Situation: A growing company needs new space for operations and back office functions. They have grown steadily over the last two decades. Prospects for the future are positive. Options include expansion near their current location or to another, lower cost city. The CEO is also considering whether to sublease space or rent. How do you plan for expansion?
Advice from the CEOs:
Consider whether the company needs to expand in one step or whether it is possible to expand in stages. Also consider whether functions will benefit by being close to the primary base or whether, using Internet and telecommunications, the new location can be remote. This requires a careful analysis of not only the company’s functions, but also the strength of the management team and the willingness of key managers to relocate.
There are trade-offs between subleasing and working directly with the landlord.
The landlord will generally offer market rates, but the company gets to determine the terms and term of the lease.
Subleasing can save money, but the company is then at the mercy of the priorities of the tenant from whom they are subleasing. When things get busy, the company may disrupt the operations of the tenant. In another company’s case this resulted in a forced move with 30 days’ notice at the end of their sublease term.
Consider the cost of both moving and having to re-outfit the space to meet the company’s needs against the savings from subleasing.
Consider leasing a larger space, one which is convenient and enough for the company’s needs, and then subleasing excess space until it is required. This may cost more short term, but it puts the company in charge of their own destiny regarding space availability and utilization.
Another option is to buy a building and sublease the excess space until it’s required for company operations.
Situation: A professional services company wants to grow while maintaining the small company atmosphere that has been the key to its success. There is a limit to how many clients a manager can manage, and with this the reality that if the firm is to grow they will have to bring on more client managers and support personnel. How do you maintain your culture as you grow?
Advice from the CEOs:
To maintain your boutique atmosphere, consider hiring to fit your needs rather than to maintain a culture. Use team meetings to direct team members while communicating and instilling the culture that you wish to maintain.
Don’t risk diluting the strength of your client relationships. A $250K client who is fully committed to your service may have more demands than a $1M client for whom you only represent 10% of their business.
Service companies with the highest profit ratios rotate customer contact among several qualified people. What matters is the level of service provided, not the individual providing the service.
Grow by adding locations. Instead of growing vertically in the same office, grow modularly by spawning additional offices.
Create an optimally sized model for the level of service that you wish to deliver.
Design the organizational structure for this model and identify the order in which slots will be filled as business grows through each office.
Develop a service and organizational template with standard operating procedures, metrics, technology, and reporting.
Once the model is created, spawn it.
Focus your business. Define a niche that you can serve better than your competitors. Focus on this niche and develop a sustainable advantage over your competition.
Assure that your service delivery is seamless to the client and make sure that it remains seamless.
Offer a menu of service options and price options by the level of service delivered. Some will want to buy a Mercedes, and some will be happy with a reliable lower priced sedan.
Situation: An early-stage software company is expanding internationally, both offering services to international companies from their Silicon Valley base, and building a presence overseas. What land mines should they avoid? How do you expand internationally?
Advice from the CEOs:
Be more strategic than opportunistic. Europe is very interested in start-ups. Investigate potential locations thoroughly. For example, Luxembourg and Spain are not the most reliable markets or locations for basing a business.
There are already good networks in Europe that you can plug into so that you don’t have to build everything yourself.
There is a European organization called Open Coffee Club that attracts high tech and social media start-ups. You might consider either partnering with them or buying into their network.
You can set up a corporation in Cyprus to leverage tax advantages and build a network covering Europe.
To have geographic reach across Europe, you probably want two locations in Europe and one in Russia. Look at Ireland and Romania.
Many Russian oligarchs have their investments in Cyprus and may provide a source of investment funds.
Investigate the European Investment Fund and their sub-funds like the JEREMIE Holding Fund. This is a large government-funded investment pool focused on technology, innovation and start-ups.
Foreign companies are attracted to the US because we have the right ecosystem for technology development. However, a bridge strategy for European companies who want access to US funding is tricky. The key issue is visas which have limited duration and may be difficult to renew. Also, immigration frowns on foreign business people who visit the US too frequently.
Have you considered helping start-ups build through their early stages – reducing risk of early failure – before helping them come to the US?
Situation: A company acquired an office in a new geography at no cost – just a commitment to keep the office going. The immediate challenge is transferring the previous owner’s client base to the new owner’s service. The people in the distant location are OK, but it will take coaching for them to deliver the new owner’s level of service. However, these people are proud and resistant to change. How do you eliminate a them-us cultural divide?
Advice from the CEOs:
Involve the person who facilitated the acquisition in the integration process. Get his opinion of what is needed.
