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How Profitable Are Coworking Spaces

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Coworking spaces work on different business principles from other companies. Most of them don’t hide their prices, nor do they lock people into long contracts. The collaborative atmosphere so valued in coworking spaces is based on the trust between its members, and not on profit-squeezing. But can we realistically describe coworking as “succesful” when only 40% of spaces are currently profitable? The answer is yes – when you take into account some simple factors. Especially time: 72% of coworking spaces become profitable after two years in operation. If they are privately run, the rate is even higher. Everyone should earn a profit for their work, including the operators of coworking spaces. The second Global Coworking Survey shows that nearly all spaces are profitable after two years. The majority of spaces live from the income from their memberships, while another large group rely on indirect income from the operator’s second job – those in the start-up phase especially. The worst financial situation exists for the operators of very small spaces who do not have a secondary or concurrent job.

The survey results show that coworking space members benefit more rapidly by joining, than the operators do by opening. Setting up is costly (an average of US$58,000 or €46,500), and space founders carry the biggest risk. For this reason, coworking space members should be particularly grateful to the operators.

How spaces earn money: desks, then more

Coworking spaces earn the majority of their revenue, unsurprisingly, by renting out desks (61%). One in ten spaces earn all of their money from desk rental.

The average space earns ten percent of their revenue from renting out meeting rooms and event spaces (10% each). Food and beverages bring in 5%, and the sale of tickets to workshops and events earns another 5%. Unlike business centers, coworking spaces live on a very small portion from virtual office services (3%).

At least a third of coworking spaces offer all these services as an inclusive package, with no additional costs. Infastructure such as meeting rooms are often built into desk rental prices. Other revenue sources identified by the survey include one-time membership fees, merchandise, public support services, fixed phonelines, commissions, rental of private offices, and even the sale of art from the in-house gallery.

Within revenue streams there are differences between big and small coworking spaces. The more members they serve, the higher the income from renting particular meeting rooms. Big spaces are also more likely to sell virtual office services.

The big question: can coworking space operators make money?

On average, 40% of coworking spaces are profitable, according to responses to the second Global Coworking Survey. This initially disappointing figure masks some more complex factors.

First, it should be noted that very few companies in any industries achieve a profit in their first months of existence. And currently, more than half of all coworking spaces are under one year old. That the majority of spaces are not turning a profit could have much to do with the infancy of the movement.

Another important limitation is the corporate form. If 13% of all spaces utilize a non-profit organizational form, economic gains are placed behind social gains for a portion of the industry.

Further and most importantly, 74% of all coworking space operators maintain a second job in addition to their management duties. As the majority of coworkers report a boost to their conditions, so too must managers receive situational benefits from working in their own space.

And finally, the long-term picture should be kept in mind. The second Global Coworking Survey shows that 72% of all coworking spaces become profitable after more than two years in operation. For privately-run coworking spaces (those which are not non-profit groups or government-run), the profitability rate after more than two years is even higher, at 87%.

Three main factors can be identified as the essential elements for a profitable coworking space:

The age of the coworking space: unsurpringsly, newly-opened spaces don’t turn a profit from the day they open their doors.

The number of members: There’s an obvious relation between number of members and the age of a coworking space, and this relation is also statistically significant. However, not all coworking spaces have an unlimited capacity to take new members.

Space operators and their other jobs: This is crucial, especially for small and young spaces. The profit here is achieved not directly through desk rental, but indirectly through the enhanced operation of their secondary professions.

The bigger the membership, the higher the profit

Seventy percent of all privately operated coworking spaces that serve 50 or more members run a profit. Only one in five spaces in this category suffer losses. Coworking spaces with between 10 and 49 members have a profitability rate of about 40% – close to the overall average. The more members they take on, the more profitable they become. Economies of scale also affect coworking spaces.

The most difficulties are suffered by small spaces with less than ten members; 56% of them report a loss. Even though they pay less rent and have lower operating costs, only a quarter of small spaces achieved a direct profit. It’s important to remember most small spaces are also new; they can develop over time to improve their business model and increase membership, if desired.

The longer the space is in operation, the better it runs

Succesful coworking spaces attract more members and are able to expand. Unsuccesful ones close. Thankfully, the later cases are less common. Nine out of ten privately operated coworking spaces return a profit after two years in operation. Most spaces become profitable between the first and second year. The youngest coworking spaces are the least profitable, due in part to their age.

Because more than 50% of coworking spaces are not older than twelve months, they pull down the average significantly. The negative outlook for the coworking market is therefore a simple result of the age of the industry.

