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December 17, 2018

Virtual reality gaming and the pursuit of “flow state”

You need to stop procrastinating. Maybe it’s time for some…

Bulletproof Coffee, Modafinil, nootropics, microdoses of acid, caffeine from coffee, caffeine from bracelets, aromatherapy, noise-canceling headphones, meditation, custom co-working spaces, or productivity apps?

Whatever your choice, workers today (especially in the tech industry) will do just about anything to be more productive.

What we seek is that elusive, perfect focus or flow state. According to researchers, someone in flow will experience a lack of sense of self, a decline in fear, and time distortion. It is peak performance coupled with a euphoric high. All your happy neurotransmitters fire, and your dorsolateral prefrontal cortex performs differently –you do not second guess yourself, you quite simply just flow into the next stages of the activity at hand. And you happen to be performing at the highest level possible. Sounds amazing, right?

But how do we invite this state in? A detailed piece in Fast Company outlines how extreme sports (professional surfing, steep incline skiing, skydiving etc.) are the quickest way we’ve found to tap into human flow. Yet, these hobbies are just that — extreme. They require a large amount of skill and can be dangerous. For example, Steven Kotler, a pioneer in flow state research, broke almost 100 bones as a journalist researching the topic.

It all leads back to our collective (and very American) obsession with input versus output –are we achieving the most possible with the energy we put in? For all the bells and whistles at our disposal, we as a society are steadily declining in productivity as time goes on.

In 2014, a Gallup Poll found that the average American worker only spends a depressing 5% of their day in flow. A 2016 Atlantic article hypothesized that the main reason that we’re decreasing in productivity as a workforce is that we’re not introducing new technologies quickly enough. Tech like robotics and smartphones could add a productivity push, but aren’t being integrated into the workplace. Business models are for the large part not that different from 10 years ago. In essence, we’re bored — we’re not being challenged in an engaging way, so we’re working harder than ever but achieving less.

But what if getting into flow state could be as easy as playing a video game?

Gameplay in RaveRunner

I first met Job Stauffer, Co-Founder and CCO at Orpheus Self-Care Entertainment when I was, in fact, procrastinating from work. I was scrolling through Instagram and saw a clip of Job playing RaveRunner. As I love rhythm games, I immediately requested a build. Yet, I’d soon learn that this wasn’t just a simple VR experience.

RaveRunner was built for Vive, but easily ran on my Rift. When I first stepped into the game, I felt a bit overwhelmed — there was a lot of dark empty space; almost like something out of TRON. It was a little scary, which is actually very helpful for entering flow state. However, my fear soon dissipated as before me was a transparent yellow lady (Job calls her “Goldie”) dancing with the beat — providing a moving demo for gameplay. Unlike the hacking nature of Beat Saber where you smash blocks with lightsabers, in WaveRunner you touch blue and orange glowing circles with your controllers, and move your whole body to the rhythm of the music.

There’s a softer, feminine touch to WaveRunner, and it wasn’t just Goldie. Behind the design of this game is a woman, Ashley Cooper, who is the developer responsible for the gameplay mechanics that can help a player attain flow. “Being in the flow state is incredibly rewarding and we strive to help people reach it by creating experiences like RaveRunner,” says Cooper. RaveRunner is a game you can get lost in, and by stimulating so many senses it allows you to let your higher level thoughts slip away — you become purely reactionary and non-judgemental.

In essence — flow.

After playing in this world for an hour, I called Job and learned more about his company. Apart from RaveRunner, Orpheus has also rolled out two other experiences — MicrodoseVR and SoundSelf. I got my first hands-on demo of all three products in one sitting at a cannabis technology event in Los Angeles, Grassfed LA. Grassfed is specifically geared towards higher brow, hip tech enthusiasts; and the Orpheus suite of products fit right in.

