Online or In-Office? The Real budget of Office Space for a Venture-backed Startup

The company has been discussing the benefits of remote working since the beginning of the COVID-19 pandemic. Those who point to the decline of remote work say there will be less time to build the cohesive teams and company culture needed for innovation. Supporters of remote work, like me, point to clear benefits for employers and employees, including increased productivity, increased capacity, and cost savings. In this article, I will share how choosing to work remotely can not only reduce your initial overhead but also save you valuable resources in the long run.

I have provided consultancy services to hundreds of companies on financial strategies and growth. Founders and startup CFOs around the world have seen firsthand how the decision between an in-office model and a fully remote model can impact the success or failure of their business. Those starting to use on-premises models often don't dig deep enough into their implications when planning for the direct costs of the physical office. Spending more money to rent or build an office now requires raising more money, which means giving investors more equity at the exit.

This exit may seem far off now, but as your company's value increases, the actual value of your offer today continues to exceed its former value. In this article, I present a simple, data-driven framework for venture capital firms to evaluate the full financial implications of starting a company with a distance compared to its traditional physical footprint. You can use this model at every stage of your fundraising process to help you make informed decisions.

Estimating Your Office Space Costs

While every business is different, the advice for running a business is that office space is one of the most important costs, second only to employees. The first step in deciding whether to launch your company locally or remotely is to model all the implications of purchasing, renting, or renting space.

Know Your Team Size

Know How Much To determine how much office space you need, start by estimating the size of your team, people's time. You must have a specific job for at least the next 12 months or better during the period covered by the grant you are raising or have recently completed (usually 18 to 24 months).
Ask each team leader to provide staff as needed while you work on different goals in the department. Your business development and sales managers can tell you how many deals each member needs to close in a month and how many people are needed to do that. Your technology director can provide you with information such as the number of IT staff needed per 1,000 active users and the frequency and scale of rollout of new features. These numbers, combined with your company's growth goals, will help you create a recruiting plan that will help you achieve your goals before your next financial opportunity.

Determine average revenue per employee

Next, estimate how many people your company will need in the first to two years after you finish this job, or whenever you work together. You can do this by dividing your target revenue by the average revenue per team at each stage of your startup. By dividing a company's annual revenue (ARR) forecast by its industry's ARR per full-time equivalent (FTE), you can estimate the size of the team in your model over the next few years. This step is easy to analyze and make assumptions based on actual data of a person's income.

Many sources provide information on the average income of a team that companies should expect to generate different levels of growth in different industries. In my case, I used SaaS Capital's ARR to FTE comparison for 1,500 venture-backed SaaS companies by 2022, but you should use what works best for your business.

You may also want to adjust this amount based on your assessment of your revenue model compared to other similar companies. For example, one of my clients increased ARR per FTE by 15% after implementing special pricing. But while hope is important for founders, I want to be careful when making assumptions about fundraising.

Estimate how much space will be needed per employee and how much it will cost

When - Estimate your team's growth over time, research data on the average square footage of office space required for an employee in your industry, for example a robotics or biotech company may need more space than a SaaS startup company. Then look at the average rent per square foot of office space in the cities or towns where you are considering office space.

This information regarding the income of a group can be accessed from many sources. For this example, I created and prepared Gensler's "Comparison of Workplace Standards" report, using workplace estimates from the international market as well as workplace costs in many regions of the United States. -2023 from commercial real estate management platform CommercialEdge. I have quoted some representative information in the two tables below.

Look beyond budget and options

There is no one-size-fits-all, perfect way to start a startup. It's important to evaluate your goals to find the right option for your company. Creating or purchasing a physical location will be a great way for you and your company. For example, a robotics or biotechnology company may need a lot of hardware. Managers in certain industries, such as medical technology, often need a position in the field; Sometimes partners need physical space too.

But if these conditions do not apply to your startup, you should make a general estimate that includes not only the office cost but also the cost of limiting your local capacity (and it can be expensive). Staff, Cost and integrity are sacrificed to pay for all this. Do your best to model how you can find and attract the best talent from around the world to make the most of your finances.

Finally, your financial investment increases when you create a business plan. It is useful to consider the negative changes of the last few years. I have previously worked on business crises as an economist; This helped me understand that economic downturns are often the driving force behind many significant changes in business and technology. As the COVID-19 pandemic has taught us, flexibility, cost-effectiveness and resilience can have a huge impact on your success.