Lesson #134: Where to Best Locate Your Startup

According to BuiltinChicago, there is a new startup formed in Chicago every 48 hours.  As more startups are created, and the existing companies grow and expand, demand for well located, creative and affordable office space is increasing.  Today’s lesson is going to tackle how to go about locating your work activities, in general, and more specifically, with some alternatives here in Chicago.  To help me with this project, I solicited the help of Steve Schneider, an EVP at DTZ, a corporate real estate specialist in town.

WHAT CITIES?

You can startup a new business pretty much anywhere these days, especially given global connectivity to the internet.  But, I would suggest locating your startup in a city that has a well-established startup ecosystem for your industry, where you can easily source needed employees, mentorship or investors.  In the tech world, that used to be limited to places like Silicon Valley, Boston and Seattle.  But, startup ecosystems are popping up everywhere, both in big cities, like New York and Chicago, and around key university campuses, like Austin, Boulder, Ann Arbor and Raleigh-Durham.  So, do your homework to see if your city is well positioned to help you succeed, or whether you should consider making a move.

The reason to locate your offices in large population centers are numerous, including: (i) large pools of first class talent, from entry level to high level executives; (ii) easy access to public transportation; (iii) an oversupply of available space, where discounted rents can often be found; (iv) plenty of creative, open loft space buildings which are better suited for startups; and (v) close proximity to digital infrastructure hubs for your tech connectivity needs.

WHAT NEIGHBORHOODS, IN GENERAL?

 
Try to locate your startup in neighborhoods within close proximity to other startups in town, to leverage the local startup ecosystems and to more easily share learnings with other startups near you.

WHAT NEIGHBORHOODS, IN CHICAGO?

River North has become the premier destination for startups in Chicago, given its proximity to the startup epicenter at 1871 in the Merchandise Mart, and its concentration of open, creative loft space, which are in high demand from marketing, technology and other startups.  However, due to the higher rental prices ($22-$26 per foot) and lack of space in River North, the River West market has become a destination for start-ups seeking less expensive alternatives ($18-$25 per foot).  For even lower rents ($15-$18 per foot), consider other area neighborhoods, like Evanston, Bucktown and Ravenswood were many startups are located., although they are harder to commute to.

WHAT SPACES, IN GENERAL?

I have always heard about “two guys in a garage” launching a startup, but frankly, I have never known any startup to actually do that here in Chicago.  So, where should you work from?  High level: wherever you can keep your costs at an absolute minimum, even at zero, until the business has its “sea legs” underneath it.  And, these costs need to be flexible and variable based on your growth needs, so don't lock into any space you’ll quickly outgrow or a lease you can’t easily exit.  Here is some high level guidance by company stage:

Under 5 Employees:  Everything is on the table at this point, from working at home, to working out of a Starbucks, to finding an empty cubicle in your lawyer’s office, to a more formal startup co-working space, where you can rent a desk for $300-$400 per month.  The advantage of the latter, is immersing yourself into a startup ecosystem, and sharing learnings with other entrepreneurs.  Not to mention, many of these facilities bring in outside mentors for tutelage, and help negotiate discounts for services from outside vendors.  If you can afford it, I suggest the shared startup space, given its advantages.

5-20 Employees:  At this stage of your growth, you have to think creatively how to find space.  Some startup co-working spaces can handle companies of this size, but many cannot.  So, you need to make a call how certain you are of your company’s future.  If your growth is solidly taking off, you can perhaps look for a longer term, permanent space.  But, most likely, I would try to find a company that has more space than they need, and ask if you can share in their rent costs, on a month-to-month basis, to work at a some of their open workstations.  They would gladly like the cost savings, since they are paying for more space than they need, and you should not have to lock into a long term commitment.

Over 20 Employees:  It is hard not to move to a committed space of your own, at this point.  You’ll want it for privacy, security and convenience by this stage of your growth.  Your two primary options are direct leases with landlords, which can be expensive, or sub-leases from current tenants, which can be 25%-50% cheaper than direct leases with landlords.  If you can find it, a sub-lease is the way to go, especially if you can find one with your desired open floor plan, that is already furnished and already wired for your connectivity needs, since it will most likely be a shorter term in length.  CoStar is a the MLS of the corporate rental industry, where you can find available subleases.  If you can’t find a sub-lease, try to find a direct lease where there will be limited build-out requirements, so the landlord can pass along those savings to you in the form of lower rent.  And, shoot for shorter term leases (e.g., 1-3 years), if you can, to allow you maximum flexibility to move as you grow, or to cut the lease if you need to lower costs.  Assume you will need 150-200 square feet per employee, and take your future growth into consideration.

WHAT SPACES IN CHICAGO?

Shared Space:  Numerous shared co-working spaces for startups have been established in Chicago, with more launching all the time. Some of the bigger shared spaces in town include: 

·         1871 @ Merchandise Mart

·         TechNexus @ 200 South Wacker

·         Catapult Chicago @321 N. Clark

·         VentureShot @ 744 N. Wells

·         OfficePort @ 9 West Washington

·         The Coop @ 230 West Superior

·         Workspring@ 30 West Monroe & 12 East Ohio

·         Enerspace @ 412A North Carpenter 

·         Regis @ 564 W Randolph

 

And, if you can, consider applying to local startup incubator or accelerator programs in town, to leverage their office space, including TechStars Chicago (formerly Excelerate Labs), Healthbox (for healthcare related startups) and NuevoLabs (for hispanic related startups).  Here too, new incubator and accelerator programs seem to be launching all the time.  In addition, many of the venture capital firms in town, also house their startup portfolio companies in an incubator type of setting, including Sandbox Industries and Lightbank, if you are lucky enough to secure both their capital and their office space.

Stand-Alone Space:  There are numerous startup-friendly buildings in Chicago, so be sure to speak with your broker for a then-current list of available space.  But, according to Steve, and my own experience in town, here is a sampling of startup-friendly buildings to consider: 600 W. Chicago (home of Lightbank),  564 W. Randolph, 400 S. Jefferson, 626 W. Jackson, 564 W. Randolph, 111 N. Canal,  55 W. Monroe, 111 W. Jackson, 20 N. Wacker, 180 N. Lasalle and 29 N. Wacker.  I especially like a lot of the buildings managed by Urban Innovations, has they have more of an open loft feel in key startup neighborhoods. I also like a lot of the buildings around Greek Town, in the vicinity of 833 W. Jackson.  There are also a few startup-friendly buildings that are currently under development at 1000 W. Fulton, 111 N. Canal, 401 N. Morgan and 1000 W. Fulton, which will be launching soon.

For more thoughts on your office needs and setup, I would suggest re-reading Lesson #55 on How to Create a Healthy Office Environment, and Lesson #41 on Security Considerations for Your Startup.

For additional information, feel free to contact Steve Schneider at DTZ at 312-424-8119 or steve.schneider@na.ugllimited.com, who is happy to help you think through your best options here.


ADDENDUM (06/24/16):  

Check out this more recent post of Chicago area startup accelerators, incubators and shared office spaces as good locations to locate your startup.

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