292. Your Coworking Space Doesn’t Have to Be Different, It Has to Be Right

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292. Your Coworking Space Doesn’t Have to Be Different, It Has to Be Right

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.

00:00:44 Welcome to the Everything Coworking podcast. This is your host, Jamie Russo. Thank you for joining me today and I am actually recording this confession on Valentine's Day, so I need to get this guy to my editor and keep moving. I hope you are having a lovely Valentine's Day and if you are a co-working space operator, I bet you made your members day.

00:01:08 I saw Kim Lee’s post on LinkedIn of their Valentine's Day setup. It was adorable and looked like exactly what I would want to see on my Valentine's Day. I am unfortunately working from home. There's no Valentine's chocolate in sight for me. It is a long day of phone calls and then I have to run to the paint store because we're getting some repairs done on our bathroom tomorrow.

00:01:33 I have to get my daughter to gymnastics. I did get her one of those little peanuts squishmallows. Raise your hand if your child is obsessed with squishmallows. I cannot like them too. They're really cute, but they make me feel environmentally irresponsible every time I buy one. And she got some chocolate-covered caramels and a homemade card. So I have a cricket machine.

00:01:55 I have two actually. I have the Joy and the Explorer and if you are a cricket user, we'll have to talk. It's my crafty side. So I made her an a durable custom little card on my cricket joy, which was super fun. Anyway, so let's talk. I am a little bit riled up and I'm trying to make sure my Enneagram three wants me to be appropriate,

00:02:20 but I feel like I have to address this. So I am find myself very frustrated by co-working content that I see out there, which is probably why I try so hard to deliver meaningful, like real actionable content. And if it ever seems like that's not what's happening, send me an email because that's really important to me. This business, I think because it's so visible,

00:02:53 meaning you can like touch and feel someone's Coworking space and you think you know it, I think can be really deceiving. And because it's visible online, people will look at what they see on social media. They will look at, they will walk into your space and it can be beautiful and your staff will be wonderful and they will think you're printing money and you're not printing money.

00:03:15 And the challenge with this model is that it looks easy. I say this all the time, but I feel like I cannot over repeat this. I cannot over say it. It's not, it's not easy to execute. It's not easy to make this business profitable. Are there profitable businesses? Yes. And do you know what's profitable about those businesses? Generally,

00:03:36 the most profitable co-working businesses are following a pretty specific formula that is high density office and they have completely lined up their product with what the market wants. So the type of product, the type of workspace, the level of aesthetics and build out, and the pricing, of course there's more to that story. But fundamentally that's what makes a space profitable. And if you overbuild,

00:04:09 if you pick the wrong location, et cetera, et cetera, your model won't work. And there are a lot of co-working spaces out there, unfortunately that are not profitable, but they are still open. Somebody's funding them. Of course there are spaces that are new and just still getting up to, you know, ramping up to stabilization. So that makes complete sense.

00:04:31 But there are co-working spaces that didn't get their location right, didn't get their product market fit right. And they are struggling and no amount of marketing or changing your staff is going to fix that problem. So those problems happen before you ever open. And the reason I am a little geared up is because I read a blog post that suggests that differentiation is the answer.

00:04:55 And the blog post suggested, and this might get me in trouble, but I already emailed the person who wrote the blog post and told them what I thought about it because I think it's irresponsible. Like one of the suggestions on the list is onsite childcare. And I don't swear on my podcast, but that's enough to make me swear it's freaking irresponsible To suggest that somebody add childcare to a co-working business model,

00:05:17 childcare is hard. It's hard for a lot of reasons, and I'm gonna sidetrack and tell you we can do an episode on Chat GPT, but I even, you know, asked Chat GPT about childcare and Coworking and Chat GPT gave me an excellent response. I had to close it down because my MacBook Air can't handle having Chat GPT open and all the other things.

00:05:40 I had open an excellent response around the risks. Yes, there are co-working spaces that offer, so my first thought was maybe this person used chat, chat GPT to create this list and didn't know enough about the business model to evaluate whether or not that list was relevant. So side tangent on chat, GPT is, it's not gonna take anybody's job away that has to,

00:06:07 you know, put the right input into chat GPT, you have to ask the right questions and you have to know how to evaluate the data that comes out. So if you ask chat GPT, you know, how do I differentiate my Coworking space? They might give you answers, but they don't know what that means for the business model. And the business model for Coworking is hard to get right,

00:06:30 especially if you overbuild over amenitize and create things that aren't monetizable and that aren't a product market fit. So you have to be careful about the resources that you're using to think about your business and to a value and to plan to launch your business. You have to be very, very careful and you cannot assume that you're looking at a co-working space that you love and it's profitable.

