The mystery of the white dress shirt
Death and life of a Brooklyn coworking space
A drug dealer used to have our phone number. That’s my best guess as to why we got repeated calls, over the course of nearly two years, from people asking for “white men’s dress shirts.” They were polite when we said we’re not a clothing shop, they were confused when we said we only had pink ones in stock, and they hung up when we asked where they got our number.
The mystery of the white dress shirt is one element of our experiences with Makeshift Society Brooklyn that will never be resolved. The rest of it we have reflected upon here, for our benefit as much as yours.
Makeshift Society (MSS) is a coworking space for creatives that was started by Rena Tom in San Francisco, opening in September of 2012 when “coworking” still needed to be explained in polite conversation. Three short years later, the word is widely understood (though its meaning is wildly divergent) and our Brooklyn location has come and gone. The SF location remains financially healthy. Rena and I opened the doors at Makeshift Society Brooklyn on May 1, 2013 and closed them for good on October 23, 2015. The entire process (including pre-opening work such as planning, lease negotiations and renovations) took slightly more than two years.
Why?
In the process of closing down we had numerous discussions with friends, members, and passersby curious about the reasons for our departure. Most of the people we met assumed that it was the rent that killed us, and in a way that’s correct. The rent was objectively a large sum (we had 4,000 square feet on the ground floor in Williamsburg, Brooklyn after all) but I can’t say that rent is exactly what did us in. From the start we were very conscious of our cost basis and worked to keep expenses reasonably low. We opted to locate ourselves in an established neighborhood, but a quiet corner where the commercial rents are lower. Our $/sqft costs were below market rate (only just) when we signed the lease. To give you a sense of scale, in today’s market the space could now be rented at 1.2–1.5x what we were paying.
In our best estimation, three major things made it impossible for us to continue:
- Ineffective marketing
- Lack of runway
- Inability to pivot
Ineffective marketing
San Francisco never struggled to gain memberships, so we hadn’t really road-tested a marketing plan. Rena partnered with Victoria Smith and Suzanne Shade before opening in San Francisco. With the network of all three combined, it was not long before the community was large enough to at least cover its own modest expenses. Our approach to marketing in NYC was informed by what Rena had done in SF. Quite soon we realized that this approach was underpowered for the NY market and that we would need to invest more in marketing, but everything we tried produced mediocre results.
We distributed thousands of postcards in cafes and other local spots jammed with people on their laptops. To the best of my memory, this yielded a small handful of inquiries. We spent about $1000 on Facebook, Yelp, and Google ads before giving up. I was hopeful for this approach because organic Google searching was one of our strongest channels, but the ads did almost nothing to improve response rates. We got literally a couple clicks and no conversions (which we can say definitively thanks to their tracking code). We did, however, get a lot of aggressive and annoying calls from the Yelp sales team.
We hosted rad events with nationally recognized partners including Adobe, HP, and SXSW on the assumption that if we get people to visit, we would get more conversions to memberships. But we saw little correlation between event attendees and future memberships. We also tried referral bonuses and monthly discounts for different skill sets (e.g. 50% off for photographers in May). That didn’t work either. The one thing that did work quite well, ironically, was a “three months for the price of two” membership offer that we launched when we had exactly 3 months left before closing. This resulted in about four conversions, which sounds small but is not insignificant (about 6% of the core membership base we were counting on in our original business plan). We probably should have experimented more with membership packages, but we were trying to avoid the situation where current members feel burnt by deals offered to new members. Strong impulses towards fairness are a liability for capitalists.
We didn’t get quite as much local press as we had hoped but overall the media attention was not too shabby, and we had a lot of fun co-producing a video about typography that went viral (or as close to viral as design nerd content goes). Each article or significant blog post brought us a couple people for a tour, but few converted into members.