As I lay in a dome with meditative lighting; a subwoofer purring below me; SoundSelf gave me one of the most profound experiences I’ve ever had in VR. I chanted into a microphone and my voice directly influenced the visuals before me. It felt like my spirit, the God particle, whatever you want to call it, was being stimulated from all these sensations. It was such a beautiful experience, but also was pure flow. I felt 2 minutes pass in the experience. I would have bet a hundred dollars on this. But I was inside for 10. Time didn’t make sense — a key indicator of flow state.

Next up was Microdose VR. I first tried Microdose VR in 2016 at the Esalen Institute in Big Sur. Esalen is the birthplace of the human potential movement, and so it was fitting that it was there, where I initially grasped the potential of VR for transformational experiences. Every other experience I had tried up to that point had been First Person Shooters or 360-video marketing pieces. And not to slight those experiences, but I felt that VR must be able to do MORE. Android Jones’ Microdose blew my mind. Like with SoundSelf, I completely lost track of time. I was directly impacting visuals with my body movements, and sound was a big factor as well. It was the first time I could easily imagine staying in VR for hours. Most of all, it was an experience that was only possible within VR. The game was the biggest euphoric rush I’ve felt in VR, and that feeling occurred again at this event.

We have the power as consumers to play games that tie in intrinsically with self care but often don’t have options available. Job was propelled down this path when he asked himself “if I invest one hour of my time per day into playing a video game, what will I personally gain from that time invested, and will I even have time left over to do genuinely good things for myself?”

Orpheus is pioneering the fusion of game design with traditional self-care practices like meditation, dance/exercise, listening to music and creating art: “In short, we simply want players to feel amazing and have zero regrets about their time spent playing our games, allowing them to walk away knowing they have leveled up themselves, instead of their in-game avatars alone.”

One thing that will make it easier for people to try these experiences are portable headsets such as the ViveFocus and the Oculus Quest. Being untethered will allow people to travel with VR wherever they may go. Job sees this fundamental shift right ahead of us, as “video games and self-care are about to become one in the same. A paradigm shift. This is why all immersive Orpheus Self-Care Entertainment projects will be engineered for this critically important wave of VR.”

Orpheus is not a VR-only company, although their first three experiences are indeed for VR. As they expand, they hope to open up to a variety of types of immersive experiences, and are continually looking for projects that align with their holistic mission.

At the end of the day, I love that Orpheus is attempting to tap into a part of the market that so desperately needs their attention. If we don’t make self-care a major part of VR today, then we’ll continue to use VR as a distraction from, as opposed as a tool to enhance, our daily lives.

As for me, along with the peppermint tea, grapefruit candle, and music that make my focus possible, I’ll now be adding some Orpheus games into my flow repertoire.

News Source = techcrunch.com

3D-printed heads let hackers – and cops – unlock your phone

There’s a lot you can make with a 3D printer: from prosthetics, corneas, and firearms — even an Olympic-standard luge.

You can even 3D print a life-size replica of a human head — and not just for Hollywood. Forbes reporter Thomas Brewster commissioned a 3D printed model of his own head to test the face unlocking systems on a range of phones — four Android models and an iPhone X.

Bad news if you’re an Android user: all four phones unlocked with the 3D printed head.

Gone, it seems, are the days of the trusty passcode, which many still find cumbersome, fiddly, and inconvenient — especially when you unlock your phone dozens of times a day. Phone makers are taking to the more convenient unlock methods. Even if Google’s latest Pixel 3 shunned facial recognition, many Android models — including popular Samsung devices — are relying more on your facial biometrics. In its latest models, Apple effectively killed its fingerprint-reading Touch ID in favor of its newer Face ID.

But that poses a problem for your data if a mere 3D-printed model can trick your phone into giving up your secrets. That makes life much easier for hackers, who have no rulebook to go from. But what about the police or the feds, who do?

It’s no secret that biometrics — your fingerprints and your face — aren’t protected under the Fifth Amendment. That means police can’t compel you to give up your passcode, but they can forcibly depress your fingerprint to unlock your phone, or hold it to your face while you’re looking at it. And the police know it — it happens more often than you might realize.

