I spoke to a customer of mine who is in the interior design business specialising in commercial and office interior design (those that involved space planning and office renovation over 1 or 2 floors of office space) and he remarked at seeing an increasing trend of serviced office providers.
Now as many of us know, one of the best businesses to be in is the “rental” or “leasing” business.
The idea is simple, raise enough capital to cater to your customers and collect passive and recurring income.
For the serviced office business, the idea is to lease a big unit (or sometimes an entire floor of office space depending on how deep your pockets are) and sublet the smaller units to smaller startups or small established outfits.
If you have been running a small business say in the service industry (for e.g. accounting software, marketing agency etc), you know how difficult it is to sustain this type of business, essentially you have to:
1. Work out a marketing plan that generate sale leads for you consistently
2. Meet up with prospects and sell them your services. If you win a job, good. If you don’t, your marketing expense, time to pitch to your customers all go down the drain.
3. Project manage the jobs till the end
4. Manage customers expectations and bill them
5. Manage your cashflow (bad customers who do not pay on time are aplenty in the market)
6. Last but not least, juggle all of the above SIMULTANEOUSLY!
Have you any idea how difficult the above is? And the bottomline? Literally your financial bottomline – is to TURN A PROFIT.
The profit compensates you for the risks you take, the additional stress and resource management.
Now, let’s consider a serviced office business model
The biggest risk for you is to cough up enough money to:
1. Lease a big unit or a whole floor of space for you to sublet.
2. Invest in the partitions and meeting rooms and furniture
3. Market your location
4. Hire good staff (receptionist and office managers to run the entire place)
5. Get tenants in
6. Sit back, monitor your business (keep it at high occupancy rate just like a hotel)
7. Collect rental passively.
Of course I do not want to overly simply things as there are 2 sides to a coin, your risks include:
1. Lack of tenants which will cause you to bleed
2. Towards the end of your lease tenure with your landlord, you landlord might not renew your lease and there goes your rented premises (assuming you do not own the place)
Now what I think is the real upside to the serviced office business is that it is fairly immune to the ups and downs of the market.
When the market is up, you have no worries of getting customers as people are starting up small businesses
When the marketing is down, people leave their jobs to start new businesses or small companies downsize and use serviced office space.
From the perspective of managing risks, the serviced office business model is good in my opinion.