In 2007, Jayson White and colleagues at Harvard’s Kennedy School of Government built a think tank and executive session focused on driving policy innovation and economic recovery in urban markets across the country. At the center of the enterprise: how can mayors, with relatively limited authority and constrained budgets, spark engagement, economic growth and the creative deployment of public assets for positive change in their cities.
In the early days of the project, the 2008 financial crisis was bearing down on cities across the country, so the work was focused on budgetary issues and the fallout from the housing and foreclosure crisis. One of the main conclusions of this crisis-driven work was that cities with high levels of entrepreneurial energy and talent growing the “sharing economy” were significantly better-equipped to weather this economic storm and the social crises that the Great Recession wrought.
After the Recession eased, cities could finally turn their attention back to long-term solutions to modern economic and social problems. White and his colleagues did a lot of research into what cities like Austin, Seattle and Boston did to attract young, talented people and to generate and nurture high-potential companies. They found that two main things made a difference to companies: being able to attract and retain talent to grow their companies, and the availability of affordable, flexible real estate in which their teams can grow.
I spoke with White about how coworking and flexible workspace makes a city attractive to companies, the growth of entrepreneurialism in the U.S., and why small city, suburban coworking may be the future of work.
Cat Johnson: Why is workspace with flexible terms attractive to emerging and growing companies?
Jayson White: Being able to have high quality space on flexible terms is the thing that makes a company able to stay where they want to stay. If a company has to make a five or ten year commitment to a particular building, they’re going to make that commitment in a city they believe has longevity for their business. By adding flexibility into the equation, companies can more easily focus more on their work than their real estate needs during their first few waves of growth. The longer a team lays down roots, the more likely it is to stay in a place for the long run. That was a main upshot of the research at the Kennedy School.
We spent a bunch of time thinking about this at a more academic, abstract level and our thinking found that the availability of high-quality, flexible real estate is really important to grow and sustain innovation economy and fast-growth companies. The other thing we noticed is that city governments, and mayors offices, actually control a lot of commercial real estate, especially in downtowns and central business districts. There aren’t a lot of levers that a city can pull directly related to business growth—but this is one of them.
From a cities perspective, how does the growth of both entrepreneurialism and the new economy intersect with the workspace industry—and where do small cities and suburbs fit in?
The U.S. is expected to grow by a massive hundred million people in the next 30 years And it’s wonderful—it’s what we need. Our expected growth sets us apart among almost every other western democracy, and we should take that asset incredibly seriously.
We do seem to understand the importance of economic growth—but we have to take more seriously how critical basic demographic growth is to our country’s next few decades of success. So, we should pay careful attention to our growing numbers—but we should also look carefully and realistically at where our growth is actually happening. Most urbanist advocates out there point at increasing demand in places like New York, San Francisco, Chicago and Seattle and see meaningful acceleration of repopulation of downtown. And they are partly right. There’s plenty of evidence that there’s increased demand for high-density communities in central business districts. But relatively few of the ‘urban elite’ bothers to look at where most people are actually moving.
There are three main sources of net population growth for a city: foreign immigration, net domestic urban migration when people move from one city to another, and old-fashioned urbanization—people moving from the country to the city or from a small city to bigger city. When you look at the current population flows—and more importantly the longer-term trends, all three sources are pointed at the fast-growth mid-markets and suburbs around major metros.
For example, I’m sitting in Hoboken, New Jersey. The New York City metro is substantial—the whole thing is 20 million people. But that 20 million includes everything from Brewster, New York, down to Trenton, New Jersey, and over to Scranton on the west. The Scranton metro is, over the next 30 years, expected to grow by about 300,000 people. The New York City metro will grow by a million over those 30 years, but the Scranton growth is a 40 percent increase in population and the New York metro is only growing by 8 percent in that period. Plus, all of the important areas of growth that matter for that 8 percent increase are the outlying places around New York City.
Cities like Austin grew by 30 and 40 and 50 percent over the last 15 years. Charlotte has doubled its population three times in the last 50 years. Across the Sun Belt, populations in mid-size cities and their suburbs are booming—and not just in retiree havens. Oklahoma City, Tulsa, Fayetteville and Little Rock are together expected to add more than one million new residents to their ranks in less than 15 years. Across the midwest, the high plains and mountain west, the same trend is bearing out: populations in Provo, Boise, Fort Collins, and my hometown, Des Moines, are growing rapidly, and urbanizing. Or really they are suburbanizing—but in a way that I really think most of the fancy urbanists can and should get behind.
One reason is simple: If you care about people, you care about growth and, therefore, you care about suburbs and the first ring cities around major metros. Take a serious look and you’ll see that’s where the data points us. The other reason urbanites should love this new pattern of growth is technology: Where are technologies like mobile comms, data ubiquity and, say, driverless cars likely to have their greatest impact in improving the lives and livelihoods of actual people?
