Setting up an office is an exciting step for any business. No matter how many articles we read about the rise of the mobile workforce and the death of the office, there’s no denying the importance of establishing a home base for your team.
Unfortunately, amidst all of the excitement surrounding the search for office space, there exists a number of real threats — threats most people overlook.
Office space is the second highest expense a company will face after staffing. Lengthy contracts can be trouble for businesses whose growth plan is tough to predict — and let’s be honest, projections very rarely (if ever!) go according to plan. Luckily, learning from the mistakes of others is the easiest way to avoid the major pitfalls associated with taking office spac.
Check out the top mistakes businesses make when setting up an office.
1. Assuming coworking is the only option
For smart business people, flexibility is a must. We seek out flexible HR solutions, flexible IT solutions and flexible office space solutions. But often, we’re made to believe that the only way to truly achieve flexibility in our office, is to opt for coworking. And while coworking is a great solution for some businesses, especially those still in the validation phases, it’s not for everyone.
And it almost always begins to lose its appeal as member companies grow and develop the need for their own, unique culture. That’s why assuming coworking is your only flexible office option can be a huge mistake. Companies who stick with coworking for too long often report loss of focus, increased distraction and even loss of team morale.
But when your business outgrows coworking, it shouldn’t outgrow its agile approach to real estate. We created PivotDesk to ensure there was a more mature solution to graduate to — a solution for businesses that need a professional space to continue to grow their business and their culture, but don’t need the risk and cost associated with signing a long term lease.
2. Letting the process drag on forever
As a responsible business leader, the last thing you want to do is allow impulsivity to govern your decision making process. But few realize that when it comes to choosing office space, allowing the process to drag on can be just as dangerous as acting too soon.
The search for office space can be an all-consuming process. You’ve got to deal with:
– Finding a commercial real estate advisor you can trust
– Meeting with that advisor to convey your needs
– Touring offices, coworking spaces, subleases etc.
– Negotiating terms
– Setting up your IT infrastructure
– The list goes on…
Chances are you’re putting your top people (and yourself!) on this and these things take time. So… let’s state the obvious: Time is money. And the somewhat obvious: Time is productivity. Perhaps the most damaging part of letting your search drag on is the loss in productivity from your team during the hunt!
Yes, you need to make commercial real estate decisions carefully. But letting the process drag on can have a serious impact on your bottom line. So when it comes to office space, get your priorities in order and drop the perfectionist approach.
3. Forgetting about all of the other costs associated with office space
The cost of rent and coworking fees in cities like New York and San Francisco can be staggering and difficult to swallow. But when it comes to setting up an office, those costs are just the tip of the iceberg.
Did you know, a 4-person team in NYC will spend an average of $15,750 on initial setup fees alone?
That accounts for things like:
1. Legal fees
3. Office supplies
4. Tenant improvements
5. Moving expenses
Forgetting to account for these costs has caused many a melt-down when it comes to reviewing your spend on the space and the variance between the total and your original budget.
4. Paying for space they don’t need
One of the biggest benefits of working with Saas companies like DropBox and SalesForce, is the pay-as-you-go model they offer. By purchasing licenses on an as-needed basis, customers save thousands that would otherwise be wasted paying for service they couldn’t fully utilize.
The same dilemma applies to office space.
Often, when entrepreneurs sign long-term leases, or even commit to private coworking offices, they end up paying for space they don’t need as their team size fluctuates. It’s hard to avoid — your business is incredibly dynamic, and part of this involves adding to and subtracting from your employee roster. Doing so shouldn’t mean paying for offices space you aren’t using. We modeled PivotDesk after Saas companies like DropBox by allowing our guests to pay for just as much space as they need, only when they need it.
5. Jump into a lease too soon
If you’ve been paying attention to the news lately, you’ve seen that once promising “Unicorn” companies are toppling left and right as their egregious spending habits catch up to them and they fail to hit projections.
And what is it these companies are blowing all of their capital on? You guessed it, office space.
That’s why, in the wake of all this panic surrounding the potential burst of the tech bubble, investors or expecting businesses to be incredibly smart with their capital. Eric Schmidt, who has kept the actual door that once served as his desk when he was helping to build Google as a reminder of what it really takes to create something great, says he judges companies he’s considering for investment harshly when he sees them working in over priced offices:
“I can always tell when we’re dealing with a proper founder when we start with how are they spending their money. And so whenever I go into [a] start-up that has beautiful offices, really nice chairs, I cringe. Because that means I haven’t quite figured out that it isn’t their money.”