But there’s also little in the way of stopping police from 3D printing or replicating a set of biometrics to break into a phone.

“Legally, it’s no different from using fingerprints to unlock a device,” said Orin Kerr, professor at USC Gould School of Law, in an email. “The government needs to get the biometric unlocking information somehow,” by either the finger pattern shape or the head shape, he said.

Although a warrant “wouldn’t necessarily be a requirement” to get the biometric data, one would be needed to use the data to unlock a device, he said.

Jake Laperruque, senior counsel at the Project On Government Oversight, said it was doable but isn’t the most practical or cost-effective way for cops to get access to phone data.

“A situation where you couldn’t get the actual person but could use a 3D print model may exist,” he said. “I think the big threat is that a system where anyone — cops or criminals — can get into your phone by holding your face up to it is a system with serious security limits.”

The FBI alone has thousands of devices in its custody — even after admitting the number of encrypted devices is far lower than first reported. With the ubiquitous nature of surveillance, now even more powerful with high-resolution cameras and facial recognition software, it’s easier than ever for police to obtain our biometric data as we go about our everyday lives.

Those cheering on the “death of the password” might want to think again. They’re still the only thing that’s keeping your data safe from the law.

News Source = techcrunch.com

Ten pieces of friendly VC advice for when someone wants to buy your company

I’ve been fortunate to have been part of half a dozen exits this year, and have seen the process work smoothly, and other times, like a roller coaster with only the most tenuous connection to the track. Here are ten bits of advice I’ve distilled from these experiences in the event someone makes you an offer for your startup.

1. Understand the motivations of your acquirer.

The first thing you need to understand is why the acquiring company wants your startup. Do you have a strategic product or technology, a unique team, or a sizable revenue run rate? Strategic acquirers, like Google and Facebook, likely want you for your tech, team, or sometimes even your user traction. Financial acquirers, like PE firms, care a great deal more about revenue and growth. The motivations of the buyers will likely be the single-biggest influencer of the multiple offered.

It’s also essential to talk price early on. It can be somewhat awkward for less experienced founders to propose a rich valuation for their company but it’s a critical step towards assessing the seriousness of the discussion. Otherwise, it’s far too easy for an acquirer to put your company through a distracting process for what amounts to an underwhelming offer, or worse, a ploy to learn more about your strategy and product roadmap.

2. Don’t “Test the waters.” Pass, or fully commit.

Going through an M&A process is the single most distracting thing a founder can do to his or her company. If executed poorly, the process can terminally damage the company. I’d strongly advise founders to consider these three points before making a decision:

Is now the right time? The decision to sell can be a tough choice for first-time founders. Often the opportunity to sell the company comes just as the process of running it becomes enjoyable. Serial entrepreneurship is a low-percentage game, and this may be the most influential platform a founder will ever have. But the reflex to sell is understandable. Most founders have never had a chance to add millions to their bank accounts overnight. Moreover, there is a team to consider; usually all with mortgages to pay, college funds to shore up, and the myriad of other expenses and their needs should factor into the decision.

Is it actually your choice to make? Most investors look at M&A as a sign your company could be even bigger and as an opportunity to put more capital to work. However, when VCs have lost confidence and see a fair offer come in, or they hear a larger competitor is looking at entering your space, they may push you to sell. Of course, the best position to be in is one where you can control your destiny and use profitability as the ultimate BATNA (“best alternative to a negotiated agreement”).

How long do you have to stay? In the case of competing offers, you may have limited ability to negotiate price, but other deal terms could be negotiable. One of the most important is the amount of time you have to stay at the company, and how much of the sale price is held in escrow, or dependent on earn-outs.

3. Manage your team.

As soon as you attract interest from an acquirer, start socializing the idea that most M&A deals fall apart — because they do. This is important for two reasons.

