Repurposing underutilized space may win the future of work w/ Daniel Rosenzweig, CEO @ Kettlespace

Here's the recap...In today's episode, we chatted with Dan Rosenzweig, CEO of KettleSpace. Dan shared his insights into the trends he's seeing with future office space. Will companies return to an office, what will be the size of the office, will companies trade a central HQ for distributed micro-offices, and what will be the future purpose of an office. He also spoke about how companies like his can be the big winners in the #futureofwork by repurposing existing underutilized space. Providing more options to remote workers anywhere, and providing additional income to local businesses.

This is Part Two of our series on the hybrid remote model & the future of offices. You can check out Part One here and Part Three here.

Related References

Dan on Linkedin

Dan on Twitter

KettleSpace

Flexibility in available options wins the day

Employees will soon have endless options to choose where to work from. One day at a swanky hotel, another day at a cafe, and another at a co-working space down the block. Companies like KettleSpace will pave the way away from the central location. Whether that be a central HQ or a specific co-working space the company pays for. The ability to choose where to work based on the weather, amenities, time of day, or anything else will not only increase the worker's happiness, but then increase their productivity. If you're in a major city with 10 WeWork spaces, that's great. If not, the flexibility in where you get work done will be game changing.

Flexibility in the space is the future design

The future office will be designed around the purpose of that office. Adding flexibility into that space will open endless opportunities of functions to use as a team. A ping pong table to play a team tournament, only to be then converted to a table where the team does a lunch & collaboration session, to then be moved out of the way to make way for yoga mats. Teams wanting a space for collaboration can have 360 degrees of whiteboards, magnetic UI elements, and more. Anything to allow them to share great ideas on how to build better products and companies. Companies wanting a space for team building may have small tables with comfy couches. Where their team can just chill and do some bonding. Or perhaps a place for team building games.

Flexibility to maximize revenue

Companies like KettleSpace will allows co-working spaces, bars and every 'empty' place in between the opportunity to maximize on revenue for their space. Whether listing available hotdesks in a local workspace or using restaurants as a place to work and meet during the day. Plus the ability for these business likes bars & restaurants to sell drinks and beverages to increase their bottom line.

The central HQ is replaced with the hub & spoke model

We've thankfully seen the end of the large central HQ where the entire team is forced to come into. While some companies may still try and force their team into an office (good luck with that), where they are forced into will change. The central HQ will become much smaller. Teams realizing much of their team isn't super close to that HQ, and it's more of an inconvenience vs benefit to commute to the location. So teams will downsize their central HQ and open more local hubs closer to where their employees live. Still providing the option (or lack of option) to come into an office that's more convenient for their team. Reducing on the commute to better employee happiness, work/life balance, and the environment. These hubs may be more shared space vs a core office only inhabited by a single company. Providing more ability for employees to build a community and collaborate with others.

cott: [00:00:50] Hello everybody. Thank you for tuning into today's episode of Leading from afar. I'm Scott Markovits with my cohost Tevi Hirschhorn. Tevi, how's the Passover preparation coming along.

Tevi: [00:01:01] Full steam ahead. We've got our wine and our meat. I think we're ready to go.

Scott: [00:01:05] Dan, how about you? How's Passover prep going?

Dan: [00:01:08] Yeah, we are free of chametz in this house. We've been sweeping using feathers to get rid of all the crumbs, so we're ready to go.

Scott: [00:01:15] I'm impressed. Maybe we were just last moment over here. But today, we're going to continue our series on the hybrid remote model and the future of offices. We are very excited to be joined by Dan Rosenzweig. Dan is the CEO of KettleSpace, whose mission is to make workspaces more accessible outside of the city centers.

Before joining and starting KettleSpace Dan was working with WeWork and has lots of experience in, in the real estate space. Dan the way we start off is by giving a little bit of introduction about yourself. Tell us a little bit more, tell us a little bit more about KettleSpace/

Dan: [00:01:50] Happy to Scott & Tevi. Thank you so much for having me. So a little bit about myself. I graduated from Vanderbilt University in 2011. Dove right into the real estate world. From there, I was working at a firm called Alvarez and Marsal doing bankruptcy and restructuring work with a real estate lens.

