New co-working pricing model?

My partners and I at DueCourse have not only become experts at all things “invoice”, we’ve also become quite good at the vagabond lifestyle. We’re a start up after all, and one of biggest costs is office space.

Since we came together as a group, we’ve rented 2 offices, shared an office with another company, worked out of several co-working spaces, visited quite a few more and, as a last resort, set up in coffee shops.

The office spaces we rented were good, because we had a private space where we could white board and debate. Unfortunately, because we were on a tight budget, they weren’t the nicest places to work (we went a winter without proper heating….saved only by a couple space heaters). There were also times when the office was empty….particularly when we were deep into the building the product and it was more productive to work from home.

We worked out a couple free (sponsored) co-working spaces, but the collaborative work suffered. We visited several spaces that offered hot desking, but with 3 to 4 of us, it was actually more expensive than the office spaces we had rented.

Coffee shops worked as a last resort, but it was always a hack, and personally I never felt comfortable working there. It’s questionable whether the owners want the laptop armies hoarding the best seats….my guess is they begrudgingly tolerate it.

Recently, we’ve been working out of Ziferblat in Manchester. They’ve got a unique approach. They are a large mixed use space (“Work, Study, Relax, Explore, Play, Attend Events, Eat Cake, Have a Brew”) that charge by the minute and offer several seating options with free food/drinks. We were able to negotiate a daily cap on their rate and because we only pay when we are there, the monthly cost is comparable to the offices we had rented.

It dawned on me recently, is this the co-working business model?

When Paul, Jon and I started tossing around start up ideas, co-working came up a few times. We’d noticed that in the Manchester city centre, there was a lot of empty office space (dead inventory). According to Mary Meeker (via Fred Wilson), there is also a growing trend in the number of freelancers. We also realised that there is no dominant player in this market….no Airbnb or Uber.

When we were down in London in the summer, for investor meetings, we stopped by the Google Campus in Shoreditch. It’s a free (sponsored) co-working space that offers food and drinks. At the time, I wondered if charging for food/drinks was a better pricing model for a co-working space then charging for the physical space. Since then, we’ve set up shop at Ziferblat, it’s looking like it might be.

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Sorry Startup, it’s not you, it’s me

I met Paul & Jon via CoFoundersLab in earlier this year. I’d just moved from Toronto to Manchester and was on the hunt for an interesting opportunity. They were on the hunt for a CTO, and had a few ideas that they were trying to narrow down. It seemed like a good fit, so we started to explore the list.

We took a very unique approach to settling on a business that we wanted to build….

We dated the ideas.

It wasn’t easy to do, our biological (financial) clocks were ticking, and it was awkward at the networking events when fellow entrepreneurs paraded the trophy wives (businesses). Our moms (our wives) were losing patience, they wanted grandchildren (money) soon!

We fell in love with our first idea. The “AirBnb for tour guides” was sexy and exhilarating….it would be so much fun dogfooding this business. But as we dug into the competitor research, we saw a series of start ups that tried and failed with this model. Our concerns about the market size were confirmed when we spoke to founders of these failed businesses…turns out that the cost of acquisition was much higher than what we could make. Fun as it sounded, there was just no long term future for us.

Jaded by our last idea, we got serious with the next idea. Invoice financing is 2 trillion Euro business and we decided to explore the ways in which we could modernize the industry. After weeks of research and debate we were put off by the constant pressure from invoice finance’s daddy (government regulation)…apparently we weren’t good enough for invoice finance. There’s plenty of fish in the sea….we moved on.

In all honesty, we went off the rails with the next one. Who needs invoice financing when a (vaguely described) “sport/game” idea sounded like so much fun? Why can’t we have some fun and make money too? Turns out we weren’t alone on this one. The research painted a picture of a business with a small market share, in a market that is highly volatile as competitors come and go frequently. It was fun while it lasted (3 days), but also slightly embarrassing….we hide this fling from our friends (advisors).

The list of ideas was getting shorter and the next one picked us up while we were in the pub on the rebound. Crowded House (a working title) saw a marketplace of property developers, who needed funding, and investors, who needed a return, as an opportunity. We liked this market, and the model, and we researched and refined this one for a while. In the end, the idea fell out of love with us (our customer development confirmed it was a problem that didn’t need solving).

Our last idea, and the one we’ve proposed (committed) to, is DueCourse. We love the problem (warning…pitch ahead):

Late payments cause huge issues for small businesses, most notably in terms of cash flow, and the time and effort spent chasing overdue payments.

…and we think we’ve got a pretty simple, useful, and awesome solution:

DueCourse is an invoicing tool that allows businesses to agree on a timeline of payment terms, and then get paid automatically on the agreed dates by direct debit. No more late payments, no more credit control.

Our competitor analysis, market size research, customer development and business model all checked out….and mom (our wives) like it too.