First, your executive team will likely start counting their potential gains, and they just may let KPIs key to running the business slip. If the deal fails to close, the senior team will be dejected, demotivated, and you may start to hear some mutinous noises. This attitude quickly percolates through the team and can be deadly for the culture. What was supposed to be your moment of triumph can quickly turn into a catastrophe for team morale.

This is typically the toughest part of the M&A process. You need the exec team to execute to close a deal, but you’re running into some of the deepest recesses of human nature too. Recognize the fact that managing internal expectations is as important as managing the external process.

4. Raise enough money to stay flush for a year.

Assuming you’re selling your company from a position of strength, make sure you have enough capital so that you don’t lose leverage due to a balance sheet lacking cash. I’ve seen too many companies start M&A discussions and take their foot off the gas in the business, only to see the metrics drop and runway shorten, allowing the acquirer to play hardball. In an ideal scenario, you want at least 9 months of cash in the bank.

5. Hire a banker.

If you get serious inbound interest, or if you’re at the point where you want to sell your company, hire a banker. Your VCs should be able to introduce you to a few strong firms. Acquisition negotiations are high stakes, and while bankers are expensive, they can help avoid costly rookie mistakes. They can also classically and plausibly play the bad cop to your good cop which can also contribute positively to your post-merger relations.

My only caveat is that bankers have a playbook and tend not to get creative enough. You can still be additive in helping fill the funnel of potential acquirers, especially if you’ve had communication with unlikely acquirers in the past.

6. Find a second bidder… and a third… and a fourth.

The hardest bit of advice is also the most valuable. Get a second bidder ASAP. It’s Negotiation 101, but without a credible threat of a competitive bid, it is all too easy to be dragged along.

Hopefully, you’ve been talking with other companies in your space as you’ve been building your startup. Now is the time to call your point of contact and warn them that a deal is going down, and if they want in, they need to move quickly.

Until you’re in a position of formal exclusivity, keep talking with potential acquirers. Don’t be afraid to add new suitors late in the game. You’d be amazed at how much info spreads through M&A back channels and you may not even be aware of rivalries that can be extremely useful to your pursuit.

Even when you’re far down the road with an acquirer, if they know you have a fallback plan in mind it can provide valuable leverage as you negotiate key terms. The valuation may be set, but the amount paid upfront vs. earnouts, the lock-up period for employees and a multitude of other details can be negotiated more favorably if you have a real alternative. Of course, nothing provides a better alternative than your simply having a growing and profitable business!

7. Start building your data room.

Founders can raise shockingly large sums of money with pitch decks and spreadsheets, but when it comes time to sell your startup for a large sum, the buyer is going to want to get access to documentation, sometimes down to engineering meeting minutes. Financial records, forward-looking models, audit records, and any other spreadsheet will be scrutinized. Large acquirers will even want to look at information like HR policies, pay scales, and other human resources minutiae. As negotiations progress, you’ll be expected to share almost every detail with the buyer, so start pulling this information together sooner rather than later.

One CEO said that during the peak of diligence, there were more people from the acquirer in his office than employees. Remember to treat your CFO and General Counsel well – chances are high that they get very little rest during this process.

8. Keep your board close, your tiny investors far away.

Founders are in a tough situation in that they’re starving for advice, but they should avoid the temptation to share info about negotiations with those who don’t have alignment. For instance, a small shareholder on the cap table is more likely to blab to the press than a board member whose incentives are the same as yours. We’ve seen deals scuttled because word leaked and the acquirer got cold feet.

Loose lips sink startups.

9. Use leaks when they inevitably happen.

Leaks are annoying and preventable, but if they do happen, try using them as leverage. If the press reports that you’ve been acquired, and you haven’t been, and also haven’t entered a period of exclusivity, try to ensure that other potential bidders take notice. If you’ve been having trouble drumming up interest with potential bidders, a report from Bloomberg, The Wall Street Journal, or TechCrunch can spark interest in the way a simple email won’t.

10. Expect sudden radio silence.

There’s a disconnect between how founders perceive a $500M acquisition and how a giant like Google does. For the founder, this is a life changing moment, the fruition of a decade of work, a testament to their team’s efforts. For the corp dev person at Google, it’s Tuesday.