Getting back to real estate and shared offices, though—If you’re a movement person in this space, I believe you should be thinking a lot about how this product category can be fine-tuned so it matters the most to the largest number of people, the fastest-growing communities and the fastest-hiring companies. What are the specific, and powerful, impacts that shared office can have in smaller metros and growing cities?
There are some interesting things happening with municipally-funded coworking spaces and innovation projects. I’d love to hear your thoughts on coworking in cities as compared to building spaces in the outlying areas.
One thing I’ve thought about a lot is the business model and the value-proposition, which is substantially larger for high-quality spaces in low-density areas. The value is higher because there are fewer alternatives for entrepreneurially-minded people in a low-density city. In New York, or San Francisco, or Seattle, there are natural congregating areas and business events that cause collisions between creatively-minded people. In a smaller market, those institutions don’t naturally exist, so a small market coworking space or business incubator can provide a value that doesn’t exist any other place, so that’s net added value.
You definitely see a reduction in the desk price from major markets to mid-size markets to small markets. In New York, you can spend $1,000 per month on a desk, no problem. Most desks are $500. You go down to Charlotte, or Richmond, Virginia, or Syracuse, New York and you’ll see a 20 to 30 to 50 percent decrease in the desk price, but the cost of the underlying real estate can decrease by 85 or 90 percent, so the spreads can be substantially larger in the second-tier markets. That leaves you with more potential profit and more money to spend, not on rent, but on the staff and the events and the value added for the community. There are big differences in the business models I’m leaving out here, but this is one way to look at it.
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There’s another train of thought here about inventive business models. There’s a lot more capability and openness to inventive business models in second-tier markets. In major cities, buildings are typically mortgaged really heavily or have more complex ownership behind them, so any major business decision that a landlord makes has to be approved by a larger number of (reasonably) risk-averse partners. In second-tier markets, buildings aren’t so heavily papered that landlords can’t be creative. If you’re really interested in community aspects or really inventive business models, or you want a special, community purpose for your space or idea, you’re much more likely to find an amenable, innovation-minded landlord in a small market than you are in a large one.
In addition to amenities, people want to work around people. I’d love to hear more about those collisions that may not happen naturally in low-density areas. At the heart of coworking is getting people out of the mindset of working at home alone and becoming part of a community.
People flourish when they’re connected to others. That value is realized by proximity—just having people around you who are doing work keeps your momentum moving forward. There are lots of antisocial and introverted people who work in coworking spaces and get a lot out of it just by keeping the arrows pointed in the right direction. And there’s real value in the business connections, but the upshot for smaller spaces is that proximity breeds trust and trust breeds productivity. That’s one of the main things people get out of coworking.
In big fancy markets there’s a real sense that the entrepreneurs are a special, unique class of person. Anytime I spend in a small market space, the sense of community is much more mission-driven and service-focused—even for a private company. Success is defined by the impact on people’s lives rather than the size of your next fundraising round. I think this is something our country needs.
I’m excited to see what kinds of people and leaders and ideas and companies and products are going to come out of the mid-market and suburban spaces like Marc Nager’s Telluride Venture Accelerator and the incredible network of small-town coworking and shared office shops that have sprouted up around TVA.
What are some of the other benefits of having coworking spaces in smaller markets?
I’ll give you an answer that makes sense both in smaller communities and large ones, too. One very interesting, almost unspoken thing happens in high-talent, low-density communities like state and research universities. There are a lot of smart people around but not necessarily an ultra-urban space, there are these pockets of incredibly capable but invisible, underleveraged talent. The place you see them most in universities is the spouses and partners of new researchers or professors in a university.
When you’re an academic couple, or a research couple, whoever gets the tenure track offer often wins—by which I mean you make that person’s work the priority—at least for a while. Frequently, a really talented researcher or scholar or writer will go along with their loved one to the University of New Mexico, or Kansas, or Iowa, then that person just sits at home and does nothing.
You also see this with another huge group of people, a lot of times in suburban towns: mothers—highly capable, educated people who took time away from their careers to launch their families. Let’s be real—a brilliant person who has taken time from the corporate workforce to be the CEO of the the household? We need them back. Not just back to the workforce and to a paycheck—but to leadership, entrepreneurship, creativity. I believe at least 7 of the best 10 ideas of the century will come from women founders. And one place to find them is in the suburbs.
At bottom what we need, in this time of dramatic change and massive opportunity, is to find hidden pockets of unrealized value. The suburbs are a place to look to find—most of the time, but not exclusively—highly-educated women who have a unique and valuable perspective on the world and the ability to get shit done. It’s one of the really exciting frontiers to think about.
To nutshell it, what are the key reasons coworking space operators should tap into smaller markets?
Growth is essential for our country’s economic and social success, and growth is happening predominantly in mid-market cities and the suburbs that surround major metros.
If you care about the country, you care about growth. And if you care about growth, you care about the mid-market. And, if you care about those places, you need to build entrepreneurs, and creating space for those entrepreneurs to flourish is one of the most important things we can do.