The Flexible Office Economy Ep 8 w/ Amit Ramani, Founder/CEO of Awfis Space Solutions

This episode: The "endless" Indian office market opportunity that was hiding in plain sight, and how a bold, high growth and profitable coworking company is planning to dominate.

"What we saw was that if we launched a product at about $150 price point per month per seat, the market was endless."

Listen to the full interview here:

Read the full transcript here:

Mark Gilbreath: This is The Flexible Office Economy and I'm Mark Gilbreath. This week we're exploring the rapidly growing Flexible Office Economy in Asia and in particular India. My guest today is, Amit Ramani, the founder and CEO of Awfis Space Solutions, one of the fastest growing coworking operators in Asia. Welcome Amit. And thank you for joining us today on The Flexible Office Economy.

Amit Ramani: Thank you Mark for the opportunity. Glad to be here.

Mark Gilbreath: I have to confess I'm envious of your career arc, which is anchored in architecture. You started your professional life with HOK and then you were the founder of Nelson India. Take us back 15 or 20 years. What, what led you to architecture as a young professional?

Amit Ramani: Sure. Coincidentally in India, Mark, the choices were limited. You can either go to a government institution that's very low cost or a private university, which is very expensive. And I got into a government college, which was the school of planning and architecture and it was kind of by accident. That was one of the only places that I got admission. And I come from a family of engineers, so it was somewhat by accident that I got into architecture. But once we got into it, I understood that this was a great area to be in because essentially you are problem solving. Through my Bachelors in India and then my Masters in architecture at Kansas state and then Masters in science at Cornell University, I develped a very broad perspective on architecture and real estate. I started my career with HOK, then went on to work for Nelson in the US and Nelson at that point was a small mom and pop shop, which we grew together with the CEO Ozzie Nelson to about 600 people. We became one of the top five firms, then decided to come back to India and establish the Nelson brand in India in 2008. We brought over the Nelson Business in 2010. Then in 2014, this idea started coming on this whole coworking business. So I was traveling to the US and saw what the coworking business looked like in 2014 in the US and thought it could be an incredible idea, wrote a paper business plan on the way back, went to my then partner who was my partner in the Nelson business in India and pitched the idea and on a paper business plan raised about $3 million in 2015.

Mark Gilbreath: So take us back to 2014. You've been at Nelson, you were the founder of Nelson India as you said, you were a part of leading that organization from a small mom and shop to one of the most formidable firms on a global basis. Was there a fundamental itch that you felt you needed to scratch in terms of leaping into the uncertain waters of being an entrepreneur? Was it a general desire to just go do something entrepreneurial or were you specifically drawn to what saw happening with coworking in North America?

Amit Ramani: Oh, so even as a professional, you know, you know, always the desire was to run the professional side of the business as an entrepreneur. So always was excited about picking on, you know, projects in our two to three year kind of window work really hard at it, and then to go onto the next big opportunity. So in 2010, it was a good time. We felt in India the opportunity was just starting as it relates to the design consulting business. In India, we set up more like a general contractor business. I saw the opportunity and the growth in India at that stage and that kind of drove me to the entrepreneurial zeal at that stage. And after that we established another business called Petra, which was in the facility management business. So this was my kind of third venture, which was office. And interestingly, the reason why we felt that the time was right in India for something like coworking was because the Indian economy had grown and it was one of the fastest growing economies at that stage. But when it came to finding the ability to get quality workspace at an affordable price, there was nothing available. People were either going into grade A plus buildings where these small medium enterprises could not afford it and the startups and the freelancers couldn't afford it. As a result, they went to substandard infrastructure. So we felt that there was a great opportunity at that stage.

Mark Gilbreath: I have to ask, in doing some background research for this conversation today, I was actually startled by both the incredible growth rate of Flexible Office and coworking, in particular the last couple of years. And we'll talk more about that in a minute. But I was also surprised at how underdeveloped India was comparatively, in terms of even serviced office five years ago, fewer than a hundred centers in India. Going back to the 2010 to 2014 timeframe, what were the structural impediments in the Indian market that had kept players like Regus and Servcorp, from having further developed? Was there just not the demand or where there other factors that that led to it being sort of a diamond in the rough that hadn't yet exploded?

