The Harbinger recently interviewed Fan Yang, founder and CEO of the rapidly-growing space sharing platform ELSEWHERE (城市空间). Offering unique, beautiful spaces suiting a variety of budgets and needs, ELSEWHERE was born out of Fan Yang’s observation that Beijing lacked high-quality on-demand meeting spaces and his love of the creative community. In China’s booming “on-demand” tech industry, ELSEWHERE stands out by being not just a space-sharing platform, but a lifestyle.
From Chemistry to the Creative Community
Caroline: Thanks for joining us today Fan Yang! Why don’t we start out by talking about your personal journey?
Fan Yang: I went to the U.S. for graduate school back in 2009, where I studied Chemistry and was accepted into a PhD program before I decided to drop. I ended up graduating with a Master's degree in Chemistry and I had landed two internships - one at a hedge fund, and the other at a boutique merchant bank. That's how I accidentally got to know some venture and angel investors in New York – it was a very small circle back before 2011. I started building my own personal network and learning about how early stage venture works while being surrounded by very intelligent individuals. My first full-time job in the U.S. was in Philadelphia at a mid-sized pharmaceutical company. I worked as the CEO and Chairman's training and management assistant. The company was raising a PE round and I helped the CEO deal with investors and all kinds of corporate operations. The company was eventually acquired in 2014, so I returned to New York and started working for a VC firm. But by then, it was 2014, and people know that 2014 was the prime of China’s tech boom. I started wondering, "Is this a good time for me to start my own venture?" The best talents around me were all starting their own ventures and funds. And so, after serious consideration, I decided to move back to China in 2015.
I had two criteria for what I was going to do next: something that I was good at, and something that interested me. The first thing I did when I landed was visit my friends, ask questions, figure out what it's like to start a business in Beijing. During these visits, I discovered that every major city suffers from the same problem: there aren’t any good places to meet. In Hong Kong, Tokyo, Beijing, Shanghai...actually in Beijing, it's worse. Every Starbucks is always crowded and noisy. It's not designed for its customers to stay - the coffee is okay, but the space isn't. When I first landed in Beijing, I would spend three hours in a cab running between meetings. When I met people in Guomao, in Sanlitun, the noise was just terrible. You would lose attention very quickly and spent at most an hour at a meeting. I would get a sore throat when I spoke for more than two hours. But still, I hadn't thought about doing a space business.
Fan Yang, Founder of ELSEWHERE
Fan Yang: After work, on the weekends, I would visit some of my friends who are creatives. Most of my friends back in New York were architects, designers, creatives, Madison Avenue types. I loved talking with these people. As I got to know creatives in Beijing, I was amazed to discover so many hidden gem spaces – studios, painting rooms, courtyards. Even back in New York, it would be something. These people inspired me - there's more to Beijing than just Zhongguancun (China's Silicon Valley). So I thought, "Why don't I create an app to connect these spaces with different people?" Not only would it be valuable to professionals, but the space business is also a huge market. This brings together a lot of different components: design, architecture, urban planning, furniture. A space business could be something big and interesting, so why not do it?
So that's how ELSEWHERE began. I registered the company in the spring of 2016, and then I spent a lot of time recruiting the team. I recruited my team members one by one. Unlike a lot of other Chinese entrepreneurs, I don't have old colleagues from Alibaba or another large tech company. Instead, my team members were attracted by my vision. Our product isn't just software - it's a holistic entity. Our spaces work in conjunction with our software. We started really small and launched our project beta at the end of 2016. We've spent more than half of 2017 curating and integrating our product. We’re not moving too fast because I know that for such a marketplace, it takes time to get started and to achieve our own standards. What are our services going to be like? What kind of skills do we need? We're still trying to figure that out right now.
Caroline: What was it like getting started?
Fan Yang: We initially attracted users from the creative community and word-of-mouth. This is important for every successful marketplace business. Our strategy is simple. First, create a great experience. Make sure it looks good. People see the space and think that it's pretty, and then they'll talk about it and recommend it to their friends. But obviously we have to maintain our users, so we work on guaranteeing a good experience. Most of our users have rated their experience five-stars. As we've grown, our benchmarks were to find the first 100 and 1000 lovers of our service. We've asked for user feedback regarding how to improve their experience. In our private beta, we accumulated 6,000 certified users. Since this summer, we've grown more quickly as we've tried to reach more users.
