Earlier today an entrepreneur emailed me asking about the Atlanta Tech Village for his software company. With approximately 10 employees now, and growing to an expected 20 employees in the next two years, he wanted to know how it compared to traditional office space. I explained that the per person per month with internet access and furniture included model was very different from traditional office space due to the ability to scale up and down as needed, rather than paying for everything throughout the life of the lease.
Let’s see how the model compares in a common scenario where a startup raises an angel round, has two co-founders now, and expects to scale to 10 employees at the end of 24 months.
Traditional office space:
- Required space for 10 employees at a high density ratio of one employee per two hundred feet results in a need for 2,000 square feet
- 2,000 square feet at $21/foot/year plus $3/foot/year for parking for a total of $24/foot/year = $48,000/year/rent
- 100 meg cable modem and 12.5 meg DSL line for internet is $800/month = $9,600/year
- Used furniture or new IKEA furniture is $300 per person (including desks, conference tables, etc) = $3,000 total
- Herman Miller Aeron chairs are $800 per person (I’m a fan of getting really nice chairs and just average tables) = $8,000 total
- Total for 24 months for 10 person startup is $96,000 rent + $19,200 + $3,000 + $8,000 = $126,200
Per person per month office space at Atlanta Tech Village or similar facility:
- $300 per person per month for a dedicated desk, internet, shared conference room, etc plus $100 per person for parking and $300 per private room
- Start with two co-founders and three initial hires followed by three additional hires every six months:
Five people over the first six months is $1,500 month plus parking of $500 month plus private room of $300 month for a cost of $2,250/month resulting in a six month total of $13,800
Eight people over the next six months is $2,400 month + $800 per month parking + $300 month private room = $3,500 per month for a total of $21,000 over six months
10 people over the next 12 months is $3,000 month + $1,000 per month parking + $600 month for two private rooms = $4,600 per month for a total of $55,200 over 12 months
- Total for 24 months for a 10 person startup is $13,800 first six months + $21,000 next six months + $55,200 last 12 months = $90,000
In this model the private room plus shared office model is almost 30% more cost effective ($90,000/$126,200) when compared to the traditional office space format.
Much in the same way a Zipcar created an entirely new category of rental car, the per person per month office space is creating an entirely new category of commercial office space. One of the keys of the model is a company that expects significant growth or volatility whereby locking in a traditional office space that’s the largest they’ll need over a period of time results in significantly higher costs and much less flexibility. For a generic company with a fixed number of employees over an extended period of time, traditional office space is more cost effective and fully customizable. Per person per month office space is a much better model for rapidly changing technology companies.
What else? What are your thoughts on the idea of per person per month flexible office space?