StartUp Dilemma 5 – Office/ Second Office Timing

12 Jul

office locations demo

A couple of months ago, I received an invite from Anand of Persistent Systems – they are opening a new delivery office in Bangalore (their first one was in Pune), and it was party time!

It reminded me of the pressure we faced from our largest client to open alternate delivery locations. (they were like 15 – 25% of our total size at various parts of our life cycle; they were also responsible for pretty much kick starting our third service division – and for enabling scale in our ops. The flip side of all of this was, they had us by the sh$rt and curl*@s, and knew it – so would behave accordingly).
Anyway, every year, we would renegotiate the contract – every year he would force us to drop prices – to be fair to him, he did align it in most cases with scope drops – By the end of 5 years, we had dropped the like to like price by nearly 80% of original. (for a refresh of pricing dilemmas of startups, look here)

This client actually forced us to make automation efficiencies, staff more innovatively, find smarter methods of research, manage people inventory better, work a pareto on the deliverables.

But every year he would also tell us – you guys are in an expensive place. You need to set up shop in a lower cost location – I hear 3rd tier cities in India have costs that are a third of your costs – that’s the only way you can get me prices lower than China (uggghhh that dragon – imagine, even in services!!!)

And we would hold off on this because – well mostly just because 🙂 – but a) we all had lives in Bangalore – and knew that ecosystem b) the scale of the clients ops that we could potentially hive off into a smaller location wouldn’t have justified the cost of the setup c) we wouldn’t have had the control – and as most of u know – for owner managers, this “C” word is super important (it is certainly a two edged sword, but atleast in my mind, and for the beginning stages, has far more advantages than it has disadvantages). Not that we didn’t scout out a few locations – we tried Hubli, (small city close to Blore – basically because the head of that division was based there (he subsequently set up his own set-up and is reportedly doing really well)); we tried Jaipur – again, an ex employee was working remote from there – I even tried Dehradun – where my in laws live – one vacation was spent evaluating the SEZ space, talking to principles of Business Schools and Engineering Colleges there to check out the supply situation!

What we finally did incidentally was work out a hybrid solution – we outsourced a bit of the business to a vendor in a smaller location in a satellite town of Bangalore. The ills and wells of that decision are maybe the subject of another post – there were both aplenty! But what that did help us do was, a) tell client we “listened” to you, and b) stave off the profitability pressure in this largest client.

The question therefore is – at what point does a startup get another location. (Well, I would assume it technically doesn’t remain a “startup” any longer 🙂 – but still!). Allied to this, when does a startup establish offices in other cities? Ok, let me back up a bit – as I started writing this, I realised the REAL start-up question is – when do I get an office? (not so much the second office)

So, for the longest time we were working out of our houses – it was the co-founders first, then a couple other people – all remote. We would use the coffee shop at the Leela (a nice swank location) for the bigger meetings – when we needed to look larger than life :), and the Cafe Coffee Day (Indian Starbucks equivalent) for the regular meetings.

However, we needed a real address to register the company. So, we took on a business centre – a fantastic pay-as-you-go – incubator space where we had a tiny 8 ft by 8 ft office visited once in a while by one of us.

This changed the day a client suddenly decided to “visit our facilities”. I’ll never forget the shock we got when he sent us an email saying – so should I take a tram or a train to get to your office? (In those days, with the state of Bangalore roads being what it was, it would take more like a bullock cart to reach that business centre!!) Ofcourse, when the client visited, we essentially pretended the entire business center as ours, showed him around the swank state-of-the-art video conferencing center, the lovely (blank) offices, the training rooms, and he went home a happy man!

Evoma_Conference_Room

But with operations expanding rapidly, and more importantly a fixed predictable cash flow, we decided to start renting our own office – this we did when we were some 5 people (by now bursting out of the small business centre room) – and were looking to hire 5 more. More importantly, we were hiring freshers straight out of college, and it was important to them that we have “an actual office”. Finally ofcourse, the scale we were beginning to look at dictated that the business centre option was becoming a little expensive on a per seat basis. So, we moved to our first office.

During the evolution of our company till we exited, we actually `occupied 4 different premises, and if you count expansion within the same premises along with moves, had 7 or 8 “moves”. But, as you read above, we didn’t really expand into a “second” location ever! I have to say however, that the ultimate office that we were in, probably played a large part in “impressing” our investors when we finally did our transaction. It was a great deal – nice location, very modern glass-and-chrome, many many loos (BIG bugbear in all our earlier offices! 🙂 ) and a super rent! So, we owed maybe a cple fractions of multiples of valuation to the office premises 🙂

empower office

Now, for Sales – ofcourse, you don’t need offices, only travelling salesmen! Geographically, if u have a “western” client base (i mean west of the globe in general) , it’s easier to do business as a startup if u are also “western”/ hv an office in one of those locations – even here, the U.S. is easier than countries in Europe/ UK – for them, local offices are always a huge reassurance when they are doing business with relatively smaller entities. Ofcourse, as you acquire size, it’s probably prudent to also acquire premises. In our case, we never did acquire an actual office in the U.S. 🙂

But service/ delivery locations? (Applicable obviously only to large people based enterprises) – the reasons you would have another location as a small size company is – if your client wants some ON site work – even there in most cases you would use client locations – but maybe window dress it and call it a virtual office there – this would in general be another country. Assuming you had choice of location, you would maybe start in a center where you have decent infrastructure, decent demand, and decently low costs. But most importantly, in a startup scenario when you have so many moving parts to deal with, you want to fix as many of those as possible in your advantage – so, most importantly, you would choose a city where you had a degree of comfort – either you know it/ or you know people there really well/ or you live there etc. By the same logic, when you start in another center – only say because your supply of manpower is running out which means you started in a small place to begin with – you would choose a place where you/ the person you hire to run it – in general NOT a complete outsider but someone who knows you/ your system well enough and is also halfway proprietorial towards it – is comfortable.

The good news is, while when to start a first office is a critical question – and the answer is, do it when a) your client needs it, b) your employees are too many and c) when you have the cash to support it.; when to start a second office is not a decision that a startup often faces – if someone is forcing u to do it – try the kind of route we took 🙂

This is kind of closely linked to the decision of a consumer product company to start a second brand. See an article I’d written on it a while ago….

As for us, after we did get the “hybrid” solution in place for our largest client, the whole rigamarole started again when we need Asian language related services for the same client! – we were fulfilling those out of India – quality wasn’t the greatest and it wasn’t the cheapest – the pressure started to get an office in China/ Singapore/ Philipines – wherever to beat the Dragon! Thank God we got acquired at roughly the same time – by someone who did have offices in China and Philipines…may this be your fate too (if this is what you want!) Amen!

Advertisements

One Response to “StartUp Dilemma 5 – Office/ Second Office Timing”

Trackbacks/Pingbacks

  1. StartUp Dilemma – 7 (How Much Smoke is Permissible For My Screen – or the new 2 Ps) | joshsang - August 8, 2013

    […] for our acquiring a “second facility” via an outsourced vendor (read older post on this here), and probably an important reason contributing to a successful […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: