Can coworking spaces be profitable?

Coworking at Independents Hall in Philadelphia and the Hat Factory in San Francisco

There’s no question coworking spaces are the place to work for independent creatives, but can it be a profitable business? The question isn’t raised in terms of how to make money off of independent creatives, but rather how to sustain a viable supply for the demand. As it stands, there still seems to be more free agents who are dissatisfied with working at home than there are coworking spaces to accommodate them, thus the popularity of coffeehouses during the day.

The general consensus among the first generation of coworking spaces is that the primary objective is centered on building community. As the founder of Citizen Space in San Francisco put it, “Designing your product for monetization first, and people second will probably leave you with neither,” and from a coworking partner in Saint Paul, Minnesota, “The reality of the situation is that freelancers want a baseline that is more than they’re willing to pay for, so it’s going to fall apart.” Most every coworking space is subsidized by a host company or sponsor, or just breaks even. However, they’ve clearly identified that there’s a demand, because people love the space, and the resident community of fellow entrepreneurs even more.

So, what about profitability? This will be the second wave of coworking spaces that take advantage of the Long Tail the way Netflix did with videos. In other words, expecting a profit by serving just the creatives in the physical space isn’t going to happen. The revenue growth will need to come from a the Long Tail of creatives that rely on the community of the coworking space, not the coworking space itself.

For instance, say you had a coworking community of tenants whose skill base was in Web 2.0, or collective interest was in the green movement. Then assume the tenants cared more about providing their services than marketing and making sales calls. The coworking space could have a connecting agent that handled this latter part for them, finding lucrative project opportunities from larger companies that had Web 2.0 or green campaign business needs. Many companies would gladly pay 5%, even 10% of a sizable contract they would have never been able to find or secure themselves, especially if someone else does it for them. A profitable coworking space can come from being able to find profitable clients for your members, which may even help you reduce rent.

Photos: Independents Hall in Philadelphia, and the more informal, intimate (and thus more affordable) Hat Factory in San Francisco, which is how restaurants are surviving in the present economy.

  • http://www.adamcommercial.com Dan Adam

    During my initial attempts to form a co-working space here in Minneapolis, I connected with a group in London called the The HUB (www.the-hub.net). They have been at this for a while and seem to have made multiple locations viable. Their primary drive is social collaboration, not shared resourcing or cost efficiencies of commercial space. I believe the purpose of the collective, or the absence there of, is the primary reason co-working is slow to become economically viable on its own here…at least for now. The system of co-working is still a private one. In other words, we need an agenda to come together. I agree your suggestion about a connecting agent could be the hook to entice independent creatives to put their wisely budgeted dollars into a collective scenario. The gathering of the group is more about partnering than it is just gathering. Maybe this is why it is taking a while to gel here. The other reason is because usually until someone actually provides the space, people are not inclined to decide their commitment toward it. The committed connecting agents are left to create the system. I am hopeful more connectors will emerge until we Netflix this concept. Dan- Adam Commercial

  • http://www.cooltownstudios.com/member/1/ Neil Takemoto

    Thanks Dan,

    Something I’m really curious to know, is that would creatives support a coworking space if it were an international chain like The Hub? For starters, as it stands now, they would all have to be called ‘The Hub’ – thus implying that The Hub’s corporate brand comes before the community brand, partly because it has investors to answer to first.

  • http://www.adamcommercial.com Dan Adam

    Neil,
    I think you’re hitting on the challenge between making the business model vs. co-working balance work. Is it a sacrifice for a creative to utilize structure or entity that has built in multiple locations for their own personal or local pursuits? We do this everyday. Maybe this is a question of how the space is marketed to the creatives? Most people’s radar can pick up authenticity.

    Not being a participant in The Hub, I’m not sure if the local support is specific to the location or if there is user interest of the potential collaboration of the larger global network The Hub aims to create. That seems to be part of their pitch. Certainly, an investor likes scalability and a replicable model. In their case, I’m not sure if its ‘think global, act local’ or just franchising.

    I’m curious too.

  • http://indyhall.org Alex Hillman

    I find it interesting that you’d compare San Francisco’s Hat Factory to us at IndyHall, at least in the light that you did. The fact is, I think we have more in common than not, in the fact that our members are priority number one and we run on that value, not as a service organization.

    IndyHall is a clubhouse for an existing community, one that we all work together to grow and develop. IndyHall existed for nearly a year before we signed our first lease, and it would likely exist in a different capacity should the office go away.

    Renting desks is a vehicle to something else, something less tangible but not completely intangible. The business model that makes coworking possible isn’t new, and doesn’t really need or deserve the kind of debate it gets. Art and writing collectives are ancient concepts. Coworking applies those concepts to a new audience, in this case, a modern mobile worker.

    Most people who actually operate coworking spaces will tell you that it’s a lifestyle business. We get something beyond cashflow from being a provider, an enabler. We get to be a part of the community we work with in a different way, and that value is much harder to measure than “profitability”.

    We’ve been profitable since 2 months after we opened our doors, and every penny of profit went back into growing resources for the community that makes IndyHall what it is.

    It’s not a matter of if coworking can be profitable or not. Of course it can. It’s not a matter of if it should be profitable or not. Of course it should.

    What *does* matter is when the money exchanging hands compromises the values of the people working in the community, and the ones sustaining the community. As Dan pointed out, there’s a balance to be struck.

    Geoff (my partner) and I recorded a video that covered this topic and others, it’s at the bottom of this page:

    http://indyhall.org/coworking-faqs/

    And we have even more thoughts on our blog:
    http://www.indyhall.org/blog/category/faqs/

  • http://www.cooltownstudios.com/member/1/ Neil Takemoto

    Thanks for your response Alex,

    The main comparison I was making is the difference between having your own space/desk vs having 6-8 people on one table, which isn’t very workable for people who take phone calls. I just used Indy Hall because of the photo I had on hand that showed individual desks available, and that I think I’ve promoted Affinity Lab enough as it is. I wasn’t implying that either space had any more or less of a sense of community. I will say that Indy Hall is remarkably affordable in its own right – is it a market rate lease?

    If Indy Hall is profitable, including paying for the time it takes to develop and manage it, then perhaps this should have been a story on Indy Hall instead. Other coworking spaces tend to count that as donated time, but that’s not what this particular article was about. As far as establishing a sense of community among fellow entrepreneurs, that’s what this section on the site attempts to cover.

  • http://www.yolospat.com Jen

    That second picture looks really claustrophobic to me.

  • http://www.breakoutfestival.org Anthony

    The best way to make them profitable is to take the biggest expense out of the loop – the real estate. That’s what we’re trying to demonstrate with the BREAKOUT! festival in New York this September. http://www.breakoutfestival.org

    Our plan is to colonize co-working in public spaces in the city. If community is really what people are after, they should be able to coordinate that using social and mobile tools, instead of having to rent a space just to have an address.

    Of course shelter, power, security, etc are all issues. We’ve got some solutions in the works. Stay tuned.