The DealMakers podcast features entrepreneurs that have been successful with M&A transactions or capital raising efforts.

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Jamie Hodari is the Co-Founder and CEO of Industrious which is a premium workplace platform, blending five-star service and stunning design to provide an unparalleled workplace experience. The company has raised so far $150 million from investors such as Riverwood Capital or Fifth Wall. Prior to Industrious, Jamie was the CEO and Co-Founder of Kepler, a rapidly growing experimental university.

In this episode you will learn:

 

  • The pros and cons of a lawyer brain in entrepreneurship
  • Fundraising and relationship building with investors
  • Customer retention
  • The power of communities
  • Why managing people is 90% of the business success
  • The future of work


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About Jamie Hodari:

 

Jamie Hodari is the Co-Founder and CEO of Industrious.

Prior to Industrious, Jamie was the CEO and Co-Founder of Kepler, a rapidly growing experimental university that Scientific American called a “daring global experiment” to bring “top-tier instruction to the neediest parts of the planet.”

Jamie previously ran the education non-profit Generation Rwanda, analyzed investments at the hedge fund Birch Run Capital and was a project finance lawyer at the law firm Sullivan & Cromwell.

He started his career as a journalist at the Times of India.

Jamie holds a J.D. from Yale Law School, an M.P.P. from Harvard University, and a B.A. from Columbia University.

Connect with Jamie Hodari:

 

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello, everyone, and welcome to the DealMakers show. Today, we’re going to be learning a lot about co-working. So, without further ado, Jamie Hodari, welcome to the show today.

Jamie Hodari: Thanks for having me.

Alejandro: Your CV is quite impressive I have to say. Especially starting at the beginning. You studied not in one but in three Ivy League equivalent schools. Those are Columbia, Harvard, Yale. Why so many degrees?

Jamie Hodari: I love being in school. I love education. I actually worked in education for a while after school, and I suspect I might go back into it one day as well.

Alejandro: Got it. Let’s talk about, for example graduating and being out of college. Your first, I would say, experience with the labor market, that was The Times of India. How was your experience doing that?

Jamie Hodari: It was great, but I will say it was tough. My family is from Argentina, so I didn’t necessarily have a family connection to India, but I learned Hindi and Urdu in college. Some of it was just I wanted a reason to get to put that to work. So, I went and became a reporter at The Times of India, and I was based in Delhi, and it was really fascinating. It was a tough time for India. There was a conservative government in place that was both a) very anti-Muslim, and b) anti-press. They liked using me as this sort of like foreign young kooky reporter that they could have interview or talk to some of these conservative politicians that were very pro-U.S. but had an anti-local press vent. It was great. As a 22-year-old, I shouldn’t have been getting to interview those kinds of people, but I think they were not very good people, and I didn’t love having to interact with those types, I guess for a lack of a better word.

Alejandro: Got it. I think that this was probably critical for you because one thing that I see is that the best founders are not the best visionaries or people that just sell, sell, sell. It’s people that are really good at storytelling. So, do you think that this shaped a little bit that front for you?

Jamie Hodari: Yes. I think being a journalist has been extraordinarily helpful both for storytelling reasons, but even more so, I think, for being a really good listener. I’m shocked by the number of founders that aren’t very good at listening, that aren’t very good at hearing what people are really saying, and don’t ask good follow-up questions because I think one of the most important things to note, when you’re founding a business is that there are very few problems you’re going to encounter. There are very few challenges you’re going to face that a thousand people haven’t already faced before. If you try to logic through everything from first principles and assume that you’re going to come to a better conclusion than all the people that have come before you have, you’re much less likely to succeed than if you’re willing to be humble and say I’m going to do everything I can to learn what other people in my space are thinking, what people in adjacent industries are thinking, what other entrepreneurs have done when faced with similar situations. That is the most powerful tool you can have as an entrepreneur is a keen, curious appetite for listening.

