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Growing Lean
Conversations with Mike Kriel: Exploring the Future of Flexible Workspaces and Adaptation Post-Pandemic
Today, we’re thrilled to have Mike Kriel, the innovative CEO and founder of Launch Workplaces, join us for a lively discussion about the flexible office space industry. From its humble beginnings as a small family-owned real estate business, Launch Workplaces, under Mike's leadership, reinvented their business model, leasing office space one at a time. They've modeled their approach after Marriott hotels, partnering with building owners to manage multiple locations without the burden of long-term liabilities or leases.
In our conversation, Mike shares his insights on how companies are strategically adapting their workplaces post-pandemic. The 'hub and spoke' model, where members can access multiple locations, is emerging as a popular trend. We also dig into key industry success metrics including occupancy rates, agreement term lengths, and revenue versus expenses. Mike's insights on these factors are not only fascinating but essential for anyone involved or interested in this space.
Towards the end of our engaging talk, we delve into the significance of offering flexibility to employees in this era of distributed workforces. Mike predicts a future where office spaces could be 30% flexible in the next seven years. We also highlight the importance of mutually beneficial deal-making and exercising caution in business decisions. For anyone eager to connect with Mike or learn more about Launch Workplaces, Mike welcomes you to reach out via their website or his LinkedIn. Don't miss out on this episode for some invaluable insights into the future of workspaces!
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Welcome back to the growing Lean podcast sponsored by Lean Discovery Group. This is your host, dylan Burke, also known as Deage. I'm very happy to be here with Mike Creel, ceo and founder of Launch Workplaces. Welcome, mike, dylan. How are you today? I'm very well, thanks. How are you? Super? Thank you Awesome. Can you tell us a little bit about your history and background and how you ended up where you are today?
Speaker 2:Yeah, no problem. I was working in a very local commercial real estate business, family owned business, local to DC. I had been there a number of years and the family was in. They had some office real estate, some retail. They had some kind of for fun real estate, some marinas and golf courses.
Speaker 2:And I had been there probably 12 or 15 years when we ran into an issue trying to lease some office space that traditionally we never had any trouble with a really great building and a really great location and we had 16,000 square feet of space that we had given some tours on and we hadn't won the deals, which was unusual. So come to find out there was a large institutional owner. An institutional owner in office real estate owns hundreds of assets. We only owned about six. And basically what they were doing, we're saying, whatever deal this company gives you, we'll take a dollar, a foot, off that deal if you come here, and you know every dollar counts. And we lost a couple deals that way and we found out about it and in our company we said, well, okay, what are we going to do? Because we don't have the portfolio that can carry just arbitrary discounts on rent. So can we be more strategic or can we adapt? And what I suggested at the time was, instead of leasing an entire floor of 16,000 feet, maybe we should do it in office at a time, and this was 2013. So the kind of co-working or flexible use or whatever the buzzword is today. You know it was coming back.
Speaker 2:We worked, was on the scene and starting to make some noise. This was early in their trajectory. So the other executives in the company said, okay, like, what does that look like? And I said, well, I'm not sure. So I said, well, try to figure out a business plan and come back. So I did, and we opened the first launch workplaces at the end of 2014 in our own building. Really, to solve our own problem was trying to fight or compete or survive against some of these institutional owners that had deeper pockets, longer runway than we had with such a small portfolio. So that's initially how launch was born and why it was born, and then it progressed. Launch did pretty well. We opened them up in a couple more buildings that we owned, and then friends of ours in the industry started to ask me lots of questions.
Speaker 2:How do you do this? Is it successful? Kind of nonstop? And in 2018, we had a group that we knew who said look, come over to my building and set one of these things up for us and write an agreement, see how it would work and what would it take for you to come do this for us. So we figured that out and I like to say we kind of got pulled into this third party management of flexible space. It was originally not our intent to go to market and do that and it certainly was not our intent to go lease space, try to create an arbitrage situation and make money. All the deals we've ever done on third party management, we do partnerships with our owners. We've never signed a lease. We've never approached it that way. We've always approached it as let's be partners with the building owners. Then in the industry a long time, we understand the pain points that building owners go through and we kind of trotted along through COVID and today we've got nine locations open DC, maryland and Ohio and looking to carefully continue to grow our portfolio.