So worked on the Lehman brother's estate. Worked on the Detroit city bankruptcy. Worked with the City of New York to assess New York's ability to attract and retain tech talent moving forward under the Bloomberg administration. And that was probably my first experience thinking about how real estate and jobs and technology all came together to affect one another.

From there, I went to work on the real estate team at WeWork. I was first, mostly focused on underwriting and then was focused on deal negotiation and execution here domestically. And that is where the inception of KettleSpace came from. Which is an asset-light version of co-working that delivered a better price point and network access to the user. And high-margin revenue to the space operator and owner.

That is where we started. That was 2016. And five years later, we're bigger and stronger than we were then. So happy to dive in a little more with you.

Tevi: [00:02:59] That's great to hear. I guess I'm curious to know since COVID started and remote has become the new norm, what's your personal belief on the future of work and how does KettleSpace for them to that?

Dan: [00:03:10] It's a great question. COVID obviously has had a very large impact on how work gets done. In a lot of ways if you look historically, the square feet per employee, that those companies would take in order to support their teams has been shrinking for close to 50 years now.

The main catalyst behind that being the internet and increasingly available bandwidth. Whereas the office used to be the only place primarily where we could do our jobs because that's where our files were. That's where our phones were. The servers, et cetera.

Now a lot of that stuff either exists in the cloud or is in the palm of your hand. So work now be conducted almost anywhere. And so in that way the amount of square feet we need has been shrinking. How does KettleSpace play a role in this?

Users have proven over the last year that they can be just as productive from their homes or non-office entities as they are when they're requested to come into the office five days a week. I think some sort of hybrid solution, a hybrid workweek, where there are times when you're in the office and there are times when you're not in the office makes logical sense. I think the key here is that the employees now have more power to say ask, "Why do I need to be in the office five days a week?" Is it two?

More importantly, it's going to lead to happier, more empowered employees. Who get their job done, but also have a slightly better work-life balance. In that, the job is a series of tasks you do that you find purpose in, but it isn't your end all be all for existence. And it doesn't need to take up all of the time throughout the workweek.

The goal for KettleSpace is to empower each individual, to choose their best, where. To help support their why.

I might thrive on a day like today in a very bright very crowded environment where I just throw my headphones on and get some work done. And for you, you might enjoy a very quiet space that doesn't necessarily have amazing light. It could be a cool edgy coffee shop near you that you just feel comfortable and at home.

Our goal is to empower you to choose whichever space makes the most sense for you in order to get whatever tasks you need to get done.

Tevi: [00:05:14] Awesome. So you're saying more as office space like a service instead of an asset that a company has. And you're providing that service.

Dan: [00:05:22] Yeah. I think the office still has a role. I think it has just evolved. So if you had asked a year or two ago, what does the office serve? The office is a place to get work done. Now we've spoken to a number of business owners, academics, and folks in the real estate industry over the last year.

If I were to summarize all of it down to one concept, people are saying that the office is where culture is built. And culture is a catchall concept. A lot of that is built by just being around them physically and being able to joke or ask what they did on their weekends.

I would say something that's missing in a remote fashion. When I say hybrid, I think that there are a few days a week, right? One, two, three, depending on what your role is, that likely makes sense in an environment where you're physically surrounded by teammates.

And it really varies by role, right? If you're in a very creative role and you're brainstorming all day, Miro is great and there are a lot of digital tools that do their best to reproduce physically being around other people. But there's something special about ordering food and everyone's sitting around the table and just whiteboarding and brainstorming.

Then maybe you're an engineer and you don't do as much of that work. You don't have to be next to the coder in order to do it. So for those types of roles, maybe one day a week, maybe zero days a week. It really is up to the team leader to in conversing with their team to make those decisions.

A year ago no one would have brought it up. It would've just been too taboo. And now that foundation is starting to crack.

Scott: [00:06:46] Pushing that forward a little bit. We started off by saying that the future of offices will be very purpose-driven. Much more focused in line with what Tevi and I think around culture and team building versus a place where you physically get work done.

