Last week, Amazon announced their shortlist of 20 cities in the US for their HQ2. I personally think this process is just for show at this point. They needed no professional support to get to this list of cities. In fact, they could have gotten 90% of this list by simply cross-referencing NFL cities with international airports.
But Amazon’s process raises a good question for other businesses that use their HQ location as a strategic advantage: what attributes should you look for in an HQ location?
Amazon’s process has done one thing perfectly: it has created a demand for them. No matter what else happens between now and their operational go-live, they will have more job applicants than a typical new company to a market. They will also have an enormous pile of goodwill (unless they screw this up royally and it turns out that they are simply in it for incentive money). These two elements are critical to a business’ long-term success in a market.
Much of a business’ success is dictated by the quality of the talent you can recruit. Good talent reduces your overall cost of delivery because one great finance person is worth three poor finance people (and far less than the cost of those three). The larger your talent and recruiting pools, the more likely you are to land those in-demand A players.
This is a lot of exposition to get to the list of attributes you should look for in an HQ location but it’s important because the selection of a new HQ is as much art as science. Here’s the recipe for success:
- A talent pool that aligns with your overall organizational needs. You want people that understand your business, not just the back office.
- A market that is hospitable to your type of business. A financial company in an industrial town will always feel a bit out of place.
- A cost structure that fits your needs. Don’t go to New York if you aren’t willing to pay for the expensive real estate required to keep up with the Joneses. Don’t go to Huntsville, Alabama if there are no buildings that reflect the type of operation you want to run.
- Do not sacrifice your culture. If you don’t want a Silicon Valley mentality in your workforce, don’t go to Silicon Valley.
- Do not pick a market that is too small. Some companies can get away with dominating a market (Walmart!) but most cannot get away with it. Make sure you have some room to grow even if that means leaving room for competitors to come in behind you.
It’s not a math problem but you can largely model many of these. There’s an art to this process but it requires you to think it all through.
In music, the best songs often have moments where the music disappears completely. Pauses have a purpose that allows a listener to appreciate what came before and anticipate what’s coming next. The break can look awkward when written down or described but the experience of it makes the song that much better.
Graphic designers also have a special place for white space. If every pixel of the screen is occupied by a design element, the eye is not given the opportunity to experience what is happening. “It’s too busy” is almost always shorthand for “Needs more white space.”
Pauses in our daily routines should work the same way. The “mental health day” is often code for needing some white space in our work. Leaving ourselves no time to clear out what we were doing before starting the next big thing does no one any good. It’s important to ensure we are actually ready and engaged before starting. False starts cost more time than delayed starts.
Amazon announced their shortlist of 20 sites for their HQ2. Other than as a publicity stunt, I can’t imagine what they actually did in Phase 1 to get here.
There are no surprises here. There are no dark horse cities with special characteristics that show an ability to think outside the box. There seems to be nothing here but a brute force review of population and ability for the city/state to throw money at their future HQ2.
Don’t get me wrong, this seems like almost every HQ search that I’ve been part of. This is more public than those others but the shortlist is pretty close. Here are some highlights:
- Only 1 Pacific time option with Los Angeles. I’m surprised they even included one as Seattle already covers this time zone and one of the advantages Amazon is likely trying to take advantage of is an improved time zone overlap with Europe.
- Only 1 Mountain time option with Dever. See bullet above.
- Only 3 “Southern US” options (I’m excluding Miami as that is its own thing) with Raleigh, Nashville, and Atlanta. I expected at least one outlier here with either Greenville or Birmingham as a dark horse. This is a growing region with intriguing opportunities for an innovative site selection process to take advantage of.
- No smaller locations, no heartland locations. Again, this reflects more of a “do what everyone else does” style of approach than anything else.
If you are trying to pick a list of cities/states to simply compete against each other to maximize your incentives, this is almost a perfect list. Amazon is still moving in the right direction by giving them the advantages of both the East/West coasts of the US for HQ operations. The 3-hour time zone difference can actually make a big difference to global companies.
