286. John Wallace, CEO of Workbox on Differentiating with an Asset-Light, Service-Heavy Model that Helps Startups Accelerate their Growth
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TRANSCRIPTION
286. John Wallace, CEO of Workbox on Differentiating with an Asset-Light, Service-Heavy Model that Helps Startups Accelerate their Growth
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 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.
00:00:45 Welcome to the Everything Coworking Podcast. This is your host, Jamie Russo. My guest today is John Wallace, c e o of work box, and he shares with us how Work Box is differentiating in the marketplace with an asset light real estate model, except for that first location of course, and along with a service heavy model that helps startups accelerate their growth.
00:01:11 I thought John's story was interesting. He comes from a real estate investment and asset management background, so really familiar with sort of the high level institutional real estate perspective from like the Brookfields, et cetera. And he worked for Brookfield and then decided to be an operator and was really inspired by what was happening with WeWork. You know, obviously probably more so in 2019 before their I P O and before the pandemic.
00:01:42 And also just really wanted to make an impact on startups and growth companies to bring his network and his background and, and that of others on the team to really support in a significant way the companies that are a part of their community. So the enterprise user is not their target customer, although they're doing fairly large floor plates. So they like the 25,000 to 30,000 square feet they're doing.
00:02:14 He said that their next one might be 40,000 square feet. They're operating right now in Chicago and Minneapolis, but expanding their first location was done on a lease to kind of prove their operating shops. And now they are focused on creative deals with landlords and they've taken over a couple of underperforming locations where they come in and kind of put their stamp on the space and serve their unique member base and improve the operations.
00:02:45 So they've done that a couple times in Chicago. So I think, you know, it's interesting for folks who are thinking about the management model. You know, John thinks that is the only way to go. I know lots of you have leases in our doing well, but on a 25 to 30,000 foot floor plate takes a lot of capital to get that off the ground.
00:03:04 And so they're really focused on that asset light model. Even their partnerships that support the entrepreneurs in their space, they, it sounds like they pay a sponsorship fee. And so even that is sort of asset light, if you will, because those folks are supporting their platform, which is also kind of a digital remote platform. So they have virtual members as well that they support and they're not paying those partners to support their members.
00:03:31 So kind of an interesting model, very focused on adding value. So not just delivering space even though real estate is his background, but delivering, you know, real value to help businesses be more successful. So it'll be interesting to see if they can do that at that scale and kind of maintain that focus on that type of customer. He made some interesting points though about that end user,
00:03:54 which is that home doesn't work very well for that type of user because they're not really equipped with the systems to work fully, remotely. You know, you mentioned like if you work for Google, you have all the technology, everything you need to kind of work remotely. Maybe you're already working with an international team so you're totally used to it when you're building or growing a company and meeting milestones for investors,
00:04:17 that type of thing. Then it's more important to be together and maybe your team hasn't really functioned remotely. You're adding new people, you just may not be as equipped or you know, from a business success perspective, it just might be more important that folks are in the same place. That's not to say we don't see plenty of startups operating in a distributed model,
00:04:40 but I think he has a really interesting point. So we talked about that as well. And John is in Chicago, you know, I love Chicago, so it was a fun conversation to learn more about that brand. Before we dive into my discussion with John, we have a, how I did this session coming up on January 19th. So don't miss that.
00:05:01 If you're interested in starting a podcast that will benefit your Coworking business. So we have three guests, Rachel Myer Myers from the Collective Co outside of Boston. Kim Lee from Forge in Birmingham, Alabama. Christie Alexander, founder of WorkSmart in Glens Falls in upstate New York. And all three have podcasts and can talk about why they started it, can I, what their process is,
00:05:28 who their guests are, and how the podcast impacts their co-working business and you know, how they use it as a marketing tool, et cetera. So podcasting is not for everyone. But if you're curious about that tool and I've been thinking about maybe starting your own, we'd love to have you join us. It is a live session, so you'll want to register at Everything Coworking dot com slash H I D T for how I did this.
00:05:54 So we hope to see you there. Enjoy my conversation with John. Welcome. I am here with the co-founder and c e o at Work Box Company. He is sitting in Chicago, but if you're watching us on YouTube, he has a background of their soon to open or is it open? It's open, It's a week. It's a week old.
