When Should Startups Move Into a Physical Space?

April 28, 2016

11:00 am

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At what stage should a startup consider moving its operations into a physical space as opposed to just a digital one? It’s an important question that startup founders must make at some point, and – once they do reach this decision point – what kind of space works best for their company needs?

The costs of starting up are sizable – not just in capital (although, it’s certainly a huge financial investment) but also in the amount of time it takes for founders and early employees to build it into the best company that it can be. To minimize some of the costs, startups in their early stages often resort to having their employees working remotely 100 percent of the time. There comes a certain point, though, when this virtual space no longer works, and the amount of time wasted on missed connections and indirect communication can actually hurt a company’s success.

We reached out to various companies and asked them for their thoughts on the matter. Before you consider moving into your own startup office, read what they had to say:

Simon Slade, CEO of Doubledot Media:

“Think about a physical office as an investment. Assess how much money you would be paying for office space in your area – is this even a financial possibility for your company right now? If so, think about the potential benefits of an office space (company culture, increased productivity, better collaboration, etc). Then, compare the financial investment with the (often non-financial) payoff. This should give you a good idea of whether or not it’s a good time for your company to open an office.”

Jim Simpson, CEO of Crelow:

“Other startups operate differently, of course, but I think it is important, even essential, for a startup business to have its core people in the same physical location from the get-go. For one thing, there is no substitute for the accidental but important learning that takes place in hallway conversations, in the elevator, or over coffee in the break room. The great benefit of this serendipitous learning was recognized at least as long ago as In Search of Excellence, by Peters and Waterman.

For another thing, every company needs to develop its own culture, and that is best done when people are together most of the time. Skype, Slack, and FaceTime are great, but there is nothing like being in the same office to build an unspoken sense of common purpose and a strong desire to help each other. I should add that the office itself should be congenial to the people working there; the space, location, amenities all contribute to the fostering of a culture. In such a congenial space, the employees tackle problems together, celebrate victories together, and build a positive culture together.”

Rachel Taylor, VP of operations at Rocana:

We are a fully distributed company here at Rocana, which means our employees have the freedom to live and work where and when they want and dictate the right work/life balance for themselves and their families. We love this model because of the flexibility it gives our staff and because it has enabled us to hire the best people for the job wherever they may be, and not limit ourselves to candidates in specific geographic locations (especially as the tech goliaths compete fiercely to recruit and retain top talent in hotspots like Silicon Valley).

The irony is, every large successful company eventually ends up distributed anyway – by way of acquisitions, distributed sales and technical teams, regional branches and the sort – so one could argue that just moving some percentage of your employees into a physical space does not change you from being a distributed company. In that vein, we absolutely think it’s possible for a startup like ours to continue growing virtually, without requiring a centralized physical space from which to work. It just requires careful planning from the very beginning, and a healthy trust that our employees will care, be engaged, and live up to whatever expectations we have of them if we empower them to do so. We care more about impact and results, not how many hours your butt is in the seat.

When you have thousands of employees, the company’s culture and DNA are fully cemented; it becomes difficult if not impossible to change communication pathways, the way decisions are made, or the political dynamics. Because we designed our company to be fully distributed from day one, our employees have learned how to execute as a distributed team and adjust to a culture based in a virtual world, rather than physical. We’ve invested to make sure we have the absolute best tools, processes, and interactions to ensure we run well as a distributed workforce.

In a physical office it’s easy to confuse people’s daily attendance, group coffee runs, lunches, birthday celebrations and other normal social group behaviors as alignment, company loyalty, enthusiasm or even “culture”. But sometimes what people interpret as a “good culture” is actually a group of people who happen to work for the same company and show up in an office everyday giving the illusion of alignment. We don’t have the benefit of seeing people every day, so we can’t afford to assume that we have a great culture – which is why we can’t take important things like culture for granted. As a result, we have found that we need to be 100 percent intentional about instilling and nurturing shared vision, work ethic and beliefs in a company that’s spread across multiple states and timezones.”

Tiffany C. Wright, The Resourceful CEO:

“I think that you can operate certain types of companies 100 percent virtually until you reach a certain size, perhaps 100-200 employees. These include B2B service delivery firms such as consulting firms, online marketing firms and more. When ongoing, regular collaboration becomes critical, then you need to move your company to a physical space.

[…]I think having some space [like co-working spaces] where employees can come together and collaborate but also work virtually from elsewhere (i.e., home office or client site) allows a company the greatest flexibility until it hits that size. Your business can grow larger without taking on high, inflexible rents for space you do not yet need but will most likely need in the future.”

Mark Tuchscherer, president of Geeks Chicago:

“Two things happened which convinced us that we needed some space and that we should get an office. The first thing was that clients wanted to start meeting in person, and we had more and more of them requesting in-person meetings. The second trigger was that we needed to hire people, and wanted them to be in the same space with us at least three to four days each week. Working from home or a coffee shop becomes quite difficult as you grow and discover that you need to hire people and have them work in the office.

Christopher Searles, president of Searles Media:

“It’s different for everybody and you have to make the decision that’s best for you and your company. Personally, I have a hard time believing teams can be highly effective without being able to physically interact on a regular basis, and while it’s an easy way to save some cash while you’re just getting started, I don’t believe it’s truly sustainable at scale. It’s why one of Marissa Mayer’s first major decisions as CEO was eliminating the option for Yahoo! employees to work from home. On the other hand, companies like Basecamp have shown that at least some level of working remotely can absolutely work if it fits the organizational culture. But even Basecamp has a headquarters and forces its employees to get together on a regular basis. Figure out what works best for you and go with it.”

Nancy Branka, cofounder and chief content officer at Bizly:

“Our small staff – which is spread across a few disciplines from sales to engineering – was virtual until January, when we moved into a WeWork space near Times Square. I still work remotely from California, but the rest of the team is in the office. For us, when we locked down our seed round of funding and soft-launched our product, the pressure to grow quickly was a catalyst to move to physical office space. We knew that growth would depend on being innovative and a fast mover. The collaboration and generation of ideas when together in a physical office space is a huge benefit. It also accelerates communication.

It’s hard to match that virtually. I feel this acutely as the only remote person on the team. I find that when I travel to New York, which I try to do every six to eight weeks for a few days of work in the office, I get a tremendous benefit – all sorts of new tidbits of information and connections, stronger relationships with the others, new ideas, etc. These things feed growth.

I believe some startups may be able to grow quite a long time while remaining virtual. Much depends on the nature of the product and the makeup of the staff. For example, I think this works especially well for companies with a large engineering workforce. But at some point, physical office space becomes essential (even if many employees remain remote – case in point, Automattic).”

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Ronald Barba was the previous managing editor of Tech.Co. His primary story interests include industry trends, consumer-facing apps/products, the startup lifestyle, business ethics, diversity in tech, and what-is-this-bullsh*t things. Aside from writing about startups and entrepreneurship, Ronald is interested in 'Doctor Who', Murakami, 'The Mindy Project', and fried chicken. He is currently based in New York because he mistakenly studied philosophy in college and is now a "writer". Tweet @RonaldPBarba.

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