Tech Shop Concept (autopsy)
One passion project I have consistently held involves creating a creative space, and sharing it for mentoring, skill building, and possible creative-makers. Years ago I saw the rise of a local Tech Shop that I longed to participate in, if I could overcome the steep membership and fees.
But it went bankrupt in 2018 and closed. I am curious what factors led to its failure, and see how it might have played differently. I am curious if a non-profit structure, less premium overhead and volunteer staff. Some colleges have sign up hours for skilled trainers, in exchange for free access. If mentored, it may be a way to hire less-employable staff as job training.
For Profit Failure
https://www.quora.com/Why-did-TechShop-fail
TechShop had an unsubstainable business model for several reasons.
They explicitly based their business model on a gym membership, where members would pay a recurring membership but probably not come in very often and not be very selective about what equipment they used when they were there. This assumption failed in two primary ways: the assumption that members would keep paying a membership fee if they don’t use the facilities much was wrong, and the assumption that people will be happy to use something else if they show up and the equipment they want to use is broken is wrong.
People are willing to keep a gym membership they don’t use because they feel guilty about admitting they’re not going to exercise. Although some people kept paying to support the shop even though they rarely used it, most people look at this expense and decide it’s an easy way to cut the budget if the rent goes up or they want to save for something.
People are usually willing to use some other piece of gym equipment if what they want is busy or out of order. (Unless, of course, they’re training in a specific sport and the equipment for that is always unavailable.) People who want to work on a specific project want the equipment for it to work. Even if someone isn’t running a small business, if they want to 3D print something and the printers never seem to work, they’re going to quit. A friend of mine in an engineering department said all his colleagues had gone through this cycle of joining, being irritated that they couldn’t get anything done, and quitting.
TechShop expanded way too fast. They opened new shops before the previous ones were profitable. They depended on a constant stream of new investors and eventually used new investments to repay early investors.
The overhead was extremely high—not just the rent, utilities, etc. but the corporate office skimmed off 10% from each location to pay for first-class travel to court investors.
Cash flow problems interfered with their ability to keep equipment maintained, instructors paid, and facility moves completed on schedule. As previously mentioned, members get irritated by equipment being offline (or just working poorly) and quit. New locations being delayed leads to reduced cash flow and permanent member loss when members decide they can live without TechShop.
I don’t know about the non-Bay Area locations, but factors that reduced membership in my local shops included terrible traffic (can’t just stop by after work, and after dinner it’s too late) and high housing costs that cut into disposable income.
Instead of following the Costco employment strategy of paying high wages and cultivating experienced employees, TechShop used the Wal-Mart strategy of paying poorly and accepting high turnover. Unfortunately, most of the positions at TechShop needed more knowledge and experience than a retail store: operation and maintenance of complex equipment and how to explain it to newcomers. They also treated instructors as contractors and didn’t pay promptly.
The most profitable business activities at TechShop were educational and edutainment programs. Unfortunately, these programs disrupted shop availability to other members.
Although some of the managers were excellent, others apparently treated employees poorly as well as making bad decisions about equipment.
Lifetime memberships were a good way to get short term cash at the cost of long term income. That was ultimately a bad tradeoff.
TechShop did a poor job selecting and managing their construction contractors, leading to inflated build-out expenses.
TechShop may have misclassified employees as contractors, leading to potential wage fraud and tax claims. Although this didn’t catch up with them while the business was still open, it’s still possible the Labor Board will pursue the principals individually despite the bankruptcy.
Honestly, the surprising thing is how long they kept TechShop going, not that it failed. I hadn’t realized how much of a house of cards it was until after they closed and information started coming out.