Hey! Are you a small business looking into possibly opening a Brick and Mortar (but not quite ready for that huge leap)? Are you dreaming about opening a boutique but want to weigh the costs and risks? Or, are you a growing artisan company thinking about expanding and having a more permanent location in a shop (as opposed to only working markets/fairs and booths)? A lot of folks, like I had, consider a lower risk option and start a lease with a "Co-op" Type Brick and Mortar. This option generally consists of a main owner of the store and you lease a small space within that location. For example, they might own a building and you rent a room for a monthly fee and a percentage of the sales made. Then, in exchange, they provide the staffing/employees, utilities, and pay the quarterly sales tax. Sounds enticing, right?
Well, when we started looking into this option (and obviously eventually pulled the trigger), there wasn't a lot of information out there on what to ask or what were the risks or pros/cons. So here are some of the takeaways we wanted to share with any businesses considering this move. Keep in mind, that not all businesses are created equal and that each experience may be different. These are some things to keep in mind and to consider! Location within a storefront, however, does play a HUGE role in an experience, ahem, sales, so that is very important! Don't ever be afraid to ask! Ask the owner(s), ask current and former tenants, reach out to local area business- ask around and meet people! That's where you should start... after reading this. Without further ado-
As a small business owner, one of the most critical decisions you'll make is choosing the right location for your business. In recent years, the rise of marketplace co-op businesses has provided an alternative to traditional leasing options. These co-ops offer shared spaces where multiple businesses can operate under one roof. While this arrangement can have its advantages, it's essential to understand the pros and cons before signing a lease with a marketplace co-op. In this blog post, we will explore the benefits and drawbacks of this type of leasing arrangement.
Pros:
1. Cost-sharing and Affordability:
One of the significant advantages of joining a marketplace co-op is the cost-sharing aspect. By sharing the space with other businesses, you can split the expenses associated with leasing, such as rent, utilities, and maintenance. This can significantly reduce your overhead costs, making it more affordable for small business owners to establish a physical presence in a desirable location.
2. Networking and Collaboration Opportunities:
Being part of a marketplace co-op exposes you to a diverse community of like-minded entrepreneurs (ideally). This environment fosters collaboration, networking, and the exchange of ideas. You can benefit from the collective knowledge and experience of other business owners, potentially leading to new partnerships, collaborations, and growth opportunities.
3. Shared Amenities and Resources:
Marketplace co-ops often provide shared amenities and resources that can be costly for individual businesses to acquire independently. These may include conference rooms, event spaces, storage facilities, parking, and even shared staff or administrative services. Access to these shared resources can enhance your business operations and provide added value to your customers.
4. Flexibility and Scalability:
Leasing with a marketplace co-op offers flexibility in terms of space requirements. As your business grows or evolves, you can possibly adjust your space needs within the co-op. This flexibility allows you to scale your operations without the hassle and expense of relocating to a new space.
Pros:
1. Cost-sharing and Affordability:
One of the significant advantages of joining a marketplace co-op is the cost-sharing aspect. By sharing the space with other businesses, you can split the expenses associated with leasing, such as rent, utilities, and maintenance. This can significantly reduce your overhead costs, making it more affordable for small business owners to establish a physical presence in a desirable location.
2. Networking and Collaboration Opportunities:
Being part of a marketplace co-op exposes you to a diverse community of like-minded entrepreneurs (ideally). This environment fosters collaboration, networking, and the exchange of ideas. You can benefit from the collective knowledge and experience of other business owners, potentially leading to new partnerships, collaborations, and growth opportunities.
3. Shared Amenities and Resources:
Marketplace co-ops often provide shared amenities and resources that can be costly for individual businesses to acquire independently. These may include conference rooms, event spaces, storage facilities, parking, and even shared staff or administrative services. Access to these shared resources can enhance your business operations and provide added value to your customers.
4. Flexibility and Scalability:
Leasing with a marketplace co-op offers flexibility in terms of space requirements. As your business grows or evolves, you can possibly adjust your space needs within the co-op. This flexibility allows you to scale your operations without the hassle and expense of relocating to a new space.
Well, and here are some other points to consider...
Cons:
1. Limited Control and Branding:
While being part of a marketplace co-op can provide cost savings, it also means sharing control over the overall aesthetic and branding of the space. You may have limited control over the layout, decor, and signage, which can impact your ability to create a unique and personalized brand experience for your customers.