Amit Ramani: What was happening between 2010 and 2014 was that these serviced office players, because coworking as a term globally didn't exist in India before 2014 nobody had heard of coworking, they were focusing on large clients, which were then mandated clients or global clients that were coming to India for a short term need. And they were positioning the product at about $400 to $500 a seat. Now at that stage, the market was very, very small. And as a result, some of the large players, global players that you mentioned, had been there for almost, you know, 12 to 13 years by 2014 but they had all less than 10,000 seats. And the reason was that the price point was extremely expensive and they were only focused on global multinationals. To give some credit to us, I mean, you know, we, when we have ventured into the 2014 market to go into coworking, there were two players. There were serviced offices with expensive seats for short term use, and then there was substandard infrastructure at very low cost, purely focused on startups and freelancers. What we saw was that if we launched a product at about $150 price point per month per seat, the market was endless. So we, when we launched the product with our efficiencies and our ability to get the supply, the right locations, our ability in terms of design, our ability in terms of getting the right product and market fit, we hit the nail there. And because the price was right, the market completely exploded. So if I was to look at a sub $150 seat today, the market is endless. There are 50 million white collar workers in that ecosystem. If I was to look at a $400 market, today is less than 2 million people.

Mark Gilbreath: I want to probe into that further, but I'm also quite intrigued before we do that, to probe a little bit more on that research that you did in 2014 you mentioned you came to the states. Coworking wasn't yet a term in the Indian market though it was really starting to find its legs in North America. Tell us about those travels in 2014. where did you draw and from whom did you draw inspiration back in 2014?

Amit Ramani: So I think where I drew the inspiration actually Mark you know was my background when I was working with HOK and Nelson, I used to consult on what was called alternate work environments at that stage. This was a concept of telecommuting, hoteling, hot-desking and so on. And I coincidentally was responsible for running some of the largest programs with some of the largest North American companies, like the My Work program at Bank of America. The Blue Work Program I was involved in with American Express. So I visited some of the large players and obviously there were players like Regus and such. There were small boutique players like Neuhouse. And then there was WeWork which was getting established well in the New York City market. And then there was some smaller players in Chicago, like 1887, which was a project by the Chicago government and a few North American companies. So we looked at a lot of this stuff, and what I drew out of it was that the product that was working in the developed markets clearly would not work in the emerging markets. So I drew the inspiration the other way around. I said, well, there is an opportunity because people are looking for flexibility, right? Clearly. They are looking for accessibility because the micro market analysis that we did shows us that the small medium enterprises take a decision on where to locate depending on where the founding team or the management team resides. And then we understood that in India everybody wanted to move away from from a capital driven model to operation driven model. Because clearly in 2003 to 2008, it was about being the real estate guy who was a Rockstar, right? He drove the new headquarters. He wanted to establish himself as the guy who has built this fancy headquarters. By the 2009 downturn, everybody understood that this was not a core part of the business. So they wanted to convert the capital into opex and all of these forces were coming together. And because I had a very deep understanding of design and build in the Indian context, especially with the corporates, I was able to draw these conclusions that if we did offer flexibility, so you could have a seat from one hour to three years, your choice. If you offered accessibility, which meant that every micro-market was mapped in the seven metro cities in India and you offered transparency. So on an app I can find what the price of a seat is. I don't have to go to the hassle of dealing with a developer, then a contractor, then a maintenance agency. If I offered these three things, there will be an endless market. And that's exactly the hypotheses which is now playing out for us.

Mark Gilbreath: Having found what in North America we would call "product market fit", and it seems evident that you have, I mean, your growth rate is extraordinary. you founded Awfis a little over four years ago and now you've got 63 locations if I'm not mistaken.

Amit Ramani: Correct.

Mark Gilbreath: So, clearly you found that intersection of product market fit. I also see that the market that you're playing in is absolutely exploding. Reports from both JLL and Colliers have both referenced over 300 new space operators have set up shop in the last two years alone. So I'm curious, given that you've identified that the market is endless, if you can deliver at that sort of value and price that you've demonstrated, what are your impediments for growth today?

Amit Ramani: So Mark, we are a very first principles driven business. So today as a business, I would tell you we are making money at a company level. We are profitable at a company level. We have de-risked ourselves by going and partnering with the landlords where we are in a profit share or a management operator model where the capital is being provided by the landlord. So we have de-risked a large part of our business and third for us was clearly about making sure that our customers were the happiest customers. And I'm glad to report on three, four metrics here, which I think are very, very powerful in the larger ecosystem, we have the lowest per square foot cost in the world, in terms of our operational costs. We have the best net promoter score, NPS score, which is basically how many people would recommend us if they were to be asked. Right. We have 80%, which is almost equivalent to some of the largest luxury hotel chains in the world. So the customers are extremely happy with us and our contribution margin today is the highest in the world.

