Never Negotiate Your Priorities When Decision Making. Here’s Why

I have recently been looking for new site locations for my co-warehousing business, Blue Co.  What an eye-opening experience that has been over the last couple of months, rife with ups and downs and business lessons for all. The short story is: as a startup, you only have a few opportunities to open a new location, and you have to get it right to impress your investors. 

No opportunity is perfect, and you may need to make some sacrifices. But knowing what elements are non-negotiable could be the difference between keeping your business growing and potentially “sinking the ship.” 

Allow me to explain.

What was Blue Co searching for?

Blue Co was on the hunt for 50,000 to 70,000-square-foot buildings in major metropolitan markets of the Southeast at terms its unique co-warehousing model could afford. The locations needed to be within the beltways of those major markets (e.g., under 10 miles from the city center), with nearby highway access and plenty of parking for its members. After reviewing over 200 listings and not a single signed lease to show for it, it became clear that this search would be a lot harder than expected.

What were the challenges?

There were so many decision points in picking a new location. The city, the location, the property, the surrounding neighborhood and demographics, the building type (e.g., industrial, retail, office), the floor plan, the building features (e.g., number of docks,  number of parking spots), the lease terms and the capital required, to name a few. 

On this last point about capital, there were a lot of variations, including financing the real estate, tenant improvements, lease securitization, startup costs, etc. And to make matters worse, there wasn’t a one-size-fits-all investor — some preferred real estate investing, some preferred venture investing in the operating company, and some preferred lending debt secured by needed equipment. 

Even if you found the right building, there was no guarantee it would come at terms you would be happy with or with financing partners that shared the enthusiasm for that location.

Some screening decisions were easy — decisions made by me

For our business, having enough parking was pretty important. If the property wasn’t at least 5 acres to accommodate parking for over 150 cars, it was largely a non-starter and could quickly cut those properties from the list. If we really liked the location, maybe we could find a nearby satellite parking lot, but that meant we couldn’t do one without the other, adding complexity to our search and discussions. Other simple decisions could be made quickly to ensure the property had an entrepreneur-friendly landlord, affordable rent, sufficient square footage, nearby highway access, etc. The point here is that the better you can screen these properties for the most important need, the less time you will waste.

Some screening decisions were easy — decisions made by them

Sometimes, a building would check all the right boxes for us, but we didn’t check all the right boxes for our landlord. Maybe they didn’t like our co-warehousing model in their building.  Or their lending banks didn’t like having a start-up as a tenant. Or our financials were not as “pretty” as those of other larger companies. Whatever the case may be, it is never fun to find a great building only to have it shot down by the other party. So ask those questions early in the process to ensure you do not unnecessarily spin your wheels.

Issues with the landlord

Not all landlords are created equal. Institutionally owned, big, billion-dollar buildings were typically the hardest to work with. Their requests of a tenant were pretty much the same regardless of the tenant’s business size, making it much harder for a startup to secure a building with them. But, on the other hand, even if you found an entrepreneur-friendly landlord, that doesn’t mean they will give you the best terms. As an example, we had one such landlord try to charge us 33% higher rent because they knew we didn’t have much negotiating power as a startup. Just make sure whoever you decide to work with will do so in a win-win way and have your back in good times and bad.

Investor issues

We have had a couple of situations where we found an investor for the building, but something didn’t work well for them. They liked to invest in Raleigh (not Greensboro, too far away). They like to invest in industrial buildings (not the converted big-box retail site were looking at). They won’t look at any building with rezoning risks. We had one investor say, “We’ll fund the building you like, but we are going to need to take this other, less desirable building as well,” which didn’t work for us. Or we needed to hit some operating metrics on our old buildings, before they would consider the new buildings. Fundraising is never easy, but make sure you do your due diligence on them, at the same time, they are doing their due diligence on you.

Issues with the building and lease terms

Every building brings its own set of challenges: floor configuration, ceiling height for racking, office build-out, climate control, system age, dock type, and whether the exterior matches your brand image. You need to know which of these are genuine deal killers and which you can live with.

Commercial leases have just as many variables: term, base rent, operating costs, free rent, tenant improvement dollars, and securitization demands such as guarantees, letters of credit, or deposits. All of these pieces must fit together for both parties to close. Get these terms on the table early, before you fall in love with a building, so you do not waste time chasing a deal that will never work.

One case study worth calling out: The perfect building at less than perfect terms

We found what felt like the perfect building in the perfect location with a landlord who understood our business. But once their bank stepped in, the required letter of credit was so high it effectively blocked us until we completed our fundraising, and the only way to reduce it was to cut back tenant improvements to a point where we would not have enough office space to support clients or the P&L.

We tried every angle to make it work, but signing that lease would have created an underperforming location and drained our cash cushion at the same time we were raising capital. Moving forward before the fundraise closed felt like putting the cart before the horse, so as painful as it was, we walked to avoid putting the business in a bind if things did not go according to plan

Closing thoughts

So, why did I share all these excruciating details about our site selection process? To basically say three things: (1) know what the priority levers are in any business decision to save you from spinning your wheels on a lot of unnecessary work; (2) when you do find something that could work, quickly assess it to ensure the terms and partners are to your liking; and (3) never “force it” — if your gut is telling you moving forward would be a stretch for your business, walk away to live another day, no matter how much you like it.

I have recently been looking for new site locations for my co-warehousing business, Blue Co.  What an eye-opening experience that has been over the last couple of months, rife with ups and downs and business lessons for all. The short story is: as a startup, you only have a few opportunities to open a new location, and you have to get it right to impress your investors. 

No opportunity is perfect, and you may need to make some sacrifices. But knowing what elements are non-negotiable could be the difference between keeping your business growing and potentially “sinking the ship.” 

Allow me to explain.