Creating Productive Office Space in 5 Easy Steps

Let the Sunshine In! – Adjusting Light and Temperature

These may seem like basic necessities for any office space, but the benefits of maximizing their potential are often overlooked. While people are naturally more enthusiastic when they’re comfortable in their environment, as no employee wants to be stuck in a sweltering, dark space, recent studies have shown that fine tuning these two factors can actually have a direct impact on a person’s levels of motivation and fatigue – two key elements of workplace productivity.

For example, one study tested subjects with both daylight and artificial light throughout the course of several days. From that, they found that those who had daylight exposure had significantly better performance than those with artificial light exposure by  the second day. Additionally, another study from Cornell showed results indicating that office productivity actually improves as room temperatures approach a predicted thermal comfort zone.

When considering your space, it is important to learn the details of how the HVAC system works so that temperatures can be adjusted according the day and season (as opposed to leaving the settings at a fixed point, as found in many workplaces). Additionally, employees should be situated near spaces with as much natural lighting as possible, particularly if their work quality is heavily reliant on productivity markers. As the cold reign of noisy, blinkering fluorescent lighting comes to an end, many innovative new lighting options have appeared, including those that serve emulate sunlight itself – which are often useful options to invest in if your work space lacks access to natural lighting.

Turn Down For What? Better Office Productivity!

While it’s true that some of us are more sensitive to noise than others, it’s generally agreed upon that excessive noise is a distraction to most people while trying to work. Unsurprisingly, studies have been performed where up to 99% of those sampled reported that their concentration was negatively affected by various office noises, such as incessantly ringing telephones and constant background chatter.

In addition to being a general annoyance, workplace noise is a serious threat to overall productivity, and is an issue that requires attention now more than ever as offices frequently choose to adopt an open floor plan – less walls does equal more opportunity for noise to travel. Luckily, there are practical ways to control sound in the work space, in order to create a more peaceful and productive environment for employees.

Regardless of your floor plan, it’s always a good idea to create areas of refuge within work spaces where workers can go to focus their concentration, such as a privacy room, a quiet section in a corner outside of all the usual busy distractions, or a sound-proofed conference room – solutions that can usually be enacted without a great deal of time or cost. Other noise reduction options include everything from larger scale projects like sound-masking systems, to smaller solutions such as communal play lists comprised of music that employees can all agree to. At the end of the day, even taking the first step of simply being mindful of the noise levels and looking for solutions can be a great first step towards improving the workplace environment.

The Benefits of A Thoughtful Floor Plan

The debate about the superiority of open floor plans vs closed ones is ongoing, and remains as heated as ever. However, there are certainly ways to make improvements to productivity that work under both options. In it’s most fundamental sense, this comes down to striking the right balance for your space, and being attentive and thoughtful in regards to creating a layout that serves to help employees in achieving their specific work goals.

If you’re in an open space, as mentioned earlier, it’s a good idea to create spaces where workers can go to concentrate away from the high-traffic areas. Conversely, if your main work space is primarily closed, having open collaborative areas where workers can get together to brainstorm, discuss, and interact with each other in a personal manner can be a boon as well. Optimally, the goal should be to foster an environment that allows for both privacy and collaboration, as each is needed.

In addition to these conceptual tips, there are also more practical things that can be done, such as organizing the work pace so that people don’t have to constantly walk across the entire room (and thus distract others) in order to access a commonly used area or piece of equipment. A little bit of observation and consideration can go a long way when planning an office layout.

Love Your Body – Ergonomics and Workplace Flexibility

While this ‘tip’ might be commonly known, it’s still important not to underestimate just what good posture and functional desk space can do for productivity levels. Ensuring that your office is equipped with appropriate equipment (chairs, desks, the right technology, etc.) is always a worthwhile investment. Taking this a step further, many companies of late have been giving the option for workers to choose from a variety of different setups – from standing up with an adjustable desk, to sitting on a medicine ball, as well as all the more conventional options in between.

Sometimes we all need a change in scenery to get our brains going, or a chance to get up and stretch, and in this regard workplace flexibility can be a significant step toward providing better overall productivity. Many companies even allow for telecommuting, which is great when possible, but improving workplace flexibility can be something as simple as creating a space where workers can move around and refresh their minds and bodies if needed.