This reality means that your deal may get dropped as all hands rush to get a higher-priority, multi-billion dollar transaction over the finish line. It can be terrifying for founders to have what were productive talks go radio silent, but it happens more often than you think. A good banker should be able to back channel and read the tea leaves better than you can. It’s their day job not yours.

No amount of advice can prepare you for the M&A process, but remember that this could be one of the highest quality problems you’re likely to experience as a founder. Focus on execution, but feel good about achieving a milestone many entrepreneurs will never experience!

News Source = techcrunch.com

The business case for serverless

While serverless is typically championed as a way to reduce costs and scale massively on demand, there is one extraordinarily compelling reason above all others to adopt a serverless-first approach: it is the best way to achieve maximum development velocity over time. It is not easy to implement correctly and is certainly not a cure-all, but, done right, it paves an extraordinary path to maximizing development velocity, and it is because of this that serverless is the most under-hyped, under-discussed tech movement amongst founders and investors today.

The case for serverless starts with a simple premise: if the fastest startup in a given market is going to win, then the most important thing is to maintain or increase development velocity over time. This may sound obvious, but very, very few startups state maintaining or increasing development velocity as an explicit goal.

“Development velocity,” to be specific, means the speed at which you can deliver an additional unit of value to a customer. Of course, an additional unit of customer value can be delivered either by shipping more value to existing customers, or by shipping existing value—that is, existing features—to new customers.

For many tech startups, particularly in the B2B space, both of these are gated by development throughput (the former for obvious reasons, and the latter because new customer onboarding is often limited by onboarding automation that must be built by engineers). What does serverless mean, exactly? It’s a bit of a misnomer. Just as cloud computing didn’t mean that data centers disappeared into the ether — it meant that those data centers were being run by someone else, and servers could be provisioned on-demand and paid for by the hour — serverless doesn’t mean that there aren’t any servers.

There always have to be servers somewhere. Broadly, serverless means that you aren’t responsible for all of the configuration and management of those servers. A good definition of serverless is pay-per-use computing where uptime is out of the developer’s control. With zero usage, there is zero cost. And if the service goes down, you are not responsible for getting it back up. AWS started the serverless movement in 2014 with a “serverless compute” platform called AWS Lambda.

Whereas a ‘normal’ cloud server like AWS’s EC2 offering had to be provisioned in advance and was billed by the hour regardless of whether or not it was used, AWS Lambda was provisioned instantly, on demand, and was billed only per request. Lambda is astonishingly cheap: $0.0000002 per request plus $0.00001667 per gigabyte-second of compute. And while users have to increase their server size if they hit a capacity constraint on EC2, Lambda will scale more or less infinitely to accommodate load — without any manual intervention. And, if an EC2 instance goes down, the developer is responsible for diagnosing the problem and getting it back online, whereas if a Lambda dies another Lambda can just take its place.

Although Lambda—and equivalent services like Azure Functions or Google Cloud Functions—is incredibly attractive from a cost and capacity standpoint, the truth is that saving money and preparing for scale are very poor reasons for a startup to adopt a given technology. Few startups fail as a result of spending too much money on servers or from failing to scale to meet customer demand — in fact, optimizing for either of these things is a form of premature scaling, and premature scaling on one or many dimensions (hiring, marketing, sales, product features, and even hierarchy/titles) is the primary cause of death for the vast majority of startups. In other words, prematurely optimizing for cost, scale, or uptime is an anti-pattern.

When people talk about a serverless approach, they don’t just mean taking the code that runs on servers and chopping it up into Lambda functions in order to achieve lower costs and easier scaling. A proper serverless architecture is a radically different way to build a modern software application — a method that has been termed a serverless, service-full approach.

