Last year (and I have been waiting to say that), I wrote about the power of recombinations and how it is a driving force for entrepreneurs in creating billion dollar businesses. I recently was reading about WeWork and its $1.5 billion valuation (which should rise to $6 billion this year) and realized it is an ideal example of the power of recombination (or some would say 1.5 billion examples).
Recombination is a phrase I picked up from Erik Brynjolfsson and Andrew McAfee’s book The Second Machine Age. To recap, recombinations are taking different technological improvements and combining them to create disruptive products. An example they use is Waze, the smartphone app that provides optimal driving directions. Waze is a recombination of a location sensor, data transmission device (that is, a phone), GPS system, and social network. The team at Waze invented none of these technologies; they just put them together in a new way. None of these elements was particularly novel, but their combination was revolutionary.
WeWork is a provider of shared office space for entrepreneurs that, as mentioned above, was valued at $1.5 billion last year when it raised $150 million from investors including Benchmark Capital. WeWork has 31 locations where it provides business services and office space to 15,023 companies. Given that many of us would like to start $1 billion companies, WeWork provides a great example of how recombination can be used to create billions of dollars of value.
Why it is a recombination
WeWork fits perfectly the definition of a recombination. Shared office space has been around for more than 20 years (Regus plc, with 2,000 business centers in over 100 countries was launched in 1989), and open office space has been the norm—at least in in northern California—for about ten years. Business accelerators and incubators have really taken off in the past five years. Broadband high-speed Internet has become ubiquitous in the past five years. And the technology to share capacity, the collaboration economy, has developed in the last few years with successful start-ups like Uber and Airbnb. What WeWork does is combine the best of these businesses into a space where there was virtually no competition. The result, as I mentioned earlier, is a company expected to be worth $6 billion this year.
What it means
To create a billion-dollar business, rather than developing an obscure technology, create something millions of people need by putting together some of the best new technologies. Not only do you have the chance to create a billion-dollar business, you reduce your risk because you are building the business on blocks that you already know work. In many ways this is more of a customer-driven approach, because you are putting together blocks to meet an unmet customer need rather than creating something people may not want. The success of WeWork (not to mention WhatsApp and Uber) shows the value of this opportunity.
- WeWork, a provider of shared office space, is expected to reach a $6 billion valuation this year.
- WeWork is an example of recombination, taking existing technologies and business models and combining them in a unique way to address a previously unmet market.
- Recombinations are a fantastic avenue for you to build the next multi-billion dollar business.