Coworking as a business vs non-profit
Dusty
Dusty Reagan from Austin TX here. I'm a programmer / entrepreneur
who's interested in coworking and the concept of applying the open
source model to business. I'm really excited to see that there is a
movement and community developing around these concepts.
I've been thinking about how a coworking facility based on open source
values like transparency and fairness would work as profit making
venture. Coworking (and open source in general) seems to have a very
socialist spin. Does opening a coworking facility as a business
undermine the qualities that make coworking different (and arguably
better) than a shared office? Specifically in regards to transparency
and fairness. Are the individuals that are making a profit from the
community exploiting the community? Potentially causing a break down
in transparency and trust? Is the only way an honest coworking
facility exist is as a non-profit organization?
My next thoughts are well, is it not fair that the individuals who
took the risk of starting the facility reap the rewards of profit,
thus keeping "fairness" in check. Arguably they could have started the
organization as a non-profit and focused on securing a working salary
for themselves to run the facility and nothing more.
Following this thinking a little deeper. If individual profit making
undermines fairness and transparency, does that make business and open
source incompatible? What if the community worked together as a
service company and split the profits on some formula developed on
"fairness" to the individuals in the community while still allowing
the come and go as you please participation model found in open
source?
In summary. Can a coworking facility be a business? And further could
a profit making company in general fit into a open source model?
Interested to hear everyones thoughts! :)
Geoff DiMasi
> Is the only way an honest coworking
> facility exist is as a non-profit organization?
>
Non-profit does not mean that people are not making a lot of money.
Directors of them often make a lot of money.
I think it has less to do with the business structure and more to do
with the spirit and business practices of the people running the space.
My feeling is that they can take many forms, depending on the community.
I tend to think that it is not an uber-profitable venture, so you
create these spaces for other reasons. I could be wrong, though.
Geoff DiMasi
Independents Hall board guy
David Doolin
[]
> I tend to think that it is not an uber-profitable venture, so you
> create these spaces for other reasons. I could be wrong, though.
I think you're probably correct here. Coworking's win/win is the
person(s) sacrificing their flexibility to provide such a space
reaps more-or-less free office space, while concurrently creating
a really fun place to work. Everyone else benefits from having
vastly reduced overhead for office space, and a working in a
fun place to work.
From my perspective, I couldn't care less how much (or how
little) coworking "management" profits, as long as it's
1. convenient, 2. flexible, 3. cost-effective, and 4. fun!
Tara Hunt
We don't run ours as a for-profit because that would mean we would have to dedicate the same time to it as we would our main business, and we just don't have the resources. Therefore, we write any losses off as office space and promotions.
Personally, I'd love to see people run coworking spaces as for-profits. Having more examples of nerd values[1] businesses would be encouraging for more to join. I can understand where you get the impression, though.
Tara
[1] http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/08/15/NEWMARK.TMP
Quote:
"Nerd values means... "Doing well by doing good." We don't think of ourselves as do-gooders or altruists. It's just that somehow we're trying our best to be run with some sense of moral compass even in a business environment that is growing."
Citizen Agency (www.citizenagency.com)
blog: www.horsepigcow.com
phone: 415-694-1951
fax: 415-727-5335
Geoff DiMasi
David Doolin
It won't matter until it does. Then it will
be critical.
James Bentley
here or in the state. As an accountant/entrepreneur myself, I have
had similar questions. In fact, Chris encouraged me to pose it to the
group but Dusty beat me to it.
>From an accounting/legal entity viewpoint, unless the coworking space
was functioning under an existing business (like Citizen Space I
think) then a corporate entity would need to be formed, regardless of
whether it is for-profit or non-profit. [FYI: A non-profit is
typically a C Corporate with Non-profit status. Nonprofits do make
"profits" but those don't benefit shareholders/directors.]
Therefore, a NPO (non-profit org) still will require the necessary
local, state, and federal corporate requirements that a for-profit
requires, with certain difference.
Which brings me to several things that I have been considering:
1) How many Space Catalysts really want to deal with the "business"
aspects of running/managing a space?
