How to open new offices in other cities
Opening new offices is something I think we did do really well. I often think we were one of the smallest global companies in the world. In another post, I will talk specifically about how we opened up New York since that was particularly difficult coming right after the financial crisis. This article is more about general dos and don’ts.
Why do it?
When you set up a company it feels like opening an office in another country is important. That you made it or that it proves you are global!. If I did everything again I would consider having a more profitable single office, as its just easier to deal with. But in the end (when we sold) Tigerspike had eight offices: (in the order we opened them) Sydney, London, New York, Dubai, Melbourne, San Francisco, Singapore, Tokyo.
Our logic at the time was we wanted to access new markets to get more customers and make more money, and when you start in Australia you think that it is such a small market that you need to get to bigger ones — like the UK and especially the USA. As it turned out Australia is plenty big enough to get us as big as we wanted, which is the advice I give to startups now: don’t open too many offices!it sucks profit out of the company. Then they ignore this advice and open up a new office anyway because they think its cool/impressive. And very often its a mistake. In truth opening in London and New York had as much to do with the three points below as it did with any corporate strategy.
- I wanted to move country — I had been in Sydney for 7 years which is longer than I had lived anywhere, so I started to feel like I needed to move again;
- I wanted to be closer to my family (who lived in the UK), and most importantly;
- I wanted to find a wife (New York is the best place for an Englishman to find a wife)
So that was the why, the next question is how to make your new office successful.
How to make your new office a success
In our business (selling technology to big corporates) it took 2 years to really get any real traction, (i.e. for the new office to start making real and consistent money). We opened 8 offices and with the possible exception of Dubai (which we opened to support one client- Emirates), they all took around 2 years to be successful. If we got a big customer or two early, it was great. If we didn’t, it wasn’t. I think you just need to be in the market for this long for big companies to trust that you are there for the long term.
What we did do very successfully is open offices on a shoestring budget. We opened Sydney, London, and New York with no external funding. London we opened on the back of a big customer. Olly and I flew to London with money we didn’t have to pitch to DMGT (the group that owns the Daily Mail), and luckily we won the job so we opened up a small office in the corner of my uncle Frits’ office. New York, we opened with no customers which was much harder.
One thing that is critical when you open a new office is to send co-founders there. I left Sydney and commuted between London and NewYork (while living in New York). Living in “NYLON” sounds cool, but it got old pretty quickly, especially as we had no money so I was traveling Air India (I was going to write “in economy”, but that goes without saying). Side note:
If you are in a start up and flying business class its a red flag that tells me you have no idea what you are doing or your ego is too big. Either way you are going bust soon.
Not that Air India is bad, in fact, it was very good. Anyway, I digress, the point I was making is that if you don’t send a co-founder or someone very senior from the home office then its very hard to make the new office work. Following on from that, very soon after starting the new office it's important to hire a pretty senior local person. In our experience (and again this relates to selling tech B2B), you need 3 people minimum: one founder or co-founder, one local guy (both of whom can sell) and one technical guy. Like my other article about needing co-founders, you need two or three people just to keep each other happy.
The benefits of many offices
For many years our offices operated as new startups, each with their own P&L, bank account, their own sales and delivery teams and often their own way of doing things that weren’t always that similar to how another office did things. We gave a lot of autonomy to new offices, they got to do things their way. This does have its drawbacks but the clear benefit was it motivated the new office team. No one in New York is going to be happy with Aussies telling them what to do!… funnily enough, this is most true for Sydney and Melbourne. I saw many Sydney companies try to open in Melbourne and fail because “what the f* do Sydney siders know about Melbourne!?”. We succeeded because our Melbourne office had a strong local team with Sydney guys flying down to support it a lot, but it was very much a separate Melbourne company, not an appendage of Sydney.
The main benefit of having offices operating in this way was a hedge on performance. If one office failed, it wouldn’t bring any other offices down with it. If we, for example, had a centralized tech team and a client or two blew up and affected us in a big way then it would affect the whole company. We were set up so that any one of our 8 tentacles could get chopped off, and it wouldn’t kill the whole octopus.
Since we only allocated about $200k — $500k per office opening (this wasn’t the plan, it was the absolute maximum we could scrape together!), we often relied on the offices lending each other money. When one office did well it paid for the ones that were doing badly (which was coincidentally at the same time). At one point London was making lots of money and paid for shortfalls in New York. Later New York was doing really well and paid for Sydney when Woolworths (biggest company client at the time) scaled down. Sydney paid for London when Al Jazeera and Haaretz blew up.
In fact, if it weren’t for offices lending each other money in good times, New York, Sydney and London would have all gone bust. Sometimes we thought it was sheer luck that when the shit hit the fan in one office, another happened to be doing well. It was like a giant game of whack a mole.
In conclusion, the way to make new offices work in my opinion (which counts since we did it successfully 8 times) is as follows:
- Be dogged. Make pulling out not an option even if you run out of money. I’ll talk about this in detail in another post about opening New York just before the financial crisis.
- Win a big customer in the new city first. This isn’t essential, but it helps massively.
- Get a 3 person team in place within three months. One big hitter from the home office, one big hitter local (both of whom must sell), and one senior tech guy.
- Give the new office lots of autonomy. They need to be super-motivated to succeed. Remember they are like a new startup. But do support them by flying people in.
- Wait patiently for two years.
And the good news is I did find my amazing wife Lydia in New York.
The one thing that will make you successful above all else is marrying the right person.
I am not kidding. Marry the wrong person and you can kiss success goodbye. You don’t need to believe me on this one, its what Cheryl Sandberg thinks