00:06:13 Okay. The newborn Minneapolis location. So thank you for taking time out. I'm sure you guys have a lot going on and for sharing your story. Of course. Happy to be here, Jamie. Okay, so give us the background. You have kind of a real estate but investment Brookfield. Yeah. Yeah. So tell us a little bit about your background and then why co-working in Flex.
00:06:38 Sure. So background real estate investments and mostly on the listed side for almost 20 years before starting work box. Most recently I spent about three and a half years at Brookfield Asset Management, helping to run their global listed real estate fund prior to that 10 years at LaSalle Investment Management. So it's based in Hong Kong for about two and a half years, helping to run their Asia-Pacific practice.
00:07:02 I helped build their European practice outta Amsterdam for five years and then various l and buy side roles in the us. So, you know, I looked at basically every property sector and you know, really saw an opportunity in Coworking and decided to, you know, take the leap and leave a comfortable living to, you know, start a business with zero revenue in,
00:07:24 in June, 2019 and really haven't looked back since. So June of 2019. So what was it about the sector in 2019 that you thought, I wanna do this and I want to go from, I'm guessing your role was like heavy spreadsheets, analytical, I wanna operate something. The, the, the joke that I make is, you know, if I spent one more moment staring at my Bloomberg terminal that Michael Bloomberg was gonna own my soul and I just had to escape.
00:07:52 So yes, very different than running an operation or operating business. But you know, I saw an opportunity, I think truly looked at, you know, the whole sector, all different property types, you know, WeWork was kind of my motivation. You know, there was a lot of, you know, press about their expansion and just how sustainable that could be.
00:08:11 And having covered the hotel sector as well, I thought why not incorporate the hotel model, incorporate their commercial office and manage and share economics with landlords because that seemed way more sustainable and just, you know, mutually beneficial with landlords. And you know, that was really the reason that I kind of got into the space. The other reason I thought we could improve on the existing co-working offering was I still feel that the operators are really focused on the actual space.
00:08:45 And my view was always real estate was a commodity. You had to provide something a little bit more than just space. Cuz otherwise it's a race to the bottom and who can ever charge the lowest price. And it becomes the airline industry, you know, what's the difference between Delta and American and United? It's really convenience and price and we didn't wanna make that same mistake in Coworking.
00:09:04 So, you know, my background was in investments. I felt I could be, I could add value if we focused on early and growth stage companies and help them get funding, help them provide, you know, advising and operational services to help them scale their business. And that would be differentiated enough that we wouldn't get in a price war and that,
00:09:24 you know, we would be apples to oranges to kind of our peers and, and at the time, you know, WeWork was really dominating the headlines. Yeah, I mean it's been an interesting kind of evolution because the sort of executive suite model was very space and density focused, right? Yep. And existed for a long time and was quietly profitable and then sort of the Coworking model took over and I was having this discussion with someone I interviewed yesterday,
00:09:51 like not super focused on profitability in lots of cases, right? Like just swung to the, like, we're all about people, but a lot of times just got the model wrong and you know, not enough density, not enough, just the revenue wasn't there. Yeah. So it sounds like you're kinda shooting down the middle to kind of get the maybe the real estate model right.
00:10:13 And, you know, be really attractive. So what is, so what's the story that your team tells when someone comes in for a tour? Like who are you best for? Yeah, so we're focused on early and growth stage companies. I mean they range from anywhere from, you know, three individuals to 50 individuals. You know, a lot of our companies have outside financing or looking to raise outsize capital,
00:10:36 but we're not just, you know, growth stage companies in our portfolio. We, because we're founder based, because there's a lot of executives that sit in our spaces. We attract, you know, nonprofits that want their team to cross pollinate with, you know, innovative businesses. Yeah. We attract a lot of services companies that see the benefit of business development by,
00:10:57 you know, being able to access decision makers. So, you know, our core focus is early and growth stage companies and providing them all the resources they need to be successful. But because of that we attract a lot of other kind of ancillary businesses that wanna be part of that, you know, innovative community. What does your team look like at this?
00:11:17 From a Yeah, like location based, and you mentioned like, you know, a lot of your executive team works in this space. What is that? Yeah. Who's on the team? So we are not remote, we we're in the office business. So I was the least popular person in Chicago when I made everyone come back in June, 2020. But,
00:11:37 you know, we are, you know, providing space to companies and, you know, it's important that we understand our business well and be part of that. You know, we have about 25 individuals in the organization. Our strategy has kind of been filling vertical leads. So we have a C O O and a A C F O, head of venture,
00:11:54 head of services ahead of marketing ahead of technology. And really, you know, as the need arises we start filling in support raises, but resources below that. And then we have a sales team of roughly five people, you know, whole operations team. That's really the engine of what we're trying to provide as a service. So, you know, that that's kind of how we're set up.
