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In the Entrepreneur's Census, we observed that 42 percent of startups with commercial office space in New York were not paying any rent. These entrepreneurs have found free office space with potential clients, later-stage start-up companies, and incubators. In each environment, startups benefit from both cost savings and strategic benefits.
Those startups that find space with a potential client enjoy a great opportunity in the product development phase to get immediate feedback. My company, for example, is testing its educational course management system this summer at a school that may eventually buy our software. In addition to free work space, we receive invaluable feedback from teachers and students as we move through our testing phase. As if having a free testing environment were not enough, we also get access to the decision makers that may eventually sign our purchase orders.
Space with a potential client is great; but, there is value to being housed with virtually any business. Some startups receive free office space from larger businesses or later-stage startups. These businesses can provide an entrepreneur with advice on funding, lawyers, staffing, growth strategies, etc. Many decisions are industry agnostic. Further, lean startups can avoid one of the biggest challenges faced by any entrepreneur: loneliness.
Incubators are a slightly different case, as they can be free (e.g., DogPatch Labs), subsidized (e.g., NYUPolyTech), or equity-based (e.g., Betaworks, TechStars, YCombinator). Regardless of format, incubators provide a community for entrepreneurs in which to share ideas, form partnerships, meet investors, and connect with needed talent. In some cases, they provide the platform on which good ideas become great businesses. At the least, they provide space and community for entrepreneurs. Xconomy and an entrepreneur in Philadelphia, Robert Shedd, provide lists of incubators around the country.
In addition to these programs, several universities are now launching "proof of concept centers." A recent New York Times article details how these centers match ideas with "investors and business people interested in developing them further and exploring their commercial viability." At Yale University (my alma mater), the Yale Entrepreneurial Institute provided an early home for YouRenew and PaperG, two startups that have received venture funding and made significant progress in the last few years. Private investors, university endowments, and the U.S. government are all pushing these centers as a means to get ideas to market. Students should research opportunities at their universities and startups that are not directly affiliated with universities should look for ways to get involved.
"You get what you pay for." This old saying applies to many things in life. For startups, though, free or subsidized office space often provides some type of community which in turn, occasionally, brings invaluable additional resources. And at the minimum, it's, well, cheaper.
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