320. Are Small Coworking Spaces Profitable?
Resources Mentioned in this Episode:
Everything Coworking Featured Resources:
Masterclass: 3 Behind-the-Scenes Secrets to Opening a Coworking Space
TRANSCRIPTION
320. Are Small Coworking Spaces Profitable?
00:00:02,"Welcome to the Everything Coworking podcast where every week I keep you updated on the latest trends and how toss 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."
00:00:49,"Welcome to the Everything Coworking Podcast. Thank you for joining me. I hope you are having a good fall. I live in Northern California and October is always one of the nicest, it might be the nicest month of the year. It was 90 on Saturday, which is toasty for soccer games in October. A little cooler yesterday and much cooler today. But we get nice toasty weather in October."
00:01:17,"So we always like to be outside and get in as much as we can. I actually went to Saturday, or no Friday night. We, so, you know, I do a lot of work with our local rec soccer league. I'm the regional commissioner and we have a partnership with a local organization called the Women's Coaching Alliance. Someday it's gonna come to your neighborhood,"
00:01:42,"but it started right here in my town and there's a woman in town who lost her husband and decided to kind of devote her life to creating opportunities for young women in high school to get coaching experience. Because coaching experience is not just about support, but about leadership opportunities. So we have some high school students who are coaching work and they have adult supervisors."
00:02:11,"If anybody from my A Y S O superiors is listening, they have, you know, official adult supervision at practice and at games. But they are coaching eight U teams and 10 U teams this year. And we have female coaching groups, coaching are boys, 10 U teams, which if you're listening and you've ever coached a 10 U boys team, it's,"
00:02:38,"that's NATA walk in the park. So, but these women are doing awesome because the kids relate to them and they are soccer players so they know a lot about soccer, which is awesome. So anyway, there was a gala benefit Friday night for the organization. They were raising money for all the work that they do with the kids. They actually pay the coaches,"
00:02:58,"which is awesome. I don't get paid. So they had a fundraiser and I got an invitation. Then I went and a lot of our soccer board went and it was very cool. So they had some very cool speakers. One of whom was the woman who's on the flag, women's flag football team for Mexico who was in the Super Bowl commercial. She is so amazing."
00:03:25,"I think she's 26 years old. So she came and spoke, she came from, and we live in a pretty small little suburb near the San Francisco airport and she came and spoke 'cause she was really inspired by what this woman, Pam Baker is doing for women and their future leadership skills, which I love. So very cool. But my female entrepreneurs listening,"
00:03:48,"you probably know I feel kind of strongly about this so I'm gonna say it my podcast because I can, I think leadership skills are super important for women. But there is evidence, there's research done by Harvard that there is actual, no actual wage discrimination between men and women when they get out of undergrad. That problem starts with the caregiver bias. And so that challenge comes into play when women get older and have kids and or parents to care for and they become the default caregiver and then they cannot pursue things equally to men."
00:04:30,"They can't travel as much, they can't work as much because they're the ones doing the doctor's appointments. They're the ones taking the pets to the groomers. They're the ones staying home with the sick kids, they're the ones doing the meal planning, you know, all the things. So it is my wish for that organization that they help the women figure out how to create more equity in their relationships."
00:04:55,"'cause I think that can be hard and I bet some of my female listeners struggle with this. I know I do. I'm for sure the default caregiver in my household, which means I have a lot of work to do outside of all the work that I do in my business and it ain't easy sometimes. So I just had to say that and let you know I see you and I hope that things will be better for our next generation."
00:05:21,"And for the men who are listening who contribute close to equal or equally in their household, high five, you're awesome. Okay, so what's going on? We are having a lot of fun over here. So we had our operator the first week of the month is always super crazy for our team 'cause we run all of our live calls during that week we just did our operator mastermind and we did something different this month."
00:05:51,"We did some website reviews, which was I think pretty eye-opening. Everybody even there was one group that got on, I was like, we're not gonna find anything on their website. They have the most awesome website ever. And people found a couple of things, notes were made and they'd just done kind of a pretty substantial update to their website. So that was fun."
00:06:11,"And then it was very clear, I think that it's hard for us to identify challenges with our own work. We need somebody else's eyeballs on our work. So doesn't have to be our operator mastermind but get somebody else to be looking at your website. So we have a coach who works with our community managers and she's also just really strong at marketing. And so she facilitated Janelle shout out to Janelle and she had a form that we all filled out and kind of facilitated this great session where we went through I think four websites for our group members and made a bunch of notes that people could take notes or take action on,"
00:06:52,"which is great. And then I had an email today from a Community Manager asking about if we had any information on the C M R A updates. And we do, if you missed our episode with Matt going from Anytime Mailbox, you gotta go back and listen to that. And we are keeping our Community Manager University group super up to date with all of this."