2. Potential Competition:
Sharing a space with other businesses means you may be in direct competition with some of your co-op neighbors. This can create challenges, especially if you offer similar products or services. It's important to consider how this competition may affect your business and whether it aligns with your long-term goals.
3. Limited Privacy and Noise:
Operating within a shared space means you may experience a lack of privacy and increased noise levels. This can be a potential drawback, especially if your business requires a quiet and focused environment. Consider whether the co-op's layout and design can accommodate your specific business needs.
4. Dependency on Co-op Management:
As a tenant in a marketplace co-op, you rely on the management team to maintain the shared spaces, resolve conflicts, and ensure a smooth operation. It's crucial to thoroughly research and evaluate the reputation and track record of the co-op management before signing a lease. Poor management can lead to issues that may impact your business's success.
Cons:
1. Limited Control and Branding:
While being part of a marketplace co-op can provide cost savings, it also means sharing control over the overall aesthetic and branding of the space. You may have limited control over the layout, decor, and signage, which can impact your ability to create a unique and personalized brand experience for your customers.
2. Potential Competition:
Sharing a space with other businesses means you may be in direct competition with some of your co-op neighbors. This can create challenges, especially if you offer similar products or services. It's important to consider how this competition may affect your business and whether it aligns with your long-term goals.
3. Limited Privacy and Noise:
Operating within a shared space means you may experience a lack of privacy and increased noise levels. This can be a potential drawback, especially if your business requires a quiet and focused environment. Consider whether the co-op's layout and design can accommodate your specific business needs.
4. Dependency on Co-op Management:
As a tenant in a marketplace co-op, you rely on the management team to maintain the shared spaces, resolve conflicts, and ensure a smooth operation. It's crucial to thoroughly research and evaluate the reputation and track record of the co-op management before signing a lease. Poor management can lead to issues that may impact your business's success.
5. No Control over Hiring/Management of Employees:
When operating within a marketplace co-op, you may have limited control over the hiring and management of your employees. The co-op management may have specific guidelines or restrictions on hiring practices, which can impact your ability to build and manage your team according to your business's unique needs and culture.
6. No Insight into Sales Data:
Marketplace co-ops may not provide you with access to detailed sales data for your business. This lack of insight can make it challenging to analyze and understand your customers' purchasing behavior, identify trends, and make informed business decisions. Without access to this data, you may miss out on valuable opportunities for growth and optimization.
7. Potential for Uncredited Sales:
In a marketplace co-op, there is a possibility that sales made by your business may not be accurately credited to you. This can occur due to various factors, such as technical issues, human error, or discrepancies in tracking systems. It's crucial to have clear communication and a reliable system in place to ensure that all sales are properly attributed to your business.
8. Difficulty in Tracking and Comparing Sales Accurately:
Without access to comprehensive sales data and a centralized tracking system, it can be challenging to accurately track and compare your sales performance. This can hinder your ability to evaluate the effectiveness of your marketing strategies, measure the success of promotional campaigns, and make data-driven decisions to drive your business forward.
9. Limited Customization and Branding Opportunities:
In a marketplace co-op, you may have limited opportunities for customization and branding within the shared space. The co-op management may have specific guidelines or restrictions on signage, displays, and decor, which can limit your ability to create a unique and cohesive brand experience for your customers. This can impact your ability to stand out from competitors and establish a strong brand identity.
10. Potential for Disputes and Conflict Resolution:
Operating within a shared space can increase the likelihood of disputes and conflicts with other businesses in the co-op. Disagreements over shared resources, noise levels, or conflicting business practices can arise, requiring effective conflict resolution strategies. It's essential to have clear communication channels and a well-defined process for resolving conflicts to maintain a harmonious working environment.
When operating within a marketplace co-op, you may have limited control over the hiring and management of your employees. The co-op management may have specific guidelines or restrictions on hiring practices, which can impact your ability to build and manage your team according to your business's unique needs and culture.
6. No Insight into Sales Data:
Marketplace co-ops may not provide you with access to detailed sales data for your business. This lack of insight can make it challenging to analyze and understand your customers' purchasing behavior, identify trends, and make informed business decisions. Without access to this data, you may miss out on valuable opportunities for growth and optimization.
