Traditional vs Shared Office Leases: From Startup to Multi-National Firm
Very few things are as important to a business as where the work gets done - whether that’s a dedicated office space, a remote-work model, or a hybrid of the two. What do you think of when you imagine your perfect workspace? It probably has a lot to do with several factors including:
- Current team size
- Your company culture
- Your local culture
- The type of work your team does
- Your vision for your company’s growth
However, the most important factor is your company’s current actual growth stage. At all stages of growth, these factors will each play their own role in what direction your team might choose to take for choosing your perfect workspace.
We’ve broken these growth stages into 4 main categories:
🐣 Early stage
📈 Growth stage
🪜 Scaling stage
🌎 International expansion stage
For each category, we’ll present arguments for traditional leases vs more modern office setups to help you get the full idea of what will suit your vision, company culture, and more.
🐣 Early Stage Startup Office Requirements
During the early stage of a startup, the most important factors when it comes to finding an office are usually affordability and flexibility. As a startup founder, you want to keep your expenses low and avoid signing a long-term lease that could tie you down if your business doesn’t take off as quickly as you hoped. Co-working spaces, shared offices, or subletting from other companies could be great options for early-stage startups that need a physical presence but aren't ready to commit to a large office space. However, you might still consider a private office space invaluable to your startup’s growth.
🐣 Traditional Office Leases for Early Stage Startups - Advantages
Traditional leases are arguably the least beneficial for early-stage startups than any other stage. However, there may be compelling reasons that your particular startup would benefit from this model.
For one, your team may benefit from the stability of knowing where their main base will be for the next 3, 6, or 9 years. You may choose to keep this as a “founding HQ”, and find other offices elsewhere as needed. It would not be recommended to rent a space much larger than what you need, because the burden of this cost may not work out in your favour if your company doesn’t grow as expected.
With a traditional office lease, however, you may also benefit from a professional image for your startup, which can be important when trying to attract clients, investors, and employees. Your security concerns, depending on your type of business, may require this model.
Finally, a private workspace, as a traditional lease usually provides, could be the right choice if it will be beneficial for your team’s efficiency and workflows.
🐣 Traditional Office Leases for Early Stage Startups - Disadvantages
The main reason why early-stage startups avoid traditional leases is for cost reasons. For one thing, you’re generally going to be paying a high upfront fee for a security deposit and potentially to the agency helping you find your lease, too. Traditional office leases also usually come unfurnished - another high upfront cost for early-stage startups. Finally, if you need to move before the end of your lease, you may pay high fees for early termination of your contract.
However, one of the highest intangible costs for early-stage startups who choose traditional leases is the innovative cost. Basically, if you’re spending a significant amount of your budget on your office space, you may feel resistant to new hybrid models which have proven to help with the diversity of experience and thought on your team - from gender and racial demographics to those with disabilities, to location-based limitations or to those who are simply shy and aren’t as likely to speak up in an office setting when they have a good idea. By requiring everyone to work the same way, in the same place, you may not attract employees who could contribute in various ways to your product or strategy.
🐣 Shared Office for Early Stage Startups - Advantages
Subletting an office space can be a great option for early-stage startups who need a physical presence but are not yet ready to commit to a long-term lease or invest in a dedicated office space. By subletting from an existing tenant or owner, startups can typically secure a smaller, more affordable office space with flexible lease terms, without the upfront costs of setting up a dedicated office. This also leaves you flexible for moving to a different location if it makes more sense for your business and its evolution.
Additionally, shared office space allows you to network with other businesses, which could prove invaluable by revealing synergies or other advantages you could take advantage of. For example, if your office mate has a marketing department, they might be able to do some consulting for an extra fee to help you develop your brand.
Finally, a shared office space allows you to be more flexible with your in-office schedule for your team. By renting an office only a few days per week, through a platform like Fiveoffices, you can support the healthy work-life balance that the most talented developers and other tech workers in particular demand in order to accept a new position.
🐣 Shared Office for Early Stage Startups - Disadvantages
Sharing office space, like any “roommate” situation, can be stressful. If you aren’t careful about whom you pick to share with, you may find yourself wanting to leave the arrangement more quickly than expected. For example, when sharing an office space, startups will have limited control over the environment. This can include everything from the temperature and lighting to the cleanliness of the space.
You may find it challenging to establish your brand identity in a shared office space. They may have limited opportunities to decorate your space or display your branding materials.
Shared office spaces have limited meeting spaces, which can make it challenging to hold client meetings or team meetings. It’s important to negotiate with your office mates about how these spaces will be managed.