Alejandro: Right. I agree with that. That’s why we have two ears and just one mouth. So then, law school. It’s interesting because I’m also a recovering lawyer, and I know how it feels to go from law to entrepreneurship. But in your case after law school, you go to Sullivan & Cromwell as an attorney. What kind of practice were you doing there?

Jamie Hodari: I primarily did Project Finance. The reason I didn’t do it for very long was because in my mind I had Project Finance. I get to fund big development projects in the developing world: railroad lines, infrastructure, etc. that can help developing economies grow. As you might suspect, the vast majority of Project Finance is actually gold mining, copper mining, oil projects, etc. There’s nothing wrong, necessarily, with this sort of resource extraction industry, it just wasn’t what I wanted to be spending my time doing. So, I moved to working at a hedge fund.

Alejandro: Got it. I don’t know if you know this, but for the people that are listening as well, the fun fact is that Peter Thiel also worked at this same firm before he was an entrepreneur.

Jamie Hodari: No, I didn’t know that.

Alejandro: Yeah.

Jamie Hodari: I’m sure that George Clooney’s wife was a lawyer there, but I didn’t realize Peter Thiel as well.

Alejandro: Yeah. It’s honestly one of the best law firms in New York, so I’m sure the experience for you was great. For you, how would you say that this legal background has helped you over the years?

Jamie Hodari: I think being a journalist was unequivocally a good thing. I think being a lawyer-come-entrepreneur is a double-edged sword. I think it makes you very good at issue-spotting. You know, a lot of times, business deals, there can be this sort of honeymoon period where everyone assumes everything is going to go right, and your job as a lawyer, when you’re drafting the contract is to say what if this goes wrong? What if that goes wrong? To sort of spin forward 10 years and anticipate all the possible things that could go wrong which is a valuable skill, but it can also be a handicap as an entrepreneur because you can get so caught up in everything that could go wrong, that you miss what’s right in front of your face, or that you become unwilling to take risks. I’ve seen a lot of lawyers struggle with being successful entrepreneurs for that exact reason, and it takes effort and thought to overcome that and say I’m going to anticipate everything that could go wrong, and I’m going to do this anyway having identified what the risks are. I think one other thought on being a lawyer-come-entrepreneur is that you’re really good at seeing both sides of an issue. You kind of see everything as grey. There’s this, but there’s also this. Part of being an entrepreneur is you have to be extraordinarily decisive. You don’t have a choice. Time is of the essence. You just have to make a call even if it’s not clear if it’s the right call. Any decision is better than no decision, and I also find that sometimes, really good legal training makes you less decisive, not more decisive because of how much it teaches you to see every side of an issue.

Alejandro: Yeah. Also, it helps to reduce the legal costs. I don’t know if you experience that. Like when you’re dealing with lawyers, and I’m sure that people who are listening can relate with this. It’s like you’re in a taxi and it just keeps going and going. Anything is like, “Hey, why don’t we have this call?” I think that at least for me, and perhaps for you, it might have helped like, there’s no need for a call. Just get this thing done.

Jamie Hodari: Yeah.

Alejandro: Really cool. So, why did you switch from Sullivan and Cromwell to Birch Run Capital?

Jamie Hodari: I knew that I wanted to go into business, and I felt like a real deficit that I didn’t know accounting. I didn’t know financial modeling. At that point, as you noted, I had three degrees. I wasn’t going to go back to business school. In fact, I think my sense was that there were quicker, better ways to learn that. So, some of it was just that I knew it would be a quick thrown-in-the-deep-end education in business dynamics and finance, etc. Then I also thought that it sounded like a really fascinating way to spend your days; to learn about the world, to have to develop hypotheses or theses and test them, and then make bets behind them. I didn’t think it was what I wanted to do for my whole life, but I figured it would be a pretty appealing way to spend a couple of years.

Alejandro: Right. So, let’s talk about the entrepreneurial bug. How did this happen?

