Everything you ever wanted to know about opening and managing a coworking space
There are almost 29 million small businesses in the US, 22 million of which are sole proprietor organizations with no employees other than the owner. And when you consider that 52% of these small businesses are run from home, there’s a clear and growing market opportunity.
Small business owners don’t have the resources to lease a whole floor of a trophy office building. If it’s just you and your laptop, your demands are simple: good wifi, good coffee, and a place to meet clients. But while a home office and the local cafe can meet most of these needs for a while, there will come a time when even the most ardent entrepreneur needs an office space.
What happens if you hire someone? If you need better connectivity? If Starbucks just doesn’t cut it for that big business meeting? Or, if you just need to talk to someone other than the dog?
All of these reasons are fueling the explosive growth in coworking spaces. But while many are finding their success from working in a coworking space, the real winners are the ones running the coworking spaces. With the right know-how, connections and location, you can make small business big business. Here’s how.
Coworkers Worth Working With
Today’s coworking spaces are shared by startups, small and large businesses, and freelancers. They aim to deliver flexible work options to suit the multifaceted needs of today’s businesses, with offerings including desks and private offices, meeting rooms, virtual offices, connectivity, events and more.
Successful coworking spaces are more than an office address. They’re a community bringing together a mix of talented people from across multiple industries and verticals. They facilitate connections, networking, and exchange of thought, creating a space that’s less an “office” and more a hub for entrepreneurs and thought leadership.
Coworking spaces also allow businesses and freelancers to pool their resources to take advantage of services and amenities that would otherwise be out of their reach. State-of-the-art secure wifi connectivity, technology, security, and event meeting spaces are now an option. Admin assistants and tech support are always at hand to solve problems, book meetings or collect packages, meaning that business owners can spend their time building their business rather than dealing with the minutiae.
Community Comes First
An estimated 10,000 coworking spaces open around the world each year. Joining the coworking space brigade can mean serious success — and serious bucks. But it’s not as simple as just leasing commercial real estate office space and waiting for the checks to be cut. Office spaces come with significant overhead, which is why your potential clients are currently working from home!
Before choosing and outfitting your space you need to build a community. Doing so will help you get to know your market and their needs, ensuring that when you open for business you’re delivering on expectations and not spending big on the nice-but-inessential. Plus by having tenants prepay a lease or a “hot desk” subscription, you’ll be able to offset your initial opening costs.
The first step to building a successful coworking space is finding the initial cohort of people who will inhabit your space. They’ll probably be a group of freelancers who riff off each other and their skills – programmers, designers, writers, and engineers. If they love working together, chances are they’ll bring others into the mix by evangelizing for your space.
Remember that unless you already have a coworking brand name behind you, most of your initial tenants will be more on the casual side, not full-timers. Factor this in when building out your space and hiring service staff. It’s better to start with the essentials (better wi-fi!) and scale up than to over-commit in the beginning.
That said, some things are better left to the professionals. Rather than taking a sledgehammer to your space and loading up on the flat-pack furniture, consult first with an experienced architect – ideally someone with experience in coworking spaces. They’ll be able to advise about how to maximize your space, and help ensure that your final result meets both tenant expectations and local building code.
Spreading the Word
Awesome people attract crowds of great people, and this truism is true of the coworking world. Coworking spaces are built on word-of-mouth rather than advertising. If you can set up your space as a site for events, talks and user groups – and represent your space at other similar events around town – you’ll be able to get people through the door to see what you’re all about.
Every person who visits your space is a potential customer, so give them something worth signing up for. Host workshops, meet and greets, creative “sprints”, product demos, and talks from industry leaders. As you grow, put together a valuable library of tech and business resources, and feature new technology offerings that people will want to try. Partner with local businesses like print shops, cafes, and accountants to offer discounts or special deals.
Consider developing partnerships with local colleges, transportation hubs, government facilities, and large-scale businesses like banks. Many see coworking spaces as an opportunity for staff professional development — for example by working on a small external project with a group of freelancers. Ongoing relationships with these organizations can help give your bottom line a boost while providing valuable opportunities for your tenants.
Turning A Profit
The costs of starting — and running — your coworking space will vary with your market. A coworking space in the heart of Manhattan will command astronomical rents, while a space in a mid-size town is likely to be kinder to the hip pocket. That said, demand will vary accordingly and so will the prices your clients will be willing to pay.
In general, successful coworking spaces are ones that are centrally located with access to a large, connected community. (See our above rule on building your community first. Always validate your market before making a business bet!)
Note that if you’re leasing your coworking space, your own rent will likely have built-in increases that you’ll need to account for and pass on to tenants. An owned property will have fixed repayment rates, but you’ll be in charge of your own maintenance and repairs.
Other costs you’ll encounter include taxes, admin and custodial staff, electricity/gas, internet/telephony, kitchen supplies, office supplies, furniture and insurance. If you’re running a premium space, expect to factor in additional costs and services needed to meet the expectations that come with the “premium” designation.
Back-end infrastructure is also an essential ongoing investment. Consider the tools you’ll use to bill clients and collect revenue. Do you need a CRM? A way to book meetings online? Can you cost-effectively scale these services as you grow?
Similarly, you’ll also need to account for the growing data, infrastructure and resource needs of your tenant base. If a software company with huge bandwidth and storage needs moves in, how will you respond?
