How to decide when to exit coworking space

Thomas Crane hunkers down in the coworking space at zWorks to run his business, Crane Studios. (IBJ photo/Eric Learned)

Starting a company at zWorks—a Zionsville-based entrepreneurial and coworking center that helps freelancers and startups get on their feet—seemed like a good idea to the masterminds behind Aerify.io, which offers businesses cloud and other IT services.

The trickier question was deciding when to leave.

For fledgling businesses, zWorks certainly seems like a comfortable place to nest. A not-for-profit founded in 2015 in the midst of Zionsville’s downtown village, it offers shared workspace, educational programming and other resources. Its mission is the same as that of the dozens of similar centers scattered across Indiana, and the thousands across the country: Nurture new businesses until they can stand on their own and make greater contributions to the local economy.

“For folks who want to try out a concept or who have an idea, and they don’t necessarily have the funds to put down a two- or three-year lease on a space, [an incubator is] great,” said Aerify.io CEO Aaron Toops, who cofounded the company in October 2017 with President Rob Michels. “It’s a great place to start, because most locations don’t have long-term contracts. It’s probably one of the only reasons we were able to do this, because Rob and I always joke that we started this company with change we found in the sofa.”

Aerify.io founders Aaron Toops, left, and Rob Michels used zWorks to help launch their business but recently moved into their own office down the street. (IBJ photo/Eric Learned)

Aerify.io was able to set up shop at zWorks for a no-lease monthly payment that amounted to about $750 per year.

But all good things must come to an end. Toops’ and Michels’ cloud-service offerings were in hot demand during the pandemic, and the company grew rapidly—so rapidly that the partners needed to set up shop someplace else.

“We decided that we were in a position that we needed a headquarters or a space that we could call our own in order for our company to grow,” Toops said. “We’re looking to add another employee by the end of the year, and we wanted to have our own space to do that.”

Not that they went far. The new headquarters of Aerify.io is just down the street and around the corner from zWorks.

“It was a natural move for us, because we were already familiar with the community,” Michels said. “We can still continue to help nurture and foster growth with our colleagues down the street.”

Though the concept of business incubators or shared workspaces first seemed to gain traction back in the 1990s, it in fact goes back almost seven decades. The very first incubator, the Batavia Industrial Center, opened in an abandoned, 850,000-square-foot industrial facility in 1956 in Batavia, New York. Since then, the number of U.S. facilities has climbed to around 9,000, according to the International Business Innovation Association.

The services offered by incubators, accelerators and shared business spaces vary widely, forming, according to the innovation association, a spectrum of groups that provide assistance of various types to startups.

A shared business space typically peddles exactly what its name implies—a business address with low rent, and access to conference rooms and office space.

A maker space, on the other hand, offers access to expensive equipment and machinery that a startup either doesn’t need yet or lacks the funds to purchase outright.

A business accelerator or incubator offers what amounts to a training course in entrepreneurship, furnishing not just office space and access to gear, but also advice from professionals and even help with fundraising.

In Indiana, those resources range from the Purdue Research Park of West Lafayette (Indiana’s largest business incubator) to more modest, local affairs such as Speakeasy and Refinery 46.

“There is a wide variety of assistance available to startups throughout the state—from technology incubators to innovation hubs to SBDCs and other university, municipal and state organizations,” said John Hanak, managing director of Purdue Ventures (a university-affiliated venture capital fund for startups). “There are also venture studios and accelerators that provide excellent guidance, assistance and even funding for startups that meet their criteria.”

When to go?

As for when the time is right for a budding business to exit the incubator, the answers are equally multifaceted.

“Some incubators operate with ‘graduation’ policies that specify when a startup is to leave the incubator environment,” Hanak said. “In our case, we take a more cradle-to-grave approach and seek to work with them to find the appropriate facilities, location and programming required by the state to which they have evolved.”

On a more practical level, he said, startups in anything from incubators to shared workspaces generally fly the coop when the facility can’t physically accommodate their growing space requirements or employee headcount, or their host entity can no longer supply value through its services.

“There is no one-size-fits-all,” Hanak said.

Will O’Brien, president and co-founder of Ultimate Technologies Group, said his firm found what it needed at Launch Fishers. Created in 2012, Launch Fishers started out in the basement of the local library. Today, the shared business space occupies 52,000 square feet in a nondescript Fishers office building. It offers 16 office suites, 13 meeting and conference rooms, and even a coffee shop.

O’Brien’s company designs, installs and services corporate audiovisual systems. It was founded four years ago. “We owe a lot of our success to Launch Fishers,” he said.