Jamie Hodari: I always had a list of business ideas starting from maybe 23 or 24, and I was always reranking them and crossing them off the list if someone else started it. But I always had that list. I think honestly, I probably didn’t have the confidence in my mid-20s to just say I’m going to go do this right out of law school, for example. So, I just had this list, and it was ticking and going, and I was waiting until I developed what I felt like were the requisite skills, the maturity to actually strike off on my own with the confidence to do it. I still don’t know to this day if that was the right call or if I could have saved five years of my life if I just took the plunge straight out of school.

Alejandro: Yeah. And your first company, that was Kepler?

Jamie Hodari: Yeah. I left the hedge fund to take over basically the large private college scholarship program for orphans of the Rwandan genocide in Rwanda. When I got there, it was pretty clear pretty early on that the universities in Rwanda were a very poor quality beyond what one might assume about this. So, you have 800 students in a lecture hall, and there’s no microphone. So, the first couple of rows can hear the professor, and then everyone else in the room can’t hear a word the professor is saying, and they’re just trying to copy the notes of the row in front of them that’s trying to copy the notes of the row in front of them. I think very quickly I sat down with the board and said, “We’re spending a good amount of money to send students to these universities where it’s not clear to me they’re learning much. It’s not clear to me they’re actually being prepared for the job market, and that’s not doing Rwanda service, it’s not doing those students a service. If we really want to do this right, what we should do is just launch our own university.” That’s what Kepler was, was a model, a new kind of university, and it’s now a network with a few campuses. But it wasn’t clear at the outset that that was a good idea. I think it was perhaps at first, just a little too ambitious to bite off for some guy in his late 20s and a board that had only run a scholarship program up to then.

Alejandro: What was the founding theme of Kepler?

Jamie Hodari: Generation Rwanda was the name of the scholarship program. It was me and the existing staff. We just made a pivot, and we said, “We’re going to do this.” I had to hire a lot of people from the education industry. I had to hire a lot of curriculum designers and all the people you need to launch even a light-weight university, but the core of it was essentially a pivot from an existing scholarship program.

Alejandro: We’re talking about Rwanda. So, obviously, completely different from New York City where you and I are. What is it like to launch a company in a place like Rwanda compared to what many of our listeners that are here in the U.S. executed their business to give them a sense?

Jamie Hodari: Yeah. I think there are big advantages and big disadvantages to launching something in a relatively kind of early developing economy. I think on the downside, there’s a lot of regulation and a lot of unpredictability. It’s just you never know if the government is going to decide one day that privately-funded universities are no longer kosher, or whatever it is. That makes everything really hard compared to in the U.S. where you’re in a relatively stable regulatory regime where there’s a lot of ability to say if I do X, Y, and Z, I have real visibility into what that will mean. On the flip side, and this is particularly true in higher education, 1% of people in Rwanda go to university. So, there’s a lot of leeway to create something, and if it’s a great product at a great price, there are going to be a lot of customers that are ready for that, and there aren’t really powerful incumbents that can grind you down or find a way to block your entry. Whereas, in the U.S. with a mature higher education market, for example, that would be much harder.

Alejandro: Got it. What ended up being the outcome for Kepler, Jamie?

Jamie Hodari: We launched Kepler. The reality is I launched Industrious with my co-founder one month later. So, I was running both simultaneously, which was hard to do for very long, but for one year, one very crazy year of my life, I did both. What Kepler is, is it’s a blended learning university where you watch your lectures at home on your laptop, usually video. Either Rwanda lectures or lectures beamed in from the UK or U.S. Then when you go to class during the day, you work with a group and with a facilitator to work through your problem sets and through various discussions. So, instead of doing your lecture in class and your homework at home, you do your lecture at home and your homework in class. There’s a lot of evidence that that’s actually a more powerful pedagogical model than the typical way of doing it, and of course, it’s also more cost effective. So, the university was $1,000 a year. IKEA, the furniture company was and still is the largest funder and has helped bring that cost down even more. It’s been a real runaway success. So, there’s now, again, like I said, multiple campuses, and almost all of the third-party assessments of student performance have shown that Kepler has within Rwanda the highest graduation rates, the highest job placement rates, the highest advances on the collegiate learning assessment which is the standard test of critical thinking gains and university. Now, Industrious has grown so big that I still love and think about Kepler a lot, but I never quite imagined Industrious would get to where it was, but I’m also very proud of where Kepler is and what that’s doing.