00:12:17 You know, we've almost got all of our corporate level hire hires done. There's a few individuals that we'll be bringing on next year, but for the most part we're focused on sales and operational investment as we start to grow as well as business services where we're, which is our differentiator. So what are, what are those business services? So if I'm a member,
00:12:36 what can I access? Yeah, so kind of included with everybody's membership, there's access to all of our kind of vetted partners. So we have partners that help with digital marketing, our bookkeeping or tech development or recruitment. And you know, those partners, you know, pay, they're vetted, they pay to have access to our members and you know,
00:12:58 they're great resources for all of our members that need, you know, help with something or who should I, who should I reach out to if I need to build that aspect of the business. In addition to that, all members get access to our kind of programming, which is monthly. We do ask me anything with venture partners or with, you know,
00:13:16 founders that have built something and that's helpful to some of our early and growth stage companies. But that's, you know, helpful to a lot of people and I think it just creates a real community and a real connection. And you know, I think that it was important for us to kind of plug those services into, you know, people that are just looking,
00:13:34 you know, to have an office but want a community. So, you know, yes we offer community engagement through, you know, happy hours and things like that, but we also wanted to make our community, you know, wider through our whole platform. In addition to that, we have an accelerator, which is an additional fee. You know,
00:13:51 that's an eight week program where companies that are kind of, you know, pre-seed, seed get help, training sales, okay. Coming to market, things like that. After you graduate the accelerator program, you have access to over 40 Angel and VC investment and partners on our platform. We also have our own ven venture arm, work box ventures that those individuals get access to.
00:14:16 And as well as a whole list of, you know, mentors and advisors that can help these companies, you know, make the connections they need to be successful. Okay. This might be a tricky question, but 1871 has a huge presence in Chicago. So like, they showed up when I, they launched like right after I opened, and I just remember being like,
00:14:36 woo. I mean they were like the place to be. Yeah. Everybody was there. Has that shifted or do you just feel like you have something different to offer and it like slightly different? Yeah, I think, yes. I think we offer something different than 1871. I think their mission is to kind of attract new companies to Chicago. And I think that that's a wonderful thing and something that benefits the entire city of Chicago.
00:15:02 You know, as 1870 ones business model has evolved, you know, they've gotten more into educational programming for very, very, very early stage companies. Okay. And have done more kind of event space, but we don't really see them as competition. The companies that we're looking at going after are a little bit later stage. You know, we obviously have the venture components,
00:15:24 you know, we're for-profit, they're non-for-profit, so you know, we see them as an, as an ally of of Chicago, but not, not necessarily competition. Yeah. Got it. Hi, this is Josh Fried CEO of Proximity. When we started Proximity, we did it for one reason. We didn't like how hard it was to run our Coworking spaces.
00:15:45 At first we tried testing different space management software on the market and look, we found that we had to use multiple software solutions. Then we spent way too much time trying to sync them all together. And then we spent even more time training our staff and worse yet our members on how to use this overcomplicated solution. We ended up going circles, attempting to manage our software instead of letting software do what it's supposed to,
00:16:08 which is help run our business. Our members were frustrated, we were frustrated, we just didn't think it should be so hard to operate a Coworking space. So we built our own solution to make Coworking spaces easier to manage all packaged up in one, easy to use platform refined by feedback from hundreds of Coworking spaces over the last five years. Proximity software is simple for operators and best of all members and it is backed by our award-winning US-based customer support team.
00:16:38 It's time to stop settling for overcomplicated software, get software that was actually purpose-built for Coworking by Coworking Space operators. See for yourself, our team is available to chat with Everything Coworking podcast listeners and you can schedule your call today at proximity dos face slash Jamie. Yeah, they're a great component of the ecosystem. So I was in Chicago for 15 years and things like really shifted right around that time because Chicago was not really known for tech and then kind of all of a sudden it was,
00:17:12 which was cool. Yeah. Obviously you're kind of playing that role. So the business services and the folks on the platform, do they cross state lines as you expand or do you Yeah, so we have, yeah we have virtual business service members, you know, that are international when, you know, the pandemic hit in early 2020. That was our growth engine.