One thing we did not do was inundate people’s inboxes. Maybe we should have. A dear friend of mine who runs a successful company in Seattle said we were crazy not to use drip marketing. Instead we stuck to a once-a-month newsletter schedule. We didn’t want to be a business that spams people. For what it’s worth, we found much more advice about marketing for contemporary online business than we did for contemporary brick and mortar business. They’re related but ultimately different.
Lack of runway
By the time we opened we were already short on cash. We funded the expansion with a mix of personal contributions, a tiny investment round (low tens of thousands), and a construction loan. Expenses were used for the buildout of our Brooklyn space, the creation of a new membership and payment platform, and rebranding (in order of cost from largest to smallest). Had we been able to sell more equity, we would have been fine in terms of cash on hand to execute the expansion. As it went, our round was undersubscribed. Due to the tricky timing of real estate in NYC, by the time we realized that this would finally be the case, we had a signed lease in Brooklyn; things were already rolling. We felt as though 2014 was the year to open in north Brooklyn or someone else would fill the void that existed for a good coworking space. Now, on the eve of 2016, with few serious new entrants to the market since we opened, it seems that we were too concerned about the timeline and could have been more patient.
The funds we raised were nearly a 1:1 match with our expenses up to the point of opening doors, which means that we were left with almost nothing in terms of runway. In the first month, with very few members, we were already making additional loans to the business to keep it afloat. In the beginning this was a calculated decision based on the belief that our original modeling of the business was still plausible. Within three months of being open we realized that the growth rate was going to be much slower than we projected based on the SF experience, and at that time we ramped up our events program with corporate partners, using our event production fees to cover the gaps in membership income. Practice note: accounting is your friend, because accounting is data. Our accounting process was a little too painful which meant we didn’t have as much data as we would have liked when making decisions.
This hand to mouth mode of operations was not ideal, but we were surviving. The problems emerged when we had to make choices between operational expenses and investments in growth — exactly the kind of position a new business does not want to be in! If we had a runway of 3–6 months, it would have been an easier decision to make a bet and take, say, 1 month of runway to invest in stronger marketing. But when you have $0 to spare, the only way to make a larger investment in marketing or otherwise is to draw from outside sources, and that means personal savings. So it basically didn’t happen.
Inability to pivot
Without cash on hand to provide runway, we also didn’t have cash on hand to make a pivot when we realized that the model we doubled down on was the wrong model for Brooklyn. In San Francisco, MSS is a small space of about 1000 square feet that is used entirely as a flex space. There are no dedicated desks. Most members work there 1–3 days a week, which allows us to have higher utilization of the space and stack up membership dues to yield a modest profit.
In Brooklyn our space was four times the size of SF. We based it on the assumption that half of the space would be dedicated desks in what we called the ‘Studio.’ The Studio was designed to cover most of our hard costs, leaving the flex space to be the profit center. With the experience of our SF location we anticipated that it would not be hard to get enough flex members to make our model work in BK. This was an incorrect assumption. Our Studio eventually filled up first but flex (hotdesk) memberships flagged from beginning to end. We explored making the necessary changes to allocate more of the space to Studio use, but it was difficult for us to find a way to make it work.
Primarily this was because we had no extra funds to invest in the modest capital costs associated with buying more desks, chairs, storage, and upgrading security and access systems so people would feel safe leaving expensive equipment in view of our floor-to-ceiling glass storefront. As we weighed our options, it felt extra risky because giving more space over to Studio usage would mean eliminating what had until that point been our largest money maker, which was events. In the end, cannibalizing a little bit of predictable income for a larger amount of potential-but-unpredictable income was too risky for us. We floundered a bit, and by the time we were ready to act it was too late.
In our best estimation that’s why Makeshift Society Brooklyn closed. But because no story is ever that simple; here’s a list of complicating factors and observations to supplement the above.
