March 20, 2010

Due Diligence Study: NYC Office Space

• It has been 18 months since Lehman declared bankruptcy and the commercial real estate market is still trying to find its balance.  It’s no secret that prices during the third quarter of 2009 were 40% lower than early 2008. (http://www.crainsnewyork.com/article/20090714/FREE/907149988).  But just because prices have plummeted and you can save precious dollars by transitioning to another location, you still need think strategically about how the end investor perceives your choice of your next office solution.
• In fact, perhaps take price last as the market is still in flux and may not turn in favor of the landlords until later in the year. (http://therealdeal.com/newyork/articles/how-much-further-will-the-office-market-fall).
• Below are considerations and two types of office space solutions for hedge funds and other small businesses that are seeking a first-time office or preparing for an upcoming transition.
• Note: Startup Officer has a flexible office at 1350 Avenue of the Americas (55^th Street).  There are hedge funds, private equity, real estate and other professional firms in the building.  This managed suite is operated by NYC Office Suites (http://www.nycofficesuites.com).  Substantial due diligence was performed on 8 managed suite office locations prior to selection of this location.

Location, location, location

• Pick a location that is convenient for transportation (and food) for clients and employees. Closest to the pin isn’t a must unless you are worried about your employees marketing timing their train schedule to the minute.  The Plaza District, Park Avenue in the 50s, Madison Avenue in the 30s, and the Financial District are common choices.
• Balance quality against quantity: a nice clean space with other professional businesses should be your greatest concern.  The investor wants to know you have spent their money to be comfortable, yet positioned to profit.  Going cheap may not align with your brand and slabs of marble and entry foundations screams excess of the last decade.

Utility

• Some amount of privacy, ability to collaborate, and space to stretch your arms and the keys to this point.  Typically a bullpen setup of desks, a few side offices for research meetings, and a conference room that can hold 6-8 persons is the right solution. Remember, each trader desk is 5 feet wide and count on some extra space if you have 4 monitors and people with hot air.
• A newly established firm/fund may only need a few offices to start.  A non-NYC based firm may need a smaller satellite location with flexibility in terms and sizing.

Technology & Services

• You want a strong and consistent technology platform with an ability to expand servers and users.  A 100 Megabit-per-second Cogent line with a backup point-to-point wireless is ideal but a series of Verizon T1 (or T2/T3) lines can be just as effective.  Those with high-frequency, international exchange trading needs, or heavy-data hosted technology models should consider high-bandwidth/low-latency telecom solutions such as a dedicated pipe from AboveNet (http://www.above.net).
• A server closet or room nearby with power backups and hopefully supplemental air conditioning are standards but make sure to ask as well.  Not all buildings are exactly good communicators about abaialble services so perform due diligence and choose wisely.  Your investment strategy may depend on it.

Managed Suite of 150-1500sf+ is a flexible option that can accommodate a variety of sized groups.

• Finding, negotiating and moving into a flexible suite can be a matter of just a few (2-4) weeks.
• The marketplace is replete with Midtown and Downtown solutions ranging from a single office to a group of offices in a wing with access to technology.  These turn-key spaces are available on a monthly or long-term basis and typically include use of conference rooms, kitchen.  High-speed internet/IP phone with domestic calling can also be negotiated on a per user basis.  You also get a receptionist and access to administrative menu of items.
• While higher on a $/square foot basis, you can defray large upfront fixed cost, reduce variable costs and benefit from enormous flexibility to grow the organization by easily moving offices within a location.

Permanent Office of 2000sf+ is ideal for a  firm with establish assets and revenue base.

• Sourcing, negotiating and moving into a dedicated private office space will take a minimum of 2-3 months, a group of lawyers, contractors, IT project managers, and a great deal of patience.
• If you have any desire to renovate or reconfiguring the IT setup, plan on longer lead times and a contractor bidding process.  Also note that connecting telecommunications may be a frustrating task that requires additional time and expertise.
• A commitment of 3-5 years and a chunk of money upfront for lawyers are to be expected to get this privacy and cache.  Most landlords will offer some concessions for renovation tweaks, though you may be asked to sign a longer-term agreement for this consideration.
• The greatest benefit of a private office is the ability to customize to your firm’s specifications.  Again, the more you require, the more cost and time is needed.

Conclusion: Angels, venture capital and institutional investors now require more openness and transparency; they are judging you on every operational item.  The selection of an office should be a rational decision.  It may very well be the place where you spend the majority of your time.  Whatever path you choose, be confident that it matches your strategic goals for brand, infrastructure, and budget.

This blog is being written in response to a Help A Reporter Out (HARO) request by Mike Michalowicz, author of The Toilet Paper Entrepreneur. Excerpts from this blog will appear in a TPE article. Without further ado, below are fears for entrepreneurs to flush away with the new year.

TOP STARTUP OFFICER FEAR TO FLUSH AWAY: CHANGE

The huge fear for entrepreneurs is complete failure and going broke. My former employer (Lehman) took care of that in 2008! My top fear is no longer exhausting my savings or bruising my pride; it’s something more obscure. As a change agent, I fear that my real-substance methodologies may be too early in the cycle and will have a hard time gaining momentum vs. the flashy promises of others. By exposing this fear and remaining self confident, I can now tear it off the roll and flush away.

