Several factors come into play when starting up a new business. First, you need a viable product or service, enough capital to get you going and a great team.
Next, every business needs a home. You’ll not only need to think about what makes sense now but also where your business will be down the road. The goal is to create an environment that will attract talent and retain valuable employees, while still being affordable and flexible enough to accommodate growth. Here are a few things you’ll want to consider:
- Flexibility: Flexibility in your lease will allow your company to evolve in either direction. A short-term lease or sublease makes more sense for your growing business. Assignment and sublease rights are critical, and ask for a renewal clause and early termination rights, just in case.
- Preserving Capital: Let’s face it: startups don’t have a lot of excess capital. The last thing you want is for a lot of your money to be tied up in a security deposit. Be savvy in negotiating an amount that is reasonable for both you and the landlord.
- Type of Space: Do you want a direct lease with your Landlord or are you open to considering a potentially more affordable and flexible sublease? Would you consider shared space or a collaborative incubator environment? Will you accept the space “as is” or do you want to make improvements?
- Rent: This can be quoted as triple-net (NNN) or gross. Triple-net is the base rental amount but doesn’t include charges for common area maintenance, insurance, etc. Gross is exactly what it is – all of the applicable monthly fees plus the base rent. Make sure you understand what is being quoted before signing.
- Location: Beyond just the neighborhood or particular building, what type of environment will attract and retain employees? Is the building served by transit? Is parking available? What types of amenities are nearby?
- Room to Grow: Your business may be small now but what plans do you have for it in the future? Does the space you’re considering include expansion rights during the term of your lease?
- Culture: What type of culture are you trying to create for your business? What is the look and feel you are hoping to achieve? Do you want open space versus private offices, or loft space versus traditional space? What environment will best suit your type of business?
- Building Amenities: This goes beyond just what the neighborhood provides. Does the building have shower facilities? Lockers? Bike racks? Parking? Food services? What will your employees require?
- Costs Beyond Rent: Be aware of extra costs that you may be incurring beyond just the rent. Will you be paying for Internet and phone service, furniture, parking, security, etc.? If you are in a shared space, will you be paying for additional support services?
- Landlords: Know your future landlord. Do they have other startups as tenants? Do they understand the unpredictability of early stage companies and do they have a reputation of working with their tenants? A solid working relationship here will yield benefits down the road.
Above all, make sure you read and understand your lease agreement.
Pat Pendergast is a founding member of Washington Partners, a Puget Sound based real estate firm focused on tenant representation of technology firms. More information can be found at www.wapartners.com