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The Coworking Value Proposition – Part 4 (Employers)

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The flexible workspace industry has seen explosive growth year over year that will continue to grow. What started as spaces for freelancers & digital nomads have become mainstays for the workforce, including the largest global companies.

Part 4 of this series delves into why larger companies should leverage the flexible workspace movement. If you haven’t read the previous entries, here are links to each:

  • Part 1 provided an overview of the coworking industry and its potential in the future.
  • Part 2 focused on the benefits for individual members & the ecosystem of workspaces that exist today, including coworking spaces.
  • Part 3 was all about the opportunity for commercial real estate to grow the flexible workspace industry.

Large companies & corporations are driving a major portion of the growth in the flexible workspace industry, expected to create 40% of the demand for flexible workspace in the coming years. Flexible work policies & distributed teams are becoming the rule rather than the exception. Professional office space is still needed wherever those employees are, whether its full teams or single remote employees.

Employers & HR managers can leverage the growing coworking industry as part of a competitive strategy to attract, retain, and support talent. The value proposition of coworking for employers is just as strong as it is for individual workers.

What are some of the benefits of coworking for a large business?

Flexibility, not only in schedules, but in how & where work is done, is key for developing & maintaining a competitive & productive workforce. Coworking spaces can play a significant role in helping companies achieve that flexibility for their employees.

For employees that are not on-site at a corporate headquarters, coworking spaces are fully amenitized workplaces ready to go when and where they are needed, in more and more communities across the globe. With flexible membership options and workspaces, coworking spaces are great alternatives to home offices or coffee shops for working remotely.

Additionally, companies can also benefit from the flexibility provided by coworking spaces. The amount of space occupied can be scaled up or down, without the need for a company to manage a complicated and expensive build out. Many coworking spaces can accommodate everything from a single desk user to a large team suite. Companies can lease out only the space they need, even if those needs change quickly.

Why are these benefits valuable to a business?

Office space is a big expense for companies, both in regards to capital & operational expenditures, and is not typically the primary focus of the business. Coworking spaces can help companies not only reduce expenses, but also get more value out of the space that is being used, while helping companies focus more time on what they need to, their business.

They are balance sheet friendly – Utilizing shorter term agreements for coworking and flexible office space instead of managing real estate leases in house reduces risk & complications for a business’ financial statements. With the implementation of new FASB lease accounting standard (ASC 842 & IFRS16), organizations are required to recognize leases as assets & liabilities on their balance sheets for any lease that is over 12 months. This standard went into effect on January 1, 2019 for public companies, and will apply to private and non-profit organizations as well starting in December of 2020.

They are a better use of resources – Many of us have either seen or experienced a large corporate office floor with almost no one using it. The ability to more accurately match real estate needs with headcount needs can result in a direct reduction of real estate expenses. Why pay for the space if your employees aren’t using it? A better use of resources is to pay for the space that is actually needed and where it will actually be used.

What are some of the problems being faced by HR Managers?

Talent attraction – Competition for talent is fierce. Finding & attracting high quality employees requires increasingly enticing offers. Only a portion of that comes down to salary. Many in today’s workforce are looking for flexibility, remote work opportunities, and good perks in addition to competitive financial incentives.

Productivity & Retention – Once a company has the talent, the next challenge is retaining them and supporting a work environment that contributes to high levels of productivity. For example, a workplace that requires a long commute can reduce job satisfaction in a similar way as a pay cut. That’s before an employee even makes it to the office for the day.

How does coworking solve these problems?

Distributed employees, distributed space –  Recruiting can benefit from a broader geographic pool. Coworking provides office space for a company without the need to set up satellite office operations or requiring employees to relocate. Resources can be redirected from maintaining a large scale headquarters to coworking memberships & digital tools that can support remote & distributed teams.

Use of coworking spaces can be leveraged as a competitive edge for recruiting by illustrating a company’s support for flexibility in how & where an employee chooses to work. Flexible work is no longer a generous perk, but required for companies to maintain a talent advantage.

Improved employee experience, improved productivity – The statistics gathered over the last several years make a clear case for the benefits of working from an alternate work environment like a coworking space, such as:

  • 84% of people who use coworking spaces are more engaged and motivated &
  • 89% of people who cowork reported being happier.

Coworking spaces can help make people happier, which correlates to improved productivity, as discussed in our previous article on the 3/30/300 Rule of Thumb.

Why is coworking the best solution to these problems?

The demand for flexible work arrangements from the workforce will continue to grow. Flexibility and autonomy are what workers want. Companies that can provide that are rewarded with more productive, more satisfied, more loyal employees, ultimately saving money by avoiding lost productivity and employee churn.

