What to Consider Before Opening that New Office
I recently met with an entrepreneur I'll call Steve who is building a market research company. I asked him about his goals for the coming year, and he explained that he wanted to launch two new offices.
Setting up new offices is often necessary to capture new opportunities, but I found it strange that he defined his aspiration as a number of offices instead of describing a revenue or profit goal with the offices as a necessary ingredient to help him get there.
Pushing deeper, I asked about his rationale for wanting more offices, and he was a bit tight-lipped. Finally he admitted that he liked introducing himself as someone who ran a business with multiple locations.
The desire to look bigger than you are is understandable. When we hired an Arizona-based employee in my last company, I was quick to list our 'Arizona office' address on our website despite the fact we did not actually have an office in Arizona, just an employee who was willing to let us list her home address as our branch office location.
For my friend, the ego boost may come at a steep price. Multiplying the overhead necessary for physical offices—the receptionist, photocopier, phones lines, utilities—just for the sake of saying he has offices in multiple locations will drag down his profits and do nothing to grow the value of his business.
Ask Graham Hill what drives up your multiple, and you won't hear anything about office space. Hill is the founder of Treehugger.com, a website dedicated to promoting sustainability. It was rated the top sustainability blog of 2007 by Nielsen NetRatings and was recently acquired by Discovery Communications, owner of the Discovery Channel, for a reported $10 million. (Watch a live chat with Graham Hill of Treehugger.)
And Hill did it all without an office.
Instead of a traditional physical location, he relied on a web of remote workers banded together through Skype, Gmail, Google Docs and eFax. His virtual structure allowed him to follow his heart to Barcelona, where he rented a furnished apartment for a few months to pursue a romance. In addition to spending time in Spain, he ended up living all over the world, enjoying extended stays in Buenos Aires, Toronto and New York all while growing Treehugger.com remotely.
Discovery bought Treehugger because it had created a loyal following of readers, and for a media company, eyeballs -- not offices -- drive value. Discovery wanted Treehuggers':
- 64,000+ newsletter subscribers;
- 82,000+ RSS feed subscribers;
- 10 million page views per month;
- 3.5 million unique visitors per month.
In your business, your value may be driven by a unique product, brand or list of loyal customers with sticky contracts. Unless you're in a retail business or own your premises, your physical location is not likely going to make you a more attractive acquisition candidate or a more valuable business. In fact, if anything, all of those leases represent future obligations of your business and may drive down the value some acquirers would place on your company.
John Warrillow is the author of Built to Sell: Turn Your Business into One You Can Sell. He has started and exited four companies. Most recently John transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which was acquired by The Corporate Executive Board. In 2008 he was recognized by BtoB Magazine's 'Who's Who' list as one of America's most influential business-to-business marketers.
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