And I'd love to hear your opinion. That should mean that the office needs to be redesigned. Moving away from that work base of open offices, which again, all the data has told us doesn't work. Maybe endless conference rooms. shared spaces, and maybe moving more towards a more collaborative design.

So maybe smaller tables for more intimate conversations. Maybe the resurrection of the idea of pool tables and ping pong tables. Being a place where you can have a team tournament or things like that. From what you're seeing and what you're talking about with teams, what does the future of design offices look like?

Dan: [00:07:34] Yeah. Absolutely. I think it's likely going to continue to evolve. I think collaboration in itself can imply lots of different things. And I think collaboration means something different to each one of us. The idea of open floor plan space was modeled after the trading desk in a lot of ways. How finance had done it in the past. And for a lot of roles, that require some degree of peace and quiet or heads-down space, that is not the ideal environment for them.

So that's why the idea of the phone booth became so popular. It was a re-imagining of what the cubicle had been but on a more one-off basis. I think that the pendulum is going to swing a little bit back. The flexibility piece is super important.

What you're going to see is a lot more prefab or modular construction which allows spaces to be inexpensively augmented if needed. Like back to Asia and you think about how rooms are divided.

There aren't these physically hard walls with drywall. There are these sort of flexible walls that slide and evolve. So you can make space fit the need of whatever that might be. It reminds me of being in elementary school. In the gymnasium, they have those sort of accordion walls that allow the space to be a basketball court, or it could be smaller things for various uses.

So I think the more flexible you can make your space the better. Because then you can make the space work for you as opposed to making a decision today that is going to have a large impact on how the space can be used for the next decade.

In real estate, we always say highest and best use. Normally from an owner standpoint, that means what's gonna make the most money. But the truth is it's like a form and function point. How can we make the space most functional for what our needs are?

And I think collaboration is going to continue to evolve as technology evolves, and as the needs of the organization evolve. So I love the ping pong table. Not just that it, you can play ping pong on it and it's fun. You can also take a meeting around a ping pong table.

That's the same idea as a KettleSpace. Originally we started in restaurants that were closed during the day. And those same tables that people dined on were desks for people during the day.

A quick answer to your question would be to make space as flexible as you possibly can so that your team can program it on that day for what the main utility needs to be.

Scott: [00:09:51] Yeah, you've opened up quite a few questions that I have. I'll start with one and then hand it off to Tevi. For the companies that are looking back to the office, whether that's full-time in an office, whether it's a hybrid model. Whatever that looks like.

What are they looking at as a central office location? The old school model. Does everyone come to one central location where everyone is, or companies starting to look at micro offices? Where it's more spread out and as people migrate away, they're having smaller spaces all spread out.

Dan: [00:10:23] Yeah, so I think you might call that like a hub and spoke model, right? Where you have your central hub and then you have spokes. Which are in the suburbs or non-urban areas where people might live. The idea there is you recreate that quiet, productive environment that you can get in the office. But just bring it closer to the end-user.

So we're in a lot of conversations with larger enterprise employees. Primarily flexible arrangements co-working and hybrid work were mostly for individuals and small teams prior to COVID. I think one of the changes we're seeing is that larger enterprises are now recognizing that it's likely here to stay in some form and it's because their employees want it.

And we're talking to a lot of companies around what hub and spoke might look like. You reduce the size of the hub a little bit with the anticipation that you're going to be spending a little bit on spokes that are closer to where employees live.

So how do you know where they live? So what we do is we create a heat map and very quickly, analyze the data. These are the zip codes where your employees live. Then we cross-reference that with our partner spaces. Which are restaurants, hotels, and office buildings, and vacant retail within those areas.

We make recommendations as to whether they want those spaces to be private, right. In which only that company has access to those spaces, call it, seven days a week. Or if they're willing to share with other companies and make those spaces available to others as well.

You're just bringing the office closer to them so that they're saving time on commuting. And maybe I don't know, avoiding rush hour traffic and all that good stuff. And at the same time, getting all the productivity that they would from your headquarters.