00:07:14,"So anytime we get new news or folks have questions, we get them answered. So if you have a Community Manager and you wanna make sure they're up to speed, put them in the program. That program is, it has a certification component so there is a track to get the certification done, but it is also just an ongoing training and development platform to make sure your community managers know all the things."
00:07:40,"And if updates to C M A C M R A stuff, Google Business listing stuff, ai, we do training on kind of four major buckets, which are operations, sales and marketing. What else? Community building. There's one more, what am I missing? We do some leadership work for our advanced community managers but we really make sure that they are up to speed on anything that's changing."
00:08:11,"We also do a bunch of done for you stuff for that group because what we realize is that group's really busy. You know that I know that. So we produce Google business postings for them twice a month. We do, oh we're working on a fall holiday member event done for you program with social media posts and event ideas, that kind of thing."
00:08:32,"So we're trying to also, we're trying to keep them highly qualified in their roles but also make their lives easier. So if you're interested, check out Community Manager University Everything Coworking dot com slash community managers. I think that's it. We'll put the link in the show notes. So, okay, so today and speaking of what else is going on, I've been poking around the Facebook group and sometimes this makes me crazy."
00:09:03,"There is a conversation about small spaces and whether they're profitable or not. I think somebody put a post in and said, Hey you know, if you have a small space, you know, tell me if it's profitable or not. That that directionally correct. And we got a couple of a bunch of responses. One of the women is in our operator mastermind and I gave her a hard time the other day."
00:09:22,"I said, Hey, give some context next time. 'cause she's not staffed, she just opened her second or no, she's working on opening her second location, but it is, she owns it. She owns that building so she's gonna be profitable in that location 'cause she owns it. The original location is not staffed and it is a a niche space."
00:09:46,"And so here's the challenge with the Facebook group. You don't get context so people will pop in and answer but you don't get the context. So I thought I would just kind of revisit this topic of small Coworking spaces and can they be profitable? And Ann Long had a post Ann was a coach for our Community Manager University program for a while and she got busy so we had to give her a break."
00:10:14,"But she had a great response, which was run some proformas on different size locations and see how they come out and see how they align with your goals. That is exactly what we do with our Coworking Startup schools. So we have just updated the way we approach our Coworking Startup School similar framework because the framework works, we know that. But we are doing it in two phases."
00:10:37,"You can do one phase right after the other if you want, but the first phase is really around validating the model. And we're trying to get you to go through it live because we are really focused on the numbers and one of the first things we do is walk you through a framework of the profit potential of different sizes of locations. Now there's a lot of variables in there,"
00:11:00,"of course I look at performance all the time and there's, you know, the things that really matter. How much are you paying for rent? How much can you charge per seat and how, how much inventory you have, which is the size of your location. And some other things like are you running events? So some of the people that responded said,"
00:11:20,"oh we're profitable and we do a crap ton of events. Well that matters a lot my friend. So they probably have a layout that is conducive to events. And so the events are probably driving most of their revenue. So if you are running only Coworking in a small location, that's gonna be really, really hard to make profitable. And when I say profitable,"
00:11:46,"maybe you can cover your rent and other expenses, but you're not paying a salary. Or maybe you can cover someone part-time. One of the responses said, oh I have somebody who comes in two to three hours a day. That is a specific model, right? So as an unstaffed model and that is totally a legitimate model. So I hosted a panel at the Global Workspace Association a few weeks ago about kind of trying to cover three different models and one of them focused on the UN smaller unstaffed model because I think that is relevant for folks in smaller markets who simply cannot make a model work that will support their staff."
00:12:29,"So, so here are some things to think about when you're embarking on your Coworking journey. We want you to know what your goals are and this is the first thing we do in our Coworking Startup School. We just wrapped up our first phase one cohort and we had some awesome folks in the group. We had a couple of bit of building owners in the group."
