Raising $6M to Build 5,000 Suburban Coworking Spaces — Enclave’s Robert Kellman

Alan Li (00:01) Welcome to opening soon, a podcast where we interview retail founders about how they started and run their brick and mortar businesses. I'm your host, Alan Li, I run Signs and Mirrors where we make beautiful signs and furniture for retail stores. I also help run FotoLab a self-portrait studio with locations in New York city and Houston.

Alan Li (00:21) Today's guest, Bobby Kellman is the founder of Enclave, a suburban co-working space that started near Chicago. Bobby previously worked on presidential campaigns and worked at Uber, helping with public policy and government affairs for nearly eight years. In this episode, we dive into how Bobby discovered the need for Enclave while commuting an hour into Chicago each day, bootstrapped the first location with just $65,000, and raised over $6 million to open 100 locations by 2027.

and thousands more over the next decade. This is a great episode for those considering raising venture for their brick and mortar business and understanding the strings that come with the money.

Alan Li (01:02) Bobby, it's so great to have you on the Opening Soon podcast. Thanks so much for joining us today.

Bobby Kellman (01:05) Thanks for having me. Excited.

Alan Li (01:07) Well, before we dive into Enclave, I would love to hear a little bit more about your background. I know that you have quite an interesting one, having spent some time at Uber, living in the Middle East. Tell me about what brought you here today.

Bobby Kellman (01:19) I guess it's a convoluted path. But the short version is I always wanted to start something of my own. But I actually started my career in all things, or of all things I should say, in politics. So working on different political campaigns starting in probably about 2006 up in Maryland and then running around all over the country for a few years of working on the 2008 presidential. And then I...

⁓ After that campaign was done, I didn't want to work in government, so I ended up taking a consulting job in the Middle East based out of Dubai, doing the types of government or more politics campaign style consulting in the region. A lot of governments there very much want their people to enjoy the benefits of oil wealth, but how do they do that? How do they deploy it? So there's a lot of different types of campaigns to run over there, but ended up

Alan Li (01:56) Mm-hmm.

Bobby Kellman (02:07) staying there for a few years and then moving back to Chicago to actually work for the mayor of Chicago for a brief moment in time. And then found my way to Uber as a relatively early Uber employee on their government affairs team. My job was to help make ride sharing legal in various states, along with introducing new products. And as that scaled and I became more engrossed in the business world and very enchanted, I should say, with the idea of starting my own business, you know, something

venture-backed, employed tech. And so in early 2020, opened up Enclave, a suburban co-working company.

Alan Li (02:43) What did you learn at Uber and in politics and how did that help you start Enclave,

Bobby Kellman (02:49) I think the campaigns, political campaigns and startups, particularly startups like Uber, Unicorn growing as fast as anything could, that almost devotion to speed is a similarity. So political campaigns, there will be a day where everyone will vote. And on that day, one side wins everything and the other loses everything. And in some ways that...

Alan Li (02:58) Mm-hmm.

Hmm.

Bobby Kellman (03:14) same mentality pervades startups where, you know, if we thought at the time that if we ran harder, worked harder, work better, work smarter, all of it, that we could win the space. But we were terrified that other companies, whether competitors overseas or lift here in the US could, could eat our lunch. So we worked extraordinarily hard and extraordinarily fast. And it's that that speed of work is important. I had an old boss at one point that

She said, I think her line was, any point, 80 % of the decisions you make will be right, 20 % will be wrong, and taking too much time to figure out which 20 is just going to be a waste of time anyway. So just plow forward, accept the fact that 20 % of the time you're going to have to adjust, but revel in the 80.

Alan Li (03:57) Gotcha. Given that experience of move fast throughout politics and throughout Uber, did you ever consider maybe taking a slower path to entrepreneurship instead of the VC route? How did you decide between venture capital versus bootstrapping?

Bobby Kellman (04:09) I never, think everything I set out to do was always kind of with a venture backing in mind. I enjoy that speed. I enjoy the team mentality that comes of having a shared mission and working really hard to build something that previously did not exist. And so for me, the culture of startups, mean, now Uber had its cultural flaws, so not all of them, literally, but that kind of culture where you're creating something from nothing.

You're working really hard through sheer force of will, will build something that didn't exist yesterday. That's what I was drawn to in some ways more than the actual product we ended up developing over here at

Alan Li (04:45) Mm-hmm.