📈 Growth Stage Startup Office Requirements
As a startup begins to grow and hire more employees, its office needs will change. At this stage, the focus may shift from affordability to finding a space that can accommodate a growing team and provide the resources needed for employees to work effectively. This might include private offices, meeting rooms, and access to technology infrastructure like high-speed internet and phone systems. At this stage, a startup may consider leasing its own office space or even purchasing a property. However, there are still compelling reasons to keep shared office spaces as a key part of your company’s growth.
📈 Traditional Office Leases for Growth Stage Startups - Advantages
One of the greatest advantages of a traditional lease for a growth stage startup is that you can modify your office to suit your needs exactly and create the right type of environment for your team to focus on their jobs. For example, in recent years, it’s been suggested that office workers in open settings suffer from noise and distractions, needing to play music or find other ways to “block out” coworkers in order to get work done. You might then decide to build an office with both open spaces for collaboration, and private workstations for individual tasks.
Other advantages that apply at all stages, such as a professional appearance, also apply here.
📈 Traditional Office Leases for Growth Stage Startups - Disadvantages
As you are growing, and as traditional leases are the least flexible, you may need to over-commit to space in order to support your predicted growth. This can come back to haunt you - companies as big as Salesforce are currently cutting office space to deal with the ever-changing market of the 2020s.
This also means that if your original idea for your office setup doesn’t meet your needs, you can’t easily move to a new space and try again.
Finally, the administrative responsibilities of maintaining your office space, including utilities, internet, and office equipment can be time-consuming and distract your team from your core business at an important time in your company’s expansion.
📈 Shared Office for Growth Stage Startups - Advantages
Determining your office space needs at this stage can be very difficult, and a flexible shared office lease allows you to change more quickly when needed. This is especially important as you add executives to your team - if you need private offices, that requires a larger amount of space per head vs a working space for a team of employees.
Of course, when we say “Shared Offices”, this doesn’t always mean “without privacy”. There are plenty of companies offering private office space full or part-time because they’re not using it, which is a huge advantage for Growth Stage Startups who are still not ready to commit to a 3-6-9 lease.
Finally, when you’re growing, location is super important. A traditional office lease in a prime location can be financially prohibitive even to the most successful companies. However, a sublease or a shared office space in a prime location can be a lot more affordable. This gives you direct access to your target market and to a prestigious address, which can be crucial to success depending on your culture and industry.
📈 Shared Office for Growth Stage Startups - Disadvantages
At this stage, your brand is more important and established than in your early days, and not being allowed to modify your office to suit this brand might be difficult to manage. However, you may be able to find temporary ways to modify your space and make it more “homey” without causing issues with your sharing partner. If you’re renting a substantial enough space within your office mate’s workspace, they may allow you to make some changes to the furniture, signage, or setup (provided it doesn’t break the terms of their own lease). While this is a small consolation, tolerating this small disadvantage can help you manage your finances and space needs during this important time of growth.
🪜 Scaling stage Startup Office Requirements
At this point in your company’s growth, you may be investing large amounts of capital strategically, but more aggressively than before. It could be argued that this would be the best stage to invest in a traditional office lease or even ownership. It’s important to have a clear brand identity within your most important workspace, where your executives congregate, and where your most important meetings are taking place. It’s also important for attracting large volumes of employees in key strategic markets - big cities and innovation centres.
However, shared office spaces can still play an important role in maintaining the integrity of your company’s potential for flexibility in changing market conditions. In fact, many companies are moving to a “hub and spoke” model, with a central HQ and several small satellite offices.
🪜 Traditional Office Leases for Scaling Stage Startups - Advantages
Traditional office leases usually have longer terms, typically 3-6-9 years, which provides stability and certainty. This allows you to focus on your business without worrying about the possibility of needing to move or find a new space every year or two.
You can also customise your office to better suit your needs, including large meeting rooms for all-hands meetings, accommodations for specific working styles of different groups, and other tailor-made configurations that would not be possible without a traditional lease or ownership of the particular space.
A large HQ also provides a sense of “home” for employees - they know that this office is where the important decisions are made, and even if employees are remote, they know where to congregate for important meetings.
🪜 Traditional Office Leases for Scaling Stage Startups - Disadvantages
The greatest disadvantage of a move to a traditional lease at this point in time is that you’re no longer able to benefit from others’ investments in certain locations through sharing - meaning the expense for the “right” location falls on your shoulders alone. This can limit you from certain markets if your capital flow is not high enough to compete with businesses that have already scaled. You may end up building your HQ in an area that is not ideal, but it can still work out well for the other reasons listed above. You may also feel that you’re “wasting money” if employees are working from home every Friday and Monday.
