270. 5 Truths About the Size of Your Coworking Space
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TRANSCRIPTION
270. 5 Truths About the Size of Your Coworking Space
00:00:02 Welcome to the Everything Coworking podcast, where every week I keep you updated on the latest trends. And how-tos in Coworking. I owned and operated Coworking spaces for eight years and then served as the executive director of the global workspace association for five years. And today I work with hundreds of operators and community managers every month, allowing me to bring you thought-provoking operator,
00:00:29 case studies and inspirational interviews with industry thought leaders to help you confidently stay on top of what's important and what you can apply to your own role in the Coworking industry. Hey there, this is Jamie Russo host of the Everything Coworking podcast. Thank you for joining me. Have to jump in with a huge congratulations to sparkle from Cameron management. She is Community Manager certified.
00:01:02 And would you agree she has the perfect Community Manager name sparkle, just check on this role. She's been in kind of a property management leasing management role, and is now taking on a Community Manager role. So sparkle congrats. And we have had several folks that have, you know, more of a traditional real estate background taking on more of a Community Manager role and learning kind of how to integrate sort of both sides of that type of role,
00:01:32 which is really fun. We're seeing a little bit more of that in our Community Manager University program. And we just put our next Q and a call on the books for our creative Coworking partnerships course. So if you're thinking about doing a creative agreement, please join us. That call is on September 27th. So if you join us before then you will jump in and get access to our ongoing calls.
00:01:57 You can learn more about that course at Everything. Coworking dot com slash management agreements. So today, well, first I hope you're all doing well and jumping into, I guess it's like technically fall. I know this because over the weekend we got all of our fall decorations out. I love fall colors. I am in like orange orangey, peachy, Sam color,
00:02:23 family fan. And I'm a big espresso fan because I like easy cappuccinos. So if you listen to the podcast, you know, I'm a big cappuccino fan with almond milk please, and lots of foam. So I, and not every almond milk foams, I'm sure you know this, and I could never get it to foam on a fancy espresso machine,
00:02:46 which I sold Facebook marketplace. At some point I had a nice one. I could never get almond milk to foam. And I think I buy whole foods, 365 brand almond milk, and it foams perfectly and espresso just launched its seasonal pumpkin spice cake flavor, which is awesome. So I had that for my coffee this morning, which was great. And it's soccer season probably have been talking about this,
00:03:13 but I am super involved in our local league. And I coached a game Saturday morning at eight 15 and then referee two games and then came home and took a very serious nap. But I love the fall and glad we're here. And it's back to business time. I think we talked about that on the last episode, which is awesome. So, and okay.
00:03:34 I think I mentioned on the last episode, we have an, how I did this session about co warehousing and I've had to reschedule that due to panelist availability. So hang tight and we will put the registration up for that. It'll be in October. So I will let you know when that is back on the books. Speaking of not really speaking of,
00:03:56 if you are gonna be in Frisco for the GWA conference, we please send me an email. I would love to hear from you. I'd love to connect if we haven't met before, if we don't know each other already, I can't wait to see all of you that I already know who will be there. If we have not met before, I would love to meet you.
00:04:12 And I will be there all week. As I keep saying, I'm flying in Monday. I won't leave you there all week, but most of the week, okay. So this I've been kind of doing a series approach to the podcast. So our last series was on your online presence as a Coworking space. And if you haven't listened to the last five or so episodes definitely do that.
00:04:38 This series is about the Coworking business model. So the first part of that series was Ted Latz from success space with a pretty unique business model approach that they're doing. And that is kind of feeds into some of the things we're gonna talk about today. So we're gonna talk about five truths about the size of your Coworking space and size matters in Coworking. So let's dive right in.
00:05:05 The first truth is that generally the profits from your Coworking space are pretty highly correlated to the size of your Coworking space until you get to a certain point where you just really have to manage size supply and demand. So if you wanna put in 50,000 feet of Coworking, you'd better make sure you're in a market that can support that and that you really nail your product mix.