00:12:55,"We had a woman who's in a market with 120,000 people in town but no Coworking yet. We had a Canadian woman who has kind of a niche market that she feels she actually did the work and said, I don't think this is the right idea. No one wanted it, she wanted it, no one else wanted it. So she's tweaking, she still loves the business,"
00:13:17,"sort of general business, but she's trying to figure out, okay, who is my ideal customer and what do they wanna buy? Which you know, aligns with what I wanna sell. So it's really, really good work. So thinking about when you're diving into this model and your Coworking journey, having aligning your business model to your goals. So you might be thinking,"
00:13:41,"isn't profit the primary goal? Not for everyone. And so I want you to be careful when you're asking a question in a Facebook group saying Hey, are you profitable? Some people might look at profitability differently. Some people might say, yeah, my only goal is to break even because I have this other goal for the space, which is community engagement."
00:14:00,"Or you know, I run another business out of the space. And so they may be unstaffed and simply covering rent and that's profitable for them and that's awesome. But if the person asking the question is wondering, can I leave my job and and create this business and pay someone to run the space and be the business owner and have some profit that will pay my mortgage?"
00:14:24,"No, you cannot do that in a small space. So usually again, there are variations which we're gonna talk about a little bit. So here's what we want you to think about. Again, start by setting your goals. What do you want to get out of this business? Is it a passion project, a side hustle or is it gonna be a full-time venture for you?"
00:14:45,"Are there community goals that you're trying to achieve that are not related to profit? Maybe you have a grant, maybe you're trying to foster a specific type of community or a network and therefore the group that you're supporting is going to, you know, sort of be a break even thing. You don't care about the profit, you care about this other aspect of creating a Coworking space."
00:15:07,"Or maybe you really do wanna generate a large amount of profit. You want this to replace your income and you want it to do so with a Community Manager in place that you know is a great dream for some people. So what does it look like? What size based do you need to do to hit that goal? So you then need to look at the business models that align with those goals."
00:15:31,"Passion project, you know, community goals or significant financial goal. What are the business models that you're gonna run? You are not going to do only Coworking flex space if you wanna make a lot of money. If financial goals is it, you're not gonna make that money with flex memberships because there are so few people buying full-time flex memberships right now. They want to go someplace,"
00:15:56,"sometimes you need to have places for them to make phone calls and they're gonna pay you for a part-time flex membership and it takes a lot, a lot of members to make a lot, a lot of profit on that model. Are you working on starting a Coworking space in 2023 or even 2024? We want to make sure you are set up for success."
00:16:21,"You hear me talk about this a lot. The biggest mistakes made in Coworking businesses are made before you ever open your doors, before you ever sign your lease, your lease, your product mix and ensuring that your real estate deal and your offers align with your ideal future members are everything in terms of making sure that you set your business up for success. We can fix your marketing and your paint colors and your bathroom fixtures anytime,"
00:16:54,"but we cannot redo your real estate deal or your product mix. We can, it's just really expensive. So we wanna help you get all of that right and be among the Coworking space operator operators that are sleeping well at night because they signed the right real estate deal and they know that their business is set up for ongoing sustainability and set up to meet their financial goals."
00:17:17,"So we'd love to have you join us in the Coworking Startup School. We cover getting started with your real estate search and signing your lease and picking your product mix and more. If you already have a location, over half of our members are already building owners, you can get all the details of what's covered in our program at Everything Coworking dot com slash start."
00:17:42,"So you do want it to be a recurring revenue model. You want pricing tiers, you wanna have different tiers of offerings potentially, which might look like a virtual membership, a flex membership and an office membership. You might, and this is where a small space could be successful. Focus on events and meetings. So those are becoming more and more important post covid."
00:18:09,"So you might say, you know what, I'm gonna create a purpose-built space for events. So this is not a space that is primarily for office space, but you're flipping it to event space. It's got legit event space. So we're working one of our Coworking Startup School students really has, she has kind of a combined set of goals, which is also entirely possible."
00:18:34,"She has a real passion for serving a very niche group of folks. And I'm not gonna get into details, that's kind of her story. I hope to have her on the podcast so she can tell her story at some point. And she wants to serve them partly through events. She loves events and she would love to create a business that can create wealth for herself through a significant profit in the business through owning the building."
00:19:01,"We're still looking at the options and kind of going through the journey with her, but she has an and goal. So she wants to host events that can be profitable and also she wants event space to serve a very specific community of folks that she wants to program for. But she's going to create a space that is purpose built for that. It's not going to be that she has office space and a tiny little bit of flex space that she flips over after hours."
