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The Truth About Real Estate

Our new office cost a fortune, but I still think it is the best investment we’ve ever made.

By Jason Fried |  Sep 1, 2010

 

Jason Fried

Laurent Cillufo

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My software company, 37signals, is nearly 11 years old. But until now, it's never really had a place to call its own. For much of that time, we've been positively nomadic.

Our first headquarters was in the office of one of our original partners, a Chicago-based graphic designer named Carlos Segura. Carlos's office also housed his design firm, as well as the T26 Digital Type Foundry and Thickface Records. 37signals lived on a corner of a big desk in a room upstairs. It wasn't glamorous, but we didn't need much space. It kept our costs down, too.

After we had been there a year, Carlos left the company, so it was time for us to move on as well. By this time, 37signals was three people -- Ernest Kim, Matt Linderman, and me. We were making money and doing well and didn't require much in the way of an office. So when some friends/clients at a company called Data Harbor invited us to sublease some of their extra space, we said, "Sure."

A year after that, Data Harbor moved, and we took over the remainder of its lease for a few months. Then we decided to finally get a place of our own. We found it across the street (we could see it from the window of the space we were still occupying). It was too big -- 3,500 square feet for just three Chicago-based employees -- but the location was good, the rent was fair, and the landlord was a nice guy. Still, it never really felt like home. Rather than investing in the space, we just put some cheap tables together and got DSL. We worked that way for three years. During this time, we brought on a couple more people, but they were working remotely from other cities.

I suppose we were thinking about office space the way most businesses do -- as a cost center. After all, between rent, furniture, technology, and the like, it adds up fast, especially for a young company. We were doing fairly well, so $2,500 a month wasn't much of a burden. At the same time, it was $30,000 a year out the door when we could all have just worked from home, which might have explained our ambivalence.

But over the course of three years in that Spartan space, we learned an important lesson: An office could make you money, not just cost you money. We had a lot of empty space. Our three desks, conference room, and personal space took up only about 25 percent of the office. Perhaps we could turn that empty space into a revenue stream. Not by subleasing it but by using it to host our own workshops and conferences.

For a few years, we'd been sharing our ideas on software design, marketing, and business on our blog, Signal vs. Noise. We'd begun to build a loyal and passionate following. So why not take advantage of that and hold a workshop about the things we were writing about on the blog? We could host it in the spare space in our empty office. And charge for it.

We put together a one-day agenda, charged about $300 a person, and sold about 30 seats. Suddenly, we found ourselves with $9,000 in additional revenue. Our monthly rent at the time was $2,500. In one day, we just paid more than three months' rent. That was a light-bulb moment. An office can be free -- and even a profit center -- if you start thinking about your company's byproducts.

What do I mean by byproducts? Just like the lumber industry can sell its sawdust (a byproduct of milling trees), we discovered that we could sell our knowledge (a byproduct of running a business). And we could sell it in our spare space. Eventually, we packaged this knowledge in book form. All told, the combination of the book and the workshops has brought in revenue of more than $1 million.

But back to our real estate saga. When our lease was up, we decided not to renew. But instead of getting another space of our own, we hooked up with another friendly company we knew: Coudal Partners. I knew Jim Coudal, owner of the advertising and design firm, through a mutual friend. Jim had some extra space, I mentioned that we were looking, and he offered it at a fair price. This was in 2003. For the past seven years, we've been working out of that office.

It's been a wonderful experience. The folks at Coudal Partners are wildly creative. We've hired them to shoot and produce some video for us, and we even started a side company together called The Deck, a targeted ad network that helps companies reach graphic designers, Web designers, and other creative professionals.

However, since we're sharing the space, it's not ours to do whatever we want with. Holding workshops there has been a logistical challenge, because those events mean that the people at Coudal Partners can't work at their own office for a day. That doesn't scale well. We'd like to be able to do a workshop every six weeks. Or maybe host a spontaneous gathering of all our nearby customers. We needed more flexibility.

What's more, since we've expanded from just a few people to 20 (nine of whom are in Chicago), we've outgrown the six desks we had been renting. Privacy is another thing you don't have much of when you share an office with another company. It wasn't an issue early on, but it is now. Our friends at Coudal Partners have been fair and accommodating, but we decided it was time to move on.

