Written on the 15 September 2017 by Ben Hall

IT'S A FAMILY business that began almost by accident 40 years ago, and now Servcorp (ASX: SRV) has grown to become the world's leading provider of serviced offices, virtual offices and coworking spaces.

It all began as a solution to a fairly simple problem and has now evolved to cover 150 floors across more than 50 cities in 24 countries with advanced IT infrastructure binding it all together.

In 1978, Alf Moufarrige leased a quarter of a floor in Sydney's MLC centre and then sub-leased the unused space to other companies, using chalk to draw out furniture and equipment he would purchase as money came in.

The 76-year-old property legend is still the CEO and his successor-in-waiting is son Marcus (pictured) who holds the position of COO and has been often compared to James and Lachlan Murdoch waiting to take over from their father Rupert Murdoch.

Business News Australia spoke with Marcus Moufarrige about Servcorp's recent foray into the US and how his father was transformed from property developer to serviced office provider.

So how did your father Alf get this business off the ground?

My father thought he wanted to be a property developer and he'd been working in property and property liquidation for some time and he understood why property companies were going out of business. That's because they'd go from deal to deal to deal and he realised he needed some kind of cash flow business.

"He couldn't find a decent office at the same time and all the share offices were really crappy, so he wanted to have a decent office and he thought 'if I share the cost of the office, then I can get a really great office and I don't have to pay all the rent'."

That was how it started and he knew a great address was really important to him and he knew it would be good to have people around and have some support. It was really a way of mitigating the cost of having a great office. Then he thought 'I'm getting a whole lot of revenue from this letting side of things, so I'm going to stick with this'.

How do you scale up a business like this and is the 'tyranny of distance' an issue for the company?

When I joined Servcorp in 1996, it was a pure property rent arbitrage play with some technology services and that was only just starting. The internet was a thing that was really only just starting to happen. So, I started automating all the processes and we've built this global network which now enables us to run our business like it's one building even though we're in 150 office floors in more than 20 countries.

It can be difficult but at the end of the day, the way we've built our systems make it really easy. We opened in Asia in 1987 and we were really early into Singapore and we were early into Thailand, we opened Japan in 1995 so we've been pioneers through that Asian region. We didn't get to the US until 2010 when there were some really good deals to be done on office space because of the GFC.

We had some marketing challenges in the US and it is a tough market and we made it there and within a few years we had achieved our goals but then it started getting tougher.

"I realised early on that in the US you need to build a brand. My Dad wanted to do things in the US the way he'd done it for 40 years, but the US requires a different approach if you really want growth."

We saw there was growth potential and the opportunity to really progress the company.

Talk us through the main technology innovations in the office. Which has been the biggest and how do you stay on top of that in a large business that relies on tech?

Firstly, it was automated switching, or PABX, and that enabled us to develop this virtual office product and then of course it was the internet. Now we run 150 floors of office space in 24 countries through the cloud and we've been doing that since 2004 and that's totally transformed the way offices and businesses operate.

"My view is that the technology does not move as fast as everybody thinks it does."

All along we've kept ahead of the curve with technology and it's also about the making the right decisions on how to utilise all of these innovations and apply them to the business. What we're doing right now is looking at tech platforms and business automation platforms and this is where it's at in terms of scaling our business and we're rolling out our new platform across Australia and this is having an immediate revenue impact.

This will enable the disruption in commercial real estate. Flexible work space is disrupting commercial real estate and we haven't disrupted this before as we were happy being a niche within a niche. But what's happening is that commercial real estate is recognising that the market is demanding that commercial real estate be more flexible. Our transformation is to go from being a niche within a niche to being a premium niche within a mainstream market.

When you expand in to other countries and markets, what are you looking for?

It has a lot to do with the general economy, and how the commercial real estate pipeline is working and what vacancies are like. It also has to do with the population of an area and what the average income is.

There's also a model you can put together on how many million people need to live in a city with a certain amount of median income to justify going to the city. But then it's a lot to do with commercial real estate and people think we're countercyclical because people will use flexible space in a downturn but that's not actually true.

What key pieces of advice do you have for wannabe scaleups?

The thing that kills small businesses is rent and people. So, people get excited and they want to hang a shingle out on the front door and they think the measure of success is having people to do tasks for you.

But the fact is the key things is that outsourcing those things to someone like us is a really smart decision and makes it more likely to succeed. You hear all the time about the high rates of small businesses going under, we have a less than one percent bad debt rate with our virtual office customers. This is such a burgeoning market and there is so much competition coming out in flexible work space and that competition is a good thing for us.

"Most coworking spaces think that an attitude of let's all sit around a campfire and sing 'Kumbaya' is a successful way to do things. Our view is there are much more fundamental things that will make small businesses successful."

What makes you successful is having a great local presence in a market that you're trying to sell your product in. Having great people that are going to support your business without paying for them all the time and technology platforms without investing millions of dollars in it.

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Business News Australia

Author: Ben Hall





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