And how did you develop the product at Enclave

Bobby Kellman (04:52) you know, think I have a good investor or a good investor answer to that. But the truth is, pure selfishness. the team I was managing at Uber when I was, you know, whenever it was 2020, none of the, none of the folks on my team were in Chicago. So I found myself commuting downtown from the suburb. ⁓ I moved to one of the Western suburbs and was commuting downtown just to stare at a screen.

and talk to them via phone. It didn't seem to make much sense. So I started looking for options in the suburbs. And what I found, especially if you dig into the data, which you spend enough time at startups, you're just going to dig into data naturally, was kind of, it was interesting. It highlighted a pretty big gap. Majority of the people in this country, especially white collar employees, live out in the suburbs. Suburbs are home to four times the amount of money. But at the time, 2019,

only 10 % of the co-working spaces were in the burbs. So there was a clear mismatch between the infrastructure of work and where people actually wanted to work. I didn't know it at the time, but COVID would kind of let a fire under that market even more so. So in some ways it was good timing, silver lining of a rough period, I would say.

Alan Li (06:00) Yeah, and this was the time when wework and industrious and all the other coworking startups were gaining a lot of traction in the cities, but you thought I'm in the suburbs, there's not one of these here. Is that the thought process?

Bobby Kellman (06:04) You

Yeah, and I'm trying to remember when kind of we work imploded a little bit. But even what I do remember though is looking at it and seeing these huge companies, industrious, Regis, Rework, Mindspace, a couple others, all competing for exactly the same market, Urban Core, where they would build very, very large spaces, 50,000 square feet, and then Redspace to giant companies. They were in fact a,

office manager, landlord that had a much prettier, cooler culture. ⁓ But nobody was catering to the employees themselves. They were just companies catering to the companies who employed those people. And so I thought it was kind of a nice niche, a nice market gap to cater directly to the employees and cater to them where they live.

Alan Li (06:43) Mm-hmm.

So you had this idea and you had some data to support the decision. What was the next step? Was it going out to raise venture funding or did you test the concept a bit prior to that?

Bobby Kellman (07:10) Certainly the latter. So I called a buddy. I convinced him it wasn't a completely insane idea, which I think he questions every now and then. And we both put up the money for the first one. And we built it out in Glen, Illinois, which is about 20 minutes, 25 minutes west of the city. And we opened, actually opened December 27th, 2019.

which if you're ever building a coworking space, opening up two days after Christmas, generally not a good idea. And three months before global pandemic also not a great idea, but it worked. We kind of hit off to immediate success. And before we were shut down, we broke an even return to profit before we got shut down in March that year.

Alan Li (07:40) Noted.

How did you open up to such success? Was it through marketing or how did you get your first customers?

Bobby Kellman (07:56) It turns out that the market gap that we had kind of identified was really felt by people. So we, I think the numbers at the time were about 40 % of white collar employees. Again, majority of whom lived in the suburbs, worked from home one to two days a week and had nowhere to really go except really loud Starbuckses. And if you've ever been to a suburban Starbucks,

you're there after three, it's a lot of high school kids. So it's not really conducive for work. And so we, I think we tapped into essentially a basic need. People want to split life and work. They don't want to literally sit on their couch and do work and be interrupted by dogs and delivery guys and kids. They want to have a separate life and they really, really don't want it to be at the other end of an hour long commute.

Alan Li (08:30) Mm-hmm.

Bobby Kellman (08:42) And so by building the infrastructure close to home, be able to kind of give people a relatively high value offering. It's space, it's space that's conducive for work. It's simple, but it answered a real need that people were feeling. at least as a, well, in 2020, nobody had really offered a scalable version of that kind of product in the suburbs.

Alan Li (09:05) Yeah. But tactically, what was getting the first members like? Was it passing out flyers, emailing friends, you know? Yeah.

Bobby Kellman (09:11) ⁓ you mean actually, how did you actually get the word out? There was a

lot of prayer. I did a lot of, there was some actual marketing, some hacking. we, I think we dropped a little bit of direct mail. We did some Facebook ads, which a different buddy of mine helped me out because I'd never actually bought my, well, I placed ad buys, but never actually done the work to execute it.

So that was something else I had to learn. We also just, you know, I think I changed where I live on, I mean, it must have been Facebook at the time, joined a number of Glen Ellyn parents' groups, working groups, other things, and just started randomly posting about it. And then once we caught on word of mouth, things happened pretty quickly. So our seventh member is a guy named Jason, and he loved the space, signed on right away.

Alan Li (09:50) Hmm.