Matter Battle
The space we leased was a pencil factory built in 1907. It was raw and we liked it that way, but we still needed to do some work to make it useful for our purposes. We planned modest renovations, negotiated a fair split of the costs with the landlord, and set to work designing the space. In late December 2013 we filed for the construction permit to begin work on site, and then we waited. What should have been a one week process to get approval turned into a four month ordeal of spiraling Kafkaesque pain. The Department of Buildings objected to our egress paths, despite the fact that we were not changing them and the building already had a certificate of occupancy. We were left in the awkward position of having to prove to the DOB that a space that they approved was actually ok to be approved… again…. by them… again.
This resulted in three negative side effects. First, we had additional direct costs in the low thousands of dollars for various professional fees to get the permits squared away. Second, we were forced to make a difficult decision: wait for the permit and watch our rent-abatement period evaporate, or begin construction illegally and take the risk that we’d receive a stop-work order. We chose the latter. Third, because the construction was on the sly, we were not able to use the buildout process as part of our advance marketing. Regular Instagrams depicting the process, parties amidst the half-built interior, and other typical schemes went from being important opportunities to being risks that we were not willing to bear.
We spent more than one morning inside the construction site with doors locked because “someone that looks like a building inspector” was outside, fearful of the $10,000 fine if we were to get caught building without a permit. In the end, the permit came through and on paper our contractors were the most efficient builders in the history of the city because they were able to complete work in one week. On paper.
As a small business we were at a massive disadvantage. The city’s bureaucratic mess-up translated directly to hard and soft costs to our business and when we discovered that it was the city’s own fault, there was zero recourse. I’m a huge fan of the public sector and believe that it has an important role to play in spurring innovation and economic activity, but currently the scales are tipped towards those who are lucky enough to have large war chests (either by accumulating it over time, or through venture capital) to help push through hiccups like this.
Creating a beautiful and special environment was important to Rena and I because we want Makeshifters to feel a pride of community and a pride of place. The quality of the space also translated into revenue as event rentals, but neither of those factors could quite pay for themselves.
Putting good things into the world
“Coworking” is a phenomena that started as shared space for people with a shared mindset and has very quickly come to represent a wide spectrum, from places that house legitimate communities to ‘space as commodity’.
In the period between deciding that MSS Brooklyn would have to close and making the announcement publicly, I fielded calls with approximately five different coworking organizations (a mix of for-profit and non-profit) to see if any of them would like to take over our operations and prevent us from having to displace our members. During these discussions I got to see a wide range of working styles, from those who think deeply about their function as community hub, to those who are guilty not only of “community washing” but of downright shady behavior. One person who visited our space informed me that he would take our ADA bathroom and convert it into four stalls. Jerk move, bro. He also informed me that our furniture was wrong, that Ikea would be “smarter.”
In the last month of operations we began to sell our furniture. At first it went slowly, but eventually the sale picked up and soon we had committed buyers for 70% of our items. We built a Tumblr site to keep track of inventory and it was great to watch the SOLDSOLDSOLD banner wash over successive items. On our last night in the space I took this photo of Cait, our effervescent host:
She’s holding the only piece of furniture that we could not sell. To put that in perspective, we sold 157 pieces of furniture. Not a single item of furniture went into the trash. In fact we rescued a bookshelf from the trash at some point during operations, and even that item sold! This is in addition to hundreds of linear feet of books, a whole kitchen of objects, tons of small things and art, soft items like pillows, etc.
Of course we sold things at low rates, but I’m happy that it all found homes and, importantly, did not end up in a landfill. We made our choices carefully, designed a great space, and in the end this prevented us from having to chuck things out or sell them to a liquidator. Instead, the sales of our furniture ably funded ramp-down expenses and will help put the tiniest of dents in our loan repayment. It was gratifying to at least be able to wrap things up responsibly.
Day passes are hard, but useful
From the start MSS has offered day passes, which is an option that many coworking spaces forgo. There are certainly tricky questions (annoying, if we’re being honest) to navigate (e.g. “if I buy a pass at 11am do I get a discount since the morning has passed?”) but we found that with the right policy in place, and then sticking to policy, that day passes were generally positive. By virtue of being a smaller commitment, they allow a broader segment of people to partake. This is good for the bottom line and also broadens the mix of people that populate the space, which is good for the day to day culture of the space.
