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Coworking space provides opportunities for individuals or companies that might not yet —or ever —find their way into a traditional incubator. And it can provide a useful revenue stream from underutilized space.

Coworking space: The business of serendipity

by Dennis E. Powell

June/July 2012

In an era of lives lived via social media, what could be more natural than social working, where people in unrelated businesses encounter others in the workplace, sometimes with serendipitous results?

It used to be informal: People from different established or up-and-coming businesses would run into each other in the coffee room, the copy center or, apocryphally, at the water cooler. Ideas would be hatched, deals made, people in disparate lines of work would discover how they might aid each other in new projects.

Then came the rise of the premium coffee shop. Writers and poets had always found restaurants and bistros hospitable to their muses – much of the Harry Potter series of books were written in such places – but the addition of Internet service made them friendly locales for professionals from other fields.

“Freelancers, entrepreneurs, serial entrepreneurs thinking of their next business, displaced executives, people in professional services, all of them found this need as creatures to work around other human beings,” says Jeff Joerling, brand evangelist at NBIA partner Turnstone, the office design and furniture innovations company. “They tried Starbucks, but it isn’t a good permanent alternative work strategy because there are distractions, such as people coming in to buy coffee.”

At some point, Joerling says, the entrepreneurial lightbulb went on in someone’s head: I have some spare space. Why don’t I invite my friends who need a place to work? I can charge everybody $200 a month and do well.

From such a brainstorm, coworking evolved into a thriving business that is more and more becoming part of incubation programs. In some cases, businesses offer coworking space and may or may not offer incubator-like services; in others, it is a service offered in a broader, more traditional incubation model. Some programs use it as a form of preincubation for prospective incubation clients, while some keep it entirely separate. With limited or  la carte services at fixed rates, it can convert common or unused space into a revenue stream while allowing potential clients to take the first steps in entrepreneurship without spending a lot of money.

NBIA member incubators integrate coworking space into their programs using a variety of approaches.

Tree-lined residential coworking space near Atlanta

NBIA ReviewThe yellow, 2,500-square-foot colonial-style house at 151 Locust St. in the Atlanta suburb of Avondale Estates was built more than a century ago as – a house. When serial entrepreneur Ed Rieker bought it, he says it was, “probably the last building in downtown Avondale Estates I would have considered,” given the residential location, layout and history. But Rieker saw a future in the historic building and following modifications such as renovation of the kitchen to meet code and the creation of a parking lot and acquisition of the city zoning board’s blessing, it opened for business in 2009 as a coworking space specializing in mobile start-ups.

“There are a lot of places in the Atlanta area for start-ups,” says Rieker, who is also mayor of Avondale Estates. “I think it’s important to build a niche. That’s why we focus on the mobile industry and even have a mobile business seed fund.”

Providing help for mobile start-ups is just one function of the 151 Locust program. “The other is to provide coworking space, which draws primarily knowledge workers in from a three- to four-mile radius,” he says.

As with many programs that offer nonassigned workspace, the 151 Locust program is for-profit. Its fee structure varies from a $7 day pass (which includes access to Wi-Fi, the business library, fax machine and scanner, and up to five pages of printed or copied material, as well as the coffee and snack bar) to a $325 per month premium membership that includes dedicated desk space and a private, locking cabinet.

There are several plans in between the extremes. Conference room space and office services are available on site as well. As with many coworking spaces that offer private meeting rooms, 151 Locust has an online scheduling application to prevent conflicts. The conference room rents for $35 per hour, though some of the client plans include an hour or two as part of the monthly fee.

“The vast majority of our members are the unlimited, premium ones,” says Rieker, who notes that in two and a half years, 151 Locust has served about 350 start-ups, mostly seed-stage technology companies and mobile information technology consultancies. “We don’t have fixed residency requirements, and we provide mentoring and advice to those companies as part of the community, at no cost.

“It’s a great place to work – there’s a lot of information exchanged, and contacts and locating capital. We have classes and a monthly CEO roundtable for mobile start-ups.”