Yeah. And how did you even know what type of space to look for, how big of a space to look for, how to design it? Walk me through that process.

Bobby Kellman (10:07) We didn't. We initially built the space. Our first location in Glen Ellyn has no offices. We built it with a conference room. We actually built it with a social element, a walk-in temperature-controlled wine cellar. People could come by day and do a little bit work or leave a bottle of wine and come in the evening and have a drink. Other than that, it was wide open space.

Alan Li (10:26) Mm-hmm.

Bobby Kellman (10:29) We had the help of a designer at the time and she came in and kind of helped us just buy furniture and set the place up so that it looked reasonably good. And then that worked. Now the model has changed since then. We've now become much more focused on work. There's a lot of offices, but we had to adapt. As we scaled, we needed to figure out a way to enhance the revenue. So the wide open concept has gone away.

And now we build much more closed off spaces, have a new designer that brings in lot more color to a space, makes it much more homey and comfortable. But what we found is that if you go into any WeWork or Regis in an urban core, they're built like offices because they cater to that office clientele. Ours are much more like a, I would say they're closer to a living room, one that's conducive for work without distractions, but much warmer than your normal office environment.

Alan Li (10:59) Mm-hmm.

Yeah, that makes sense. And roughly how much did you have to spend to get that first space up and running?

Bobby Kellman (11:24) I think that was about all in furniture marketing was probably about 65,000 that we put up and then Well, as I said, we turned our first profit couple months later the payback on that was rough because we were shut down there for however long that COVID shutdown was there but

Alan Li (11:41) Yeah. Yeah.

Bobby Kellman (11:43) But yeah, I think it was about 65,000, which actually has stayed pretty consistent with our builds, but we've also gotten more efficient and better with the builds as well.

Alan Li (11:50) COVID happens, you have to shut down for an extended period of time. Walk me through what you're thinking, what happens after.

Bobby Kellman (11:57) Uh, well, we didn't know, uh, like everybody back in 2020, you know, I think I thought it was in the last two weeks. It clearly didn't, uh, we did, but we had no idea how long we were going to be shut down. Um, so we, we did some smart things, some less smart things. So things like, you know, installing the, the weird plexiglass screens between desks that absolutely do nothing for COVID. Um, but I think again, at the time.

people, it made people feel more comfortable, including me. We also talked to some friends from my old politics days that were down working for the governor. And they, we effectively got, I'd say unofficial permission, but to stay open, the fear was if places like Enclave closed, more people would congregate in the loop in downtown Chicago. So by essentially giving us dispensation to stay open, we could

Alan Li (12:44) Hmm.

Bobby Kellman (12:50) could essentially help limit the larger crowds. So we were able to stay open for those members who wanted to use it. I think we essentially offered to refund anyone who wanted it, but the community was great. They effectively told us not to, that we were more than happy to have us charge them. So we actually stayed profitable throughout COVID. ⁓ Our promise to the men, not by a lot, ⁓ it helped that I was the only

Alan Li (13:09) wow.

Bobby Kellman (13:12) real employee and wasn't taking a salary, but we stayed profitable. But our promise to members was we wouldn't add any new members. So we didn't grow at all, even though we stayed fairly consistent. But I think starting about September, October of that year, started to open up, looked the other way, started to add members. And we kept growing until probably about March or April, which is when we, of 21, which is when we raised that friends and family around.

Alan Li (13:34) I see. And how many people could you fit in that one space

Bobby Kellman (13:38) So we have it designed for, all well, now it's designed for about 15 members at any one time. And again, there's still no offices. So that's about, right now we've capped it at about 55 to 60 members, somewhere in that range. And so that space is wait-listed. It's full and has been full for a long time at this point. So, but we usually do it based on a little bit capacity, a little bit noise.

So when we open up a new location, we model it out, how many members can we have comfortably? We don't want anyone to show up and essentially not have space because the churn will be too high. it's frankly, it's cheaper, better business just to build a low churn community than it is to maximize dollars or maximize crowds. And then constantly have to refill and find new people because they're all getting annoyed.

Alan Li (14:10) Mm-hmm.

Yeah, and this is roughly like couple thousand square feet or how big are these spaces?

Bobby Kellman (14:34) 2200 square feet. Our spaces have gotten a little larger over the years. they average now about three to four thousand. So give or take, you know, 10 % of the size of a co-working space and where you're sitting in New York. So much, much smaller.

