As WeWork stumbles, this Indonesian co-working firm soars

Original Post by Tech in Asia

With WeWork’s recent implosion comes a nagging question: Is co-working a flawed business model?

For Indonesia’s GoWork, the answer is simply that it isn’t – if you’re able to execute the concept right.

WeWork shelved its initial public offering in September after investors were put off by the company’s whopping losses and concerns about its corporate governance and future viability. Without new funds to bankroll what has been a rapid expansion to the world’s biggest cities, WeWork was said to be just weeks from running out of cash, forcing parent SoftBank to bail it out. The saga has seen a dramatic cut in the embattled company’s valuation to as little as US$8 billion from US$47 billion in January.

Among the red flags for investors was the way WeWork signed long-term leases with landlords and sublet the space to members under short-term contracts, leaving it vulnerable to economic downturns.

But co-working companies like GoWork, one of the top players in Indonesia, function differently.

“We come in as an operator for landlords,” co-founder and CEO Vanessa Hendriadi tells Tech in Asia.

That means instead of renting space outright, GoWork operates it on behalf of its landlord, and both parties split the capital expenditures required for sprucing up the space as well as the revenue earned. This way, GoWork is insulated once the economy slows and it becomes harder to land tenants.

Humble beginnings

GoWork is the result of a 2018 merger between its predecessor of the same name – founded by entrepreneurs Richard Lim and Donny Tandianus, now chief financial officer and chief technology officer of the merged entity, respectively – and ReWork, which Hendriadi launched in 2016.

Ironically, Hendriadi was inspired to start her own company after seeing one of WeWork’s locations during a trip to the US in 2015.

“At the time, I was very impressed with WeWork, with the way they designed their office space, made work fun, and helped people connect through community events – from networking to workshops,” she fondly recalls.

“I realized that this was an industry that wasn’t properly groomed in Indonesia so I decided to do something similar. There was probably only two or three co-working locations in Indonesia at the time, and they were very small.”

ReWork’s first location was a 130-square meter space in an apartment building in Jakarta that it was able to fully lease out to members within two months from launch.

That validated there was indeed a strong local demand for flexible office spaces, mainly from a growing tribe of digital nomads and startups. Many liked the idea of scaling up without the need to fork out large sums for designing offices and not getting locked in long-term leases, in case their business fails.

With that in mind, Hendriadi decided to raise seed funding from family and friends, as well as Indonesian F&B and hospitality group Ismaya – the first in a string of relationships that GoWork has built with landlords.

“Back then, WeWork had set a precedent by going to VCs and positioning the company as a tech company,” says Hendriadi.

Together with Ismaya, ReWork rolled out a “hub and spoke” strategy, where ReWork’s co-working locations were complemented by “satellite” locations – cafes run by Ismaya that hosted ReWork members during off-peak hours. “The strategy allowed us to expand without having to invest money in additional locations,” explains Hendriadi.

Fierce competitors

But the co-working space industry was fast becoming crowded and competitive. “It was hot and WeWork was all the buzz overseas. There were several local and regional companies making a play for Indonesia, being the biggest market in Southeast Asia,” says Hendriadi.

As such, she thought the best way to grow and solidify ReWork’s foothold was to join forces with another strong player.

Hendriadi says that Lim, one of the original GoWork’s co-founders, was a friend she knew from the early 2000s. “At first, the talks were only about a partnership. Then the conversation evolved. We just felt it was the right fit,” she shares.

Today, she claims that the local industry has consolidated down to three major players: GoWork, CoHive, and WeWork, which control 90% of the market combined.

Hendriadi admits that they saw WeWork, with its multibillion-dollar war chest and breakneck expansion, as a huge threat. “They did have a lot of money and we knew they didn’t mind burning away that money to capture market share. That’s what scared us. Because we were very careful with how we spent our capital.”

Yet that culture of excess is also what caused WeWork’s downfall. With sweeping governance changes underway at WeWork, the company is expected to shift its approach from buying to earning its growth.

The battle, Hendriadi says, will boil down to having extreme local focus. “WeWork has a cookie-cutter approach – they’re doing the same thing as they do everywhere else in the world.”

For example, WeWork supposedly paid crazy leasing rates for buildings in Indonesia and sourced fit-out materials from China. “We know where to source three to four times cheaper in Indonesia.”

