Our recent survey of web workers (pages 12-14) shows that, though few of them use a coworking space full-time (four to eight percent), a substantial number of them (22 to 27 percent) do so at least occasionally. Data from the survey reveals that coworking is an important trend, if not yet a dominant one, and that freelancers are twice as are likely as full-time employees to adopt coworking.
This burgeoning movement of independent, cafe-like collaboration spaces is now spreading beyond niche communities and may become a default option for employees in many industries. With that in mind, we explore the journey made by a U.S.-based coworking community, Philadelphia’s Independents Hall (also known as IndyHall), as well as UK-based Fly The Coop, in Manchester.
The Story of IndyHall
IndyHall was founded by Alex Hillman and Geoff DiMasi in the spring of 2007. For nine months, the collective was an informal meetup (similar to “Jelly“) held in a variety of locations. By summer of the same year, the cofounders estimated their fledgling community, numbering around 23 individuals of varying levels of commitment, could support a permanent location and a monthly revenue of $4,625. Based on those projections, the founders raised just over $26,000 in funding; in the last three years, IndyHall has grown its membership from 23 to 83 members and its monthly revenue from $1675 to $9475.
The table below illustrates IndyHall’s progress over these three years, as five snapshots in time:
|August 2007||June 2008||March 2009||May 2009||October 2009|
2 full, 4 lite, 17 basic
9 full, 5 lite, 25 basic
14 full, 7 lite, 32 basic
21 full, 7 lite, 39 basic
26 full, 6 lite, 51 basic
|Area||1800 sq ft||1800 sq ft||1800 sq ft||4400 sq ft||4400 sq ft|
|Cost||$2450||-||$ 3633.45||$ 8700.53||-|
|Profit & Loss||$-775||-||$3425||$-725||-|
- August 2007: IndyHall launched with three membership levels, respectively paying $275, $175 and $25 per month. With member revenue committed — in some cases pre-paid for up to six months — and loans from founders and members, IndyHall was able to furnish, supply and secure its location and still project a break-even point within three months.
- June 2008: Some 16 months in, the $10,000 loan was repaid.
- March 2009: Though costs were rising, a membership almost double that at launch was able to deliver a modest profit.
- May 2009: Moving to a location almost twice the original size increased costs, but again, an increasing membership and another loan enabled continued growth. Though it incurred a small operating loss, it was estimated to turn profitable in six months
- October 2009: Nine months later, IndyHall was able to begin paying back the loan, with a goal of settling by May 2011.
IndyHall’s story shows that the business of owning a coworking space is certainly one of tight margins. But early community building enabled the owners to capitalize on the trust — and finances — of members to help fund future development. That trust has been returned as a sustainable and modestly growing cash flow. It’s likely the members’ own hosted businesses contribute additional value and revenue to IndyHall and its locality — a great mechanism for building social as well as economic value.
The Story Of Fly The Coop
On the other side of the Atlantic, Manchester’s Fly The Coop is an example of a member-owned co-operative located inside a broader “digital hub.” Cofounder Paul Robinson declined earlier initiatives by local investors to develop a managed office space; he favored instead to develop community structures that fostered collaboration amongst members. Rather than simply recovering costs for pure property investors, members were also investors, ensuring they also remained socially invested in the community’s development. Where IndyHall members simply paid a fee for access and usage, Fly The Coop also provided a financial share in the coworking business itself.
With a focus on low pricing, deepening the city’s collaborative philosophies and a providing home for various digital communities and industries, a cooperative structure seemed inevitable.
- 1000 sq. ft. of space in the city’s fashionable Northern Quarter, totalling around £800 a month (around $1.26/sq ft)
- 20 Mb/sec broadband, electricity, heat, etc.