2) How many understand the ramifications of opening a space in
regards to licensing, permits, filings, regulations, accounting,
sales, marketing, purchasing, customer service, operations, etc.
3) How many just want a space that is available for their use so they
can focus on their "real" job and not try to become a property
manager?
What I see a need for is a Coworking Consultant who understands all of
the dynamics of opening/operating a coworking space. Someone who can
help from selecting a suitable space to setting up the appropriate
accounting/membership and operating policies. Because as much as we
would like these spaces to be informal and community-driven, they are
"businesses" and must be operated as such.
So I am trying to ascertain if there is a "business model" in becoming
a Coworking Consultant;
a) I believe there is a need for it.
b) I believe that it would allow new coworking spaces to get off the
ground more quickly, efficiently and economically.
c) It would allow those interested in starting ones to spend a
minimal amount of time on property management and most of their time
on their livelihood.
d) It would open the doors for more coworking spaces being started
across the country, which is what we all want to see.
Any thoughts?
James
> > On 9/28/07, David Doolin <david.doo...@gmail.com > wrote:
>
> > On 9/28/07, Geoff DiMasi <ge...@punkave.com > wrote:
>
> > []
>
> > > I tend to think that it is not an uber-profitable venture, so you
> > > create these spaces for other reasons. I could be wrong, though.
>
> > I think you're probably correct here. Coworking's win/win is the
> > person(s) sacrificing their flexibility to provide such a space
> > reaps more-or-less free office space, while concurrently creating
> > a really fun place to work. Everyone else benefits from having
> > vastly reduced overhead for office space, and a working in a
> > fun place to work.
>
> > From my perspective, I couldn't care less how much (or how
> > little) coworking "management" profits, as long as it's
> > 1. convenient, 2. flexible, 3. cost-effective, and 4. fun!
>
> > Citizen Agency (www.citizenagency.com)
> > blog:www.horsepigcow.com
> > phone: 415-694-1951
> > fax: 415-727-5335- Hide quoted text -
>
> - Show quoted text -
Geoff DiMasi
Dusty
So, arguing for coworking as for-profit we have the concept that
independents don't want to fuss with the particulars of sustaining an
environment. They'll pay you for that, but you need to promote nerd
values. I can get behind this thinking.
So the role of a coworking facility owner is to promote community
growth and nerd values that benefit everyone in the community. And the
community will reward the site owner for taking on the risks and
sustaining the community facility.
I think what I had mixed up is that the coworking community and the
coworking facility are two different things. The coworking community
could choose to work out of peoples houses (aka Jelly). But the role
of the coworking facility is to cater to the coworking community. That
is cater to their values, needs, and wants. And to continuously give
back to the community and help it grow, which coincidently, is good
for business.
Suming it up:
Coworking community != Coworking facility
Coworking community == Open Source
Coworking facility == Business w/ Open Source sensibilities
Thoughts?
David Doolin
[]
> Suming it up:
>
> Coworking community != Coworking facility
> Coworking community == Open Source
> Coworking facility == Business w/ Open Source sensibilities
This should go on the blog.
Graham Freeman
I'm a big fan of the cooperative business model, and I think it's an
especially good fit for a coworking space and very much in line with
the philosophies behind open-source software development. See the
Wikipedia article for an in-depth explanation:
http://en.wikipedia.org/wiki/Cooperative
Essentially, it's a great fit culturally because the business model is
built around people working together and an excellent choice from a
financial sustainability perspective because, unlike non-profit
charities, it does not encourage anyone to beg and plead for donations
in order to keep the doors open.
Unfortunately, the United States has put itself at a tremendous
disadvantage by making it difficult and expensive to run a for-profit
cooperative with members outside of the home state of the co-op. This
makes a big difference to us at the Cernio Technology Cooperative -
forcing us to incorporate in Canada despite our significant presence
in the US - but may not be a problem for a coworking space due to the
inherent geographic limitations.
