Your co-working business needs focus and strategy — Part 1

Murat Vurucu
Jul 28, 2017 · 6 min read
Photo by Annie Spratt on Unsplash

In this post, I’ll introduce the reader to open innovation and co-working concepts, and I’ll reflect on common business models I’ve encountered during my time helping companies set up co-working spaces. In the second part of this series, I’ll introduce a questionnaire that can help decision makers determine and iteratively optimize their co-working concept.

Introduction

There’s no denying that co-working spaces has taken off in recent years. Everyone is doing it — startups, corporations, even research institutions. But one company is still held up as the go-to example for successful co-working. You guessed it: WeWork.

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Many companies that plan investments in change management, especially in change based on work environments, take WeWork as a how-to example. This can lead to problems. Companies following WeWork’s example may understand what WeWork does, but that doesn’t mean that they understand why WeWork does it.

Consider WeWork’s business model. In October 2016, WeWork announced plans to start a sale-leaseback vehicle to buy its own or new real estate properties, refit them and give them back to the sellers. And of course the company generates much, if not most, of its revenue by charging members rent to work in their offices and access their benefits.

WeWork is a real estate company. It saw the need on the market for a more open, flexible, and community-based office environment arising from nontraditional working models. The company includes community and networking among its key value propositions for both single members and larger corporations. That’s why it has created a list of amenities that serve the needs of a heavily technology-dependent generation. However, this does not change the fact that WeWork is earning its money primarily through renting spaces and offering services around those spaces.

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This makes WeWork one of the most modern real estate companies, combining technology and space to offer innovative facility management. The short answer to the question “Why does WeWork do what it does?” is that they want to grow their market share in the office space by offering solutions for the problems arising from nontraditional working models. But does this “why” serve the goals of all companies that are thinking about creating co-working spaces? If WeWork operates on a real estate model, when are they a relevant example for other types of companies interested in creating a co-working space, and when are they not?

To answer this question, we need to understand the four main categories of co-working models: real estate, public relations, innovation and research. In this article, I’ll break down each model, why companies use it, and what makes it different from the others. Then, in Part 2 of this series, I’ll provide some metrics for helping organizations understand which co-working model is best suited to their needs.

Real Estate

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The co-working spaces created on the real estate model derive their value primarily from incoming cash flows from memberships and leasing. In other words, the point is to make immediate money. Their competitive advantages are based on their flexibility, scalability and community-building capabilities. The co-working spaces are intended to be profit centers, rather than cost centers. Key stakeholders here are the members and corporations within the leasing model, strategic local network partners, the real estate companies from which the spaces are leased, and the funding vehicles for leasing the space. Our discussion of WeWork at the beginning of this article should suffice as an example of the real estate model in action.

Public Relations

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Co-working spaces intended for public relations activities find their key value proposition in building a community around core company products, combining the marketing reach of start-ups with the sponsor company’s facilities and public events. The goal is to connect with local influencers and decision makers in order to shape public policies and create awareness. These spaces are usually cost centers, and key stakeholders include policy analysts and members of the government.

A great example of the public relations model is Microsoft’s Digital Eatery and Atrium in Berlin. The facilities are located close to the German parliament and are a key space for Microsoft to invite and connect with influencers throughout different industries. Guido Brinkel, the Director of Corporate Affairs for Microsoft Germany, usually visits all the relevant events to network and connect with decision makers. The Digital Eatery is a restaurant and provides catering service to the Atrium, which is a bookable event space. These two channels are the space’s main revenue sources. Microsoft also offers an accelerator program that lasts four months and offers participants access to Microsoft’s networks as well as the company’s technology and expertise.

Innovation

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The co-working spaces dedicated to open innovation derive their key value proposition from offering technology infrastructure not usually accessible to individuals, and from creating tech-savvy communities ideas and information can be exchanged between corporations, startups and talented individuals in a curated environment. The main goal here is to loosen bureaucratic restrictions and introduce an environment of fast-paced trial and error and technology transfer for product design and development. This approach usually helps reduce time-to-market and can be seen as an exploratory phase in between R&D and Product Development. The ideal timespan of these collaborations is 2–5 years. The spaces are usually characterizes as cost centers, but the services offered to corporations are characterized as profit centers and typically cover the cost of the space.

Research

Panta Rhei Technical University of Brandenburg

Co-working spaces dedicated to research derive their key value proposition from providing participants with the ability to share essential, but very expensive, research infrastructure such as machines, ultra-high-speed internet, super computers, chemistry laboratories and testing facilities. Participating institutes and corporations are interested in long-term investments, usually with a minimum duration of 5 years. These programs are commonly accepted as cost centers, and those costs are often eventually added on to price of products as development costs. Key stakeholders here include CTO’s, corporate and university researchers, and government officials in the fields of education, economy and finance.

For a great example of the research model for co-working spaces, look at the WISTA Science and Technology Park in Berlin Adlershof. This space is one of the most successful high-tech locations in Germany, and is home to ten non-university research institutes, six of Humboldt University’s natural science departments, and more than 1,000 businesses. Over 16,000 people work there, and over 6,000 students study on the campus. Companies that rent space in Adlershof do it mainly for the sake of research. WISTA helps them lower costs by sharing essential infrastructure with other research institutions and companies. WISTA also incorporates the real estate model by renting out spaces to generate revenue, and providing services to supplement those spaces.

What’s next?

By understanding the various models and motivations for creating a co-working space, companies can better ensure that their space is used in an efficient way to meet their specific goals. In the second part of this series, I’ll provide some metrics for organizations to use when deciding which model to follow.

Going Yellow

Murat Vurucu

Written by

Managing Director at latentine.com a Data Science Company. Engineer, Manager and Entrepreneur. Transatlantic Digital Debates and Bertelsmann Foundation Fellow.

Going Yellow

Digital technology transforms one industry after another. We’re here to guide you through it.

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