00:05:32 So I do a lot of work on this concept with my Startup school students, with our creative Coworking partnership students, cuz I'll talk about that in a minute, but size is so important and then product mix within the size. So in general, the profits from your Coworking space are going to be higher, the bigger your spaces, because there are some economies of scale.
00:05:57 So for example, if you are thinking about a 3000 square foot space, you might as well do a 6,000 square foot space. And I understand your access to Startup capital will matter, but you do not need double the staff. When you go from 3000 to 6,000 feet, you're adding a staff person, roughly every 8,000 feet, maybe it's 7,000 or 7,500 depends a lot,
00:06:25 depends on a lot of things which we'll talk about in a minute, but say it's roughly 8,000 feet. And so you can go from 3000 to 7,000 without changing your staff, which is a very big deal because after your rent, your staff is your next highest expense and that expense is going up and the great talent continues to be challenging, you know,
00:06:49 to find so there are economies of scale there. If you go from 3000 feet to 6,000 feet, your, the cost of your internet doesn't change, your rent will change. Your utilities will change. There are certainly things that change, but a couple of big expenses will not change. And yet the inventory that you have to sell changes a lot. And so your opportunity for revenue is greatly enhanced when you go from 3000 feet to 6,000 feet and up and up.
00:07:19 So if you start with a 6,000 square foot space, this is so really, really rough. It is. I'm constantly trying, trying to create like back of the envelope models that people can use to understand, you know, what the profits might look like on a certain square footage. I've recently been working on that for the management agreement model and a huge shout out to a couple of folks that are probably listening,
00:07:45 who have been helping think through that and work through that. And it's not easy because there are so many variables. So in our Startup school, we use model where you it's a bit, you know, there's an input tab and you put in all your inputs, a lot of them that will spit out a proforma for you, but you can't get the proforma until you put in all of those assumptions.
00:08:09 There's just a lot of factors that matter, you know, market rent matters how much pent up demand there is your ability to price matters. You know, whether you're doing a premium space, there's a gorgeous space. That's opening in Menlo park, which is near me. I was just eyeballing their website and I'm dying to have them on the podcast. The brand is called canopy and they are selling dedicated desks for $1,200 a month.
00:08:34 Super they're going for a super premium position. They already have locations open in San Francisco that are also pretty premium priced. So lots and lots of things matter. They, people will pay that price for that location and for those amenities, Hey, we'll be right back. I just wanna share a couple of opportunities from our show sponsors as a Coworking space owner,
00:09:05 you are always looking to provide more resources and programming for your members, right? How about access to financial education and even investment opportunities while NEWA is the number one community for freelancers and founders looking to grow their businesses. So NEWA and Coworking spaces go together like, you know, butter and jelly. We found that over 75% of our community already work in or are seeking out a Coworking space.
00:09:37 We'd like to help our members connect with you and find your space anywhere in the world. So join our Coworking space directory to be featured in our community and give your members access to a whole library of entrepreneurial resources and financial education programming all at no cost to you, by the way, visit newa.pro/ Coworking to fill out an interest form that's N O U M E N a.pro/
00:10:13 Coworking. We will include that link in the show notes for anybody who's walking around and doesn't have time to write it down. You can find it in the show notes for this episode at Everything Coworking dot com, NEWA financing. The future of work. The amount of opportunity in the Coworking industry is absolutely mind blowing. It's projected to grow by 13 billion in the next five years,
00:10:40 just staggering numbers. Now you've probably seen success magazine it's hugely popular and focuses on professional development, personal development and business coaching. While they're branching out with their own franchised Coworking business called success space. It's actually a brilliant franchise model with three revenue streams recurring and on demand revenue from Coworking memberships, a full service cafe and success certified business coaching for small business owners to executives to learn more about this exciting new Coworking business opportunity.
