March 15th, 2011

Ripple effect: General Automotive Building headaches for startups cause further effects downstream

Ripple effect: General Automotive Building headaches for startups cause further effects downstream

Maybe I’m just a little oversaturated with the ideas of ripple effects and chain reactions after following the disaster in Japan throughout the weekend. But I couldn’t help but see another example of cause and effect playing out here in the Portland startup scene when I read Mike Rogoway’s piece on the troubles with the General Automotive Building in the Pearl.

While the story may seem to be about a few Portland startups who were impacted. In reality, this setback affects the broader Portland startup community as a whole.

For a brief synopsis, the Portland Development Commission had provided funding to help renovate the General Automotive Building on the park blocks in the Pearl. They did so with the hopes that it would become an attractive and affordable venue for Portland tech startups. And it did. A number of tech startups moved into the space. Problem was—unlike the startups residing there—the space wasn’t ready for prime time.

But the building’s new tenants say key work was left undone, utility bills went unpaid, and they complain that noisy construction continued right through the workday — making it impossible to run their businesses. One tenant left, and another has sought to amend its lease to guard against future problems.

While Puppet Labs is probably the most well known startup in the building, it was the issues affecting Network Redux that seemed more troubling to me. You may not realize it, but Network Redux has been a go-to sponsor for any number of events around town, from Ignite Portland to Portland Lunch 2.0 to Open Source Bridge.

Now, thanks to issues with the building, they’ll have to use that money to deal with building issues instead of funding those types of sponsorships.

“This obviously impacts our ability to do things we otherwise would be doing: sponsorships, donations, and additional levels of hiring both contractual and full time,” said Thomas Brenneke, CEO of Network Redux. “$25,000 is a significant amount of money for any business—more specifically a non-VC backed small business.”

Which points to another issue staring us in the face. Bootstrapped businesses are awesome. And Portland loves them. But no matter how well they’re run, they often lack the wherewithal—and financial cushion—to deal with random financial setbacks like this.

And that’s unfortunate. For both the businesses. And the communities they support.

Network Redux will make it through this. It’s just an unnecessary distraction and financial hardship. And it’s even more stinging because it’s a good idea that went bad. And the very companies that were going to be helped wound up being hurt.

At the very least, it was a learning experience.

Long story short, caveat emptor. If you’re a startup looking to move out of your house or local coffee shop and into a more formal office, Thomas provides the following tips:

  • Do your homework on your landlord. When they request a copy of your financials, request the same in return.
  • Don’t move in to a space unless it is built to your specifications, cleaned and ready. Punch-lists are a landlords excuse for delaying and pushing back work.
  • If the space doesn’t meet your requirements, don’t move in. Once you move in, you have declared the space move in ready and have very little ability or leverage in getting additional work completed.
  • Depending on who your landlord is, what you deem a punch-list item may be determined to be a cost-based adjustment to your agreement.
  • Lastly, determine your needs versus wants and locate yourselves based on the former.

“We went into that building as a profitable, six year old company with many respectable clients,” said Thomas. “Though we didn’t over-extend ourselves financially, we certainly could and should have waited to move into the space until it was move in ready. We leave the space the same profitable and healthy organization. We just have a very different perspective on landlord/tenant relations as a result.”

Here’s hoping the recovery for Network Redux is a quick one. They’ve done more than their fair share of supporting our efforts to build a community. And it would be great to see them back in good health—and in a good space—sooner rather than later.

For more on the issues with the building read New Pearl District offices for tech startups didn’t meet expectations, tenants say.

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