Which of these sentiments do you agree with?
A. Finding startup office space in San Francisco is fun.
B. I'd rather be cleaning toilets at Starbucks than looking for office space.
C. That's gross, but I feel somewhere in between about the whole process.
Whatever your answer, securing the right workspace is essential for every startup, especially for those who are in that awkward growth phase. You know, the period of time when you're too big for your mom's basement, yet too small to justify paying $67 a square foot for rental space?
Factor in San Francisco's high cost of living and it's no wonder an increasing number of startups have been fleeing the Bay Area. According to a study conducted by the Silicon Valley Competitiveness and Innovation Project, the California tech corridor lost more than 7,500 residents to other U.S. cities in 2015. Still, founders continue to choose San Francisco for one particular reason — the potential to scale quickly. Considering that Silicon Valley VCs expect 3 out of 4 investments to be failures, money arguably flows more freely here than elsewhere.
Unfortunately, greater access to cash doesn't always translate to more affordable commercial leasing options. In order to give themselves the best possible chance for success, many startups now forgo traditional office spaces in favor of shared workspaces — from malls to camping trailers to typical coworking spaces. But how do you determine your best fit?
In this article, we'll guide you through the process of evaluating your options when it comes to San Francisco startup office space. Let's get started:
The San Francisco Startup Office Space Guide
Before you begin your search, it's important to assign a project leader. Depending on the size of your startup, that person may or may not be yourself. Regardless, this person will be responsible for making sure the search stays on target and on budget.
Here are some of the other individuals you might want to have on call:
- A real estate broker who specializes in representing startups and new businesses.
- An experienced real estate attorney who can negotiate leases, if necessary.
Of course, you won't need these two individuals should you choose to forgo traditional leasing. Also, remember that most startups and small businesses underestimate the effort required to find decent office space (don't wait until the last minute). Once you have your team in place, it's time to begin evaluating your needs.
1. Determine Your Startup Office Space Needs
Here are some basic factors worth evaluating:
Location: Most tech startups should position themselves near freeways and public transportation, as there is a good chance employees won't be able to afford living down the street. Additionally, you will want to keep potential investors and clients in mind. The easier it is for key people to access your office, the better.
Size: When it comes to office space for startups, 75 square feet per person is the typical starting point for efficiently structured workstations. Multiply that number by the number of workers on your team, and you will have a starting place. Then, add on additional square footage according to your particular needs (e.g., additional storage space, larger desks, etc.). Plan on enough space to grow into; aim to reach your occupancy limit about two-thirds of the way through your rental agreement term.
Infrastructure: This is where you will want to consult with your IT department leader. How much bandwidth do you really need? How many servers will get the job done? If you are leasing privately, expect to foot the bill for initial line connection and monthly payments. Conversely, coworking spaces almost always provide high bandwidth free of charge.
Style: What sort of image do you want to convey to key stakeholders? If you could design your dream office, what would it look like? While you might not be able to get it all now, there are definitely things you can do to communicate brand style on a budget.
Amenities: What sort of amenities and resources could your startup benefit from having nearby? Coffee shops, printing shops, FedEx drop-offs, a gym?
Once you have assessed your basic needs, it's time to get real: What can you actually afford?
2. Determine Your Startup Office Space Budget
While there is no specific formula for determining what percentage of capital should be spent on office space, identifying your perfect number begins with deducting your business's expenses from your projected monthly cash flow to form a working budget. Ask yourself the following questions:
- What are our current expenses?
- How much incoming cashflow can we reasonably predict on a monthly basis?
- What is our projected growth over the next 6-12 months?
Pro Tip: Estimate expenses on the high-end and income on the low-end. Once you have determined your budget, you will be able to determine whether or not a privately leased office space is in the realm of possibility.
For example, a 921-square-foot space in San Francisco costs around $5,000 per month on average. Let's say you're allocating 80 square feet per employee, and you would also like some extra meeting space. That means $5,000 will provide enough space for approximately 10 people.
3. Evaluate Leased vs Coworking Space Options
Once you have a stronge sense of what your ideal space should entail and the amount of money you are willing to spend, it's time to compare your options. Both coworking spaces and leased office spaces offer their own unique advantages and disadvantages.
Here are some factors to keep in mind when considering coworking vs office space rental for your tech startup:
Traditional Office Space
- Can be customized to meet your exact architectural, design, and brand needs.
- Offers a certain amount of prestige when hosting stakeholders.
- Enhanced privacy, autonomy, and a quiet work environment.
- Many leased office spaces require 5 to 7-year lease terms.
- Rent may dramatically change once your lease is up, with little notice.
- You may be asked to provide a personal guarantee of the lease obligation.
- Hidden costs like insurance, furniture, and utilities can dig into profits.
- More isolated — less access to other startups and may be harder to leave the office for networking events.
- The landlord assumes the financial/liability risks associated with multiple tenants sharing a space.
- Important amenities (i.e. photocopying, high-speed internet, beverages) are often included.
- Flexible month-to-month payment agreements make it easy to upsize or downsize quickly.
- Coworking spaces often provide great opportunities for networking with peers.
- Private office options are often available without the lengthy lease commitments.
- Ongoing educational events are often provided to enhance startup progress.
- You won't be able to customize the space to meet your exact preferences.
- You will have to think ahead to book meeting rooms and other private spaces.
- Overhearing the buzz of nearby coworkers may be distracting.
Many startups choose the flexibility and freedom from the financial burden that coworking provides. Still, if leasing private office space is of interest, a good realtor with startup experience can help determine whether or not privately leasing office space is a viable option.
Before renting a private space, just make sure you thoroughly evaluate upfront costs. Expenses like security deposits, utilities, furniture, parking, liability insurance, and more can really drain your pockets.
On a positive note, San Francisco landlords are becoming more accustomed to tech tenants vying for shorter lease terms. As reported by National Real Estate Investor, tech tenants are now negotiating 2 to 4 year terms to coincide with fundraising cycles. Just don't expect such negotiations to be easy, as landlords still prefer the lower-risk levels associated with longer terms.
The Best of Both Worlds
Ultimately, determining the best office space for your startup will depend on your budget, business priorities, and personal preferences. At RocketSpace, we strive to provide our tech founders with the best of both worlds:
- The affordability, flexibility, and amenities supported by sharing office space
- The autonomy, customization, and privacy supported by private office space
Additionally, members frequently rely on one another to tackle industry roadblocks. Many of our members have "been there, done that" when it comes to growing a tech startup. Learn from these industry influencers — entrepreneurs, venture capitalists, corporates — to unlock accelerated growth. Talk to any of our members, and they will tell you that working at RocketSpace helps you scale faster.