5 OTHER STARTUP FEARS & HOW TO WIPE THEM AWAY:

FEAR: Spending too much time on small revenue assignments and miss the opportunity to work on a huge cornerstone project.
RESOLUTION: Plan out how you want your client base to be segmented. The old standby 80/20 rule will help. Also, stay away from toxic client. They are the ones that call or email every few hours, typically refuse to acknowledge your best ideas, and like to reinvent the wheel.

FEAR: Putting all my eggs in one client basket and learning that they run of cash before I get fully paid.
RESOLUTION: Due diligence. Make sure you have good contracts with clear understanding of timing and size of payments. When appropriate, ask for sizable deposits and keep payments rolling with a percent of completion methodology. Use a good invoicing system and consider accepting credit cards.

FEAR: Taking on too many projects, getting overwhelmed, and neglecting my personal growth.
RESOLUTION: A strong project team and a stronger family support system are imperative. Entrepreneurs don’t get sick days. Maintain a healthy work-life balance. Eat and sleep; one without the other is a recipe for meltdown. Personally I like to run in Central Park and use 5K races to keep me sane.

FEAR: Wasting money on services that I either rarely use or don’t fully understand how to maximize utility.
RESOLUTION: Don’t spend the next incremental dollar until you really need the upgrade. Free works a lot too. Generally speaking, if it’s a ‘must-have’ then focus on evaluating the 2nd most expensive. If it’s a ‘wanna-have’ then target the 2nd least expensive for consideration. Then let rationalization take over. When in doubt, ask for demos and see if your peers are using similar services.

FEAR: Putting too much emphasis on monetizing my ownership stake and forgetting to pay myself a reasonable and regular salary.
RESOLUTION: Business Planning 101. Figure out what your time is worth and develop a revenue strategy to eventually pay yourself what you deserve. Whatever the number, pay yourself 50% of it during a ramp up phase of development. Once you have enough revenue to cover other employees and overhead, scale yourself up to the full amount.

I am a NYC-based entrepreneur and travel frequently between Manhattan, Hartford, and Philadelphia.  Here are some recommendations to assist Small Businesses with corporate travel this holiday season.

Strategy & Planning

• Whenever I am going to be ‘out of office’ I start by contacting 6+ clients or prospects to see if they are available when I am planning to be in their neighborhood.  Once I book at least 2 meetings, I then go ahead and make reservations for travel.
• Inevitably somebody will cancel last minute or ask for a shift in meeting time so it’s a delicate balance in being fully booked and keeping a two-hour slot open for changes.
• Talk up your pending trip on social media; Twitter and LinkedIn and even Facebook.  This will help you build your brand and businesses will be likely to take more meetings if you are already a regular face in their city.
• ABC and ABOT. Always Be Closing and Always Be On Time.  You are on business and your dollar spent on travel needs to yield return. That means don’t waste your time either.
• Tell family and friends where you are going; it’s good to share and have someone you trust know about your travel.  Safety first.

Method of Transport

• I like to walk, even when it’s 20 blocks and 20 degrees.  But when it’s a business meeting and Mother Nature isn’t cooperative I tend to rely on the subway and trains more often.  The NYC bus/subway is still the greatest value of transport for $2.25.  You get sheltered from rain/snow and sometimes get to listen to some enchanting music on a platform.
• When I am between NYC and Hartford I prefer to drive.  The bus is rarely an option for a plethora of reasons (have you been to Port Authority?).  If you don’t have a car, borrow one or rent one; you get what you pay for.  Zipcar is great for less than six hour turnaround and Hertz or Avis are best options for all day or overnight business trips.
• When I am between NYC and Philadelphia I still prefer to drive but Amtrak makes a compelling case for the train in the colder months and when highways are under construction. It is $45-87 each way for a coach seat and +$23 for business class.  The Acela is much (much) more so I don’t opt for it.  Prices adjust to market demand and you can apply an AAA discount when you book 3 days ahead of travel (that’s what I was told by station customer service).
• Don’t forget commuter rail. If you are frequently between NYC and Summit/Montclair, NJ or Stamford/Greenwich, CT or anywhere within 45 minutes ride on NJ Transit or Metro North, then the commuter rail is a viable option.  However, these trains are less convenient during non-peak hours and the cost isn’t startup friendly unless you are getting multi-ticket discounts.

Price vs. Convenience

• Public transportation is the most cost effective method and should always be your first option.  Even if you are flying, taking the subway/bus to JFK or LaGuardia vs. a taxi can save you tremendously.
• The automobile is the most flexible method but also the most costly.  You pay upfront for this convenience—car payments, insurance, wear and tear, gas and tolls climb each year and the car depreciates quick fast.
• In the middle is the train. On a per use cash outlay basis it is actually about 50% more vs. the implied cost of driving (gas/tolls, car payment/insurance).  However, trains are usually on-time and allow you to work while you transport.

Record Keeping

• Always pay with the same credit card and keep your receipts.
• Write on the back of the receipt who you met, a #tag or two on topic, and a note if it was a worthwhile meeting.
• Keep your receipts in a shoebox and go through once a week to enter into a spreadsheet or Quickbooks.  I like a spreadsheet because you can more easily manipulate the data to analyze your costs.
• Consider having an assistant do all this for you; and give them the option of holding a corporate credit card for emergencies and contingencies.

Courtesy

• Show other cities that New Yawkers are the nicest city folk around!