00:17:34 So, you know, initially we were thinking about, you know, having our location and doing all of this programming in person and then, you know, you know, the early period of the pandemic, we were like, how are we gonna keep everyone engaged when they can't actually access a physical address? So we, you know, like mad people tried to build out this virtual network,
00:17:59 you know, where we're providing the same resources, but we are doing it over Zoom and over our virtual platform and you know, had a lot of success retaining customers when even kind of growing virtual interests. So, you know, we grew, we're one of the only flex op operators to grow revenue two x in 2020. And that really was, I'm driven by our business services and that allowed us to be front footed too.
00:18:24 And so when everybody else was closing spaces, you know, we became more aggressive acquiring spaces Yep. In early 2021 and just really glad that we did that. I mean, it's helped us build our footprint. We've been able to do partnership deals. I think when we started the business in 19 and I was raising initial kind of Pree capital, the big pushback was like,
00:18:46 Hey, this model's brilliant, it makes a ton of sense. You know, asset light, shared economics, everyone's gonna love this, but how are you gonna get a landlord on board with this? Because they're used to doing the same thing, you know, for 50 years. And the pandemic has really forced everyone to get creative and in a lot of ways from a demand side,
00:19:06 the pandemic has, you know, really accelerated hybrid work, which is benefit to Coworking. But on the supply side, you know, it's brought a lot of opportunities to work with new landlords as they try to problem solve themselves for, you know, what this new world looks like post pandemic. So was your first deal in 2019 like a creative deal structure with a landlord?
00:19:28 Or was it a lease? No, our first deal was a lease. I couldn't get anyone on to buy into our operating capabilities until we actually had a business. But we worked with the local landlords here and you know, they didn't even give us TI dollars. So we had, oh man defaulting, we had a defaulted advertising agency that was built out that was almost dense enough Okay.
00:19:50 To Coworking. We sped it up. That space today is a hundred percent full or 95% full. So, and you know, from a density, from an aesthetic standpoint certainly isn't the most competitive space in the, in the submarket. But I think what we're creating in the community that we've created has made that sxs and you know, we're not only bookend,
00:20:13 we're, we're kind of there on three blocks. We're surrounded by much larger, better capitalized WeWorks and you know, we are completely full. You know, that was the first location. Our second location was an ex industrious that we took over. We took over another industrious in in the West Loop. We did a new development and partnership with Urban Innovations and you know,
00:20:35 really our strategy kind of over the next year or so is to kind of continue to take over, you know, underperforming operators and you know, helping to drive returns, leveraging our differentiation in partnership with landlords. That's super interesting. So I always am like skeptical of the ability to take over underperformers because I think usually they're underperforming because they just got the build out wrong mostly.
00:21:00 Yep. So do you have to fix the buildout or do you kind of take the space as is but overlay your platform? So we definitely are aware of the buildouts that will work and won't work. And we know our business model and we know our customers. Yeah. So we're not gonna take over any space. But you know, kind of our offering to landlords is,
00:21:19 hey, we're not gonna ask for any TI dollars, you know, we're essentially gonna rebrand this and we're gonna leverage on our different twist. And we think we can drive returns in excess of what operators would do if they were just selling space. You've built businesses yourself, you're very familiar with real estate. So you know, the more dollars you put in,
00:21:38 the faster and the higher the cash flows you need to come out. And if a landlord is not putting any dollars in, you know, I think that that creates an environment where we can structure mutually beneficial terms. That being said, we're still trying to target two x or two and a half X conventional lease returns on every deal. We do Make no small plans.
00:22:00 Is the Minneapolis deal a lease or is that a relationship with the landlord? It's a partnership deal. So really all of the deals we're going Forward Now, I'm not, the lease is Gotta do the first one. I have to say there will be lots of people listening who like it. You have the kind of background that maybe would convince a landlord you know,
00:22:19 what you're doing and might take a risk and even you had to sign the lease. Yeah. I always tell people, you're gonna have to sign the lease the first time. And in Chicago I had the personal guarantee, I had, you know, all the things. I remember my husband being like, so are we gonna live there if this work?
00:22:36 Like what, what are we doing? Oh, the, the personal guarantee in Chicago is just one of those markets where it's hard to, to get out of that. So, you know, which is another advantage of the asset light relationship with the landlord. Yeah. So I presume you started in Chicago because that's where you live and you have a network and Yeah.