Caroline: You mentioned that when you moved back to Beijing, lack of meeting spaces was a universal problem. When you started approaching others about your space-sharing idea, what was the initial feedback?
Fan Yang: When I started describing my vision, most space hosts loved the idea. All space hosts come from different socioeconomic and business backgrounds, but all of them could envision a future where if there were more spaces available in Beijing, it would have a direct, real-world impact on their lives. So their mindsets were, "Okay, this is interesting. There's no harm in giving it a shot. This young guy and his colleagues seem trustworthy, so I'll try it." Because ELSEWHERE started with people's personal, private spaces, most of these spaces were not fully utilized. Spaces like the room we’re in now, it was a "包间" (private room) which sits empty more than 75% percent of the time, especially during the day.
Spaces like this can easily be better utilized and attract more people. So for space hosts, their thinking is that ELSEWHERE won't cost them too much time, it's not troublesome, it's fun, and in the long term, it'll make money and help them make friends. People love the idea because most of them haven't heard of these other spaces, and if they can afford it, they'd love to come and experience it themselves. We haven't done much market research, but I thought if the reception on both the supply side and the demand side is extremely positive, ELSEWHERE at least makes intuitive business sense. Now we’re thinking about how to create our product and how to implement our market strategy.
Achieving the Network Effect
Caroline: Great. Let’s expand on the supply side of things. You mentioned that many of ELSEWHERE’s spaces were empty the majority of the time, and so for space owners, ELSEWHERE’s value proposition seems very clear. At the same time, all of ELSEWHERE’s spaces are extremely unique. Can expand on how you find these spaces and your selection process?
Fan Yang: First of all, ELSEWHERE is a community-oriented business. Our first few customers came from the creative community and word-of-mouth. When we got our first 20-30 space owners on the platform, they loved the idea, so they introduced it to their friends, and thus more people joined. It was a natural network effect. We don't have a BD team, and at this point, we haven’t directly reached out or cold-called people. I’d estimate that 60% of our spaces come from our community – direct recommendations by existing space owners, people we know, or people who know us. 20% of spaces come from our online application form - it's really easy to submit your information and connect with us. The last 20% mainly come from our partnership with businesses. At the end of the day, ELSEWHERE stands out because we are unique and interesting. We take the time to talk to space owners, share stories, share our mission.
Regarding criteria, most of our spaces are both practical and stylish. We have our own standards - it's not that we select the spaces, but there is a standardized procedure if you want to join the platform. It's just like Uber - there are standards to becoming an Uber driver. No matter what your background is or what kind of car you drive, you have to go through the same process. So for us, regardless if it's a study room, courtyard, or conference room, you still have to check things on the application: stable Wi-Fi, if you can guarantee privacy (not being interrupted), and other details like temperature or basic hospitality like greeting people and clean-up services. It's not an overnight stay like Airbnb, so space hosts have to provide certain services. That's how we evaluate potential spaces. We hope that the ELSEWHERE experience is well-designed, not just the spaces, but the whole experience from start to finish. We care about our users because this is a hospitality business. So even if you have a brilliant space but you're not that friendly, you’ll get dinged.
Caroline: Regarding ELSEWHERE’s future growth, do you foresee any changes from what you're doing now - moving beyond word-of-mouth and a community network?
Fan Yang: You know, we're still in the early stage so we're still doing word-of-mouth. People have to love the service and the experience. That's what we call organic growth. So as we expand in the next few months, we're focusing on improving our core service and core experience. We will strive to make our service more affordable by offering different price points. As we grow, we will continue collaborating with our partners like the media and other big name-companies and platforms to let their users know about our service. For example, when online travel agencies’ business travelers land in Beijing, they might be stuck hosting meetings in hotel lobbies and shopping malls and Starbucks.
In one sentence, I think this is our opportunity as well as our challenge: We have to make ELSEWHERE a fashion, because right now, more and more businesses are becoming "fashion" businesses. People have to think of our services as part of a blended lifestyle. Starbucks did this successfully. Starbucks isn't just a place for you to get your coffee fix, but it's a lifestyle. For people to come to Starbucks and meet, especially for professionals, it's very trendy, it’s a status symbol. So we have to make ELSEWHERE cool and have people talk about us. In the long term, it's about our brand, our value, our user experience. This is what differentiates us from some other players in the market.