00:11:20 Check it out at success, cowork.space, that's success, cowork.space. We will link that up in the show notes as well. So back to my point about sizes. So super back in the envelope, if you have a 3000 square foot space, you have some offices, you have some open space and you have a 25% margin. Your profit might be $30,000 in a year,
00:11:50 and that may or may not be worth doing the project to you. And certainly there's risk in there. Do you have too much open space? Are your office is the wrong size? You know, can you be at full capacity and can you afford a Community Manager in that equation? And if you are the owner and you're paying a Community Manager at,
00:12:11 if you're in a market where the Community Manager commands, you know, $50,000 a year, which we are seeing, then that profit margin may not be 25%. It might be lower. And so your profit potential is not $30,000. It's 20 or 25. So is the risk that you are, you know, putting into the space in terms of tenant improvement,
00:12:32 buying furniture, is it worth that dollar amount and you know, over time and it might be, if you're looking at this as an investment and you have another business that you do, then, you know, a side business that's generally run by your Community Manager that yields 20 to $30,000 a year might be fine for you. So it depends on many,
00:12:55 many things as you go up in square feet. So again, very back of the envelope, a 6,000 square foot space might yield $70,000 in annual profit, a 36,000 square foot space might yield $400,000 in annual profit. And do know that in my little back of the envelope model, I am assuming that you are holding open space constant here, so that you're really going hard on offices when you get to 36,000 feet and that the open space is held constant because at some point you can't scale the open space with the size of the space.
00:13:35 Like if you're doing, you know, you're gonna keep sort of 25%, it may not be percentage. It might be a fixed square footage of open space because at some point you can't sell, you know, 50% open space unless you're work bar or someone else. But so it's really, really hard to do these sort of back of the envelope models without putting in a lot of inputs.
00:13:58 And I would say that is super important because I have folks who come, you know, to me through my Startup school and a, they wanna start a small space, but they're thinking that the small space might yield higher profit, or they're not interested in the typical model of 20,000 square feet with high density of offices and a little bit of open space.
00:14:23 They just, that's not what they want to start. And so we're in this really interesting time. I think it used to be that we'd sort of see, not even used to be, I would say, you know, we've been in this mode of Coworking, not just executive suites since, you know, let's call it 2010. Would've been pretty early for a lot of spaces.
00:14:42 So 10, 12 years, that's not a lot of time, but during that time, this like really profitable kind of model of 15,000, 20,000 feet, a lot of office space, some open, you know, flex dedicated meeting room, you know, is like a typical model that yields higher profits, but people are thinking a lot differently about what they wanna create.
00:15:06 And so if you're not sort of thinking about that typical space, then I wanna talk through like what considerations you should think about with a smaller space, or if you want the profits that come with a typical space, do a typical space or think about other ways to be more profitable. So the second sort of truth about smaller spaces is that you can generate a profitable space,
00:15:31 but you have to be selling a lot more than space because, you know, when you just do the math on the model for Coworking, you are selling inventory of seats and maybe you can oversell some of the open space seats, and maybe you cannot, there's a fixed amount of inventory that you have in 3000 feet or 6,000 feet or 20,000 feet. And so that will impact,
00:15:56 you know, what your pro farmer can produce unless you are diversifying what you're doing with the space and creating sort of, you know, more profit per square foot or offering services that don't rely heavily on the physical space. So business identity packages, I love that phrase, Wes used that SP that term in our, how I did this on growing our virtual office revenue.
00:16:20 So we can call it virtual. There's lots of different terms. That mean different things, but you might sell virtual offices, you might sell identity packages that come with mail and conference room time. It's similar kind of to a virtual office. You might sell digital mail. You have to have a pretty compelling address to do really well with that approach. So west Walker has 5,000 square feet in downtown Boston and does really,
00:16:46 really well. And that's a small or space, right? If it's 25% of a 20,000 square foot space. So I would consider that to be a small earth space, but he does really well with these additional services. And so he is running a great business events are a great way to add revenue to a business, but you have to have that competency.
00:17:07 And I don't mean like events for your members, happy hours, you know, scotch tastings, I mean, weddings, I mean a high dollar high ticket events that you're running often. So you're really optimizing for events and you're in a market where you can do that, where there is demand. And there are not a lot of other great options for hosting events.