Personally, while I have no problems with the profit motive I'm not at
all fond of the investors-take-all business model - I'm much more
interested in a cooperative business model. So, any coworking space
that wants my dollars will have to give me the opportunity to co-own
the effort in reality as well as spirit.
best,
Graham Freeman
General Manager, Cernio Technology Cooperative
Email/Jabber: graham....@cernio.com
+1 415 462 2991
http://cernio.com/cooperative/
Dusty
Another thing I am pondering. Tell me if you agree.
Sustainable non-profit Coworking facilities are most likely going to
born out of the desire of the local coworking community to have such a
thing.
For-profit coworking facilities are born from entrepreneurs realizing
the community has a need that is not being filled.
I was mixed up thinking I needed to create a non-profit facility
(because that is the open source way) where the problem is, a non-
profit facility would have to be initiated by the community in order
to have sustainability. Why? Because, if a few individuals create a
non-profit facility and the community is not as "into it" as the
founders are; once the founders leave the facility will fail and
sustainability will be lost. Further, the founders will leave with
nothing more than the experience for their efforts.
...
On Sep 28, 6:55 pm, "David Doolin" <david.doo...@gmail.com> wrote:
Geoff DiMasi
approve it.
-------------------------
ge...@punkave.com
215 755 1330
John Sechrest
Being a non-profit is easy, it is just like the paper work for being a for profit corporation. Being a TAX-EXEMPT non-profit is hard. It takes over a year to do and perhaps two. And it requires several requirements be met. And some organizations can not get tax-exempt non-profit status no matter what. Our local Food Coop tried to be a non-profit organization and was unable to get it.
The key question of a profit vs non-profit is who gets the assets after the corporation (profit or non-profit) terminates.
This is different than the issue of tax-exempt status.
One of the problems of a non-profit is board management. When a for-profit corporation has a bozo on the board, the owners (shareholders) can remove the bozo.
When a non-profit has a bozo on the board, there is often a problem, because the board often does not have the resources or mechanisms to remove the bozo.
There are many kinds of organizations that can be non-profit. Looking at wikipedia, the 501C3 has a long list of possible corporations:
http://en.wikipedia.org/wiki/501C3
I believe that all 501C3 organizations can be tax-exempt organizations.
But you would need to explore the rules: http://www.irs.gov/pub/irs-pdf/p557.pdf
http://en.wikipedia.org/wiki/United_States_of_America_non-profit_laws
http://www.ahereford.org/nonprofit.html
http://www.nolo.com/article.cfm/objectID/EA3D3043-9A88-43F5-8DC869639F0F6E77/111/262/ART/
http://www.irs.gov/irm/part7/ch10s06.html
In any corporation/entity/organization you have several components:
* Owners - ( people who put in capital up front) (money or time)
* Clients - ( people to derive benefit from the organization, customers)
* workers - ( people who do the on going work of the organizations)
(there many be many other sub groups and governance groups as well).
The key issue seems to be who benefits financially from the organization. You can have a "Mutual Aid" network or a Cooperative or a for profit corporation or a non-profit religious organization, which all have the same types of activities going on, but which are distinquished by the ownership model and the greater context of the activity.
When all the workers are the owners, then it is called an employee-owned corporation.
Like WinCo.
When all the clients (customers) own the corporation it is called a cooperative.
all of this can be done without being tax-exempt.
The question will come down to:
When a group of 10 people put in capital to get the organization started, and after the organization has run for a couple of years and there are assets left over, and the organization closes, who should get the assets that are left over.
My inclination is to say that the people who put the money and time into the organization should get the assets. And that you set up a for profit LLC which allows members to come in and go out. and to structure it so that membership can change over time. And then the operations can be controlled by the people who have invested time and energy into the organization.
As for organizations that are for profit, but are not making money... They don't pay taxes. So the tax question is really only important after you have serious positive cashflow.
John Sechrest .
Corvallis Benton .
Chamber Coalition .
420 NW 2nd .
(541) 757-1505 . sech...@corvallisedp.com
.
.
--
John Sechrest .
Corvallis Benton .
Chamber Coalition .
420 NW 2nd .
(541) 757-1505 . sech...@corvallisedp.com
.
.
Geoff DiMasi
John Sechrest
Yes, and I agree with you. A tax-exempt non-profit 501(c)3 organization is a lot of work and is not easy.
