Startups in San Francisco are tasked with more than just navigating their own
competitive space. As often the second-largest cost center for companies, real estate
poses a whole new set of challenges for many early stage startups.
I set out to learn from founders who have “been there, done that” and hear about the
thoughts shaping their decisions. This is the first in a four-part series that attempts to
bring you their stories, along with relevant market analysis.
#1 – A Sweaty, Summer Hacker House is
Fun… Until It Isn’t.
Founders in the Bay Area lead the world in strategic thinking, and using office space is
People.ai CEO/founder Oleg Rogynsky took a creative approach to attracting talent
during the early days, posting his hacker-house on Facebook as the perfect place to
live like the guys from “The Social Network”. He shares that his first hires “totally
bought into the dream”, and work excelled. Until summer rolled around… As
temperatures rose, they found themselves living out the real-life version of Gilfoyle
working in a futile attempt to cool off “Anton”. People.ai survived that sweaty summer,
went on a hiring spree and made moves for SOMA.
Founders of early stage startups often pride themselves on their ability to maximize
the value of every inch of floor space. And so they should. Without the luxury of a
funding “cushion”, founders are forced to think outside the box. Or, as in the case of
Blueboard, inside the closet – no, literally…
Founder approved tips on how to be strategic with your space:
- Wallpaper a closet space to create the most stylish of built-in call booths.
- Make sure you are zoned right. No one wants to be evicted halfway through beta
- When your work is life and life is your work… Look for a live-work space.
- A single dinner table with bench seating fits more people and brings you closer as a
- Keep an ear out for failing startups. They often need to sublease space or at least
sell some monitors.
#2 – Don’t Quit Your Day Job.
With so many hats to wear, founders need not wear that of commercial broker.
Average rental rates are in the low $70s/Sqft/year in San Francisco. That’s over twice
the national average, so stakes are high. There’s an industry saying: “San Francisco
real estate costs more and takes longer.” Most early-stage startups I spoke with
admitted they started out reactive instead of proactive when it came to making real
estate decisions. What I found was that given the benefit of hindsight, many who went
it alone certainly wouldn’t again.
“In the beginning, I didn’t really have an appreciation for the process. I assumed it
would be a much more standardized thing. Our broker was able to negotiate way
more than I ever thought possible. I would have known to negotiate on some things,
however having him as an advisor was great. He helped us understand where to push
on some things and where there was no wiggle. I think this was really important.
From a founder’s point of view, you need to consider: What is your time best spent
I felt it was best served managing the process and overseeing its direction, not
spending countless hours looking online, making calls and looking at spaces that may
not necessarily have been a good fit.”
Drew Dewalt. COO/Co-Founder @ Rhumbix
#3 – “That Escalated Quickly.”
Even Ron Burgundy would be shocked by the speed of the San Francisco office
market. In more ways than one, it’s a dynamic beast. Many early-stage founders today
have known nothing other than sky-high rates, entitled landlords, and limited choice.
That’s exactly what Taylor Smith @ Blueboard found three or four years ago, when
“Things really got out of hand fast.”
Smith recalls, “Even ‘sleeping on it’ can prove too lackluster in this market. Demand
meant that things moved a lot quicker than we originally expected. [Office spaces] came on and off the market really quickly!” I wasn’t surprised to hear several founders
tell of the moment they became acutely aware there was no time to be without a plan.
In such a dynamic market, it is important to remember, as fast as space is filled other
spaces empty. This reinforces the need for three things:
1. A tenant rep broker that has access to off-market opportunities approaching, who
has done this before.
2. A growth plan and space strategy that enables proactive, and not reactive
decisions to be made.
3. A person to help with #2 – See #1.
#4 – Everyone Needs a Place to Call Home.
“Offering an inspiring, functional and flexible office space is one of the most critical
and often overlooked elements to nurturing a highly productive employee base,
attracting future talent, and developing and maintaining a positive company culture.”–
Jason Kalira, Head of Finance and Operations @ BrightFunnel
Company culture can be viewed as your team’s “user experience”. Before setting out
on an office search, successful founders ask themselves: What is the employee
experience we’re trying to create? Keenan May of Coworkr explained how we are
seeing a progressive shift toward reinforcing that it is, in fact, ok to work remotely.
He says fully remote companies often struggle with creating a company culture based
on collaboration, communication, and creativity. StudySoup, RecruitLoop and
Coworkr, are some that have made it work. They suggest:
Have your company processes clearly laid out.
Adopt a strong results-driven approach.
Utilize tools that allow for efficient communication.
Increasingly, startups are adopting a liberal, semi-remote option. But whether it be a
loose WFH policy, or a concrete “3 days in; 2 out” schedule, founders I spoke with
agreed on the importance of a home-base location.
“There is nothing like getting your team in a room and having a good brainstorm
session over a white board.”- Bryant Hawthorne, CEO @ Spotted Places
#5 – It’s Not You… It’s Me.
With the rise of the sharing economy came the notion that space too can be utilized in a more efficient, collaborative manner. San Francisco has one of the highest concentrations of accelerators, hacker-houses, and incubators in the world. While most offer a short-term solution, co-working spaces are often the next step for many early stage startups as they begin to hire staff.
The vast majority of founders I spoke with had far more positive than negative
experiences in co-working environments. Their elasticity is important during periods
of growth, or when scaling back the workforce.
But at what point do founders generally break it off with co-working spaces?
People.ai realized that “The pay per desk model breaks at about 10 desks. It becomes
much more expensive than even your own office space.” An economic driver for
Umbo in considering a move out of its live/work incubator type space was the need to
portray a sense of professionalism to potential investors.
Unfortunately, like many relationships, that of the startup and co-working space
reaches a point, whether for economic, cultural or even IP security concerns, where
staying isn’t in a company’s best interests. At that point, it’s time to say, “It’s not you…