Speaker 1:Okay, amazing, I love that. I come from a real estate background. I was a residential agent and my family were commercial and residential developers. So I love real estate, I love talking about it, and I've actually seen this model come from South Africa in Cape Town, and I've seen this model come out recently and it's booming. It's such a great concept. And I was about to ask you like, do you guys buy the spaces? But no, you lease them and you bank on the arbitrage. And well, no, we don't.
Speaker 2:We don't lease the space, we do not. So, like all the big companies you know the we works and all of them right they would go lease beautiful space for $60 a foot and then throw $20 a foot on top of that to run it. So then they would try to go make $100 a foot to pay their expenses and make a profit. What we do, we partner with the owner. So the owner bills out the space, we manage it for a fee, we usually take a percentage of the gross income and then the owner keeps all the net income of the operating business. So it's very similar, kind of like a Marriott hotel, where kind of Marriott comes, puts their flag on it and operates it for you and gives you the profits of it.
Speaker 2:So yeah, just to, we have no long term liabilities, no leases, which is we didn't, honestly, we didn't have the capital when we started this to go sign long term leases. And you know, thank God we didn't, because it's really been the demise of a lot of the co-working operators trying to survive COVID and you know now the work from anywhere. Is that beginning to take more shape? It's helping some people, but leases to me are in this world that we work in our taboo, so I will not sign a lease.
Speaker 1:Amazing. I love that. So the risk to you guys is actually really low. So you just you get paid on a per square foot rental basis.
Speaker 2:We do the risk. Yeah, the risk for us is low. We only do deals that we do spend the tremendous amount of time underwriting deals. I usually, once a year, I'll go back and reflect on all the opportunities that we've seen. 95% of them are inbound to us and we only say yes to about 6% of the opportunities that come to us. So, right, we're looking for number one, we're looking for a good owner, priority one, two and three right, do they understand flex? Do they understand its importance in, especially today, post COVID? Do they have a space that has been given back or is coming back? That is, we can put our brand in there for a reasonable amount of money, something really significant. That we do.
Speaker 2:We don't go in and demand a gut and rebuild for, you know, $180. We're really good If an owner says, hey, I got 20,000 feet came back. This is kind of what it looks like. We're really good at saying all right, there's no reason to rip all these walls out and rebuild them one foot left or one foot right. So our build out costs are a fraction of some of these higher end premium brands that go in and say this is our model, right, tear it all out, put this in. This is the same model we use everywhere and this is the way it has to be. We are contrary into all that. Capital is a really scarce resource right now in the office world and we're very cautious with spending other people's money and we're very good at providing a nice return for what they've spent.
Speaker 1:Amazing and on most of your clients, small and start up businesses, or does it vary tremendously?
Speaker 2:It does when we do best. Most of our assets are in the suburbs. That's where we were created, Just because that's where we needed the buildings, that the first building we needed to be in was in the suburbs, so that's where we learned how to do this. The suburbs are very different than the urban centers Just a different clientele. So we have a lot of repeat entrepreneurs that are successful and can afford to live in the suburbs of the cities. We have a lot of startups. We have a lot of solo entrepreneurs, contractors, small to medium businesses and we're just starting to see now, with the work from anywhere in the return to work enterprise clients, Fortune 1500s are just starting to move towards. Hey, you know what? We had 100,000 square foot lease in town. We let it expire and now we're trying to find some satellite suburban offices where our staff can come use it on a much smaller scale, and that's been popular the last probably four months.
Speaker 1:I was actually just about to ask how you guys adapted to the pandemic and lockdown, because a lot of companies realize that they don't have to lease these massive offices because people are more than competent to do their work at home and remotely and they just need a small little satellite office to have a base and that type of thing. So did you notice a huge shift during the pandemic, or I mean after the lockdown and stuff, when they started opening things up again?
Speaker 2:Yeah, we did. It's funny, there were kind of spikes in demand. There was a stretch in 2021. I can't remember what month it started. It's like June or July of 2021. And we sold an office a day for like five months straight. So it was that first kind of the pandemic was a really deep bottom, and then there was some hope that it was over and I think people were just done working from home every day or being home every day and we had a huge rush of people come back. Now what we see, companies are trying to be more strategic. Right, leases are expiring or they're trying to negotiate. I have 50,000 feet. I don't need it. I only want 15,000 feet and this kind of hub and spoke models, or there's a lot of talk in our industry. Right, the office is not a place. Now, the office is a network where, for instance, if you are a member at launch, you can go to any launch location in work anytime.
