What I've learned about leasing office space

I thought I'd wait a couple months after moving into new office space before writing much about the process. It's the second time I've leased office space, and while all the work involved still ranks high on the list of things I don't like doing, I'm starting to gather a handful of tips.

It should go without saying that everyone needs to look for something different based on the type of business and size of budget. Everything below came out of my needs as owner of a small software company with a bootstrapper's budget.

Size Appropriately

I knew there'd be two of us working out of the space for the foreseeable future, and wanted enough room to fit a couple more in if necessary. The space I settled on was ~550 sq ft, which is relatively small, but more than enough for a few desks, a small conference table and kitchen area without feeling too cramped. Figuring out the right size is tricky — too small and it's not a great environment, too big and you're throwing away money that could go to better use. The best thing I did to come at a size estimate was measure around the house and try to picture what the ideal space would look like.

Look at Usable Space

More important than absolute square footage is the amount of usable space. One of my top requirements was finding a good layout that didn't waste too much square footage on hallways or barely usable rooms. You get charged the same amount for desk space and hallway, so you might as well get your money's worth. The space I leased a few years ago looked nice, but we only really occupied about 1/2 of it because of the layout. It included a large conference room (that we used mostly to entertain people who were trying to sell us something), a spacious entry way, a private bathroom, and decent kitchen area. That was all nice to have, but it wasn't worth the extra money it cost.

Find a Flexible Landlord

The danger of leasing space that "just fits" is that if we need to grow more quickly, we're not going to have much fun sitting shoulder-to-shoulder. I ended up getting a suite in a large-ish office park because there will likely always be plenty of spaces that we can move into down the road, and we'd be able to do so without paying a penalty for breaking a lease. A landlord's going to work hard to make sure you stay around as long as possible, even if that means moving you into a smaller space. If we're lucky and time it right so that we move into one of the many empty suites down the hall, we won't even have to change our address — just grab the sign on the door as we wheel our chairs over.

Location * 3

If you're like me and working in a business that needs zero foot traffic, then location doesn't matter as much to the bottom line as it would to someone opening a coffee shop. However, location is still obviously a factor in determining your commute time. It's also great to have space that's close to restaurants and shops so that lunch meetings and errands don't become a hassle. It's a lot cheaper to get space in the middle of nowhere, but extra commute time costs money too. If your commute is an extra 15 minutes per day, that's about 125 hour of extra drive time per year. If you value your time at any reasonable rate, it's well worth an extra $1-3/sq.ft. to get a closer space, all things being equal.

Get a Short Term Lease

At my last company I was unfortunate to be one of the ones holding a lease with two years left on the term right as we were closing the business. It worked out OK in the end, but it taught me the lesson that I wouldn't enter another office lease unless I was confident that the business was doing great financially and that everyone loved the space. I ended up getting an 18 month lease on this space (and probably could have negotiated 12 months if I tried hard), which is right about the sweet spot between not feeling like we have to pack up as soon as we got settled in and not getting stuck with a huge monthly bill in case something came along that caused us to have to move.

Expect to Stretch the Budget

I haven't yet nailed an estimate for the true cost of moving into new space. On top of the lease payments I also had to pay for new furniture, decorations, new network equipment, kitchen appliances, business insurance, phone and Internet connection setup charges, someone to wire the suite for phone & data lines, legal fees, updated business cards, and a handful of other things that I've forgotten in the dozens of trips to Staples and Fry's.

Get a Lawyer

I've read few things more confusing to me than my 25 page lease agreement. I hate paying lawyer's fees as much as anybody, but it felt like it was well worth the additional expense to have someone read through it on my behalf, point out what things I should be concerned about, and help negotiate any necessary changes. We asked for a small change to the terms, and the request was granted without difficulty. It was worth a few hundred dollars to pay my lawyer now so that I don't have to pay him a lot more later if things go sour with the landlord.

I know I have a lot to learn in this area — does anybody have any extra tips to share, or disagree with anything I've said above?

Pseudocoded

I launched a new blog called Pseudocoded. It's something to express a more silly, creative side.

The idea came to me last week and I decided to just run with it. I'll keep writing here as well, but I thought the content would be too divergent to mix it with regular posts here.

Enjoy.

header('Location: http://www.pseudocoded.com');

Not enough dot com failures

I ran across a really interesting article at strategy+business by way of Businesspundit. The article's premise is that there weren't enough failures during the dot com crash:

The 50 percent failure rate of the dot-com era still seems high, until we put it into perspective. Compare the dot-coms to other business realms: From 1996 to 1998, for example, the survival rate for independent restaurants open for three years ran 39 percent.

...the low failure rate indicates that too few entrepreneurs were funded and too few new ventures launched. Had twice as many been launched, the short-term failure rate for individual businesses might have been higher, but a larger number of successful business models would probably have emerged, and these would have led to more enduring businesses in the long run.

It was really easy for all of us to scoff at the dot com companies that crashed, dismissing them as being doomed from the start. And I have to admit, even now I regularly find myself shaking my head at some of the new startups I see profiled on sites like Techcrunch, and wonder if we're on the verge of seeing history repeat itself.

But what if that's just part of the circle of life in the business world, and we're not really trying out enough "stupid" ideas? If the article is right, the mathematics suggest that web entrepreneurs as a whole should risk trying out even more ridiculous ideas, saturating the market in order to figure out the best business models.

