This article was previously published on EIX – Entrepreneers and Innovators Exchange.
Data shows that pre-seed and seed startups with employees in a physical office have 3½ times higher revenue growth than startups that only work remotely.
Let’s start the discussion.
During the pandemic, businesses have engaged in one of the largest unintended experiments in how to organize office work: remotely, in the office, or a mix of the two.
Post-pandemic, startups are still struggling to figure out how best to manage the challenges of returning to the office – employee expectations to continue working remotely and the best path to building and growing a profitable company.
Before asking which configuration is best, the first question is what exactly do “remote work” and “office work” mean? Today’s work configurations range from no office (fully remote, natively digital) to part office (flexible hybrid, synchronized hybrid, office-first) to office only.
James Kim of Reach Capital, an early-stage technology education investor, examined portfolios of 37 companies using the following breakdown of how virtual and physical work can be structured.
Using this model, James discovered that: Early-stage and early-stage startups whose employees returned to some type of office saw 3.5x higher revenue growth than those that were fully remote.. This is a huge difference, and while other factors may play a role to some extent (see “What This Means” below), the impact of an all-inclusive approach cannot be ignored.
What could explain these differences? Not surprisingly, nearly 90% of responses from pre-seed/seed startups said their team culture was influenced by the organization of their work. But surprisingly, self-reported team culture, Employee Net Promoter Score (eNPS), and regrettable turnover (leave that harms the company) are similar across job configurations.
So while employees say team culture doesn’t seem to change regardless of office makeup, the performance of very early-stage startups (as measured by revenue growth) tells a different story.
What does this mean?
The data are suggestive but not conclusive. See a full summary of the survey results here.
Let’s start with the data set. The survey sample size was 37 companies in Reach Capital’s portfolio. This is big enough to see patterns, but not big enough to generalize to all startups. Next, Reach Capital’s portfolio of companies is about education and the future of work. Earnings results based on workplace configuration may vary in different markets. Rich Capital’s investments are made in Brazil and other regions, so its geographic location is not limited to Silicon Valley.
Finally, office configuration is just one of the factors that can affect a startup’s growth rate. Still, the results are suggestive enough that other VCs might want to run the same survey across their portfolios of companies and see if the results are consistent.
(By the way, Nick Bloom and others at Stanford have conducted extensive research with thousands of people on remote and hybrid work, here and here. Their study primarily focused on employees who perform independent day-to-day tasks, such as travel agents. However, we are interested in a very specific subset of creative knowledge workers in the early stages of startups. search For product/market fit and business model, not when performing routine tasks.
If the results appear elsewhere, you can guess why. Working from home can lead to more distractions due to household chores, family, and networking issues. Do these little things make a meaningful difference in productivity?
In early-stage startups, do random conversations between employees at unscheduled, unplanned times lead to better insights and ideas? So, does productive brainstorming occur within departments (e.g., engineer to engineer) or cross-fertilize across departments (e.g., engineering to marketing)?
Research from your 20sDay The century has proven that informal face-to-face interactions are important for coordinating group activities, maintaining company culture, and building teams. This informal information allows employees to access new, non-redundant information through connections to different parts of the organization’s formal organizational chart and through connections to different parts of the organization’s informal communication network. Additionally, research has shown that creativity is significantly enhanced in “small world networks,” i.e. highly locally clustered network structures. and It is a hotbed of unplanned, fluid interactions that often support innovation. That is, inside an early-stage startup.
For decades, Silicon Valley company founders and investors have known these small-world network effects as tacit knowledge. This has been a hallmark of the physical design of Silicon Valley office spaces, from Xerox PARC to Pixar headquarters to Google and Apple.
Then perhaps the opposite is true. Does working remotely, with ad-hoc or fixed meetings via Zoom, really hinder your business growth? Creativity and new insights, right when startups need it most? Are there new tools like Discord and others that can replicate the water cooler effect of physical proximity?
Either way, it’s the start of an interesting discussion.
How was your experience?
Lesson
- According to data from one VC, early-stage and early-stage startups with employees coming into the office have 3½ times higher revenue growth than startups with employees working remotely.
- Is the data valid? Is it the same for all markets/industries?
- If valid, why?
- Is there a difference between remote and in-office productivity for creative and executive tasks?
Filed under: COVID-19/Recovery, Family/Career/Culture |