I wanted to make sure that the distinction of Tax-Exempt and non-profit was clear.
You can be a non-profit and still not be tax-exempt.
Unless there is a very clear and good reason to put in the 2 years of work and the effort to become a tax-exempt organization, my inclination is to generally do a for-profit organization.
The reason for choosing for-profit is because you maintain clearer understanding of control and who is responsible for the quality of the organization.
But you have made a good point. Being a tax-exempt organization is hard work.
I have been on the board of two organizations that are now tax exempt non-profit, 501(c)3. I was very involved in that process in both cases.You probably covered this in your email, but my point is that the government has to recognize the value of you being a tax-exempt non-profit.You have to make your case, and you are often denied.I have seen civic associations have the status denied.Wanted to make it clear that it is not an easy thing.
Geoff DiMasi
Jacob Sayles
I had to overcome was the perception that for-profit=corporate/evil &
non-profit=unicorns/rainbows. That process was greatly aided by
looking deeper into the world of non-profits. I also was clued into
organizations such as http://notjustforprofit.org/.
With that myth dispelled I moved onto the co-op question aka
"Democracy vs Dictator". Sure, we are all about democracy here in the
states but when you really watch, it's only when things are going in a
direction someone doesn't like that democracy is demanded. Even then,
it's more just having the right to bitch. Most of the time, people
want things to just work, and things to just get done. Are we all
going to take time out of our day to debate the cost savings of
one-ply toilet paper vs the comfort of two-ply? Of course for a
coworking space to be successful (personal definition) the people in
the space must be engaged and have a sense of ownership. That can
only happen if they have a voice. Does that mean democracy is the
only way?
When going through all the points and counterpoints I reflect on a
model I've seen work very well: My home. I've always wanted to live
with people so when I bought a house I bought one with as many rooms
as I could afford. I've found that having to run things by me first
before making changes is a small price to pay for not having to deal
with all the shit thats required to keep a house in order. Also, I
provide arbitration when one roommate wants to paint the living-room
yellow and another wants to paint it orange (we went with orange and
put yellow in the hallway).
Like with all things, it's about balance and balance is easier to
achieve when things are kept simple. We understand that people want a
place to work and don't want to be burdened by the mundane tasks of
office management. We have chosen the for-"profit" model with the
quotes around the "profit" as there wont be much of it. We are
personally financing this venture so we are more in control and can
remain true to our values. We hold the interests, needs, and concerns
of the community in extremely high regard and we are protective of
that. I believe we have all the elements in place to make this work.
This is just our story. It's a personal question and each space will
be different. That's what makes this so exciting! :-)
Jacob Sayles
Nomad & Founder
officenomads.com
David Doolin
"small" profit will be much easier to deal with than
tax-exempt "non" profit. Costs can always
be reduced to simply cover expenses, with just
enough left over to pay the nominal income taxes
on what it costs to throw a rockin holiday party.
I would suggest that whoever keeps book or
performs other necessary management activities
also have a small stipend allowing them to
recover opportunity costs. This would be
as much as gesture of appreciation as
actual compensation.
Berislav Lopac
> My hunch for coworking business models is
> "small" profit will be much easier to deal with than
> tax-exempt "non" profit. Costs can always
> be reduced to simply cover expenses, with just
> enough left over to pay the nominal income taxes
> on what it costs to throw a rockin holiday party.
Of course, this will depend on the country. Where I live, NPO-s have
all the legal obligations and benefits as any company, except that any
profits can't be divided by the members ("owners"); instead they must
be either re-invested or given to charity, so there is automatically
no profit tax.
And as for any other taxes, a NPO is exempt only from VAT as long as
its total annual income is under a certain limit, but that also goes
for companies.
Berislav
xray
mistaken, but it seems to me that the need for a marriage of "open
source" and "coworking" is mistakenly imagined by those who are
working in an open source environment. When you commit yourself to
such an ideal, it begins to color everything you think about. (And it
is a high ideal, please, I don't mean to troll or diss it.) Sure, if
you are running a coworking facility of open source developers, maybe
the facility needs to have transparency and all the other attributes
of open source, just because that ideal is at the root of the way
everyone thinks. That would be great. But you could also have a
coworking facility of lawyers or real estate agents. They probably
wouldn't find it at all incongruent to have profit motives involved.