In the most basic terms, efforts to make the office space an enjoyable, comfortable, and efficient place to work can do wonders for performance and productivity. So whether you’re searching for your next office space on OfficeSpace.com or simply looking to spruce up your current office, taking the time to give proper attention to some of the factors discussed above can be a great first step towards improving any type of working environment.

 

Startups, Get Your Finances in Order Before Leasing Office Space

This post was authored by Nathan Smith, a commercial real estate consultant and owner of Austin Tenant Advisors

As a startup or new business owner it’s important to be financially prepared before starting the process of looking for and leasing office space. Gathering your financial information and making your startup look financially strong in the eyes of a Landlord takes longer than you think so you want to do this well in advance. By preparing in advance you better your chances of gaining the Landlord’s confidence in your tenancy and increase your chances of negotiating better office lease concessions such as tenant improvements, rental abatements, etc.

Similar to how banks preapprove you for a loan, Landlords want to make sure you are financially qualified before they lease you office space, especially in hot markets like Austin, TX.   They will be investing time, resources, tenant improvements and other lease concessions in your tenancy so it’s imperative that you prove your financial ability & stability to pay any upfront costs and rent for the duration of the lease term.

Proving that your startup company is financially qualified takes more than a great business idea, having a large 401k, or a big expensive house.

If you are a startup company that has been around for a few years Landlords want to see current profit & loss statements, cash flows, balance sheets, and/or other sources of financing and funding. Depending on the landlord’s perception of your financials you may need to securitize the lease with a security deposit, letter of credit (LOC), personal guaranty or a combination of the latter. Your financial strength, lease term length, total lease amount, tenant improvement costs, & lease commissions will determine the amount needed to securitize the lease.

If you are a brand new startup with no track record or you’re an existing one with weak financials Landlord’s will probably want the person signing the lease to provide 2-3 years of personal tax returns and/or a personal financial statement. Depending on the Landlord’s perception of those personal financial statements they may require that the lease be personally guaranteed, need a larger security deposit, or need a letter of credit (LOC) that will cover the landlords up front costs to do the deal (e.g. tenant improvements, lease commissions, etc.).

Before you begin the search for office space, make sure you have your financials in order and have them ready to show Landlords. You might also consider having your business plan and pro-forma available to show your current and future financial projections.

Do all that you can to put your best foot forward, however because you are a startup Landlord’s still may require you to sign a personal guarantee, pay a larger security deposit, or have a letter of credit (LOC). You only get one shot at making a good impression! The more prepared you are and the better your finances look the better chance you have at proving to the Landlord that you can pay rent AND in receiving office lease concessions.

Nathan-K-Smith-Austin-commercial-realty-services-200x300

Nathan Smith specializes in helping startups companies find, lease and/or purchase office space in Austin, TX. He has advised over 300 companies in finding the best office locations, negotiate new leases and lease renewals, facilitate relocations and expansions. Outside the office Nathan enjoys hanging out with his wife and two children in Bee Cave, TX and is an avid runner and cyclist that participates in many local triathlons and running events.

5 Keys in Negotiating an Office Lease

You don’t get what you deserve. You get what you negotiate. This especially holds true in the world of real estate.

While the process of negotiating a commercial lease can be stressful for most business owners or decision makers, keeping these five factors in mind can ensure that you avoid some of the most common mistakes made by entrepreneurs:

1. Find leverage.

Regardless of whether it’s a landlord’s market or a tenants’ market, there’s always something that can be used for leverage.

One of the most important ways to create leverage is by use of time. Most leases take months to complete so avoid procrastinating when it comes to the office search. Don’t let a lack of time decide the lease terms.

Create leverage by keeping mum about feelings about the  space, especially to the listing broker or landlord. This will allow the broker to do a better job negotiating.

If the other party recognizes a desire for the space and that a prospective tenant can’t select anywhere else, the other side just received some leverage. It’s always a good idea to have alternative space options at hand.

According to Jason Bollhoefner, vice president at Corum Real Estate Group in Denver, “Always have a solid back-up option at hand, especially in an improving real estate market. Being prepared to walk away is a very powerful aspect of successful negotiation.”

2. Don’t think rates. Think term.

Tenants often become caught up in rates upon finding a space. While the rental rate is important, especially the gross rate, the term of the lease can have a more significant impact on finances.

