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Shared-Office Facilities Offer Options for Space-Hungry Startups

All entrepreneurs work toward one goal: growth. But with new clients or an expanded staff come practical issues that can be daunting. Foremost among these is the need for a professional yet affordable space from which to work. Increasingly, small business owners -- many of whom have outgrown their home offices or balk at conducting yet another meeting in a noisy coffeehouse -- are turning to shared office rentals. These fully serviced and furnished facilities offer receptionists, conference rooms, IT support, copy centers, kitchens, and mailrooms -- all with immediate move-in and no upfront investment.

"People walk in with their laptop, they are assigned their phone number, and they're in business," said Lee Dickson, managing partner and founder of The Suites Collection, which operates from three buildings in Chicago.

A shared suite can become a de facto headquarters for even the most rudimentary startup, providing not just necessary infrastructure, but also an aura of professionalism. The physical address, which may be in a prestigious building, can be used on stationery and business cards. A receptionist answers phone calls with the company name. Additional benefits include the ability to easily add or reduce space as businesses grow or contract, as well as short-term, customizable leasing options that involve minimal commitment and risk.

While many small businesses use these facilities as their full-time offices, a related and growing trend is the "virtual office." The term usually describes situations in which entrepreneurs work mainly from home, using the shared office only for its receptionist, who forwards calls to the client's home or mobile phone, as well as its mailing address and access to conference room facilities.

Cutting Overhead Costs
Sande Golgart is regional vice president for the western United States at Regus, the dominant player in the space, with business centers in 89 countries, including nearly 450 in North America. He said that beyond offering access to locations and amenities that most small businesses couldn't afford, his company provides a "headache-free environment" in which tenants don't have to worry about office maintenance, repairs, or "all those things that could drive you crazy as a small business owner and derail you for days."

Shared suites typically charge a flat monthly rate that includes office space, receptionist service, kitchen access, and limited use of a conference room. In some cases, the flat rate includes Internet and phone service; in others, communications packages are extra. Monthly rates can be as low as $79 for use of a virtual office mailing address or $250 for a dedicated desk.

À la carte add-ons typically include options like extra hours in the conference room, administrative assistance, or even catering services.

For a small business, the savings can be substantial. Scott Allen Keatley, CFO of Nourishing NYC, said his nonprofit has cut overhead costs by 70 percent since moving from its own office to a shared space in Manhattan's Sunshine Suites more than a year ago.

Anne Klein, a marketing executive in Durango, Colorado, who pays a flat rate of about $300 per month to rent from DurangoSpace, now has "a little bit more money to play with, as it's not tied up in an office," she said. "We get to concentrate on running our business."

Jeffrey Weinstock, who has a legal staffing firm in Washington, D.C., said he "could not be happier" with his shared space. Two years ago, he and his partner began renting a virtual office for client meetings from Carr Workplaces, which has 28 facilities in 10 markets. As the staffing business grew -- it has since added five employees -- the partners took on a full-time office from Carr; they also use its other locations for off-site meetings.

"For less than the salary of a receptionist, we get the office space and services thrown in," Weinstock said. In addition to the flexibility that has allowed his business to add space as it grows, he loves the location one block from the White House. He considers Carr "part of our team," and said the company is "always looking out for us. If they see or hear of a potential business opportunity for us, they will make the connection."

Indeed, many entrepreneurs cite the collaborative spirit and networking opportunities of shared offices as a major perk. Some rental companies even sponsor social mixers for tenants, such as the weekly happy hours offered by Miami-based Quest Workspaces.

Unexpected Fees Add Up
Some small businesses, however, say office-sharing arrangements have significant drawbacks, including the potential for misunderstandings over services and pricing.

Many suites do not allow individual companies to have signage in the reception area. Also, Keatley said he feels that shared facilities have "lower prestige" than proprietary offices. Other companies, notably law firms, have raised concerns about privacy and security. And some tenants complain of high prices for use of copy machines over a preset amount and note problems with customer service, such as billing errors that they say can take months to clear up.

Unexpected fees were a headache for Joe Fernandez, CEO and cofounder of Klout, who rented the social media analytics company's first office from Regus in San Francisco. He was thrilled with the location just downstairs from Twitter, a company with which Klout works closely. "Ten minutes after we moved in, we were up and working," he said.

However, charges mounted quickly. For each staffer Klout hired, there were added costs for kitchen use. Klout elected not to sign on for the Regus phone system -- and was charged $8 each time the receptionist called an employee's cell phone to say that a visitor had arrived.

Fernandez also said that Internet service, shared across several offices, was extremely slow and that Regus fined tenants who wanted to bypass the system.

Regus's Golgart responded that the per-person kitchen fees, administrative charges for tenants who don't use the phone system, and Internet bypass fees are disclosed up front to tenants. He also stated that the company offers dedicated bandwidth on demand to customers who request it.

According to Fernandez, Klout stayed for a year, adding space as its staff grew from three to 25 employees. The company has since moved to its own 11,000-square-foot office and now has 40 employees.

Factoring in Regus's additional charges, Fernandez said Klout now pays twice as much to maintain an office 10 times the size. Still, he believes shared space can work for startups in the short term.

"If you need three months to get going, it's probably fine," he stated. "After that, you're going to get nickel-and-dimed to the point that it hurts your business."

Golgart, who claimed Regus has maintained clients for as long as 15 to 20 years, said full-time shared rentals can be a long-term solution for firms of up to 20 employees. Larger companies -- Regus clients include Nokia, Google, GlaxoSmithKline, and Starbucks -- often use shared office rentals to test the waters in new territories, or when seeking flexible leasing arrangements.

"When larger companies are downsizing and trying to avoid risk, or don't want to make long-term commitments, we get a huge influx coming to us for short terms of six months to a year, waiting to see where the market's heading," Golgart said.

Such flexibility may well be the biggest benefit of shared rentals. The ability to use a space for only the time and extent that a company needs it can go a long way toward reducing overhead expenses for businesses of all sizes as they strive for growth -- and, perhaps one day, offices of their own

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