00:06:56 You don't know unless you've talked to the owner. And I've been doing a bunch of co-working advisory sessions, we have that on our website and I'm not sure where everyone's coming from, but I've been booking these like crazy. And I talked to an operator in London and he said he'd been talking to a number of co-working space owners who are surprisingly transparent and I love that about each of you.

00:07:21 And he, he said they shared really, you know, transparently the challenges that they have. You know, they spend too much on build-out and aren't profitable yet, or you know, they're in the wrong location and it's hard to be profitable or they have too much flex space and it's hard to be profitable. So unless you've talked to an owner and you've asked them directly,

00:07:40 don't assume that they're profitable. And if you haven't run a Coworking space, please don't give advice about Coworking spaces and how to make them profitable. Okay, dear everyone out there who's selling something related to Coworking, unless you know it, you'll see I've been partnering with Proximity, they've advertised in the podcast a little bit and then they've been offering resources in our newsletter and I review everything that they do.

00:08:05 But you know what? They have great resources because they run Coworking spaces. They don't actually know if they still have active Coworking spaces. They probably do, but they know it. They know the business, they know it through you, the operator who are, who use their software and they know it because they operated Coworking spaces. So be careful about the advice that you listen to.

00:08:24 So differentiation can be important. Let me, let's just talk about, you know, where we are in terms of the market for Coworking, right? So most markets have nowhere near enough supply to be really worried about differentiation. I'm not saying don't think about it, I'm not saying don't think about what makes you unique. A unique selling proposition or U S P,

00:08:52 I did a quick Google on this. Shopify was the source, a unique selling proposition is the one thing that makes your business better than the competition. Well, guess what? The one thing that still makes your business better than the competition in Coworking is not overspending on your buildout, but spending enough to attract your target market. Having the right product mix.

00:09:11 If you have what the consumer wants to buy, you win. And most people don't do that yet. We are not there. We are not to the point yet in most markets where you have to be different, you just have to be right and right means what does the customer want? So I also, you'll hear me talk about, I think we are going to get to differentiation on a basic level and I think one of those aspects is going to be food and beverage,

00:09:42 but I don't even think that's gonna be a differentiator. Eventually, I think it's going to be where the bar gets set. And I don't know that everybody's gonna make money on food and beverage. So we just had, on the Flex and centered podcast we had Ben, who's a c e O of Root Coworking. He's adding food and Bev, I had Toby Karon on the podcast from Creative Cubes,

00:10:04 he has food and Bev. He said it's, look, it's not profitable when he's only serving his members. He makes money off it on events. So this is super important, right? You have to know how an amenity is going to be monetized, whether you're gonna make money, lose money, when you're gonna make money or lose money. So differentiation has to be really carefully thought through.

00:10:27 You can't build something that's different that's not actually monetizable. 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.

00:10:56 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.

00:11:21 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.

00:11:49 We provide a live brand new training 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, build their own peer network. We also have a private Slack group for the group. So if you're interested in learning more,

00:12:14 you can go to Everything Coworking dot com slash Community Manager. So we are in early, early innings of the Coworking market. Most cities, the amount of flex space that's in the market is 3%, maybe 4% in a market like Dallas or Toronto that has a fair amount of supply, right? So you know, anyway, it's so low right now and the J L L predicts that by 2030,

00:12:44 which is not that far away, now we'll get to 30% and some of that's gonna be landlord supply. And that landlord supply, is it gonna be differentiated? I don't know. Is it gonna be what the market wants to buy some part of the market, but we're still not anywhere close to oversaturation in major markets. And sec, lots of secondary markets with just a really freaking good product,

00:13:08 right? A product that is mostly offices that staffed really well and has the right real estate structure and didn't overspend on their buildout. There's just not that many of those. And if that is you, you're doing laps, victory laps, you know, you're high fiving, you're running a great business. And if that's not you, guess what? Lots of people are struggling with this model because it's still new.

00:13:36 And so a lot of folks don't know what it takes to be successful in this model or think they know or they gotta write one time and then it was really hard to reproduce all those factors. Again, it can be really hard to reproduce a great lease and then you know, move, you gotta move into management agreements and that's hard to get right?

