Get Out of the House

Is it time to get out of the garage/basement/living room/incubator? That first real office can be tricky.

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For the most part, Jayesh Doshi is perfectly comfortable with things that are very, very small. Doshi, after all, is the founder and CEO of eSpin, which is based in Chattanooga, Tenn., and manufactures nanofibers--strands of synthetic and organic fiber that are a thousand times smaller than a human hair. But five years after launching in a small-business incubator, the growing company's cramped quarters were becoming too much to bear.

Doshi had started out with 800 square feet of office and laboratory space that felt roomy at the time. But interest in nanofibers was growing. Aerospace firms use them to create filters for fuel cells, for example, while biotech firms use them to repair human tissue damage. Before Doshi knew it, his nanofiber business became a huge space hog. The incubator gave eSpin more square footage, and then more and more again. By 2003, eSpin's 20 employees were occupying 6,500 square feet of space, and Doshi knew that all too soon even that wouldn't be enough.

The lack of physical space wasn't the only problem. Doshi had begun selling to some of the world's largest companies. But when clients came calling, he could see their eyes fill with doubt the moment they entered the building and realized that they were in an incubator. "They didn't get the confidence that we could deliver a million pounds of material," Doshi says. And the fact that eSpin didn't have its own building also made his more security-conscious clients skittish. Of course, Doshi had never planned on staying in the incubator forever but, he says, it seemed the time had come to, well, hatch.

Almost all entrepreneurs go through the same rite of passage, facing up to the decision to leave the garage/basement/living room/incubator. And the soft real estate market these days makes the prospect of leasing their own four walls even more enticing. In the fourth quarter of 2003, according to stats compiled by real estate firm Cushman & Wakefield, asking prices for rent were 15% to 20% lower than the most recent peak in the fourth quarter of 2000. But moving into an office is a huge step, and it's important to think carefully before taking it. After labor costs, office rent tends to be the largest expense most business owners face. Making the move before you're truly ready can cost you plenty--not only in cash, but in headaches, as well. The question is, How do you know it's time to make the leap? And what type of space is best for you?

The most important thing, says S. Thomas Emerson, director of the Donald H. Jones Center for Entrepreneurship at Carnegie Mellon University in Pittsburgh, is not to get caught up in flights of entrepreneurial fancy. New entrepreneurs, he finds, tend to imagine they're running a more advanced company than they really are. "They lease space for the company that they wish they had," he says, "instead of for the company they do have." He suggests staying put in less expensive space as long as possible.

It's also important to make sure your move is necessary for your business and not for your ego. In the case of eSpin, a lack of physical space and a lack of client confidence pointed clearly to the need to move. For Cynthia McKay, CEO of Le Gourmet Gift Basket in Castle Rock, Colo., a combination of factors propelled her to move her business from her home into its own space: her barking puppy drowning out phone calls, employment agencies refusing to work with her, and security concerns about inviting first-time clients into her home. She moved into her first office 10 years ago, now has 28 employees, and credits the expansion to the move.

Even after you've made the decision to move, it makes sense to proceed cautiously. You don't want to leap into an ironclad five-year lease, says Emerson, and then find that your billings have plummeted and you really should have gone for a smaller space in a cheaper neighborhood. He suggests basing the decision on how much cash you've got. "If you've got six months of cash on hand," he says, "you should get a facility that you can live in for six months. If you've got a year of cash, consider a facility that you can live in for a year."

Since most start-ups aren't flush with cash, this means that you're going to need to get friendly with the concept of compromise, says Roy Hirshland, CEO of T3 Realty Advisors, a real estate company in Waltham, Mass., that specializes in working with tech companies. The kind of compromise you make depends on the sort of business you have. If you've got clients visiting you all the time, or if you're in an image-conscious field, an impressive office with all the trappings of success might be essential. In that case, consider either securing that space short term by subleasing from a corporation that has downsized or taking a first office in an executive suite.

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