Why Coworking Fails
Back in mid-2023, I was offered the ability to create a coworking space in around 1,500 square feet, in an amazing building, in an amazing space, in Boca Raton, FL.
Theoretically, especially since my costs were below $1000 a month, it was the best deal humanly possible I could have ever received. So I jumped at the deal.
So, about a year later, the coworking space is shut down, and I am out. You could say I did not put enough time, money or thought into the space, but the fact is, when people ask me why it did not make it, I tell them I had 600 people walk in the door, and not 1 person paid for the space. I put in time, I put in money, though very little, but obviously it was not good enough.
My breakeven was about 4 sales at $250 a month. But regardless of advertising, emailing the community, or other marketing activities, I was not able to get more than 2 people paying monthly. And the Internet + some other monthly expenses could not be covered. Over time it ended up costing me more than it was worth.
Now, if this had been my first attempt at coworking, I could chalk this up to inexperience. But this was actually my second experiment with coworking. I ran a smaller space for about a year and actually had real bills, and we were packed, just about broken even, but I couldn’t make it work financially. There was no profit.
A business needs to be profitable or it just needs to be shut down.
There are a good dozen successful coworking spaces in South Florida, but if you were to look carefully, they are not profitable more often than not. They can be part of a University, they can be sheltered by a building owner like I was. So theoretically it will work if a building owner uses the space as a loss-leader for some other business model or they just want to make it happen.
I stopped by a local coworking space in my neighborhood, and when they quoted me the costs of monthly rentals of the offices, I was in shock. I am not sure who can afford to pay $2400 a month for an office that fits two people. That is the reality, for coworking to grow it must charge much, much higher fees to make it financially, and I could get buyers to pay for the lower fees…
The main thing that I was not going to do is make the equity investment in the property to make it super cool. That would have been a financial disaster. I am thankful that was offered the space in the first place. We just adopted a space as is, and what it already had in it.
If I had spent or raised $100,000 to fix up the space, making it modern and amazing, there would have been another big problem. I am probably off by $400k here. I would have had to close the space and bankrupt the business. Essentially you can spread your costs across the next decade and spend all that time trying to make back what you put in.
This explains the We Work failure. We Work was never profitable and expanded like crazy in the post Dot Com days. They were a wonder kind to the stock market, but smart investors who looked carefully under the cover would have realized they were spending more than they were making.
Coworking is not a Saas model where you make 75% profit, it’s generally a 10%-50% loss you take every month in the hope you will get back to break even, and quite often that does not happen.
Now, some coworking models work, especially if you own the building, or if you can manage the thin margins well. When I looked carefully at franchise models where coworking space owners dish out $$ to get into this business, paying a national franchise company, I just shake my head. I think its a recipe for disaster.
My opinion, just like the We Work experiment, is eventually the space will fail. It’s not unlike big box stores. In these Big Box Store businesses, they may have good times for a while, but the long term typically leads to failure like Toys r Us.
Let’s just all take a deep breath here and be thankful I did not lay out a lot to get into the deal and I was able to get out without major cost.
Hope that explains a little bit of why I feel coworking fails. For a long time, I ran events in the same building and we had a bit of a boys club for startups there. We had a good time while it lasted.
Sept 25, 2024 Boca Raton, Pitch Event with Networking
Talking startups, I have an event in Boca Raton, FL at 980 Spaces I am running on Wednesday, September 25th, 2024 where 5 startups will be pitching. Here is a link to sign up. The first 30 attendees are free and we are still looking for startups. Click on this link for more info: https://www.eventbrite.com/e/startup-pitch-event-featuring-tego-cyber-accredited-investors-tickets-1010991672307
PAIGN AI
PAIGN AI is a marketing automation solution for businesses, that uses AI to make blogs, and images, publish to the web, and automatically post to socials like Linkedin, Facebook, Instagram, and Twitter. If you are looking to get a lot more online marketing done in less time with good quality, please either email us at hello@paign.ai, or go to https://paign.ai for more information. Here are some of the articles I created for the coworking space if you want to see how it works. https://articles.startuppop.com.
Thank and would love to hear your comments on coworking in general. I wish I was wrong about this, but it is my belief.
Dan