Instead of worrying about bargaining for a few percentage points off the rate, spend time negotiating the term and thinking about the company’s true needs for the future. If the wrong term is selected, the tenant will likely end up paying more in rent for a space that doesn’t work for the company than what was saved by paring 5 percent from the asking rental rate.

3. It’s never true that a tenant gets anything free.

The length of the lease’s term also affects other key variables such as tenant improvements and concessions such as rent abatement. This goes both ways. Don’t lock into a term for the lease that’s years longer than initially desired just for free rent or better tenant improvement dollars. Such improvements are never free. Tenants need to understand that these costs are always baked into the lease’s value by the landlord. The landlord makes the money back at some point.

4. Arrange for a a solid legal review.

Keep in mind that a broker is not a lawyer and that brokers are paid on commission. Their commission increases based on the value of a lease. While brokers are experienced in lease negotiations, they do benefit from a tenant’s signing a lease and typically receive nothing if no lease is signed.

This structure, unfortunately, creates some conflicts. Paying an experienced real estate lawyer to review the lease should be a part of the negotiation process. The lawyer is paid regardless of the space chosen or even if the rental is postponed or a potential tenant walks away.

5. Negotiate protections for an exit.

Negotiate some protections for exits should things go wrong in the future. If a tenant feels it has good visibility for the next two years but not five, try to negotiate for some cancelation clauses keeping that in mind.

Finally, don’t forget to negotiate the lease. Unlike some things in life, the tenant does win from negotiating. Be creative to get needs met.

To learn more about the commercial real estate process, visit our FAQ.

This article was written by Susie Algard and  originally featured on Entrepreneur.com. See original source here: http://www.entrepreneur.com/article/237113

5 Lease-Term Questions Facing Every Entrepreneur

Now that you have chosen a space that meets your company’s needs, the next step is negotiating your office lease. One of the most important decisions for a company to make during this process is deciding how long they want to stay in that space.

Prior to starting your space search, and definitely prior to making any commitments on a lease term, ask yourself these 5 questions.

1. Do I anticipate changes that might affect my future space needs? A space that works for your company today doesn’t mean it will work for you a year or two down the road. It’s also important to consider whether the space will be effective in attracting the right kind of talent as your company grows.

As a new company, you might simply be relieved that someone let you lease some space, but recruiting a team is easier in some spaces than others.

2. Will I need to invest in improving the space or is it move-in ready? If you need flexibility in the term of your lease, and the space requires a lot of build out, don’t expect the landlord to pay for that.

Landlords expect to make their money back on any tenant improvement allowance by including these costs in your lease rate or term. Hence, a substantial investment in improvements may force you into a longer-term lease by amortizing the improvements over a longer period of time.

Be prepared to pay for tenant improvements out of pocket for shorter-term leases or expect a longer-term request from the landlord. Tenant improvements are never free.

3. Is the rent likely to increase in the future? Keep an eye on the local office market to get a general idea of rental rate trends. If using a broker, take advantage of their market expertise. Market comps are valuable data that a good broker can get for you.

Ask them to provide comps for the same building and comparable buildings to help you determine the trends. If considerable rental spikes are expected in the future, consider locking in a longer-term lease at the current rate.

4. Exactly how important is location for my business? Although primarily applicable to retail businesses, it’s always worth considering the potential impact of a space’s location. Your location may be important for attracting talent, situating yourself strategically among complementary and competing companies, establishing your brand and so forth.

If the success of your company depends heavily on location, or your company becomes more valuable because customers can find you easily, consider securing that space for a longer period of time. On the other hand, if your business isn’t particularly driven by location, you can be more flexible with the lease term. Finding a comparable space likely won’t be an issue, should the landlord decide not to renew your lease.

5. Will my rent be lower if I sign for a longer term? This is the trick question! Most entrepreneurs think that they must sign a longer lease to get the best deal. While landlords (and brokers) are happy to work with longer term leases, and will reward this with better incentives, that does not mean that this is a better deal for your company overall.

Lease term is one of the most important parts of your lease. Many brokers will admit their clients do not negotiate carefully enough. Ask yourself the right questions early to help you negotiate a term that works for your company’s current and future plans.

To get more information about lease term best practices other tenant-related topics, visit our FAQ.

This article was written by Susie Algard and  originally featured on Entrepreneur.com. See original source here: http://www.entrepreneur.com/article/235894

When Does it Make Sense to Use a Broker to Find Office Space?

