion (£15 billion).
- The company has expanded globally by offering flexible shared offices with contemporary decoration and free beer.
- Three international rivals claim WeWork uses “aggressive” tactics to tempt away tenants.
- They say the firm sent employees undercover to gather intel on members and offer months of free space to get clients.
- WeWork said it was expanding fast and that it had built a strong community in its operating cities.
Shared office provider WeWork is one of the fastest growing and most valuable startups in the world. But rivals have accused the company of tactics such as snooping on their premises and aggressively targeting tenants to fuel its growth.
Two competitors in the US and UK told Business Insider that WeWork sent employees to falsely pose as potential clients in order to scout out tenant lists and building layouts.
And a third rival said the company aggressively targeted its existing tenants with multiple emails and phone calls offering up to a year’s free space to buy them out of existing tenancy agreements.
There’s no suggestion that WeWork’s activities are illegal, though, and a source close to the company argued that free leasing and promos are all part of its growth phase. And, of course, it is healthy when companies compete fiercely for new customers. A spokesperson for WeWork declined to comment on several of the allegations for this story.
But the allegations show a contrast between WeWork’s public image as a “community”-oriented startup and its aggressive sales tactics, which are sometimes aimed at the breakup of existing startup community spaces.
WeWork has notched up a $20 billion (£15 billion) valuation from Silicon Valley investors for its flexible office spaces that come with contemporary decor and free beer. The company has never disclosed its total venture backing, but has raised approximately $6.8 billion (£5.2 billion) to date according to public statements.
A San Diego coworking space accused WeWork of ‘destroying’ the ecosystem
Wolf Bielas is an investor and cofounder of the Downtown Works space in San Diego.
At the time, Bielas said, he welcomed the competition. “We said, ‘You know, that’s good, people realise this is a trend, [WeWork is] close by, it’ll create a nice cluster.’ Everything was, I would say, nice,” he told Business Insider.
Bielas described a startup community in San Diego that was close-knit and collaborative.
But over the next year, WeWork became more aggressive. The company began trying to poach Downtown’s clients in 2017, Bielas claimed. Bielas recounted how a WeWork sales representative even emailed Bielas himself, not realising he owned Downtown Works.
“We’ve got members saying they got these emails and very aggressive phone calls,” Bielas told Business Insider. “In my mailbox, I got an [email] saying ‘We’re offering 12 months for free, and if you’re in a contract, we’ll help you get out of the contract.'”
Bielas showed the email to Business Insider, which had the subject line “A Year of Office Space, On Us.”
Bielas added that WeWork had approached him through his own property management company WL Investments — which isn’t listed or advertised outside Downtown Works. Bielas didn’t spot any WeWork staffers himself, but assumes they got in somehow.
“The only way they were able to get WL investments LLC is by looking at the name in the front of my office at DowntownWorks, that is the only place the name is published,” he said.
Bielas did not offer proof that WeWork staffers had actually spied on the premises. And, in theory, WeWork could have gathered the data through independent data brokers or a government register.
WeWork also set up a booth directly opposite Downtown Works’ offices, next to a collection of food trucks. Bielas said there were around 20 WeWork employees with rugs, living room furniture, and food and drink, offering free space to Downtown clients.
A few companies did switch over to WeWork, Bielas said. Other Downtown Works tenants emailed Bielas in support.
“What I have seen is aggressive,” he said. “It’s hard to compete when they can give you 12 months for free. [It’s fine] to run your promotion and to fill your space, but encouraging someone to break their contract … I don’t think that’s right.”
WeWork did not comment on the specific allegations. However, a source close to the company said the firm took sales intelligence seriously, pointing to its August acquisition of Unomy, which tracks data about potential clients.
One office space firm got so used to seeing WeWork employees that it put out a ‘Wanted’ sign
Flexible office space company Knotel was founded in 2015 and, like WeWork, initially began operating in New York. It is aiming to have 50 locations in the city by the end of 2017.
Knotel sent a cease-and-desist letter to WeWork on October 6 this year after it found WeWork employees posing as prospective customers in order to scout out Knotel’s locations and clients.
Knotel’s chief executive, Amol Sarva, told Business Insider his company noticed the same man turning up across different Knotel coworking spaces.
According to Sarva, the man would take pictures of offices and gather names of companies operating out of Knotel. In one instance, Sarva claimed, the man pretended to be a CEO who urgently needed to move hundreds of people into a coworking space by the following week.
Initially, Sarva said, his general managers didn’t think anything was amiss. But when the man kept popping up, staff felt something about his story didn’t ring true and began emailing internally about him. Once they realised the man had visited several Knotel spaces consecutively, a Knotel staff member recognised him as WeWork employee Ari Matityahu and corroborated the connection on LinkedIn. Sarva said Matityahu was sometimes accompanied by WeWork’s head of retail, Dov Brafman, and both men are listed in Knotel’s cease-and-desist letter.
WeWork did not comment the specific allegations, but confirmed Matityahu was a member of staff. Matityahu and Brafman did not respond to a request for comment.
Knotel turned the incident into a joke and printed a “Wanted” sign for Matityahu. Archived versions of LinkedIn show that Matityahu subsequently removed WeWork as his employer on the site.