Alan Li (14:48) Gotcha. Okay, so April 2021, you start to out to fundraise because the business has been profitable even throughout COVID. Things are picking up, opening up. What are the steps to fundraise? Do you reach out to just your friends and family and ask them for introduction to VCs or do you get a family and friends round first? How did you approach that process?

Bobby Kellman (14:55) Mm-hmm.

Well, I first off thought very highly of myself and my connections from Uber. So I thought that raising money would be a walk in the park. I would just make two calls to people who had done very well in the Uber IPO and we'd be done. It absolutely didn't work out that way. So the first time we set out to raise real money, was able to sit down with a few people in in VC world and they're

recommendation, they had two real recommendations. One was that we have to have something unique, something special about us that could, that would appeal to a broader VC audience. Like it's sort of a co-working is cute, but what is it that makes you the winner of this space or somebody else who opens up down the road? And the second thing was that even if it was limited, I had to be able to show some ability to scale. So we ended up essentially

Alan Li (15:49) Mm-hmm.

Bobby Kellman (15:58) after probably about month of trying and not getting anywhere, we just went immediately to that friends and family road with a pitch of we've developed some tech and we've developed an operating model that lets us operate these spaces with absolutely no staff. And by removing staff from the equation, we can charge lower prices than any of the competition. There's not a lot of competition in the space, but we can be underpriced or under their prices.

and offer a better value all at the same time. And that was kind of our something special. And then we went out and raised, I think it was about 200 grand, so not huge by any stretch, from initial Enclave members was the bulk of it. And then a couple, you know, very random, I should say, just checks that, you know, we were able to get from our various networks. And with that 200, we were all in the...

and the small profits that had been rolling off of the initial location, we were able to open up another three. And that got us to four locations by 22, which is when you and I met and we raised kind of our pre-seed round, a couple million dollars from you guys in Newstack.

Alan Li (17:05) Gotcha. So you got to four locations with a couple hundred thousand just through family and friends before you met Bling and other institutional VC to raise the larger round. Tell me about the no staff policy. How does that work on a day to day basis?

Bobby Kellman (17:11) Mm-hmm.

So on day-to-day basis, it's E in some ways, it's simple. So we've developed a couple things that make it possible. So right now, a team of three people in a market can manage up to 24 different locations. That was in theory. We've got 15 in Chicago, which is our biggest market right now. but that team of three should be able to manage significantly more, especially once we cap out.

So the way it works is essentially it's automated entry. If you remember, you can unlock the door with your phone. That's off the shelf tech. It works just like every other apartment building that you've ever walked into. But what we've done on the back end is tie that same system into a camera system, into noise sensors, motion sensors, and different types of software products that let us keep our finger on the pulse of a location without actually being there. So the example I always use is if somebody doesn't move,

for an extended period, my team will get a ping and they can actually go in and check the cameras and see what's going on. Did someone move in? Are they sleeping on the couch? Did someone have a heart attack? Do we need to have some sort of emergency response? Are they just working very diligently and not moving too much? And then all of the various responses, they can talk to the cameras, they can call the person, they can call the authorities. So it's one small example.

but it lets my very, very lean team stay lean, which again is where our margins.

Alan Li (18:41) When I was working in coworking spaces, oftentimes I'd let friends in or let a couple of people in who didn't have memberships. Do you face those challenges as well? And how do you solve that?

Bobby Kellman (18:53) Definitely face those challenges and sometimes people get away with it. Kind of the risk of doing business. if we hear about it, it's usually either from other members or happenstance. My team does rove around and check on things. We have cleaners that run around and see things. Sometimes we look on the camera for something completely unrelated and see a small army of people coming in together.

It happens and it's not something we love, obviously, but it's one of those things with a trade off of having staff versus not having staff. In my estimation, at least, it's still better to not have the staff. If you walk in any co-working space right now, odds are the staff is not particularly busy. There's not a lot to do on that day in, day out basis and they're managing 50,000 square feet. So think about how bored my employee would be in 3,000.

⁓ There'd simply be nothing for them to do, but most importantly, the revenue generated from 3,000 square feet wouldn't be able to cover that person's salary. You wouldn't be able to grow in the suburbs in these markets if you had staff on site everywhere.

Alan Li (19:57) Yeah. And then if people run into sort of technical issues or, you know, there's a spill, I assume there's like a routine cleaning that happens or technical support on call anytime.

