July 28, 2009

Start-Ups Share Space to Shave Costs in Slump

Raymund Flandez  /  The Wall Street Journal

'Co-Working' Rental Deals Find Fresh Impetus as Entrepreneurs Enjoy Both Lower Overhead and Networking

For three years, Tobias Roediger and a friend spent their spare time in Mr. Roediger's basement working on a dream: starting a small digital-film and visual-effects company. When Mr. Roediger lost his full-time job as a computer-lab supervisor in June, the friends decided it was time to launch the company – and move out of the basement.

They were able to afford the move by "co-working," a rental arrangement in which the tenants – usually small-business owners and professionals – share space and office equipment, and pay short-term leases, usually month to month. Some co-working spaces feature groups of desks positioned in open rooms; others have individual offices. Many provide certain amenities such as a receptionist, kitchen or game room.

Tobias Roediger runs his digital-film company in a shared office space he rents from Qwirk for $500 a month. For entrepreneurs, it's a cheaper and more flexible alternative to renting or buying space of their own. The 32-year-old Mr. Roediger and his partner contracted with

Qwirk Columbus Corp., a recently opened co-working space in downtown Columbus, Ohio, to pay $500 a month for two desks in an office, computers with Wi-Fi, use of conference rooms, a shared printer/copy/fax machine, espresso maker and more. Mr. Roediger estimates he's saving $300 to $400 per month on utility bills and not having to rent space he doesn't need.

It's also a much more social setting than Mr. Roediger's basement. "The thing that really drew me was the ability to work with a lot of other creative people," says Mr. Roediger, who adds that the shared space is good for networking, too: He says he's been talking to an advertising company on the premises about a possible deal.

Sharing office space with other businesses isn't new, but the tanking economy has prompted many small-business owners to consider it as they look for any practical way to lower overhead costs.

Some providers of co-working space are also offering reduced rates and even giving entrepreneurs opportunities to barter their services in return for paying no rent at all.

In February, Office Nomads LLC of Seattle started giving a "Pink Slip Special" to customers who were recently laid off, offering a free one-month membership worth $375. Overall, a dozen people took advantage of the offer, which ended last month, says Susan Evans, co-owner of Office Nomads.

Winnie Fung, a manager of the Change You Want to See Gallery, a nonprofit co-working space in Brooklyn, N.Y., says she sees a lot more bartering than she did a few years ago. At least three or four people from the 10 in her co-working space have partially or fully bartered their services for desk space, she says.

Ms. Fung says a few months ago she made a deal with one of her members, a tech start-up owner, to look after the building's computers and Internet service in return for free space.

Glenn Okun, clinical professor of management and entrepreneurship at New York University's Stern School of Business, say that the co-working environment presents an opportunity to tap into the collective expertise of the group and create business deals with other business owners, who are just a cubicle away.

Other experts, though, say small-business owners should be wary about the loss of privacy in such a workplace.

Sara Beckman, a senior lecturer who has taught a course on workplace design issues at the Haas School of Business at the University of California, Berkeley, suggests that entrepreneurs should consider these drawbacks: "Am I sharing the space with people who are direct competitors? How do I draw boundaries around the information I can and cannot share with people who don't work in my organization?"

Michael Patino of Fairfax, Va., who was laid off in October from an executive-search firm, started his own firm, Patino Associates LLC, and says he saw co-working as a better alternative to working from home. It's a more professional place for clients to visit, and a businesslike environment in which to make calls and conduct interviews.

But he didn't want a work space that was airy and open. "I needed four quiet walls," he says, to evoke the image of confidentiality, especially when he needed to interview candidates for executive positions.

For six months he worked at home, while also taking care of two kids. But "in a field where you spend most of your time on the phone, [home] is not the best dynamic in the long term," says Mr. Patino.

He started looking for a suitable co-working space for his company and found one in McLean, Va., owned by Preferred Offices LLC, which has nine locations in the Washington area. Mr. Patino signed a 12-month lease in June. He says he spends $2,000 a month, which includes the lease, utility, telephone and Internet charges, and a receptionist, who works for all the businesses on the floor.

"It's wonderful so far," he says. "There's an extra layer of credibility when there's someone picking up the phone for you."