The real estate agents might even want a commission for bringing new
coworkers into the community.
I see no reason in the world that a coworking facility couldn't be
entirely for profit and run in a somewhat "dictatorial" rather than
democratic manner, as long as the participants were okay with it.
There are condo work spaces as an alternative to owning an entire
building and managing it. Coworking could work in an environment is
totally conventional other than the coworking aspect. Maybe I
misunderstand the concept of coworking completely. Does it require
that
Let's say someone springs for half a million dollars to provide a
facility and amenities, and SELLS space and time to people who want a
nice place to work in with other bright people who all need a sense of
community. It's kinda like being back at grad school, in that you're
going in to a place where others are doing exciting things perhaps
related to what you do... you're sharing facilities you couldn't
afford by yourself, and seeing the same people on a regular basis,
except now you're making money. We hope. What's wrong with that?
It might also be like the old concept of a business "incubator,"
except that someone sets it up and expects to make a return on their
investment. I'd think it would be way easier to get started if
someone just set it up and started selling it, than if you tried to
get a bunch of people together to pool resources and build it by
committee.
As long as there is an honest value offered to the participants, and
it helps them to make their lives more enjoyable and their work more
profitable, I see nothing wrong with that model. I think it is okay
to make one paradigm shift at a time. You throw out the old model of
either working at a corporate office or at home, and go to a model of
coworking. You don't have to throw out ALL the old models, like
expecting to get paid for what you do. If you have ten people doing
one type of work in the same space, and an eleventh person whose work
is providing the space, all eleven of them need to make money. We can
hide that behind concepts like "sustainability" but in America,
sustainability pretty much means "profitability" for many of us. Once
the money going out has exceeded the capital that started the project
and the money coming in, the business is no longer sustainable.
When you have a coworking community in someone's home, they are still
paying their landlord. If you have a larger coworking community in a
facility like an old warehouse converted to offices and meeting rooms,
somebody's got to pay the landlord there, too. It doesn't mean the
landlord would be disqualified from being a coworker in the same space.
Tara Hunt
You aren't mistaken that there is a marriage between coworking and open source...mainly because, well, many of the principles that guide open source have also guided what we consider to be coworking. But I also don't think that even open source is married to free or non-profit. There are loads of open source companies making alot of money. Red Hat sells enterprise level solutions to Linux and makes billions. Sun is built around the open-sourced Java. Heck, even some of our favorites like Firefox and Wordpress (or at least indirectly) are making good bucks. I think it's a bit of a misconception that open source = free. Open source != free...Open source = open code.
But I would caution the direction of moving coworking into a purely transactional realm. That's when it ceases to be coworking. Then it is shared office space or execu-centers or, as you indicated, incubators, which are great and useful for their own purposes (and in San Francisco alone, there are over 200 examples of this)...but they are not coworking.
I'm only speaking personally, but coworking, for me, was partially a response to those transactional types of businesses. I wanted to go to an office where it felt like I was going to a company of coworkers, not that I was just seeking office space. I would have just worked out of my dining room and occasionally escaped to coffee shops if it wasn't for coworking. It's different and, to me at least, it represents the good principles of open source, collaboration, openness, community and sustainability. That is why so many of us on the list are protective of the idea. Until you've been part of a space, it's really hard to describe the subtle (but huge) differences.
I don't know if you were on the list a while back when I posted the 4 pillars of coworking: collaboration, openness, community and sustainability, but many of the current space owners + many in the process of setting up spaces seemed to agree that those were what makes coworking different from shared offices, execu-suites, et al. None of those denote non-profit. I'm not sure if you caught our Nerd Values discussion, but if you didn't, you may appreciate it.
Either way, these are only my own experience of coworking and why it is so significant. But perhaps others will have something different to share.
