The start of a new year is a time to flood the Internet with rosy reflections on the year that was, and optimistic declarations about the year to come.
We’re taking a slightly different approach with our contribution to the New Year noise: an honest look at why The Skillery is still not profitable.
It’s not all bad news: We doubled our revenue in 2015. We added new products that we’re really proud of, created new revenue streams, hired great people, and set ourselves up for a really terrific 2016. We’re excited about the future.
But the numbers don’t lie: We haven’t quite reached profitability yet. So we’re opening 2016 with a thorough and honest look at how we very deliberately worked toward doubling our revenue in 2015, and why, even with that achievement, we’re still surviving paycheck to paycheck.
A caveat: Although The Skillery has been around since December of 2011, our coworking space didn't open until July of 2014. Thus, our coworking space was open for all 12 months of 2015, but only half of 2014. That's going to skew some of our numbers here, and we know it. Still, we think there's much to be gained from a detailed year-by-year comparison.
HOW WE DOUBLED OUR REVENUE
We started 2015 with a really specific goal: to end 2015 with double the revenue of 2014. And we did it. To achieve that, we made some tough decisions about where to focus our attention and resources, and about what we needed to move away from.
Revenue, 2014 vs. 2015
WE FOCUSED ON COWORKING
In 2015, we eliminated some components of our business (more on that in a second) and focused our efforts on building our coworking business. We break coworking revenue into four categories, and all four of these areas saw significant gains in 2015.
- Coworking Membership Revenue (7.6X higher than 2014): Monthly membership dues paid by our members, which may include fees for key fobs, dedicated workstations or semi-private offices.
- Licensing Fees (3.0X): We have arrangements with a number of organizations that use our space for business beyond just typical coworking. We went into more detail about that when we recounted the lessons we learned over our first year of running a coworking space.
- Venue Rental (2.9X): We don't actively promote our space as a place for events and meetings — and we deny access far more than we grant it, as we're striving to avoid being an event venue — but we do see a decent bit of revenue from renting meeting rooms and other portions of our space.
- Weeklong Trials and Day Passes (6.2X): These represent a relatively small part of our income, but they are an important part of the sales process for bringing in new members.
Coworking Revenue, 2014 vs. 2015
Although all of these areas saw gain for us, coworking memberships (particularly Full-Time and Part-Time memberships) are ultimately what keep the lights on at The Skillery. We knew that in order to grow — in order to stay afloat, really — growing membership numbers needed to be a front-and-center focus.
Our game plan, toward that end, was to grow our membership base — and our revenue — by putting thought and energy behind giving people what they want. We studied membership and revenue data, asked questions of current, former and prospective members, and listened intently to answers. We made a number of changes, including placing a greater emphasis on our weeklong trial membership (which is the best way for prospective members to evaluate The Skillery, and, ultimately, has the best conversion rate of any trial we offer), establishing a helpful members-only online clubhouse via Slack, offering new member referral bonuses and getting new furniture for the space, among other tweaks.
We've worked toward making the membership experience better, and focused on spreading the word about those efforts. We think that attention is what helped us grow our membership base, and, ultimately, our membership revenue. Our coworking membership revenue in December 2015 was 3.7X what it was in December 2014.
Coworking Membership Revenue, First 18 Months of Operation
WE ADDED ADD-ONS
Feedback from our members informed a number of new offerings in 2015, including options for 24/7 access, semi-private rooms and dedicated workstations.
Key fobs were introduced early in the year as a way to allow members to have access to the space whenever they wanted/needed. While those have since been phased (almost) out in favor of our new Full-Time Membership option, which includes a key fob and 24/7 access, introducing key fobs slowly and methodically allowed us to evaluate their value to members, and the impact they have on our space. We found that, for members who work late/early, being able to access the space conveniently and flexibly during off-hours is a big bonus. Key fobs added $3100 to our top line revenue in 2015, too.
We also converted three small meeting rooms into semi-private offices, and built a handful of dedicated workstations, both of which are add-on options for Full-Time members, and arose out of a perceived member need. Our semi-private rooms are now full (hence the plateau on the red line, below) with a waitlist, and our workstations have just come online at the very end of this year. We expect those to fill in early 2016. Semi-private offices and workstations accounted for an additional $5600 in revenue in 2015.
Additional Revenue from Coworking Membership Add-Ons
All in all, add-ons account for a small portion of our total monthly revenue. But they have turned out to be attractive additions to what we offer. It's nice to be able to tell all prospective members, "Yes, you can access the space 24/7," even if many don't expect a need for 3 a.m.-Sunday workspace. These add-ons, which we've offered as a direct response to member requests, helped us fine-tune our space for our community, grow our membership base, and inch closer to profitability.