- Six to seven permanent residents paying £200 each month
- A number of hot-desking members paying by the day
- Income from rental of a meeting room
Though Robinson describes Fly The Coop’s costs as low, a minimum of five permanent members is required to enable a break-even each month; housing six to seven “permies” at any given time cushions any turnover of residents and services a loan of £12-1500 drawn down from members of the cooperative.
The nature of the cooperative structure, and Robinson’s ongoing community building work, has meant individuals have readily contributed loans to a cause they have a level of belief and commitment to. There’s a modestly positive cash flow with £2-400 in profit each month, returning member’s investment and providing funds for developing the physical space.
Robinson’s key pieces of advice in operating a coworking community are:
- Ensure the community is large enough to enable you to break even from day one.
- Budget for ancillary costs — furniture, insurance, beverages, emergency equipment and security.
- Account for the billable time you’ll lose to running the space (if you’re also working from as well as residing in the space).
- Keep startup costs low and aim for a lease of the shortest duration possible.
The Secret Ingredients: Trust & Community
Though coworking spaces are generally commercial ventures, residents and members often feel a loyalty that requires owners to be more sensitive to their needs. Where a traditional landlord or location owner need only maintain a physical space, a coworking operator also needs to mediate, nurture and deepen the relationships between members.
The foresight shown by the coworking movement’s founders — codified in values of collaboration, openness, community, accessibility — readily transposes onto crucial financial constructs, such as transparency, pricing and membership. You really have to live those values to make coworking viable in a fiscal sense.
Both IndyHall and Fly The Coop were only able to build sustainable businesses because of the trust (and loans) that came from early-stage community building, in IndyHall’s case, and the more radical cooperative structure of Fly The Coop. It’s this very trust that separates coworking from the more prosaic serviced office.
So what are the singular lessons to be drawn from both the examples we’ve outlined?
- The Activist: At the heart of a successful coworking community resides an activist. Individuals like Hillmand and Robinson have a sense of mission, a driving purpose and are active advocates and community organizers.
- Casual “jelly:” Coworking sessions should be used to define a brand as well as identify and size the market your future members. This is essentially market research with a twist; you get to observe the chemistry of future members as a kind of “recruitment.”
- Raise funding internally: Wealthier, more committed members who need workspace can sustain the longevity of a community by underwriting others who cannot invest. Incidentally, New York’s New Work City is cleverly crowdsourcing its startup funding using Kickstarter‘s community of investors.
- Establish tiers of membership: Concentrate on high-end “full” and low-end “casual” tiers; one will cover the bulk of your costs, the other will keep the community diverse and act as a marketing tool.
- Performance indicators: Identify total revenue; costs such as rent, utilities, maintenance funds and marketing establish performance metrics like the cost per square foot and member churn. This will help answer growth questions: Will adding 20 members provide a safer profit margin? Will we need to expand our room?
Opportunities for Businesses
What’s striking in both examples above is the pursuit of a narrow set of revenues, solely from membership plans. Modeling metrics such as average revenue per member (ARPU) might yield bolder opportunities. And exploring certain questions will help determine how much revenue could be made from sources outside membership: Is this a monetisable audience? Would other businesses pay to access a coworking group’s community spirit?
Our own survey showed that both full-time employees and freelancers see coworking as a viable mode of working. Thus we inferred that employers might see coworking as means to reduce costs, but perhaps also expose their workers to new influences and creativity. Targeting such employers could dramatically expand revenue from higher-end members.
Also, can ARPU be increased by offering additional services? Fly The Coop has plans to monetize its meeting space. How about technical support, training courses, guest seminars, accounting, legal services, car-sharing, even food service? Opportunities for direct revenue and indeed sponsorship can flow from understanding ARPU.
Just as individuals buy into a lifestyle, coworkers are buying into a workstyle; the financial stories of both IndyHall and Fly The Coop show that, though margins are tight, deep community bonds make all the difference, both financially and socially. It’s perhaps not a business for an investor looking to make a significant ROI, but eminently suitable for those who wish to participate as members who also modestly invest.