Building a coworking community in the big city

NBIA ReviewWhen one thinks of an incubation program, the mental image is not typically of the 15th floor of a skyscraper across the street from the Sears Tower. But Chicago’s 5-year-old TechNexus follows its own path in a lot of ways. And yes, while TechNexus is a for-profit coworking-space company, it is also a business incubator, seed accelerator and more.

“Though we were very careful at first not to use the word ‘incubator,’” says Terry Howerton, one of TechNexus’ two managing partners. “We decided that the collaboration and coworking that went on was the most important thing.” The attitude of the place is reflected in its not being called “the office,” or “the facility,” but instead, “the clubhouse.” TechNexus CEOs mentor clients and the program holds regular entrepreneur events, but there is a strong emphasis on collaboration and networking. There is even a gym in the basement that clubhouse members can access.

In a 25,000-square-foot space Howerton describes as being “like a Monopoly board,” clients start in general coworking space, but as their businesses grow, they can move to increasingly private spaces, from rooms shared with several companies to rooms occupied by only one other company.

The program has no set fee structure. “We’re 100 percent funded, not a dollar of public or academic money,” says Howerton. “We operate on a for-profit model but a more-than-profit goal. We’re entrepreneurs, financed by a combination of fees by users – but there are a lot who don’t pay anything and are here because of what they add to the ecosystem. And there are those who pay a little more than their share, but that’s part of the balance.”

By virtue of its private ownership, TechNexus can decide which potential clients are accepted and how much to charge them. “We don’t have to follow any specific criteria or rules – and there’s been a waiting list for two years.”

Roughly 2,500 members use the clubhouse at least occasionally, with 900 established companies that typically don’t have offices in Chicago using the facilities from time to time to negotiate deals, recruit employees and even eye TechNexus client companies as possible acquisitions.

With nearly 50 companies in residence and 250 regular members, it is the kind of space that Howerton and his fellow managing partner, Fred Hoch, envisioned when they began the business five years ago. It has proved happy neutral territory for student researchers from normally adversarial colleges, who work together on commercialization of their findings. And TechNexus’ managing partners sometimes invest in companies they believe show special promise.

It is home to more than companies, too. More than 75 different community groups also use the conference rooms.

“It’s about community; it’s not about real estate,” Howerton says. “To focus on renting real estate completely misses the point – it’s about the quality of the community.

“We’re the owners, but we think of ourselves as curators.”

Coworking space for student business incubation

David Crain applied some innovative thinking to a big empty room. Director of entrepreneurial services at the Incubator at MAGNET in Cleveland, Crain sought to maximize the utility of a 2,000-square-foot room that had a half-dozen adjoining offices.

“I decided to put in some desks, but also a big, open area with couches and tables, where people can relax and interact and think,” he says.

The result is Beta Space, a coworking area aimed at student companies and very early-stage start-ups, which opened in April. Each client will be assigned a private desk, so there’s no need to bring everything in each morning and take it home each evening, as is the case in a lot of spaces people use for coworking. “I started with the essentials, and we’ll build the place up as they need. Everyone is bringing their own values and perspectives to the space,” Crain says.

Crain has moved his own office to the Beta Space. The other offices adjoining the big room are occupied several hours each week by local service providers – a CPA, tax advisors, lawyers.

“They pay to be part of the program and are there from one to four days each week,” Crain says. “They are also there to assist the Beta Space clients, pro bono. And because I’ll have my office there, I’ll be available for coaching and mentoring.” The local Small Business Development Center is also represented on site two days a week.

While other preincubation companies are welcome, the focus of Beta Space is firmly on student companies, who will receive the program’s services free of charge. Crain’s incubation program has worked with several colleges in the region and as a result isn’t hindered by campus borders in either acquiring clients or seeking advice from experts.

“MAGNET [the incubator’s parent organization] is focused on manufacturing,” says Crain. “As students become more product-focused, I can link them up in ways that will let them take the next steps.”

