The #1 Mistake Many Start-Ups Make When Managing Growth-Remember the Garage?
In the beginning, most start-ups follow a certain pattern:
- Inspiration leads to the “killer” idea
- Sourcing Capital
- Recruiting an A-Team
- Product Development
- Building an Infrastructure
- Managing increasing Costs
There are many versions of the story but in my own career and listening to the anecdotes of many other entrepreneurs, most folks like you and I have sang and are singing the same song.
In the early stages, everyone including founding members are wearing many hats.
- You may be starting your empire from the confines of your garage.
- You may be able to delegate certain tasks to your founding team of two.
- You may want to hire or outsource but the cost benefit may not make sense at this time.
- This may not be most efficient but it’s cost effective.
Everyone is burning the midnight oil to get to market as quick as possible and the Agile Development model is adopted. Your development team is furiously taking feedback and the products and business models evolve. You and your team have proof of concept now and the future looks bright.
Your first two revenue models don’t produce as you hoped they would, so you scrap them and finally find a revenue model that works for you. Soon, the revenue grows from a trickle to a stream and it looks like it will be a steady stream. Life is good and all the blood, sweat, and tears seem to be paying off. Team morale is high and even the instant noodles taste infinitely better!
You Did What with My Money???
Depending on your cash situation, this may be the time you seek additional funding. You’ve proved your concept, generated revenue, and now you’re looking to scale that model. I won’t go into valuation models, capital structures, or optimal equity distribution, but another major attribute that most investors want to see is fiscal responsibility.
When I talk about fiscal responsibility, I don’t mean extreme conservatism, as say an accountant would, but more of a prudent balance of risk, reward, and stewardship. There will be a certain amount of cash burn related to the Agile Development process as some features will be pushed to the side or scrapped all together, but cash burn that locks you into long term contracts that increase your fixed cost structure that may not contribute to the business are things to look out for. This may be one of the most overlooked aspects of the start-up life.
In the early go-go internet days, many companies got to this stage and proceeded to secure prime Class A office space with room to spare for their burgeoning venture only to find out that they over estimated the growth that they would experience. This left many start-ups in a precarious position, after all, most start-ups aren’t experts in commercial real estate.
There are many more practical options for office space nowadays. We will always have the garage to start out in, move to a shared or co-working space, perhaps graduate to an executive suite space, or look for a screaming deal on a sublease space offered by perhaps some of the less fiscally prudent start-ups out there.
Your Space Says A Lot
Many successful entrepreneurs look fondly on their days of bootstrapping:
- Remember when we had to float all our credit card balances to pay for the gear?
- I miss those days all 5 of us were huddled on top of each other in the basement working 14 hour days.
- It’s lunch time, 7-Eleven or the Gas Station?
Another common thread among many successful entrepreneurs is balancing image from reality. From the type of marketing spend to the type of office they lease. Don’t be fashionable, be fundamental. If you just raised money, it can be difficult to justify contracting for prime office space when you’d rather hire more people to get you to your goal. Not only will your investors appreciate this, so will all other equity stakeholders.
For all you start-ups out there, the sublease space may provide you with the most flexibility and lowest cost to leasing office space. Unfortunately, this market is underserved and is sometimes difficult to find. Many brokers also aren’t very helpful in this type of space search as they have to put in the same amount of time as a normal search but only get paid a fraction of their commission rate, on a sublease.
Craigslist is the most common place to find the smaller sublease spaces out there and they do a great job of aggregating those spaces. However, as many of you are familiar with, the craigslist experience is not for everyone, especially those that don’t have much time to spend on sifting through endless ads. Let alone setting up tours and other logistical tasks.
As you can guess, I work for a start-up called OfficeSpace.com and we focus not only on larger spaces, but smaller spaces and sublease spaces as well. We are looking to solve the small and sublease space problem and we’ve launched our Beta in Portland.
Stay tuned for my next article, where I will share an example of another start-ups’ experience. All the best to the brash, brave, and entrepreneurial companies out there. All comments are welcome!
Image credit: http://creativehomeoffices.com/wp-content/uploads/2012/02/Basement-Before-e1328914683809.jpg
Image credit: http://www.lifeknowledgefm.com/what-is-bootstrapping/