00:19:29,"So it's gonna be really intentional and if you're gonna do well with event and meeting space, it's probably going to be pretty purpose built and folks are gonna be able to really see how they could have a great event or a great meeting there. They're gonna look at the space and say, oh my gosh, that's the perfect offsite space. Or that's the perfect,"
00:19:46,"you know, after hours space for my you know, speaking series. Or it's a perfect place to have a training or to have my sales meetings every Monday, et cetera. I visited a space recently that has this fantastic auditorium and they have become known as the space in town where like the tech Startup scene does all their events. It's just purpose built for that."
00:20:12,"It's super, super easy, it's got great parking, it's got other food and beverage in the building. It's really, really teed up for that. So you have to think about, okay, how am I going to generate revenue and how do I create a space that really supports that? Or you know, do ancillary services like virtual office services and mail handling."
00:20:35,"Some folks do really well with that, that takes time. But it can add revenue onto a smaller space. But usually it adds significant revenue if you have a sexy address. So if you're in the middle of nowhere, you may not bank on that type of service, you may just not have enough volume for it to be very meaningful. But you could do a smaller space in in area that has a great address or just kind of a,"
00:21:05,"a need for that type of service that's underserved right now. So even partnerships and sponsorships can be an option that is sort of harder to pull off. We see that happen sometimes. Economic development centers, I'm trying to think of good examples, but we have had some good examples of folks getting grants that come from the state or come from a city. So that might help."
00:21:29,"It's not really a business model decision, but it could help support your space getting off the ground if this is like a more of a community focused goal versus a financially supported goal anyway. And then you really wanna understand the profit margins. So it doesn't matter what your goals are. If you assume that you don't want to lose money, which I assume is everybody listening,"
00:21:55,"even if it's more of a passion project or a community-focused goal, you want to at least break even and maybe have some profit that you can invest back into the business to better serve your members. So you wanna really understand what those margins are. And I would caution you, somebody in the Facebook group said, you know, definitely leverage your, I forget what it's called,"
00:22:18,"like score groups or small business development center in town. Yes. And make sure you understand how the business model is different from the typical business that they support. Because the typical business that they support, if they need physical space, which is probably not gonna be very common, it might be common, but it is to support a different business. It's not to resell that space."
00:22:45,"So this is a pretty unique model. It's it it, it's very sensitive to a few factors and you wanna make sure that they understand that and they're not applying a really generic model to this business. So they can be very helpful in terms of working through proformas and whatnot, but just make sure that they kinda get the model. If they don't get it and you don't get it,"
00:23:08,"you gotta go somewhere else for that, that part of the support. So you wanna make sure you understand real estate costs, what it costs to furnish the space, add technology, market the space, staff the space, maintain the space, handle an expected expenses and you wanna understand your potential revenue streams and how to forecast those and how to ramp those up from when you,"
00:23:35,"when you open. So you wanna be able to build out a proforma that is very likely to come, come true. So if you are wondering about a small space, back to Ann long's advice and exactly what we do in the Coworking, Startup School, then create a proforma and then copy it over and put in some different assumptions about the size of the space."
00:23:59,"Because if you have a model that you're pursuing, scaling it is not very hard to do in Excel. If you say, okay, here's basically what we're gonna do. We're gonna be 70% office space or we're gonna be 50% office space, 50% event space. If you apply that to 2000 feet versus 5,000 feet versus 10,000 feet versus 20,000 feet, you just kind of scale it up."
00:24:25,"You take your inputs and scale them up over the amount of space. And you'll find some of those numbers are kind of held constant. Like you don't need a new staff person until you get to approximately 8,000 feet and then you need to add more staff. So you'll be able to see kinda what moves across the amount of space that you have and then how your,"
00:24:48,"your profit margin might be the same across the space, but because you're essentially selling physical space, the profit margin might be held somewhat constant. Like that doesn't scale necessarily, but your profit dollar amount will scale as you have larger space usually. So again, it just depends on kind of the model that you're running, but you wanna look at those different scenarios so that you can make the right decision for you."
00:25:20,"How do those numbers align with your goals? So that's what we do in our Startup school and we had someone who went through this last cohort who thought they wanted a smaller space and we looked at the numbers and realized that wasn't going to work. She thought she had a landlord that was gonna help her create a smaller space and realized like she really didn't have room in that space for the inventory that she would need,"
00:25:49,"like the products that she wanted to offer. So sometimes you just can't know that until you look at a sample layout. You look at a sample proforma and you can create these on your own. If you're comfortable with Excel, you can totally play with these, you can you know, kind of run those scenarios on your own. We also, that's what we do in our Startup school."