With the explosive growth of small businesses in the U.S., more entrepreneurs are finding themselves negotiating and closing leases without the help of a broker. While at times it makes sense to do this, using a broker in the right scenario can greatly assist in securing the best possible lease for you and your company.

Before deciding whether you need extra help, it’s important to understand what motivates brokers and how they can benefit you during a lease transaction.

Getting their attention. Knowing how brokers get paid is important to understanding their motivations — and why sometimes, they don’t return your calls. Most brokers get paid a percentage of your total lease value, which is typically between 3 and 5 percent. However, this often isn’t the full amount your broker will receive, as they usually have to share a percentage of their commission with their brokerage companies.

Getting to a signed lease can be a lot of work. This can involve conference calls or face-to-face meetings, searching for spaces that satisfy your requirements, setting up and attending property tours and actual lease negotiations themselves.

A broker will have to do these steps for a company regardless of if they’re looking for 10,000 square feet of space or 500 square feet of space, but the difference in size means that the amount the broker receives will be significantly different.

This is why you might want to — or have to — represent yourself in a lease transaction for a smaller space. If your space requirements are bigger or more complicated, then there are instances where using a broker may be in your best interest. To better understand the potential costs of working with a broker, check out our FAQ.

Knowing the landlord landscape. It’s tempting for experienced entrepreneurs to think that they can deal with the landlord directly and save money by not using a broker, expecting that the landlord will pass savings on to them. While there may be times when this is true, there are just as many situations where it isn’t necessarily the case.

While you might do a lease transaction every three to five years, brokers do many deals every month. The end result is that brokers are likely to know more about the landlords operating in the local area than you do. They know the property owning landscape well: who is flexible, who is motivated and who will go the extra mile to accommodate a tenant.

For example, let’s say you are a growing company with the stability to sign a long-term lease if desired, but want to retain a short-term lease for greater growth flexibility. In situations such as this, an experienced broker can guide you to spaces with landlords who are not only flexible, but can accommodate you in alternative buildings while under your current lease.

Let’s say you run out of space two years into a five-year lease, you may have the option to transfer your lease terms and move to a larger space in their portfolio. Additionally, as opposed to having to take a large space that is intended to be grown into, a broker may be able to negotiate rights of first refusal on adjacent spaces one or two years into your lease term, saving you from paying that rent from the onset.

Striking a creative deal. A broker may also be able to work out a plan that works best for your company’s financial needs by getting creative with how your rent escalation is constructed. If you are working on a product launch that runs on an 18-month cycle, a broker may work with you to escalate your rent accordingly instead of a traditional 12-month rent increase cycle.

If you are facing a scenario where you may have run out of space completely, they may even be able to negotiate a lease buyout with the landlord so that you can move into their new space without paying double rent.

There are no hard and fast rules on when to work with a broker. Before putting in a lot of work shaving a few percentage points off your lease by saving the landlord from a commission, ask yourself if you’re paying for something that you shouldn’t have to or if there’s any flexibility that is worth more to your company than the rent savings.

These factors could amount to much more savings than the commission saved and passed to you.

This article was written by Susie Algard and  originally featured on Entrepreneur.com. See original source here: http://www.entrepreneur.com/article/235529

Broker Banter – Questions & Answers (The Portland Chapter)

We’re the first to admit we don’t always have all the answers when it comes to the fine details of leasing and all the questions that come with it. That’s when we turn to our commercial comrades to aid with the broadening of our knowledge base.  This week we’ve gone straight to the source to speak with Portland, OR broker Kristi Ricker.

We connected with Kristi to talk shop, and in fact, where to set up shop.

OfficeSpace: What do you think is the most important question a tenant should be asking, that they never seem to ask when looking for space?

Kristi: Zoning, tenants need to learn more out about zoning. There are so many issues in this area and if you’re not aware of this in the beginning it could hurt your chances of securing your ideal space. It’s something you should ask your broker about as they’ll be able to determine how to move forward in narrowing down your search. It’s just not something that’s on the top of your mind when you’re looking for a space and it definitely should be.

OfficeSpace: What is the best tip in negotiating a lease you think all tenants should consider? 