Tara
Alex Hillman
When I tell people about what goes on at IndyHall, I describe it like this:
If you were working in a coffee shop (or desk share, or incubator, or anything else like that) you're taking care of problem 1) getting out of the house, but not necessarily problem 2) being around people.
In a coffee shop (or the other scenarios), you are guaranteed being surrounded by BODIES, but not necessarily like minded, intelligent, creative, and interesting people. Sure, they MIGHT be there, but since that's not priority number one...its a crap shoot.
At a coworking space, there's a different kind of energy due to shared interest, and because of a community, you get a shared mentality of "I make a living doing what I love, and I think others should make a living doing what they love, too".
NOTE: I said make a living. There's nothing wrong with making money. Gotta have a roof over your head and food on the table, right? Otherwise you've lost the other pillar: sustainability.
Sure, the goals vary from space to space. I know at IndyHall, our goals aren't maximizing profit. It's maximizing resources for the community that uses the space. Sure, if the resources are maximized, use will be as well, and the space will make more money. But that's secondary. Part of the "nerd values" that Tara mentioned is "doing well by doing good".
Personally, I LOVE being at our coworking space, I love telling people about it, I love seeing peoples reactions the first time they see it, walk through the door, spend a day...that's all awesome. The fact that I may make some money, someday, on top of that is a bonus.
Mind you...my pockets ARENT deep. My name isn't Sergey Brin or Larry Page. I don't have infinite money to drop into this space. I don't have infinite time to devote to the space. So back to the sustainability pillar...we HAVE to start paying ourselves at some point.
This for profit vs non profit discussion has come up before. Like Tara said, nothing says coworking can't be commercial. It's when commercial becomes priority one over the other 4 shared goals that it starts to fall apart (or, at least, becomes much harder to hold together when everyone is staring at a bottom line).
xray, I'm curious what your current work situation is and what drew you to coworking?
-Alex
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--
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Alex Hillman
web.developer.innovation.consultant
vocal: 484.597.6256
digital: al...@weknowhtml.com | skype: dangerouslyawesome
visual: www.weknowhtml.com | www.dangerouslyawesome.com
local: www.indyhall.org
Jacob Sayles
not the office. You can pay the bills however you like after that but
you have to have your core values in place to build a space with
energy that inspires community.
Fernando Maclen
coworking space demands a lot of extra working time for a space owner
(most of you guys know better than me). That time spent in promoting
the space, solving problems, fixing things, etc., it's time that you
need to get paid for.
I think the profit of a coworking space should pay, not only the
bills, but also an owner's salary for all the work he/she is doing.
I don't know how the situation of the space owners is, but I think you
can make a living of it.
Also, the "extra profit" can be saved to increase the services offered
for the coworkers in the space.
IMHO, the "open-source" concept is great for coworking, except for the
profit aspect.
John Sechrest
IMHO, the "open-source" concept is great for coworking, except for the
profit aspect.
Open Source is not the same at non-profit. We have many for profit companies that are using open source at the core. Locally Project.net is a for profit company that supports an open source piece of software.
Profit is what is left after everything else is paid for.
Non-profit vs non-profit is really about who gets to control the assetts and profit of the organization.
Certainly, anyone putting in time into managing a space and marketing a space should structure the organization so that this time is paid for.
And in startup, all non-profits and all for profits all have to be putting all profit back into the organization as an investment in order to get to a point of stability. You can only run so far on enthusiasm. Eventually, things need to hit a maintainable rhythm to be sustainable.
So for all the startup coworking sites, this question of profit vs non-profit is not really about the money, but is a philosophical / values discussion disguised as a discussion about organizational structure.
For now, I think the focus needs to be on getting organizations up to the point that they have positive cashflow and that people don't feel burdened with the startup frenzy.
Geoff DiMasi
We are down with profit.
Make as much as you want, but maintain some of the core principals.
Tara Hunt
Community ++
Open Source ++
We can have our cake and eat it, too. :) As was re-iterated a gabillion times in this thread Open Source does NOT equal Free. It just equals a pretty darned extensive view source.
T
tara 'miss rogue' hunt
co-founder & CMO
Citizen Agency (www.citizenagency.com)