If shifting away from the traditional corporate office to alternate work environments is the goal, why not have all their employees work from home and skip the office completely?

It’s not possible to implement effective remote or flexible work policies without providing your employees with the appropriate resources to be successful. Coworking is one of those resources – a professional work environment, others to work around, division between work and home life, and lots of coffee. Not everyone is productive or happy working from home. When workers can work at least part-time from an office environment, like a coworking space, they are more productive.

The flexibility that coworking spaces provide is a benefit to both the employees utilizing the space as well as the companies they work for.

The bottom line – coworking space for business is good for the bottom line.

The lobby of Cowork Tahoe in South Lake Tahoe, California

Coworking & the 3/30/300 Rule of Thumb

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The lobby of Cowork Tahoe in South Lake Tahoe, CA. Photo credit: Erin Ebright.

Coworking & flexible office spaces are quickly becoming a permanent fixture in the global office space landscape. As more and more employees utilize these spaces, the gap between coworking & the traditional corporate office will continue to narrow. It is important for both corporations and for the owners & operators of these flexible workspaces to understand how this type of office environment fits into their operational model, and how it provides value.

As remote work increases, it will become vital for companies to track & measure the impact their distributed workforce has on their bottom line. Coworking space community managers are becoming corporate productivity officers. This role serves as part of the value proposition for coworking businesses, but also as a critical tool for companies when determining their operating costs.

When opening a new office, there is an overwhelming list of expenses to consider. These expenses go beyond the lease price for the physical square footage and are vital to track in order to drive costs down. Commercial real estate services firm Jones Lang LaSalle (JLL), has a simple rule that can be used to estimate the order of magnitude of real estate occupancy costs for an organization. Its called the 3/30/300 rule and is as important for coworking space owners to understand as it is to traditional commercial real estate facility managers.

The 3/30/300 Rule

The rule of thumb is to estimate, on a per square foot annual basis, a total cost to the organization of:

  • $3 for utilities,
  • $30 for rent, and
  • $300 for employees (salaries & benefits).

The 3/30/300 Rule is a particularly important tool for facilities managers when making decisions to help reduce costs for an organization. Traditionally, the focus has been on developing strategies to either lower utilities costs or to reduce the total lease price.

Energy efficiency is a great area to focus on to lower the cost of utilities & is relatively easy to implement. Replacing fluorescent or incandescent light bulbs with LEDs, installing a smart thermostat to regulate the temperature, and using natural light as much as possible can all result in lower utility bills. An energy efficiency initiative that reduces consumption by 10% will impact overall costs by $0.30 per square foot.

Another area of consideration is to reduced rent. To achieve a 10% savings in the lease price, that could mean negotiating the price for a longer term or moving to an area that already has lower rents. Lower rent might also come in the form of an older or less updated building, with less amenities both in the building and in the surrounding neighborhood. That 10% savings, however, equates to a $3 per square foot reduction in overhead.

So even if utility costs are significantly reduced, which is very difficult to achieve without significant investment, a 10% savings in the rental price overshadows the entire cost of utilities to begin with.

But what about the 300 column? Can changes in the workspace impact the cost of keeping employees in their seats?

The answer is a resounding yes, and is in fact where the greatest potential for organizational savings can come from.

Based on the 3/30/300 rule, 90% of the costs for an organization staff salaries & benefits. Anything that results in savings in this area can make a big impact on the balance sheet. A 10% difference, for example, is a $30 per square foot savings. That completely covers the cost of rent for that space.

For a facility manager, reducing costs in this category by having fewer employees or lower salaries is not only not within their purview, but is also not the best way to optimize the potential for savings. Instead, the best strategy is to take into effect how the workspace can increase employee productivity. According to a study published in IZA’s World of Labor, employees that are “happy” are 10-12% percent more productive in their jobs.

Measuring for Productivity

Productivity is not straightforward quantity to measure. It is dependent upon a lot of different interlinked variables, many of which are beyond what a space manager can control. However, there are good indicators and concrete strategies that have been shown to positively impact productivity in the workplace.

The World Green Business Council released a report in 2015 that divides productivity metrics into three areas: financial, perceptual, & physical.

Financial

Financial metrics for an organization include, among others, tracking changes in employee absenteeism & turnover, both of which can have a clear and drastic negative impact on progress on organizational productivity and costs.