Tevi: [00:12:01] That's interesting. I'm curious to know, what do you think the future of the urban environment will be? If there is this migration and the headquarters spreading out to the suburbs or to other states, how will that affect the design of the city?

Dan: [00:12:20] So I think it creates a lot of opportunities. Let's use New York as an example. I'm a New Yorker. I think what makes New York special isn't just the density, right? I think the density is part of it, but it's a hub of culture. Whether it's the shows or the museums or the food and beverage. There's just a lot there. There's history. There are all kinds of good stuff there. If people start moving out of the city and spreading out a little bit, I don't know that you're going to lose all of that.

I think that there's a certain hub of value. That's why statistically New York City has the longest commute time of any city in the US. New York pulls from northern Connecticut. It pulls from Southern Jersey and it pulls from Eastern Pennsylvania. So it really depends where you are in the country based on how large all the states are.

But even a city like LA, which is just historically known for traffic, New York has a longer average commute time. So what are these opportunities? I think making cities more walkable. It's a European concept, but this sort of Plaza environment where people can work and you can bike. There are shops and kiosks and all kinds of stuff that make the city amazing and really enjoyable for folks.

If you are a Manhattanite and are in the city during the summer, they would often close down Fifth Avenue. From call it near the park all the way down to Midtown South, Union Square Park. Make it so you could cycle, you could run there. It was just, it was a pedestrian thoroughfare during that period of time.

In some ways, NYC could potentially lose some tax revenue if some people move away. But in doing so, as the laws of supply and demand, dictate other people who haven't lived in the city yet will come and fill that void.

Maybe if I'm happier, I'll be better at my job. And maybe if I'm better at my job, I will ascend the ladder even higher. My income will increase and by increasing my income, I'll spend more. And therefore create a stronger local environment. This brings me to my next point, which is to very easily support small businesses within your community. We all talk about our community. We want clean streets and we want safe schools. And we support our small businesses.

This is the KettleSpace model. An easy high-margin revenue generator that allows them to monetize, not just the food and beverage, but the environment that they've invested so much to create.

The positive externalities are increased food and beverage sales. Increased panache of being a space where people come to get work done and ultimately long-term. Increasing the overall brand value. If you can find a way to make employees happier at a price point that meets their needs, that gives them time back and also supports local businesses.

Scott: [00:14:46] Interesting. I want to combine two points that we just had spoken about earlier. One that hub and spoke idea and combined with the change of the urban development. As we've seen from COVID, many people are leaving San Francisco, leaving New York, moving out of the urban centers, moving out into the suburbs, moving out to other places.

There's obviously going to be a need for workspaces and co-working spaces and things like that outside of main cities. Who's really going to be winning in this space? WeWork is not good. Going to build a space in White Plains, New York, or in Tulsa, Oklahoma. They're much more focused on tier one places.

Does this open the door to smaller market co-working spaces? One-off ones, or potentially the bigger opportunity is something like a KettleSpace that uses underused spaces. Bars, restaurants, things like that. That has an empty amount of time that would love to monetize on that.

Is this the bigger opportunity for the future work? I personally believe that I think this was one of the most fascinating areas. Is how to take that space, how to take an Airbnb that may not be used every day, and how to convert that into a working space. Who do you think comes out out of this the best?

Dan: [00:16:03] So there's hopefully a lot of winners. So let's talk about small regional co-working players. Absolutely. They should be winners here. Ultimately if people are looking for satellite offices, I live in the burbs and my HQ's in the city. Which is a very common thing in New York City, at least. The ability to either work from home or have a local co-working space that either my company pays for I pay for that I get access to. This should be a big win for local players.

So if we're giving people the opportunity to build those work relationships in person, when they need to. A day or two a week. And then also invest more time in friends and family. That's a win and you can keep ascending up. Hopefully, now that geography is less important, you can find a role maybe that wasn't available in your city.

You want to be in life sciences, but you don't live in Boston. Potentially now you can get that opportunity because those companies are maybe starting to hire remotely. And New York for finance or San Francisco for tech, et cetera.

We're talking about geography here and going into suburbs or something like that. Maybe I couldn't afford to live in Manhattan. I had to be in some really high-paying job that I didn't love before. Now I have an opportunity to potentially move and lower my cost of living. And in doing so, take a role that is something that is more meaningful to me.