An ELSEWHERE Space
Caroline: In a different interview, you said that "What works in Shanghai, might not work in Beijing." Can you expand on how you envision scaling ELSEWHERE’s business model and how you view expansion strategies in different cities?
Fan Yang: When you talk about space, you're talking about cities. We're mainly focused on Beijing to start and we just soft-launched in Shanghai. We're still testing the market. But we actually spent more than half a year preparing for our soft launch in Shanghai because we had to understand the market and recruit local colleagues who understood the market better than we did. When we choose a city to expand to, we need to understand the culture, the supply and the demand side. In China, when you expand, you have to think about the country like a whole continent – there are so many different tiers of cities. In our near future, we're going to focus on the six first-tier cities: Beijing, Shanghai, Chengdu, Hangzhou, Guangzhou, Shenzhen. And then we’ll move on to the second-tier cities, like Wuhan, Tianjin. It makes sense for most internet businesses to expand in this manner.
Competitors - or Partners?
An ELSEWHERE Space
Caroline: Speaking of other players in the market, let’s discuss the sharing economy before. Can you talk about your competitors in the space-sharing industry, such as Airbnb and WeWork?
Fan Yang: The problem for existing platforms is that their business model is quite obsolete. They're still trying to be middlemen. They make money from information asymmetry. They make money by offering additional services because it’s not enough to just take a cut of transactions.
I think co-working space players are our potential competitions as brand-name companies like WeWork are launching new services to fulfill the various needs of their customers, such as co-living apartments, wellness centers, and conference rooms. My guess is that other co-working companies in China will follow them. Similarly, 民宿短租平台 (short-rental homestay platforms) like 小猪短租 may also consider venturing into in the co-working space, and although so far they haven't, they could be our potential competitors too. But our thinking is that at some point, we'll try to collaborate with them. For example, Airbnb’s Beijing team is actually quite interested in renting our spaces for their offsite meetings and to host their executives when they visit Beijing.
There are also some new players who provide party spaces for social gatherings. They started as Airbnb hosts and discovered that some users rent Airbnb not for a place to stay, but for a place to host social events. But this space is still quite small.
Here’s the opportunity: right now, when we talk about space, there's no definitive brand. When you think about sneakers, you think of Nike. When you want to drink gourmet coffee, you think of Blue Bottle or in China, sea salt coffee. But in China, when I tell my friends about space companies, they ask, "Are you launching satellites?" There's no concept of “city space”. So in the space market, there's no dominant brand or platform. This is both an opportunity and a challenge, because it's a hard thing to do.
Finding the Sweet Spot
Caroline: Can you give me some more insight into your expansion rate in terms of actual numbers? For example, how do you view critical mass?
Fan Yang: In our community, we have more than 8,500 users - actually, 8,700 at the moment. We have more than 272 spaces on the platform, with more in the process of going online. We're spending a lot of time on the supply side because we're trying to formulate spaces that work. In Beijing and Shanghai, there are four key numbers we're focusing on: 100, 1000, 3000, and 10,000. The first 100 spaces in a city - we have to at least reach this number for the network effect to take place. We have to prove to our customers that they can use our service conveniently and that we have enough spaces. For 1000 spaces, the calculation is, in Beijing and Shanghai, there are about 100 commercial centers that easily accessible via subway. Around each hotspot, you have to offer at least 10 spaces such that when you need a space, you can find at least one. That's our logic. So 1000 spaces is an important milestone for us in each city. And then 3000 - that will allow us to have a bigger network effect and lead the market. In Beijing, there are 26 CBD areas like Guomao, Sanlitun, Wangfujing, Zhongguancun. In Shanghai, there are about 28.
Take the Sanlitun area for example. Between two subway stations, Dongsishitiao and Tuanjiehu, in this area we have about 8 spaces on the platform. But because this is a CBD area, we need to have more. We're hoping to grow to 30 to 40 high-quality spaces on the platform in this area alone. So when we've reached more than 30, this can change how we approach work spaces and spaces where we hang out with friends after work. And when we reach 10,000 spaces in one city, our vision is that users will have a variety of options for every type of need they could have. In our business model, 10,000 is a very important milestone. I know that it'll be hard to reach. But in China, every day, there are new high-quality spaces being created.
