When venture capitalists fund an early stage company, they provide capital to see a start-up through various stages, sometimes from seed, to post-seed, to Series A and beyond. Like venture capital, in real estate, every stage generates different, unique needs for a company. As a growing company, it is essential to evaluate your current space needs while you plan ahead for future growth.
Our Octane Preferred Advisor, Savills, analyzes the following five steps of company development as a key part of helping companies navigate their space needs over time:
- Incubation Stage- Little to No Infrastructure
Before the start-up is officially a business with customers and revenue, it usually needs a period of time to develop its business idea, assess its viability, explore the market it wants to enter, develop its sustainable competitive advantage, create intellectual property (if possible) and figure out how to finance its “incubation” or “seed” stage. Typically, this stage starts in free space, such as a living room or a garage—a space with no infrastructure requirements or other fixed costs.
- Launch- Minimal Infrastructure
This is a risky stage where a company will need to conserve resources and not spend investors’ money unnecessarily, especially if that money has come from “friends and family” as is common. For a company of two to 10 employees, a month-to-month lease in a co-working space such as WeWork, Regus, or other fully serviced office spaces can be a low-cost solution. Companies that want to protect proprietary information may prefer will need to be careful if they share space and systems. In the initial stage of a company’s lifecycle, however, the rule of thumb is to spend as little money as possible on space. Consider live/work alternatives—your office should be basic, functional and shared, and you should make use of cheap, scalable resources such as cloud computing and non-employee gig economy staff.
Companies in their initial stages may believe that a “cool,” standalone office is a key to projecting success, which may be important in attracting tech talent. Don’t overpay for the cool factor in your space, however, because at this stage containing costs is the wiser course, and as your needs change rapidly a flexible work force makes much more sense. .
- Establishment and Growth- Find a Permanent/ Semi- Permanent Space
When the company begins to generate consistent income and is expanding its customer base, improved cash flow, and perhaps additional capital, will be available to cover expenses. This may well be the time for your first move. For a company of 11-20 employees, a good solution is a 12-month lease on a customizable, fully furnished “spec suite,” a pre-built office suite, usually about 1,500-4,000 square feet in size. A sublease can be another way to obtain a furnished space at minimal out-of-pocket cost, but you take the space as you find it and you may not have the option to remain in the space at the end of your lease. The details of all of these kinds of arrangements is vitally important because at this stage surprises can be painful.
- Expansion- Look Forward 3 to 5 Years
Your start-up has attained a secure place in its industry, with rising revenue levels and an expanding workforce of 21-49 employees, and you have a reasonable level of capital to execute your business plan. At this stage, a company can look at its growth forecast, assess its needs for the next three to five years, and lease a space where it has an opportunity to build out and create its own, unique workspace environment that is congenial to employees, flexible and optimized for future growth.
- Maturity- Growing Into Your Space
Having successfully expanded its business, your company is earning stable profits from year to year. With 50 or more employees, you may still be growing at a fairly fast clip. It’s time to lease a generously sized space the company can “build-to-suit” for further expansion, or even build your own facility based on careful analysis and forecasting. The landlord will contribute to the build out with what is called a “tenant improvement allowance” (which is negotiable), and your lease will usually be for a term of at least 5 years, and can include options to keep it for longer.
Assessing your property needs is as important at the incubation stage as it is once you have developed a mature business. There are complexities at each stage and peculiarities in each market, so be sure to get unbiased advice before making any commitments.
Savills is an Octane Preferred Advisor on the Octane Enterprise Solutions platform.
They are a leader in analyzing space needs for businesses to help set goals and expectations, create solutions, and smartly manage and deploy resources in securing office, R&D, and industrial spaces. Savills only works for tenants and does not work for landlords, which is important if you want to be sure the advice you get is in your best interests.
For further information and a copy of a comprehensive White Paper on real estate please contact:
Senior Managing Director, Director