To stay in the black you’ll need to constantly evaluate and monitor your costs vs revenue both in the short-term and as your business evolves. We’ve looked at the expenses. Now it’s time to consider how you’ll bill your tenants.
A Model Business
Coworking spaces are often low volume and low margin. This means that you need to take advantage of multiple revenue streams. Your “long-termer” startups and staffed small businesses can be relied on for monthly or annual per-desk revenue.
But hot desking allows you to top that up. Build in as many hot desks as you can and charge a membership — consider a tiered approach that encourages casuals to sign up while also drawing as much revenue as possible from frequent users who haven’t quite committed to full-time status.
The idea is a bit like a gym membership: you’re banking on people paying for a service that they might use, and in so doing subsidizing the costs of those who are using it. And those who do? You can woo them with full-time desk deals. Sure, the full-time desk is more expensive, but it comes with stability and a place to store their gadgets and files!
Next up, charge a fee for the use of meeting or conference rooms. These spaces are essential to businesses who need to meet with clients or discuss operations in a private setting. Develop a model that allows for a “per use” cost, or a monthly or annual membership fee. Don’t be afraid to charge a premium for this feature – businesses need to put their best foot forward when meeting with clients, and they know that a meeting room is essential.
Consider also integrating a POS system in your meeting spaces to allow for the purchase of snacks — or building the cost of these into the meeting room booking cost.
You’ll also want a special fee structure for data, bandwidth and server costs, which can skyrocket if you’re serving high-tech clients. Other revenue-generating areas include charging for printing and scanning, telephone answering and forwarding, event “cover” charges and parking. If you handle mail services, you can also charge clients for a “virtual office”. These don’t even need to be full-time clients, just those who want the appearance of a business address without the associated overheads.
If a 24/7 space is an option, consider whether you can run multiple “shifts”, generating an extra stream of revenue from those who work outside of 9-5.
As you grow, continue to assess and evaluate your operating costs. Ruthlessly identify and handle inefficiencies at every turn, cutting unpopular or low-ROI services and diverting expenditure towards those that serve your clients while generating profits. Negotiate better deals with providers and strive for automation where possible. Bloat goes hand in hand with growth, so be adaptive and make sure that your profits grow in line with your revenues.
The Mini VC Approach
The quality of a coworking space largely rests upon the quality of its people. Getting started is one thing, but building a thriving ecosystem of highly talented people – who in turn draw more of the same – is another.
There are a couple of approaches that you can take here. We’ve touched on providing a solid infrastructure, meeting tenant needs and building a rich learning community. But if your coworking space is serving startups, then you’ll want to leverage the power of the venture capitalist (VC).
Some coworking spaces welcome “in-house” VCs from established firms. These VCs may work from the space, or drop in on a regular basis or for scheduled pitching sessions. Reach out to VCs to see if you can cut a deal that works for both them and your coworking space. Remember that a VC can be a serious draw for aspiring startups, and can also be a valuable addition to events and day-to-day knowledge building and networking.
The other approach is to become a VC yourself, although if you’re not already seasoned in this space, it’s probably best to partner with someone who is. When onboarding prospective businesses to your space, vet them for future growth prospects. If you can see a powerful opportunity, look at offering a reduced fee in exchange for partial ownership or a portion of revenue.
Done well, this approach can upgrade your business from a coworking space to an incubator or accelerator — a springboard for talented individuals.
There will come a point where your full-time clients outgrow your coworking space. Once their businesses reach a certain size, it will make more financial sense for them to rent their own space. This is actually good news for you, it means that you’ve provided an ideal environment for startups and small businesses to thrive. Of course, with that growth comes a blow to your revenue.
So how can you leverage this growth to your benefit? First, reputation building. Gather testimonials from these tenants, and ask them to highlight the key benefits of working in your space. Build a list of “graduates” that you can present to new tenants or showcase in a prominent area. After all, your prospective tenants are looking to use your coworking as a stepping stone to their own workspace, so tap into their aspirations and show them your stellar track record in this area.
Second, develop relationships with other commercial spaces, real estate agents, and moving companies. If you can help your tenants find a new space and move in with as little hassle as possible, you’re providing a valuable service – one that you can charge for. Prepare a “moving service” package and negotiate referral commissions with agents or commercial spaces.
Make sure you don’t get blindsided by these moves, however. Build a “lease break” clause into your contracts that ensure that you don’t suddenly lose a month (or a year’s) rent. Ask that your full-time tenants provide a certain amount of notice prior to moving on so that you can approach other prospects about a longer-term lease.
Ideally, you’ll have other full-time tenants in the wings, but you can always hot desk the newly vacated seats until your next contract is signed. Strive to maintain a good relationship with your tenants – whether full-time or casual – so that you can gauge where they are in their businesses and what their needs are likely to be.
Time To Cowork Your Way Up
Running a successful coworking space is all about service provision. If you know your market, deliver what it needs, monetize appropriately, and maintain above-and-beyond customer service, you may just be able to claim a hand in helping tomorrow’s startups, entrepreneurs and freelancers succeed.
Do your research, start small, and diversify your revenue streams, and you may just be the next WeWork – which in Feb 2018 was valued at $3.2B. And, to paraphrase a classic film line: always be growing.