It starts with the aggressive adoption of off-the-shelf platforms—that is, managed services—such as AWS Cognito or Auth0 (user authentication—sign up and sign in—as-a-service), AWS Step Functions or Azure Logic Apps (workflow-orchestration-as-a-service), AWS AppSync (GraphQL backend-as-a-service), or even more familiar services like Stripe.

Whereas Lambda-like offerings provide functions as a service, managed services provide functionality as a service. The distinction, in other words, is that you write and maintain the code (e.g., the functions) for serverless compute, whereas the provider writes and maintains the code for managed services. With managed services, the platform is providing both the functionality and managing the operational complexity behind it.

By adopting managed services, the vast majority of an application’s “commodity” functionality—authentication, file storage, API gateway, and more—is handled by the cloud provider’s various off-the-shelf platforms, which are stitched together with a thin layer of your own ‘glue’ code. The glue code — along with the remaining business logic that makes your application unique — runs on ultra-cheap, infinitely-scalable Lambda (or equivalent) infrastructure, thereby eliminating the need for servers altogether. Small engineering teams like ours are using it to build incredibly powerful, easily-maintainable applications in an architecture that yields an unprecedented, sustainable development velocity as the application gets more complex.

There is a trade-off to adopting the serverless, service-full philosophy. Building a radically serverless application requires taking an enormous hit to short term development velocity, since it is often much, much quicker to build a “service” than it is to use one of AWS’s off-the-shelf. When developers are considering a service like Stripe, “build vs buy” isn’t even a question—it is unequivocally faster to use Stripe’s payment service than it is to build a payment service yourself. More accurately, it is faster to understand Stripe’s model for payments than it is to understand and build a proprietary model for payments—a testament both to the complexity of the payment space and to the intuitive service that Stripe has developed.

But for developers dealing with something like authentication (Cognito or Auth0) or workflow orchestration (AWS Step Functions or Azure Logic Apps), it is generally slower to understand and implement the provider’s model for a service than it is to implement the functionality within the application’s codebase (either by writing it from scratch or by using an open source library). By choosing to use a managed service, developers are deliberately choosing to go slower in the short term—a tough pill for a startup to swallow. Many, understandably, choose to go fast now and roll their own.

The problem with this approach comes back to an old axiom in software development: “code isn’t an asset—code is debt.” Code requires an entry on both sides of the accounting equation. It is an asset that enables companies to deliver value to the customer, but it also requires maintenance that has to be accounted for and distributed over time. All things equal, startups want the smallest codebase possible (provided, of course, that developers aren’t taking this too far and writing clever but unreadable code). Less code means less surface area to maintain, and also means less surface area for new engineers to grasp during ramp-up.

Herein lies the magic of using managed services. Startups get the beneficial use of the provider’s code as an asset without holding that code debt on their “technical balance sheet.” Instead, the code sits on the provider’s balance sheet, and the provider’s engineers are tasked with maintaining, improving, and documenting that code. In other words, startups get code that is self-maintaining, self-improving, and self-documenting—the equivalent of hiring a first-rate engineering team dedicated to a non-core part of the codebase—for free. Or, more accurately, at a predictable per-use cost. Contrast this with using a managed service like Cognito or Auth0. On day one, perhaps it doesn’t have all of the features on a startup’s wish list. The difference is that the provider has a team of engineers and product managers whose sole task is to ship improvements to this service day in and day out. Their exciting core product is another company’s would-be redheaded stepchild.

If there is a single unifying principle amongst a startup’s engineering team, it should be to write as little code—and be responsible for as few non-core services—as humanly possible. By adopting this philosophy, a startup can build a platform that can process billions of transactions at an extremely predictable, purely-variable cost with nearly zero devops oversight.

Being this lazy takes a surprising amount of discipline. Getting good at managing a serverless codebase and serverless infrastructure is nontrivial. It means building extensive practices around testing and automation, which means an even larger upfront time investment. Integrating with a managed service can be unbelievably painful, with days spent trying to understand all of the gaps, gotchas, and edge cases. The temptation to implement a proprietary solution can be incredible, especially when it means a story can be done in a matter of minutes or hours instead of days or longer.

