The Economics of Coworking Spaces: Should Startups Go For It?

Before you leap, consider this: Is the grass greener on the shared workspace side? We’re here to find out.

Let’s face it: starting a business is no cakewalk. It’s more like navigating a maze with a blindfold on. And in this business world, where every decision feels like it could make or break your startup, one question looms large: To co-work or not to co-work.

The traditional path involves committing to a long-term lease on an office space or operating out of a home garage-turned-office. But in the past few years, the trend of coworking spaces has risen to never-before-seen heights, and today, it has shaken up the traditional office game. Statista reported that coworking spaces grew from a humble 1,130 in 2011 to 41,875 in 2024.

Before dismissing coworking spaces as mere trendy hangouts for freelancers and influencers, consider the significant benefits they offer to startups on a tight budget. These spaces provide a substantial return on investment, and we’re here to break it down for you.

The rise of coworking spaces

Picture a vibrant, dynamic ecosystem where entrepreneurs, freelancers, and small teams come together under one roof, sharing not just space but also ideas, energy, and opportunities. It sounds like a collaborative dream. But does it mean you should shop at the nearest coworking space?

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Affordability without compromise

Let’s talk about business: money. Traditional office leases often come with a laundry list of expenses—rent, utilities, workplace planning, maintenance, etc. But with coworking spaces, startup can cut back on the hefty upfront costs and embrace a more manageable monthly fee, which can be adjusted if they want to opt-out and move elsewhere. Plus, you pay for what you need, whether a single desk or a private office.

Choosing a coworking space can be a smart financial move for startup. According to Small Business Labs, businesses that opt for coworking spaces can save up to 25-30% on their operational costs. This significant cost reduction can free up funds to be reinvested back into the business, providing a financial safety net. And let’s not forget the intangible benefits, such as networking events, that can be a game-changer for startups looking to make connections without breaking the bank.

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Flexibility is key

One of the biggest draws of coworking spaces is the flexibility they offer. With traditional office spaces, you’re handcuffed to a long-term lease, whether six months, a year, or longer. But this rigidity can drag you down in the energized world of startups, where the only constant is change.

One of the most appealing aspects of coworking spaces is their adaptability. Unlike traditional office leases that can feel like a ball and chain, coworking spaces operate on a month-to-month basis. This freedom allows startups to pivot their strategies or adjust to workforce changes without the burden of a long-term commitment, a crucial advantage in the ever-changing landscape of entrepreneurship.

The perks of community

One of the most significant advantages of coworking spaces is the sense of community they foster. In a traditional office setting, you may only interact with your immediate team. However, in a coworking space, you’re surrounded by a diverse range of like-minded professionals from various industries and backgrounds, creating a vibrant and supportive community.

Choose this opportunity to network, share knowledge, and even build potential partnerships. A report by the Small Business Administration (SBA) found that 82% of businesses that used coworking spaces found growth in their professional networks. And 64% secured new business through their networking connections. Furthermore, another report by Harvard Business Review found that 83% of coworkers reported reduced feelings of isolation since joining the coworking space.

Workforce planning made easy

With flexible membership options, startups can scale their workspace up or down depending on their needs. Need more desk space to sit a growing team? They’ll make it happen. Are you looking to downsize to cut costs during a slow period? Consider it done.

Plus, with access to a diverse pool of talent right at your fingertips, finding the perfect addition to your team, freelance or full-time, can be a cakewalk. Whether you need a graphic designer, a copywriter, or an accounts manager, chances are you’ll find what you’re looking for in the bustling hive of activity that is the coworking space.

However, the most compelling argument in favor of coworking spaces is the intangible sense of energy and inspiration they provide. To be surrounded by like-minded individuals who share your passion for entrepreneurship is like a shot of adrenaline propelling you forward.

Is the grass greener on the shared workspace side?

So, while there are high praises to be sung, there are also potential downsides of coworking spaces. There are always two sides to every story, after all. Let’s hear them both.

1. Lack of privacy: The open layout fosters collaboration and networking but can also cut off privacy. Confidential meetings, sensitive client calls, or quiet focus time can be challenging in a bustling work environment.
2. Limited branding opportunities: Unlike traditional offices, where you have complete control over the design and branding of your workplace, coworking spaces often have a generic, cookie-cutter personality. This can make it difficult for startups to leave a memorable impression on clients and visitors.
3. Potential for competition: While the sense of community can be a boon for networking and collaboration, it can also create an environment where competition and distractions abound. Sharing space with other startups and freelancers means constantly being surrounded by your competition, which can lead to feelings of insecurity or temptation to compare yourself to others.
4. Limited amenities and services: In a coworking space, startups have limited control over amenities and services. While you can access perks like high-speed internet, meeting rooms, and communal areas, you can find yourself at the mercy of the coworking management regarding maintenance, upgrades, or changes to these amenities.

The bottom line: Is coworking right for you?

So, should your startup venture into the world of coworking? The answer, as always, depends on your unique needs, goals, and budget. You should consider coworking if you thrive in a collaborative environment, value flexibility, and seek a cost-effective solution to traditional office leases.

But don’t just take our word for it. Do your research, visit some spaces, consider what will benefit your team members, and speak with entrepreneurs who have made the leap. Connect with a reliable outsourced backend service that will help you with the final decision. After all, coworking is about more than just economics—it’s about finding a community that supports growth, fosters creativity, and empowers you to achieve your greatest goals. And in the world of entrepreneurship, that’s worth its weight in gold.

Want to know more about setting up your office? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours too. Talk to an expert today.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.