“It was an amateur thing,” Sarva said of WeWork’s tactics. “It’s like walking into a Maserati dealership and saying you’ll buy cash. No one walks into a Knotel and says ‘I have 100 people I need to move in by Monday, give me a detailed tour.'”
But the scouting mission worked, according to Sarva, with WeWork following up by targeting Knotel’s clients with 6 – 12 months of free space and even seeming to offer to buy them out of an existing tenancy.
He showed a sales email to Business Insider, originally sent to a Knotel tenant. It has the same text as the email sent to Downtown Works’ Wolf Bielas.
You can read the email below — we have removed the recipient’s name:
In one instance, Sarva claimed, WeWork cofounder Adam Neumann personally called a Knotel client to offer free space. That company took up the offer, Sarva said, and switched offices. WeWork did not comment on this allegation.
One property lawyer told Business Insider that free periods are not unusual in commercial tenancy agreements, and that tenants accept these terms with their eyes open. The difference at WeWork is, perhaps, that it offers these discounts at scale, rather than a single location or city.
“Competition is something we should all enjoy,” said Sarva. “But … there are boundaries. [You don’t] lie to people, sneak into people’s offices.”
WeWork did not address Knotel’s claims directly, but gave the following statement to Business Insider: “We have built a vibrant community in New York and beyond and continue to expand every month. We believe that our offering is unique and exciting and want to make it as easy and enticing for as many people as possible to join our growing global community.”
A source close to the firm said “mystery shopping” was completely normal in the office sharing industry, and that competitors often dropped by WeWork spaces to check out its layout, decor, and setup.
Sarva acknowledged that he had visited WeWork spaces in New York, along with other rivals, but said he had never done so in disguise. He said the same applied to Knotel employees.
A British workspace company noticed patterns of fake customers
Rohan Silva launched his workspace company Second Home in London in 2014, the same year WeWork expanded to the UK.
When Second Home opened its doors, Silva and his staff noticed what would become a familiar pattern. Prospective customers would apply online for a tour of the space with company names that didn’t exist. Silva and his team only suspected something was amiss because they vetted prospective tenants.
“When we Googled the company’s name, there was nothing,” Silva said. “When we searched for the person and looked for them on LinkedIn, they invariably had a WeWork connection, they were a consultant for them.”
Silva never confronted WeWork, but his team rejected several such applications for three or four months. The activity died out as WeWork established itself in east London but, Silva added, now Second Home is expanding to a new site in Holland Park, west London, the same pattern has started again.
He likened WeWork’s behaviour to Uber, specifically when it allegedly sent fake customers to talk to drivers on the rival service Lyft, in hopes of tempting them over to Uber.
“What it really reminds me of is the way Uber behaved,” Silva said. “It seems to be a very aggressive, sort of military approach.”
What has annoyed Silva, Bielas, and Sarva is how WeWork obtained the names of clients, and then bombarded them with emails and phone calls.
“The issue is their getting hold of proprietary information about the community, then using it to spam them,” said Silva. “It’s just really out of order.”
A former employee said WeWork had aggressive sales practices
WeWork’s practices shed light on the company’s stated obsession with “community.”
Here’s a quote from WeWork’s mission page on its website: “When we started WeWork in 2010, we wanted to build more than beautiful, shared office spaces. We wanted to build a community. A place you join as an individual, ‘me’, but where you become part of a greater ‘we’. A place where we’re redefining success measured by personal fulfillment, not just the bottom line. Community is our catalyst.”
Yet establishing WeWork’s community sometimes seems to come at the expense of others: One London coworking space, Rainmaking Loft, shuttered in early October after WeWork moved in directly above it.
A former WeWork employee, speaking anonymously to Business Insider, also questioned the firm’s policy of offering free space, which belies its promise of flexibility.
“Remember WeWork is monthly rolling contracts, that’s what they sell to the masses,” the person said. But the offer of six or 12 months of free space is alluring to firms who are initially short on cash — but are then locked into longer-term contracts, they said. “It’s not as flexible as they say it is,” the person added.
The person said they had initially been drawn to working at WeWork for its promise of community, but felt the company prioritised aggressive selling.
“It’s a huge part of their branding and their marketing and how they sell the space to people [to] say they have this community team. But then I know first-hand working on that team that there’s really very little time to be with your community and nurture the people there because the sales element of it really takes up about 80% of your time.
“A lot of the time you’re just pushing, pushing, pushing on that.”
WeWork did not comment on the former employee’s statements. A source with knowledge of the matter told Business Insider the promotional offers of free space are now over, and that community managers can variously focus more on sales, hospitality, or operations at different times.
WeWork is rapidly expanding beyond its core property offering. It is developing a residential offering called WeLive, so once you come home from your WeWork workspace, you can cook, eat, and sleep in your WeWork-managed apartment. There’s also a WeWork school for entrepreneurial kids, and a WeWork fitness business. The company has also just invested in a wave-pool startup.
For rivals, WeWork’s mission creep goes beyond healthy competition.
“I think these practices and not being collaborative, it will come and bite them in the long term,” said Downtown Works’ Bielas. “You need to be a good citizen.
“You’re not coming to build an ecosystem, you’re coming to destroy the ecosystem. I don’t think it’s good business practice, it’s not sustainable.”
Disclosure: Business Insider’s San Francisco bureau is based in WeWork.