It took us longer than we expected to find a problem we liked that checked all the boxes (for each of these ideas, we generated a lean business model canvas, did research on the market size and competitors, solicited feedback from our networks of business contacts, tested our assumptions and concerns by interacting with potential customers, spreadsheeted the financials and researched the legal/regulation restrictions)….but we’re hoping that, by playing the field, we’ve picked a healthy long term relationship (business).

Commited to Open Source

Now six months removed from working on Rewire Attire…I thought it might be a good idea to “open source” the code. It’s not really open source in the traditional sense…it’s more like sharing or publishing the code.

The code relies heavily on Backbone.js, the Kohana PHP framework, the Bootstrap front-end framework and mustache logic-less templates. As with any project, there were several hurdles to overcome that required some creative code design. While not perfect, I’m proud of the work. If you’re using one of the above open source frameworks, hopefully the Rewire Attire code can be helpful for your project.

You can find the repositories in my GitHub account. Here are the links:

 

This is not something I’ve ever done….so I’m curious what it will lead to….if anything at all.

Hope it helps….cheers!

My business model needed help

“Help Me”

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“Help You”

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It seems obvious to me now, but it wasn’t apparent when I was putting the together the business plan for Rewire Attire (the start up I shut down a little over a month ago).

I’m a big fan of the exchange marketplace business model (or the two sided market). Basically, the model is…there’s a buyer and seller, and your business sits in between to facilitate the transaction (or the exchange). The business profits by taking a small piece of the transaction.

I see the model in all the great internet companies. The obvious example is eBay (buying and selling of used goods) and a related example Etsy (craft goods). Some of the less obvious ones are Elance (freelance jobs), Airbnb (property rentals) and, a personal favourite, Google with their Adwords, where there are buyers “finding stuff” and sellers “showing stuff”.

The model suits internet companies really well because, once you’ve nailed value proposition for both sides of the exchange, the business benefits from network efforts and scales really well. More sellers attracts more buyers, who attract more sellers. The operational costs of this kind of business don’t grow at the same rate as the revenue, so the profit margins are really attractive.

Which begs the question….what did I get wrong with Rewire Attire? Why did the business model need help?

I’ve come to realize that for an exchange marketplace to work really well, the marketplace needs to “help” the seller and buyer do something they either can’t do at all or would struggle to do easily without the marketplace. It seems almost ridiculous to try to sell used goods anywhere other than eBay (Craigslist being an option usually used in conjunction).

(See what I did there? ….It’s not that my business model needed help….it’s that it needed to help more….which probably says that the business model needed help…..never mind, moving along.)

The problem with Rewire Attire‘s approach to the exchange marketplace was that, because we were targeting high end fashion designers, our sellers saw our marketplace as one of the channels they used to sell their designs. In addition to Rewire Attire, our designers sold their designs on their own sites and through other retailers. They didn’t need our help enough to sustain our business model and shoppers could find their designs outside of the marketplace.

We were “holding on by a very thin thread”:

I dropped over 40 grand when I could have spent $100

“You dropped a 150 grand on a fucking education that you could’ve got a $1.50 in late charges at the public library” – Good Will Hunting (1997)

I love that quote. It not only speaks to the accessibility of knowledge, it also speaks to the importance of being efficient with your learnings.

I just recently shut down Rewire Attire, the exclusive high end apparel marketplace. We hand picked and recruited high end fashion designers to list their designs for sale. We marketed and sold those designs. We arranged shipment and accepted payment. Designers packaged their orders and dropped them off for shipment.

One of our biggest selling features for shoppers was our “perfect fit” technology. The pitch was to get away from inaccurate generic sizing terms like “small”, “medium” and “large” and move to a system based on body measurements. While it’s impractical to use body measurements in a traditional bricks and mortar retail environment, the internet is well suited to log a shoppers body measurements and compare those measurements to a catalogue of fashion designs – “have designs try you on instead”.

Even after shutting down the business, writing about it still gets me excited. I still feel the future of fashion retail (or clothes shopping) involves an improvement on sizing with the help of the internet (and data).

Here’s the problem. I’m not the target audience. The target audience for Rewire Attire, the high end fashion marketplace, was women with enough money to afford high end fashion and that are young enough to be comfortable shopping for clothes on the internet. It turns out that these women are not comfortable sharing their body measurements, overwhelmingly so, despite the benefits.

I found this out by spending $100 on a Google consumer survey:

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…after already investing over a year of my time and over $40,000 developing the business.

Even though I’d listened Eric Reis speak at Stanford (via podcast…thanks Stanford for sharing). And even though I read Steve Blank‘s The Four Steps to the Epiphany. I was still inefficient with my learnings.

Needless to say, I’m now an even bigger proponent of The Lean Startup.

Cheers

T