7. Potential for Uncredited Sales:
In a marketplace co-op, there is a possibility that sales made by your business may not be accurately credited to you. This can occur due to various factors, such as technical issues, human error, or discrepancies in tracking systems. It's crucial to have clear communication and a reliable system in place to ensure that all sales are properly attributed to your business.
8. Difficulty in Tracking and Comparing Sales Accurately:
Without access to comprehensive sales data and a centralized tracking system, it can be challenging to accurately track and compare your sales performance. This can hinder your ability to evaluate the effectiveness of your marketing strategies, measure the success of promotional campaigns, and make data-driven decisions to drive your business forward.
9. Limited Customization and Branding Opportunities:
In a marketplace co-op, you may have limited opportunities for customization and branding within the shared space. The co-op management may have specific guidelines or restrictions on signage, displays, and decor, which can limit your ability to create a unique and cohesive brand experience for your customers. This can impact your ability to stand out from competitors and establish a strong brand identity.
10. Potential for Disputes and Conflict Resolution:
Operating within a shared space can increase the likelihood of disputes and conflicts with other businesses in the co-op. Disagreements over shared resources, noise levels, or conflicting business practices can arise, requiring effective conflict resolution strategies. It's essential to have clear communication channels and a well-defined process for resolving conflicts to maintain a harmonious working environment.
11. Staff Unwilling to Educate Themselves on Specific Products:
In a marketplace co-op, the staff members may be responsible for multiple businesses within the shared space. This can lead to a lack of specialization and knowledge about specific products or services offered by individual businesses. If the staff is unwilling or unable to educate themselves about your products, it can hinder sales and customer satisfaction.
12. Size of the Co-op Can Affect Sales:
The size of the marketplace co-op can have an impact on sales. If the co-op is too large and houses numerous businesses, it may lead to increased competition and a diluted customer base. This can make it more challenging for your business to stand out and attract customers, potentially affecting your sales performance.
13. Theft is a Big Risk in These Types of Locations:
Operating within a shared space can increase the risk of theft. With multiple businesses and customers coming and going, it can be more challenging to monitor and secure your inventory. The presence of valuable merchandise from various businesses can make the co-op an attractive target for theft. It's crucial to have proper security measures in place to mitigate this risk.
14. Not All Spaces Are Created Equal:
Within a marketplace co-op, not all spaces may be created equal in terms of visibility, foot traffic, and layout. Some businesses may be located in prime spots with high visibility, while others may be tucked away in less desirable areas. The location and layout of your space within the co-op can impact your ability to attract customers and generate sales.
15. Limited Control over Operating Hours:
In a marketplace co-op, there may be limitations on your ability to set your own operating hours. The co-op management may have specific operating hours that all businesses within the co-op must adhere to. This can restrict your flexibility in catering to your target market's preferences and potentially impact your sales.
16. Lack of Diligence in Cleaning and Organizing:
In a marketplace co-op, the responsibility for cleaning and organizing the shared spaces may fall on the co-op management or staff members. However, there may be instances where the staff is not diligent in maintaining cleanliness and organization. This can create an unappealing environment for customers and negatively impact the overall shopping experience.
17. Limited Space for Dressing Rooms or Seating Areas:
To maximize space within a marketplace co-op, individual businesses may have to compromise on amenities such as dressing rooms or seating areas for customers. This can be a drawback, especially for businesses that rely on providing a comfortable and convenient shopping experience. Lack of adequate space for customers to try on clothes or rest can lead to reduced customer satisfaction.
18. Lack of Cohesive Aesthetic:
With multiple vendors operating within a marketplace co-op, there may be a lack of cohesive aesthetic in the interior design and overall ambiance. Each business may have its own unique branding and style, which can result in a visually disjointed environment. This may impact the overall shopping experience and make it challenging for businesses to create a consistent and memorable brand image.
19. Liability Issues:
In a shared space, there may be liability issues if items or fixtures are not properly attended to. For example, if a display or fixture is not secured correctly and causes injury to a customer, there may be legal implications for all businesses within the co-op. It's crucial to have clear guidelines and protocols in place to ensure the safety of customers and mitigate potential liability risks.
20. Lack of Control over Neighboring Vendors:
In a marketplace co-op, you may have limited control over the selection and placement of neighboring vendors. This can result in potential conflicts or inconveniences if your business's operations or requirements clash with those of neighboring businesses. For example, if you operate a bookstore and are located next to a vendor that requires a humidifier and constant water for their plants, the increased humidity and potential water spills may not be ideal for your books. This lack of control over neighboring vendors can impact your business's ability to create a conducive environment for your products or services.
