Flexible Workspace vs. Traditional Leases | The Numbers Don't Lie

Like so many people that are running their businesses, you need the flexibility of locations where you want to do work, but you don't want to maybe have the cost and the expense of renting an office full-time. My guest today has been a pioneer in the flexible workspace for over 40 years. He manages over 1,500 locations around the world, and he has an amazing offer that I would love for you to hear about because he's going to solve a huge number of problems for you and me and everybody that needs a place to be. Frank Cottle is the founder and CEO of Alliance Virtual Offices, joining us from his home actually in Fort Worth in Texas. Frank, welcome to the show.

Thank you, Jim. Great to be here. Great to be here.

Frank, you solve a problem, and you've been doing this for nearly 40 years, which is to give business owners and enterprises a place to work When they're growing, when they're expanding, without some of the commitments of fixed tenancies and so on. So you really give them freedom to grow at a variable cost. Tell us about the origin of the business and which kind of entrepreneurs you serve and where.

Gosh, well, we started actually as a property company back in 1979, '80, and we were building buildings that were purpose-built at that time to Host and house what were then called executive suites. And the purpose, the executive suite was the original pre-business center, pre-serviced office, pre-coworking brand from an industry point of view that provided flexible workspace. And, um, our purpose in building buildings was really land banking. Uh, we wanted to put the smallest building on the biggest piece of dirt possible. But with entitlement to go up 8 or 10 times. So that was our theory. And these funny little things called executive suites generated the most revenue per square foot of any commercial real estate we could figure out. So it was just a gamble. Honestly, it was just a gamble. It was a lot of fun. And we built buildings and did management contracts with other developers for about 10 years. And then we— Started building our own projects on a leasehold basis, just like IWG, Regis, you know, many others do that you're all familiar with. We decided by the time we'd done that and gotten fairly large, we decided that it was not a good business model, that the balance sheet of keeping continuing to add the long-term liability of the leasehold debt was destroying the corporate valuation of the company, or holding it back, I should say. So we said, well. There's these funny companies called Expedia. This is in the mid-late '90s, you know, Travelocity, different things. We said, we actually want to own the customer instead of the facilities. We don't want to own facilities anymore. So we sold all of our facilities and we built a technology and an inventory platform that today— that was pre-Airbnb days. Today we service over 200,000 corporate clients on a global basis. And it's proven to be quite good for everybody. We are location or facility agnostic in that we have certain standards, very high quality service standards that we require, sort of a best hotels of the world approach rather than anybody and everybody approach. And that has kept us to have very low turnover or churn rates by comparison to others. And it's really, it's all about the customer. It's just about service and flexibility. If you were to think on your own for a second, you know, go back a few years, let's just go back pre-pandemic, make it simple. All companies needed 2 things: needed a great product and access to capital so they could scale it.

Boom.

Pandemic hit. What do they need now? Flexibility. A company without flexibility today is not going to last very long. So you have to have the capacity to manage a workplace that's distributed more effectively, that is global. You're always going to have an employee or a partner or a financial source or a customer that's Not in your own backyard today. And you've got to be able to do it quickly. And you have to be able to do it with short-term commitments. Hence Alliance Virtual Offices does that for a broad cross-section of customers— entrepreneurs, startups, branch offices of regional companies, primarily media and tech in that regard. The legal, accounting, financial services professions, big part of our business. That whole sector is going more and more flexible. Corporates, the global Fortune 1000, and even government, even the US federal government in that regard, uses products and services from a company, from our company. And it's all about flex. It's really quite simple.

Yeah. It is, though, as you say, the underlying economics of it are that people have, I guess, shorter and shorter windows. I mean, when we started work back in the early '90s, people would plan annually, right? And then they started to have to do quarterly reporting. And then now things turn on a dime, don't they? As you say, COVID, but also stock prices come and go so quickly that locking yourself into a lease is risky.

Yeah.

Well, probably for me as an entrepreneur in Singapore, it was one of the largest commitments. It's a marriage to a property that you don't know whether your business is going to grow to the same amount or outsize that property.