00:17:32 And you have a really cool creative space that is really compelling for that. And you can book a lot of those and your staff is probably pretty focused on that versus managing your membership. So we see lots of creative things happening, I think, in this space than ever before. So rather than opening a small space and, and saying, I'm just gonna do,
00:17:57 you know, open memberships and, you know, not build offices because I have, you know, a little only a little bit of capital to start with. That's the model that will not yield profit. So if you're thinking simple build out, because I don't have a lot of Startup capital and I'm gonna sell mostly flex memberships, it will be very hard for you to ever turn a profit or a meaningful profit to pay a Community Manager and then still have profit.
00:18:22 But if you're gonna sort of supercharge this real estate, and there's a reason that you can do that, you're in a unique market, or you just know you can deliver on some of these extras, then it's totally possible. I think even today, I work with a lot of folks in my Startup school course who are doing specialized or niche memberships and Ted Latz,
00:18:47 who is on last week talking about the success model. I think this is a great example. Their footprints are roughly 5,000 square feet, but they're doing a cafe in the front. That's open a lot of hours. So I think all the meal, they put day parts, including like wine and charcuterie trays count me in, they're doing coaching and they're doing Coworking and meetings.
00:19:10 So they're really diversifying their revenue sources. Hey, I just wanted to jump in really quickly before we continue with our discussion. If you're working on opening a Coworking space, I wanna invite you to join me for my free masterclass three behind the scene secrets to opening a Coworking space. If you're working on opening a Coworking space, I wanna share the three decisions that I've seen successful operators make when they're creating their Coworking business.
00:19:41 The masterclass is totally free. It's about an hour and includes some Q and a. If you'd like to join me, you can register at Everything Coworking dot com slash masterclass. If you already have a Coworking space, I wanna make sure you know, about Community Manager, University, Community Manager, University is a training and development platform for community managers. And it can be for owner operators.
00:20:05 It has content training resources templates from day one to general manager. The platform includes many courses that cover the major buckets of the Community Manager role from community management, operations, sales, and marketing, finance, and leadership. The content is laid out in a graduated learning path. So the Community Manager can identify what content is most relevant to them, depending on their experience and kind of jump in from there.
00:20:34 We provide a live brand new training every single month for the Community Manager group. We also host a live Q and a call every single month so that the Community Manager just can work through any challenges that they're having or opportunities get ideas from other community managers build their own peer network. We also have a private slack group for the group. So if you're interested in learning more,
00:20:59 you can go to Everything. Coworking dot com slash Community Manager. So truth number three. Also, I just wanna mention, like on the smaller space thing, I think you have to be a bit of a unique operator to make this work. So when I talk to people in my Coworking spaces, it's like obviously very intuitive. I can kind of tell if I think like they can go after the small space,
00:21:27 they have a unique sort of energy and approach and passion about what they're doing. And they have a very, very clear vision about what they're gonna execute and how they're gonna make these numbers work. So I just wanna mention that, but you totally can do it. And I will say I have a Startup school student who said, you know, my course talks a lot about the typical model.
00:21:51 And so we're working together on kind of her atypical model and it's kind of sparked this idea like, oh, I should, you know, talk a little bit more about this on the podcast. Truth. Number three, small spaces are really almost impossible to make work for management agreements or creative partnerships. This is because they just don't yield enough profit to share with the landlord.
00:22:14 So the landlord wants to beat market rent, right? That's generally fundamentally what they're trying to accomplish. So if they have to pay out a management fee and pay the operating expenditures, that premium that the profit makes over market rent is usually not high enough to make it interesting for the landlord, right? Cause it's a lot of extra like mental energy and risk for the landlord to do a creative Coworking,
00:22:43 a creative partnership. And which, you know, can be a management degree, made it can be a rev share. There's a million ways to do these deals, but you have to be going after a bigger space. And here's the good news for you as an operator. There's so much less risk when you're doing a partnership that you can do a bigger space.
