Is my workplace too small for a web company?

I would stay put to keep the costs low until things get rolling. I would venture a guess that the companies you mentioned started off in similar conditions.

I'd be more concerned about that very hot server room!

Ditto the hot server room -- but yeah, most web companies that died did so because they spent money on things like pool tables and large colorful offices.

Office space is the hardest thing to get rid of -- most of the time, you can't lay off 500sf of your office to cut costs when things get rough.

yes stay where you are and buy an airconditioner for your server

amazed that you are actually hosting your servers yourself... I mean most colocation places around here are $100 a month for 100Mbps up & down, guaranteed up time.

@Tyson - Yes, I was wondering that also.

i work my company out of my bedroom with two workstations. and I just incorrectly installed an airconditioner vertically to keep cool. that's how you have to roll with a startup. now if you'll excuse me, i'm going to lay spreadsheets out on my bed, er, conference room

Some small companies take over a local coffee shop or use co-working spaces. You might benefit from being out meeting other starters.