Your prime commitment is to the client base and past practices that built the client base. Maintain or surpass this level of service. As long as the team meets this level of performance, they are serving your objectives.
You and the key manager of the newly acquired office should meet with their most important clients. Help the manager convert those clients for you.
Your other implied commitment is to the manager and employees that you inherited through this deal. Educate them on your approach – “we will do all that we can to create success for our clients.” Connect with the manager, understand how this person serves clients, and coach the individual.
Be fair – the fairest method of managing is a meritocracy.
Manage by results, not process – if the core values between the two sites are similar, allow for cultural differences in local practice.
If all this doesn’t work and you want for “them” to become “us” you will have to have someone from the home office move to the distant office and manage it.
Situation: A company needs a strong pool of engineers in their market niche to stay ahead of the competition. Their niche is specialized with little transferability from other engineering specialties. They struggle to find local talent and relocation expenses are high. How have you recruited hard-to-find talent?
Advice from the CEOs:
If you want a mix of fresh and experienced talent and need to add 3 to 5 new engineers per year to keep up with growth and turnover, you will be hiring a new engineer every 2-3 months so you need a standardized, repeatable process that is ongoing. If you don’t have either in-house or reliable outsourced HR capabilities, you need to secure this as soon as possible.
Consider establishing a satellite office in a geographic area which has an available talent pool.
Look for areas with a top university engineering program in your field.
Look at your key competitors’ locations and see whether they are in areas with both the educational and industrial-technology base to be a candidate location.
As you develop a new geography, forge strong relationships with the university programs that can feed you the younger talent that you need. This is a win-win relationship, because universities are focused on their placement statistics and corporate support.
Get to know the professors in your specialty and explore establishing a center of study or excellence within the engineering programs.
One company works closely with Santa Clara University and developed a program that offers financial rewards for the best technical papers produced by students in their specialty. This has created a buzz around the company, helped to establish a study program in their specialty, and enables them to attract the best and brightest graduates.
As you establish a reputation for attracting the best younger talent, this can help you to attract seasoned talent that wants to work with the brightest young talent in the field.
Another option is to find 2-3 key experienced engineers who are willing to relocate for the opportunity to build a new team.
Situation: A Silicon Valley company is considering starting a second office both to reduce costs and to diversify its geographic client base. What are best practices for starting your first remote office?
Advice from the CEOs:
Do you really need to have an office, or can your employees be virtual?
Look at your business model and what aspects of your business require an office. Within Silicon Valley, some companies have established local remote offices to enable staff to reduce commutes. These offices include full computer and audio-visual facilities so that remote office staff can participate in home office team meetings. There are an increasing number of cloud-based services that facilitate collaboration between widely distributed teams in different geographic areas. These include Go-to-Meeting, WebEx and Sococo. Can a model like this work for you? If so, then locating an office in a different region is not very different from a remote local office.
Outside of your current client base, what customer companies would you like to target?
Where are they located? Is there a significant geographic concentration of potential customers in other regions? This might tell you where you would want to put either a real or a virtual local office.
Locating an office in a location with numerous potential clients also increases the likelihood that you will find a trained and experienced local talent pool to staff your office.
Make sure that you analyze and understand your business model and what portions are exportable.
What is your culture and how much does it rely on interaction between home office and consultant staff? Avoid a situation where remote staff feel 2nd class.
The solution is to fully understand your model, and to manage both local and remote office staff through the model. Make it simple to monitor people and their activities.
Situation: The Company plans to open their first branch office. There are considering several possible locations. What are the most important considerations as they prepare?
Advice from the CEOs:
Perform an ROI analysis for the planned office. How is the ROI for the branch office different from your primary office? Look for potential economies of scale in your business model. This may prompt a rethinking of how you generate your products or services.
Simultaneously, look at your potential costs per location and the level of business required to (1) break even and (2) to match/exceed home office return in the new location. As you consider different geographical locations, compare costs and potential contribution of each against the others.
Decide whether you need to build full operations in your branch offices, or whether you can use a distributed services model, working from a central hub that performs some operations that need not be replicated in the branch offices.
Once you have completed these three analyses, perform a make/buy analysis to determine whether you get a better return from setting up your own office or purchasing a local company, if one exists.
Lower risk by starting with a relatively low cost operation – essentially a satellite office with minimal staff. As the new office develops initial business, they can be supported by your home office operations. They will serve as local feet on the street to evaluate the true potential and local barriers to entry within the new market.
Key Words: Branch Office, Location, ROI, Economies of Scale, Make/Buy, Barriers to Entry