00:22:56 You know, funny story, you know, we felt pretty nomadic. I met my wife's from New York, we met in Amsterdam, we were both expats. We moved to Hong Kong. I thought for an investment role I'd end up in New York and we ended up in Chicago and we just didn't wanna move. Yeah. So, you know, I didn't wanna do,
00:23:14 I was just ready to, for a new challenge. And so, you know, we started a family here and said, you know, Chicago is our, is gonna be our town. And you know, it's been great. I think it would've been a lot harder to do the same business if we were in New York or San Francisco. Yeah. Where things are a lot more expensive and Yep,
00:23:31 yep. The margin of error is a lot lower, but you know, it's still a huge market with a lot of talents and a lot of, you know, great universities, great infrastructure. So, you know, I feel really fortunate that we've started here. You know, it feels like all of the activities in Sunbelt right now and, and we're aware of that.
00:23:48 But you know, Chicago's been good to us and we're, we're happy we landed here to start. And your, this is another tough question. I have heard Chicago downtown locations challenging post pandemic. Yeah. Cause people were really like, have you had that problem or has your occupancy been been Okay. So again, I mean we feel in some ways we've defied gravity.
00:24:08 So we are, you know, running outta space in Chicago. We are not in the loop, which is the most Challenging. Yeah. I mean that's a, yeah, that's an interesting, is that by design or is that just kind of how it happened? I think it's, I always say it's by design. If it works. No, it,
00:24:26 well, I mean, in some ways companies, Which is still pretty downtown. I mean 600 West, 3 0 6 it Is. So they're bigger floor plates. So in some ways, you know, we weren't gonna take when we were starting 40, 50,000 square feet, so we started with 15,000 square feet. That is more common in River North and some of these other kinda lifestyle businesses.
00:24:46 Yes. Two, you know, we know our customers and you know, a lot of them didn't, you know, if you're a tech company that's growth stage. You don't want to be in a big commercial tower that's, you know, 80 stories. So that was also by design, you know, early on we're working with kind of larger local landlords,
00:25:05 you know, the Brookfields or the John Buck companies at the time. We were too small to kind of work with them, although that's changing very drastically. So yeah, that's kind of how Yeah. Partially by design, partially where we were in our lifecycle. And then also just knowing our customer base and what they want. Yeah. And where they wanna be.
00:25:25 What does your ideal floorplate look like as you open new locations? 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,
00:25:48 I wanna share the three decisions that I've seen successful operators make when they're creating their Coworking business. The masterclass is totally free, it's about an hour and include 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 co-working space, I wanna make sure you know about Community Manager University Community.
00:26:13 Manager University is a training and development platform for community managers and it can be for owner operators. 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.
00:26:41 So the Community Manager can identify what content is most relevant to them depending on their experience and kind of jump in from there. 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 can work through any challenges that they're having or opportunities get ideas from other community managers,
00:27:07 build their own peer network. We also have a private Slack group for the group. So if you're interested in learning more, you can go to Everything Coworking dot com slash Community Manager. Yeah, so we've expanded kind of our square footage that we target. You know, really we're kind of, the sweet spot is 25 to 35,000 square feet. Minneapolis is just over 30,000 square feet.
00:27:32 I would say the, the true range is 20 to 40,000. But you know, most of the co spaces that we're looking at are 25 to 35,000. We like urban, we like, or Urban Edge. Urban Edge. If you're familiar with Chicago, we have a location in Gold Coast. We could do maybe a Wicker Park type location, but for the most part we wanna be where,
00:27:54 where there's density, where there's a lot of activity, new company formation, et cetera. So yeah, that's kind of our focus. And then when we look at expansion, you know, there are certain brands that are more appealing from a takeover standpoint. So, you know, we definitely want to have the right look and feel for the companies that are gonna be leasing space from us or members of our community.
00:28:18 So what does the expansion plan look like? Is it based on acquisition opportunity or you have target markets that you're going after? Good question. So, you know, we have capability to do development. We've done it before. We're looking at a couple other locations. But the most capital efficient way for us to expand is, you know, looking at defaulting operations,
00:28:39 you know, across the country. I would say our highest priority focus is in the Midwest, just because we have a lot of brand awareness here. And strength. Yeah. A lot of our companies, you know, have locations across the Midwest. Okay. A lot of our capital partners invest across the Midwest. You know, that's kind of where 75,
00:29:00 80% of our focus is. And then we have opportunistic deals that are kind of with, you know, enormous landlords like my old firm that could take us to the coasts or, or the Sunbelt. And it's just looking for the right, right. Opportunities, you know, I don't wanna spread ourselves so thin that we're in, we open six locations in six new cities and then Yeah.