Prior to January of 2015 passes were bought at the door with no reservation needed, but early this year I dedicated time over a couple weeks to hacking a self-serve option. This let people buy passes online and set a reservation date if desired (which we found many people wanted to do, even if it was unnecessary). The results looked like this:
The trend line here is essentially flat, but the overall volume is up compared to when we didn’t have the online purchase system. In other words, online purchasing enabled more people who would have already been our customers to act on that desire. We also built an admin tool for hosts in BK and SF to easily sell day passes as one-offs or in multiples, and started marketing this as an option. It helped, but—yeah—not enough.
Get bodies in the room
We created MSS Brooklyn as a place and community to be as open as possible. We priced it at a level that would be within reach of practicing designers, we created a residency to make an opportunity for those needed more financial support, and we resisted at all turns the appearance that we were some sort of elite club. We held ourselves to a high standard of fairness, resisting the urge to give special deal to friends (a restaurateur pal in Helsinki beat this notion into my skull: no freebies).
Besides, we didn’t want to create a clubby room of friends, we wanted to create an embassy for creatives in New York — a place where someone could rock up after landing here from Sydney, Accra, Copenhagen, or San Francisco and have a better than average chance at finding their people, other creatives. (For what it’s worth, this part worked. A disproportionate number of the people who passed through our doors had just moved to NYC or were here on a working holiday.)
In the end, however, coworking is a time-based commodity and if your room is empty for an hour you never get that hour back. What’s more, an empty room lacks the magnetic pull that a bustling one does. We should have made more special deals to get people in the space (friends and otherwise), filling it with life as early as possible.
Is community a side, or the main dish?
On the coworking as community — commodity spectrum, we existed somewhere in the middle. The feel of Makeshift Society Brooklyn was relatively communal and friendly, but ultimately it was a pay-to-play membership organization. We found that people genuinely seek community when it comes as a freebie side dish, but it’s somewhat rare that people want to pay for it as the main dish. In retrospect, this makes sense. One pays for golf at the club because paying explicitly for access to likeminded peers feels dirty. Even Airbnb, who claim to offer belonging (which is dubious, but we’ll take it at face value for now), are actually selling accommodations. The feeling of belonging is a mint on your pillow — the thing you enjoy most but would never pay for on its own.
When prospective members came through our doors asking about what amenities we offer, I could usually tell that they were not going to choose to join our community. Whereas other spaces offer hard amenities such as free beer on tap or access to legal advice, our biggest “amenity” was the ability to get to know a group of down to earth people who did something relatively close to what you’re doing, to call on them for emotional support, and occasionally to do some work together. Second to this, daylight and a dignified workspace were our primary distinctions (this says a lot about what passes for ‘quality’ in the state of workspaces). If you’ve already gotten wasted on the free beer, worked in your glass cubicle, and still haven’t found a supportive community of practice, you’d be more likely to arrive at the doors of MSS BK genuinely in search of what we offered. Leigh summed it up nicely:
At Makeshift I’m surrounded by amazingly smart and creative individuals. Whether it’s asking for a second set of eyes from a deskmate or seeing the other things members are building, being surrounded by that energy is inspiring.
It was also important to us that our people feel connected to the broader community of the neighborhood and the city, which is something that Matt and Cory picked up on:
Makeshift has all the productivity benefits of a coffee shop without the drawbacks. Well, it doesn’t have coffee, but that’s actually a benefit too. There are plenty of great cafés [nearby] that are easy to walk to. One of my favorite things about Makeshift’s space is that it really encourages creativity by making it easy to get up and move around. The location is a big, airy, bright area right on street level, on a nice quiet street, which makes it very easy to get up and get out for a quick walk outside to clear one’s head… Other co-working spaces that I’ve worked at are on high floors and I have to pack up my computer in my backpack before I can get outside, which makes it subtly harder to get up and move around. At Makeshift I can just get up, walk around, and get right back to work.