Amit Ramani: And this obviously has been research, we got recently by a large PE investor, Prius Capital put in $30 million. And these are all metrics that came out of Bain reports and Praxis reports, which are two consulting firms in India. So we have bought now very good efficiency factor on how to build a first principles business.

Mark Gilbreath: So, Amit my goodness, you're a fast growing startup company and you're profitable! That's, that's inappropriate. We're accustomes to high growth startups, not needing to be profitable. Why have you chosen this path, why this crazy thinking of yours!?

Amit Ramani: Yeah. So to give you a perspective, last year we ended the year FY18, at revenues of approximately $7 million. This year we ended at about $22 million. And we are on a clip to do about $40 to 45 million next year. So we are doubling or tripling our size while being profitable. And that was done on purpose because we wanted to ensure that our burn went out of the system and our centers itself would throw up enough cash that for us to grow 2x to 3x, we would not have to go and raise additional capital. So today we are well structured with this capital to become a $250 million business in the next three or four years and without raising any capital. So I am 45, right? So I'm at a stage in my life that I have to build the businesses that are built on core principles and we took that path and I'm glad to report that we did it. And I think today we will grow very fast. We are at about 30,000 seats, 60 locations, nine cities. We will by end of this year, be closer to 45,000 seats, approximately a hundred centers and 15 cities. So we will continue to grow, but based on a very first principles kind of approach.

Mark Gilbreath: Let's talk about competitive moat. I don't know if you've heard that term before, but you know, your defensive posture versus competition. You just shared with our audience that you enjoy perhaps the leading contribution margin performance, best OpEx to revenue ratios. ut also the best customer satisfaction we're leading. That's sort of a rare combo and it's, um, and perhaps an atypical one for an earlier stage company. There's so much capital flooding the coworking and flexible office market and there seems to be amongst many operators, a race to reach scale, and a willingness amongst investors, Softbank for example, to put sufficient capital behind certain operators to blitz scale to a certain size. You're taking what I might frame as a more measured and conventional approach, which is be profitable, have good underlying operational capabilities and delight your customers. Do you worry at all that this rush to scale might race past you. Do you worry about not growing fast enough or maybe said another way, how important is scale do you think, to continuing to maintain your position in the market?

Amit Ramani: So Mark, we clearly want to be the dominant player in India, right? We have no desires to grow globally because I think what I'm solving in India is a very intense India centric problem, ability to find quality real estate workspace at an affordable price. And that's the model that we have cracked. The market is large enough, it's a billion square feet of real estate and we believe that this year we have scratched the surface, as it comes to coworking. There's about 15 million square feet out of that billion that is under coworking, right? Every market that you look at today, be it New York, Hong Kong, via London are the percentages are much, much higher. So I think there is a large opportunity to be built and by being the largest or being among the largest in India, we want to continue to make that market dominant position. Second, for us, it's important that the multiple players can coexist because there's a market segmentation of price point. So before we entered, there were serviced office players, even today, there are serviced office players at different price points, they're different players. We are kind of the Toyota Corolla of the coworking market - always delivers quality. And you can rely on us that we will deliver the best for the price that you pay. So value is built into our core system and we feel that if we can continue the business based on the principles that we built it in, and if we can go 2x, 3x our size with the kind of pace and being profitable, I think we are building a success story which probably has some merit around it. I firmly believe that if you are blitz scaling and sometimes you're blitz scaling on a platform that is not fully established, you will end up burning capital and never be able to go back and build a business.

Amit Ramani: So we built a business today. Now our scaling is dependent on capital and we feel that at this stage we can get to $250-300 million in the 3-4 years. And that's our goal right now. Yes, clearly I can raise more capital, dilute further and go to half a billion in that three to four years, but I will make more mistakes. For us it's very important to select the right supply, get the right price points, get the right locations, and have customers that are happy customers. If I establish a business where I'm in multiple locations and are not delivering on customers, then ultimately I will fail as a business. So we have a very customer centric approach to everything.

Mark Gilbreath: Let's talk more about the customer. In your prior life at, at Nelson and HOK, you were deeply engaged with the enterprise or corporate landscape. In fact, as you’ve shared, you were deeply involved with, Bank of America and American Express, two firms here in North America that were quite exploratory in terms of workplace best practice. But nonetheless, those are big enterprises. There's such a thing to the enterprise workplace as differentiated from the startup or entrepreneurial workplace. I'll look at the brand identity of Awfis and some of what you've shared today. You seem to be serving that entrepreneurial client. How much of your business is aimed at acquiring that corporate occupier? Or is your sweet spot the high growth or smaller startup company?

