Twitter CEO Jack Dorsey Comments About San Francisco: A Warning Sign?

Derek F. emails:

I read this article about a “distributed” workforce and thought about your comments in the EPJ Daily Alert about wework and it’s unprofitable business model.  This kind of workforce shift for “big tech” probably doesn’t help wework’s prospects to become a profitable company or continue as a going concern.

https://www.cnbc.com/2020/02/08/twitter-ceo-jack-dorsey-san-francisco-comments-a-warning-sign.html

I’d be interested to get your take.

Lastly, I work in the commercial lending department of a $7 billion dollar bank and the stuff I learn from your newsletter and websites puts me in a pretty good light amongst my peers.

RW response:

WeWork has locations across the country in a lot of second-tier cities, so this kind of move away from the Greater San Francisco Bay Area might help them marginally. WeWork's big problem is that it is entirely structured in an insane manner to survive only during the boom phase of the business cycle.

That said, in a small way, I see the new management doing small things in the right direction. About a year ago, I had heard that WeWork leased a bunch of floors in SF's new super skyscraper SalesForce Tower. WeWork was able to lease the space out to tenants at the highest rate in all of SF, probably the U.S. But then I learned that several floors were being used by WeWork itself for staff.

I thought to myself, "How nuts is that?" You put the staff in another building and rent out the space you can get the highest rent for.

New management just announced this is what they are going to do. (WeWork departing Salesforce Tower after listing offices for other tenants)

I still think they have lots of problems but it shows someone is in charge somewhere that actually knows how to run a business.

As for the Dorsey comments, I think they just reflect the current economics of San Francisco and Silicon Valley. This region is just red hot with Fed money being pumped in and there is limited office space and talent.

It doesn't make sense to have anyone except your top tier talent in SF.

If you can duplicate the tasks in other parts of the county, it makes sense to do so. Staff and rent will be much cheaper.

SF is going to be only about the elite programmers, lawyers, salespeople etc. These are people who are worth paying the extra dollars to and who want to be around other top talent.

I have noticed a dramatic change in SF over the last few years. I can recall thinking on a trip back to New York City a few years back that one thing that makes NYC unique is that in the mid-town area you hear so many people talking business and deals as they walk on the sidewalks. San Francisco is like that now. All you hear in the business sector is people talking deals, that wasn't the case just a few years back.

This is not the city for backroom operations. It's basic economics. It is too expensive to run those kinds of operations here when the office space and talent is being bid up by major league entrepreneurs for major league plays. Work that can be duplicated in other parts of the country should be done in other parts of the country.

-RW