Crain says that building a community at Beta Space is important, as it will allow clients to fly their ideas past other young entrepreneurs and provide both healthy criticism and a little bit of collegial cheerleading.

“Most approach it as a temporary situation,” says Crain. “But I’m hoping and expecting that some may graduate into the incubator.”

Coworking as an incubation service

Less than a year after opening its incubation program, the New Orleans BioInnovation Center has learned the small space it set aside as a shared office area isn’t big enough.

“Because of the current and anticipated demand for coworking space, we have altered our original layout such that we can offer an additional 20 cubicles” beyond the six initially allocated, says Jason T. Doherty, director of technology commercialization for the center.

“The companies that tend to gravitate toward the coworking space tend to be attracted to the lower lease rates as compared to separate offices,” he says. “Our cubicles are about half the monthly cost of full offices. So more virtual companies who still need a place to work but aren’t as flush with cash tend to look more closely at this option.

“In addition, some choose this option because it gets them ‘closer to the action’ and makes them feel more closely connected to other clients.”

The idea of being “closer to the action” is one reflected in most coworking spaces, as Joerling and others mention. Many people feel more businesslike in a businesslike environment. Doherty’s program sweetens the pot for coworking clients, providing services often available only to resident incubator clients.

“Other than the lower cost of the lease, coworking clients receive the same amenities as those who lease full offices or lab suites,” including printing/copying, utilities, data and phone service, conference space and access to shared laboratory equipment, he says. “In addition, all clients have access to our commercialization team, who provide technical assistance and programming.” The coworking space consists of smaller cubicles in higher-traffic areas compared with the dedicated offices resident incubation clients may lease.

The Technology Innovation Centre in Kingston, Jamaica, offers two levels of shared space, and both have proved popular, says Dionne Palmer, incubator manager. “I converted eight offices into shared space, with a total of about 22 clients,” she says. In the initial level, up to five companies work per office on an ad hoc basis. When they have developed enough that they need to put down roots, they graduate to the Platinum coworking space, where they have assigned desks.

“The coworking program has been in business approximately three years, and I generally have persons moving from the ad hoc space to the Platinum,” Palmer says. “This program caters mainly to clients who are not interested in full incubation, do not fit the incubated client profile or who are not yet ready for business incubation. Many more people are interested in the Platinum program, but we have no more available space.” While some coworking clients have expressed a desire to make the jump to full incubation, she says, none have done so yet.

However, that does not necessarily matter, says Palmer and others. Just as 151 Locust operates entirely with coworking revenues and TechNexus largely does, coworking space can enhance revenue for incubation programs by integrating services for clients whose businesses do not fit a traditional incubation client profile.

Coworking space is often a matter of serendipity, of people encountering people and ideas from other disciplines. In some coworking programs, this is fostered by there being a time each day when people interested in going to lunch gather at a particular spot and head off to dine with someone from a different company. That kind of thing can be one of the greatest benefits of coworking.

Jeff Joerling explains, drawing on a coworking space in California: “A dietician is frustrated, all the time coming up with menus and life choices that her clients forget as soon as they leave their consultations with her. She mentioned this while sitting at a table in a coworking space. Also, there were a Web developer and a lawyer. The developer explained how he could make an app that would make it all mobile for her clients, and the lawyer took care of that end of it, and by the end of the day they had a company that did it better than she had alone. Three independent business people who just happened to be in the same space at the same time.

“That’s what makes coworking very exciting.”

Featured Sources

David Crain, director of entrepreneurial services, The Incubator at MAGNET, Cleveland

Jason T. Doherty, director of technology commercialization, New Orleans BioInnovation Center, New Orleans

Terry Howerton, managing partner, TechNexus, Chicago

Jeff Joerling, brand evangelist, Turnstone, a Steelcase company, Denver

Dionne Palmer, incubator manager, Technology Innovation Centre, Kingston, Jamaica

Ed Rieker, founder, 151 Locust, Avondale Estates, Ga.

Keywords: coworking, affiliate program, client services – general, social entrepreneurship

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