Alejandro: Got it. So, how did the idea, because Industrious is the most recent one, how did the idea or the incubation process really come to life?

Jamie Hodari: Of Industrious?

Alejandro: Correct.

Jamie Hodari: I had a meeting with the president of IKEA in New York. The vast majority of our headcount was in East Africa. Our New York offices were in a shared workplace. In all honesty, I went to prepare for the meeting with him, and the conference room table was sticky, and half of the lightbulbs were out, and there were people walking around in cargo shorts. I just didn’t feel sufficiently professional. So, I moved the meeting to a Lapin Quotidien which is like a coffee shop in New York. That evening, I think I talked to my co-founder who was my friend at the time and said, “Look. I just had this experience, and it was really crappy, and I ended up having to host the most important meeting of my life in a coffee shop because my workplace didn’t meet the bare minimum standards of professionalism that I would expect.” And if I feel this way, there must be 50,000 companies that feel this way, which you probably know running a podcast about this. A lot of companies are launched because an entrepreneur says, “I would be customer #1 for this product.” This is the classic example of that. Me and my co-founder would have been customer #1 for a more professional premium or more elegant shared workplace product.

Alejandro: Yeah. So, Justin. How did you guys say, “Let’s do this thing.” What was the background story? How did you guys blend it? What did you bring to the table? What did he bring to the table? How did that work out?

Jamie Hodari: We had that conversation I just described, and Justin was running the U.S. arm of a Chinese Real Estate company and was working in a shared workplace provider, and had had very similar experiences. So, we basically started by saying, “We really think that there’d be a real market for a more premium shared workplace product. He had been my next-door neighbor since we were two years old.  He was one of my closest friends. I think we had some hesitation about the idea of working together given we were such close friends, but we also said, “Look. Jamie, I have a lot of leadership experience, and financial experience, and know how to negotiate an organization started from a cold start. Justin came from the real estate world, and I think understood the dynamics of the real estate industry and how to get space at attractive terms in a really good sense. It was such a good fit in terms of our skill sets that we decided we are going to try to launch a premium shared workplace business together. Then, actually, the fact that we were really close friends might actually help than rather than be a complicating factor, or at the very least, it would be a bit of both.

Alejandro: Yeah.

Jamie Hodari: The one thing I’ll note is the company was based in New York, but we actually launched our first location in Chicago. We thought that that would be a little bit more forgiving of a market and a little less capital intensive. Once we decided, “We want to do this. We want to create a premium product in the space.” We sat down. We mapped out what it would look like. We mapped out how much capital it would be. We decided Chicago would be our first market. I think we didn’t go back and forth for very long. We said, “Let’s do this. Let’s commit.” We shook hands, and we went on and started raising the money.

Alejandro: Got it. Really cool. Yeah, for something like this, it’s obviously capital intensive, and we’ll get into that in just a little bit. What I wanted to ask you here is the business model. What ended up being the business model?

