A saying that’s often heard at startup sessions and events is that “You’re not a startup anymore if you have enough money to pay for expenses.” It’s funny but true, because early and growth stage startups have to burn through their funding to build the infrastructure and name recognition that established competitors already have. It basically means that you are always getting bottle necked by lack of funding for the next phase of growth. This is one of the main reasons why serviced offices are more appealing to startups.
As an example, I’m going to outline how two similar startups (let’s say xyz.com and zyx.com) made different decisions about office space that led to radically different outcomes. XYZ decided to look at the Serviced Offices Bangalore has, while ZYX decided they would rent their own private office space or shop.
Serviced Offices vs Startup Costs and Delays
One of the challenges for ZYX was setting up the startup in their own private office space. It takes a lot of money and a lot of time to do it. You pay a huge amount (for a startup) as deposit and rent, and then spend another huge sum for furnishings, equipment, lighting, fixtures, and everything else you need to make your office look good. Also, it takes time and lots of supervision to make sure it all gets done the way you want it to look.
So ZYX spend a big chunk of their startup funding on office space, and they were doing it for over 2 months.Meanwhile, XYZ moved into a serviced office at no cost, and started operations from Day 1. They spent their share of startup funding, but it was on recruiting and hiring a few good people, followed by investments in marketing, sales and other core revenue generating activities.
By the time ZYX opened their doors, XYZ had already started getting customers and generating a steady flow of sales revenue.
Serviced Offices vs Growth Barriers
At the end of the year, both XYZ and ZYX started thinking about how to grow their business. They wanted to hire more employees, target bigger and different markets, set up the proper IT infrastructure to automate tasks, and do everything needed to fuel growth.
XYZ started executing the plan right away. Their office space provider simply gave them the keys to one more office in their own floor, and the IT department of the provider set up all the new computer hardware they needed in a day. The furnishings, networking and everything else needed was already there. Within a span of 24 hours, they had set in motion a plan to hire over a dozen new employees and target a huge growth spurt – all without spending anything on new office.
Meanwhile, ZYX had to go back to their investors to get more funding to move to a bigger office. It took a huge amount of money and another 4 months before the new office space was ready. Then they had to shut down the business for a week while the relocation was in progress.
By the time ZYX was able to start the recruitment process for new employees, XYZ had already conquered their new market and was now on an unprecedented growth spree. They had since taken two more rooms in the same serviced office space, and their size was now double that of ZYX.
Serviced Offices vs Talent Hunting
One thing that we left out of the growth story above was how easy it was for XYZ to get new employees when they started, and again for their successive expansions. The business center where they had their serviced office space had hundreds of startups and thousands of people coming in and going out every day. XYZ met with a lot of them on a daily basis, and these networking connections proved to be very useful in finding new employees within that ecosystem itself.
What’s more, there was a highly reputed HR company located in the same space, and they helped XYZ find and hire the right candidates very quickly without having to pay huge salaries. It was easy because they were neighbors, and the HR company and XYZ startup founder knew each other – they met virtually every day during lunch, and often chitchatted in the corridors and in the café.
Meanwhile, ZYX was sitting all alone in their startup office, wondering how they were going to get good employees without paying huge salaries.
Now, are you still asking why serviced offices are more appealing to startups?
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