Kristi: The longer the lease, the better you’re going to be able to negotiate, especially if you are going to need anything done to your space. People are nervous with the idea of securing a 5 year lease, they think “What if something happens?” – but they can always put a clause in allowing them to sublease (A lease of a property by a tenant to a subtenant.).

OfficeSpace: What do tenants focus on, that perhaps they shouldn’t when searching for space?

Kristi: Recently, I’ve had clients who have looked at a space and were concerned the buildings around it were being worked on or unfinished. Unfortunately, this doesn’t always paint a pretty picture of the neighborhood, especially when it’s an up and coming urban area. I recommend looking at the bigger finished picture and inquiring about what’s being developed in the area.

OfficeSpace: What area of town would you recommend to a Start-Up in Portland?

Kristi: The inner Southeast, Northeast and North Portland are very hot right now. They were predominantly industrial areas and now they’ve turned into these very creative pockets with great opportunities for startups, restaurants, retail and more.

OfficeSpace: What are you starting to see more of in Portland?

Kristi: Tons of startups, restaurants, breweries, delis – there’s a great food scene here.

OfficeSpace: And lastly, what makes Portland great?

Kristi: Portland‘s so diverse, we have a little bit of everything for everyone. Everything goes here – that’s what I love about it. I see all these new ideas here and they seem to work. If you have a crazy, fun new idea, there’s a great support network for that here. It just seems out of the ordinary things work here more than other places. Nothing is guaranteed but your chances of making it a go seems to have better odds in Portland.

Kristi has over 15 years of real estate experience in the greater Portland area and has recently started her own company.

Need Office, Retail or Industrial Space in Portland? Visit us here – OfficeSpace.com/Portland

Examining the True Costs of Working with a Commercial Real Estate Broker

Post updated on  October 4th, 2018

Finding an affordable commercial real estate lease that will suit both your company’s needs and its budget is certainly a difficult process, but one that’s always made easier with a qualified ally at your side – and that’s where commercial real estate brokers come into play.

Operating on a commission basis, the terms of their payout aren’t always clear at the outset. However, especially if you’re seeking smaller office spaces, it can be difficult to find and retain a trustworthy and reliable broker. To better understand how commercial real estate brokers operate (and how they get paid), read on:

How Commercial Real Estate Brokers Get Paid

Brokers usually get paid a percentage of your total lease value. What that percentage is varies from region to region and depending on individual markets, but it’s typically between 3 to 5%. However, brokers typically have to share a percentage of their commission with their brokerage companies. This percentage can also vary, but let’s use a 60/40-commission split as an example with 60% going to the individual broker.

To get to a signed lease, there’s a major amount of time, energy, and effort that goes into the process. There are calls or in-person meetings, searching for available spaces that meet your requirements, calls to set up property tours, the actual property tours, and lease negotiations. All of the steps above are the same for a company looking for 10,000 square feet of space or 500 square feet of space. In addition, most companies looking for smaller spaces are unsure of what their space needs will be in the next year or two so they are only looking for shorter term deals whereas companies needing larger spaces tend to look for longer lease terms. Here’s what the math looks like in both scenarios:

500 square foot space x $30/square foot per year = $15,000 in annual rent

Lease term is 1 year: 1 year lease value $15,000 total rent (for ease of calculations, I’m assuming no rent escalation)

Brokerage company’s commission 5% = $750

Broker’s commission 60% of brokerage company’s commission = 60% x $750 = $450

VS.

10,000 square foot space x $30/square foot per year = $300,000 in annual rent

Lease term is 3 years: 3 x $300,000 = $900,000 in total rent

Brokerage company’s commission 5% = $45,000

Broker’s commission 60% of brokerage company’s commission = 60% x $45,000 = $27,000

Why Securing a Commercial Real Estate Broker May Not Be Easy

Every deal is unique, but the numbers don’t always make sense for brokers with smaller spaces. This doesn’t even take into account the number of times brokers work on a deal where they’ve put in their time and the deal goes dead for reasons outside of their control. Spending the same amount of time for $27,000 versus $450 is rarely an attractive option in any profession, so finding someone qualified and experienced to handle your office search may not be an easy prospect. In the meantime, shared office spaces, co-working services, and executive suites could be a viable alternative while you seek a first time (and more permanent) office space.

