Building a Sustainable Coworking Business in a Grow-at-all-Costs Era

How being out of step put Industrious in sync with the market

I run a company, Industrious, that for years has had a very complicated reputation. In fact, complicated might be the polite term. We’ve been accused of lacking the sharp elbows to make it in the real estate world, being out of step with what markets want, and missing an ear for self-promotion. But we’re having our moment, and our journey here says a lot about what it’s been like to grow a startup over the last decade. 

For context, Industrious is the largest premium workplace provider in the country, with nearly 100 locations across 47 cities. We have the best economics and highest customer satisfaction scores in our industry, have grown at a rate of more than 100% a year for five straight years, and have a capital-light, low-risk business model that’s quickly become the standard bearer in our industry. But getting here hasn't been a simple proposition.

Until recently for most startups, funders have beat a consistent drum: acquire customers and grow revenue at all costs, discounting all the way if you have to. Pay close attention to what investors want and then go for the products, business lines, and strategies that will get them to pay the richest multiples. Raise world-shaking sums of money and figure the rest out later. 

It’s easy to shake your head at that approach, but it’s actually really hard to say no to that when you keep getting rewarded for it. Like Odysseus sailing past the Sirens, you can’t really skip the meetings and ignore the song altogether. The best you can do is put wax in the team’s ears and tie yourself to the mast, lest you dash your company on the rocks. 

Here’s what we’ve done to thrive in an industry more commonly associated with a high risk, capital hungry, boom-and-bust approach to growth:

1) We’ve been as inward-focused as a company can possibly be without completely losing sight of the world around us. This has created a really noticeable paradox: people constantly point out that we’ve been a step ahead of our competitors, and been a little bit better at seeing what’s around the next corner. But the reality is we’ve been almost willfully naive about what our competitors are up to or what potential investors say they want. Our business strategy begins and ends with what will build a big, defensible business, not what the capital markets or our competitors will think. 

We have an analogy we like to use for why it’s best to focus inward. This is an excerpt from my 2016 shareholder letter, but it’s even more true today: “The US Men’s Swimming Team, led by Michael Phelps, won the gold medal at the 2004 Olympics in the 4x200 relay with an Olympic record time of 7 minutes and 7 seconds. It was an unprecedented feat, and other countries benchmarked against that time. They spent four years practicing against that time, and in 2008 they showed up ready to beat that time. And many of them did. Except it turned out that 7:07, the winning time in 2004, was only good enough for 6th place in 2008. They were playing catch-up to where the US had been previously and once they got there, the US was already miles ahead (their 2008 time was a world record 6:58).”

2) We make a few concentrated bets, but they’re big ones. If you’re too driven by what you think will sound good to investors, it’s easy to make a hundred small bets so you have a lot of green shoots to show when you fundraise (e.g. “we’re going cloud-based, adding subscription, we’ve got 12 new revenue lines, we did 7 M&A deals, we’re going to own digital, we’re going to own the customer data, etc”). It’s hard not to fall into this trap, but there are a few major consequences: 1) your business loses focus, wasting time on 50 initiatives that don’t matter instead of the three that do, 2) your quality plummets. You can’t do that many things well, so you do a mediocre job of everything, and 3) paradoxically, it actually makes you worse at making the biggest bets of all, because you don’t see them coming, or you’ve spread your bets so wide, you don’t have any chips left to go all in.

Every year, Industrious focuses on three things: product quality, unit performance, and then one X factor. But when we go in on that X factor, we really go in on it. When we shifted from leases to partnership agreements, we didn’t say “let’s do a little of both,” we starved our growth pipeline and pushed completely to partnership agreements, even if it meant slowing unit growth or a major revenue hit. When we said it was important to have a true national network, we didn’t launch in three cities, we figured out how to successfully operate in 47 cities. This strategy of a limited number of big, company-defining commitments has served us well, and I’m excited to announce soon what our big, concentrated bet is this year. 

3) We’ve focused on sustainable, profitable growth. In certain ways, this is the toughest tradeoff of all. There are a lot of investors who will pay for massive revenue growth as long as there’s a somewhat credible story about eventual profitability. In fact, those very investors are usually the ones that pay top dollar for your business, so it’s hard to ignore them. But if you solve for revenue growth at the expense of everything else, it makes you do crazy things. In our industry, there’s a provider that went all in on London despite knowing they lose money there, simply because it has the highest revenue per desk so would juice their revenue numbers the quickest. Another provider found themselves signing particularly risky landlord contracts that produced a ton of revenue in years 1 and 2, then flipped and hemorrhaged money in years 3-12. WeWork famously priced at a loss in many markets for years in order to drive up revenue. Solving for revenue growth alone is like getting in a drag racer that’s been stripped of everything to maximize speed. No airbags, no seatbelts, no steering wheel. You’ll get where you’re going faster than anyone else, but you might not like where you end up, and you certainly can’t guarantee your safety along the way. 

I don’t mean to make Industrious sound like a conservative, boring scold. Our 5-year revenue growth has averaged around 120% per year, but this is a fast growing industry. We could have grown at double that rate, but we preferenced profitable, stable units, grew corporate spend at a much slower rate than we were growing revenue, and as a result are now at the eve of corporate-level profitability.

A final thought: knowing who we are and what we’re not has also meant that when I look around the room at our investors and partners, it's clear we've been able to bring in the ones who really understand us and are along for the ride. It’s like dating: you can’t find a partner that truly knows you and loves you until you truly know and love yourself, or else you’ll end up twisting yourself into knots trying to be what you think the person next to you at the bar wants you to be. I got married last week (!) but previously did the whole New York dating thing, and can personally attest that being what you think someone else wants you to be never ends well. If you focus first and foremost as a business on what you believe is going to build a great, healthy, defensible business with loyal customers that love you, you’ll end up with the best, most loyal investors and partners as well.