00:29:22 You know, we kind of lose our special sauce, which is, you know, customer focused business services. Yeah. We're calculated in how we're doing things and we're still small enough now that, you know, we do a couple 30,000 square foot locations and it, it really moves the needle for us. So, you know, that's my focus for now.
00:29:40 I think that that there's opportunities to do much, much larger kind of portfolio deals in the future. We wanna prove our ability to execute across, you know, several cities before we start trying to take down 20 or 30 location portfolios. So is the plan to add additional locations in Minneapolis so that you have kind of a, a hub or a spoke model?
00:30:01 Yeah, yeah. I think generally when we're looking at cities, we want to go to cities where we could add at least two locations. And Minneapolis is one of those markets, you know, we have a beautiful space right on the sky on the skywalk there. That's, you know, got great profile and you know, I think let's kind of get traction on that space before we try to move somewhere like the North Loop Skyway.
00:30:25 But I, you know, I think other locations we like, you know, Columbus, Indianapolis in the Midwest. And then we've got a lot of opportunities, kind of other cities that you would expect us to be looking at, like Denver and Salt Lake and things like that. Is your, I could look at this on your website, but I'm curious,
00:30:44 is your pricing premium like this layer of, or is it sort of an a la carte, like this layer of business services and it feels like a higher touch model? Yeah. Or Yeah. I mean, or is the platform just kind of scalable and enough differentiation that that Yeah, I think, you know, we're competitively priced and we kind of,
00:31:04 you know, if you were to evaluate one of our offices, we would be in the same range as all of the other peers. You know, because we're providing the services, we're doing it through outsource partnerships. So actually we get the benefit, but without the overhead cost. The overhead. Yeah. And if anything, it helps our pricing because most of those providers are paying us to be on the platform.
00:31:26 So we're able to provide those services at a cheaper price than our peers because, you know, just because of how, how we've structured everything, truly every business that we're doing is asset light. So we're doing management contracts, so we're not taking leases. Yeah. We do outsource services. We obviously have a services team to make sure that those are good and that they're our,
00:31:47 our partners are doing what they say they're gonna be doing. And then our venture fund is also an asset light business, which is, you know, third party capital. So, okay. Everything we do has to make sense from a synergy standpoint has to benefit our target customer and has to be asset light. Okay. Got it. Yeah, interesting.
00:32:06 I mean, it feels like a smart model cuz you're trying to keep it capital asset light and yet provide a really differentiated experience, which I think matters a lot these days. Yeah, Well I mean I think, you know, our gross margins are 75, 80% and conventional Coworking somewhere 25 to 30%. Yeah. And just, you know, we're taking less absolute dollars.
00:32:29 Yeah. But I think if you are, you know, with those kind of margins, you know, we're able to invest a lot more in the business and a lot more in the services side of the business business. So that's the beauty too, I think, you know, we're not putting all of our capital into a buildout or into rent. Yeah.
00:32:47 Instead, you know, we're providing a good customer experience and I think that generates additional returns for our landlord partners as well as investors and well as a great experience for our members. So I would also guess that your members are less likely to say, I can just do this at home. It's fine. Because are they more team focused? Yeah. So I think,
00:33:11 I mean, that was by design when we kind of were, you know, my c o and I and in March 22 were like, what the hell are we gonna, how are we gonna get everyone engaged? And let's, so focusing on how we keep engagement and it's something that, you know, is always a challenge as you start to expand geographically.
00:33:30 Yeah. But we've already kind of had to do that in the pandemic. So, you know, everything that we built was, you know, by design to make sure that we could keep engagement from a team standpoint and our customer base. The one thing that I think people don't realize about, you know, the group that we're targeting, and if you would've asked me,
00:33:49 you know, in 2019, like, Hey, pretend there's a global shutdown of commercial office. Yeah. Who's gonna be most impacted? I would say, you know, these venture backed companies. But truth is, you know, my wife works at a big technology company and they have, and she's in the, in human resources and they have a ton of infrastructure to do things remotely.
