Moving into office space is a coming-of-age moment for any startup. However, decisions made regarding your first office space can become an asset or can become a weight that dooms what would be an otherwise successful venture. As a shared office space provider working with start ups, there are four common mistakes that we caution entrepreneurs to avoid:
Leasing The Wrong Amount Of Space
Office space and staffing levels are intricately linked, especially for start ups. Ideally, as your new company moves into the black – or even before, you will increase staffing levels to meet your growth curve. Can your office space accommodate additional staff? Unfortunately, this growth curve can go the other way at times, too – perhaps your ramp up takes longer than planned. In this scenario, you are paying for unused office space to house future employees, employees not needed in the near to midterm.
The key is to find a leasing scenario where you can scale up or scale down your office space footprint at will. Unlike shared office space, with traditional office space scaling your square footage may be difficult. When shopping for space, keep flexibility in mind and ask about ‘what if’ scenarios.
Getting Stuck In A Long Term Lease
Long term leases are the other side of the coin to leasing the wrong amount of office space. In a best case scenario, your business outgrows the space it is in. If this happens in year 2 of a 5 year lease term, you are faced with a difficult scenario and limited options. Your first option is to sublease your current space, if your lease agreement allows. However you now have an additional liability on your balance sheet. If the market rate per square foot declines, you may have to lease your current space at a loss. Option two is to get additional office space and split your employees between two locations – for obvious reasons this is far from an ideal operation.
Looking at this issue from the disaster planning perspective, what happens if you need to offload your office space from your balance sheet? While you may be ready to let go, a traditional office space landlord will expect you to honor the terms of your lease – even if you do not occupy the space.
Solution: Look for leases with the shortest lease term – preferably month to month. This will allow your startup the flexibility to adjust to change and position you to move into your permanent facilities when staffing and space needs stabilize as you enter the maturity phase of your business development.
Owning All Office Infrastructure
The capital costs to set up and maintain your operations can be significant. When looking at your new office space, factor in the cost for tenant improvements, technology infrastructure, and furniture. Your infrastructure should be robust enough to support your current needs and any upgrades and expansions needed over the life of the lease, while also allowing you to compete with established firms.
If you are looking for a traditional lease, make sure to budget for these needs. In addition to ongoing costs; what will you need to budget for furniture, copiers, phones, high-speed internet, long distance, janitorial, and utilities? Try to negotiate heavy tenant improvement budgets and also do your homework on the total cost of occupancy.
While pointing out this common problem is somewhat self-serving – as business centers like ours provide the best option to lower capital outlay – it is a real problem that entrepreneurs face. Shared office space provides a turnkey office space solution with only a security deposit and set-up fees as the capital outlay, so for startups in particular it is a significant consideration.
The Myth Of Needing Office Space
For some startups, office space is essential to their operations. Office space can provide credibility and also project stability for the company. Having your entire team in one place can be a powerful boost for a startup: it facilitates communication, provides discipline amongst entrepreneurial partners and employees, and then there is the ‘think tank’ factor. However, for startups with scattered partners and employees, a virtual office can make much more sense.
Virtual Offices are physical office spaces that you work out of when needed and provides the image and services many entrepreneurs require, but provide these services remotely. Common features of virtual offices include an upscale business address, conference rooms for meetings, day offices when you need to get out of the house, professional call answering and remote patching, and access to office infrastructure.
Weigh the pros and cons of all office space options against your needs carefully and consider whether a physical space is needed or if a virtual office may also be worth consideration.
The ramp-up/growth phase is an exciting time for any entrepreneur. With some caution in your office space decisions not only will you avoid some common pitfalls but also show your investors that you are being wise with their VC investment. This is especially important if your chief investor is – you.
Currently serves as a Marketing Manager with a focus in online marketing and market strategy. Prior to joining Pacific Business Centers (rebranded as Pacific Workplaces), Nick consulted with small businesses to assist in a business development and public relations role.