As for their other co-working rival CoHive, Hendriadi says it caters to a different market segment. “They’re designed for the lower-end market – companies that are just starting. Their locations are also not as prime as ours, so they offer cheaper rates.”

As GoWork grew, she says its client mix has shifted towards enterprises that can sign longer-term leases as well as more financially stable startups or those that have raised series B and above. This has allowed GoWork to offer ancillary services such as legal and accounting, which form another revenue stream for the company.

Another advantage is GoWork’s move to develop its own app, which allows members to do all sorts of transactions like office and office bookings and connect virtually with other members, making the whole co-working space concept “stickier.”

“But you know, we actually like for there to be many players,” contends Hendriadi. “So we can educate the market about this industry together.”

To date, GoWork has secured US$21 million in funding and will have grown to 35,000 square meters of flexible office space by the end of this year. It has also been able to turn a profit in the past couple of months, though Hendriadi declined to disclose the numbers.

Here are other vital GoWork stats and info:

• 18 locations in three cities: Jakarta, Surabaya, and Bali
• Around 5,000 office members, including employees and freelancers, whom it charges US$150 to US$200 each a month
• 10,000-plus total members, including those that regularly attend GoWork’s community events
• Biggest enterprise clients are state-owned PT Pegadaian, the most valuable financial company in Indonesia; global market research firm Nielsen; regional startups like Gojek and Oyo
• Investors include five property developers in Indonesia: Sinar Mas Land, Indonesia Paradise Property, Agung Podomoro Land, Lippo Group, and MNC Land

In comparison, CoHive has bagged US$37.8 million in cumulative funding and is present in 31 locations, covering approximately 65,000 square meters.

Having landlords as investors has helped spur GoWork’s growth, according to Hendriadi. “We invited the developers who understood our vision and had the right locations and the right type of buildings for us.”

She understands how the move could raise questions about conflict of interest. “Some landlords would probably discover that they’d want to do this themselves,” she says.

Nevertheless, she’s confident it’s not on the cards for their investors. “They’re happy to work with us because we already have the handbook for operating this kind of business and the critical mass of people who know and believe in our brand.”

Besides, copying their business model is a lot harder than it seems.

“The DNA of traditional serviced offices is not the same. Yes, they can lease out space, but the soft components – what we do outside of leasing, like our events – are unique,” she says. “Anyone can hold an event, but if your content is not curated and you don’t understand who your members are and what they need, no one will come, even if it’s for free.”

Indeed, events, which GoWork has charged for since day one, have been a revenue-generating business for the company, Hendriadi says.

Profits over growth

Born and raised in Indonesia, Hendriadi hails from a family of entrepreneurs. Her parents own a company that manufactures and distributes construction goods like industrial paint and glue.

After staying for 10 years in the US, where she took up a bachelor’s degree in chemical engineering and a masters in business administration, and worked for a pharmaceutical company, Hendriadi returned to her home country in 2006 to help in the family business.

“I was working in traditional industries – so different than what I do now – but that’s how I learned the basics of operations, business development, and marketing,” she says.

It’s also where she learned the ropes of real estate. “Our family business was headquartered in Surabaya and part of my responsibility was to expand the business to Jakarta. I had to find locations and talk to landlords for our offices, warehouses, and our second factory.”

But she didn’t feel passionate about what she was doing. “What I’ve always loved since I was young was building meaningful relationships and helping people grow. In school, I was president of our student organizations. I founded and have been on the boards of several professional clubs throughout my career.”

That’s how she got drawn to the idea of co-working.

Hendriadi says GoWork aims to grow its space to 35,000 square meters by year end and nearly double that to 65,000 square meters by mid-next year.

The team’s challenge lies in making sure that its capabilities grow as fast as its space. “Consistency of service is very important,” she says.

GoWork will continue to focus on Indonesia and in growing the business as fast but as profitable as possible.

“‘Profitable’ – that’s the word to use these days after what happened to WeWork. Before it was all about growth, growth, growth. It was scary because investors only looked at who’s the biggest but the biggest wasn’t necessarily the best as you can see now.”

“Growth is important – we have grown 20x in terms of memberships in the last two years – but we never sacrifice fundamentals for growth,” she notes.