Thursday, August 07, 2014

The importance of cost and flexibility for startups looking for homes


The importance of cost and flexibility for startups looking for homes



The right time to move your startup to an independent office space
Advice for startups looking for a place of their own
What startups looking for independent office space should avoid 'at all costs'
When startups are ready to graduate from the garage, basement or co-working space, many have called on Jack Keenan, managing director of Chicago-based commercial real estate firm JLL Inc., formerly known as Jones Lang LaSalle Inc. In addition to brokering deals on behalf of big firms such as UBS Financial Services Inc. and William Blair & Co., he’s the tenant representative who found homes for the 1871 tech incubator, the UI Labs facility on Goose Island and startups including MarkITx and The Starter League. He’s also an investor. He explains what startups should do when it’s time to get their own place.
Q. When is it a good time to move to an independent office space?


A. I don’t think there’s a hard and fast list. If you’re inconvenienced where you’re working now and if it’s a distraction to growth, you have to think about taking that next step. If you’re in a place like 1871, if there is good energy and resources, depending on your business and how well you’re doing, stay there as long as you can, because you’re going to maximize your dollars, time and your ability to attract talent. There’s a resource pool that’s not going to be as easy to come by when you’re locked in your own four walls. Plus, there is the economic impact of moving.
The 1871 expansion is specifically set up for companies that would otherwise have to grow out of there. In the case of MarkITx, they needed a more quiet and specialized space. It would have worked well (for them) in the 1871 expansion had they stuck around.
Q. What do startups need to consider for their first lease?
A. The key to real estate when it comes to startups is to minimize cost, maximize flexibility. You want to find a sublease or existing space that you can do in a one- or two-year lease. Use your network. You might find a business that might be able to help you out. If you’ve got to do something longer, make sure you’ve got the right to cancel, grow or contract the lease. Those things can be negotiated depending on the overall lease situation. Avoid a security deposit at all costs.
I’ve invested in a few of these startups. When I put on the investor hat, we want as little length of the lease and as much flexibility as we can get, and we want to pay as minimal amount of dollars as we can.
Q. What mistakes have startups made that you learned from?
A. I’ve seen young companies spend way too much money on their space because they wanted to project a certain type of image. But when they were the happiest and most creative, they were in an old loft someplace sweating it out working in less-than-ideal conditions and furniture, but they were in the trenches fighting. So you need your space ultimately to fit the mentality and culture of what you do.
Q. Open floor plans are very controversial. What's your take on them?
A. The jury is still out. At a lot of startups and certain firms where there’s a lot of collaboration on a project team, it’s great to have those open environments.
The mistake corporate America is making is that not every business is a technology startup, and not everybody works in that capacity. There are still a lot of people that need heads-down time to work. Salespeople and people negotiating deals, whether they are attorneys or brokers on the phone with the CFO or chairman of a company, need to have private conversations. I think corporate America has over-embraced it, and there will be backlash at some point.
Q&As are edited for length and clarity.