00:23:01 So mentally from a mindset perspective, you have to think bigger when you're doing a creative deal, you gotta go bigger at least 15,000 feet and think big about what that looks like and what that model looks like. It is probably pretty office dense, but it depends on who you're serving and what they want and how they want to work. So you know,
00:23:23 your market, but just know that generally the revenue and therefore a profit that you're yielding on a 5,000 square foot space, just generally doesn't work for a creative agreement. And again, we could kind of dive into spreadsheets and show you why that is the case. We do that in our creative Coworking partnerships course. If you're interested in that again, we're kicking,
00:23:44 kicking off our cohort on September 27th, and you can learn more about that at Everything Coworking dot com slash management agreements. Okay. Truth number four, if you are running a small space and you're getting to your take home pay goal by being the Community Manager, I want you to make sure that makes sense. So one, you gotta love that job cuz you know,
00:24:09 it's a hard job and so you have to love doing it and then make sure that, and everybody makes decisions differently. I don't mean you to be a total capitalist about this because there are lots of reasons why we might do a small space and we can talk about that in a minute. But if we're just talking about profitability, then the Community Manager role is generally a 20 to $27 an hour job.
00:24:33 So if you are a business owner, it would strike me that you probably are capable in the market of making more than that. So you have to just recognize that you're making a decision to reduce your market rate, to take this job in order to get the Coworking business, to sort of meet your take-home pay. So maybe you're saying like, look smaller space,
00:24:59 but I'm gonna be the Community Manager. So I'm not paying a staff person I'm going to, you know, invest my time in return for that. And the space kicks off a little bit of profit and those two things combine make it worth it. To me, the challenge with that is it's not scalable. Once you go do a second space, right?
00:25:17 So you as the Community Manager of a 3000 square foot space, if you wanted to do another space that doesn't work and it probably doesn't work, if you are doing a larger space because you'll need more people or you'll need to really be able to step outside of working in the business and start working on the business. So I just want you to think about what your market rate is and if you're gonna do that role,
00:25:40 does it make sense? One of the other episodes that I wanna do is pull together all the folks that have gone through my Startup school who have like entirely other businesses that they run. It's so interesting to me. People have just totally different mindsets. When they go into this business, some they're gonna be the Community Manager, they're gonna own the business,
00:26:01 they're gonna do everything. And then some folks are just very entrepreneurial and they have other businesses. And then Coworking is one of those businesses and maybe they're synergistic or maybe, maybe not one of my Startup school students who I'd love to have on the podcast. He owns fitness gyms and he built a space and partnered with a local coffee brand and they have a kiosk in his space that focuses on being like a delivery source for,
00:26:32 I think it's Uber eats or I think it's Uber eats DoorDash or DoorDash deliveries for coffee. And it blows my mind that people order coffee on DoorDash get an espresso machine, but they do. It's shocking. So anyway, super creative, but he has a lot of different businesses. And so this is more of like, you know, he's the CEO or an,
00:26:55 you know, an investor in the business and has folks who run it. So lots of different ways to kind of look at this, but that's one way to do a smaller space. Again, kind of going back to the one that we, you know, talked about in number one is you might be running this as a separate business and say, I don't need it to make a hundred thousand dollars a year.
00:27:17 I have other business interests that do that. And or maybe I have a full-time job and this is gonna be, you know, kind of a side business that I do. So truth, number five, it's hard to create the diversity of work spaces that people want in a small space. So I think if you're gonna do a small space, you have to really,
00:27:37 really, really nail the design. And I think it can be very challenging. I, and when I think small, I'm thinking up to 5,000 square feet because I think that folks who are leaving their homes, they want to go someplace that has some diversity in it. You know, because I'm sitting right now in my little home office and I would go to a Coworking space to feel something more like expansive.
00:28:06 And I'm just one use case. So there are lots and lots of types of consumers that you might be serving, but be careful about taking a space that's too small to really deliver the experience that people are looking for today. So again, once you get to 5,000 feet, like the success example from last week, they're doing cafe and workspace and I think that's gonna be pretty cool.