Bobby Kellman (20:08) Yeah, effectively they can email, call, text us at any point depending on the level of emergency. We might reroute someone. There's a leak in one of our spaces today coming through the ceiling. think we're in a larger building. I think it's from the apartment above. So the guy on the team who kind of manages overseas kind of maintenance and quality assurance in the spaces, I'm not sure where he was going, but he's now heading off to that particular location.

So those things will happen. Most of the time, you know, it's somebody to move the dishes or put the dishes away like they should have and our cleaners just take care of it in the evenings.

Alan Li (20:44) Gotcha. So you have four locations. I assume they're profitable because you don't have staff and you have this cool new tech that is able to track. How was raising funding in 2022?

Bobby Kellman (20:53) Thanks.

Well, the Blink King put me through the wringer. it was a lot of starts and stops. So got initially, again, of tried to do it myself a little bit, ended up sending my deck out probably about, I don't know, a hundred different VCs. Heard back from a couple, but the hit rate was certainly low. And then actually ended up getting connected to a guy named Mark Halpin who runs Kerosene Ventures.

Alan Li (20:58) Ha

Bobby Kellman (21:22) And Kerosene, not a VC, they essentially help connect founders. They pre-vet founders and then connect them to a stable of VCs who they've worked with in the past. Mark is a recovering founder, I guess. he's got a pretty solid reputation here in Chicago. And he effectively had me pitch him. I somehow impressed him. And then he connected me to a larger number of founders, including Sam Yegan at Corazon.

and Nick Moran at Newstack. once, think Nick offered to lead the round, once the lead was in, then all of a sudden wheels come off. It's oversubscribed. And we had kind of our choice and obviously elected to work with you and Nick as kind of co-leads of that first round.

Alan Li (22:05) Yeah, how big was that first round?

Bobby Kellman (22:07) 2.2 million, all told.

Alan Li (22:10) Okay. And now you have a couple million in the war chest and ⁓ the mandate is to set out to grow. What happens after? tell me about what goes on.

Bobby Kellman (22:14) Mm-hmm.

What happens after is you should be careful what you ask for because now we have to spend all that money in a really smart way that promotes growth. our goal is to grow to 150 locations by what we raised a little bit later, probably early 2027. There's been some good starts,

some things that have slowed us down, but we've kind of made first inroads into new markets. So as of today, we should have spaces opening shortly in LA, Boston, and actually very shortly in Dallas as well in Washington, DC, which we had open spaces in before we raised this last round. We have four open

three under construction and another five or six in the pipeline. And Chicago is growing too. So Chicago has got to grow from 15, hopefully to 20 in the next six months or so. So it's been a heads down, real focus on expansion, trying to build up the local city team so that they can kind of run with the ball. And so I take myself out of the weeds a little bit. And that's been a huge challenge, but all in all, mean, things are moving in the right direction. They could always go faster.

in my opinion, but things are certainly moving.

Alan Li (23:35) Yeah. So how many locations do you have open presently? And then how many do you say were planned to open over the next six months to a year?

Bobby Kellman (23:43) So at 20 now, we should probably have another 20 opening before the end of the year, just given sort of pipeline. We wanted to be closer to 50, but that's taking a little longer to get some deals across the line. There was a lot of uncertainty, just economic uncertainty early this year around tariffs. it doesn't necessarily impact my business in any way, but it did slow a lot of, especially bigger developers who would have, the cost of construction would go up on imported parts.

forced to pause. And so the earlier part of this year didn't move as quickly as we wanted it to. ⁓ But now that some of that is behind us, we've started to see deal flow pick up again a little bit.

Alan Li (24:16) Mm-hmm.

Yeah. And what is the difference between you opening that first location, not really knowing what's going on to now the 20th location and the 40th location? what have you learned?

Bobby Kellman (24:31) I mean,

I feel like, well, a lot's changed. So just in practice, the product itself has changed. Instead of a wide open space for 60 flex members, we now have 10 or 11 offices in space for 15 to 20 flex. So the product itself has changed. How we market to those people has changed a little bit. You've to work a little bit harder to find someone willing to spend $1,000 a month in an office than someone for just $100 a month to walk into a lounge.

So we've had to adjust a little bit there. We've also just gotten smarter in our deal making. So a lot of the stuff that I didn't know, I didn't know at the beginning, how do you get landlords to pay for your build out? What types of things should you be promising landlords? What types of guarantees do you give them over the long haul of a lease? What do you absolutely not do? Some of the things that sunk we work were the fact that the business essentially guaranteed the full terms of a lease.

at every single location. So if they have one bad performing location, it basically risks taking down the whole thing. And you saw the implications of that. Now, he did it that way because if you promise landlords everything, you can grow fast. so how do you, how do you, our challenge is how do we carve out smart deals quickly? Because those two don't necessarily go together every all the time.