So small boutique co-working I'm bullish on it. I think it makes a lot of sense for people. Is it a Serendipity Labs that sort of has a franchise model? Or I'm a mom and pop and own a building and I want to create some utility there.

I think both work and I think the price point should meet those needs. If we allow supply and demand to occur over time, in theory, this is going to increase supply. Which demands going up. So that's good, right? It should increase prices, but supply will also increase and they'll level out and they'll find a price point that is beneficial to everyone. That's the hope at least.

We can talk about KettleSpace for a sec. For us, our goal is to take the space that already exists and do as little to augment it as possible. And by that, if you're a restaurant, I don't want to move all your tables around.

One of the benefits of working with us is I want to increase the revenue you can generate on what you've already got without you having to take on additional work. Because everything you change has ripple effects down the line and can make things more challenging for people.

Restaurants, hotels, they're the low-hanging fruit in my view because their spaces are already programmed for exactly what we're describing. They just aren't necessarily being sold that way. So it's the equivalent of before Airbnb there was a lot of vacant spaces and it was my guest room.

And Airbnb created a way for me to choose. It's my guest room today. It's an Airbnb tomorrow. I have full discretion to make those decisions for myself. I think that's a powerful thing, and we want to empower space owners to have that same control. So if they have a big wedding plan for the weekend, you can toggle the app and just turn the hours off and make it unbookable.

Then on Monday, you flip it back on and you're ready to go. By partnering with us we are an additional sales channel. Our goal is to allow our software and operating platform to make it really easy for owners to control their space and create the highest and best use in their off-hours.

So co-working for us is a very easy plug-and-play solution. In doing so, we make all of those spaces available to our users. We've got restaurants. We've got a lot of hotels. There's plenty of office buildings. There's retail. All of that stuff is potentially usable. Then the question becomes if it's a vacant space how likely is it to get rented in the near term? What can we do to potentially create revenue in the short term?

Could we inexpensively set up a co-working space that makes it viable that our users can access and be happy about? So the experience is good and also generates some revenue on currently vacant square footage. So we're in a lot of conversations with folks in both urban and suburban markets now.

Our goal is to be driven mostly by demand, meaning that larger enterprises who we're talking to are saying, "these are where my employees live." And then we say, we should set up satellite locations for you in these five locations around Westchester, New Jersey, et cetera. Then you can support those small businesses by making them available to those companies.

Tevi: [00:20:03] Very interesting. In this flexible future where everyone gets to decide where and when they work in the spaces that you provide, does this improve company finances, or maybe that's a bigger expense? Or is this a pure productivity employee happiness play?

Dan: [00:20:18] Yeah, it should. Real estate, the way the transaction currently works, tends to be a long-term fixed transaction. For the listeners who might not be familiar you generally will sign a long 5, 10, 15-year lease on space.

And because you commit to such a long period of time, the landlord will give you what they call a tenant improvement allowance. Which is a loan that you can use to build the space out and pay for furniture and construction and all of that. Then they will amortize that.

So they'll pick an interest rate and they'll amortize it into your rent so that you're actually paying back that loan over the period of the lease. A lot of times it's just baked into your rent number. You never see it. You never have to think about it. It's just part of the deal, but that's how the math works.

Co-working stepped in and said to landlords, "Hey, you've got some vacant space, we'll sign the long-term lease. And then we'll create flexible terms for our users." WeWork, for example, you could sign a lease as short as a month, or as long as, I'm sure they would take as long as you would want them to.

That helps them hedge the cost of the transaction that they've created with the landlord. If there's one thing that I think most owners are seeing now is that their tenants want more flexibility. When people say flexibility, they're generally talking about term length.

They don't want to commit as long. If you were to put yourself in the shoes of an entrepreneur today, it's hard enough for me to predict what my company will look like six months from now. Let alone six years from now. It makes sense that we want to create as much flexibility for ourselves as possible.

