More on Partnering with Landlords
Small businesses account for well over half of the country's 33,160 catalog, online and non-store retailers according to BizStats.com. A full 65% have total assets below $100,000, with 22% more posting between $100,000 and $500,000. That means every single one of the small biz owners is trying to get more for less, and it starts with the fundamentals of "the space".
The subject of partnering with landlords has come up in about half the comments sent me directly. I'm sure this will be an on-going subject since This is thinly veiled way of asking "how to I get out of paying first, last, deposit, a 10 year lease and my firstborn?"
The short and simple answer is this: share the revenue. You don't want to hear it, but it's what landlords are really after, one way or another. Before you drop dead or look at another location, consider three scenarios (more exist, but I've found landlords unitiated to the world of partnering discussions swallow these pills more easily than others).
Scenario 1:
A share of the business.
If you are lucky enough to be a company issuing stock, which is common in the high tech/bio/pharm world, then cut your landlord in on some options or shares in return for a reduced fee, shorter lease time or other incentives. Building repairs, upgrades, even first right of refusal for additional space. If you don't have the luxury of options, and are a consulting business with a nice cash flow, offer to split revenues above certain milestones. A few of the same return conditions apply-shorter lease time, lower rent ect.
Scenario 2:
Pay-you-less-now or Pay-you-a-LOT more-Later
In this scenario, you offer to pay less than going rate for a lease, but identify that this will be made up (with a generous interest) when the company sells or is merged with another firm. in the case of a manufacturing company, this is particularly interesting since most well-run firms are sold or merge with another firm within the first five-to-seven years of business. And also considering that the money will be better than what the lessor can get at a bank using normal interest, and the landlord can afford it, this is a great way to save capital and make the landlord invested in your success.
Scenario 3:
Offer some type of exclusive.
If you don't have stock to sell or think that merging or selling is realistic, why not offer your landlord the possibility of only going with properties owned or managed by his/her firm. Of course, this only works if your landlord is national, or you are working directly with a developer that is building in your area of interest-be it local, regional or national. Believe it or not, this is a lot more common than you might think. For instance, in the case of the Krispy Kreme franchise, they choose one construction company in each region (a regional being a state or multi-state area, depending on population density) and use that firm to build all its buildings. The construction firm has a train-the-trainer approach that it uses to sub-contract with "local" contractors. In this way, Krispy Kreme truly greases the wheels of the local business community--hiring a master construction firm, requiring that firm work with the locals, and then the locals get invested in the building. For Krispy Kreme, it gets reduced fees but is providing guarantees of work to the entire network of construction firms. For the master construction firm, it has a long-term partner, the ability to plan hiring, and buy in bulk so it gets a higher profit on the materials.
More questions on the subject? email me at sarahg@bmginc.com