Speaker 2:So we're in DC, we're in the suburbs of DC, whatever is convenient for you. So if you need to host a meeting in one of the suburbs, it's no problem. If you need to go downtown to visit a client, it's no problem, and that is starting to get a lot of traction in our industry 100%.
Speaker 1:I love this model so much. I've admired it because I've seen it come to life here and it's such a great business model. What metrics do you use obviously, besides revenue to measure the success of your business?
Speaker 2:Occupancy is a big thing in our business. Our industry is young enough where there really is not a set of standards like RevPAR for hotels or stuff like that. So the way people measure occupancy varies from company to company. But a lot of people like to report on if I'm 100% is full, where do I stand. So that gets talked about quite a bit and then a lot of times people talk about the length of the term of the agreements that they have. Overwhelming majority of the folks that we do business with sign 12-month agreements at a minimum, which a lot of people assume they would sign. A month-to-month deals just isn't the case.
Speaker 2:So obviously revenue and expenses and net income, they're important to every business, but I would say behind that, this occupancy is definitely a very popular number 100%, and are there any metrics that you are looking to improve? Oh, who isn't?
Speaker 1:right.
Speaker 2:Yeah, yeah, I'd like even it'd be better. I'd like cash flow to continue to grow. You know I'd like occupancy To grow. We measure how many days People are in our sales cycle. If I could shorten that by a day, yeah, I mean I go through.
Speaker 2:You know we have a team meeting on zoom with our directors once a week to talk about leads and activity and and you know sales tactics and how do we present better and how do we shorten the deal. You know it's kind of the you know atomic habits, right, did we get 1% better today? And I try to explain to people the impact If you sold one more thing Mail and address client, a co-working desk, a private office if you sold one more thing a month, what's the compounding positive effect on our business? And it's, it's, it's fun to see their face. We're like, okay, well, what's a $69 mail and you know post office client? Well, they're in the door. Right, it's some income. It's someone who has exposure to what we do. It's a potential lead to grow into a, a co-working desk or another office. And we go back and track how many people have we converted from an entry level To something else and what tactics did we use to allow that. So we're a very process driven organization. I think you have to be to be efficient. In our world.
Speaker 2:A lot of companies chased number of locations as a huge number to talk about and I guess I should throw that in with the Occupancy number. People love to tell you I got 27 locations or 140 or whatever. That stuff is not as important anymore as the fundamental business principles and I think you know it's to our advantage because we've always focused on EBITDA and cash flow and just basic business sense. We never chased locations. And you know there's some operators in our industry trying to open a location a day. Literally that's one of their goals. They want to open a location a day for the year of 2023. That's crazy. I don't know how Well, I know how, but the repercussions of that are you know what's gonna happen to a fair number of those. They're not gonna work out because you're only chasing locations, just Not sound business principles. Yeah, exactly.
Speaker 1:And when do you see the industry heading? Because I think not everyone's adapted and fully understood the shift in how we operate after the pandemic. So where do you see the industry heading in the next couple years as more and more businesses starts Understanding the need to scale down their premises?
Speaker 2:Yeah, that's a great question, and you know all my friends in the industry we, you know, we pontificate on this all the time. There's a lot of things happening, so you know start with the industry.
Speaker 2:And then, you know, start with some of the companies that are demanding people return to the office. Right, we're all suspect to that, because the reason people used to build centers, headquarters, in the CBD's was that's where the talent was. Well, your talent is distributed all over the place, so you don't need to have a hundred thousand square feet on M Street in Washington DC. There's talented people everywhere, and One of the things we think is going to happen is, as you threaten these people, come back to the office or you don't work here anymore. If I'm a talented individual, whatever industry I'm in, I'm sure there's a competitor that's saying I don't care where you work. Right, if you're an engineer and company A says you got to go to DC every day and company B says you can stay home or work in one of the satellite offices on a flexible basis, right, you've just improved my life exponentially because you've killed my commute. So I think you'll see people. Some people are gonna dig in and say I just leased this 100,000 square feet in 2019. And you know, darnit, I want everybody in here so I can see you, because you know productivity is dropping. I don't buy it. I think it's ego.
