- In some markets, independent operators are switching to a franchise model to compete with larger operators
- Mark Hemmeter, founder of flexible workspace franchise company Office Evolution, discusses exit strategies for small operators
- He also explains why virtual offices are a highly valuable service for operators with limited on-site workspace
Earlier this month, Phoenix-based My Office announced that it would be converting its four Arizona flexible workspace locations into Office Evolution franchises. In an increasingly competitive market, My Office founders acknowledge that their size wouldn’t allow them to compete against larger players.
This challenge isn’t unique to My Office. As Allwork.Space recently argued in a post, “with CRE crossing into the industry and integrating flexible workspace into corporate portfolios, the coworking playing field and its rules have changed. From the landlord’s perspective, operators with multiple locations and networked buying power provide a powerful selling point; small operators may struggle to compete on this level.”
So, faced with this predicament, what can operators do?
Mark Hemmeter, CEO of Office Evolution, believes small independent operators would benefit from joining a regional brand, citing Office Evolution as an example.
“We basically grow three different ways: through franchising, through acquisitions, and through conversions.” The latter is when an existing flexible workspace operator stays in place and just rebrands to Office Evolution.
“Conversions are a big part of what we will be doing in the future. There are a lot of independent operators having a hard time competing against the bigger systems being built; they are looking (or should be looking) for some sort of exit. One possible exit is to convert instead of to sell — this is a particularly attractive exit to operators that love the business and want to stay involved.”
The industry has reached a tipping point; not just because new stakeholders have come into play, but also because a significant amount of flexible workspace operators will have to renew their leases in the near future.
“We’ve noticed that most operators look for exit strategies when it’s time for them to renew their leases. A lot of them signed 7 to 10 year leases back in 2009-2012 when prices were much cheaper because of the recession. If they renew, their lease price could go up significantly, 40% or more in some cases.”
Still, small independent operators will always be around — just like there are big chain restaurants and small local ones.
“Though the small operator group is going to shrink over time, I think there will always be really good independent operators. There are some that are fantastic at what they do.”
It’s about finding the right niche and offering the right services.
“Virtual offices are a priority for us”
“Office Evolution focuses on small suburban locations. Because our locations are small in nature, virtual offices are a priority for us. It’s the service that allows us to grow and generate more revenue; it’s also one of our biggest selling points among new franchisees.”
Hemmeter sees the virtual office business as the take-out equivalent of the restaurant business.
“There are some high-end, big restaurants that are very successful. Then there are restaurants that are big on the take-out business because they don’t have enough tables. If they don’t have enough tables, they can’t grow. Think of restaurant tables as workspace desks. If you can’t accommodate more people, you won’t grow.”
This is where take-out (virtual offices) come into play.
“Virtual offices allow us, and our franchisees, to survive. A lot of our members work from home and they just come to the space when they have meetings. Offering virtual offices allows us to cater to more people.”
Office Evolution is currently operating 60 locations and plans to open an additional 23 this year.