Per Person Per Month Office Space vs Traditional Office Space

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?

5 thoughts on “Per Person Per Month Office Space vs Traditional Office Space

  1. Great comparison of costs. I think as more organisations change their models with reductions in physical locations this will become more relevant to cost cutting.

  2. Additionally, the more companies can feel like a part of the space is “theirs”, the more attractive the proposition becomes. Ideas like the Hypepotamus polaroid wall, company logos, banners, etc, will help bring in more tenants and appeal to the emotional, creative and culture side of having office space.

  3. Great observation, insight and analysis, David. The key to any office space for a startup is “flexibility” and making sure that any savings be put back into the company for R&D and operating expenses to run the company. Office space at this point is really a matter of functionality and the longer you can do without and put the savings back into the company the better. As the necessity of space becomes more aparent, I would say that there are traditional office space opportunities that can be found (fewer today that a few years ago when the market was flooded with sublease opportunities), where you can find furniture and short term subleases or landlords that are willing to structure a flexible lease for those start up companies. Every company and situation is different, as well as every landlord and well as how their asset (building) is held a what landlords are willing to do. In general, the month to month options tend to be more favorable for startups as for thier flexible terms. However, an evaluation of the market should be assessed to fully see all options and opportunities in the market. Atlanta is lacking as a whole in accommoding our startup community and is sometimes like finding a needle in the haystack when great opportunites are uncovered.

  4. Very cool stuff. Makes a lot of sense.

    My cofounder (as well as the rest of the team) live in different cities and therefore work from home (trying to get them here to the ATL). When we get together or meet with others we typically rent a conference room or workspace for a day. Do you plan on offering something like this at the Village?

  5. I have worked as a Tenant Rep commercial leasing broker for over 10 years and have represented several startup companies. Some exploded with headcount and quickly leased lots of office space (most notably JBoss that added 5,000sf every four to six months). Others stayed small. Years of analyzing their needs tells me that the model proposed by ATV is EXACTLY WHAT STARTUPS NEED.

    Why? Because it removes friction from the process:
    *It removes the “friction of inflexibility” associated with long lease committments that
    prevent a company from relocating as appropriate
    *It removes the “friction of analysis” by translating leasing costs into terms most relevant
    to an entrepreneur (cost per employee versus cost per square foot).
    *It removes much “friction of setting up” by taking care of the real estate details for
    you (acquisition of furniture, space, phones, fiber, etc.) with predictable
    (budgetable) pricing, and
    *It removes the “friction of growth” by enabling the startup to scale quickly and without
    laborious real estate planning and negotiations.

    I have been a part of over 400 office leasing transactions around the US and Canada and can tell you that the flexibility offered by short, 3-month lease committments based on reasonable per person pricing is a NO-BRAINER. Once the startup grows to approximately 15 to 20 people it will benefit from analyzing traditional options that may afford better pricing, control, identity and satisfy larger growth requirements. Up to that point, I would put my office at the Village and focus on building my company – not real estate deals.

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