The ELSEWHERE Lifestyle
An ELSEWHERE Space
Caroline: Let’s talk about the users. Can you elaborate on ELSEWHERE being not just an app, but a lifestyle?
Fan Yang: It’s natural for people to want to have a space where they can gather with friends or bring their families to. Some people want somewhere where they can find peace of mind, like a tearoom. In Beijing, it's really hard to find such spaces, because for most people, their homes aren't big enough for entertaining. And outside the home, your options are Starbucks, hotel lobbies, or commercial spaces. Traditional teahouses can be not-so-well designed or boring or inconvenient.
Most professionals have their own office and more and more companies have new office models, like co-working spaces. But in Beijing, a major problem still remains: people’s work-life balance. In Beijing, there is no work-life balance. People are immersed in their work seven days a week, 24 hours a day. Peoples’ after-work lives are quite boring. That's why in Beijing, I think the problem is people's lifestyles. Some of my friends are afraid of imagining what their lives will be like in the next three to five years. Maybe they'll be more successful professionally, but their personal lives aren't getting any better. So that's why we focus on working spaces, but we also emphasize the ELSEWHERE lifestyle.
ELSEWHERE's Matterport-enabled 3-D Space Model
Caroline: Let’s talk about your beta. What did you discover? Was there anything that really surprised you in terms of features people really wanted or spaces that have been really popular over the last few months?
Fan Yang: We thought that most of our users would be 25 to 35 years old, but our youngest user is just 17 years old and our oldest customers are over 40. Our customers also use the spaces quite creatively. For example, there is a tea room in 798 that looks very zen. But one booking was from two pairs of young parents who brought their babies to the space just to have a family gathering. We didn't think the space would be used that way - we thought it'd just be used by people who wanted peace of mind.
An ELSEWHERE Space
Caroline: Regarding the trend of people demanding more affordable spaces, have you discovered if there is a sweet spot or a price range at which people won’t hesitate to think "Hey, I should try that out"?
Fan Yang: In China, conventional wisdom is that lower-priced options also mean lower-quality. For example, the space that we're in right now, this costs you 300 RMB an hour to accommodate 20 people. So for two hours, for 20 people, it's way cheaper to host a meeting here than at a coffee shop; it's about 15 RMB to 30 RMB per person. That's our target range. Right now, our spaces are mainly suited for multi-person use. Spaces that rent for 200RMB an hour are our most popular ones because they accommodate 10 to 15 people. So compared to most places, whether high-end restaurants or Starbucks, ELSEWHERE is actually cheaper. That's why we're striving to provide more spaces that are priced between 40 RMB to 200 RMB an hour.
Re-Inventing City Space
Fan Yang: Everything can be re-invented. Our motto is that we are re-inventing how people meet and work. Our logic is, if Starbucks is becoming more and more obsolete, we have the opportunity to re-invent how people meet and work in the city. How do we do that? That's our open question. We need to continually explore new opportunities. That's the innovation that we want to do, and we want to give it a try as we launch Shanghai. Recently, we've invited some architects to answer the question "If you can design a modern space for people to meet and work where they can do their best work and enjoy their time, what does it looks like? We have the technology - smart devices, automatic coffee machines...how can we do this?" So that's the open question, and our architects will explore this question over the next few months.
I also see this as the integration of technologies. In the future, city cultures will change. Right now, the focus is on on-demand services, but we need to integrate this technology into households and spaces.
To sum up, it's not an easy business. In China, you can do on-demand everything. But on-demand real estate, on-demand space services are a bit different. It's hard because it's about the whole experience, and things can't be standardized. People use spaces differently. That's why so many companies that try to be "the Airbnb for office spaces" struggle - I don't see a successful example. So I believe that in this field, even though there are companies like Airbnb and WeWork, these spaces aren’t connected to the internet. There has to be some new type of company that will change market. So that's why we're so proud of what we're doing. It's still a huge opportunity without a dominant player.
Caroline: That sounds great. Thank you for speaking with us!
—About the Author—
Caroline Chen is a David L. Boren Scholar at Tsinghua University and studies economics, international relations, and political science at the University of Southern California. Caroline is passionate about the potential of technology to accelerate economic growth in emerging markets and hopes that The Harbinger will foster cross-border innovation and opportunities.