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When Is It Time to Grow?

Taking your homebased business to the next level could mean abandoning that cozy home office for commercial office space. Are you prepared for the transition?
June 1, 2002
URL: http://www.entrepreneur.com/article/52404

Working from home can be a real Catch 22. With little overhead, few (if any) employees and the freedom to run your office however you see fit, you've become so successful, now you've got more work than you can handle on your own. For many homebased entrepreneurs, this all-too-common scenario begs the question: Is it time to move out of your office in order to grow the business, or should you stay the same size--and risk turning down work--because you don't want to or you're unable to grow from home?

"When it gets to the point where you need an employee or multiple employees--you can't simply contract with somebody anymore, but you actually need an assistant, you need people to help you run the business--then you've probably outgrown the home," says David L. Deeds, an assistant professor of management policy and entrepreneurship at the Weatherhead School of Management at Case Western Reserve University in Cleveland.

For David P. Kowal, a sole PR practitioner in Northboro, Massachusetts, the idea of expanding his business outside his home office has come to him often during his 11-plus years of running Kowal Communications Inc. Through the years, he's increasingly found himself freelancing work to other professionals, needing the extra assistance. So a few years ago, he started looking at office space and even considered purchasing property--as an investment--to house his business instead of leasing. And not just any old office space, but something conducive to creativity. "I think anyone that I would hire would want something that has a little bit more character to it," says Kowal, who looked at about 20 different properties, ranging from an old railroad station to a former post office, to try to find the environment he envisioned.

Kowal almost bought an old home to house his business, but, after finding out it wasn't zoned as a commercial location, he decided to remain in his own home and expand in another direction by starting a second business, PR firm 3D-PR, to accommodate the increased demand for his services. Working with a network of independent contractors, 3D-PR allows them to work on larger accounts together, while they all continue to work for their own companies--and in their own offices. The new venture brought in sales of $58,000 last year, adding to 2001 sales of $352,000 for Kowal Communications and allowing Kowal to remain homebased without losing opportunities for growth. Says Kowal, "It's provided me with an opportunity to continue to grow my business, which is something I always want to do--to stretch myself a little bit and work with some people that I hadn't worked with in the past--and it's really starting to come together."

Although cost wasn't an issue for Kowal in considering whether to move into an office, that's not the case for most homebased entrepreneurs, according to Deeds. If you move into a commercial office, it won't be just the lease you'll be paying for; you'll have the added cost of purchasing equipment and office furniture as well paying for extra utilities, phone bills, and Internet and other services. And if you hire employees, you've got insurance, worker's compensation and their salaries to consider. When deciding to move from a home office, "it's the same decision of expanding capacity for any other business," Deeds says. "There's a whole new level of dollar you have to make every month to cover the expansion."

Deeds suggests thoroughly researching all the costs involved with making a move and even bidding on services to get a real feel for exactly what it will cost you, then weigh the benefits of moving against the costs.

Other Options

If you're not quite ready to upend that homebased lifestyle you've come to know and love--yet you still need to do some expanding--there's a variety of options to consider. Ken Greenberg, for one, didn't allow his need to hire employees to force him into a traditional office. Having started his PR business, Edge Communications Inc. (www.edgepress.com), in 1998 out of his 28,000-square-foot home in Calabasas, California, he eventually had three employees working out of his home office (as well as two virtual employees). Working in increasingly cramped bedroom offices, he decided to relocate his family and his business to a home in Bell Canyon, California, that had a separate 900-square-foot recreation room above the garage, which Greenberg quickly transformed into an office. He now has four employees working out of this room, which features its own bathroom, shower and kitchenette.

It was a good move for Greenberg, who can't imagine moving back into a traditional office. "It still doesn't interest me--in fact I've heard of two or three larger firms that have actually shut their doors because business dried up but they had massive lease obligations in high-rise office buildings," says Greenberg, who expects to hit the million-dollar mark in sales this year. "Our idea was to keep overhead as low as possible, and that enables us to pay good independent contractors and freelancers on the outside, get employees, and offer good value to clients."

On the other hand, sometimes it's just not feasible to stay in a home, no matter how big. 1n 1996, Mark South started Busy Beaver Express Inc. out of his home in Brandon, Florida, near Tampa. A year later, his wife, Ricki, joined him as vice president of the company, which provides same-day, B2B delivery service in Southeast Florida. Although physical contact with their drivers is limited--they're dispatched from their own homes via a two-way radio and DSL text messaging--Ricki expects that the time will soon come when they will be forced to make the move into an office space.

Mark and Ricki currently have eight drivers who work as independent contractors for the company, and even though traffic to and from their home office is minimal, the Souths feel that any increase in the amount of drivers will cause problems with zoning regulators because of the added traffic, especially since they plan to double the number of drivers within the next few years. Plus, any increase in the volume of calls coming in will most likely mean hiring their first employee--and, since they're unwilling to have that person work from their home, a move to a commercial office could be inevitable.

Another incentive for moving Busy Beaver: image. If the Souths pursue more accounts with larger companies and continue to expand their business, setting up a more professional dispatch center may be necessary. "Once you get to a certain size, you look at either buying some smaller couriers out so you can grow your route business or having someone buy you," says Ricki. "We really need to double our size to about 16 drivers. Then we'll be very marketable in the industry, or we will get bigger and buy someone else out."

When the time comes that you think you've outgrown your home office, the most important step is to analyze the costs associated with making your move before signing a lease. Consider lower-cost options such as leasing shared space or executive suites, which typically provide receptionist services as well as use of conference rooms and office equipment. A commercial real estate agent may be able to help you find the space that's right for you. "Really pencil out in detail the additional costs," stresses Deeds.

And in the end, go with your gut. No one says you have to do anything you don't want to do.