In a marketplace co-op, the staff members may be responsible for multiple businesses within the shared space. This can lead to a lack of specialization and knowledge about specific products or services offered by individual businesses. If the staff is unwilling or unable to educate themselves about your products, it can hinder sales and customer satisfaction.
12. Size of the Co-op Can Affect Sales:
The size of the marketplace co-op can have an impact on sales. If the co-op is too large and houses numerous businesses, it may lead to increased competition and a diluted customer base. This can make it more challenging for your business to stand out and attract customers, potentially affecting your sales performance.
13. Theft is a Big Risk in These Types of Locations:
Operating within a shared space can increase the risk of theft. With multiple businesses and customers coming and going, it can be more challenging to monitor and secure your inventory. The presence of valuable merchandise from various businesses can make the co-op an attractive target for theft. It's crucial to have proper security measures in place to mitigate this risk.
14. Not All Spaces Are Created Equal:
Within a marketplace co-op, not all spaces may be created equal in terms of visibility, foot traffic, and layout. Some businesses may be located in prime spots with high visibility, while others may be tucked away in less desirable areas. The location and layout of your space within the co-op can impact your ability to attract customers and generate sales.
15. Limited Control over Operating Hours:
In a marketplace co-op, there may be limitations on your ability to set your own operating hours. The co-op management may have specific operating hours that all businesses within the co-op must adhere to. This can restrict your flexibility in catering to your target market's preferences and potentially impact your sales.
16. Lack of Diligence in Cleaning and Organizing:
In a marketplace co-op, the responsibility for cleaning and organizing the shared spaces may fall on the co-op management or staff members. However, there may be instances where the staff is not diligent in maintaining cleanliness and organization. This can create an unappealing environment for customers and negatively impact the overall shopping experience.
17. Limited Space for Dressing Rooms or Seating Areas:
To maximize space within a marketplace co-op, individual businesses may have to compromise on amenities such as dressing rooms or seating areas for customers. This can be a drawback, especially for businesses that rely on providing a comfortable and convenient shopping experience. Lack of adequate space for customers to try on clothes or rest can lead to reduced customer satisfaction.
18. Lack of Cohesive Aesthetic:
With multiple vendors operating within a marketplace co-op, there may be a lack of cohesive aesthetic in the interior design and overall ambiance. Each business may have its own unique branding and style, which can result in a visually disjointed environment. This may impact the overall shopping experience and make it challenging for businesses to create a consistent and memorable brand image.
19. Liability Issues:
In a shared space, there may be liability issues if items or fixtures are not properly attended to. For example, if a display or fixture is not secured correctly and causes injury to a customer, there may be legal implications for all businesses within the co-op. It's crucial to have clear guidelines and protocols in place to ensure the safety of customers and mitigate potential liability risks.
20. Lack of Control over Neighboring Vendors:
In a marketplace co-op, you may have limited control over the selection and placement of neighboring vendors. This can result in potential conflicts or inconveniences if your business's operations or requirements clash with those of neighboring businesses. For example, if you operate a bookstore and are located next to a vendor that requires a humidifier and constant water for their plants, the increased humidity and potential water spills may not be ideal for your books. This lack of control over neighboring vendors can impact your business's ability to create a conducive environment for your products or services.
Conclusion:
Signing a lease with a marketplace co-op as a small business owner can offer numerous benefits, including cost-sharing, networking opportunities, shared resources, and flexibility. However, it's essential to carefully consider the potential drawbacks, such as limited control over branding, potential competition, privacy concerns, and dependency on co-op management. Conduct thorough research, assess your business's specific needs, and weigh the pros and cons before making a decision. By doing so, you can determine whether a marketplace co-op lease aligns with your business goals.
Signing a lease with a marketplace co-op as a small business owner can offer numerous benefits, including cost-sharing, networking opportunities, shared resources, and flexibility. However, it's essential to carefully consider the potential drawbacks, such as limited control over branding, potential competition, privacy concerns, and dependency on co-op management. Conduct thorough research, assess your business's specific needs, and weigh the pros and cons before making a decision. By doing so, you can determine whether a marketplace co-op lease aligns with your business goals.
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