So that's been, I think, the biggest lesson. The other one is frankly just managing people, building culture. That's been, that's every management CEO storybook will tell you that, and I don't think I believed it until I went through it. But finding people managing, doing less as a result was certainly the biggest learning for me personally.

Alan Li (26:03) And how many people do you currently have on team?

Bobby Kellman (26:05) So now there's seven, seven across all the markets, we're hiring. Right now we've got an open spot in LA ⁓ and we will shortly open up jobs in Boston and Dallas.

Alan Li (26:14) Yeah. And how did you manage people and culture in the beginning and what have you learned and how are you doing it now?

Bobby Kellman (26:20) I didn't manage it in beginning. I think I just thought it would happen naturally. And so that's, I'll kick myself for that on occasion. And how we do it now, I think honestly we're still learning. So it's a fully remote team. You have 15 locations in Chicago and a team of three. They're not going to see each other much less. Myself or the COO your guy named Tom, both of us do a lot of traveling. We have to go to these other spaces. Tom.

also doubles as our lawyer and so is reviewing all the leases. So when he's not traveling, he's hiding in a small dark room looking at legal documents. least that's how I imagine it. So it's, in some ways it's forced. Have to get the team together, have to figure out ways to socialize and make this a little bit fun. It's suburban co-working. It's not nuclear science. So making time for those moments. And I'm the one who has to do that. It can't come from, you know, really anybody else.

Alan Li (27:06) Mm-hmm.

Bobby Kellman (27:10) Um, you know, in DC, same idea. It's less often, but trying to carve out a little bit of social, a little bit of fun with our manager out there. Um, and kind of building time just for our, or just in this calendar, regular time every week for let's just, let's hear about how the job is going. Let's not actually talk about different leases, deals, member issues, but just how are you feeling with the job? How is it integrating with your personal life? You have to almost ask the explicit question.

to drive the conversation that we used to have normally around water coolers, but not here, not at Enclave.

Alan Li (27:45) And why is culture so important? You know, what are the actual implications that you felt with a bad culture versus a better culture?

Bobby Kellman (27:53) Yeah, I think, especially at startups,

The motivation for people, why they're there, is extremely important. It can't just be the paycheck, because you're asking too much of these people for it to just be the paycheck. So some people enjoy the process of building. They just truly love creating something that didn't exist previously. Some people love the payoff, or the potential payoff of the equity. But everyone is to be gunning in the same direction.

Alan Li (28:13) Mm-hmm.

Bobby Kellman (28:22) At a Fortune 100, somebody takes the day off, no harm, foul. No one's gonna notice. But at a startup, if you take your foot off the gas even a little bit at any position, you'll lose something because the machine that would just create and build as if you're at that Fortune 100 hasn't been built yet. so if an employee takes the day off, those things just don't happen. And not to say,

shouldn't take time off, vacations are important, you have to reset. But when you're here at a startup, you've got to be running through the brick wall as fast as you can. And that takes a special type of person and a special type of culture to do it. Their salary by themselves isn't going to be motivation enough.

Alan Li (29:03) I see. How have you decided opening new locations in LA, Boston versus other cities? And I'm also curious just as a general market size for the United States, how many enclaves could there be?

Bobby Kellman (29:15) I mean, how many enclaves could there be? We could probably put plus or minus four to five thousand enclaves across the U.S. without really breaking the stride. So it could grow from there, but at a certain point you're rolling the dice on certain neighborhoods. So there's a large, huge parts of cities themselves that are effectively like suburbs. ⁓ Roscoe Village.

I'm assuming a couple of the boroughs in New York are in a sense large suburbs once you leave Manhattan. Phoenix, the sprawl there is incredible. And so even you could grow pretty massively in this country if you went into cities, even without going into the urban core. So big potential for growth. Europe has even more potential. Could be, would definitely be larger than the US if both markets were saturated.

But how do you, so in a sense, going about picking a location or a market is hard because technically speaking on paper, we could go anywhere. There are remote workers who don't want to commute everywhere. And while there's more to it than that, for sure, know, fundamentally that's who we're catering to. so you could figure out a way to appeal to those people in any market. We have the benefit of being able to cherry pick.