00:28:34 And that whole format is 5,000 feet. But if you're doing like 2000 feet, you're pretty limited in what you can put in 2000 square feet. So make sure you're delivering a vibe and a feel and the types of workspaces that you know, people will use and will want. I think if it's one big open space and you know, it's kinda library,
00:28:55 like it may not be the vibe that people are looking for. So you have to just know what you're getting into really think through what the experience is gonna be like and work with a designer that really gets it and can help you think you're how to best use the space. Now, why do people do smaller spaces? I think access to Startup capital.
00:29:16 So I really wanna do this business, but I don't have access to bank loans or investors. And so I get a bootstrap this thing, and I'm gonna do a smaller space to start with. Totally get it, just know, you know, these truths and be thinking really hard about what the outcomes are. Maybe you're just risk averse, but again,
00:29:37 know what to expect, make sure you're running your numbers. Do the numbers be really, really conservative about the numbers? Because a lot of folks starting spaces are not 25 they're they're professionals who have a professional career behind them and maybe not, you know, years and years and years to experiment with things. And so be careful about starting something that is not going to meet your goals,
00:30:06 you know, and signing a lease that's on a long time horizon and you do need to sign a longer lease because there are a lot of things that, you know, we wanna avoid by, by signing shorter leases, which we'll talk about in a different session, but it's super important for you to be thinking about your risk reward approach and whether this business makes sense,
00:30:30 given the timeline that you have and the access to Startup capital. So if you're working on a smaller space, I would say, you know, have room for expansion. So if you're starting smaller, but you can build out over time in the space that you're in, awesome, a longer time horizon. So if you're gonna start small, then make sure that you've got plenty of time to work on this and that you're not trying to like,
00:30:54 you know, earn your retirement in the next five years. That's not going to happen. I would be thinking hard about diversified revenue streams. Like we've talked about, talked about today, sticking to just space on a small space is probably going to be disappointing. I think another approach is staffing leanly. So we've had Brian Watson was on talking about, you know,
00:31:14 automating a Coworking space. We're starting to see that model appear a little bit more in terms of smaller spaces and suburban markets that will be leanly staffed. That's a certain kind of approach. And I think the jury is still out on, you know, does that work. But you know, I have folks in my Startup school or sorry, my not my Startup school in our Everything Coworking academy who are really experimenting with how to serve their,
00:31:44 you know, members and their guests and, you know, deliver on hospitality without overdoing staff, because it's such a big expense. And so if you have a smaller space having full-time staff there all day, you know, may simply not work or it may simply not be necessary. So experimenting with what that looks like, and I'm hoping one of those folks in particular will be willing to share her experience when she's ready.
00:32:10 I know she's experimenting a lot. And I always like people to feel like, you know, they have their learnings sort of processed before they come on the podcast. So we will ask her to do that. So just some thoughts in terms of, you know, size of space. And if you are thinking about doing a Coworking space and you don't know how to think about what this looks like from a business model perspective,
00:32:34 join our Startup school. We are also about to launch a business plan. Mini-course so staging for that. It does not heavily cover the proforma because that is covered in the Startup school. But I think to either confirm or deny your assumptions about the type of business you wanna do that can easily be done in Startup school. And we walk you through the process step by step.
00:32:59 So the risk in doing it on your own and making a lot of assumptions that make a big impact in your financial life. I think that's really dangerous. So I love having people come through the Startup school, even if they don't end up doing a space because it doesn't end up aligning with what they want. That's okay. But at least you have had the support to,
00:33:19 you know, run a model and make sure you know what you're getting into. So give that some thought and we will see you next week. And we will continue with our theme of business models and Coworking have an awesome week between now and then thank you for listening to today's episode. If you like, what you heard, tell a friend, hit that subscribe button and leave us a rating and review.
00:33:48 It makes a huge difference in helping others. Like you find us. If you like to learn more about our education and coaching programs, head over to Everything, Coworking dot com. We'll see you next week.
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