Total Coworking Membership Revenue, by Line Item
WE TWEAKED OUR MEMBERSHIP PLANS AND RAISED OUR RATES
After 14 months of operation, we dug deep into a key question: “How can we make memberships more valuable, and more desirable?” Here's what we came up with:
- We added 24/7 access to every Full-Time Membership (and raised the price by $50/mo). Since many of our Full-Time members were already choosing to add the $50/mo "Night Owl" key-fob option we tested out, making 24/7 access standard seemed logical, and beneficial to both us and our members.
- We doubled the number of days included in a Part-Time Membership (and raised the price by $75/mo). Our original Part-Time Membership option was sufficient for some. But with just six days of coworking access per month included, it created a huge gap between part-time access and full-time access (every weekday). We found that lots of prospective members' needs slotted right into that gap, so we bumped the part-time option to 12 days a month, making it much more useful for many people. The feedback from Part-Timers about the accompanying price increase (we raised it from $125/mo to $200/mo) has been largely positive, too — a big jump in access for a comparatively small jump in cost.
- We increased the number of days available in our smallest membership option (from 2 to 3 days). Honestly, most of the members who join us at this level don't come in very often. We're hoping that by adding another day of access, we'll see these folks around the space more regularly. Time will tell.
- We added a new membership option that does not include monthly access to our space, but offers access to our online community and discounted daily drop-in coworking. This is a bit of an experiment. We have a number of people who leave our space because of a career change or a location change, but who still want to be a part of our community. We now offer a low-cost ($20/mo) way to do so. It allows a member to still support The Skillery, while staying connected to the community through our online community on Slack. We haven't seen much interest here, but we'll keep exploring.
Though we raised our membership prices, we did grandfather in our existing members. A number of them have upgraded to the new membership options anyway, finding that our new plans are a better value, and/or a better fit. We believe (and the feedback we’ve received confirms) that the price increases are well worth the increase in value. We’ve given ourselves more revenue, but we’ve also given people more bang for their buck.
One quick thing we've learned: For most people, our new Part-Time Membership option is now enough access. At $200/mo for 12 days of access per month (or 3 days of access per week), it’s among the best coworking deals in Nashville. It’s no surprise we’ve seen a considerable jump in the number of Part-Time members — it's nearly doubled in the last three months. We expect Part-Time Memberships to outpace Full-Time Memberships in 2016.
Coworking Members, first 18 Months of Operation
WE SET SPECIFIC GOALS (AND HIT THEM ALL)
A point we make in our Introduction to Entrepreneurship workshops (and in the workbook that’s used in the classes/comes in our Starter Kit): You’ll have better luck getting your business where you want it to go if you establish a roadmap of sorts. And part of that is establishing well-thought-out and defined goals.
We walked through 2015 addressing and adding a number of specific goals — goals for membership numbers (we wanted 70 paying members by the end of 2015, and have exactly that number), revenue (we wanted to hit $200,000 in gross revenue in 2015, and hit $216,629), the number of Introduction to Entrepreneurship Starter Kits we would sell between Halloween and the end of the year (our goal was a modest 30, and we sold 39).
Knowing where we were heading kept our team on task, and drove us toward creative problem-solving to push us closer toward our objectives. Those accomplishments speak to the value of setting goals.
WE ADDED A PRODUCT: INTRODUCTION TO ENTREPRENEURSHIP
While coworking is our bread and butter, education is very much a passion, and an ongoing part of what we do at The Skillery. Beyond simply wanting to continue offering educational options, we also like the idea of having a varied mix of products, to broaden our value, our community and our revenue base.
This year, we created something new: Introduction to Entrepreneurship. That includes a workshop, for which we developed a custom 74-page workbook, and a learn-at-home Starter Kit, which includes that workbook and a mix of other tools and bonuses.
We developed Introduction to Entrepreneurship as a means of helping aspiring entrepreneurs toward achieving their goals. But it was also a means of achieving our own goals. We wanted to further establish The Skillery as a home for aspiring entrepreneurs of a certain stripe (not so much the scale-seeking, investment-focused kind, but the small local businessperson kind).
Truth is, Introduction to Entrepreneurship didn't make money for us in 2015, but it did add some cash at key times, and we believe it's an investment in the future. We wanted to create another earnings avenue for ourselves, and give ourselves something to grow with in 2016. Both the workshops and Starter Kit have had great responses so far, and we’re getting the multifaceted value we were hoping for.
