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An asset light business model reduces a company’s investments in capital-intensive, non-core assets such as real estate, furniture, and hardware.
Having an asset light model can help coworking spaces grow, scale, and easily adapt to changing market needs.
The asset light business model is right for companies who need cash flow and that need to remain flexible and fast in order to succeed.
This article was written by Jennifer Robbins, CORT Regional Workplace Sales Manager
You’ve worked hard, and it shows. Your coworking company is growing in leaps and bounds. This is an impressive feat, considering that the Small Business Association estimates that half of all small businesses fail within the first five years, and only one-third survive 10 years or more.
But how do you keep the momentum going?
While there’s no single answer that can guarantee your company will stand the test of time, there is one key way you can help maintain your growth: going asset light.
But what does this mean, and how can it help your coworking business prosper?
Here we explore what it means to be asset light, and the three key ways it can help your business continue on a growth trajectory.
What Is the Asset Light Model?
First, it’s important to understand what is meant by “asset light”. When it comes to business models, asset light means that an organization reduces its investments in capital-intensive, non-core assets such as real estate, furniture, and hardware. By doing so, the company frees up money for value-added resources. For instance, rather than purchasing vehicles or office furniture, the company invests in assets that appreciate, and are essential to their enterprise.
For example, technology disruptors such as Uber and Airbnb use an asset light approach, investing in customer centric tools that automate and improve the customer experience rather than depreciating physical assets. As a result, the asset light approach allowed both organizations to quickly adapt, scale, and dominate their industries.
How Can Adopting an Asset Light Approach Benefit Your Coworking Business?
There are many hidden costs associated with ownership. Ownership of non-liquid assets often encumbers businesses, reducing their ability to respond to market conditions. Furthermore, most tangible assets depreciate and age, or become obsolete, leading to a cycle of replacing, repairing, and maintaining assets.
For instance, the price of goods does not reflect the cost of ownership. When moving into a new office space, companies must obtain equipment, furniture, and technology. Furthermore, as companies expand and reshape their businesses to respond to market demands, the costs of moving and maintaining furniture, fixtures, and equipment continues to grow. Therefore, the price of goods as defined at the point of sale often does not reflect the true cost of ownership.
In contrast, the asset light model builds on the shared economy. By outsourcing physical assets in particular – such as office furniture – coworking companies, as well as businesses generally experience three key benefits that can help them grow:
1. Optimize Cash Flow
According to a recent study, when companies do go out of business, it is due to cash flow issues. In fact, the study found that 29% of businesses fail due to poorly managing their cash.
Now, cash flow doesn’t simply refer to how much money your company is bringing in and how much is going out. You must consider the timing of the inflow and outflow. So, for instance, if you issue invoices that won’t be paid until after the due date of your business loan payment each month, you could likely run into a cash flow problem.
One of the best ways to ensure your capital and tight funding stretches as far as possible is to efficiently manage your limited resources. That means keeping day-to-day operations running, while also implementing expansion projects as you grow.
Enter the asset light model. By outsourcing non-core services to a specialty company that will optimize efficiencies and reduce costs associated with ownership, you can pay only for what you need for as long as you need it, helping to keep your cash flow positive.
An example might help.
Meet Jason. Jason owns a small coworking company in Atlanta. He started his coworking company by renting a small space in a retail center, but experienced high demand for his services. So, in the first quarter of the year, he decided to open a second location. The problem is, the new office space is unfurnished.
Knowing that his cash flow – while positive – is tight each month, he first considers purchasing 15 new desks from a nearby retailer. However, after some calculations, he realizes that such a purchase would create a strain on his finances.
Instead, he chooses to go with an asset light model, renting his furniture. In Jason’s case, by renting furniture instead of purchasing it, he can choose specific products at a monthly payment that is right for his budget. It’s a cost that he can predict and control over time, allowing him to integrate it into his company’s monthly operating expenses.
2. Investment in Core Competencies
Because your money isn’t tied up in depreciating assets, such as furniture, you have more money to invest in your company’s core competencies. Additionally, by using only what you need when you need it, you avoid the costs associated with ownership such as repairing, replacing, moving, managing, inventorying, and storing. This frees up even more capital that you can invest back into your business and your people.
In Jason’s case, because he didn’t have to part with a large amount of his cash in a hefty upfront furniture purchase, he has more capital available to help him grow his core business. As a result, he has enough money available to improve his website, expand his marketing efforts and hire new employees to manage the new location.
3. Increased Flexibility
By going asset light, you can scale quickly to ramp up or down to adjust to new projects, market conditions, and changes in technology. That flexibility also translates into quicker response times, allowing your company to adapt faster by working with organizations designed to offer assets as a service. In other words, by outsourcing services, you have more flexibility as your company continues to grow and change.
Let’s revisit Jason’s small coworking company. If he were to expand to more locations, because he rented his furniture, he could add new items to his current lease. Or, if he found that clients preferred one type of desk over another, he could exchange some of the items on his lease to meet customer demand.
Additionally, if he had bought his furniture, he might have had to wait several weeks for the furniture to be delivered. But because he leased his new desks, the furniture provider already had the pieces ready in its warehouse and delivered and set up his office within two days of signing the lease.
Choose What’s Right for Your Business
While the asset light model isn’t for everyone at every stage of their business cycle, there are real reasons that going asset light could benefit your company. For instance, an asset light model could benefit your organization if:
- Cash flow is needed to invest in critical enterprise activities.
- The costs of ownership bog down your growth trajectory or implementation of a new business plan.
- Flexibility and speed to engagement are paramount to success.
If your business experiences any of the above needs, an asset light model can keep your company on a growth trajectory, and perhaps even increase your momentum.