So we used a lot of data, some from big real estate firms, the CBREs, JLLs of the world, to kind of narrow down which markets we thought were best. And then we went and visited them. So Tom and I both spent time in all of the cities plus a few others, including some that were close by, Indianapolis, Minneapolis. And we essentially selected the ones that we thought had the most low-hanging fruit, affluent suburbs.

good sprawl, not a lot of competition. Where there was competition, it was mom and pop shops that delivered relatively low quality for quite a high charge. so we could, we knew we could go in and win. but they all have their downsides. ⁓ you know, LA finding contractors is hard because the, because of the fires last, last year, earlier this year, whenever the fires, you know, and so every market's going to be, have drawbacks. ⁓ and

part of it is you just have to the plunge and just say, we're gonna, know, LA is our horse. We'll have to deal with the problems that come up when they come up, because you can't predict at all.

Alan Li (31:27) other people also doing remote access, no staff, or are you guys the only ones doing it?

Bobby Kellman (31:34) There are, there's two other companies that I know of, none in Chicago. In fact, I don't think either, either of them are in any of the cities we're operating in that are trying to do a version of this. Now the two I know of build larger spaces, 15,000 square feet, 20,000 square feet. And so are going to be more limited on where they can go. Most suburbs in this country, you just don't have 20,000 feet pieces of real estate to start with.

And so we can go into a higher density of smaller towns, which is important for kind of the network effect that we're at least trying to go for. And so, but no one is building as small as we are or as dense as we are in a particular market. think both of those companies kind of cap out at five or six in a particular city, whereas we're going, 24 is kind of the minimum because that's what maximizes the impact of my team. But Chicago should be home to 45, 50 enclaves.

capacity.

Alan Li (32:27) I see. And I know that you said you can price competitively because no staff, but what are other reasons that customers stay with Enclave and what are some reasons that they choose to churn and how are you correcting those?

Bobby Kellman (32:38) so the retention has actually been really strong for us historically. our offices tend to take out, we offer pretty big discounts if they take out longer term memberships. So those don't turn very often at all. it's actually usually a surprise when they do our flex memberships are months a month, but they, they tend to be, pretty sticky because we are pretty low priced.

So we usually charge anywhere from 100 to $150 for unlimited access every month, whereas our competitors are usually in the 400s. So we're able to really wait list most of our locations, or get to capacity and then wait list them. So even when there is churn, we pull somebody off the wait list, slot them in and there's no revenue churn. So that happens pretty efficiently at most of our locations right now.

But people turn for all sorts of reasons. In Illinois, a lot of people are moving out of state for whatever reason. Last few years, we're leaving Illinois, high tax situation probably. In DC, some of the the layoffs and some of the issues in the federal government put off a lot of contractors and consultants, which impacted some of the, or created some chart for us. But for the most part,

We cater to people who live within a mile and a half to two miles of our locations. And regardless of their job, they don't want to work from their living room. The two, three days a week, they're not going downtown. So the product stays pretty sticky.

Alan Li (34:01) sense. What's the biggest hurdle for you getting from 20 to the 100 locations that you want to get to by 27?

Bobby Kellman (34:07) I'd say there's two really big hurdles. So our model right now, well our model might be the problem, but we don't hire a regional manager until the first space in a market is under construction. And what we're finding is that delays finding that first space right off the bat because we're doing it from afar and there's only so many times you can get on a plane to go to LA to look at pieces of real estate and how quickly can you get there and turn it around.

our model, is more efficient financially speaking, we think is slowing down that initial expansion. might be a trade off worth making, but it's there. And then the second hurdle is actually finding that really good RGM in and of itself. So that person is really tasked with leading a team, expanding the market, growing the team, catering to members, managing maintenance issues. They have to be a jack of all trades, which, you know, where that

Alan Li (34:56) Mm-hmm.

Bobby Kellman (34:58) culture piece comes in, they to be willing to roll up their sleeves and sometimes do things they don't want to do, plunge toilets. Nobody signs on the dotted line an offer letter because they're looking forward to plunging toilets, but it's absolutely part of the job at RGM, at least initially. The faster they grow the business, the less they do, but you got to find the right person. And so a lot hinges on that. We've missed with an RGM. Now we realized we missed quickly and we made the necessary changes, but

getting the right person in is an absolute imperative for Enclave.

Alan Li (35:28) Yeah. And is that the impetus for raising the most recent round where you want to get more capital to make sure you have that RGM in place before you even open the first locations?

