The sharing economy is one of the hottest sectors in China, with $250m of seed and Series A capital invested April-May '17, without accounting for the $1 billion+ poured into bike-sharing start ups Mobike and Ofo. While some of these start ups have the potential to create significant businesses (e.g. car hailing and bike sharing), the verdict is still out on others that are peddling shared umbrellas or even basketballs. A more sustainable opportunity in this sector is in co-working space, which is fueled not only by the latest sharing economy craze, but rather built on the solid foundation of continuous growth in start ups and a tangible need for office space.
Today we sit down with Randy Wan, CEO of Woo Space, one of the top 5 co-working spaces in China in direct competition with well known unicorns such as WeWork. We'll cover a number of areas, including: how do Chinese co-working space offerings differ from that in the US, how do local competitors differentiate, and what is the role of services.
Introducing to Woo Space
Adam: Today we sit down with Randy Wan, who’s the CEO of Woo Space, one of the leading co-working space start-ups in China. Previously, he was a consultant at BCG after graduating from Cornell University. Co-working spaces are very hot globally, and many of us are familiar with WeWork, which is valued at $16 billion. In China, the co-working space is just as hot, but the dynamics are different, especially competitive dynamics.
So today we will spend more time talking about co-working space in China – how it works, who are the key players, and how it differentiates from global players. We will also explore the sharing economy in China in more detail, as well as any other China-specific trends that may be valuable for tech professionals and investors in the western world.
Randy, thank you so much for joining us. Can you tell us more about how Woo Space got started?
Randy: I was born in China and moved to the U.S. when I was eight. I spent 14 years in the U.S. but realized that China was just flying us by.. the pace of development there is just so tremendous. So I decided to go back to China and started off my career at BCG. After a few years of consulting, I realized that there was still a lot more to learn, and that I wanted to do a start-up here.
When we were exploring ideas for start-ups, we realized that every start-up we met with had a terrible office. And most of them had a unique type of building, where they had commercial and residential occupants at the same building. This type of building, you would never see in the States. It was also different from a start-up garage, because start-up garages are usually spacious. Just think about hundreds of people going into a building with just two elevators, you have to wait 10-15 minutes during rush hour. Their environment is very cramped. A lot of us were thinking, why don’t we find a bigger space and make it better, and all these companies could come here together. That’s how we first got the idea of Woo Space.
When we looked at the market and started doing market analysis, we realized that at that time there were only two companies in China that were doing this. The occupancy rate was ridiculously high. And as we got started, China was encouraging every single person to do a start-up, and that brought a huge wave of co-working spaces. Around 6 months after we started the project, the number of competitors changed from 10 to 1000.
Adam: It’s an unbelievably hot market in China, and competitive. So in this environment, how did you go about launching your business. How did you try to position yourself?
Randy: To be honest, we just wanted to bring something that was commonly accepted in the States into China. Because when we saw the competitors, such as Beijing company Tech Temple, they were similar to the co-working we were used to, but Shanghai was very different from what we imagined as a co-working space should be like. So we took a lot of WeWork design, services, and communities to Woo Space with an emphasis on the design of the community, because no one was doing that in China.
WeWork in China
Adam: Yes, this makes a lot of sense, and it’s a really good place to start. So you mentioned WeWork, they’re raised quite a bit of money to tackle the China market. Can you tell us a little more about how they are doing in China, how you guys compare against them, and how do you compete?
Randy: So right now we have around 20 spaces in China, with 400,000 square feet and we are the second largest player in Beijing. We are definitely a top 5 player nationally. I think once we started going, even though we at first tried to learn from WeWork, we adjusted a lot based on Chinese elements. For example, in the States, you would think of co-working space as having a lot of seats, large areas where people are just working together and there would be a lot of freelancers and just sitting around these areas, and also the hot desk system where people might come to this place to stay and another place the next day. But in China, this market is very different. Most Chinese companies, even if they join a co-working space, they still want a private space. So now our product has 80% private space versus 20% open space, but we put a heavy emphasis on the community areas so people can still have the community while keeping their privacy. That’s the very big difference when we started.
There is also the price range that is very different. In China, consumers and start-ups are more price-conscious than their counterparts in the States, especially about rental space, but there is also because there are a lot of cheap options out there. For example, the building types I mentioned in the very beginning (residential vs commercial buildings) are very cheap compared to traditional office buildings. For us in China, we are trying to build a very quality product at a cheap price. That is our goal. The difference we have vs. WeWork is that WeWork is still maintaining a US price point. Their price point is probably double of ours while the product, we think, is comparable.
Adam: In China I’ve noticed a few competitors as well in addition to WeWork, some of the prominent ones include SOHO 3Q, UrWork, etc. They are pretty big. They seem to be in some very nice locations with high quality facilities and have a certain artistic feel to the co-working space and to other rooms. So in general can you talk a little more about Woo Space and how you compare and compete with some of the local players?
