Blog Post

What’s next for coworking? Space founders and users weigh in.

Coworking is a growing movement. How can you tell? It now has a guide. Andrew Tang and Genevieve DeGuzman spoke to 33 freelancers and startups involved in the coworking movement as well as 19 coworking space founders for their book Working in the UnOffice: A Guide to Coworking, which bills itself as “the Lonely Planet of coworking guides.” What did they discover about how the movement is doing and where it’s headed? We spoke with them to find out:

How are the founders you spoke to doing financially? Is the economic model of coworking tricky to get right or relatively easy to figure out?

Andrew: Before even opening a coworking space, a potential owner needs to find out what the actual local demand is. One of the best ways is to hold a “Jelly.” Find out who is interested. What are they looking for? Facilities, location, mix of businesses in the space, pricing, ratio of full-time to part-time members, open desks vs. dedicated desks vs. private offices? It’s not an exact science. It’s not, “Build it and they will come.” Often, to the dismay of a number of owners who have had to close down their spaces, people are not flocking to their spaces automatically. Owners have to adapt to the local conditions.

Take a look at membership turnover rates. On one hand, high turnover rates can be seen as a sign of instability or that the community is in flux; on the other hand, it can signal that a space attracts and cultivates superstars that are steadily expanding and find they have little choice but to “graduate” and leave for bigger, greener pastures.

Many founders see coworking as a space where businesses get an extra boost and then move on. Brian DiFeo of Hive at 55 told us, “I think inherently there will be a high turnover since successful businesses should grow out of a coworking space.”

Affinity Lab in D.C. has been in operation since 2001, even before coworking was a coined term). Those that leave the Lab go somewhere else because of space constraints. Co-founder Berit Oskey told us, “The businesses that have left and gotten larger office space have done so because they are either tech companies that are taking on more employees, or they are nonprofits that need more space for interns.”

Many businesses and organizations see coworking as an intermediate step in their life cycle. If they are looking for a temporary place test the waters of their business model and viability as companies, coworking can provide the accessible desk space and office facilities with minimal risks.

Genevieve: One of the biggest reasons for a space to close is that it can’t meet the membership threshold to cover the rent and keep the lights on. As a result, one in every five coworking spaces has closed its doors, according to studies done by Emergent Research. So that puts pressure on coworking spaces to decide “what” they want to be and “whom” they target.

For many spaces, it created a tension between wanting to promote the community but also being ruthlessly business-minded so that you can keep your doors open. Spaces try to balance the two.

There are certainly those who advocate for community first; many first-generation coworking spaces focus on that as their primary objective. They want to push a movement, not turn profits. But it’s absolutely essential to espouse good business practices. Jim Graham, co-founder of Satellite Telework Centers told us, “One of the challenges I’ve seen with some coworking spaces is the founders do it for the passion but haven’t developed a solid business plan… This is a business for us, albeit one that we hope helps local residents, local business owners, and the community in general.”

What are some ‘best business practices’ for coworking spaces?

Genevieve: Some ideas touted around include everything from experimenting with membership models (testing the optimum ratio of open desks to private offices) as well as exploring more unconventional practices like private and public sponsorships and franchising.

Gangplank in Arizona is doing interesting things. They are a no-fee model, meaning they don’t charge people to use the space. Instead they rely on “anchor companies” that take on operational responsibility — managing the space and making sure it keeps its doors open. They shoulder the responsibility and the space doesn’t have to hire staff.

They also get sponsorships for Internet access and work out contracts with local government for deals on real estate and electricity. At their two new locations in Avondale and Tucson the local government donated the use of buildings where the space will be housed.

Hive at 55, a space in New York City, is part of the city’s overall urban economic development program to promote its media and technology industries. It received a city grant from the New York City Economic Development Corporation, and partners with Pace University, the Freelancers Union, GuruLoft, Girls in Tech, the Hatchery, and others.

After conducting your research, where do you see coworking going next?

Genevieve: The conversation on coworking is shifting to spreading coworking as a movement to areas outside the usual urban innovation centers like San Francisco and New York City. Once we start talking about coworking as not only a development engine for individuals and startups, and as an engine of growth for local economies, that’s when coworking starts turning heads. Just from my background working on economic development projects overseas, I think what’s exciting about the future of coworking is its enormous potential to spark growth in depressed areas.

Digital technology is leveling the playing field. When I worked in development, microfinance was touted as strategy to get small businesses access to finance to grow their microenterprises. Growth was associated with access to capital. Well, what about access to information and know-how? We should start talking about creativity and innovation as catalysts for economic growth. It counts just as much in expanding any enterprise. Collaborative knowledge sharing is what coworking is about, so in that way coworking is a great way for startups and small companies to access ideas, tips and strategies to get their businesses up to scale and more competitive.

We also see the trend of employees exploring coworking spaces as place to work. As telecommuting and flex work options get more popular among big companies, coworking spaces will start to see an influx of remote workers. That will certainly change the dynamic. Hopefully, the openness and collaboration you see in coworking spaces may start to filter through to corporate culture.

Andrew: Another trend we see is existing spaces expanding to multiple locations. A lot of spaces are expanding as franchises to other locations, rather than creating a giant single space. The Hub, NextSpace, Gangplank, pariSoma Innovation Loft are a few spaces that are rolling out multiple sites. Just like Starbucks(s sbux), you can’t have a few big Starbucks locations. Coworking spaces need to stay relatively small and localized. People don’t want to travel across the city to go to a big coworking space.

Part of it is to meet the increasing demand for coworking spaces. Faced with a depressed economy, many people are taking the opportunity to start their own businesses. The Atlantic published an article last month on how freelancing is the next ‘Industrial Revolution’. Coworking provides the structure to really make freelancing and startups a preferred work option.

Image courtesy of Flickr user khawkins04.