They also owe a great deal to exquisite timing. The company was developing nicely before the pandemic, but business exploded when COVID hit, everyone went into lockdown, and telecommuting sent demand for Ultimate Technologies Group’s wares into overdrive. The company’s list of clients now includes OneAmerica, Toyota and Cummins. All told, the company is currently revamping thousands of conference rooms worldwide.

After only nine months at Launch Fishers, Ultimate Technologies Group decided to move to new digs.

“We didn’t plan on staying there forever,” O’Brien said. “We were going to open a customer showroom, so they could come in and touch the products we sell. We maybe got out of there a bit prematurely to extract all the value from the experience, but it was right on track with our business plan.”

After briefly headquartering in Carmel, the company has recently moved back to Fishers.

“We’re down the street from Launch Fishers,” O’Brien said.

When to stay?

But not every company that meets its growth targets flees its incubator. For instance, Intelligent Living Solutions, which designs and installs smart-home devices throughout Marion and surrounding counties, doesn’t plan to leave zWorks anytime soon. To do so would be tantamount to violating the company’s business model.

“We’re kind of different for the service industry, because most have some kind of home base,” said Intelligent Living Solutions co-owner Dan Killinger. “All the vehicles are parked there, all the employees report there. But our model is different for a service-based company.”

Vickie Hall, left, executive director of zWorks, talks with Heather Duchscher, administrative director of Intelligent Living Solutions, a business that operates out of zWorks. (IBJ photo/Eric Learned)

Like a hundred other outfits, Killinger’s employees do everything from installing security systems to mounting TVs. But from the beginning, there’s been a concerted effort to avoid many of the capital expenses associated with this business niche. For instance, there’s no central warehouse space where to-be-installed gear is stored. Instead, employees typically pick it up directly from local suppliers—though Killinger is considering renting a secure, unstaffed area where equipment can be dropped off by vendors and picked up by his crews.

The installers themselves will never be found loitering in the company breakroom, either. For one thing, there’s no breakroom. For another, installers work from home, regularly receiving electronically dispatched instructions on where to pick up gear to be installed, along with where to take it. And there’s no place to park company trucks, because employees take their vehicles home.

Which means that, even though the company has grown to a full-time staff of eight, with more on the way, its humble digs at zWorks are still more than adequate for its needs, which typically consist of occasional group meetings.

“Another aspect of our decision to stay in a coworking space was the amount of wasted labor traveling from our office to job sites,” Killinger said. “By [cutting out commuting], basically all of our hours are billable, and we don’t have a lot of overhead.”

Sometimes, there is not a single employee at zWorks. Which is just fine with the boss.

“Pre-COVID, I think a lot of people aspired to a grand office they could bring their prospective clients to,” Killinger said. “But I don’t see every business going back to that model. For the foreseeable future, I see us sticking with this model. I don’t want to let a good thing go without a specific reason.”

Varied industries

Though places like zWorks and Launch Fishers focus on less-hardware-intensive businesses such as software and services, that’s not the case with all shared spaces and incubators. According to Charles Ross, president and CEO of the International Business Innovation Association, there are coworking facilities across the United States that specialize in everything from restaurant development to manufacturing.

Indiana also offers these options at places such as the Fort Wayne Enterprise Center and the Flagship Enterprise Center in Anderson. And Indianapolis hosts a gaggle of shared-space kitchens and incubators, including Indy’s Kitchen, which offers two complete kitchens, secure food storage areas and table seating space for special events.

According to Ross, some of the top fields pursued by incubators are software, life sciences, biotech, professional services, clean tech and medical devices. The time a company spends under the wing of an incubator varies with the industry and the startup.

“Typically, programs will have a criteria for graduation,” he said. “Often, that’s determined by the resources that have been acquired by the company. Perhaps reaching some level of investment, say $5 million, qualifies you for graduation.”

Other factors can include the revenue level the startup has achieved, how much of the early risk associated with any new company has been retired, and how much progress it has made toward its goals.

But even when a company graduates, it doesn’t always drift far (either physically or metaphorically) from the group that helped make it. Indeed, incubators and other groups often draw their “graduates” back into the fold as advisers for current clients. That process can be a two-way street, as business owners also like to hash out new ideas with incubator denizens.

Aerify.io, for instance, still keeps its zWorks membership in good standing.

“If we need to, we’re going to walk down the street, sit there and bounce ideas off other people,” Michels said. “So we haven’t technically left. We’ve just grown.”•

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