00:34:11 Yep. Earlier companies don't have that infrastructure or those processes in place. So, you know, communication and getting on the same page Right. Is mean survival. So yeah, our utilization in the pandemic was way higher than other Coworking spaces and much, much higher than any, you know, office kinda conventional office space. And that's just because, you know,
00:34:35 our companies needed to engage. Yeah. They needed to be downtown. They couldn't just, you know, work out a Jackson hole for, you know, two years and then come back, you know, whenever there was a team meeting. So that really played to our advantage. And then, you know, we had a ton of organic growth as well.
00:34:50 That's the other thing that we benefit from is that, you know, all of our teams are, I mean, some don't make it, but for the most part, the ones that were, you know, heads down and the pandemic there, they Get funding, they hire people. Yeah. And they're growing and they've done really well. So it's been,
00:35:07 you know, we could write a business school case on how companies react to crisis and you know, kind of the end result of those react those actions. Yep. Yeah. But your target market. So I had a space in Palo Alto, which was very different from my space in Chicago in terms of the member makeup. And it was super interesting.
00:35:24 People were there because Right. They need to talk to each other. Yeah. And they just, they wanna do it in person. And sometimes they had, you know, engineers that were overseas and then the big flaw in, I had literally moved and opened the space. I knew nothing about the market was that once they got funded they needed more people and they needed more space,
00:35:43 which is also a great model if you're selling space. Yeah. And selling, you know, they loved it. And I didn't have any more space, so I couldn't, I just didn't know. And I wasn't speaking of business school cases, like, and that's part of the reason I do what I do because I made, you know, so many mistakes in not understanding that early on.
00:36:03 But yeah, it's, it's a great market and I love focusing on people who need to be together. So. Yeah. Interesting. So, gotta eyeball my list of, have there been any, I mean, you just opened in Minneapolis, but speaking of moving to new markets, any surprises or anything that's harder than you thought it would be? Everything is harder than you think it'll be before you start going to business.
00:36:25 We wouldn't, nobody would do it if somebody, you know, they, they really knew You're either, you're either naive or crazy. And I was definitely naive, you know, nobody knows how hard it is to build a brand and get your, get the word out there. You know, it takes a lot of efforts and there's a lot of thankless jobs along the way and still,
00:36:45 you know, you know, I dig too deep into things that I probably shouldn't be digging into, but That's the analytical part of your brain that can't Exactly. But I mean just operational. Like, we did this, why do we do this? Or, you know, and just the coaching part of it. So along the way there's just new challenges.
00:37:02 It's like having a child, right. It doesn't get easier, it just gets different. Yeah. And it's, you know, that's the same with the business now, you know, trying to make sure that everyone's on the same page and, you know, leading with principle, not just rules is I think something we've learned. Customers always write and instead of like policies and,
00:37:23 you know, we're, we're learning stuff like that as we go. And you know, early on people join you because they believe in what you're doing and they're excited about the dream. And then, you know, then you start getting more operationally focused and you have a whole new batch of people and then getting those people to work with each other. And so there's all,
00:37:41 all of the challenges of building a business. But you know, anyone who's listening to this, who's done it, knows all, knows all about those headaches and, you know, building a Coworking business is no different than building a SAS company or you name it. So. Yeah. Is it harder to find landlord partners out of Chicago? I would say no.
00:38:04 I mean, so when I was early on, you know, I think, like I said before, you know, the question was like, are how are we gonna get people, how are you gonna get landlords Off landlords on board? Yeah. And you know, now really they're coming to us. I mean we're okay, we're, it's, you know,
00:38:18 we've got the big Batman symbol up in the sky and you know, saying we're looking for locations. So, you know, we've got a lot of groups coming to us saying, Hey, would this work for you? You know, would this, how does, how would this asset be? So it is a, is a nice change of pace then.
00:38:35 And you know, we're talking to some really major landlords. So pretty much all the names that, you know, anyone would know we've we're having conversations with. So not really, we we're able to be a little bit more selective now, which is a nice change of pace. Yeah, no. And right. And that's kind of a silver lining of the,
00:38:52 the pandemic. I mean, years ago we talk about management agreements and that was the big challenge was like, well the landlords don't self-identify, so you have to sort of show up in a market and go knock on doors and have very long conversations that might last for two years, never go anywhere. So yeah. That, no, so that, that's,
00:39:10 it's good to hear that indicator. Okay. So, and I, and I will say that, you know, some of our peers, I mean the world has understands now that the next generation of flex is going to be management. It's the only way this works. So we have some, you know, peers that are also educating landlords. We do things a little bit different.