Small spaces also can become profitable, it just takes more time

What is the situation for coworking spaces, if they have limited capacity and cannot (or don’t want to) increase their membership? The survey data shows that even two-thirds of spaces with less than 30 members become profitble after two years. Another third reported at least no losses after this time in operation.

Even spaces with a capacity of less than 30 members are profitable after two years, at least about two-thirds of them. A third wrote, even after this time nor losses.

The figures suggest that 30% of privately operated coworking spaces with less than 30 members still operate at a loss after two years, a fact that may threaten their existence. For all spaces, the figure is 6%; and another 7% just break even.

Second jobs needed, especially at the start

However, the distinction between direct and indirect profit is crucial, especially for smaller spaces. A good coworking space is built for the benefit of its members. By working in such a collaborative workspace, members expand their professional networks, keep their skills and knowledge up to date, and 40% report higher incomes. What works for coworkers should also work for the operators who sit alongside them.

These small space founders must make a bigger initial investment, but they are also able to have more sway in shaping the look and feel of their workplace. Their second jobs benefit as a result of their increased networks.

The survey data shows 64% of full-time operators of coworking spaces with less than 30 members earn an income which is average or above-average, compared to the general working population. But this figure was higher for operators who maintained a second side-job with 79% of this group reporting average or above average incomes. As for the normal coworker, 83% report receiving this height of income.

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About the Author

This article was produced by Deskmag. Deskmag is the magazine about the new type of work and their places, how they look, how they function, how they could be improved and how we work in them. They especially focus on coworking spaces which are home to the new breed of independent workers and small companies. see more.

Callum Connects

Denise Morris Kipnis, Founder & Principal of ChangeFlow Consulting

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Denise Mossis Kipnis’ curiosity in people and the world, lead her to set up ChangeFlow Consulting.

What’s your story?
I’m driven by curiosity. Having been the only one in a room who looks like me for most of my life, I developed a curiosity about who stays, who leaves and who thrives in minority/majority situations including when and how connection and collaboration happen. I was a systems thinker long before I knew what that was, always asking why and so what; and seeing the pieces, the whole, and the places in between. So helping people and organisations move through the complexity of transformation feels natural to me.

What excites you most about your industry?
I see change and inclusion as two sides of the same thing; I don’t practice one without the other. Some people see change as death, as loss, as exhausting. And it can be. But I see in the work I do as an opportunity for something new or hidden to emerge. When an organisation understands that it is first a group of people, who themselves represent and belong to groups of people, and it begins to tackle what it would mean to understand and learn from all that talent, all that diversity, to have them all working for and not against the organisation, to truly unleash all that their people have to offer; that’s magic.

What’s your connection to Asia?
Change and inclusion are personal values as well as professional strengths. For me, living and working outside of the States was a bold experiment to see whether any of the stuff I’d learned about change and inclusion would work outside of the US. My husband and I targeted Asia specifically: it would be the greatest contrast, culturally speaking, for me; and a unique career springboard for him.

Favourite city in Asia for business and why?
Although I’ve practiced in other cities, I am biased towards Singapore. In some ways it’s what Los Angeles is to the rest of the United States, a microcosm of sorts. The regional/global nature of it means that so many different nationalities and cultures are represented. As a result of this mix, you never know what you might get. In some situations, cultural dynamics are obvious, sometimes subdued. The variability is compelling.

What’s the best piece of advice you ever received?
“Never ask anyone to do anything you wouldn’t do yourself.” Michael Rouan.

Who inspires you?
Often it’s a “what” not a “who.” I can get inspiration from a passage in a book or a situation in a movie, as well as a turn of a phrase or watching people interact. I often make the biggest connections between the various threads I’m working on when I’m sitting in someone else’s event.

What have you just learnt recently that blew you away?
I’m honestly not blown away by much. Instead, I’m struck how circular things can be: ideas often come back around with a slightly different twist and I watch the way it shakes things loose for people. I recently sat through a workshop on Self as Instrument, and despite being thoroughly versed already, I learned something. In preparing for a panel on design thinking, I unearthed a new language to describe things.

If you had your time again, what would you do differently?
You’ve caught me at a good time. I’m sitting in appreciation and gratitude for all my experiences, because I wouldn’t be who I was today if all that has happened, didn’t. And yet one thing comes to mind: It wasn’t until I redesigned my website two years ago (shout out to Brew Creative!) that I realised I hadn’t made explicit agreements with my past clients as to what I could share publicly about our engagement, or whether I could use their logos in my promotional materials. In my business, confidentiality is so important, and yet I need to be able to talk about the work as reputation and experience leads to the next success, and so on. It turned out a lot of the contacts I had known had left the organisations where the work was done, so they couldn’t help at that point. So the practice I’m carrying forward is to get those agreements up front, and to make sure my relationships in client systems are broad as well as deep.