Introduction to Entrepreneurship, 2015 Revenue and Expenses
HOW WE’RE STILL LOSING MONEY
There’s a reason most small businesses fold within five years: It’s a heavy task, building up from nothing and getting your input to outpace your output, cash-wise. The process includes a lot of tweaking, a share of calculated risks and, invariably, some mistakes and subsequent mends.
We made a point of improving our membership experience, and doing so came with costs. It’s going to take a minute for the returns on those efforts to overtake what we’ve put in, financially. We knew going in that those decisions would be part of a long game, and we’re planning accordingly. But meantime, more is still going out than coming in.
Even though our revenue increased considerably in 2015, here’s why we’re still not in the black:
OUR EXPENSES INCREASED, PRIMARILY IN THREE AREAS
Our operating expenses doubled in 2015, in part because our space for was only open for the second half of 2014. We didn't have to pay rent in early 2014, nor pay for utilities, staffing, cleaning, etc. In addition, our space is serving more people than ever now, which means we're using more toilet paper, more electricity, more everything.
Operating Expenses, 2014 versus 2015
The significant jump in our operating expenses in 2015 can be attributed to three main areas: human expenses and facilities expenses, plus the addition of an accountant.
Since our inception, Team Skillery has been made up purely of part-timers. And, in 2015, we hired a number of talented freelancers for help with all kinds of things, from help staffing our space, to the design of promotional materials, to the development of our Introduction to Entrepreneurship Starter Kit.
Additionally, this year, we brought on a full-time concierge (Michaela, who's awesome) to ensure that members’ needs are attended to consistently and thoroughly. Bringing on a full-time employee (our first in four years) enables us to ensure the quality of the experience for our members, which is job #1. We love Michaela, and the impact she's had on our community. Of course, bringing on a full-time employee comes with considerable overhead, from salary to payroll taxes and more.
[One more note about our human expenses. With our decision to remove (most) classes and workshops from our calendar, we had to say goodbye this fall to our Programming Director of three years, Katie Vance. If you don’t know Katie, you’ve undoubtedly experienced her work somewhere in town. She’s a talented interior designer, responsible for the gorgeous interiors of spaces like Butchertown Hall, Butcher & Bee, and Bar Luca, among others. She’s one of the founders and organizers of Porter Flea. She sells knitlaces. And with the work she did at The Skillery for three years — helping us launch hundreds of classes, workshops and special events, while building our community of teachers, students and entrepreneurs — Katie has had (and continues to have) a profound impact on the small business community here in Nashville. As Nashville residents, we’re lucky to have Katie in town. As colleagues and friends, we’re lucky to know her. We miss her already.]
Occupying a building is expensive! We have to pay rent, utilities, maintenance and more. We pay way too much for mediocre cable internet (though we have gigabit fiber in our plans for 2016) . And, since we were in our space for all of 2015 (versus just the latter half of 2014 — we opened in July) our expenses appear to be drastically higher.
Beyond the calendar differences, though, with more people occupying and using our space, our facilities expenses have actually increased. We upped our janitorial and recycling removal services in 2015; we're now paying twice per month what we were a year ago in those areas. We use more paper towels, more printer toner, more water... more everything. And our expenses have increased accordingly.
WE HIRED AN ACCOUNTANT
There's a popular piece of advice for small business owners: "Only hire when it hurts." Through 2014, we had been tackling our own accounting and bookkeeping. But with the growth of our business, this became too much. We were spending hours and hours every week tackling the small details, when what we really wanted was an overview of the big picture. Finally, it hurt enough that we decided to hire an accountant.
We were lucky to meet Shane Gibson of Skyward Accounting when he ditched his secure CPA gig, and joined us in one of our entrepreneurship classes as he started his own practice. We were happy to hire Shane at exactly the moment when bookkeeping and accounting became too much for us to handle. Now, Shane and his team handle the day to day, and we benefit from monthly check-ins and occasional conversations on Slack about the state of our financials. Our accounting expenses jumped 7X in 2015 (from $822 in 2014 to $5685 in 2015), but it's been worth every penny.
Select Expenses, 2014 vs 2015
WE KILLED A REVENUE STREAM: CLASSES
We wrote pretty extensively about what led to our decision to (mostly) ditch classes after four years of facilitating/planning/leading them. The tl;dr version: We love doing classes, but the market in Nashville has become saturated with them, and fighting through that noise makes profitability a steep climb. That said, we did make some money from hosting and teaching classes, and cutting that revenue stream out did change our financial picture a little.