It’s a conservative list and the only thing surprising is the lack of surprises.
It is impossible to know everything. It is even difficult to accurately model or simulate those things that you actually do know. The very nature of the future means that it is impossible to predict.
Unknowns are not a negative in a solution. Instead, they are an opportunity that should be embraced. Unknowns present the chance for improvement and change. Choosing how you handle the unknown can often determine whether your solution is bad, good, or great.
For example, when you are determining the length of a lease term there are many unknowns to consider:
- What is going to happen to the local economy?
- How will the business perform against growth estimates?
- What M&A activity could happen during the term of the lease?
- Changes to business products and delivery?
- How will the operation perform against revenue forecasts?
Sensitivity modeling is the act of understanding how your solution performs given various outcomes within the unknown categories. Performing sensitivity modeling can add a lot of complexity to a model and, if done wrong, can actually lead to worse outcomes. But when done correctly, it can give you incredible insights into what aspects of a decision actually matter.
When negotiating a lease, sensitivity modeling can help you understand the relative value of an earlier break option versus simply taking additional square footage. It can help you understand whether it is better to have a single large office or several smaller offices. It can help you take into account the various confidence levels that stakeholders have around their forecasts.
If you want to be great at real estate, you need to understand the smallest aspects of real estate. What does this mean?
- To understand location, you need to understand the people.
- To understand workplace, you need to understand how a single person works.
- To understand a lease, you need to understand accounting.
- To understand a recommendation, you need to understand the incentives.
It’s not often that people want to understand the lowly workstation. That little place where someone shows up to do work. Often times the discussion devolves into one about seniority and the size/location reflecting respect.
It usually starts with productivity – namely, what features are required for a person to be productive? But productivity is that elusive topic that has never received a good definition. No one can adequately put together a realistic way of figuring this out.
If you don’t understand how the workstation will be used, you’ll never be able to figure out the layout and size to put into a building. If you don’t understand how employees utilize space, you’ll never know how many you need for your employees. If you don’t understand how the workstation fits with corporate culture, you’ll inadvertently lead to unexpected change.
Who needs to understand these component elements? Anyone that is involved in the build-out of new space. If the transaction manager doesn’t understand, they will get the wrong amount of space. If the workplace designer doesn’t understand, they’ll design the wrong office. If the business leads don’t understand, they can’t manage change to their teams.
Some situations can only be understood by standing right in the middle of them. When a building “floods” it can be difficult to really understand the extent of the damage without being right there. In some areas, a foot of water may not cause issues but in others, even non-visible amounts may be too much.
They say that a picture is worth a thousand words but it is equally as true that a picture can lie as easily as words. Do you really know what is just out of frame?
Knowing when to travel and when to handle things remotely is a valuable skillset. Budgets are not inexhaustible, the ability to manage costs is always important. However, the cost of getting it wrong can often exceed that small cost of getting there.
I believe in the art of corporate real estate. There is nothing more powerful than stepping outside of a problem and approaching it from the craziest angle that you can think of. Steve Jobs said it best with “Here’s to the Crazy Ones.” Watch it again because it’s worth the 60 seconds it takes.
Conventional thinkers that fall back on the ideas of 5 or 10 years ago almost never change the world. But if you have either a new idea or pull up one from two centuries ago, you have a chance. An idea is only outside the box until it works and then the box immediately encompasses it.
If you think inside the box, you’ll never be able to drive change. Wild ideas can be as simple as getting two people who have never spoken to each other before together for coffee. A one-minute conversation is enough to light someone aflame with creativity.
Never be afraid of the attempt. Never fear failure. Do not back down from the challenge, even if you failed the last 10 times. If you think it’s worth it, try again. But sometimes the easiest way to climb the mountain is to rent a helicopter. Easy solutions are sometimes right.
Art is in all of our souls if we choose to let it out. But the choice is yours.