No. And a lease is a debt instrument. It's a debt. It's an obligation that you have to pay and that you're legally obligated to pay. If you sign a 10-year lease, the first 12 months is an expense, but the next 9 years goes onto your balance sheet as debt. And that restricts your growth. That restricts your ability to raise capital overall. And no one knows, I don't know what's going to happen 5 years from now, 3 years from now, let alone 9. So I don't want to be like JP Morgan with hundreds and hundreds of thousands of unused square feet of leasehold space in Manhattan, telling everybody they have to go back to their office to save the corporate culture. You know, I don't think they have a culture to begin with if they have to be in an office to, to deal with it, but that's a personal opinion. So we don't know the future. Except that you're going to have to be capable of change. So why lock yourself in? It's really quite simple.

Yeah.

The problem that we solved and the fact that we're servicing a wide variety of customers in a huge cross-section of industries and different sizes of customers. demonstrates that we're not so particularly clever as a company, but that there is an actual need for the product that we produce.

And on the website, which is alliancevirtualoffices.com, you'll see, you know, Frank's global reach. And it's offices in established centers like New York, for example, isn't it, Frank? But also you've got Bristol close to home where I am, and you've got Singapore. So An entrepreneur or a mid-sized company could sign up in one location. Could they then go and travel to those other offices? Are you giving them that freedom and flexibility to travel within the network?

Um, not on a free basis. It's not free.

I wasn't expecting it to be free, but you don't have to try and look for an office every time you travel, presumably.

We have a reservation system that allows—

You mentioned, Frank, that you're serving Multinationals, some also some governments and so on, and also the entrepreneur class. How are they different? Do they sit side by side? Are there different offerings for those 2 groups?

Yes, excuse me. Yes, there can be. Some clients require very specific technology issues. They require a customized network of locations that has very specific technology, primarily around security for communications, etc. Some entrepreneurial clients are really just concerned with efficiency and cost. Legal accounting professionals, financial services professionals are very concerned with caliber of front desk service. They're dealing with their clients and, you know, the receptionist isn't there to make our client happy. They're there to make our client's client happy. So there's a differentiation on the user types, but the overarching need is flexibility that combines clerical, secretarial, administrative support, live reception support, telephony systems and services, live receptionists and terms of telephony and answering machines or answering support, meeting and conference room, AV support, really whatever you need to manage and run a business on an hourly, daily, weekly, monthly, or annual contract.

So really you do get to be that granular, don't you? If you're allowing people to have an hourly, weekly, monthly, quarterly, annual, then you're I guess your ethos is around this flexibility, isn't it? That you're liberating the cash for the entrepreneur, the business to use to grow the company rather than lock it into giving the landlord comfort, which is really what that was about before.

Well, let's use an entrepreneur as an example. Give you a good, simple example. Jim, you're an entrepreneur. I'm an entrepreneur. We're going to go pitch a venture capitalist together. Okay.

Let's do it.

Yeah. We each have a— we each have our own company. We each need $1 million. And I go in first. I'm brave. So I go in first and I throw my pitch deck down on the VC's desk and I say, hey, here's my idea. And the VC said, yeah, it's a really great idea. What are you going to do with the money? I said, oh, I'm going to get an office. I'm going to hire a receptionist and a secretary and got to get some imaging equipment and some furniture. And then I'm going to hire some engineers and build this product. And you walk in and he says, hey, James, love— Jim, I love your product. Love this. What are you gonna do with the money? Say, oh, I'm gonna go take a flexible workspace, hire some engineers, and build the product. Who's gonna get the money? You are.

Yeah.

Not me. In today's world, mitigation of risk at the investment level so that you can start a company is one of the biggest factors that isn't always considered. Focused on the product, they're focused on how to launch their product, They aren't thinking about how to run the company necessarily. But how you run your company basically defines how you can manage your capital that you receive. And that will determine the risk factor and the risk factor will determine the investment.

Well, and also, Frank, if you were raising money as I did back in '98 in Singapore and you have a certain amount of money goes into office refurb and rental, You have to take more cash, which in effect is very expensive because you're diluting your equity just to rent, just to get money to give to the landlord to refurb, right?