Speaker 2:The future is flexible. The future is adaptation. The future is distributed workforces with hub and spoke models. The future is offices and network, not a place, and it's gonna be on the owners of these businesses to create a compelling reason for us to get together, right? So a lot of people talk about oh, you can't. You know, the culture of the company doesn't distribute well when you all work everywhere. Well, make us go somewhere, but make it convenient to us and have it be a purposeful day. So let us go somewhere nice, let us, you know, network with each other, let us get our work done and let us go home. So I think there's a seismic shift that was happening pre-COVID, when flexible was really only about 3% of office. If you read articles now since COVID, you know there's a lot of very bright people saying office could become 30% flexible in the next seven years. So a 10-fold increase in the quantity of availability of what we do is mind-numbing. Even if it's half of that, that's a very, very successful, very strong growth model for flexible.
Speaker 1:And if you don't offer any flexibility as a building owner or an employer, you're a commodity and you're not gonna survive very long 100% agree and I can speak to that because I recently started a new position at this company and I had a choice between two companies. One was 15 kilometers away from me, a five-minute drive, but in office with no hybrid working, and this one was thousands of miles away, in Virginia, but it was completely remote and the pay was similar. But I chose this one in Virginia because I could work remote and I feel more productive at home, I feel more comfortable at home, I can wave slippers and I think a lot of businesses are gonna start realizing that the hard way, with people shifting to hybrid and remote work, and I foresee your business doing extremely well in the next five, 10 years and I'm excited for you. It's awesome.
Speaker 2:Thank you very much Like. I hope I'm half right and a lot of people be very happy.
Speaker 1:Yeah, exactly, I think you're on the right track for sure. Thank you, so we are a bit over time. I got lost track of the time there. But what advice would you give to other business owners looking to succeed in your industry?
Speaker 2:Well, it's funny, I'm a member of the board of a group called the Global Workspace Association and we just had our annual conference in DC last week Over 300 attendees literally people from all over the globe and I was fortunate to host a panel, the last panel of the meeting, of the four days of meetings and presentations. And what advice would you give for folks in our business? Only my opinion Don't chase locations. Just to say, I added 10 locations this year. Really, understand how to underwrite a potential deal. Absolutely. Make sure everybody in the deal can win, right. So, doing a lease and doing really well on your lease, the owner only makes what the lease is and that's sort of a win, but it's more of a win for you, right? Doing a managed agreement where your partner's with an owner, where you share upside to infinity right, that's a different kind of animal. So take your time, be really cautious. The opportunities for us to provide benefits to building owners is gonna just skyrocket.
Speaker 2:Be cautious. Not every deal is a good deal. Not every deal is an okay deal, right? So don't get enamored in. Oh my God, I added 50 locations this year. Well, 39 of them are gonna close in 18 months. Don't do that. Be cautious. If you don't understand how to do it, get help. There's a very sharing industry, so ask people that have done it, or ask people that you met in a conference or online. There's plenty of resources. Just a little bit of caution is all. You can go crazy. But if you have a good underwriting program and you understand what you're getting into, of course go nuts. But if you're just trying to open a location today, I just think it's doomsday is coming for you.
Speaker 1:Amazing. I love that. Thank you so much for your insights and your knowledge. I found it super inspirational. But before we go, what is the best way for people to reach out to my Creel, if you have any offers for them or if they need some workspace or just wanna follow your journey?
Speaker 2:Yeah, well, you can always check our website launchworkplacescom. If you need any space, definitely in the DC or greater DC area or suburbs of Cleveland, ohio. Me personally, I steer everyone to LinkedIn. I probably made another 40 LinkedIn connections after last week's co-working association summit. I'm always available If I don't know answers, I can introduce you to other people in the industry building owners, operators. There's a lot to learn. We're still pretty young in what we're doing, so a lot of us are very good at sharing knowledge and resources and introductions. So don't be shy, reach out and ask me for help.
Speaker 1:Amazing. Thank you so much.
Speaker 2:Awesome. Thanks Dylan.