(L To R) Neetish Sarda, founder and Harsh Binani, co-founder of Smartworks. Image: Selvaprakash Lakshmanan
April 2021, Noida. Neetish Sarda was spaced out. One, though, can’t blame the entrepreneur for feeling disoriented. It has been over twelve months of a lockdown, the country was in the midst of a deadly second wave of the pandemic in April 2021, and, in an uncertain environment, the only thing that seemed certain was an end of the world. Like most of the startup founders battling the Covid headwind, Sarda too was hoping against hope, grappling mental demons, and praying for his world to stay intact. “What if Covid lasts for another 8 months or so,” wondered Sarda, who co-founded Smartworks in 2016. Started as a co-working startup in Delhi-NCR, Smartworks has had a sedate growth in the formative years, pivoted to a managed office space provider in 2019, and closed the next fiscal with a heady operating revenue of Rs 257.6 crore. Sarda had managed to find a space for his maiden venture.
Then came Covid. Work from home became a new normal, offices had almost turned into an obsolete concept, and after four years of managing millions of square feet of business space, Sarda’s thinking shrunk into inches. “Would this industry survive? And even if it does, will it be able to stand on its feet,” asked the founder who closed FY21 at a muted revenue of Rs 279.6 crore. What was exceptional, though, was the fact that Smartworks and Sarda had survived. “But for how long,” wondered the founder who raised $25 million from Singapore's Keppel Land Limited (Keppel Land) in Series A round of funding in 2019. “Will offices survive” was the larger question yet to be answered. Another searing question, which was certain to emerge post-pandemic, was: Who will pay a premium to get flexibility at workspaces?
Fast forward to August 2023. The pandemic has waned, work-from-home has lost its charm, the hybrid model of work is gaining ground, and enterprises are back in action and have doubled down on their office space requirement. What this means for Smartworks—especially the last part as enterprises make up around 90 percent of the revenue of the startup--is just one thing: India’s biggest managed office space provider is back with a bang. The revenues have almost doubled from Rs 360.2 crore in FY22 to Rs 710.3 crore in FY23; the area of operation has leapfrogged from 4.9 million square feet to 7.2 during the same period, and footprint has expanded from 10 to 12 cities. “We knew that offices are not going to die,” says Sarda, adding that the pandemic was worse than recession. “We always gave ourselves a faint chance to survive,” he says.
What, though, Sarda didn’t know was the fact that a comeback would be much bigger than the setback. “It has been a hockey-stick recovery, and the demand has skyrocketed,” he says, adding that during the pandemic, Smartworks closed just two centres, and held on to its supply. “Nobody expected the demand to come back in such a manner,” he confesses.
So, what has worked for the flex space provider? Is it the normal demand, which has staged a strong comeback after the pandemic or did Sarda tweak the business model? It’s a mix of both, maintains the founder. In 2021, Smartworks switched to a ‘campus-managed solutions’ model, which means managing large independent campus-like structures as opposed to independent floors in a building or a complete building which coworking players usually take up to run operations. Also read: Office spaces aren't going away; commercial real estate will be at the heart of economic recovery: Ankur Gupta
The math of taking up larger space, he points out, worked. First, it provided flexibility to the enterprises who were now looking for more options and services for their employees. Second, it also helped Smartworks negotiate on its capex, and add more amenities which made sense in the post-pandemic world. Third, it helped Sarda to offer standardisation in services, something which enterprises yearn for but struggle to find in the market. “Last year, we sold more than Rs 4.5 crore worth of food on a monthly basis,” says Sarda. From food to grocery deliveries to gyms and cab services, Smartworks did all to make life easy for employees.
Though Smartworks has clocked a brisk pace of growth over the last year or so, the road ahead won’t be easy. One of the big challenges is to bring back the bottomline into shape. From a profit of Rs 1.8 crore in FY21, Smartworks has slipped to a loss of Rs 204.2 crore in FY23. Harsh Binani, though, is not pressing the panic button. Smartworks, points out the co-founder, is in a high-growth stage. It has increased its operational footprint from 1.9 million sq ft in FY20 to over 7.2 million sq ft in FY23, and expanded from nine cities to 12 during the same period. “We are likely to close FY24 at a revenue of Rs 1,100 crore and an EBITDA (earnings before interest, taxes, depreciation and amortization) of Rs 150 crore,” he claims. Due to rapid growth, Binani maintains, the company incurs depreciation and lease provision—both being non-cash in nature—which gets reflected in negative PAT.
Another challenge for Smartworks would be to ensure that it doesn’t spread itself too thin. The pandemic might have ended, offices are buzzing with employees again but muted funding environment and the micro and macro business outlook—domestic as well as globally—calls for a cautious approach rather than being bullish on expansion. “It’s easy to open but tough to scale back and contract,” says a venture capitalist who has invested in a smaller co-working rival. “We were hyper aggressive over the last year, and unit economics went for a toss,” he says, requesting not to be identified. Smartworks, he points out, must realise that if big enterprises—which form a chunk of their revenue—get hit, the business of office space will get impacted. “Caution must take precedence, and aggression must take a backseat,” he advises.
Sarda, for his part, reckons he is aware of the pitfalls of running too fast. When one is growing at a high speed, he underlines, one must ensure that growth is sustainable and operations are standardised. “Rather than going wide, we are going deep,” he says, alluding to the business strategy of not opening multiple centres across the country. “Our concentration,” he underlines, “is going to be confined to 14 cities at most. Reckless growth, Sarda avers, has serious consequences. Though Smartworks has graduated from the floor of a building to taking a complete building to now managing huge campuses, the focus on carving a profitable path of growth remains intact. “We will keep working smartly,” he adds.