Perceptual

Assessing perception can be accomplished by regularly surveying employees and correlating their responses with the more quantitative data in the financial and physical categories. Questions covering things like general comfort in the workspace, rating design elements, the layout of the space, or location and amenities, can all provide valuable insight into the impact of the office space on its occupants.

Physical

Taking direct measurements of the physical space, especially when correlated with responses about comfort, can play an objective role in determining what factors are contributing to or diminishing productivity in the workplace. The more measurements that can be taken easily and by a manager (or even someone using the space) the better. This could include indoor air temperatures, relative humidity, light levels, CO2 levels, and background noise. Additionally, tracking the levels of workstation density, numbers of private spaces versus social spaces, use of plants and greenery, etc. can all contribute to an in depth understanding of how the workspace is used to boost productivity, and how to improve it.

Community Managers as Productivity Officers

Coworking space operators & corporate facilities managers have a lot in common, especially as the modern workplace trends more to a distributed flexible model. For both, “How can we increase productivity for our users?” is a question that should be top of mind. For coworking spaces, an increase in the productivity of members is good for business. If members are getting a lot out of working from the space and are happier, the coworking business will likely see lower member churn, a more engaged community, and more referrals (and thus more members). And for the companies those members work for, the value generated by that additional productivity can be immense, even more so if it comes without the cost of maintaining a large corporate office.

By actively working to improve the office environment to optimize for productivity, community managers in flexible office environments can bring real value to their members and the companies they work for understanding & acting on what increases productivity. Good coffee & green plants are just the beginning.

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The Coworking Value Proposition – Part 2 (Members)

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In Part 1 of this Series on the Value Proposition of the Coworking Industry, I provided an overview of how an increase in the distributed workforce is driving change in the traditional office model. While many remote or distributed workers have depended on a home office or coffee shops to fulfill their workplace needs, these are not the ideal setting for a productive worklife. Coworking is the right solution, and the industry is just getting started.

Goldilocks & the Three Bears (St. Nicholas serial, 1873)

Over the course of the next four entries in the series, I’ll go through what the value proposition of coworking looks like for each major stakeholder in the industry: members, commercial real estate, employers, and communities. As the operator of a coworking space, these are the groups that are most important for me to consider when establishing and communicating the value of my business. For each of these groups, I’m going to ask & answer the same five questions with that group’s perspective in mind:

  1. What are the benefits of coworking?
  2. Why are these benefits valuable?
  3. What are their main problems?
  4. How does coworking solve these problems?
  5. Why is coworking the best solution to these problems?

As members are the lifeblood of coworking spaces, that is where I’d like to begin.  This is likely the group I’ve seen the most written about, but its also the most important and thus is very deserving of the attention.

What are the benefits of coworking for members of coworking spaces? 

Distributed workspace: Coworking spaces provide professional work environments away from a corporate office besides a home office, coffee shop, hotel lobby, or library. This includes good desks and supportive chairs, fast and consistent internet access, well designed work areas, private spaces for calls and client meetings, as well as coffee and snacks to keep you going throughout the day. (For more, check out the base level in Maslow’s Hierarchy of Needs for Coworking Members)

Flexible workspace: Coworking spaces offer flexible membership & lease terms that can vary from as short as hourly, daily, and monthly, to multi-year leases (*although with the new IPFS16 standards, leases 12-months and shorter are the most desirable –  need to write more on that in another post). The workspaces themselves are flexible as well. Most coworking spaces provide a range of casual café or lobby seating, open desk space, and private office suites.

Affordable workspace:  Particularly when compared to the overhead costs of renting and maintaining private commercial office space, coworking space memberships are extremely affordable. For the cost of one membership, the office space, utilities, meeting space, restrooms, kitchen amenities, and more are typically included.

Connected workspace: Coworking spaces have professional communities, other people around to provide human interactions, even if small.

Why are these benefits valuable? 

A full time job averages over 2,080 hours per year. That’s a lot of time, so there should be a high bar placed on what those workplaces offer to make that time pleasant and productive. And as more people are able to participate in remote work, the infrastructure to support that workforce needs to be where the workforce is – coworking spaces provide that infrastructure. For more on why I think the benefits of coworking are valuable, see “Maslow’s Hierarchy of Needs for Coworking Members”. What it comes down to is time is valuable, and the more productive those limited hours are, the more valuable they become.

What are the main problems being faced by customers?

Productivity. For those that can work remotely, there is still a need for somewhere to work and do so productively. For those that freelance, are on small teams, or work for themselves, there is still a need for somewhere to work and do so productively.

Work-Life Balance. Long commutes are detrimental to personal health and time, and to the environment. Costs of living are often too high near a corporate office to be able to move closer (think Silicon Valley/New York City) and moving is not always a good option when it takes a family away from their social support network.

