When a company grows, but the office shrinks

Automattic, a distributed company with over 500 people, is moving out of our San Francisco offices. Why?

The story begins in late 2011. Automattic had about 100 employees with 15 of us in the San Francisco Bay Area and the rest spread around the world. We had a small office in San Francisco’s Pier 38 that we used for Bay Area employees, various visitors, and WordPress events. Then we, along with dozens of other startups, got evicted by the San Francisco Port Authority and started looking for a new space. Since 15% of our company was Bay Area based and we were planning to grow to 500+ people over the next 5 years, we decided we needed space for about 75-100 people. We ended up leasing a 14k square foot warehouse in the SOMA area of San Francisco and renovated it into a fantastic space for both co-working and events.

Then something unexpected happened.

Automattic did indeed grow to over 500 employees, but the number of Bay Area based employees never got above the 20-30 range. The company scaled beautifully, yet we never needed all that new headquarter office space. We did use it for many events, including a week long all-company get-together in 2013, but in terms of co-working we never came close to growing into it. So when the time came to renew our lease, we opted out and will move out soon. We might try a co-working space next or find a much smaller office, more like our old Pier 38 space.

Why did this happen? There are a few factors that we failed to take into account:

1. Even when we hire people in the Bay Area, some will move away from San Francisco, or no longer want to commute even if they worked in San Francisco before, once that commute becomes optional. For example, of the current 32 Bay Area based employees, fewer than half come into the office on a busy day.
2. International growth has accelerated as the company has grown, with our US versus international mix going from 65/35 five years ago to approaching 50/50 this year (!).
3. We planned to use the headquarters for a lot of team meetups, but hotels and rentals in San Francisco got so expensive that it was cheaper to hold meetups elsewhere despite having “free” office space in San Francisco.
4. Employee turn over in San Francisco ended up being higher than elsewhere for us, 9.6% in the Bay Area versus just 4.4% everywhere else. I won’t speculate about the reasons behind that gap, but it has obvious cumulative effects that we didn’t anticipate.

I’m going to miss our awesome space in SOMA, but it’s the right call to go smaller. If you are building a distributed tech company, I’m guessing you might see a similar pattern where your initial employee growth is higher near your headquarters and then gets more and more distributed as you get bigger. A good thing to keep in mind when you do your office space planning!

Related Reading: Why True Ventures doesn’t believe in geographic limitations either on the True Blog.