Amit Ramani: Clearly when we were starting the business in 2015, early days, everybody talked about coworking being for startups and freelancers and we wrote the playbook saying that this was not for startups and freelancers. So clearly we understood the biggest market for us in India, specifically was small medium enterprises. These are companies which have been in business for five years, typically make money and typically have about 500 to 600 employees. So that's how we defined SMEs. We also felt that because the corporate environment was changing very fast, people wanted to go away from capital investments to operational investments or operational expenses. They also were good at managing their headquarters locations. So 5,000 people in one location, but they were very poor and managing the sales in the branch locations of 50 to a hundred people. So from day one, our product positioning was towards SMEs and corporates. Today, 80% of our business, 45% of SMEs and about 35% of corporates is the mix for us. About only 20% comes from freelancers and startups. And we feel that that is going to be continuing the trend and we will continue to maintain about 80% as the SMEs/corporates and about 20% as startups and freelancers.

Mark Gilbreath: SMB versus corporate, do you see them both just naturally growing at similar rates or are you trying to index and, and maintain a certain balance from a strategy standpoint in your business? Because there's so much talk about the, the growing corporate demand right now. If you could paint a picture of the ideal outcome for two years from now or three years from now, when you've grown to 400 million in sales off of your current base, would you like to see the same ratio that you enjoy today maintained or do you envision or are you seeking a higher or lower growth with corporate versus SMB?

Amit Ramani: From our standpoint, Mark, I think the SMEs are going to be the core of our business because that is the fastest growing segment in India. To give you a perspective, in the last 10 years, that number has doubled. And out of the 50 million white collar workers, which we see as our opportunity, anybody who goes into a workspace is an opportunity, almost about 32 million are in the SME ecosystem. So that will continue to remain our largest base. And that is also with urbanization, where people are moving from tier three, tier two towns into metro cities in India will be the fastest growing sector. So we feel that 50% of our business will come from SMEs going forward, about 30 to 35% will come from corporates because corporates have understood that this is a great solution for flexibility. Even a three year lease is flexible because typically a lease is six to nine years. They've also understood that somebody else is putting in the capital and they're taking it off the balance sheet. So clearly there are advantages to it and it's one stop solution. You don't have to manage six different agencies to deliver a solution. And especially for non headquarters location, this is a fantastic thing for the corporate. So the uptick has been extremely good for us.

Mark Gilbreath: Let's talk about customer acquisition, channels and sales and marketing strategies that you're deploying. You and I know each other of course through our two businesses. LiquidSpace as a platform to help operators such as yourself, discover clients. And I am happy to declare that that's starting to work between the two of us.

Amit Ramani: It has, thank you.

Mark Gilbreath: Within India, how is the market discovering Awfis? How are you generating awareness? How are you acquiring customers and is that evolving? The world is quite different four years on from where you started. What are the channels that are working and, and I'm in particularly curious about the role, if any, of the traditional brokerage community with regards to your business.

Amit Ramani: Sure. Interestingly enough Mark, 80% of our business is self generated, in terms of leads. So this is a combination of three digital platforms. About 50 to 60% of our leads come from the digital channels which includes partners such as yourself. The second channel is we have our internal sales and business development team of about 40 people, which acts like a mini brokerage house in house, where we mind the clients, both enterprise and small medium enterprises and corporates as well. Third is we engage in a lot of VP level activity, which we engage in events such as Corenet, IFMA etc. So that is 80% of the leads. But it translates into about 50% of our revenue. The other 20% comes from our broker channels, partners such as JLL, CBRE, Cushman Wakefields makers of the world, but that translates to 50% of the revenue. So the larger corporates, the larger enterprise customers, some of the larger SME customers, that channel is still the traditional standard of our brokerage partners.

Mark Gilbreath: With many of those local service providers, you know, JLL, CBRE, Cushman, Colliers, others beginning to develop solutioning of their own, CBRE, for example, with their Hana offering. Do you see a day when, when that community becomes in any way one of the competitive elements in the landscape? How do you look at the role five years from now of those traditional brokers firms?

Amit Ramani: So Mark, I firmly believe that the coworking service providers have a very different mindset than my brokerage partners. For them, this is one part of the five other things that they do. As a coworking provider, this is what we do. I mean, this is what we live, breathe and do and our ability to continue to innovate, our ability to delight our customers, our ability to solve the design solutions that work and innovate around that I think is going to be far greater than some of our partners. I think all of them are exploring it right now. I think my sense is that at some point they would realize that they are... this is not best suited for them, is my sense. But again, I mean, as we always say, at least from my competitive perspective, the more competition there is, the more awareness gets created, the more business opportunities get created. So we welcome competition all the time.