You dilute your own equity when you do that, if you're an entrepreneur and you need more cash that you have to give to somebody else. And so if you can preserve that, you can basically create a debt-free cash flow management company at a higher level of efficiency. And what companies are realizing today, large companies, And they realized an awful lot of it was happening just pre-pandemic. During pandemic, a lot of people said, you know, we don't really need all this space. We don't need it all. Some companies, you know, are locked in for 10 or 15 years, or they own their own buildings and it's not easy to flex. But a lot of them said, well, our next generation of model is going to be quite different. And we're seeing that evolution on the corporate side today. And one of the solutions that the flexible workspace industry, not just us, but other larger companies as well. We create custom networks of facilities for single customers. My largest customer has 117 facilities, I think it is right now, inside of a custom-designed network with a specific product just for that company.

Take us through that, Frank. Does that mean like branded space? Because maybe they want—

Not branded space.

Corporate identity or?

No, not branded space. We don't brand space for others, but fully serviced space on a contracted basis. And that's Uh, not the amount of space they use, but the facility structure, that's a multi-year contract. So secure for us, flexible for them. And it's just an ongoing model that has changed. And the amount of debt they're able to shed or not take on in leasehold debt allows them and their investors to create more access to capital. And the company's just growing magically.

And I suppose a parallel might be with contract manufacture, isn't it? That you don't necessarily own the manufacturing process like Apple.

It really comes down to the just-in-time inventory intermodal system too, you know, that started in the early '90s. So this is just-in-time real estate, if you will, or just-in-time officing. And we think of, don't think of the activity of officing as being a real estate issue. It's a service issue. It really is a service issue. And because you don't rent in a flexible workspace facility or in a virtual officing structure like we promote, you don't rent square footage. You contract for services almost on a cubic footage basis. It's everything between the carpet and the ceiling. Including the people, the equipment, the furniture, etc., everything necessary to run a business. So it's not a terribly new theory. We've been doing this since '79, '80, but it's one that is continuously evolving and it's quite exciting, actually.

It is. And when you look at it in terms of like just-in-time real estate, just-in-time property, it really makes it seem so logical, Frank, and why anyone was renting and refurbing. I guess there's the idea of owning and having your name on the door, but you can also help entrepreneurs, for example, to register their company in that location. And that's maybe one of the differences with, for example, some of these co-sharing workspaces that are really kind of almost like— they're almost a Starbucks but with more privacy, aren't they? Whereas with Alliance, you actually give people the opportunity to register their company, have mail sent there, and so on, which is, I think—

Yes, the registered agent we service on behalf of other entity formation companies, probably 150,000 entities, someplace in that range right now, and it grows every month. So it just is an ongoing process. That part of the business grows based on— if you look at the little tidbit of facts here, if you look at entity formations, entity formations almost parallel grow with the growth of a national economy. So if the UK economy or the US economy is growing at 2%, then the number of entities formed year over year will grow at about 2%.

Right.

And the life cycle of an entity is around 6.5, 7 years. And that sounds like, wait, they should be longer. But when you think of all the startups that don't really— they form an entity and they don't really do anything, and then 2 years later they disappear. It's a very high churn rate at the front end and a very long life cycle at the back end. It's about 6, 7 years. So if you look at that as a stability, say I can grow a company that services this group based on the growth of the economies of the nations that I'm serving within. And I've got about a 7-year life cycle on the customers on that growth. And in the US right now, there are around 37, 38 million entities. So, your churn rate on new customer prospects is around 6, 7 million new prospects every year. And it grows at about 3%. Right.

And they're coming in and registering new companies and getting from you that flexible workspace. And I was looking in terms of pricing, it was like in London, about $100, £70 a month for a Northwest One, for a Cavendish address, which is great, right? So central London at a very low rent, and then you can go in and use those services just so that, you know, me and others can listen and say, this is, this is not the preserve just of big companies. You can actually have a very nice, good office.

