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For every nine coworking spaces that take off, there’s at least one that is forced to close its doors. That’s a rough and probably kind estimate based on a database of coworking spaces monitored by Deskmag over the past year. Even a 15 % attrition rate wouldn't be unsurprising, since coworking is a young and developing industry that is still searching for the right business model. So what lessons can be learned from those coworking spaces that, despite an enormous amount of optimism and energy, have had to shut up shop? Deskmag spoke to two former workspace operators who were willing to share their advice.
By Joel Dullroy - Saturday, 10 July 2010

Many small business operators try to run a coworking space as a secondary stream of income, alongside their regular jobs. Yet thriving coworking spaces often require the full-time attention of a dedicated manager.

Coworking as a secondary project

That’s the experience of Andrew Personette, who ran Treehouse in downtown Brooklyn as a furniture design and workshop space until late in 2009: “We had a pretty high demand area… but Treehouse was a secondary project for us. My business partner Matt Tyson and I founded and directed an eco-friendly furniture company called EcoSystems. That is our primary focus. We created Treehouse because we were in a building with extra space and resources that were valuable to designers, like a shop to do prototyping in.”

Andrew said if he were to try again, he would “have at least one person for whom Treehouse was their only project so they could give it their full attention.”

Target audience not willing to pay

As a concept, coworking generates plenty of excitement but not as much financial commitment. While lots of independent workers express great interest in coworking, only a fraction of those people are prepared to get out their wallets to support it.

Heather O’Sullivan Canney, a business consultant in Apex, North Carolina, opened SoCo Studio as an entrepreneurial launchpad and an event space: "My experience was that getting the word out wasn't hard for me," Heather said, "As people came in for events and classes, they all loved the location and the vibe and décor. But they also seemed to think that they should be able to use it free. The mindset of many was "it doesn't cost you any more or less whether I am here or not”. They weren't aware that they felt that way, but it was clear that they did. Even those who wanted to use the space for events would walk away even at the most affordable cost."

As she often tells the businesses she coaches, Heather found that people weren’t willing to buy what she wanted to sell: “I do believe that there is a need, I’m just not sure how to close the gap between people wanting or needing one and their willingness to pay for it,” she said.

Treehouse in Brooklyn had a similar problem – their target audience didn’t want to pay for permanent membership: “What we found is that independent designers who might benefit from theses resources were a little too independent to create the demand necessary to make the space financially viable. That's a long way to say they were mostly satisfied just to work from home,” Andrew said.

Inflexible business model

While Treehouses’s permanent coworkers didn’t materialize, Andrew and his partner received a lot of requests from people just wanting to drop in to use the shared workshop: “Unfortunately our situation did not allow the flexibility to grow just the shared shop aspect of our model. We reached out to a community and they responded with specific needs. We didn't have the flexibility in our business model to cater to those needs,” he said.

Subsequently, another space focusing only on a drop-in shared workshop has managed to stay afloat in Brooklyn. From this, Andrew has garnered that a coworking space must be flexible enough to change its model if the need arises.

Starting with a community

Despite their enormous appeal to the media and the blogsphere, many coworking spaces prove to be hard to fill quickly enough to cover their costs.

Heather started her space from scratch with no committed coworkers. If she was to try again, she says she’d get commitments from would-be workers first: “Those that do succeed have a community around them when they start. Those who pay for the space do so perhaps to support the group, like a co-op mindset.”

A colleague who is now looking at launching a workspace in nearby Raleigh is first looking for at least fifteen people to sign up to the idea: “That would seem a good way to start, rather than starting from scratch like we did.” Similarly, Heather believes that focusing on a specific industry or business sector would be a good way of developing a community.

Coworking – a growing or saturated sector?

Despite their unfortunate experiences, both Heather and Andrew believe coworking is a growing industry with much untapped potential. Their opinion is augmented by labour market figures worldwide which show a continuing shift toward freelance and out-of-office contracted employment.

As at least one in ten coworking space operators have found, the business model is far from perfect. But even those bruised from the learning period believe it’s generally on a positive track.

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