How Commission Splits Work – and Who Gets Paid

Landlords and property owners budget about a 4-6% commission for the listing agent, which is split between the listing agent and the tenant representation broker once the lease is complete. However, while many commission splits are 50/50, there are lease agreements that dictate a split as wide as 90/10 in favor of the leasing agent. This is more common in competitive markets where prospective tenants are many and available space is scarce, therefore making things even more difficult for companies struggling to find office space.

It doesn’t hurt to ask a prospective broker how much they’ll be earning on the transaction. While they won’t have much say (it’s up to the landlords to determine commission splits), it’s good to know what level of service to expect. The higher the commission split, the more motivated they’ll be to get the deal done on your behalf.

How Much Will I Have to Pay to Work with a Commercial Real Estate Broker?

Most brokers will tell you their services are free, as landlords and property owners budget a commission percentage for each lease agreement. And due to this, it’s very rare that a business owner could negotiate a lower lease rate by dealing directly with the landlord – the entirety of the commission would simply go to the listing agent. While a successful business owner may need to expand to larger space every 3-5 years, a commercial real estate broker handles real estate transactions like this every month, lending more know-how and market experience to the transaction to the benefit of their client.

If you can land a broker, their work on your behalf is an invaluable asset, as it allows your company the flexibility to focus on your business and take a look at prospective properties as they become available, sending you listing information, setting appointments, and accompanying you on tours. And because they’ll be involved with the transaction throughout the terms of the lease, they’ll be able to negotiate any changes or even a lease buyout should you run out of space completely.

In markets where tenants are at a premium and landlords are rushing to get their spaces filled, a tenant broker’s commission split may be higher, meaning landlords may try and find ways to make up for that gap in other areas of the lease. While you likely won’t end up paying higher rent due to other options in the marketplace, there’s a greater chance that you won’t see tenant improvements to your liking – but your tenant rep is there to make sure that doesn’t happen.

Should I Just Find Office Space Myself?

It makes sense that a listing broker working on behalf of the landlord would agree on lower lease terms by working directly with a prospective tenant, as they’d secure the entirety of the commission as a result. While this could work in smaller office spaces or in short team and subleases, listing agents work for the landlords, so bringing in below-market deals may upset their clients. Expect average market level deals using this avenue; after all, no one likes upsetting their boss.

No matter the size of your business or the limitations of your budget, working with a commercial real estate broker can be a genuine ace-in-the-hole for business owners seeking their first location or in need of an expansion. While the process isn’t always straightforward, you should be better equipped to discuss your options with whichever tenant rep broker you consider bringing on board to assist you in your search.

A Successful Startup Story – Founder’s Instinct, Go Direct.

As I discussed on my last article, The #1 Mistake Many Startups Make When Managing Growth-Remember the Garage?, I wanted to share with you an anecdote from a well established web company in Seattle, that will remain anonymous, let’s call them Dot.com.

Looking Good, Billy Ray! Feeling Good, Louis!

The year is 2010, and Dot.com has done extremely well for themselves. The founder’s acquired the domain name and other assets for under $5,000 and proceeded to build it into a top 100 most visited websites in the US, over a span of 7 years.

They have gone through a couple of office moves. Each move they upgraded and eventually ended up in some Class A space in the heart of Seattle, which  has a fairly competitive office market.

Shortly after they move into their space, they are already needing additional space. They had a couple hockey sticks in their growth chart! The founder heard that the neighboring tenant was looking to sublease some space, exactly what Dot.com was looking for.

Let’s Make a Deal

The founder calls his trusted commercial broker who found them their current digs and instructs them to place an offer of $15/sf on a short-term lease on the neighbor’s space. The broker informs him that they didn’t even get as much as a response to our offer from the landlord’s brokers. The founder assumes that maybe the offer was insultingly low.

The next week, the founder just happens to run into the neighbor and decided to ask about the space, nothing to lose since they already rejected the offer.  It was clear at this point that the neighbor never even saw the offer. Much to the founder’s surprise, the neighboring tenant seemed remarkably eager for Dot.com to pick up their space. They shook hands and came to an agreement for $3.60/sf on the spot.

This is just one example where the broker channel was ineffective and this isn’t necessarily a knock on brokers but more a reflection of the commission based compensation model that brokers live in, a you get what you pay for mantra.

Bravo to the founder for going direct and cutting out the middleman; probably another reason why Dot.com is still so successful.

The #1 Mistake Many Startups Make When Managing Growth. Remember the Garage?