00:26:10,"We provide the templates and we provide the workshops to help you run those scenarios and kind of go through all the decisions that go into creating your pro forma. And we want you to get really, really comfortable with the numbers before you ever think about signing a lease or moving forward in any way that commits you to a long-term lease. So you can absolutely do that on your own."
00:26:37,"But I love the idea of creating these scenarios. And then I mentioned we had somebody in our cohort that she had not gotten to the proforma side of things. She was validating her idea, she's amazing. She did a bunch of interviews with folks that she thought were her I C A, she did a lot of them, I don't know how many of them,"
00:26:59,"but enough that she was like, okay, so I had this discussion and none of them wanted to pay for what I wanted to create. So they also didn't like the idea of combining. So she had this particular passion that she wanted to combine with a workspace and she said her I this I c a that she thought she was going to serve did not want those two things to be combined."
00:27:25,"So those were really important conversations for her 'cause she thought it would be cool to combine them, but her I C A did not want them combined. So she has a few needs that she's interested in serving and she's going back and doing, doing her I c A interviews again. But so some of you might be like, yeah I kind of don't want to hear."
00:27:45,"No, I'd rather just do it and hope for the best. You can totally do that. But I think in this case, this woman, I'm sure she felt like sort of frustrated and disappointed but she had spent no money except for what she invested in the Startup school phase one. So she's not even gonna pay for phase two until she's figured out is this a model that she can pursue and get the profit out of it that she wants to get."
00:28:12,"So do the work and make sure, just kind of circling back to the Facebook group question, make sure that you are talking with people and getting the context for the questions that you're asking. So when you say are you profitable, what does that mean? Does that mean you, you're paying a Community Manager full-time and and you have X dollars amount left over,"
00:28:37,"how many dollars do you have leftover? Those are all really important details that are not coming out in these answers. If you have a profitable space, what is it that makes it profitable? Is it that someone is spending, you know, all after hours and all weekend hosting events that really drive the revenue? Is that the business that you want to run?"
00:28:59,"It might be or it might be not the business that you want to run. When I started my first location in Chicago, I had a 10 week old daughter and no, I could not spend my weekends hosting events even though the space was gorgeous. We sometimes did events that my community management team would support, but we just didn't have the bandwidth to do that."
00:29:23,"And then when I started my second location, kind of the same thing, I had a very small child and I, the space was not that close to my house and so I was not going to go spend my weekends doing events. We did it occasionally, but that was just not gonna be what I built my revenue on. So we made sure we had really solid office density so that we didn't have to worry about adding event revenue."
00:29:45,"I might look at things totally differently now. I would buy the building. I would probably have some really good event space that was good multi-purpose space. So I would keep some office density and I would do some really good professional event space that could be like really multipurpose based on furniture and decor and that kind of thing. So we have different seasons in life that align with different business models,"
00:30:14,"right? So make sure you're thinking about those things too. So, okay, that is it for now. I just wanted to revisit this topic of small spaces being profitable. We do have some very popular podcast episodes. I should men mention this before, before we jump. Brian Watson has, oh I'm gonna forget the name of his space. He's one of our most popular podcasts and he talks a lot about automating your space."
00:30:45,"Hold on, now I gotta look it up 'cause I'm curious. And he, people love that episode and they love, let's see, oh come on. 3 0 8 Altspace, that's what it's called. We'll link to in the show notes. So people love hearing about his model and how he's trying to make that work. He is also very cognizant, again,"
00:31:08,"the his, he has a bunch of locations. Ann Long mentioned this in her response, she said, you know, her first location at 4,700 square feet was not, you know, hitting her like income replacement goals that she wanted. So she's done multiple locations after that one. So that's another approach too. You can have many small locations that start to build that profit and maybe you have a consulting business that you do."
00:31:34,"I kind of loved the diversification of income sources. So you might do, and again, so that that's the thing, your goal may not be to replace your income with Coworking. It might be an investment project or something you're kind of doing to add. But what you wanna be careful about is making sure that the risk that you're taking aligns with what you're getting on the other side."
00:31:58,"So if you're in a market where leases and construction are really expensive, then the numbers on a small space simply may not work. They might not be profitable at all. So you wanna make sure that if you are, what you're putting in upfront, that you're getting out, that you're paying back your Startup costs and that you're making enough that it's worth the risk and the time and and resources that you put into it."
00:32:23,"So know your numbers, but if you are interested in hearing about smaller locations that are automated, Brian Watson was most recently on episode 3 0 8 and we'll link that up in the show notes. So that is it for now. We'll be back next week."
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