Mark Gilbreath: Here in North America, and not just in North America, one of the competitive awakenings that we're seeing happen quite rapidly is the engagement of landlords themselves, institutional building owners, in the Flexible Office Economy. And it seems that there are some seeds of that as well in India for example RMZ (an institutional buildig owner) I believe, the backer behind Coworks. Here in North America, Equity Office, Brookfield, Tishman Speyer, multiple owners have decided to stand up their own brands or offer some, some type of flexible office offering, whether it's outright coworking or furnished flexible spec suites. Are you seeing that phenomena take root in the Indian market and if so, to what extent do you expect that to become a meaningful part of the supply base?

Amit Ramani: So, Mark, our strategy from day one, out of the 30,000 seats, 21,000 seats are in partnership with the landlords. Which are the two models I mentioned of profit share and a management operator kind of a model. And we believe that our growth is gonna be in partnership with our landlords. So clearly we have gone to a model which is very different. Rather than us saying that the landlord is my competition, I'm saying the landlord is my partner. And that's the reason that we have been able to expand extremely aggressively. Even in India, some of the larger landlords have started their own coworking business, which is fair and which is good. But in our strategy, at least what we were solving for was the landlords that don't have the capability to start their own coworking business. Almost 65% of the landlords in India are non-professional, kind of landlords. They are investor landlords. And that's where we have partnered and done a very successful job of it.

Mark Gilbreath: When you look at those landlords that have decided to undertake something themselves or maybe are considering it, from your vantage point as a deeply experienced operator, what do you think that most landlords are underestimating in terms of what it takes succeed? If you were an advisor to them? How would you talk them out of doing it without a partner like you?

Amit Ramani: I have a lot of respect for our landlord community. They have been great at consolidating land, then building an asset. But I don't think most landlords can put themselves in the "service shoe". I see ourselves as a hospitality service oriented business because we live and breathe our customers. Most of my landlords look at it as a real estate solution. You and I both know it. It's not a real estate solution. The real estate discussion happens once every six years or nine years, right? It's the customer that comes to you every day and you have to ensure that you are delivering them best-in-class service. And that's what they underestimate. And that's where we go explain it to our partners, that "I am that partner that has experience in that area. I can keep customers happy. You are the guy who manages the building really well. Let's partner together" has worked really well. And that's been the sales pitch there.

Mark Gilbreath: The last topic I'd like to explore with you today - undeniably, the world has become a global economy and these principles that you and I have been talking about today of flexible office are now global principles. And both of our businesses are enjoying that fact. Occupiers of all sizes from startups to SMBs to enterprises are embracing what you and I provide. Given that your declared strategy for office is to be the number one provider in India and just stay focused on that. How do you think about tying into or serving a corporate client that is seeking a global footprint? And given that there are some operators, we've touched on a couple of the names, that have chosen to be global providers, how do you maintain that focus on India, which I think has all sorts of upsides to it, while at the same time being easy to be engaged with by a corporate who perhaps wants not just a solution in Delhi, but needs a solution also in Hong Kong and in Tokyo and in Chicago and in New York and Frankfurt? Do you need to be worried about that or do you think that is an impediment for your growth with enterprises to not be global?

Amit Ramani: So, Mark, I think from our standpoint because a primary focus for us has been SMEs and Indian corporates, because they are very price conscious, they are very value driven customers. We feel that there is some market, I truly believe there is a global market, but the global market is of global multinationals. And from that standpoint, we feel that we might miss out on a few. What we are doing currently is trying to establish partnerships with the dominant player in each of the global markets so that we have a kind of arrangement where they can use our offices and locations in India and we can use theirs. We don't have any partnerships to announce as yet, but we are very active around it. So we are trying to overcome that impediment from that perspective.

Mark Gilbreath: Well Amit, it's been a pleasure speaking with you. What you've shared with the audience is an undeniable recipe for success. To any would be entrepreneurs out there, this marriage of highest customer satisfaction with best operating financial metrics is a pretty intoxicating recipe. And for those that want to draw inspiration, I think you'd be well served to study AWFIS. And for our listeners, that's spelled A W F I S, awfis.com. Amit, I'll give you the last word.

Amit Ramani: Thank you Mark so much for your time here and I'm really glad that we were able to do it. The engagement here was very, very interesting and I loved the conversation, so thank you for it.

Discover Awfis Coworking and thousands more space opportunities on LiquidSpace.com, the platform for the Flexible Office economy.