Jamie Hodari: The business model, and it shifted a little over time, but the business model at the beginning was relatively simple. It was saying we are going to create a shared workplace complex for 50 to 60 companies in Chicago. So, we’re going to go lease space. We’re going to build out this complex on, I think it was 20,000 sq. ft. of space. We’re going to build out this complex for 50 or 60 companies, and everyone’s going to have their own private office, and there’s going to be a lot of shared spaces where they can all congregate or share, or get access to those shared resources, and we have to sign a lease with the landlord to do that. So, there’s a bit of risk there. That was the model. Go sign the lease. Get the space stood up. I think when we did our initial underwriting, we said we believe at 90% occupancy, which we think we can get to, that this will be about a 30% IRR on the capital we put out, maybe a little higher, and that the margins at 90% occupancy will be about 30% to 35%. That seems like a pretty good business, and that’s worth taking a shot out.

Alejandro: Obviously, when you guys started and also the co-working spaces is a competitive space. I think that the positioning and how you are being looked at by potential customers or people that are going to be coming to your locations is critical. I guess when you guys started, as mentioned, there were already some companies.

Jamie Hodari: Yeah.

Alejandro: You were operating for a few years. So, what was the gap that you found, and how did you set yourself apart from a positioning perspective?

Jamie Hodari: In the early days, a lot of the positioning was about maturity, seriousness, elegance, and underlying quality. To some degree, that’s still true for us, but certainly with that first location, I think we said, “Look, if you want a workplace that you’re going to be proud to go to every day, that you’re going to be excited to walk into every day, and that you’re going to feel really proud to show off to clients, to colleagues, and where the general tone of it is going to be one that’s devoted to getting work done, that feels a little bit more serious than some of the other products on the market.” At the time, the market was very focused on buzzy—we only had a few locations at the time, but even other competitors at the time, they would play 2Poc in the common area, and there was all about a keg of beer and this or that which appealed to a niche. It appealed to an engineer in their early 20s that was in a frat two years before that and wanted to recreate that. It was horrible fit for a lawyer in their 40s or any sort of customers like that. That was a lot of the value proposition, and it just turned out to be the right call at the right time. So, we had, I think, 62 offices in our original location. That positioning of a more professional, more serious place to work that you’d feel really proud of, we ended up getting 600-something applications before we even opened for those 60-something spots.

Alejandro: I’ve heard you say that going to markets—I mean, you were talking that you guys started in Chicago, but I’ve heard you say that going to markets where you have other players, perhaps such as we were, this actually works in your favor. It makes things easier. Why is this the case?

Jamie Hodari: This depends a lot on your industry, but I think for an industry like ours that’s a bit young, and where the name of the game is growing the pie more than dividing up that pie. Right now, our industry is 1% of commercial real estate. We’re trying to make the case to Johnson & Johnson, or Verizon, or a four-person PR firm that they are going to be happier, more productive, more engaged if they let a third-party like us run their workplace experience than if they do it themselves. That’s an unfamiliar, very new way of approaching the way you deliver your employees’ workplace experiences. So, having other competitors in the market making that case at the same time, running digital ads against that, getting press against that, people show up at meetings at one of our competitor spaces. If it opens their eyes to the possibility that they might actually get a better workplace experience via the use of a third-party platform like this, then it pushes more people into the market. For example, in New York City or Chicago, we might have 200 competitors in New York and 80 competitors in Chicago, but 80% of potential customers know what our industry is, and they know what the value proposition of the product category is, so you’ve just got to convince them you’re the best. In Salt Lake City, for example, or Madison, Wisconsin, some of our smaller markets, you have to spend a lot more time and money on customer education, on describing why they would want to work in this type of setting in the first place before you ever get to why you should be the partner they pick. That usually, for most businesses is a more expensive, more time-consuming lower ROI proposition than convincing an already motivated customer that you’re their best option among their solution set.

Alejandro: Got it. For you guys, when you were really getting started, what were some of the challenges that you encountered, especially when you were in the early days?

Jamie Hodari: Fundraising is always a challenge. I think, too, was once we succeeded in the early days like coming up with that plan for how to scale, what were really our ambitions for the business? I think that first location exceeded our wildest imaginations. Like I said, we thought it would be a 30% IRR and a 30% margin, and it was a 50% IRR and a 50% margin. Then it forced us very quickly to have to step back and say what do we really want to do with this thing and what are our personal aims, and what are our professional aims? Which we hadn’t anticipated having to cross that bridge as quickly as we had to.