Randy: Right now, once something gets hot, thousands of people will join. The official statistics is around 4,000 players, and we’ll track about 20 of the better ones. The competition is very fierce, but there are a couple of different dimensions that separate the competition. First it’s about where you are competing, so on a micro-level it’s which city you are based in. Unlike WeWork, which is already a global company, most Chinese players are still within one city. For example, we are mostly in Beijing and the pan-Beijing area so we only have locations in Beijing and Tianjing.
Another big player, FunTown, is the largest one in Shanghai. They have one location in Beijing but in Beijing they have no brand recognition and their Beijing location is not doing that well, but they are doing well in Shanghai. Soho is Beijing - Shanghai, but most of their locations are underground. The nice ones that are above ground are actually very rare, out of the repertoire of locations. When you look at every single player, the ones you are competing with are definitely the ones who are in your local marketplace. Because if you are doing a start-up in Beijing, there is no way you can open up a place in Shanghai, no matter how nice it is.
So when we look at the competition in Beijing, how do we separate ourselves? First it's still design. We are a very design oriented and design focused company. We are actually about to release a research report about the office behavior of the post 90s generation next month, which is very interesting because we find that the generation that most accepts co-working space in China is the post 95 and the post 90s generations. This generation’s behavior in the office space is very different from their counterparts in previous generations. For example in the states you see a similar trend: for Microsoft before 2008, their huge selling point was that everyone has their own private office. Once you head to 2008 with the era of Google and Facebook putting a lot of money into community areas and making open spaces, Microsoft now spends hundreds and millions knocking down all of their offices to rebuild to make things more community-like and social. For the post 90s generation in China, they still want some sort of private space, but they care a lot about being social in the office space.
Co-working, Co-living, and “The Third Space”
Adam: I think you've made a very good point. I think it's the trend not just in China but globally too. And it's not just co-working but also co-living. I notice there's a company in China called UrWork. They are quite big in co living as well. Can u talk more about that how you guys are looking at this third space and incorporating it into your overall offering as a brand?
Randy: So I think everyone especially in China faces the difficulty of getting to work every day. For our employees in our company, the average time to work is over an hour. In Beijing that's the average time for a person to commute to work. The whole concept of combining co-living and co-working is that you could be at the same building where you live and where you work. From our perspective, the idea is good in concept but it is maybe a bit difficult to execute. I had a pretty bad experience in the past, when working hard I wouldn’t leave the building (where I lived and worked) for weeks. There was this two to three weeks span when I just stayed in the building, mostly traveling from the elevator to the office, which is not that fun. So in our view, rather than combining working and living in the same building, we would rather keep them separate. What we tried to do is that we have a service provider that we work with and help companies and their employees find housings around the office. That's how we try to counter this co-living trend.
So the third space is the constant product brought by start-ups. They want to be a place where people go when they are not working nor at home sleeping. That’s going to be our next major expansion: we’ll try to incorporate activities that people try to do outside of work and outside of sleep into these spaces For example, some of the spaces have very nice coffee shops, boutique coffee shops. We’ll have a toddler kindergarten within one of our space whereas so if you have kids you can just bring them. And as a next step we’re even considering bringing in barber shops and gyms into our space… this is our concept of co-living. We try to have more of your time within our ecosystem outside of work. Once we have brought this into our ecosystem, we are going to connect you all to our app so you can pay for all these things through our apps and you can reserve these services on your app as well. That’s the next step of our expansion.
Further Differentiation Via Start-up Services
Adam: I understand the importance of building a community around your physical space. Besides social activities what about other types of services for start-ups, for example legal services...
Randy: Right. It’s actually a very interesting thing that Chinese start-ups require a lot of services in co-working spaces. We have two type of services. The first type is that we’ll work with third parties. we bring them in and we can get a discount for our hundreds of companies that is not accessible to individual companies. We have around over a hundred of these service providers, which include media, legal, social security, company registration and anything you can imagine that a company might need, cloud services, all of that. We have at least 50% off their normal rates for all our companies who can just use our app, request that they need a particular kind of service and they will be able to get it. It’s actually very useful for the companies we have within our space.
The second type of service we have is a team we have ourselves that provides direct services to these companies. There are two categories. The first is a head-hunting service because start-ups always face difficulties in recruiting so we recruited a team of head-hunters that provide this type of service for free for the start-ups. The second is a training service. We will actually spend money to bring in mentors and trainers to do sessions of trainings for the start-ups for free for all of our start-ups.
Adam: That’s really interesting. When I think about the spectrum of having physical spaces to work at and having more services layered on top of it, I would think of accelerators.
Randy: For accelerators, they require you to give up a piece of your shares but we don’t. We make our profit but our business model is very simple: we make our profits from rent, which is the biggest difference. Why all co-working spaces or most co-working spaces provide services similar to accelerators is because customers actually care about them in China. If we don’t provide those services, customers will be less likely to choose you as a brand.
Adam: Okay. Thanks. That makes a lot of sense.
We just sent you an email. Please click the link in the email to confirm your subscription!