It means writing wonky workarounds when a service only accommodates 80% of a developer’s needs. And as the missing 20% of functionality is released, it means refactoring code to remove the workaround, even when it is working just fine and there is no near-term benefit to changing it. The substantial early time investment means that a serverless/managed-service-first approach is not right for every startup. The most important question to ask is, over what time scale do we need to be fast? If the answer is days or weeks, as is the case for many very early-stage startups, it is probably not the right approach.

But if the timescale for velocity optimization has shifted from days or weeks to months or years, it is worth taking a close look at going serverless.

Recruiting great engineers is extraordinarily hard—and only getting harder. It is a tremendous competitive advantage to task those engineers with building differentiated business functionality while your competitors build services that do commoditized, undifferentiated heavy lifting, and then remain stuck with the maintenance of those services for years to come. Of course, there are certain cases where serverless just doesn’t make sense, but those are disappearing at a rapid rate (for example, Lambda’s 5-minute timeout was recently tripled to 15 minutes)—and reasons such as lock-in or latency are generally nonsense or a thing of the past.

Ultimately, the job of a software startup—and therefore the job of the founder—is to deliver customer value above and beyond the capability of the competition. That job comes down to maximizing development velocity, which, in turn, comes down to mitigating complexity wherever possible. It may be that every codebase, and therefore every startup, is destined to become “a big ball of mud”—the term coined in a 1997 paper to describe the “haphazardly structured, sprawling, sloppy, duct-tape-and-baling-wire, spaghetti-code jungle” that every software project seems eventually destined to become.

One day, complexity will grow past a breaking point and development velocity will begin to decline irreversibly, and so the ultimate job of the founder is to push that day off as long as humanly possible. The best way to do that is to keep your ball of mud to the minimum possible size— serverless is the most powerful tool ever developed to do exactly that.

News Source = techcrunch.com

The limits of coworking

It feels like there’s a WeWork on every street nowadays. Take a walk through midtown Manhattan (please don’t actually) and it might even seem like there are more WeWorks than office buildings.

Consider this an ongoing discussion about Urban Tech, its intersection with regulation, issues of public service, and other complexities that people have full PHDs on. I’m just a bitter, born-and-bred New Yorker trying to figure out why I’ve been stuck in between subway stops for the last 15 minutes, so please reach out with your take on any of these thoughts: @Arman.Tabatabai@techcrunch.com.

Co-working has permeated cities around the world at an astronomical rate. The rise has been so remarkable that even the headline-dominating SoftBank seems willing to bet the success of its colossal Vision Fund on the shift continuing, having poured billions into WeWork – including a recent $4.4 billion top-up that saw the co-working king’s valuation spike to $45 billion.

And there are no signs of the trend slowing down. With growing frequency, new startups are popping up across cities looking to turn under-utilized brick-and-mortar or commercial space into low-cost co-working options.

It’s a strategy spreading through every type of business from retail – where companies like Workbar have helped retailers offer up portions of their stores – to more niche verticals like parking lots – where companies like Campsyte are transforming empty lots into spaces for outdoor co-working and corporate off-sites. Restaurants and bars might even prove most popular for co-working, with startups like Spacious and KettleSpace turning restaurants that are closed during the day into private co-working space during their off-hours.

Before you know it, a startup will be strapping an Aeron chair to the top of a telephone pole and calling it “WirelessWorking”.

But is there a limit to how far co-working can go? Are all of the storefronts, restaurants and open spaces that line city streets going to be filled with MacBooks, cappuccinos and Moleskine notebooks? That might be too tall a task, even for the movement taking over skyscrapers.

The co-working of everything

Photo: Vasyl Dolmatov / iStock via Getty Images

So why is everyone trying to turn your favorite neighborhood dinner spot into a part-time WeWork in the first place? Co-working offers a particularly compelling use case for under-utilized space.

