By taking an old stodgy business (commercial real estate) and bringing it in conformance with modern expectations of design, ease of transactions, lease length, and vibe.
The real estate owners couldn’t be bothered to do this because they make too much money by doing nothing to bother with doing something for an extra $47b (a rounding error on the value of global commercial real estate)
The huge fundraising rounds are an important part of this because the hype is important for making it seem like a cool place which is essential to the economics.
Add in some founder god complex which is not really necessary or sufficient for a successful startup but does seem to be often present.
So many of these unicorns seem so stupidly simple in hindsight.
I'm in St Petersburg right now and the taxi outside the train station quoted an initial rate of EUR 50 to drive a grand total of 6km (after haggling, "just" EUR 30).
I booked an Uber (operated under Yandex Taxi in Russia now) and the total price was just EUR 5
Take stodgy, often scammy, and downright consumer unfriendly industries, add transparency and accessibility to them, and viola - you have a unicorn.
> So many of these unicorns seem so stupidly simple in hindsight.
The "stupidly" part comes in when you realize that maybe the cabbie had a better grasp of the economics of his business when he accepted your bid of 30 EUR. The gig economy people driving you for a fraction of the 5 EUR you paid might come to the same conclusion sooner or later.
Add the taxes, add the commercial insurances (how many Uber has one?), add the much higher maintenance for a car that runs all day every day,...
Just because those drivers don't factor in things in legal or financial hindsight doesn't mean they won't need it, or that it won't go seriously wrong when that need gets called on.
I've traveled widely enough to know that at least at tourist centers, airports and train stations, the traditional cab driver business model is built on scamming unsuspecting tourists.
Most estimates put the cost of driving (in the US) at around $.50 to $.60 per mile. Assuming this is somewhat on par with Europe. Guy’s costs were likely around $1.50. After Uber’s cut he’s “making” like $3?
Take someone else’s money, spend it aggressively, pretend like you can fix things in the future, and viola - you have a unicorn.
Not sure I understand your math here. A car depreciates faster if it is driven (more repairs, needs to be replaced sooner). Just because I already own a car doesn't mean it's only the cost of fuel to drive it.
Tires, oil, brakes, belts, wheel bearings, transmission... With a mechanical system like a car there are lots of things which wear down with use.
Instead of trying to figure out the actual difference yourself, you can simply look at what people are willing to pay for a car which is the same year but has different amounts of mileage. The literal resale value of your car changes drastically depending on mileage, that is the actual unrealized cost most of these ride sharing services exploit.
==Take stodgy, often scammy, and downright consumer unfriendly industries, add transparency and accessibility to them, and viola - you have a unicorn.==
They're signing expensive long term leases and then renting them for the short term at a loss, which is like exactly the opposite of how it's supposed to work.
You are confusing unit economic vs profitability. They are very different things.
If I manufacture a widget for $1 and sell it for $.50 then my unit economics are negative and, unless I manage to either lower manufacturing costs or raise prices I am in trouble forever.
If I manufacture a widget for $1 and sell it for $1.50 then my unit economics are positive. My company might still be unprofitable due to other expenses though (R&D, Marketing, whatever). This is the situation that WeWork is in.
I am aware of the difference. If you look at their numbers, their literal unit economics are negative, if you employ normal EBITDA. They don't, they employ a so called "adjusted EBITDA", which last year flatout discounted 150 million in marketing as non-recurring trying to make the argument that you just made.
But this is hilarious number fudging, because obviously a lot of marketing budget is recurring and goes towarss retaining existing customers and should go into a unit cost metric.
They do the same thing that uber did, which is pretending that they can magically 'scale' and that they are a tech company, when in reality they are a real estate business siphoning money out of investors, pretending their losses are somehow magically going to turn into profit.
I don’t understand why laypeople are so confused by how real estate investing works.
I build an office building and spend $100M. I “hemorrhaged cash” yet I own an asset that’s going to throw off cash flow for years.
It’s the same thing with WeWork on a smaller scale. They spend $5M to build our office space to own an asset that’s going to throw off cash flow for years.
Albeit a much higher yield for a much shorter term.
WeWork doesn’t own property the same way you don’t own your house. The bank does. You still have an asset though, and so do they.
Their asset is what’s known as a leasehold interest. Riskier and shorter duration than owning real estate, but still an asset making this cash hemorrhaging talk complete bosh.
The presumption being of course that they’re going to be making a lot of money out of these investments, which is what us “laypeople” as you put it express doubts about when we see half-empty WeWork spaces? Which results in an over the top multiple valuation which has nothing to do with comparable competitors and which the CEO attributes to WeWork’s great vibes (no joke).
The real estate owners couldn’t be bothered to do this because they make too much money by doing nothing to bother with doing something for an extra $47b (a rounding error on the value of global commercial real estate)
The huge fundraising rounds are an important part of this because the hype is important for making it seem like a cool place which is essential to the economics.
Add in some founder god complex which is not really necessary or sufficient for a successful startup but does seem to be often present.