Alejandro: Right. What was, for example, I heard that you guys were putting co-working spaces in malls. Is that right?

Jamie Hodari: Yes.

Alejandro: What’s the reasoning behind this?

Jamie Hodari: If you fast-forward to now, we’re in almost 80 locations across 35 cities. What we found is, there’s a lot of appetite for our product in a lot of different settings. So, this works really well in Class A buildings, and it works really will in converted warehouses, and it works well in Class B building, and it works well in the heart of New York City, but it also works well in suburban Atlanta. So, over time, we’ve widened the aperture of what are the potential spaces in which we could deliver a really wonderful workplace experience. We’re in a moment right now where retail is shifting, where a lot of spaces opening up in highly amenitized beautiful retail spaces. We did say is it possible that actually, it would be really great to get to show up to work every day in a mall where you have 20 restaurants to choose from, and you’re in a space that’s already built to serve a lot of different needs of people, rather than in a more inert static space like an office building. So, we only did one because it was an experiment and we weren’t sure how well it would go, and it exceeded all of our underwriting by a really wide margin. So, now, we’re trying to quickly ramp up the distribution of Industrious in retail settings, but we’re behind the 8 ball because I don’t think we anticipated that it would go as well as it did.

Alejandro: Right. Also, you were talking about the locations, and talking about the occupancy rate. You have 93%. I’m not sure if that has changed or not. At least that’s the last metric that I was able to come across, but in a business like yours what would you say drives customer-retention?

Jamie Hodari: It’s a great question, and let me start by saying in our business, customer retention matters more than customer acquisition. That’s the #1 mistake most of our competitors have made. My suspicion is that’s not unique to our industry. That a lot of people in new industries fall prey to that trap of thinking all I’ve got to do is get people in the door. It’s not that hard to get people in the door, especially if you’re willing to spend money on marketing. The whole thing that makes the business tick is keeping those people. We actually have a negative churn rate now. We always had a low churn rate, and it kept dropping, and it kept dropping, and we finally hit negative churn which is really a special moment for a business. I can go into it if you want all the ways in which really high customer retention help make a business function better, but suffice to say it’s incredibly important to us, and I think it’s a great question. So, how do we get customers to stay? One thing is, the reasons customers stay are not always the same as the reasons they come in the door in the first place. A lot of times of products, including ours, the things people think they’re going to care about are not what they end up caring about. So, in our business, it’s the flashy sort of really beautiful things when you walk in the door that get people to come in the door, but what makes people stay is that you created a space that’s comfortable, and inviting, and welcoming to come  back to day-after-day for years and spend 10 hours a day in which is very important in our business, and a lot of our competitors have focused so much on what’s going to wow people when they tour, that they’ve missed the fact that what really matters is what’s going to make someone feel comfortable and at home for years and years. Then the second, I think is we have a really wonderful service program. I think we do a much better job than anyone in our industry at making people feel looked out for, and making sure that people feel taken care of at work which is not a feeling people are that familiar with. When you can do it right, you have a loyal customer for life. Then the final piece and the reality is this is probably the most important of all is you have to work as hard as possible to never mess up. That you can focus on all the surprise and delights, and you can focus on all the amazing things they’re doing, and a lot of what drives customer retention is execution and making sure that you’re always delivering the baseline customer experience with no hiccups. I think Industrious has always done a particularly good job of that.

Alejandro: Got it. For a business like yours as well, I think that in the co-working space—look, my previous business I also started out of a co-working space, but one thing that I identified or that I experienced also was that in co-working spaces I think that community is almost everything. I think that also helps with driving retention because you feel you are part of something, not just going to an office space. So, how do you see community, and really how do you define it in the ecosystem of Industrious?