How do you unwind?
Science fiction, puzzles, wine.

Favourite Asian destination for relaxation? Why?
Home. I don’t travel to relax, I travel to learn and explore.

Everyone in business should read this book:
Built to Change, by Ed Lawler and Chris Worley. To my knowledge, it’s the first pivot from advising organisations away from stability and toward dynamism, from strategic planning to strategizing as an action verb; to blow up the traditions and rigidity that impede organisations from developing change capability.

Shameless plug for your business:
We’re taught that there are two kinds of people: those who see forests, and those who see trees. There is a third type, my type, and we see the ecosystem. Worms, climate, birds, the spaces in between. This is the perspective organisations need to be successful in solving complex problems and thriving in change.
ChangeFlow uniquely blends four disciplines (two of which are multi-disciplinary in themselves): organisation development, culture and inclusion, change management and project management.

How can people connect with you?
Facebook: https://www.facebook.com/ChangeFlowConsulting/
LinkedIn: https://www.linkedin.com/in/dmorriskipnis/
LinkedIn Company page: https://www.linkedin.com/company/4862954/
Email: [email protected]
Website: http://www.changeflowconsulting.com

Twitter handle?
@ChangeFlow

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Callum Connects

Agnes Yee, Legal & Compliance Recruiter of Space Executive

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Agnes Yee started Space Executive in Singapore, which is a hub for businesses in some of the world’s fastest growing economies.

What’s your story?
After graduation, I joined a design media company as a Business Development Executive, during the era when ‘reading a magazine online’ was unheard of. I believe that laid the foundation for being unfazed by rejections.

I fell into recruitment pre-GFC and rode the highs and lows in the early years. A decade later, I decided to set up my own recruitment company, partly because I could. I’m acutely aware of the face that being an Asian female in Singapore is sometimes a privilege, and that many women in the world are living a very different existence.
Thereafter, we joined Space Executive as part of a merger. I am currently the Partner of Space Executive, a recruitment company focused specialist disciplines, including Legal, Finance, Digital, Sales and Marketing and Change. We also run Space Ventures, a venture capital business, which invests in seed and pre-series A businesses.

What excites you most about your industry?
On a daily basis, we’re influencing how one spends a third of their day. It is interesting how the Internet has transformed the industry, and I’m excited to see how we can harness technology to bring us to the next phase of this business.

The VC is an extension of applying our skills and experience in reading people. We very much invest in the people as much as the idea. Being a native Singaporean, it’s been exhilarating watching Southeast Asia becoming a hotbed of ideas; and young entrepreneurs simply daring to dream.

What’s your connection to Asia?
I’m a born and bred Singaporean. I love that I speak both English and Mandarin, grew up playing with Indian friends and eating Malay food.

Favourite city in Asia for business and why?
Singapore for the low barriers of entry to set up a business, but has to be China (and Hong Kong) for their hunger and constant innovation.

What’s the best piece of advice you ever received?
青春不要留白 which translates to ‘Don’t waste your youth.’

Who inspires you?
Anyone who has gone against the grain.

What have you just learnt recently that blew you away?
It wasn’t recent but reading the article on https://waitbutwhy.com/2015/12/the-tail-end.html never fails to blow my mind how little time we have left. Charting our lives in weeks, and realising I only have enough time left to enjoy 60 Christmas turkeys, read 300 books (all if I’m lucky); and mostly, I’m left with the last 5% of the time that I spend in-person with my parents.

If you had your time again, what would you do differently?
I’m cognisant that every decision I made in life has brought me to where I am today, and I wouldn’t change one thing. But I’d really like to have had more time to travel.

How do you unwind?
Exercise and wine.

Favourite Asian destination for relaxation? Why?
Trekking any mountain in Asia. It brings us back to the most basic. To overcome elements of nature and our own mind.

Everyone in business should read this book:
Start with Why, Simon Sinek

Shameless plug for your business:
Space Executive started in Singapore, a hub for businesses in some of the world’s fastest growing economies. We assist organisations in accessing a targeted and specialised, and often times transient talent pool.

Out of Singapore, we have recruited across 14 countries; and have embarked on our global expansion plans with offices in Hong Kong and London this year, and US, Japan and Europe in the following years.

Space Ventures provides funding, management and financial guidance to young businesses with original ideas. We have invested in peer to peer lending platforms, credit scoring, social media education, and other start-ups spanning diverse industries. We are always interested in hearing more about new ideas.

How can people connect with you?
https://www.linkedin.com/in/agnesyee/

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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