First, co-working falls under the same general commercial zoning categories as most independent businesses and very little additional infrastructure – outside of a few extra power outlets and some decent WiFi – is required to turn a space into an effective replacement for the often crowded and distracting coffee shops used by price-sensitive, lean, remote, or nomadic workers that make up a growing portion of the workforce.

Thus, businesses can list their space at little-to-no cost, without having to deal with structural layout changes that are more likely to arise when dealing with pop-up solutions or event rentals.

On the supply side, these co-working networks don’t have to purchase leases or make capital improvements to convert each space, and so they’re able to offer more square footage per member at a much lower rate than traditional co-working spaces. Spacious, for example, charges a monthly membership fee of $99-$129 dollars for access to its network of vetted restaurants, which is cheap compared to a WeWork desk, which can cost anywhere from $300-$800 per month in New York City.

Customers realize more affordable co-working alternatives, while tight-margin businesses facing increasing rents for under-utilized property are able to pool resources into a network and access a completely new revenue stream at very little cost. The value proposition is proving to be seriously convincing in initial cities – Spacious told the New York Times, that so many restaurants were applying to join the network on their own volition that only five percent of total applicants were ultimately getting accepted.

Basically, the business model here checks a lot of the boxes for successful marketplaces: Acquisition and transaction friction is low for both customers and suppliers, with both seeing real value that didn’t exist previously. Unit economics seem strong, and vetting on both sides of the market creates trust and community. Finally, there’s an observable network effect whereby suppliers benefit from higher occupancy as more customers join the network, while customers benefit from added flexibility as more locations join the network.

… Or just the co-working of some things

Photo: Caiaimage / Robert Daly via Getty Images

So is this the way of the future? The strategy is really compelling, with a creative solution that offers tremendous value to businesses and workers in major cities. But concerns around the scalability of demand make it difficult to picture this phenomenon becoming ubiquitous across cities or something that reaches the scale of a WeWork or large conventional co-working player.

All these companies seem to be competing for a similar demographic, not only with one another, but also with coffee shops, free workspaces, and other flexible co-working options like Croissant, which provides members with access to unused desks and offices in traditional co-working spaces. Like Spacious and KettleSpace, the spaces on Croissant own the property leases and are already built for co-working, so Croissant can still offer comparatively attractive rates.

The offer seems most compelling for someone that is able to work without a stable location and without the amenities offered in traditional co-working or office spaces, and is also price sensitive enough where they would trade those benefits for a lower price. Yet at the same time, they can’t be too price sensitive, where they would prefer working out of free – or close to free – coffee shops instead of paying a monthly membership fee to avoid the frictions that can come with them.

And it seems unclear whether the problem or solution is as poignant outside of high-density cities – let alone outside of high-density areas of high-density cities.

Without density, is the competition for space or traffic in coffee shops and free workspaces still high enough where it’s worth paying a membership fee for? Would the desire for a private working environment, or for a working community, be enough to incentivize membership alone? And in less-dense and more-sprawl oriented cities, members could also face the risk of having to travel significant distances if space isn’t available in nearby locations.

While the emerging workforce is trending towards more remote, agile and nomadic workers that can do more with less, it’s less certain how many will actually fit the profile that opts out of both more costly but stable traditional workspaces, as well as potentially frustrating but free alternatives. And if the lack of density does prove to be an issue, how many of those workers will live in hyper-dense areas, especially if they are price-sensitive and can work and live anywhere?

To be clear, I’m not saying the companies won’t see significant growth – in fact, I think they will. But will the trend of monetizing unused space through co-working come to permeate cities everywhere and do so with meaningful occupancy? Maybe not. That said, there is still a sizable and growing demographic that need these solutions and the value proposition is significant in many major urban areas.

The companies are creating real value, creating more efficient use of wasted space, and fixing a supply-demand issue. And the cultural value of even modestly helping independent businesses keep the lights on seems to outweigh the cultural “damage” some may fear in turning them into part-time co-working spaces.

And lastly, some reading while in transit:

News Source = techcrunch.com

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