Jamie Hodari: It’s a great question. Yes. Look, community is extremely important in our business. I think one of the best ways to drive community is to have high retention. If you’re constantly seeing different people, everyone’s coming and going. It feels very transient. It’s going to be hard to deliver a really engaging deep-rooted community. So, if that concept of saying retention and the idea that these are the same people you’re seeing month after month and you’re starting to develop relationships with them is at the core of it, then the two ways we accomplish that is 1) by having very high customer retention, and 2) by not really having transient products in our spaces. So, we don’t really do rent a desk, rent by the day. Our business is built around longer-term customer dynamics, private offices, customers who are meant to stay for two, three, five years. Those two things in combination are the vast majority of it. What I will say is I think sometimes people in our industry try to really push lots of events and come-to-wine-networking hour. That works kind of, but the best communities develop organically, so the best thing you can do is have a thoughtful, respectful group of professionals that are in the same space with access to really beautiful space types and great events day after day. The community will develop more organically more so than you trying to spoon-feed it or force it on them.

Alejandro: Right. You were talking as well about fundraising before because for something like this, the real estate portion makes it capital intensive. So, in your case, how much capital have you raised to date?

Jamie Hodari: We’ve raised 150 million to date. That number will be more like a bit over 300 by the end of this year.

Alejandro: Got it. I see that you have investors like Fifth Wall. You have Riverwood Capital. How did you find those investors because it’s a really interesting group of folks that you have on your cap table?

Jamie Hodari: We’ve always tried to be intentional about it. One thing to think about when you’re an entrepreneur, and you’re trying to figure out how to track down investors is you can spend a lot of time going a mile wide and an inch deep and trying to talk to 80 different investors. I’ve been guilty of it as well. But when I look at who’s actually come through in our various rounds we’ve done, it’s almost invariably the people we’ve already developed a bit of a relationship with where you’ve already told them about the business, and you’ve told them again about it, and you’ve told them what you’re going to do. Then you come back eight months later, and you show them that you did exactly what you told them you were going to do, and in fact, you beat those numbers. Those are the people who end up joining rounds and making a bet on your business more so than someone where you did a cold reach out with a small investment bank or whatever, and you sat down and pitched them. One of the ways we’ve built that, I think really great stable of investors is to be intention about: what are the types of funds we want reputationally in terms of their focus? How do we go to them and start developing the relationship early? Rather than saying I want Riverwood Capital to invest, so I’m going to go pitch them and say, “We’re closing a round in three weeks. Will you put in money?” How do we find someone who has a connection to someone at Riverwood and go get coffee with them and say, “We’re not raising money. We’re not looking for anything. We just want to start getting to know you.” That’s been a lot of our intent. Basically, define the types of investors you want. Focus on the 15 or 20 that really matter, and just never let them forget you exist. Keep talking to them. Keep getting in front of them. Keep telling them what you’re going to do and then show you executed against it, then make the ask when the time is right.

Alejandro: Got it. When you make the ask, you close the money. In this case, you guys have done very well on the capital raising efforts, but typically for a hypergrowth startup, when you’re thinking about deploying that capital, it really leans more towards engineers because that’s how you’re going to be able to push growth. But when we’re thinking about an operation like this one where it’s co-working, where you have the real estate component of it, what are the teams that in your case you really felt that you needed to cover very well at first so that you could drive growth with the business later?

