by Emily Clingman
As businesses become more dynamic, traditional real estate setups in the commercial sector aren't practical, or even available, to startups. Small companies typically can't sign big leases because they aren't even sure if they're going to be in business in six months or even two years from now. A ten-year lease in a prime downtown location in any big city across America is completely out of reach.
What are companies on the rise, with limited financial resources and an uncertain future to do?
Enter PivotDesk, a platform that allows any company with extra office space to find other companies to share that space with on a flexible basis.
“It's almost like a dating site for businesses,” says David Mandell, founder and CEO of PivotDesk.
A company with office space available (host) creates a profile online at www.pivotdesk.com, and a company looking for space (guest) posts likewise. Then, much like a dating site, those interested in connecting reach out to each other. If sparks fly, PivotDesk becomes the intermediary.
“We provide all of the tools that both sides need to manage the relationship,” Mandell says.
The reason companies are hesitant to share space with other companies is the unknown factor. “Real estate is traditionally your second highest line item in your budget," Mandell says. "At the end of the day, it provides no real value, but it's a necessary evil. So, you should always be thinking about ways to offset that structure and offer flexibility. You may think, 'I don't really want a strange company in my office' or 'I don't want to work out of a strange company's s office.' We say you should never have a strange company in your office or work in a strange office.”
PivotDesk is about finding the right company to share your space with.
“Once you find the right companies to share a space, the relationship is fantastic. It totally changes the game,” Mandell says. “It brings more energy into your office. It offsets costs. It's an opportunity for knowledge sharing. Both sides win.”
How it works
PivotDesk space-sharing arrangements are month-to-month. Nobody is locked into a sublease or a long-term contract. Hosts can have their space back whenever they need it. On the flip side, the guest company that needs a flexible space solution and can't commit to a long-term lease because it isn't big enough, or it's unsure about its existing growth rate or position in an existing market, can lease a great space until ready to find something bigger or long-term.
The guest company is charged a 30-day deposit via bank transfer.
“Nobody is chasing anyone down for checks,” Mandell says. “Nobody is getting in anyone's face saying, 'hey you guys are late with the rent.' ”
This continues each month until either side cancels with a 30-day notice. PivotDesk handles the lease agreements and financial transactions between companies. A digital dashboard keeps track of transaction history, which can be downloaded into QuickBooks. Communication history, document history, conference room scheduling, access control services and other elements of the arrangement are also handled and logged in the PivotDesk cloud.
“We provide everything you need to manage that relationship so you don't have to be a landlord or run a co-working space,” Mandell says. “You can just focus on running your business.”
What if something goes wrong and the relationship turns sour? Does PivotDesk provide mediation services, damage control?
“That question is indicative of the way we are made to think about real estate,” Mandell says. “That's exactly why PivotDesk is valuable. When the relationship doesn't work, with PivotDesk, you simply get out of it. You're not locked into any long-term contract where mediation is needed. A guest's maximum risk exposure is 30 days. Hosts always have a 30-day deposit. If the relationship isn't working, you simply cancel it. We are so conditioned to think about long-term contracts, things like mediation and damages come to our mind. When you change it to a flexible relationship, that stuff becomes irrelevant.”
In the beginning
Mandell has never had official experience in commercial real estate. With PivotDesk being his fourth start-up, he has been on the other side of the table many times, signing leases that were not appropriate for his businesses. He also saw a business owner friend sink into misery when a company he was sharing a space with pulled out. His friend had no idea what to do with the empty space.
Brokers tried to help him “but nobody likes a sublease deal,” Mandell says. “Too much work, not enough money for everyone. The lease holder is suddenly a landlord.”
Mandell was mentoring several start-up companies, all of which would have loved to take the space his friend had available, but neither side could deal with the hassles involved.
“The CFO couldn't be running around chasing checks or worrying about credit risks, or who was and wasn't supposed to be in his office," Mandell says. "I realized there was a lot of pain on both sides of that market.”
Mandell spent about a year trying to figure out a solution, and PivotDesk was born. That was five years ago in Boulder, Colorado.
When he started the business, there was no technology for it.
“We were going door-to-door,” Mandell says. “Hand delivering checks, trying to figure out if there was really a market for this.”
Once it started working in Boulder, PivotDesk built the technology and expanded to additional markets.
“Here's how we knew it was working,” Mandell says. “Everyone wants to work on Pearl Street in Boulder. At the time we started the business, if you asked a broker about any short-term leases on Pearl Street for 20 or 30 people, he would laugh in your face because there's nothing like that available. However, if you asked us, we asked you how many people and how quickly you needed it. Even though there was no space available to lease, we knew of tons and tons of unutilized space that we had access to that nobody else did.”
That's how it works now in PivotDesk's six major markets – San Francisco, Boston, Boulder, Denver, New York City and Los Angeles. In New York City, PivtoDesk's biggest market, commercial real estate for lease in SOHO or the Flatirons is incredibly limited.
“Even though the vacancy rate is close to zero, we know the utilization rate is much, much lower,” Mandell says. “We know where all those assets are and nobody else does.”
PivotDesk operates in about 30 U.S. markets, with Seattle, Portland and Chicago on the rise. It sounds impressive now but Mandell said it was much harder to build than he expected.
“The early struggle was quite difficult,” he says. “There was nobody doing this when we started. And, the concept of sharing your office is not something we traditionally think about so it was difficult in the early years to convince people to share their space.”
He thought it would take about two years to go mainstream — meaning property owners and brokers were using it — and the commercial side adopting PivotDesk as a sort of a de facto solution. It took about four years, rather than two, to reach that point. There are a few competitors in PivotDesk's space, one being LiquidSpace, which is based in Palo Alto, California, and operates nationwide. That doesn't shake Mandell. Looking to the future, his vision for PivotDesk is solid.
“Five years down the road, there's no reason a commercial real estate transaction should happen without us being involved,” he says. “The infrastructure of commercial real estate needs better ways to serve its clients who are demanding flexible solutions. The co-working spaces are providing kind of a stopgap, but we really are the solution.”
Mandell understands the reservations of sharing a professional space with others outside of the circle. Still, he encourages company leaders to consider another way of doing business in this contemporary culture and try a PivotDesk arrangement to solve its extra space issue.
“This big challenge is to think a little differently about your office and how you grow your business,” he says. “Get your mindset out of that traditional static structure. There are many new ways to grow your business. One is to add value to it by helping others.”