So last year, we began looking for a place of our own. From the outset, we decided to recall what we had learned years before: We weren't just going to spend money on the space; we were actually going to make money on it. That requirement became the driving force for finding the right space.

We looked at a bunch of places -- houses, lofts, offices that already had been built out, raw traditional office spaces. We almost had a lease done on a large factory that had been turned into a six-bedroom residence (we'd use the bedrooms for private offices). But the deal fell through because of zoning and parking issues.

Eventually, we found a beautiful raw space just six blocks from our current office. It's a corner space with two enormous walls of windows. Natural light pours in. We hired architects to review the space and draw up plans. We negotiated the lease, paid the lawyers, paid the lawyers some more, and signed the papers.

The design process took a few months, and the build-out took about four months. We finally moved in July. True to our vision, about a third of the 10,000 square feet is dedicated to teaching. We built a theater-style classroom, with 37 seats, in which we can give presentations, hold workshops, and offer training and support classes for our customers. We plan on holding the first of many regular workshops this fall.

For the past few years, we've rented out different venues for our workshops. It cost us a few grand for the space, another few grand for the overpriced catering (we had to use each facility's sanctioned caterer), and another few grand for audio-visual requirements and other logistical considerations. Though we were able to charge about $750 per seat for a one-day event and sell about 50 seats per workshop, renting still took a good chunk of profit out of the equation.

With our own space, we'll not only save money on the costs side; we can make more money on the profit side. We also believe we'll be able to charge closer to $1,000 a seat. At 37 seats, that's $37,000 in revenue. All we'll have to pay for is catering. All the AV requirements and Internet connectivity are built into the space. And it's much more attractive than the venues we were renting out before. Just a few of these workshops will cover our rent for the year.

The lesson here is less about real estate than it is about business itself. Whenever you make something, you make something else. Your byproducts may not be as obvious as sawdust, but they're there. Maybe it's the knowledge you've acquired by running a business. Maybe it's a piece of software you wound up making when you made another piece of software. It's there; you just have to look for it. You may even find a business you never knew you had.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

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February 1st, 2009, was a very memorable day for me. It was the day I arrived back at my family home in Newcastle, England, to start working for myself full-time. I had just left a job which for the previous two years saw me working with companies like Nissan, Hewlett Packard and Land Rover as their social media manager. My position in the rat race was actually an awesome one, but it was nothing compared to being my own boss.

As some people here don’t care about making their living from the internet, I understand that this post will not be for everybody. However, if you’ve just made the leap to working for yourself, currently run your own business, or you’re looking to make your money online in the future, this article may be just what you need.

13 Lessons from 18 Months of Self-Employment

Over the last 18 months of working for myself, I’ve learned a ton of things on my journey. Not every piece of advice I took on board has helped, with many ideas quickly being discarded. From reading dozens of books, speaking with hundreds of entrepreneurs, and living this life myself for a year and a half, there are a few lessons I would like to share.

Write a Mission Statement (But Keep It Private)

If you go to the website of any large company, you’ll usually find a detailed mission statement which cites the main aim of their business operations. They’re usually long, boring, and ignored. THe type of mission statement I’m talking about here is more of an elevator pitch: A sentence or two about why you’re doing what you’re doing, and what you hope to achieve.

This isn’t an elevator pitch you need to tell anyone, or a mission statement you need to share. Instead, the aim of these sentences is to help you stay on track. If someone offers you a partnership in a large project, you simply have to look towards your mission statement to decide whether it’s a good use of your time. If you’ve heard about a new way of doing things, you simply have to look at your mission statement to see if it might be right for you.

“If you don’t know where you’re going, any road will take you there” – Lewis Carroll

Decide what you want your core focus to be, and write it down somewhere. Internalise it. Anytime a situation arises where you’re not sure what to do, look to your statement to help you with the answer.

Focus On Your Glow

Jerry Sternin, who worked for Save the Children, was sent to Vietnam and asked to “make a difference” with the malnutrition issues the country faced. He was just given just six months to fulfil his task. With problems in the water supply, ignorance towards nutrition, and a countrywide dilemma, he had a big job ahead of him.

Instead of looking to fix one thing, like providing clean water to the country – something he didn’t have the time nor resources to do – he decided instead to look at what was working. Why are there healthy children in areas that are full of children who are starving, who have the same finances and living conditions available to them, and what are they doing differently?