00:13:54 And so you have to learn that model. But there are not in every market, there's not in every market really great product. And so the consumer London, for example, if you just want an office hard to fi in a great space, hard to find, and you're paying a thousand dollars a desk for that, you know, in London. So you don't have to be different,

00:14:17 you just have to be right? You have to have what the market wants and you have to be able to sign a lease that makes money. We're not talking about amenities and you know, and overbuilding. So when I say over building though, your space has to be right for your consumer. So whatever your consumer is willing to spend on an office,

00:14:37 for example, you gotta build for that, right? So may you probably don't wanna serve the super budget-conscious member, maybe you do. There's that, that I think if you get that right and get your lease structure right, or you own the building and you wanna go for that like kind of budget customer, go for it. I think you can do it.

00:14:57 That does not require any sort of differentiation. It's just the sort of where you're playing in the market. But in general, you wanna sign a really good lease that allows you to, to get the pricing that you need to have a nice professional space that's better than someone's home office. And I think that's where we're going with the differentiation and the amenities.

00:15:15 I think there's something there for sure, but I don't think everybody's getting the product right yet. So let's start there. Let's everybody have a really good base business and then let's level up the game. So please be careful. We've talked about on recent podcasts, we've talked about niche spaces. I think niche spaces can make a lot of sense, but again,

00:15:38 those operators are matching their product to a market need and they know how many offices they need, they know how much flex space to have, they know how to price, they know what size those offices should be. So a niche space is also wonderful. I'm not saying don't be unique and don't have a differentiator, but I tell my Startup school members and anybody I work with one-on-one,

00:16:03 the base case for profitability in this business is a space that is 10,000 feet or larger and office dents. And that may not be the business that you wanna run, but that is profitable. You don't need to be different, you just need to have signed a good lease, built enough offices and have a really great space that is great in the eyes of your target member.

00:16:27 And you have to have enough target members. And if you diverge from that, then you have to be really, really, really sure that the demand is there for your market. And I get it that I get lots of people that go through my Startup school that want to run a model that is different from that base profitable case. So my job is to work with them and figure out,

00:16:49 okay, so how do we either say we're making a trade-off on profitability or where does the profitability come from? Then what are the other sources of profitability that we're pretty darn sure exist if we're not going office dents with 10,000 plus square feet? So please be careful when thinking about opening a space that is unique because we don't need unique yet. We need really great product that had signed a really great lease.

00:17:17 And now can be, I have lots of folks in my Startup school who are signing really good deals right now because there are lots of markets. Not every market, not every market for sure is giving good TI allowances, but there are some where we're getting turnkey. Buildouts, great free rent. It can happen. Not in every market, not Vancouver.

00:17:37 For anyone listening, I was on a call with the Avis and young folks earlier and the Vancouver broker was telling me what terms look like there. And that market is still hot. London probably the same central London, right? So anyway, you gotta sign a really good real estate deal. You have to have the right product mix, you have to rev the right build out at the level that is perfect for your ideal member,

00:18:00 and then you have to have the right pricing and then you have to do a lot of things really well after that. But if you don't get those upfront things right, it doesn't matter how good your marketing is, it doesn't matter what sort of unique amenity you talk about on social media or on your website, your customer's not gonna buy because you have some cool thing in your space your customer's gonna buy because you have the workspace type that they need to get their work done.

00:18:24 And then everything else on top of that is up for consideration. So okay, a little bit of a rant today. I don't usually get so geared up about things, but I get geared up because I spent a lot of years sleeping with the p and l under my pillow. I spent a lot of years trying to get the model right, and now I spend a lot of time with operators who are doing the same thing,

00:18:47 who are trying to make this their business, who are trying to pay their mortgage with a Coworking space, who are trying to build a company, you know, build the business that helps them meet their financial and lifestyle goals. And it's easy to mess that up. And then when you mess that up, you know that's someone's savings account, that's someone's retirement account.

00:19:08 So it's a big deal. It's a big deal to get it wrong. It's a big deal to take a risk and not get it right, you know? And that happens in this business even when it's not covid and people can't come to your space. So I care. I want you to be successful, whether you're in business or thinking about starting a business.

00:19:27 So I think that's why I was a little amped up today. It's Valentine's Day and I love the people that I serve and love comes with wanting to protect your ability to be successful. So that is all for today. I'll see you next week. 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.

00:19:54 It makes a huge difference in helping others like you find us. If you'd 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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