When you think about it, how much more stupid is it to start a new Flickr or YouTube competitor today as it is to open a new coffee shop, casual Italian restaurant, or ice cream stand?

If the statistics are right, it suggests that either the market for web-based businesses is under-saturated or the failure rate is just lower than brick-and-mortar companies. Either way, that's good news for would-be web entrepreneurs.

(By the way, if you're on the fence about whether or not it's the right time to move forward with your business idea, make sure to read Paul Graham's excellent essay on why to not not start a startup.)

Does your product pass the subway test?

A few days ago a friend of mine posted his thoughts about 37signals and Basecamp, their flagship product. He mentions that users he'd signed up on his Basecamp account didn't end up using it, and speculates that it's because the application isn't user-friendly. As evident from the comments, a number of other readers share the same frustration with Basecamp. A few people also chime in to voice dissatisfaction with other 37signals products.

For those of you that don't know, 37signals is one of the darlings of the Web 2.0 world. They've built a suite of successful web applications, have a large number of readers on their blog, and published a popular book on how to create great web applications. To suggest that their products aren't well designed and user-friendly is outright blasphemy in a lot of circles.

As I was thinking about Doug's post, I came across an interesting article in the Washington Post by way of the Freakonomics blog. The Post ran an experiment where they took Joshua Bell, an expert violinist, to a Washington D.C. subway stop and had him play beautiful pieces on his $3.5 million violin.

I hate to spoil the ending, but Bell played for about an hour and went largely unnoticed. He collected a mere $32.17 for his time, even though he can sometimes earn $1,000 per minute for his work.

I would like to think that I'd walk by Bell in the subway and be struck by his talent and the beauty of the music. But in reality I'd probably rush by, annoyed that some guy was allowed to play that loudly in public. And with all honesty, even if the venue had been more appropriate and Bell had my complete attention, I probably wouldn't sense that I was in the presence of a master. But if I knew who he was beforehand I would probably feel overwhelmed with appreciation.

Here is the key question posed by the Post article:

IF A GREAT MUSICIAN PLAYS GREAT MUSIC BUT NO ONE HEARS . . . WAS HE REALLY ANY GOOD?

We ask this kind of question about classical music and abstract art, but why don't we ask it about technology more often?

It's hard to say that Basecamp isn't user-friendly when everyone points to 37signals as the experts on creating user-friendly web applications. It's hard to say that the iPod is mediocre if everyone feels like it was an object of perfection handed down to Steve Jobs from above. It's hard to say that Google Search returns irrelevant search results when everyone calls the engine the greatest tool of the web age.

The Post asked Leonard Slatkin, music director of the National Symphony Orchestra, what he thought would happen in the Bell experiment. He was pessimistic, but his estimate still far exceeded the actual results. I think those of us that subscribe to dozens of "what's new in technology" blogs and digest the content every day are in a lot of ways like Slatkin. We live and breath technology, so that puts us closer to Arrington, Godin, Graham, Kawasaki, Scoble and Spolsky than the 1,000s of people walking through the subway.

It seems right to say that Basecamp is awesome. But if nobody on your team wants to use it that doesn't compute. Are they ignorant, or are they just seeing it sans hype?

Would Basecamp pass the subway test? How about the many products featured on Engadget and Techcrunch every day?

How much does it cost to build a web app?

I didn't get a chance to go to SXSW, so have been happy to see slides that have come from some of the presentations. One of the more interesting ones was Barenaked App: The figures behind web apps. It's an essential read for anyone who's interested in building a web-based application for a new business and wants some reference for the costs involved.

According to the presentation, here's how much it cost to build some successful web applications (design, development, hosting, legal, accounting, etc.):

  • DropSend: $48,012
  • FreshBooks: $20,000
  • Maya's Mom: $70,000
  • Mobissimo: $60,000
  • Wesabe: $200,000

And here's how much they cost to maintain each month (including employee salaries for some):

  • Dropsend: $3,625
  • FreshBooks: $46,000
  • Maya's Mom: $30,000
  • Mobissimo: $150,000
  • Wesabe: $3,000+

While these numbers are certainly not representative of every type of web application, the presentation shone light on the types of things to think about when planning a web business. Here's what I took away from the slides:

1. It costs a significant amount of money

There's a popular myth that you can hire a developer to build something for $50, post the URL to Digg, then watch the $1B buyout offers flood your inbox. OK, maybe nobody believes that exactly, but I think people largely ignore the fact that web businesses operate under the same maxim that brick-and-mortar businesses do: it takes money to make money.

Generally speaking, anything that costs an insignificant amount of money will probably face a large number of competitors and knock-offs. Even if you somehow managed to protect your business from that, any major application with less than 100 hours of work behind it probably isn't going to be designed with a great user interface, won't scale with increased traffic, and will be riddled with bugs.

2. It doesn't cost that much money

On the other hand, those numbers are within reach of most would-be entrepreneurs through funding from angel investors, small business loans, or a line of credit. Most successful web applications don't require venture capital to get started, if ever at all. Web applications are a lot less capital intensive than most businesses — retailers would probably be overjoyed if they could open new stores with startup costs that low.

3. It still costs money after it's launched

The second part to the $50 myth is that once your application is up and running you can just sit back and count the profit, without spending any time and money to maintain. Ongoing costs will vary widely depending on the business, but it's fairly safe to say that some amount needs to be budgeted at least for customer support and ongoing hosting if not for development of new features.

Out of curiosity, did these numbers seem reasonable to you?   What else struck you about the costs?