Before the Brooklyn expansion, Rena and I discussed converting MSS into a non-profit. We decided not to because we wanted to retain agility. As MSS BK was struggling I spent a good amount of time considering this as an alternative future for the space. By sliding from our midpoint on the community — commodity spectrum to somewhere more resolutely on the community side of things, such as a co-op, we would give up some or all control over the community, perhaps even the operations of the space. From the perspective of the balance sheet this could work out OK. Giving up control to a co-op could also mean freeing the MSS business entity of the responsibility to look after and pay for every little thing (printer toner, cleaning, etc) as those become shared responsibilities.
By the time we got to seriously considering converting ourselves into a co-op, we were too late to practically make the transition. It would have required a new cooperatively owned entity taking over the lease, which would require enough co-op members to assemble the tens of thousands of dollars needed just for the security deposit, not to mention a similarly formidable monthly sum to cover rent. In theory MSS could have retained the lease and sublet the space to a new co-op, but that’s a risky transition with a lot of opportunity for things to fall apart. Too risky.
By the time we were ready to do it, there was not enough money in our bank account to protect MSS in the event that the transition was less than perfect. Instead I’ll daydream of a benevolent co-op that performs hostile takeovers, converting struggling but beloved for-profit businesses into community-owned infrastructure. In the meantime, I’ll be watching Prime Produce closely as they progress with their co-op in midtown with the assist of “sympathetic investors”.
Do one thing well
When we started this project, Rena was full time and I was splitting my attention between MSS BK and Dash Marshall, a design firm I co-founded in 2010. As things got tighter financially, Rena and I both started to dedicate more time to non-MSS business out of necessity. We needed to pay our own personal rents. I should have gone all-in or not at all.
What’s the opposite of a Kickstarter video?
The Kickstarter video became a trope so quickly that now I just assume any new project has a video out there somewhere explaining what it’s all about. What’s the opposite ritual, the thing that you do when you close a project? Not sure, but here’s something:
The process of goodbye
We had two choices: run the business on fumes until the last minute possible and then give up, or make a controlled exit in anticipation of the inevitable impossibility of continued operations. We chose the latter, making the decision to close MSS BK about four months before we actually handed the keys back to the landlord. This was right for the business — allowing us to protect MSS SF — and it was the honorable thing to do for our members and partners. But it’s a weird thing to do, so I want to write down some thoughts about the process of saying goodbye.
It started with a timeline: what are the critical actions and decisions, and when do they need to be taken. When do we need to tell the landlord, notify the members, make the news public, plan our final events, cancel the fiber, offer specials to help generate revenue to the last minute, start selling furniture, etc.
Stemming from that timeline was a series of difficult emails, drafted and ready to be sent when the moment came. We labored over how to describe our decision and its implications. Whenever possible we removed ambiguity, and when ambiguity was inescapable we erred on the side of honesty.
When it came to the final days it felt like this, jotted down on my phone the day we swept the space clean with a broom:
We make lists, cross off items, and remake lists. The format changes a bit each time, things are scratched into memory from a slightly different vantage, remembered for slightly different reasons, valued on slightly different terms, always with the goal of being crossed off.
Favors are called in as things fold back onto themselves. The builders return to unbuild. The furniture that was a cost, shows up again on the balance sheet as sales income. Our staff, which we trained to be hosts become trained again as sales people, merchants of goodbye and good luck. As much as you know your business, upon embarking towards the end of the road, things change. New issues emerge, with new demands & uncertainties. And in response, you are called to have new competencies, new confidences.
For us as a business, this closure hurts. For the city, however, it’s a translation of one energy into another. Hardly anything goes to waste in a place like New York. Our furniture converts into someone else’s furniture, our community into many new communities, our endpoint into someone else’s beginning. Good luck.
