5 Ways Your Startup Will Change Before Your Office Lease Ends

by Knotel: Aug 29, 2018

Let’s not dance around this—signing an office lease is scary. You’re moving full steam ahead in the belief that your business concept will be a profitable enterprise, and you need dedicated space to maximize the opportunity.

 

It doesn’t get much more nerve-wracking than that, right?

 

Well, it does if you sign a traditional lease. Under most commercial real estate agreements, you have to commit to a five- to ten-year term. Before you protest—”Our concept is terrific and we’ll definitely still be crushing it in ten years!”—long-term viability is not the only factor you need to consider.

 

Paradoxically, the more successful your startup, the more burdensome a traditional office lease will become over time. Between funding events and evolving business plans, your lease arrangement needs to be agile.

 

Here are five common changes that your startup will probably go through before a ten-year office lease would even end.

 

1. Adding or eliminating a product or service

Growing a startup is all about experimenting. Your product and sales teams are going to test drive new concepts with prospects all the time. At least one of those ideas will probably be a great fit and you’ll need to find more space at a moment’s notice in order to get it to market first.

 

On the other hand, some things that you’re selling won’t yield ideal returns. You’ll need to sunset that product or service, and quickly shed the space you’re no longer using.

 

2. Changing your business model entirely

Few founders believe they will ever pivot their startups, but lots do. Alan Spoon, a partner at the venture capital firm Polaris Venture Partners, says, “Many CEOs at our portfolio companies have re-imagined their companies and discovered lucrative pathways.”

 

Don’t forget that Twitter used to focus on podcast subscriptions, Groupon was originally a fundraising site, and Instagram started life as a check-in app called Burbn. Your company may evolve into a very different model and your office lease needs to be nimble enough to allow for that.

 

3. Growing your team significantly

There is risk in being successful if you’re locked into an agreement that only accommodates your smaller, earlier-stage team. If your goal is to eventually get a large Series B, land a whale of a client, or acquire another startup, you’ll need to rapidly add to your team’s headcount.

 

Taking on excess space at the start of lease in anticipation of this growth is dangerous (see points #1 and #2) and a drain on cash reserves. The only solution is to avoid a long-term lease and make shorter-term decisions about space.

 

4. Relocating to a better market

In order to be lean and scrappy, many founders start their companies wherever they happen to be. Building a company locally is a great way to limit expenses, but it may also limit opportunities for growth. Your biomedical startup is more likely to get traction in Boston than in Boise, and Chicago is considered one of the most profitable locations for startups in the country. If there’s a chance that your company will move to a different city in the next five to ten years, signing a traditional lease is going to cause big headaches.

 

5. Decentralizing teams

Your headquarters can’t be everywhere, but your sales and customer success teams may need to be. Whether your reps need to have local knowledge of a market or your largest clients need more hands-on support, it might be wise to open satellite offices. Satellite offices usually start off as temporary arrangements, either until the sales reps develop enough pipeline to warrant a regional team or until the local client is fully onboarded and you can close that office. Whatever the initial plan is, it’s pretty certain to change within the year.

 

Before you commit your company—and your cash—to a traditional long-term lease, think hard about the inflection points you’re likely to have, and how you can be more agile.