Selling office space and happy hour to a rising economy of freelancers

HARI SREENIVASAN: The latest jobs report is due out tomorrow, and, once again, it's expected to show a large percentage of people who are now self-employed.

A New York-based start-up has come up with a new business model that rents office and work spaces to freelancers and others. And it's growing. The company announced a new round of fund-raising this week as it opens more locations around the country, as well as in England, Israel and the Netherlands.

But the company's premise also raises some fundamental questions about the transformation of the workplace.

Economics correspondent Paul Solman has the story, as part of our weekly series Making Sense, which airs every Thursday on the NewsHour.

PAUL SOLMAN: Entrepreneur Jonathan Smalley and Cinna, short for Cinnamon, at Smalley's Washington, D.C., office, space he rents by the month from what may be the hottest new landlord in America.

JONATHAN SMALLEY, CEO, Brilliant Collaborations: If you're having a tough day, being able to cuddle up a couch with a cute dog really makes things that much better.

LILY BRYNES, Lily Spots NYC: We actually put any type of photo, logo or message on top of the cupcake, so there's some for you.


PAUL SOLMAN: Lily Brynes runs Lily Spots NYC, whose mini-cupcakes can be topped with edible images of literally anything.

So, this is edible, all edible?

LILY BRYNES: Everything is edible. Bottoms up.

PAUL SOLMAN: You work out of this facility?

LILY BRYNES: We are e-commerce for now. And we are based here. We work on the second floor, and it's just our office. We have two kitchens, but we do all of the back-end work here.

PAUL SOLMAN: Developer of cloud-based math tutoring software Dave Joo has a Manhattan nook too.

DAVID JOO, Developer: They have really discovered the secret sauce on how to make this place feel hip, feel new, feel innovative. Having guests come into this environment actually adds a real sense of, hey, we're a larger company than we actually are.

PAUL SOLMAN: These folks all rent office space from WeWork, co-founded by designer Miguel McKelvey in 2010.

The thinking was that, given the swelling ranks of the self-employed, why not lease and then spiff up empty buildings, subdivide the space and sublet it, in units as small as one desk, while providing amenities and camaraderie to attract contingent workers?

MIGUEL MCKELVEY, Co-Founder, WeWork: If we unite them together, bring them together, that creates some energies that motivates everybody to do better, to do more, to be excited about both work and life.

PAUL SOLMAN: Plus, it gives them a legal address for mail and the like, an instant network of fellow freelancers, a large enough pool of people to buy into group health care plans.

McKelvey's is the sunny spin on housing the free-to-be-you-and-me work force. But Brooklyn College humanities dean Richard Greenwald takes a dimmer view of the growing trend.

RICHARD GREENWALD, Brooklyn College: More and more companies are hiring freelancers. Right now, we have 40 percent of the work force working contingently, without any safety net.

PAUL SOLMAN: Greenwald is a historian of the workplace and has been studying the new economy for an upcoming book called "The Death of 9-5."

Almost half of all current American workers, he has discovered, now get the bulk of their income from freelance work, benefit-free.

RICHARD GREENWALD: I'm hard-pressed to see a sector of the economy where outsourcing isn't having a huge impact. And I think for many Americans, they think of it as a temporary thing. Eventually, people are going to have to recognize that this is not an in-between stage. This is the new normal.

PAUL SOLMAN: But to Greenwald, the insecurity of contingent work without benefits isn't normal at all. The premise of WeWork, however, is that if outsourcing is inexorable, at least the outsourced have a cool and convenient place to set up shop.

Anastasia Morozova does marketing for a start-up real estate firm. Why doesn't she telecommute for free from home or at Starbucks?

ANASTASIA MOROZOVA, Curzon Real Estate: Too many distractions. One could say that there are distractions in a space like this, but they're the good kind. It's everyone working. It's coffee and spa water on draft, beer after 5:00. It's a good space to feel energetic and inspired to get work done.

PAUL SOLMAN: Am I being too negative to think that what you're doing is providing community for people who would otherwise be lonely, as opposed to inspiring people and giving them meaning, whereas they couldn't come up with meaning on their own?

MIGUEL MCKELVEY: Well, certainly, there's components of both of those things, but as an entrepreneur who had spent time working at home, I could have all the ideas in my head, and they could all be incredibly genius, amazing things that inspired me all day. But without someone to share that with, where does it go?

PAUL SOLMAN: So, WeWork chose spaces to maximize mingling.

MIGUEL MCKELVEY: Most of our buildings are on corners. We choose buildings that have great daylight, because that makes people feel good.

PAUL SOLMAN: And then McKelvey designed the spaces to further spur interaction.

MIGUEL MCKELVEY: At the expense of convenience, we will sometimes make, you know, people walk further, make people walk through a space in order to just potentially have the opportunity to see more people doing different things. Maybe there is someone doing a whiskey tasting over there or there is a cold brew thing here or there is someone presenting on the screen over there. Maybe I will take a minute and go check that out.

PAUL SOLMAN: And so glass-walled offices, festooned with funky furniture, the inevitable ping-pong table, fussball, a quiet room when it all becomes a bit much, free coffee all day, of course, and beer on tap at beer hour, which kicks off at 5:00 p.m.

So the coffee is to keep people working hard and to stay awake, but the alcohol is to…


PAUL SOLMAN: To lubricate.



PAUL SOLMAN: To lubricate community?


PAUL SOLMAN: WeWork isn't the only firm housing the self-employed these days. Not long ago, I flailed away against real estate developer Ashish Dua of Acumen Capital, which buys and refurbishes manufacturing buildings, like this former Pfizer pharmaceutical plant in Brooklyn.

It now houses a host of artisanal food vendors, a maker of handmade dog leashes. But WeWork targets office workers. And it's a phenomenon, growing exponentially, 56 locations in 17 cities as disparate as London and Tel Aviv. The company added two more sites just during the week we were shooting.

The company was valued earlier this year at $5 billion. But within six months, the valuation doubled to $10 billion. As "Bloomberg" magazine points out, however, you could build and own the World Trade Center building, with three million square feet of office space, almost as many square feet as WeWork temporarily leases, for only $4 billion. WeWork owns no space of its own and took out leases when rents were cheap.

What happens to its costs when it has to renew in a hot rental market? What about just collecting the rent, given the fact that most start-ups fail? In other words, a contingent work force could be a problem for WeWork, and perhaps, says Professor Greenwald, for us all.

RICHARD GREENWALD: If we're moving to this entrepreneurial utopia, where everyone's their own boss, those who are lucky can be successful and march up the chain. But most of America is not going to be, and that's what I'm troubled by, as this pattern continues.

PAUL SOLMAN: But, for the moment, WeWork tenants like Lily Brynes embrace the new freelance economy.

Do you feel vulnerable being a member of the contingent work force? That is, you're a freelancer.

LILY BRYNES: I don't necessarily feel vulnerable. If anything, I just try to capitalize on being around all of these other freelancers, because my business is all edible marketing. And when you are in an environment full of companies and people looking to gift people with unique — unique things like this, it just always works in my advantage.

PAUL SOLMAN: So, what's next for McKelvey and his team at WeWork? This building in Arlington, Virginia is being repurposed for micro-apartments, 360 square feet or less, with common kitchens and living space, branded as WeLive, and a brand-new WeWork space will be in the same building, a lot like a college dorm.

In New York, New York, this is economics correspondent Paul Solman, still with a full-time job, reporting for the PBS NewsHour.