In a galaxy far, far away…

In the beginning, most start-ups follow a certain pattern:

  • Inspiration leads to the “killer” idea
  • Bootstrapping
  • Sourcing Capital
  • Recruiting an A-Team
  • Product Development
  • Building an Infrastructure
  • Iteration
  • Managing increasing Costs
  • Growth

There are many versions of the story but in my own career and listening to the anecdotes of many other entrepreneurs, most folks like you and I have sang and are singing the same song.

Boot Strappin’ 

In the early stages, everyone including founding members are wearing many hats.

  • You may be starting your empire from the confines of your garage.
  •  You may be able to delegate certain tasks to your founding team of two.
  • You may want to hire or outsource but the cost benefit may not make sense at this time.
  • This may not be most efficient but it’s cost effective.

Everyone is burning the midnight oil to get to market as quick as possible and the Agile Development model is adopted. Your development team is furiously taking feedback and the products and business models evolve. You and your team have proof of concept now and the future looks bright.

Your first two revenue models don’t produce as you hoped they would, so you scrap them and finally find a revenue model that works for you.  Soon, the revenue grows from a trickle to a stream and it looks like it will be a steady stream. Life is good and all the blood, sweat, and tears seem to be paying off. Team morale is high and even the instant noodles taste infinitely better!

You Did What With My Money???

Depending on your cash situation, this may be the time you seek additional funding. You’ve proved your concept, generated revenue, and now you’re looking to scale that model. I won’t go into valuation models, capital structures, or optimal equity distribution, but another major attribute that most investors want to see is fiscal responsibility.

When I talk about fiscal responsibility, I don’t mean extreme conservatism, as say an accountant would, but more of a prudent balance of risk, reward, and stewardship. There will be a certain amount of cash burn related to the Agile Development process as some features will be pushed to the side or scrapped all together, but cash burn that locks you into long term contracts that increase your fixed cost structure that may not contribute to the business are things to look out for. This may be one of the most overlooked aspects of the start-up life.

Pre-Y2K Hysteria

In the early go-go internet days, many companies got to this stage and proceeded to secure prime Class A office space with room to spare for their burgeoning venture only to find out that they over estimated the growth that they would experience. This left many start-ups in a precarious position, after all, most start-ups aren’t experts in commercial real estate.

There are many more practical options for office space nowadays. We will always have the garage to start out in, move to a shared or co-working space, perhaps graduate to an executive suite space, or look for a screaming deal on a sublease space offered by perhaps some of the less fiscally prudent start-ups out there.

Your Space Says A Lot 

Many successful entrepreneurs look fondly on their days of bootstrapping:

  • Remember when we had to float all our credit card balances to pay for the gear?
  • I miss those days all 5 of us were huddled on top of each other in the basement working 14 hour days.
  • It’s lunch time, 7-Eleven or the Gas Station?

Another common thread among many successful entrepreneurs is balancing image from reality. From the type of marketing spend to the type of office they lease. Don’t be fashionable, be fundamental. If you just raised money, it can be difficult to justify contracting for prime office space when you’d rather hire more people to get you to your goal.  Not only will your investors appreciate this, so will all other equity stakeholders.

For all you start-ups out there, the sublease space may provide you with the most flexibility and lowest cost to leasing office space. Unfortunately, this market is underserved and is sometimes difficult to find. Many brokers also aren’t very helpful in this type of space search as they have to put in the same amount of time as a normal search but only get paid a fraction of their commission rate, on a sublease.

Craigslist is the most common place to find the smaller sublease spaces out there and they do a great job of aggregating those spaces. However, as many of you are familiar with, the craigslist experience is not for everyone, especially those that don’t have much time to spend on sifting through endless ads. Let alone setting up tours and other logistical tasks.

As you can guess, I work for a start-up called OfficeSpace.com and we focus not only on larger spaces, but smaller spaces and sublease spaces as well. We are looking to solve the small and sublease space problem and we’ve launched our Beta in Portland.

Stay tuned for my next article, where I will share an example of another start-ups’ experience. All the best to the brash, brave, and entrepreneurial companies out there. All comments are welcome!

Image credit: http://creativehomeoffices.com/wp-content/uploads/2012/02/Basement-Before-e1328914683809.jpg

Image credit: http://www.lifeknowledgefm.com/what-is-bootstrapping/