Sternin found some common factors between the healthy children in these rural villages, one being that they spread their food intake throughout the day, rather than just having two large meals like the children who were struggling with health issues. Their bodies couldn’t absorb the nutrients from such a lot of food each meal.

The advice Sternin gave to struggling families from his findings was simple, but he certainly made a big difference.

Instead of just looking to your mistakes and hoping to learn from them or tackling a huge project you want to overcome. Why not look at what is working for you in other areas of life or on other projects, and see how you can apply those factors to other endeavours?

You’re far more likely to have great results.

Identify the Most Important Tasks That Will Grow Your Business

When you have all day to work on whatever you want, it’s very easy to get caught up in things which a) aren’t helping you grow and b) not as effective as other tasks. As early in your own business life as possible, define the most important things you can accomplish each day and give them utmost priority.

For me, my most important tasks vary, but generally include things like:

• Writing a blog post
• Researching niches
• Building out current websites
• Marketing current websites

If I spend most of my day doing something other than these things, then I’m not being as effective as I could be with my time. It will be hard to stick to this rigid schedule at first, but the more you put yourself back on track, the more natural it will become to work on the things which help your business the most.

Just Get Started

I was really not in the mood to write this article today, but I knew that I had to get what I want to say out to the world. I had the idea for the post in mind, and I was excited to see the feedback it was going to bring, but I couldn’t bring myself to put my hands to the keyboard. As I usually do when I’m in this situation, I tell myself I’ll just write around 300 words, and then do the rest another day.

What almost always happens is that I’ll get so into the flow of writing after those 300 words, that I keep going until I’ve written thousands. In fact, I’ve just passed the 2,000 word mark in this article (I have shuffled the order of the points, since writing this) on the same day I wasn’t in the mood to get going.

Whenever you have a big task ahead, just tell yourself that you’ll do a little bit and stop. There’s a good chance that the little bit of effort you exerted to get started, will turn into a strong push of energy which helps you get things done. Even if it doesn’t, at least you did something.

Give Yourself Office Hours

It may seem crazy that I’m suggesting you give yourself office working hours after finally being able to work whenever you want. After all, one of the main benefits of this lifestyle is to get to set your own hours. To take the edge of this idea, I’m not suggesting that you have to pick a 9-5 schedule, but you should pick something.

The reason I say this is simply because when you work from home, there is nothing harder than shutting off. While you’re eating, you may just want to check your email quickly. While you’re in the shower, you may have the idea for a blog post and quickly run to your computer to write it down. The times you start neglecting your normal life for your business surprisingly, yet quickly, add up.

If your aim is to just work for a few hours per day, whenever you want, then you can ignore this. If you find yourself working more than a few hours, or even a lot more than a few hours, then restrict the times you allow yourself to work. The time you allocate to a task is usually how long it takes, so working all day won’t necessarily help you get more done.

Only Spend Money on Essential Items

For all of the people who have no problems making money, many of them have problems keeping it. When you start working for yourself, it’s very easy to start thinking you need this and that, in order to really get going. The reality is that you rarely need as much money or material items as you think you do.

When I built PluginID, my blog which I later sold for a five-figure fee, I did so on a laptop that was five years old and had no hard drive. Every single time I booted it up, I would be presented with a completely fresh operating system. That meant I couldn’t install software or save any files. I saved myself $1,500 by finding workarounds for my problems, rather than just purchasing a new laptop straight away.

Before you go buying every item, eBook or software package you think you need, ask yourself whether you can work without them. The money you save early on helps you to grow bigger, and enables you to adopt an ideal mindset which will be invaluable later on in your business life.

Let Others Down, Before Yourself

One thing I love about being my own boss is that I can spend as much time with my friends and family as I wont (provided that they aren’t at work). If someone plans a long-weekend away or wants me to help them out with something during the day, I don’t have to ask anyone for time off to be able to do that.

Something your friends and family might quickly forget though is that you actually have work to do. Just because you work for yourself (or from home), it doesn’t mean that you can neglect the things you’re working on to spend time with people. Sometimes your business must be your priority.

I found it hard to get this point across to people but it’s important that you do. I quickly had to put an end to people arriving at my house just to chill out or expecting me to be able to make any event just because I set my own hours. Be social, but be serious about your aims as well.

