- IWG, a flex-office provider with roughly 3,500 locations in 110 countries, has started to franchise parts of its business this year.
- The company began by selling its Japanese business to local meeting and event venue operator TKP for around $446 million and singing a franchise agreement. Last month, sold its Swiss business for roughly $121.5 million to a Swiss joint-venture.
- IWG’s CEO told us that he takes inspiration from McDonald’s, which grew rapidly through franchising. Dixon hopes to eventually grow the company to 30,000 locations, close to McDonald’s more than 38,000 locations.
- Franchising is just one strategy to grow quickly. WeWork, Convene and Industrious have all turned to managed partnerships with landlords.
- Visit BI Prime for more stories.
Mark Dixon, the CEO and founder of flex-office giant IWG, remembers when McDonald’s first came to the UK.
He was impressed by the consistency of their coffee across locations, a lesson that he’s tried to apply at IWG (formerly Regus) since opening his first location in 1989.
“I don’t often go into McDonald’s anymore, but I buy their coffee all over the world,” Dixon told Business Insider.
While IWG, with roughly 3,500 locations in 110 countries, is much smaller than McDonald’s, which has more than 38,000 locations around the world, Dixon’s ambitions are Big-Mac sized.
“We want to be in every town, village and crossroads in the world, Dixon said. “No different than McDonald’s.”
Dixon’s plan to expand comes right from McDonald’s playbook; IWG has already begun to aggressively franchise its business.
The company began by selling its Japanese business to local meeting and event venue operator TKP for around $446 million, and last month, sold its Swiss business for roughly $121.5 million to a Swiss joint-venture. Both of those deals involved a franchising agreement to share revenue going forward.
“We want to get to 30,000 locations,” Dixon said, an eye-popping number that dwarfs WeWork’s current plans to double locations to 1,200 even after a failed IPO and SoftBank bailout. Dixon is betting that franchising will allow the company to grow quickly with significantly less cost.
IWG is not the first company to apply the franchising model to flexible office space. Office Evolution, which will operate 70 locations by the end of the year, started franchising in 2013, 10 years after its founding. Mark Hemmeter, CEO and founder of Office Evolution, described the company’s growth as “exponential” after it switched to franchising.
Franchising is one relatively capital-light strategy to grow a brand quickly.
WeWork, Convene and Industrious have all turned to managed partnerships with landlords. With these arrangements, operators share the profit of a space with a landlord but are not on the hook for the lease.
While international drug-use on private jets and a tequila-fueled post-layoff concert from a member of Run-DMC may have dominated the headlines, the main criticism of WeWork was its wide losses and breakneck growth fueled by a glut of SoftBank’s money.
IWG has had its own financial challenges. After the dot-com crash, the company sold a 58% of its UK business to avoid bankruptcy, and filed for Chapter 11 bankruptcy in the US. The company was able to restructure and get out of bankruptcy in less than a year, and eventually purchased back its entire UK business.
IWG’s approach now, according to Dixon, will allow it to supercharge growth without sacrificing the company’s profitability.
“If we were doing it with our balance sheet and investing, it’s just going to take too long,” Dixon said.
IWG has been a public company since its IPO on the London Stock Exchange in 2000, and according to media reports has recently mulled a spinoff of its US business that would list on the New York Stock Exchange.
The number of locations can be a selling point for potential big clients with an international reach looking for space that can be flexible across locations around the world.
“The majority of our customers are using us in more than one place,” Dixon said.
IWG plans to franchise both to large partners for whole countries and regions, like it has with Japan and Switzerland, and with more regional operators for locations like the rural US.
Franchising may come across as a bit old-school, or boring, and Dixon said this matches the “tedious” nature of the business.
“It’s not our job to be notorious or famous or anything,” Dixon said. “We’re the support team.”
IWG’s plans for rapid growth were created in preparation for the coming changes to the workplace, which we’re only seeing the beginning of.
Commercial real estate experts JLL predict that 30% of office space will be flexible in 10 years. Dixon said that the idea is gaining in popularity worldwide, but adoption by US and Canadian large corporations is driving the biggest portion of growth.
“Companies want it,” Dixon said. “It’s cheaper, it’s more flexible, it’s what their people want.”
Dixon, like so many in the field, sees this trend only accelerating. Eventually, he sees a future where most companies will work remotely, with people connecting from flexible spaces in their own town.
These companies would prefer to work with one worldwide vendor for flexible space, instead of a patchwork of different providers. Dixon believes that franchising will pave the way for IWG to become that solution.
He also highlights climate change as another force behind the turn away from commuting. By disaggregating the workplace to local workplaces, people will emit less carbon in their commutes.
While technology has changed over the 30 years that IWG has operated, Dixon said that the office is more similar to the past than the most starry-eyed might have you believe. IWG is still operating the original Regus center, and apart from installing WiFi and removing fax machines, the place is the same.
While trendy designs and tech-enabled spaces may get the headlines, Dixon is focused on successfully operating IWG as a service business.
“There’s no alchemy, there’s no shortcuts,” Dixon said. “You have to be super disciplined and you have to use your scale.”
- Read more:
- WeWork just released an investor presentation that offers numbers the company didn’t include in its widely-derided IPO documents
- Inside a huge real-estate tech gathering in New York: big ideas, lots of suits, and some notes of caution as investment surges
- Adam Neumann is out as WeWork’s CEO, but that’s no ‘silver bullet’: VCs and proptech experts think it will take cutting passion projects and cleaning house to right the ship
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