Now, that’s not to say you should settle for a dingy office with doors for desks — rather, you should consider carefully the things that really matter and spend your money accordingly. Entrepreneurs who over-spend on office space often don’t get a second chance to do things right. Investing in flexibility can help you achieve the level of comfort you need, without breaking the bank.
6. Choose privacy over security
For certain businesses, like those in the healthcare or law industries, privacy is a must. But for others, getting stuck on the idea that privacy is essential to running a business, can be a major stumbling block. Just like Eric Schmidt didn’t need a fancy desk in a private office to build Google, you probably don’t need an office with a locking door to build your business. What you do need is flexibility and financial security. Sacrificing these essentials for privacy can sink a business.
More and more companies are embracing the office sharing trend as a way of staying agile. Take design agency, Emerson Stone, for example.
Instead of fixating on privacy, thousands of PivotDesk guests like Emerson stone are choosing to focus on synergy by office sharing with host companies whose values vibe with their own. These arrangements not only keep both host and guest companies safe, they lead to collaboration and networking opportunities which might not have happened in more secluded offices.
7. Hanging onto unrealistic expectations
Just like the fabled, rent-controlled NYC 2-bedroom, we all dream of finding the perfect office space to house our team. Unfortunately, in this market, neither are realistic.
And companies that let their fantasies keep them from finding an office that will work, tend to waste tons of time and money on their search. That’s why, before you even start your search for space, you should create your list of must-haves and nice-to-haves.
Must-haves are the space characteristics or amenities that are absolutely essential to your business’s growth and culture.
Nice-to-haves are the things that you think will improve your business or culture dramatically, but aren’t worth missing out on a great space for.
The difference between must-haves and nice-to-haves should be determined by your answer to these 2 questions:
1. Is this essential to successfully running my business? And if so…
2. Would I risk losing out on the deal to get this?
If your answer is “yes” to both, then it’s a must-have. Establishing your must-haves and nice-to-haves early on will ensure you’re only considering spaces that are worth your while.
8. Failing to plan for growth.
Just like paying for space you don’t need can be dangerous, failing to plan ahead for growth can be worrisome too. Yes, growth is great, but moving is expensive and you don’t want to go through the hassle of uprooting your team every 6 months.
That’s why it’s so important to strike a balance between having enough space for your team to grow (that’s the goal isn’t it?!) while not paying for more space than you need. Flexibility is key here. Utilizing a flexible solution like PivotDesk is a great way to add spaces as you need them. And for companies that do decide to sign a lease, sharing unused space on PivotDesk can help offset costs.
9. Idealize the sublease.
People often think a sublease is the solution to fit all of their office space needs, but the reality is very different. Rather than act as a panacea, subleases often create more problems than they solve. You see, contrary to what many think, subleases aren’t necessarily faster, cheaper, easier or more flexible.
Here are some of our favorite subleasing misconceptions debunked:
– Subleasing isn’t always short-term. Subleasing means that you are taking over an existing standard lease from another tenant. Since most standard leases are long term, you’ll assume the remaining length of that lease for the period of the time stipulated in the lease. So, if a tenant has a 10-year lease and you move in during year 2, then you’ll have 8 years left on that lease.
– Subleasing isn’t always faster. Negotiating with one landlord takes time. Imagine negotiating with two. With a sublease you have to negotiate contracts with both the sublessor and the landlord who has the ultimate right of approval and no incentive to move fast since the sublessor is already on the hook for the rent.
– Subleasing isn’t always cheaper. The sublessor won’t automatically charge you the same rent they are paying. In fact, unless they have some extenuating circumstances or need to move out ASAP, you’ll likely pay market rate so the sublessor can make back some money on the deal.
– Subleasing isn’t within your control. The landlord’s agreement is with the original tenant and so contractually, they are not required to talk to the sublessee. Hence, all of your communication will go through the sublessor who will then contact the landlord on your behalf. It can be a giant game of telephone and a lot of things can be lost in time and translation.
Setting up a home for your business is an exciting time. It means you’re on a path to growth. Yet, getting caught up in the excitement and ignoring the risks can be dangerous. As we’ve seen from the recent collapse of several “Unicorns,” poor real estate decisions can spell ruin for even the most promising companies. When it comes to your business, trial and error is simply too risky. Luckily, learning from others can help us stay on track.
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