Be Open About Your Position

Depending on how you market yourself and make money, this will apply to people in different ways. When I started freelancing at 17, I had a company website and would constantly refer to my “team” and our “enterprise” when I was just a one-man operation. This angle also entered my communications with potential clients, when I would try to write in a professional manner and be as “business like” as possible.

You don’t have to put up a front. You don’t have to pretend you’re behind a huge company. People do business with people. The sooner you realise that, and put yourself into both your work and engagement with customers or clients, the better.

View Anything Public, as Marketing

It used to be that the designers would come up with an idea, the engineers would turn that idea into something physical, and then marketers were set with the task of selling that item. This strategy simply doesn’t work anymore. In the age of not only information overload, but product overload, you need to see that everything you do, in one way or another, is marketing.

When I leave comments on other blogs, that’s marketing. When I write a blog post, I’m marketing. How I respond to emails, is marketing. When I buy ads on other websites and pay for product reviews, that’s also marketing, of course.

Old marketing is still marketing, but now you have to realise that everything else is too. If you don’t recognise this you may be left with a great product that nobody wants, or something that people want, that doesn’t function as it should.

Recognise Your Own Problems

One of the easiest ways to make money is to solve people’s problems. You can see this online in popular products that teaching people how to get rid of anxiety, make money, or even just jump higher so they can slam-dunk. Problems aren’t just a great area to find a market, but they also help you create one.

A software product I’m hoping to launch in the next few weeks, came about by deciding to solve a problem I’ve had for a few years. It has to do with internet marketing, of which there are millions of other people in this space, so I’m sure it’s a problem a lot of other people have as well. Or, simply a better solution to help them do what they’re already doing.

While you’re on your focused path, don’t forget to see if there are hurdles you faced where there wasn’t an ideal way to get over them. You may have just stumbled upon your next big project.

Become a Member of Your Own Market

The best way to learn what people want is to become a member of the market that is likely to want whatever you have to offer. Right now I’m working on software products for internet marketers, because after thousands of interactions and years in the business, these are the people that I understand the most.

Through your involvement in the market where you want to launch something, you’ll learn a lot from your audience. Things like:

• What things they would like in a product
• What they don’t like about other systems / solutions
• How they expect to be treated as a customer
• What makes them buy something

Of course, sometimes you just have to get something out there (ship) and learn these things as you go along. You’ll save yourself a lot of guesswork and marketing strategy alterations though if you get involved in your market, wherever they may be, and find out what makes them tick.

Ship Your Projects

When I worked on Cloud Living, I literally spent two months on the guide in order to get it how I wanted, and out there. With about three weeks worth of work left, I set a launch date for myself, a Monday, which I made sure I would stick to. The guide was finished on Sunday, the day before, after a frantic weekend.

There was one mistake in the guide, which I later fixed, but everything else was perfect. If I had spent a few more days on the eBook, I’m sure I would have spotted the small issue and had everything in order before getting the guide out there, but I was determined to stick to my launch date.

Cloud Living was actually created in response to the hundreds of questions I had received after releasing a 30-page eBook on the same topic, yet with much less detail. I used reader feedback to turn an average product into something I was proud of. If I had never put the freebie out there, even though it wasn’t a “Wow!” product, I would never have completed Cloud Living.

Making sure you ship your projects (just get them out there!) is not about putting in half the effort and releasing something you’re not happy with. It’s getting something to a stage where it’s great, and letting questions and feedback shape the product so it’s both perfect in your eyes, and in those of the end user. Getting a product that is 90% finished out there is better than never producing something with no flaws.

Do Whatever the Hell You Want

This post was with the aim of offering a guideline, rather than something you should follow word for word. The whole point of being your own boss is that you’re in control of how you spend your time, and what you wish to do with it. If you want to try things differently or completely ignore some things I’ve mentioned here, feel free.

Something I noticed recently is that the fun and passion we put into a task can quickly deplete when someone else tells us to do it. Even if we were going to do it anyway, just having someone say “do this” or “have it done by X date” takes away your drive to get things finished.

If you direct your own life, you’ll have a lot more fun on the way, and you’re far more likely to get things done. So, instead of taking this post as rules you must follow, view them as steps you can choose to follow or choose to ignore.

It’s the only way they’ll have any impact on you.