Re. debt load etc. When I opened workspace in 2006 the idea was to get some size, a large member base and some economies of scale. I had hoped to expand to other cities thin a year. It was definitely a risky go big or go home move. At the time, co-working was very new and we had little to go on. Queen Street Commons and some small spaces that could. I was also quite young (25) and didn't have much experience with finance. Since selling the business last year, I've been studying finance at Babson, as you can imagine I've done a considerable amount of reflection on how I could have set things up differently.
This is one of those businesses where you have to take on a significant amount of operating leverage to make it work. Operating leverage is not necessarily financial leverage, it just means that you need significant amount of relatively fixed assets in order to open the doors. In this case, space, furniture & likely some renovations. Other businesses where the costs are more variable (make widget for $5, sell for $6 & repeat) are lower risk and allow you to work your way in much easier. You've mentioned that there are ways to bootstrap, and I think that's an awesome approach. That said I didn't fit our strategy, which was to get big fast. If I were to launch again, with the same expectations for growth, this is what I'd do differently: 1. Get an equity partner Equity financing would have substantially reduced our need to service debt in the short run. The day we opened our doors, we started repaying the loan. Having someone onboard with patient money who was in it for the long run would have freed up a lot of cash. That debt to equity ratio was certainly my biggest mistake. 2. Extend the term of the loan We were on a 5 year loan, which made monthly principal payments quite substantial. Extending the term to 5 years would have made more sense... particularly if we would have had an equity partner. 3. Partner with a landlord The biggest expense in coworking is almost always going to be the lease. Generally, lease payments are fixed, but sometimes your able to negotiate a % of revenue instead. Doing this would drastically reduce the degree of operating leverage by making your biggest costs variable. It's tough to do this in a tight commercial space market like we have in Vancouver, but if your timing is right you could make it happen. 4. Manage, don't own A hybrid of the partner with landlord and equity partner approach would be to funnel all the revenue out to the land owner (who would own the business) and to operate as a management company instead. This is how most hotel operations are financed. It's extremely low risk for the operator, high risk for the landlord. As a result the potential returns are much lower... but it's stable. We looked extensively at structuring a similar deal in a 5 story office building downtown, but ultimately turned it down because we didn't feel the market could support it. In sum, these were great lessons to learn. On a personal level I did just fine financially. Our loan was 90% guaranteed by the government, so there was never too much exposure for me. We did take WorkSpace to break even ~75 members and managed to find a buyer for the business. I wish that buyer had invested more time into the business. Instead he chose to move to another city and work on another project after a few months, but that was his choice. I believe that there is still huge demand for co-working, but any business where buyers have so many substitutes is going to be a difficult one. The only way it will work is if you succeed in building not just a space, but a club. I think we were very close to that. Good Luck, b. On Aug 21, 9:35 am, Alex Hillman <[email protected]> wrote: > I dig that. > -- > ----- > -- > ----- > Alex Hillman > im always developing something > digital: [email protected] > helpful:www.unstick.me > visual:www.dangerouslyawesome.com > local:www.indyhall.org > > On Fri, Aug 21, 2009 at 11:02 AM, Jerome Chang <[email protected]>wrote: > > > > > > > I've been telling some people that it's open source real estate, or > > wiki real estate. > > > Jerome > > ______________ > > BLANKSPACES > > "work wide open" > > >www.blankspaces.com > > 5405 Wilshire Blvd (2 blocks west of La Brea) > > Los Angeles, CA 90036 > > 323.330.9505 (office) > > > On Aug 21, 2009, at 5:23 AM, Patrick Tanguay wrote: > > > > 100% agreed. In many ways coworking is open source in meat space (the > > > real world). Iterations, collaboration and needs grassroots > > > commitment. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Coworking" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/coworking?hl=en -~----------~----~----~----~------~----~------~--~---
