Start-ups and office allure: How do you know when to spend on a space?

Start-ups and office allure: How do you know when to spend on a space?

One of the primary concerns for growing start-ups is where to work. Even if you started at the kitchen table, as I did 11 years ago, eventually you face the reality of finding an office space that suits you and your team. A lot went into this decision, so I wanted to share my thoughts on how to know when you are ready, as well as other important factors that affect your ultimate choice.

Remote Culture

I ran a remote office culture in the early years of my business. Many start-ups have no choice but to grow their businesses this way. While it worked for me, it was not ideal. Face-to-face meetings happened, but infrequently. Before the days of Slack, we used Skype as a messaging tool for conversations. I was able to bootstrap the business in a remote culture, but there were no regrets when we eventually acquired office space for the entire team. Some people continued to work remotely but we had more frequent face-to-face interaction. We stopped hiring remote employees as it became clear we could develop an engaged and cohesive culture, develop training and set career paths much more easily under one roof.

Look Ahead, But Not Too Far Ahead

While it’s really important to make projections, and always be planning ahead, it’s important to try not to think too far in advance. Specifically, renting too much space can suck up precious cash flow. I now realize it’s best not to think no more than 12 to 18 months ahead when planning space needs if you’re running a lean ship. If things don’t go as planned, you won’t be sitting on a lot of empty space and wasting cash that could be used to support the business.

I remember looking at an office space four years ago. I immediately fell in love at first sight — it was fully furnished with a great layout and move-in condition in a central area of downtown. Capacity was about 60 to 80 people. At the time, we had 20 people working in-office and 15 remotely. We planned to grow rapidly and wanted space to add new inside sales and customer care employees. I imagined we could hire and train additional people within a two-year time frame. Fortunately, my head of finance told me straight up how much this office would stretch us financially. We walked away from this ‘perfect’ space, and I’m so glad we did. Ultimately it was harder to execute on our plan and grow as fast as I had hoped, but the cash outlay for the larger space would have been a huge cash drain. And a distraction since we would have had to sub-let part of it to one or two other companies as we grew into it.

Every aspect of business rarely goes the way you think it will and it’s really hard to predict staff needs beyond a year. That’s what makes start-up culture so exciting and dynamic — things change constantly and your staffing requirements will keep pace with the change.

Office as a Recruitment Tool

When we finally decided to rent a larger office space, we had a number of smaller spaces in the north part of the city, before we settled on our current location. In those days, I wasn’t thinking about our space as a recruitment tool, but more as a necessity to get out of my home! But as we grew, I realized that choosing an appropriate office space might be the difference between attracting the right team, or not.

As a tech company, we landed on a refurbished warehouse in downtown Toronto, a building that is well over 100 years old with rough-hewn wooden beams and pillars, original hardwood floors and a wide-open space with modern, modular office furniture. With lots of amenities for employees, including a games room, thinking spaces, private phone rooms, boardrooms and a fully-stocked home kitchen, it has really contributed to attracting the type of individuals we need.

Real Estate and Cash Flow

The decision to move into an office has everything to do with cash flow. This is the most difficult factor in making your decision, as rent is usually the second highest business expense after salaries. I’ve consulted professionals about this, including Richard Turner, a broker and partner with Lennard Commercial Realty. He has been a helpful sounding board as I negotiated additional space with our existing landlord. Richard’s rule of thumb is to allow approximately 150 square feet per person, particularly if you have open-concept work areas and closed offices are used for meetings only.

In our current space, we started at 2,300 square feet (SF). After three years we moved to 4,500 SF as we loved the building and were fortunate another larger space opened up next door. And after another two years we leased the original adjacent space back again — a total of 6,800 SF for 60 people. We are lucky to have a landlord that wants to help us grow and sees the bigger picture. In terms of investing in lease-hold improvements, we spent approximately $200,000 on each of our renovations. That includes furniture, walls, kitchen and wiring. I happen to know some great contractors who were able to keep our reno costs manageable! Richard told me to budget between $45-$65 per square foot for a modest open-concept office. As a lower cost alternative, some could look at co-working spaces which are already built out so you pay rent based on the number of seats you require.

Whichever route you take when it comes to office leases, I truly believe that once you’ve made the decision to move into office space, even if it is a little unnerving, it will pay off in terms of recruitment, collaboration, teamwork, and ultimately, profit.