Three critical mistakes I made launching my coworking space Impact Brixton CIC.
Lessons from my four-year Journey in the Coworking Industry.
Starting a coworking space can be challenging, and I learned this firsthand through my experiences with Impact Brixton. In this blog, I'll share my journey and the mistakes I made so you can avoid them if you are considering opening a workspace.
There has probably never been a better time to start a coworking space! Just avoid these mistakes, and you will undoubtedly increase your chances of success.
The demand for coworking has never been higher.
More people than ever are looking for coworking space to work from. As more people are allowed to work from home, most people need one or two days away to break the loneliness or escape the distractions at home. The enemy of productivity comes in all shapes and sizes; for me, it's the kids, the food in the fridge calling my name, or the MMA YouTube videos that, once I start to watch, I can't put down my phone. I get it! The productivity struggle is real when you work from home most of the time. No one wants to go into the office apart from middle managers :-) If we are all being honest, we know we can be more productive with an office, so the answer in 2024 will be the growth of local coworking spaces that people use 2/3 days a week.
The supply of coworking has never been higher.
More coworking spaces are also opening because many empty commercial buildings on the market are looking for someone to take it on and activate; these are empty retail spaces and old office buildings where the companies have cancelled their lease, downsized or gone fully remote. In the last six months, landlords have approached me to take over five different spaces to operate another coworking space, but I've turned them all down because of the three big lessons that nearly killed my coworking space, Impact Brixton. If you are considering running a coworking space for the first time, don't make the same mistakes.
I made.
I should have said "Lease"? .….Errm "No thanks". Can we become partners through a management contract and share profits?
I took on a lease rather than a management agreement, and the lease commitments nearly killed us. Looking back at the original lease we signed, there was much more room for negotiation with landlords, especially concerning the building's exterior maintenance and vital features like elevators and utility systems. I was too keen to move in and left a lot on the table for the landlord by not negotiating for everything. Now, even the responsibility of the roof is questionable.
A smarter approach would have been to consider a management agreement from the start. Such an arrangement would have allowed for a more collaborative relationship with the landlord, potentially leading to sharing responsibilities and profits. Negotiating and sharing more responsibilities of maintaining the building with the landlord would have eased the burden of managing these aspects alone, aligned our interests more closely, creating a more sustainable and mutually beneficial business model. With this approach in mind, I am now looking for landlords to build a long-term relationship with them rather than considering a one-time lease transaction.
2. I started with a space that would never work because it was too small.
The first space I took over was 2.4K square feet, which would never be profitable. Coworking spaces come with high fixed costs( the rent, utilities, and salaries) that stay relatively the same and very low variable costs when you add more customers. The fixed costs can be as high as 80% and stay the same even as you add more members. Even worse, our small size limited our ability to increase the main revenue from our biggest revenue product, private offices. I realised this quickly and found a new space six months later and moved in a few months later.
3. I needed to understand that coworking doesn't make most of the money; private offices do!
We initially built a business plan assuming our coworking membership, which was £200, would scale like gyms, and we could get to 500 members generating £100K per month, but I was completely wrong; we never exceeded 75 paying members, and most couldn't pay the £200 membership. Coworking generates only 10% of our revenue, and private offices now generate 70%.
Although I made these fundamental mistakes, luckily, we saw it early and could change plans by moving out and pivoting the business. The initial assumption that community is key was the one thing we did get right. It was clear from the outset that we wanted to serve people like ourselves: dreamers, early-stage entrepreneurs, creators, and freelancers, not large companies. Unfortunately, the larger businesses were paying us. These larger are harder to engage with our community initiatives and impact the culture we want to create. This meant it's been hard to find the right companies to take our private offices, and we needed to find a different business model than just the private office play.
For my team and I at Impact, this is about passion and making an impact through supporting early-stage entrepreneurs in a community, so it's been hard balancing the need to rent the entire space to one good paying customer versus serving our community, who often can't pay us what we need. This is an ongoing challenge but one we are very close to solving. If you are going through similar challenges or thinking about these challenges ahead of opening your own space, feel free to let me know to share notes.
I will write more about this in part three of this blog, where I discuss our plans for 2024 and how one marketing campaign has nearly tripled our membership in one year to 400 members and share our financial business model.