How does coworking solve these problems?

In short, by providing flexibility & community, and everything else needed to achieve a high level of productivity.

By providing a professional work environment where it is needed, not where a person is told to be. Good internet access to ensure digital connectivity, nice office space for ergonomics and to support focused work, a community of other professionals to support human connection when desired. Locations distributed throughout communities, from downtown centers to rural towns. Varied workspace for focus, for collaborative space, for privacy, casual work, etc. Easy to access, flexible for when life changes.

Why is coworking the best solution to these problems?

Coworking spaces meet the professional needs of the distributed workforce, but they also help meet our personal needs by decreasing loneliness and increasing autonomy in how, where, and when to work. A recent FlexJobs Survey found that the reasons professionals say they would prefer to work from home rather than a corporate office included a decrease in distractions, a decrease in interruptions from colleagues, less stress from a long commute, and less office politics. While working from home can provide these benefits, there are even more downsides that cannot be ignored: home life distractions, isolation from peers, reduced work-life delineation, no professional meeting space for client meetings, etc. Coffee shops and other public spaces may remove the feelings of isolation to a degree, but only because of the presence of people. They lack the peer networking opportunities. Often they are too casual, can offer little to no privacy, may be noisy and thus distracting, and may not provide the level of stable internet connectivity and hours that are required for a truly productive work life.

Coworking spaces are the goldilocks solution for the distributed workforce. They are not the too-rigid corporate office or too-casual home office or coffee shop. They are just right.

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The Coworking Value Proposition – Part 1

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Between being a coworking space & building owner the past five years and being the co-founder of a software company focused upon supporting the operation of coworking spaces, I have spent a lot of time thinking about the industry. Not just my own space and its growth and performance, but how the industry fits into the overall evolution of the workplace and what its trajectory is going to be in the upcoming years.

Office typing pool | Missouri State Archives

The traditional corporate office is becoming antiquated and many corporations have already experimented with changing their operations to attract and retain employees – from adding perks like fancy chefs and on-site dental care to replacing the old cubicle with hip open office plans. Some of these experiments have worked better than others, but ultimately have not resulted in the increase in employee productivity and satisfaction that was desired. As digital tools have become more available, the movement from the corporate office to remote options has been gaining momentum. There is no denying that the future of work is distributed. Over 50% of employees across the globe are working part time remotely and that number is estimated to grow significantly in the next few years.

The need for a professional office environment for those workers, however, has not diminished as a result of movement. The coworking industry has not kept up with the need for distributed workspace. When a good solution is not available, we improvise and use what is accessible instead. An example of this is the number of remote workers that work-from-home or from coffee shops. There was first a rise in the number of employees working from home, taking advantage of telework policies. Then, as wifi became more accessible, many of those same employees filled tables at the corner coffee shop. The increase in the use of home offices and coffee shops was not a result of those being the best workplaces, but rather the only alternative options for so long. Likewise, commuting long hours to a main company office. People don’t commute because they will be most productive and happy at that office, they do so because there has not been a viable alternative.

That has begun to change, and it should. The demand for office space has become distributed.

The mission of the coworking industry is to drive the decentralization of the workplace that increases the productivity of the workforce. Coworking spaces provide a professional office environment wherever and whenever one is needed.

The value proposition of the coworking industry is a strong one. This is why there has been such a buzz around it in the past few years. While still a very young industry, it was already proven its not going anywhere. What exactly is the value proposition for coworking? In this series of posts, I’m going to explore that from the perspective of users of coworking spaces, commercial real estate owners, employers, and communities.

It’s not enough to articulate a value proposition for an entire industry, it is also important for the individual companies within the industry to articulate their own value, and then deliver on it. My hope is that not only will this series serve as a guide for my fellow coworking industry colleagues on how to craft compelling messaging to attract and retain members in their own spaces, but provide some perspective on the industry as a whole, whether you’re in the business or not.

Stay tuned or subscribe to this blog so you won’t miss the next entry!

  • Part 1: The Value Proposition of the Coworking Industry: An Overview
  • Part 2:  The Value Proposition of the Coworking Industry: Members
  • Part 3: The Value Proposition of the Coworking Industry: CRE
  • Part 4: The Value Proposition of the Coworking Industry: Employers
  • Part 5: The Value Proposition of the Coworking Industry: Communities
  • Part 6: Creating a Value Proposition for your Coworking Space
  • Part 7: Delivering on your Value Proposition
  • Part 8: Communicating your Value Proposition