CubeSpace: Two Lessons from a Failed Endeavor

A few years ago, two people founded a work arrangement suite. The idea is that you’d have a place to plop down and work, renting a cube for all the small start-ups and companies here in Portland. You could have a conference room if you need it and meet-up space if you need that. They called it CubeSpace and poured their hearts and souls into it.

CubeSpace died yesterday. First the bank tried to take it out, since the owner’s weren’t able to keep up with their lease payments, then the community rallied to try to save it, then the owner’s had enough. (Stories are here, here and here.)

I tell you this story not to tell you about CubeSpace, per say, but to warn against two things that have come out of this story. The first is not paying yourself. The second is not charging for services.

The first is tricky. How do you start something? Keep expenses low. And a big expense is payroll. So people don’t pay themselves. That’s okay. The problem is that not paying oneself gives a false sense of the break even point. If you are not paying yourself or paying other expenses out of pocket, at least accrue the expense. Put it on the books. Know that there is a cost there. Because it’s easy to look down and say “if we can just make it to $5k per month, we’ll be fine” and it’s easy to forget that that number’s really $10k with a (very) modest salary.

I once let a very capable and competent employee go over this situation. He thought he was doing the right thing: he wasn’t turning in expense reports as he planned on eating the costs out of his own pocket to help the company get to break even. It was a very nice thing to do. But he also distorted the full costs of the business. I had been operating with one assumption about break even and my assumptions were wrong.

Without understanding the costs of running the business, there was no way to make smart decisions based on the data.

The second issue is also important: if you are providing services then charge for those services. It turns out CubeSpace was offering free meeting space in the evenings for tech groups around Portland. I’m sure CubeSpace’s director’s thought the service would pay for itself in new renters. But CubeSpace’s business was all about providing a place for people to work and meet. If that’s the value they are providing then they need to charge for it. If they were making their money on something else — say consulting services — it would have been different. The meet up space would have been a loss leader for creating consulting gigs.

I feel sorry for the good people who ran CubeSpace. While I never met either of them, they were very well respected in the community. I wish them all the best during their recovery and next endeavors.

Costs To Do Business, Then and Now

I was thinking recently at how the cost of business has changed in the 12 years I have run Infinity Softworks. A brief list of the changes we’ve seen:

  • In 1997, we had to offer telephone ordering and be able to ship products to customers. Many of our customers didn’t even have an email address. Originally, we’d email ordered product to our customers that ordered electronic software. Now none of that is needed. We don’t even offer physical product any more. Just downloads off the web.
  • In 1997, we had to staff both sales and support lines and support an 800 number. Now we really don’t have any of them. We handle all sales and support via email. We try to keep our response time down to a few hours and can do this partly due to the use of a BlackBerry when we are not in the office.
  • In 1997, we had to get a credit card machine to process charges. We kept it in a closet hooked up to a phone line. We would get the card over the phone and put the customer on hold while we processed the card. No one would give us the ability to process cards on the web (and none of our customers trusted it). Now, everything is over the web and there is no human involvement in the process.
  • In 1997, the costs to run a single server was a thousand dollars a month. Now, we pay about $40 per month with better quality and capabilities.
  • In 1997, 70-80% of our support issues were install and reinstall issues. Now, well… it’s the same. But improved software stores means these issues should be eliminated.

The bottom line? In the 12 years I’ve run Infinity Softworks, our costs have been reduced by 90%. I believe, for the first time, that it’s possible to run a highly successful and profitable software business without the number of people and dollars that it used to.

In fact, I’m betting on it. In 2001-2, we raised $550,000 to build Infinity Softworks. We added a number of people, expanded server capacity, and generally used the money to build infrastructure for the future. Now, I think we can build a far more successful business with far less dollars up front and far fewer employees to make it happen.