The WeWork problem people aren't talking about that is spreading across the co-working world

Inside Spacious, a co-working service that operates out of New York restaurants.
Andrew Frasz | Spacious
Inside Spacious, a co-working service that operates out of New York restaurants.

The number of co-working spaces worldwide is projected to soon cross 20,000 and reach 25,968 by 2022, an increase of 42% from 2019, according to CoworkingResources in its recently released Global Coworking Growth Study 2019. Yet there's been a paradigm shift as to whom these co-working spaces are actually serving. Hint: It's no longer the independent worker.

And that's a huge mistake, as 40% of American workers are expected to be freelancers by 2020.

Today the market value of co-working spaces is estimated at $26 billion worldwide, and it's growing exponentially: Every 7.5 days, one more site opens in New York City, claims the study.

But the audience and feel of these co-working spaces has dramatically shifted since its inception in 2005, when Brad Neuberg launched the first official collaborative space, at the Spiral Muse in the Mission District of San Francisco, with just a few folding card tables to give independent workers structure and overcome the feeling of isolation. Neuberg rented the space two days a week for just $300 a month.

The changing face of the co-working space

Now large corporations are hopping on board, renting out blocks of desks for their own employees. According to Bloomberg, General Electric, KPMG and Merck all rent out dozens of desks at co-working spaces. For many these environments provide additional real estate at a lower cost.

Between 2017 and 2018, 71% of WeWork members were corporate full-timers at companies that were either located in a WeWork office or used WeWork to house their remote teams. By 2019, employees of corporations with more than 500 employees represented 40% of WeWork's member base.

All this demand is upping the competition for WeWork, Impact Hub, Industrious and others, who are now distinguishing themselves by the high-end amenities they offer. Instead of catering to the independent worker, they have pivoted toward attracting corporate accounts, promising an alternative to cubicle-ville by providing flashy amenities, such as free breakfast, onsite brewpubs, golf simulators or rooftop pools.

According to DeskMag, the average monthly price for a dedicated desk in the U.S. is now $387, and the average monthly cost for a hot desk — any open seat in a co-working space — is $195 per month. In New York City a dedicated desk option costs $636 per month, and a hot desk option costs $453 per month.

But is this flashy transformation really paying off?

There's a huge disconnect between who co-working spaces are serving and what the future of the workplace looks like. The existing 22,000 co-working spaces worldwide have accidentally focused on creating a commodity specifically to sell to larger companies as part of their benefits packages rather than nurturing the 53 million bootstrapped independents in today's U.S. workforce, many of whom don't have deep enough pockets to regularly utilize these flashy co-working spaces.

For more on tech, transformation and the future of work, join CNBC at the @ Work Summit in San Francisco on April 1, 2020.

A WeWork office in San Francisco
Kate Munsch | Reuters
A WeWork office in San Francisco

While most spaces couldn't sustain WeWork's $1.25 billion loss in revenue — the company would have run out of cash by the end of October if it hadn't received the new financing from SoftBank — even more fiscally conservative brands are hemorrhaging money. In conversation with other managers of co-working spaces about our shared experiences, the words I tend to hear regarding the co-working membership revenue stream include "loss leader" and "break even."

The biggest amenity for the independent workforce

A rooftop pool won't help independent workers maintain success. Free breakfast won't lift their entrepreneurial endeavor off the ground. Community is the strongest yet least visible amenity.

There is a critical culture distinction between the independent and the corporate co-working members. While corporate employees are charmed by the amenities of a space but don't necessarily strive to contribute to the culture, independent workers are driven to co-working spaces for the only resource they can't access alone: community.

So how do you build a community that supports the future of work?

1. Don't force it. Many co-working spaces treat community as another checkbox in an amenities list: scheduling a myriad of drab networking events and mixers rife with the type of cringeworthy ice breakers and forced socialization that can seem more punishment than opportunity to creatives and independents.

In our own space, we've observed co-working members hang out over snacks and engage in sincere conversations after mandatory fire drills more than any of the half-dozen types of daytime networking events we have concocted. Rather than investing dollars in hosting networking events, co-working spaces need to focus on investing in creating a collaborative space that encourages organic, authentic relationships on a daily basis.

2. Build camaraderie through failure. From the beginning our Makerspace — a space where members have access to shared tools, technology and educational resources — always had a natural sense of community, with no forced networking required.

Our Makerspace is conducive to creating natural, intimate relationships. We realized that seeing the process of creation openly from start to finish creates a level of transparency. Failure builds trust, and trust builds community.

"While corporate employees are charmed by the amenities of a space but don't necessarily strive to contribute to the culture, independent workers are driven to co-working spaces for the only resource they can't access alone: community."

In this era of carefully staged and edited Instagram highlight reels, there is intimacy built by sharing your most epic failures with fellow creatives and small business owners. Co-working spaces need to create an environment where failure becomes a celebrated part of the arduous journey of entrepreneurship. By demystifying the successes and setbacks independents and small businesses experience, co-working spaces can create a humble and open culture willing to share ideas and feedback,and engage in mentorship.

3. Don't treat 'community' as a buzzword. In 2018, independent workers spent a billion hours freelancing each week, and the Small Business Administration estimates that more than 627,000 new businesses open each year. At the Idea Foundry alone, our membership includes more than 400 small business owners and entrepreneurs, a fifth of whom launched their businesses after joining us, and a quarter of our non-entrepreneur members are considering a launch within the next two years — data that suggests members feel confident they have access to the resources and support here to take the leap into entrepreneurship.

When prospective members come to tour your co-working space, they see and understand the value in the tangibles: the aesthetic, table spaces, conference rooms, technology. But how do you show the value of community? If members don't see it in action, they won't help you build it.

Instead of relying on the vague emotional benefits of community or treating it as a buzzword, this type of ecosystem can lead to real professional growth.

About 40% of our members reported being hired by or hiring fellow members in the past year, and a quarter report they've done both — hired and been hired. About 75% of our members reported receiving a referral from staff or fellow members, and a third report referrals that turned into a paid gig. These metrics measure both real economic value in our internal economy and serve as a proxy to measure trust: People only hire, work for or make referrals for people they trust.

— By Casey McCarty, CEO of the Idea Foundry, a co-working space for artists, artisans, techies and entrepreneurs