The real cost of an office

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Woodwards building Vancouver demolition 2 by Tannoy | CC BY-SA 3.0 via Wikimedia Commons

The shift from “building your own datacenter” to “using the cloud” revolutionized how companies viewed internal infrastructure, and significantly reduced the barrier to starting your own fast-growth, global-scale company. Suddenly, you could have instant, reliable, global-scale infrastructure.

(Personally, I dislike the term “cloud” but it’s the easiest vendor-neutral term I know for describing essential infrastructure running on rent-by-the-hour Amazon AWS, Google GCE, Microsoft Azure and others…)

Like any new major change, “the cloud” went through an uphill acceptance curve with resistance from established nay-sayers. Meanwhile, smaller companies with no practical alternatives jumped in with both feet and found that “the cloud” worked just fine. And scaled better. And was cheaper to run. And was faster to setup, so the opportunity-cost was significantly reduced.

Today, of course, “using the cloud” for your infrastructure has crossed the chasm. It is the default. Today, if you were starting a new company, and went looking for funding to build your own custom datacenter, you’d need to explain why you were not “using the cloud”. Deciding to have your own physical data center involves one-time-setup costs as well as ongoing recurring operational costs. Similarly, deciding to have a physical office involves one-time-setup costs as well as ongoing recurring operational costs.

Rethinking infrastructure from the fixed costs of servers and datacenters to rented by the hour “in the cloud” is an industry game changer. Similarly, rethinking the other expensive part of a company’s infrastructure — the physical office — is an industry game changer.

Just like physical datacenters, deciding to setup an office is an expensive decision which complicates, not liberates, the ongoing day-to-day life of your company.

The reality of having an office

It is easy to skip past the “Do we really need an office?” question – and plunge into the mechanics, without first thinking through some company-threatening questions.

What city, and which neighborhood in the city, is the best location for your company office? Sometimes the answer is “near to where the CEO lives”, or “near the offices of our lead VCs”. However, this should include answers to questions like “where will we find most of the talent (people) we plan to hire?” and “where will most of our customers be?”.

What size should your office be? This requires thinking through your hiring plans — not just for today, but also for the duration of the lease — typically 3–5–10 years. The consequences of this decision may be even longer, given how some people do not like relocating! When starting a company, it is very tricky to accurately predict the answers to these questions for multiple years into the future.

Business plans change. Technologies change. Market needs and finances change. Product scope changes. Companies pivot. Brick-and-mortar buildings (usually) stay where they are.

If you convince yourself that your company does need a physical office, setting up and running an office is “non-trivial”. You quickly get distracted by the expensive logistics and operational mechanics of a physical building – instead of keeping focus on people and the shipping product.

You need to negotiate, sign and pay leases. Debate offices-with-doors vs open-plan — and if open-plan, do you want library-quiet, or bull-pen with cross-chatter and music? Negotiate seating arrangements — including the who-gets-a-window-view debate. Construct the actual office-space, bathrooms and kitchens. Pick, buy and install desks, chairs, ping-pong tables and fridges. Set up wifi, security doorbadge systems, printers, phones. Hire staff who are focused on running the physical office, not focused on your product. The list goes on and on. All of these take time, money and most importantly focus. This distracts humans away from the entire point of the company — hiring humans to create and ship product to earn money. And the distraction does not end once the office is built — maintaining and running a physical office takes ongoing time, money and focus.

After your office is up-and-running, you discover the impact this new office has on hiring. You pay to relocate people who would be great additions to your company, but do not live near your new office. You are disappointed by good people turning down job offers because of the location. You have debates about “hiring the best person for the job” vs “hiring the best person for the job who is willing to relocate”. You have to limit hiring because you don’t have a spare desk available. You need to sublease a part of your new office space, because growth plans changed because revenue didn’t go as well as hoped – and now you have unused idle office space costing you money every month.

The benefits of no office

You dedicate more time, money and focus on the people, and the shipping product — simply by avoiding the financial costs, lead-time-delays and focus-distractions of setting up a physical office.

Phrased another way: Distributed teams let you focus the company time and money where it is most important — on the people and the product. After all, it doesn’t matter how fancy your office is unless you have a product that people want to use.

Having no office lets you sidestep a few potentially serious and distracting ongoing problems:

You don’t need to worry about signing a lease for a space that is too small (or too large) for the planned growth of the company. You avoid adding a large recurring cost (a lease) to the company books, which impacts your company’s financial burn rate.

You don’t need to worry if the location of the office helps or hinders future hiring plans. You don’t need to worry about good people turn down your job offers simply because of the office location. You can hire from a significantly larger pool of candidates, so you can hire better and faster then all-in-one-location competitors. For more on this, see .

Even larger companies like Aetna, with established offices, have been encouraging work-from-home since 2005 – because they can hire more people and also because of the money savings from real estate. Last I’ve heard, Aetna was saving $78 million a year by having people work from home. Each year. No wonder Dell and others are now doing the same.

You sidestep human distractions about office layout.

You don’t need to worry about business continuity if the office is closed for a while.

Sidestepping all these distractions helps you (and everyone else in the company) focus attention and money on the people and the product you are building and shipping. This is a competitive advantage over all-in-one-office companies. Important stuff to keep in mind when you ask yourself “Do we really need an office?”

(Versions of this post are on medium.com and also in the latest early release of my “Distributed” book.)

(Photo credit: Woodwards building Vancouver demolition 2 by Tannoy | CC BY-SA 3.0 via Wikimedia Commons)

2 Comments (+add yours?)

  1. Wladimir Palant
    20 Nov 2015 @ 21:30:42

    Why does it have to be only one or the other? We’ve been hiring remote workers while still maintaining an office. Accepting remotees only has its drawbacks as well – like people who dislike working remotely because of missing social opportunities or who are just unproductive that way. And having a single place where people can meet face to face, and be it only occasionally, has clear advantages as well.

    Reply

    • John
      29 Nov 2015 @ 13:41:45

      hi Wladimir;

      Thanks for your comment – you raised several good points, lets see if I can answer them all.

      1) Agreed, it doesnt have to be one-or-the-other. Having a mix of office+remote works also – my examples of Aetna and Dell are exactly that, as were the last few companies I’ve worked in. I’m curious. At your company, what is the ratio of humans in-office vs non-office? From what I’ve seen, having a sizeable ratio of “remoties” typically influences the behavior of the in-office people, so I’m curious what ratios you have, and how well it is working for you.

      2) My post was about having people think why they automatically think they need an office – I’ve seen founders setup a physical office just because they thought an office was expected, without first asking themselves about the ongoing financial and focus overhead. Of course, if you do decide to setup an office, you are deciding that you want to pay those setup and ongoing costs. Maybe its the right thing for your specific company – only you can tell. But instead of being an expected default, I believe it should be a carefully informed decision, noting all the setup+ongoing costs as well as the non-intuitive consequences for hiring/retention/burnrate/etc.

      3) Having in-person social interactions is important. 100% agreed. Things like regularly scheduled “group gatherings” where people spend in-person time together is important for having everyone remember their co-workers are all humans! I’ve covered this in other posts – for more details, see https://www.releasemechanix.com/2015/06/28/we-are-all-remoties-jun2015-edition/. I also encourage people who are “remoties” to explicitly make time for networking/social events in your location – recreate what happens organically at the food places near a physical office.

      Thanks again for your comment – really good questions!

      John.

      Reply

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