Last year, I wrote an article in Business Insider about how the NYU Poly Incubator was one of the best coworking options in the city.
Since that time, several startups in NYU Poly have had sizeable exits —such as nRelate (sold to IAC).
NYU Poly is a program run by the City of New York and NYU. They give affordable office space (subsided by the city) to startups for six months and ask for no equity or consideration in return. Their only goal is help startups get off the ground that will create jobs in NYC.
While NYU Poly has been a success for the city, I have talked with dozens of startups who are located at the 20+ other for-profit co-working spaces in NYC that have popped up in the past few years. Surprisingly, more than a few startups are now complaining about the real benefits of these locations and some are actually making a decision to leave them all together. When I dug deeper, I found some interesting reasons for startups leaving coworking and incubator locations.
1. No privacy. The biggest complaint against coworking locations is that startups are usually in an open area with dozens of other startups. While at first this setup looks great from a collaboration and networking point of view, it gets old really fast. Several founders have said they don’t like how much poking other companies do (asking questions about their product, talking to their engineers when they are trying to work, asking for an intro to a contact, trying to socialize during working hours, etc.). In fact, some founders now ask other startups not to disturb them during core working hours.
One founder told me that he is constantly worried that other startups who are pivoting away from their failed model are trying to find ideas by cloning or seeing what other startups in the incubator are doing. Worse yet, this founder said that some companies in the coworking space who raised money or were making traction are openly trying to hire away people from other companies in the coworking location. This founder said that as soon as he raises his next round of funding, he will get a private office. He does not like having to deal with people trying to copy his ideas or steel his employees.
Another founder openly complained that he wish he never joined a particular incubator. Just because he was accepted into the program, he says that his team was disrupted nearly every single day by the incubator management. Usually, the management wanted an update on progress, or to introduce the startup to some visitor (angel VC, reporter, etc.), or just show off the company to a potential investor in the incubator itself. This founder told me that he decided to move out early because of management’s constant distractions.
2. Inability to establish company culture. At some coworking locations, management is trying to set the culture of not only the incubator, but the companies themselves. Founders are pushing back, saying that they want to develop their own unique culture. For example, some places want startups to participate in certain social and non-profit events. Yet these programs might be something that the startup is not fully on-board with, or simply does not have the time to participate or the money to commit.
One startup founder told me that his co-working space looked more like a lounge rather than a working location:
“There are way too many people here who like to dress cool and walk around with their MacBook pretending to want to build a company. In reality, these folks just want a place to hang-out. They do no serious work. Yet, you have companies like ours, where we sit and code for 12 hours a day and work weekends. These two cultures cannot mix in the same location.”
At one particular incubator, more than one startup complained that the head of the incubator acts like an “overlord” and seemingly wants everyone to answer to him in one way or another. As one founder said:
“I’m a professional with an Ivy league MBA. I just wanted an affordable office space for the first several months of my startup. What I ended up with is being treated like a kid in a day care center. The manager of this space goes as far as wanting to interview my new hires! Like really, I’m just paying you rent and you want to make sure that people I hire into my company fit into your culture at a coworking space! Get over yourself. You’re just a landlord.”
3. Over-croweded and dirty. A common complaint starting to rise up is that coworking locations are accepting too many people in order to maximize rent revenue, and that makes the place louder and dirtier. One startup employee told me that that the bathrooms were always occupied, and that by 4 p.m., they were so dirty that some people preferred to go outside of the incubator and into a Starbucks to use the restroom.
The overcrowding has also become an issue in that while some startups like to work in quiet, other companies have situations where they need to be on the phone constantly. At one coworking location, a conflict developed between two start-ups over the noise one was making throughout the day. The situation grew intense enough that management had to ask one company to leave.
One startup founder told me, “I wish I could rent a cheap house like Facebook did in the early days, or work out of a garage like Google did in the beginning—where we can have privacy to focus on building the company the way we want. In NYC, you just don’t have those options. There are no garages or basements you can get for cheap here. You need to shell out a lot of money to get a private space, which makes it hard to really build the company you want, the way you want it.”
Given all these issues, I asked startup founders why they continue using the coworking setup. The number one reason cited by all of them for using a coworking location was not the collaboration or the networking, it was cost. It’s expensive to get long-term office space in New York City. When a startup gets off the ground, it does not know if it will survive even a year. This makes the need for an affordable, yet flexible office arrangement highly important.
So, many founders are willing to put up with all of these issues, as long as they can get something affordable on a month to month basis. Most coworking locations in NYC rent our seats at $300 to $600 per seat / month.
With the growing startup eco-system in New York City, it’s great to see that many coworking and incubator spaces are popping up to meet this demand. However, it looks like they all have some work to do in order to make themselves the ideal first office for a startup.
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