00:39:28 We're not trying to do their structure, they're not trying to do our structure. But I think that makes for a better conversation where it's not like, Hey, we're not gonna pay any rent and Right. It, it's like a kinda Yeah. Yeah. And it also helps now that we have operational track record, Hey look, these are the kind of returns we've generated in a pandemic.
00:39:50 That just makes the conversations a lot easier. Yeah. So are you excited about the recession? I wonder if because of your, you know, niche, like lots of new businesses start post. Cause I was thinking you probably don't, lots of operators like an industrious is like, we're just waiting for the enterprise customer to show up, right? Like that's their tidal wave of demand,
00:40:15 but that's not yours. So I wonder if, if you're maybe less than than or more than others thinking this is an opportunity. So, you know, you never want complete carnage. You know, I've been trained on the investment side to know that when there is carnage, there's great opportunity. Yeah. So I do think that, you know, I mean capital markets are essentially frozen.
00:40:37 Yeah. Reserve requirements are up. So even, you know, asset backed vehicles are having trouble getting debt financing and that's causing a huge traffic jam. Which means that, you know, it's gonna be hard on our landlord partners. I think that there's gonna be, you know, there's a lot of legacy baggage from groups in our sector that were expanding really rapidly not knowing that a pandemic was coming or,
00:41:03 you know, the, the following kind of financial traffic jam. So I do think that there's opportunities for us, you know, I can't say I'm like thrilled. I think we're braver than we were. I mean, we went through the pandemic and we grew all through the pandemic. So the team does have this kind of view, like we can handle Anything,
00:41:21 can do anything, yeah. Discussion, bring It on. But I do think it's a great opportunity for us to expand. You know, I look at some of where some of our public peers debt is trading right now, and I see, see opportunities of more restructuring and stuff. So, you know, we gotta focus on what we do well.
00:41:39 We gotta continue to, you know, service our customers and build infrastructure and then we're gonna be opportunistic and use, use the market to our advantage where we can. And you know, I think that that means expanding a footprint on, you know, on the cheap. So if you look out five years, what does it look like for work box?
00:41:57 Yeah. You know, it's five years feels like an eternity. I know. How about Three, we have to do this in outside financing. I mean, you know, we are shooting, we're shooting for I P O. I mean, I didn't leave Brookfield to be four or five locations to be Midwest dominant operator. We really want to build this to something that is,
00:42:18 you know, top five national operator and you know, and, and are always shooting for an I P O. I think that, you know, we're gonna become very interesting to, you know, commercial brokers. You know, C B R E took a 33% stake in industrious. There's a lot of big groups that have not landlords like Brookfield and Blackstone as they look to address kind of space issues.
00:42:39 No, Brookfield's been kinda like, you know, Yeah, they're, and you know, I, I have enormous respect for my old firm. They do things, they're very calculated, but when they come in, they come in big. So, you know, I think that there's opportunities there or just, you know, we're different from a brand and we're also different from a fixed cost standpoint.
00:42:59 So we could be a takeout from one of the larger operators as well. You know, the Marriott model kind of a family of brands. Yep. WeWork, you know, investing in common desk and keeping the common desk name shows that there's value to kind of that brand differentiation. Obviously I w g has Regis in spaces, so I do think as we start to see more segmentation,
00:43:20 that's, that makes us interesting as well. But you know, my, you know, I grew up in investments and I know, you know, we never take, you know, an exit as our backup plan. We're gonna keep trying to take as much market share as possible and keep growing and keeping our foot on the accelerator. And if, if for some reason we,
00:43:36 we don't grow the pace that our investors like then that there are options. Yeah. Awesome. Thank you for taking the time, especially when you have your week old in Minneapolis and sharing your story. And I always love to talk to somebody who's in Chicago. It's such a great city. Although this is the time of year when I'm fairly happy today to not be in Chicago.
00:44:00 So in April, I actually the, there's a Coworking conference that's coming to Chicago in April called Juicy. Juicy. Yep, Yep. And I don't know, I think it's at the convene, I'm assuming. I can't remember if that's something I heard or if it's on their website. Yeah. But anyway, I bought a ticket, so, you know,
00:44:18 I was like, April's kind of dicey. That could be puffy coat weather still 100%, But we'll take the risk. So anyway, they'll attract a bunch of operators to the city, which will be fun. So Yep. Thank you. You and I look forward to following your journey. Thanks so much Jamie. Thanks for taking the time. Thank you for listening to today's episode.
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