If we can do that by decreasing our fixed liabilities, then that's a good thing. Even if we have to pay a slight premium to get that flexibility. So with the shorter term, the total amount of cash out of pocket should decrease. Therefore, the liability to the company should decrease. Which should be a net benefit to their balance sheet. The size of the overall deals is also decreasing both in width and depth.

So that also benefits the balance sheet. On average companies pay around $10,000 per employee for office space. Our average company membership runs around for a private space that would be close to $500 or $600 per person per month.

So even if you were to give every single one of your employees a KettleSpace membership, It would cut that number in half. It would be closer to $5,000 or so a year. Our goal is to help companies increase flexibility and reduce costs. Increase flexibility and decrease fixed assets on the balance sheet. Thereby helping companies save money and increase cash flow going forward.

Scott: [00:22:46] Cool. My last question, continuing off of that topic and around that idea of the space as a service. From both the companies and the employees that you're speaking with, are companies and employees looking for that specific desk in a specific office, or they much more looking for flexibility?

Especially New York. Today, I'm going to work in Midtown East. Tomorrow, I'm going to work down in Greenwich Village. Be much more flexible. Hot desk idea. Wherever you decide to work today, that's where you want to be.

Dan: [00:23:16] It depends who you are in this scenario. If you are a company you are generally going to look to have as much consistency as possible. As we're decreasing risk the more we know the better. There's enough risk within our business. We just try and control it. So they're generally looking for more stability and therefore probably decreasing flexibility. To some extent by saying, "Ok, we have our HQ, you have your home, and maybe you have a handful of spaces you can choose from. That way we know where you are."

That's part of what we've built into the software is giving employers the ability to not tracking people, but when you check into a space, say there was a hurricane today and they got to account for all your employees. Because you care about them as individuals.

Today, you might not know where people are because it's a little bit loose. You can just be wherever you want, which I think is great. I want people to work from wherever they want. I just want the employer, if the government says, "Ok, are all your employees counted for?" To be able to say, "Ok, these five are in the office. These five are home and these three are at a KettleSpace in Hoboken." Something like that.

So it allows the employer to know where people are on a daily basis. It doesn't track them. It's just if you check into a space, they're like, Oh, cool that I know where they are.

If you're a user, I think you want to maximize flexibility, right? At least me personally, I like having a choice. I like trying new things. Ultimately over time, I'll probably go back to the same couple of spaces. Because I'll find what works for me. We as humans are creatures of habit.

I like this seat at this time in this location, because the lighting's like this. I found my flow state there in the past and I want to go back into that. But that doesn't mean I don't want the network to keep growing and my opportunity to say I'm traveling for work and I'm in Miami or somewhere.

I want to be able to find a bunch of great spaces in that city, just like I am here. I want maximum choice. The employer wants choice, but not too many choices. The benefit with us is, we let people decide for themselves what they're looking for.

So if the employer wants to severely limit the amount of spaces, they can do that. But I think they'll just get some pushback from their employees. It's a good conversation to be having.

We want to create an environment that is conducive to building trust. And so our software can help empower that.

Scott: [00:25:26] At the end of the day, the employee is going to win, but it may take a little arm twisting here and there.

Dan: [00:25:32] I think talent wins. There are two sides to every coin. Some are saying you gotta be back in the office five days a week and that's totally fine.

I just think at the end of the day, our job as managers, it's the same as sports. I need the most talented team I can possibly get. And my job is to empower them to do their best together. I think that if I want to attract the best talent, I've talked to some folks and it's anecdotal, but they're saying like, I'm not planning to go back to the office five days a week.

Talent acquisition is a super expensive time-consuming thing. So businesses, if you like your teams, it is in your best interest to open a conversation with them. They might say, I want to come back to the office five days a week and those people can come in five days a week.

I think that's awesome. And for the ones who just want to come in three. That's cool too. As long as they're getting their job done and you are satisfied with their services. To each their own.

Tevi: [00:26:22] That was the money quote right there.

Scott: [00:26:23] Awesome. Dan, thank you so much for joining us today and sharing your insights. We'll be sure to include all the details about KettleSpace and yourself in the show notes.

Dan: [00:26:33] It's my pleasure. Thanks so much for having me.