Our business is mixed into 5 categories. As I said, government, Global Fortune 1000, or we'll say large listed companies, the professions, legal, accounting, and financial services, branch offices. You might be in London but need an office in Edinburgh for branch office services, and then entrepreneurs. And the individual ratio of those changes market by market. So in the United States, we have more larger and government-related companies in state capitals where they need something, a representation, or in our national capital in Washington, D.C. There's a concentration of that type of company. If you look at large corporates, you would think they'd be concentrated in places like New York or Chicago or Dallas or LA. They really aren't because that's where their corporate headquarters is.

Yeah.

So when you look at their— where their branch offices, where their regional branch offices or service offices are, that's where they concentrate the use of flexible officing, etc. So each, each group is a little bit different.

And I think the point that I was getting when I looked at your website is that, you know, people can Move in quickly with a minimum fixed fee and no hefty lease to exit. Frank, what happens for the entrepreneur that doesn't go down the path of flexing when it comes to office space? Where do you see that happening when entrepreneurs say, thanks, Frank, but, you know, it's not for me? What goes wrong for those people?

I'm going to say it's the same thing that goes wrong for anybody that doesn't keep their mind open to new opportunities or new ways of doing things. So you might use the term they're a business Luddite.

Right.

Okay, where they're refusing to recognize the need for something and the use of something that's actually beneficial to them. I hope I don't say that in an insulting way because it doesn't just relate to our product, it relates to everything. How many people in business today can say AI will never work? I'm not going to pay any attention to AI. How many manufacturers say, nope, don't want any robots. I just want wrench turners. You know, you can't say that things that create flexibility or new business models, you're going to ignore them. You can be choosy. You can wait to see them proven while you're doing research. You can be selective. You should be selective, but you shouldn't ignore them.

Yeah, I'd agree with you. And I think, you know, you and I grew up with paper and pen and the fax machine. In fact, my first job was shipping cakes from Europe. We had the telex machine, uh, we had to go down every morning and see what the orders were from Amsterdam, you know, and only one person had that information. And then, you know, fast forward, clients said they didn't need websites, they only wanted brochures. So this idea that you need to move with the times, and I think the logic of what you've got in terms of not having the financial commitment of a lease, but getting the flexibility of this just-in-time space makes a lot of sense. Frank, let's just ask you about your history, because a lot of us as entrepreneurs build solutions to the problems that we face. What's your story? I mean, you're working from home and you have 1,500, 1,600 offices to choose from. You know, what's going on?

Well, number one, I'm lazy. I don't like commuting. I think it's a waste of my time, even though you can hold a video meeting on your phone in your car and you're not paying attention. So I don't like commuting, never have. So I've always, if I had an office, it's always been within 5 or 10 minutes of my home, hopefully walking distance or rowing distance if I was on the bay, which I was in Newport Beach where I just moved from. So, you know, I— that's my primary thing. The, the other thing is I'm very happy, um, working in solitude. I'm one of those people that actually enjoys quiet. Uh, I don't need a lot of energy around me. And I think as you build a company that, that is remote first, which we've been doing for 45 years in many respects, your selection of your team Is critically important. You need to select people that are, if they're going to be working remotely or they're going to be working on a hybrid basis, that are really, their values are aligned with that on a family basis and on an individual basis. We shouldn't force people to work in an office or out of an office or anything. We should find people that are happy doing the model that you've got, and that's what they're seeking also. And that they're obviously productive at doing so. And that's very, very important.

So you've really taken your own personal preferences and made that possible for anybody else that feels that way about wanting to work as and when and wherever they want to work. With that flexibility, you've, you've created an infrastructure for literally tens of thousands of people to exercise that choice, right? To be local or global or regional, Frank, right? Over 45 years.

And I think if you look at, I read an article the other day on the next billion-dollar company, the next unicorn company. And what they did is they went back in time and they said, well, the first billion-dollar company had X number of employees. And then the second one, the third one, the fourth one, the most recent billion-dollar launch company, that was a unicorn had 16 employees, and the next one may have as few as 3.

