Tag Archives: rent

Office Space

Trials and Tribulations of Leasing Startup Office Space

A few years ago, I co-founded a software company. At our peak, we employed 14 people and had over 100 customers. This is the story of the trials and tribulations associated with trying to provide the best possible office environment for our employees during our four years of existence. Our hurdles included irate neighbors, no toilets, and rent payments we couldn’t afford.

Phase 1. My Basement

Many start-ups are launched in the basement of a home or a garage. We were no exception; our first office was in my basement in Colorado Springs. This space was occupied for over a year, and we managed to squeeze nine people into two small rooms.

We were quite content even though we were bursting at the seams. However, an irate neighbor threatening to call the police for violating the subdivision’s covenants. His comment to me one day was “I didn’t move to this neighborhood to stare at a line of cars parked in the cul de sac every day.” Omni-Vista was forced to find new digs.

Phase 2. Unfinished Office Space with No Toilets

We found an office building whose owner was willing to allow us to occupy 1,800 square feet of unfinished space for a period of time for no rent prior to moving into finished space within the same building. This seemed ideal. It preserved cash short term, and allowed us to move into nicer Class A space after we became more financially solid.

We ended up staying in this unfinished space for nine months, although neither the landlord nor our employees thought it would be that long.

The real problem was that this unfinished space had no bathrooms. We found a gym next door that had bathrooms. We asked the gym owner if our employees could use his facilities. The answer was, “no, only members and their guests.”

We asked how many guests could a member bring. The answer was, “one at a time.” Armed with this information, we asked, “If half our employees joined the gym as members, could all our employees use the bathrooms?” The answer was a resounding yes.

My co-founder had a great idea: the company decided to offer to pay half the annual gym membership fee for any employee who wished to join. The result: more than half the employees joined the gym, and all twelve of us used the bathrooms next door.

Phase 3. Class A Space but We Couldn’t Afford the Rent

We finally moved into our new, grand 3,000 square feet of Class A offices. It included a server room, bathrooms (great news!), reception room, large classroom that could double as a boardroom, break room with kitchenette, storage room (for future expansion), and around 10 offices. The space was not luxurious, but it was certainly very nice. We had to sign a five-year lease, and I was required to be a personal guarantor for the full five years of rent.

After a year in the nice office space, with cash dwindling, and the company’s need to reduce staff, it was clear that we needed to get out of the lease. But where would we move to? And what about my personal guarantee for the rent for all five years? My co-founder and I discussed this at length and decided we needed to simply present the dilemma to the landlord and see if we could reach some mutually agreeable termination terms.

I stewed for a couple of days before finally getting up enough nerve to approach the landlord. I woke the next morning with the plan to call the landlord and discuss this sensitive matter. I expected the worst. I rehearsed my words from 6am to 8am that morning with my co-founder. At 8 am the phone rang. The landlord was calling me!

The landlord explained that he had something very awkward to discuss with me and would like to meet with me right away. Later that day, the landlord explained that he had a major tenant (from another building) who wanted to expand into the vacant space currently available in the building that we were occupying, but they also needed the space we were in, and he would like to “buy out” our lease. Would we be willing to vacate the space within thirty days?

I considered playing hard-to-get and hold out for the best deal I could get. But deciding to not look a gift horse in the mouth, I simply asked him what he had in mind. The landlord offered us our last month for free if we would vacate at the end of it. I agreed. He made the departure quite pleasant, and released my personal guarantee. Sometimes, things do go right!

Summary

Startup companies usually need office space to house their employees; exceptions are those that can remain virtual. Unless if you have frequent visitors who you need to impress, stay in your basement or garage for as long as you can, and then, when you need to emerge, satisfy yourself with “good enough” office space.

As a startup founder, you will need to sign a personal guarantee, but in general the less prestigious the address, the shorter that guarantee will need to be (and the lower the lease payments).

ABOUT THE AUTHOR:

Dr. Al Davis has published 100+ articles in journals, conferences and trade press, and lectured 2,000+ times in 28 countries. He is the author of 6 books, including the latest, Will Your New Start Up Make Money? He is co-founder and CEO of Offtoa, Inc., an internet company that assists entrepreneurs in crafting their business strategies to optimize financial return for themselves and their investors. Formerly, he was founding member of the board of directors of Requisite, Inc., acquired by Rational Software Corporation in 1997, and subsequently acquired by IBM in 2003; co-founder, chairman and CEO of Omni-Vista, Inc.; and vice president at BTG, Inc., a Virginia-based company that went public in 1995, acquired by Titan in 2001, and subsequently acquired by L-3 Communications in 2003.

If you’d like to learn if your great business idea will make money, take a look at Will Your New Start Up Make Money? If you’d like to verify that your great business idea makes financial sense, sign up for www.offtoa.com.

Interior of Thiruvanmiyur station (Prateek Karandikar from Creative Commons)