Bobby Kellman (35:38) That's part of it, though we've kind of had already, ship had already sailed a little bit on that particular question. But the market shifted a little bit. Landlords are putting in less money to rebuild spaces than they were previously. So we have to put up more of the cash now ourselves ⁓ on the builds. And then the other piece is we wanted to expand, we want to expand quickly. So we could

Alan Li (35:50) Mm.

Bobby Kellman (36:01) grow kind of probably one location every, call it three and a half months, from cash flow. But we wanted to grow essentially, we want to be opening up to a month or so instead, grow really quickly and be at a point in a couple of years where either we're clear acquisition target or we are able to cash flow and grow at that pace without taking on any more equity debt or equity.

But we kind of wanted to use the venture round to take the business to the next level in a bridged fashion.

Alan Li (36:35) Yeah,

I see. I'm sure your time at Uber probably has a lot of experience and insights for helping grow regionally as, you know, Uber launched in different cities. Are there a lot of parallels that you're seeing given your experience at both?

Bobby Kellman (36:46) Maybe. think the biggest parallel is you just need to sort of rip the bandaid off a little bit. There was a day at Uber early on, I think we launched 19 cities in a single day. And it was absolute chaos. The amount of things that didn't work, I mean, was incredible. But we launched the cities and three weeks later, it all got fixed and we were off to the races

Uber was the first one in there and the first to market, especially in ride sharing, was critical. And so that, at least lesson, has taught us that sometimes, even if it's not a perfect deal or we're making concessions we don't necessarily want to make, if they're within certain parameters, just go. Because it's better to be in the market dealing with problems than to be outside looking in.

Alan Li (37:33) I'll be looking at over your experience, ⁓ building Enclave, you know, over the last five years. is there anything that you would have done differently knowing what you know now?

Bobby Kellman (37:41) I mean, a lot. I would throw so design of the spaces, offices instead of open space, I think. But I think that the biggest thing is being willing to test more and maybe fail more often And it wasn't a fear of a failure or anything. was I was financially risk averse. We didn't have a lot of money at beginning and

part of what I wanted to take my message to investors was look how lean of an operation we are. We can't help but make a good margin. And when that's your mentality, your willingness to test and therefore lose cash on certain things, or at least mine went down. And I think if I could do it over, I think you can have your cake and eat it too a little bit. You can be lean, but also put things in a bucket and...

VCs are smart. If I had come to you and said, we spent $25,000 on strange marketing things, or these 18 marketing initiatives, and six of them worked and the rest didn't, here's why, but don't count this marketing budget because we're doing it as a test, it's never gonna come up again. You would have understood that, and you would have been able to run your numbers accordingly. And I don't think it would have changed the venture or the investment decision. In fact, it might have actually helped, because you would have seen

that I was willing to do those kinds of tests and was smart enough to kind of figure it out. But I was very, I was nervous to do so at beginning.

Alan Li (39:00) Yeah.

When you say tests, you mean specifically marketing or is it also other things too?

Bobby Kellman (39:07) I think it's all things. We didn't invest a lot. We used off-the-shelf third-party apps, certainly at the beginning, instead of investing our own white-labeled version. So it's tech. I think I just go to marketing because it's the easiest one to test. We could put up a billboard, track leads, see how it did. If it doesn't perform, take it down the next month. What's the next thing? So that's kind my go-to example.

Alan Li (39:30) Yeah. it makes sense because when you first started, you didn't have that much cash and then you want to be a little bit more financially disciplined. But then as you raised, you sort of kept that mentality instead of testing more and doing more with the capital. Gotcha.

Bobby Kellman (39:36) Mm-hmm.

yeah,

and now I've got to, I have to reorient, but what's harder is I need to reorient the team a little bit, because we've all been raised up now to be very reticent to spend money, and we've got to, that's still an important part of the company, but we have to do it smartly as opposed to just blindly.

Alan Li (40:02) Yeah. Well, Bobby, this has been really awesome. Thank you for sharing your story about Enclave. And here's to reopening 19 cities, hopefully somewhat in the near future soon.

Bobby Kellman (40:12) I'm excited. Thank you for having me on. This was fun.

Alan Li (40:14) Thanks for listening. If you liked this episode, feel free to visit openingsoonpodcast.com for all of our episodes online. If you run a retail store and need updated furniture or signage, please feel free to visit www.signsandmirrors.com. Lastly, if you have any feedback or would to be a guest on the show, email me at alan, A-L-A-N, at signsandmirrors.com. I promise I'll respond. Thanks for listening.