Yeah, I was reading that as well, that there's a question whether—

A capacity to work flexibly, to use technology, et cetera, that is growing, and we are scaling our individual capabilities, and we shouldn't limit ourselves purely to place. If I could only build a billion-dollar company by living in Manhattan, Trust me, I don't care to build a billion-dollar company because I do not want to live in Manhattan.

Well, and Frank, yeah, and I think the other thing that's really, or the other dimension of this is really powerful, is that for young people who are priced out of real estate, what you're offering and what we're talking about is really liberating. That actually they don't have to be in large offices to build wealth. They can actually be anywhere in one of your offices and build Really a substantial business.

Well, they can. And whether they're honestly in today's world with technology as it is and creative capability as it is, whether they're in one of our facilities or not, they can do that. And good. That is so wonderful. So exciting. It doesn't matter where you are, as long as you, as long as you're in your head and as long as what's in your head, you're actually executing. That's what, that's what matters.

Well, Frank, I mean, Frank Crottle, I was going to come on to that actually as sort of a final question about a piece of advice, because you've built this company, you've got the Alliance Virtual Offices, you've also got the allwork.space, which is another venture that you're running. What would be a piece of advice that you'd give me as an entrepreneur? Because you've built a global business on your own terms, which is really something that many of us aspire to.

Boy, don't listen to old men. How's that?

Well, luckily you're young, Frank, so I'm okay to ask you.

You know, it really always depends on the individual. What does that person need for advice? There is no uniform thing that you can say. If I were to To grow back on anything, I would just say, just focus on learning something new every day, every single day. Seek out something new. It doesn't matter the source. Your own decision-making of what's good, bad, and ugly should grow by exposure. And you— everybody struggles through that. I know I have. And you have to become— you have to become the best student of your chosen industry. If you're not, just like at school, somebody else will be.

That's great, Frank.

Be that student.

Frank Cottle, thank you. If there's a book, podcast, newspaper source of information that you go with your curious mind, where is it?

I'm going to be selfish in this regard and say I'm going to go to my own podcast, the Future of Work podcast. Over at allwork.space. We have amazing guests that know infinitely more than I do about their subject matter, and that's one of my favorite places and a place that I actually go back to often when I'm trying to do research on things and pull ideas out myself. What did that guy as the head of Miller-Knoll say? What did that guy over at Cisco say? I try and pull out their knowledge. And that's one of my own favorite resources, actually.

Frank, we'll, we'll put that in the show notes. That's allwork.space. And isn't that the joy of podcasting, that we get to be guests and hosts with interesting people from around the world and learn? That's the great joy for me of running this show. And it's been a joy for me to meet you, Frank. Thank you for coming on the show. If you want to find out more about you and have the chance to have a conversation maybe with you, where can they find you?

Well, it's easy. You can just go to alliancevirtualoffices.com and I'm right there on the management team. Easy to get to. Or, you know, I'm just on LinkedIn like everybody else. Just reach out. I'm happy to connect.

That's great. It's Frank Cottle, C-O-T-T-L-E, by the way, in Fort Worth. Frank, thank you for joining me today.

My pleasure.

Well, we've been talking about virtual offices, but Frank and I are both at home. And in a way, that's the story, that we have the freedom and the flexibility now to work from where we want to, when we want to, and where it suits our business to grow. But we do need our businesses to have often the established credibility of a location somewhere, maybe in a metropolitan area. It provides a way for us to have privacy. and some sort of establishment for our business, but also if you're growing, the flexibility to go to different places, different cities, and different countries, and to meet your clients and your customers and potential employees from a position which is a wonderful, professional, well-managed office space. I'm going to put a link to the virtual offices in the show notes and also on my magazine at theunnoticedentrepreneur.com. I've also written an article and give you some write-up of some options that you can choose from and a link as well to the Alliance Virtual Offices. My name is Jim James. If you've enjoyed this show, don't review it. That's not what I'm interested in. I'm actually interested in you sharing this with a fellow unnoticed entrepreneur because that's really what matters. Not what you think of me, but that someone else gets to know what you've just learned. And in the meantime, I just encourage you to keep on communicating.