Class Revenue, 2011-2015
WE INVESTED IN A NEW PRODUCT: INTRODUCTION TO ENTREPRENEURSHIP
In time, we’re confident that Introduction to Entrepreneurship is going to be a consistent money-maker for The Skillery. But as with any new product, getting it from inception to completion took investment. We had to develop a curriculum and content, hire designers, print and package workbooks and lots more. It took time, money (almost $9,000) and lots of attention. Now that we’re hosting workshops and selling Starter Kits, funds are coming in to offset that investment. But it’ll take time for that to balance out and, we hope, flip toward profitability.
LOOKING AHEAD: THE PATH TO PROFITABILITY
Looking forward, we’re optimistic about 2016. This past year included a host of investments. The coming year should include more on the return side, which means higher input, lower output in 2016. We're confident that profitability is around the corner. Here's how we plan to get there.
We continue to believe that increasing our Full-Time and Part-Time membership levels is the surest way to profitability. In 2016, we'd like to increase the size of our community to 100 members, at least 70 percent of whom are Full-Time or Part-Time. At that point, we may consider stopping taking new memberships. Profitability is a goal, of course, but we’re not inclined to push that at the expense of our members’ experience.
Coworking Members, Total, Month by Month
STABILIZE EXPENSES, WHILE GROWING REVENUE
Stabilize expenses and grow revenue — that sounds like the goal of every business, right? Moving forward, we think it's finally within our grasp. We believe that we understand our business well enough now to be able to proactively stabilize our expenses, and we believe we have the physical space and bandwidth to increase our member base and grow our revenue. In fact, when we look at our revenue and operating expenses, per member, over the course of the last 18 months, we're already seeing some stabilization and some trends in the right direction.
Coworking Membership Revenue and Operating Expenses, per Member, first 18 months of Operation
We see three encouraging trends in the chart above.
First, we've gotten a handle on our expenses, which peaked and stabilized after our first six months of operation. Since then, we've seen a fairly steady decline in our per-member expenses, in part driven by an increase in our number of members, but also driven by a general tightening of our belts. As we continue to add members, our per-member expenses will continue to go down, even if our operational expenses creep north. Economies of scale are working in our favor.
Second, our per-member revenue has gone up. This is, in part, due to changes in our membership plans and pricing, which took effect in month 15, but, also, due to the add-ons that we've made available to members, including 24/7 access, dedicated workstations, and a handful of semi-private offices. We're making more money per member than ever before, and providing more value at the same time.
Third, we're glad the blue line has finally crossed the red line (even if it temporarily reversed course in December; it should return on course in January). As new members join us, we are (generally speaking) adding to our profitability. We're heading in the right direction.
WE'LL SERVE THE NASHVILLE BOOM
Our city is booming, and the “It City” thing has had its pluses and minuses. With classes, Nashville’s cultural boom worked against us — we struggled to fight through the noise to sell classes and workshops. Now, our business focuses less on selling, and more on supporting the increasing number of people who are living and working in Nashville. We’re better suited to serve our booming city, and we expect that to better serve our business, as well.
WE'LL REMAIN A UNIQUE COWORKING SPACE IN NASHVILLE
In the decade since coworking (as we know it) began, the movement has grown steadily and rapidly — in 2015, there were roughly 3,000 coworking spaces worldwide. As the independent workforce continues to grow, too, we expect coworking to stay plenty healthy. But we also believe it will — and has to — change.
To serve the needs of independent professionals more successfully, we think coworking spaces will morph in two specific ways:
First, we expect to see more specialized spaces (like The Circle at Razor & Tie and InDo Nashville, for musicians) catering to industry-specific clientele with space and amenities tailored to their needs.
Secondly, we expect to see more office-suite models for coworking. The market for small office space in Nashville is red hot, and more and more entrepreneurs are being forced to (or choosing to) turn to coworking spaces that have small, dedicated, private (or semi-private) office space for small teams. It's a request we receive regularly. More spaces are already entering the Nashville market to serve that need; Industrious plans an April 2016 Nashville opening, and industry giant WeWork is hunting for space in town, as well.
We're resisting both of these trends — more on that in a future blog post — but we're optimistic about the health and opportunity in the coworking industry, in general, and we're delighted to be a part of it. We think the coworking industry has a lot of room to grow, and we plan to grow right along with it.
Cheers to you and yours, as we turn a new page on 2016. Thank you for your support last year, and for interest in what lies ahead. We hope to see you at The Skillery soon. Drop by anytime (in person or at our social homes on Facebook, Twitter or Instagram). And if you ever want to talk with us about coworking, entrepreneurship or any of the other topics we have our hands in, feel free to reach out. We'd love to hear from you.