Additionally, the moment you start dealing with a traditional lease or ownership of an office, you become highly inflexible for future growth. You either over-commit to space with the hopes that your scaling strategy works, or you understand that you may need to rely on a small permanent HQ with many flexible satellite offices in order to manage this risk.
However, you may choose another strategy: over-committing to space, and sharing it with others until you’re able to fill it. This way you get the best of both worlds - a great location, a large HQ, and minimal risk financially, provided you are able to attract and retain office-mates.
🪜 Shared Office for Scaling Stage Startups - Advantages
The use of shared offices at the scaling stage should be done strategically in order to best benefit from its advantages.
This includes creating satellite offices, testing new markets for growth, and supporting hybrid work schedules by renting offices for only a few days per week. These strategies will allow you to manage your finances more efficiently while being able to scale your team rapidly.
The other advantage of shared offices at this point in your growth is from the other side - sharing your own office with others can help you establish yourself in more expensive locations without utilising too much of your own capital to be able to afford the lease. This also means you can rent a much larger office than you previously would have imagined.
🪜 Shared Office for Scaling Stage Startups - Disadvantages
When you grow to a certain size, you may begin to struggle with managing many different locations. This will require strategic management hiring and the use of technology platforms like Fiveoffices’ partner Semana.
Additionally, some of your shared office employees in satellite locations may feel disconnected from your HQ’s team if they never have the chance to visit. Therefore, keeping extra budget in mind for team summits will be strategically important for building your team’s culture as it scales.
🌎 International Expansion Stage Office Requirements
Let’s be honest - at this point in time, considering an expansion into international markets, you may no longer be considered a “startup”, but are now established more concretely as a leader in your space. Still, there are multiple considerations for how you should expand at this point. You’re well established in your home country, but as you apply for business permits in each new foreign country, each outpost will essentially become its own early-stage startup.
🌎 Traditional Office Leases for International Expansion - Advantages
Depending on the type of business you run, you may want to consider the security benefits of a private, traditional office lease when expanding internationally. If there is a danger that a local competitor could want to steal company secrets, for example, a shared office space adds to the security concerns of social engineering and other ways of performing corporate espionage.
Additionally, a traditional office lease can help you start your international expansion with a solid brand presence in your new market, which a shared office cannot do.
🌎 Traditional Office Leases for International Expansion - Disadvantages
Expanding internationally is a huge risk, and the more flexibility you can build into your commitments and expenses, the better. A traditional office lease, or even office ownership, can be a huge financial burden when you’re only testing a new market.
This type of business expansion also comes with cultural and regulatory barriers that can add to your challenges if you complicate your plans by committing to a traditional lease or purchase of an office. For example, contract terms may differ from your home market in a way that can be easily abused by landlords, who may see your lack of experience in their country as an opportunity to be exploited.
🌎 Shared Office for International Expansion - Advantages
When expanding internationally, the fastest way to acclimatise your company to a new culture is through networking. You will begin by hiring locals, but you will also likely want to position some of your experienced team members in the new market to help the new business get off the ground. By using a shared office service, like Fiveoffices, you’ll be able to not only rely on your local hires for cultural knowledge but also your new office-mates who may be more honest with you (since you’re not paying their salaries).
Like with all the other stages, the biggest advantage will be seen financially. If you have been given a limited budget for your expansion, save it by sharing office space and maintaining your flexibility to grow by moving to a larger office later.
🌎 Shared Office for International Expansion - Disadvantages
As mentioned previously, there may be security issues in sharing office space. These risks can be mitigated by only sharing where you can have a private space, working separately from your office mate.
Finally, you may find it difficult to establish a similar corporate culture in your new office to your home country’s HQ. Your office mate’s culture may influence your new team’s way of working. Therefore, it’s important to make sure you choose a good office mate, who reflects the way you want your team to function, in terms of noise level, dress code, working hours, and even ethics, like using sustainable practices or valuing diversity.
In conclusion, choosing the right workspace for your business is a crucial decision that can greatly impact your company's growth and success. As highlighted in this blog post, factors such as team size, company culture, local culture, type of work, and growth stage all play a vital role in making this decision. By categorizing growth stages into four distinct phases and weighing the pros and cons of traditional leases versus modern office setups, businesses can make informed decisions that align with their vision for growth. Whether you're in the early stages of a startup or expanding globally, it's important to consider all factors when navigating the office space journey.
Meet our highly driven and versatile Marketing/Technology manager, whose experience includes B2B digital marketing and B2C product marketing, as well as internal digital transformation and certification in full-stack web development. A citizen of both Canada and Ireland, she has lived in China, the USA, and now Luxembourg. Aisling enjoys cultural experiences and learning new things to love about the people who make up our vast global community.