Have you figured out your new business’ space strategy? Are you just a simple home office or do you need to rent space? Is it retail space, office space or what? Will your location match your business strategy?
I had an interesting talk yesterday about the problems of location and space in small to medium-size businesses, especially growing businesses that are moving up from small to medium size.
Here are a few thoughts about locations and space. I hope this helps if you are starting a business and, if you’ve been running a business for a while, that it sounds familiar.
- Align your space strategy with the rest of your strategy. Ask yourself these questions:
- Do your customers ever see your space? Are they physically there? For example, at Palo Alto Software in Eugene, Oregon, we get maybe two or three customers at our actual location per year. If we were accountants or attorneys, every client would see our space. If we were a restaurant, every customer would sit and eat in our space. This makes a huge difference.
- How do customers get there?
- Do they have to park a car when they come?
- What kind of location matches your strategy? For example, professionals such as attorneys and accountants are often judged by their office surroundings, but home repair and limousine services aren’t. Restaurants have to match location to their strategy, too, such as putting a high-end restaurant in a nice neighborhood. There are ways to get around these problems, but you have to start with strategic alignment. Does your location tell your customers something? Does it match what you want to tell them?
- How much business value is there in renting space that offers advantages to your customers, such as easy parking or access to the subway?
- Are you going to be hiring employees? Where will they live, and how will they get to their workplace every day? Will employees be required to be at the workplace (as opposed to working at home, telecommuting, etc?)
- How will space affect your employment strategy? Factors such as location, windows, views, parking and amenities cost money that you’ll spend as monthly rent. How much business value is there in more expensive rent that offers advantages to employees?
- While planning a new business, be realistic about renting retail, industrial, office space or whatever. Don’t get space to build your ego unless that’s part of your business objective.
- You should have some idea of how much space you need to have at the beginning. For example, a software company with five people is going to need about 1,000 square feet of space, just to give you some idea. How do I know that? I calculate about 125 square feet per person, plus logistics such as copy machine, fax, printers, hallways, etc. I don’t know about rents where you are, but I know that in Eugene, Oregon, second- or third-class office space–which is all I’d want for a software startup–is going to cost me about $1 per square foot per month, maybe a bit more if it’s less than 3,000 square feet. If you have no idea and you’re planning a startup, talk to some commercial real estate brokers. They will know.
- For a startup, expect to have to sign a personal guarantee. There are exceptions, but they’re rare. This is unfortunately a real risk you have to take.
- For flexibility, match the pain of committing to a steady monthly rent for a year or more to the hope that you grow and need more space. Take up space in a building that has a lot of offices in it. By the time you need to expand, you have a greater chance that somebody else will be moving out. Palo Alto Software, for example, started with 2,000 square feet of space in an office building with a lot of other tenants and increased its space eight times in 12 years without ever moving or changing its address.
- Owners of commercial space always want you to sign a longer lease than you want to sign. Startups always want to sign a shorter lease. Expect to negotiate, and use a commercial real estate broker to help. And remember that there are two sides to this battle: You also have the possibility that you like the space you’re in and want to stay, but the building changes hands and you are forced to move. That is when you wish you had a longer-term contract. And then there’s the possibility that you grow too fast and have to shrink, in which case you wish you could get out of that longer-term contract. Isn’t owning your own business wonderful?
I’ve had reason to think about business space this week. I’ve been in New York since the weekend, and business space here is a lot different from where I live.