Everyday I get to work with super-smart, experienced executives who know a lot about business, innovation, and technology but make basic mistakes when it comes to real estate. They want the best for their company, but end up in a bad deal because they don’t know what they don’t know.
Here are some of the most common mistakes hypergrowth companies make with real estate.
They overestimate (or underestimate) how fast they’ll grow
Leaders have to juggle a lot of factors to get their headcount and available office space to match up. Say you’re growing fast and have determined that you can hire 100 people between now and the end of the year. But because recruiting takes a while and the labor market is tight in your area, you end up only hiring 40. Now you’ve got rows and rows of empty space that you’re paying for.
It can work the other way, too, of course. Circumstances can turn your way and suddenly you’re growing faster than you anticipated. But you’ll also need more space to fit everyone in. Either way, there’s a big margin of error in estimating the time it will take for your company to grow.
They overcommit based on an optimistic view of the future
Congratulations! You just got a big round of funding! As tempting as it may be to grab a flashy new office space, it’s best to slow down.
Companies that are growing fast and flush with cash tend to overcommit to office spaces. Either they get more space than they actually need or they sign a long-term agreement that locks them in for years. And when business conditions change, they’re stuck with the outcome of a very expensive ego-driven decision.
They underestimate the time it takes to move in
Finding a new office takes a lot longer than most people realize. It’s not uncommon for the entire process to take a year or more from the time you pick a location until you sit down at your fancy new desk.
Each step along the way is complicated and involves multiple parties. Working with a broker and negotiating terms with a landlord for a suitable building may take three to six months. And you haven’t even begun to talk with architects, interior designers, and construction firms. For executives accustomed to moving quickly, that can be frustrating.
And remember, there are other companies out there looking at the same spaces you are. There are only so many buildings, so the competition can be fierce to get into the most desired areas.
They don’t have enough people managing the move
When you’re a growing company, you probably don’t have someone whose job is dedicated to managing your real estate portfolio. You may not even have much of a portfolio at all, maybe one or two locations. So the task falls to someone who already has a full-time job, often the office manager or chief financial officer.
If you’ve ever remodeled your house, you know what this is like. Meeting with contractors and managing bids starts to feel like a full-time job, and it distracts you from your real job. In the end, it takes longer than you wanted, costs more, and you may not even be happy with the results.
They see real estate as a fixed expense
Most people see real estate deals as a fixed expense: You sign up for a lease and you know what your rent is for the next 10 years. But with WeWork, real estate can be a flexible expense. There are options to reduce or expand the terms of the agreement, change how you use the space, and more.
These mistakes are inherent in today’s real estate market, where deals don’t meet the needs of modern companies. Who needs a 10-year lease when your planning cycles rarely go beyond one year? Costs are extravagant both at the beginning as you’re finding a location and at the end as construction drags on. Plus, managing designers and builders is like adding another department to your company.
At WeWork, we believe there’s a better way forward. We provide flexible spaces that fit the size of your growing company. We help you spend your money smarter to free up capital to invest in your business.