Jamie Hodari: I think there are probably two categories of this. The first is everything related to standing up new units: design and construction, real estate, the product design. From very early, we said if we have a great machine on that front, that’s going to be really important here because, with a lot of physical network businesses, they might have, for example, a great restaurant concept. They do really well when they get them open. They say they’re going to open 40 and they opened 7 because all of the apparatus devoted to finding a space, negotiating it, constructing it on time and on budget falls apart. That’s the first. The second is having created the space, how do you fill it and run it really well? So, from quite early on, we had to have a really topnotch launching team, marketing and sales team, and then a hospitality function that really ran all of the standards around what should a customer experience day in and day out in the space? The final piece, and I think this is probably distinct from a lot of startups, is that we invested a lot in strategy early. I think we probably built an executive team with a deep strategic background, with a bit more experience than would be normal for a company of that size. That was because we believed in our heart of hearts that this was going to be an absolutely gargantuan industry. That the winners in the space were going to be 40, 50-billion-dollar companies because of the size of the sector. That meant the pot of gold at the end of the rainbow if you could win in this environment was so large that it was worth the investment early on to say, “We want to be a little bit quicker than our competitors. We want to be a little bit better at seeing around what’s the next corner because this is going to be a crowded industry. It is going to be a complicated industry, and that we’re going to get back that investment we make in making sure we’re as tight as possible on a forward-looking strategy of the business.

Alejandro: Honing in a little bit more on that on the sector itself, where would you say that the co-working market is heading?

Jamie Hodari: Let me take 30 seconds and describe what I think this business really is because people don’t usually talk about it this way, but it’s an important part of understanding where it’s headed. I think this is an outsourcing industry. It looks a lot like other outsourcing industries. You’re going to customers and saying, “For the last 50 years, finding, creating, managing your employees’ workplace experience, and hand that off to a provider like us.” The reality of most outsourcing businesses is that they exist as tiny niches for a very long time. So, manufacturing outsourcing for all the 70s and 80s was half a percent of all manufacturing. Outsource data storage is 1% of that market. Then you see this moment where there’s a dramatic shift in the adoption curve, and it goes from half a percent to 1% to 7% to in certain cases, you have industries that are now 99% of the market is outsourced and not done in-house. I think we are at that moment, that inflection point where the industry has gone from a niche product that you used when you really needed flexibility or you really couldn’t quite sign a lease on your own to lots and lots of customers saying, “I’m getting a better workplace outcome when I hand this off to a third party, so I’m going to move from 1% of my workplace portfolio being outsourced to 30% or 50%. That’s what the next few years are going to have in store for this industry. The big question is going to be how do you deliver against that oncoming title wave of demand in a way that really delights your customers and really keeps a product quality, and delivers on the promises of this industry when it does what it does best.

Alejandro: Right, and if I had to, out of being for so many years in co-working, if I had to put my finger in it, I would say that it will be whoever is able to bring to life a really nice combination of community plus experiences is really going to lead the pack.

Jamie Hodari: Agreed. Particularly for smaller businesses.

Alejandro: Yeah. 100%. Jamie, you’ve learned quite a bit. You’ve launched businesses like literally all over the world, so if you could go back to the past knowing what you know now and give yourself one piece of advice before launching a business, what would that be and why?

Jamie Hodari: That’s a good question. I think I would go back and before launching a business or shortly after having launched it, I would read every book there is to read about hiring, firing, performance management, building a culture of your business. I think a lot of people launch businesses and think it’s 80 to 90% the underlying operations of the business, the financials, the business plan I’m putting out, and 10% people. I’ve found that it’s 90% the people and 10% the business plan that those people are executing against. So, everything you can do to make yourself a great hirer, to make yourself a great people manager, a great culture builder will be among if not the most important thing you can do to make sure your business succeeds. That’s what I would have told 25-year-old Jamie.

Alejandro: I love it. So, what is the best way, Jamie, for folks that are listening to reach out and say hi?

Jamie Hodari: My email is jamie@industriousoffice.com. I used to be terrible at email. About four or five months ago, something flipped, and now I’m always at Inbox Zero. I’ve found I finally cracked the code to being really responsive on email. I can’t quite put into words how, but it means if you reach out, I probably will be able to get back to you.

Alejandro: Fantastic. Well, Jamie, thank you so much for being on the DealMakers show.

Jamie Hodari: Thank you.

 

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