Non-profit vs for profit co-working spaces

Business/Operations Models & Profitability
1

Hello all!
I am new to the group and so very thankful that it exists. I am working with a small group to open a co-working space in Memphis, TN that supports creatives called Wonder/ Cowork/ Create (Wonder CC for short). Memphis does not have a very large traditional co-working culture but that may not be the case for very long.

We are working towards opening a two-year pilot project in the fall to test whether Memphis can support a full-service creative co-working space. We worked out a deal with a landlord to let us rent the space for $1500 (utilities included) for two years. The space is in an up and coming neighborhood so at the end of the lease we may need to find a new space…but we may also realize that we need more space.

We want to set a high emphasis on programming that is partially generated by member skill sharing as well offer space for shows (art, music, literary, etc) and hosting workshops for needed skills that don’t exist within the membership. We are starting out in a 3,000 sq ft space that will have two private offices, a meeting room, 4 ish dedicated desks, and lots of movable furnishings so that part-time community members needs can shape the communal spaces.

Initially, we thought we would open as an LLC and then work towards managing our programming under a 501-c3. Now I am starting to wonder if we should open as an 501-c3 but worry about the two pilot project focus (i.e. putting all the work/time into getting that status if in two years we find that it doesn’t work out).

**MY QUESTIONs ARE: **

  • Do any of you have any advice you can share on this matter?
  • Do you know of/manage a co-working space that operates a hybrid model?
  • If so, how did the organization first start out?
    Thank you in advance for your help!

Cat Peña

2

Hi Cat,

Can you say more about why you think the 501c3 status is needed for your programming model?

In my experience, even with hybrid models, the value of having a 501c3 is to unlock certain funding opportunities…but I also think people grossly underestimate the wide range of funding sources that don’t depend on 501c3 status. Plus, a 501c3 comes with lots of additional paperwork, reporting, and governance, and often limitations on how you’re able to spend your funds.

In certain environments, you absolutely want the slower turning wheels of a board governing your every decision. And if you’re depending on massive donations to keep you afloat, 501c3 can definitely open certain channels.

But based on what you’ve described, you’re opening a small business. I consider agility and control are among the biggest assets someone can have during the period of figuring things out. And as you’ve already noted, you can build in a nonprofit arm down the road if and when it’s truly needed.

Another thing to consider before doing your own nonprofit is exploring options for what’s called a “fiscal sponsor” which is a model that allows a parent nonprofit to essentially “delegate” it’s status to a smaller organization. You generally have to agree to some rules, and pay them a % of the money you move through their systems as a management fee. This model is most successful when there is an alignment of goals/interests between the parent and child orgs, naturally. And it’s a LOT less work than setting things up from scratch, but can be helpful if you’re certain that you can only access the money you need my having this infrastructure in place.

I hope this helps. All in all - you’re already working double duty to essentially launch two businesses at once - it’s important to do ANYTHING you can to simplify, streamline and stay focused on the REAL work (instead of the meta-work, which can easily creep into being a time-suck if you’re not careful).

Good luck!

-Alex

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