This article about the implications of remote work for startups is authored by:
- Jeff Burkland is Founder and CEO of Burkland. He is a Strategic and Visionary Financial Leader with over 25 years of experience advising companies and startups.
- Darius Mirshahzadeh is the Former CEO of The Money Source. He is a Core Value Driven Entrepreneur, Board Member, Advisor and Author of the newly released book – The Core Value Equation: A Framework to Drive Results, Create Limitless Scale and Win the War for Talent.
Is Remote Work the Future?
As states begin to open up, many companies have announced they will continue with an all-remote workforce. Facebook, Google, and Slack are just a few of the big tech companies that have announced they won’t be returning to work in 2020. Twitter and Square say they never will. Startups throughout Silicon Valley and beyond are quickly following in their footsteps.
Is Moving to a Full-Time Remote-Only Work Model the Right Answer?
It seems attractive for saving costs – like real estate, employee amenities, and office furniture. Despite these benefits, we have deep experience in remote work – and we say ‘no’. If we were starting a tech startup today, we would not build a remote company (post-near-term distancing and stay-at-home).
…we have deep experience in remote work – and we say ‘no’.
Early culture development is extremely valuable – especially for a startup. Employees build trust and relationships in person. Impromptu lunches out, hallway chatter, snacks in the break room, and last-minute coffee runs cannot be duplicated. Relationship building among teammates typically happens organically and drives a company’s culture. The most significant product innovations, project breakthroughs, and creative ideas don’t occur during a scheduled conference call but typically happen organically. During a late-night pizza dinner in the company kitchen or a casual lunch among the product or engineering teams is when some of the best work happens. It’s difficult, if not impossible, to duplicate that process virtually.
Companies like Twitter had already built a culture, and their teams were already in the midst of product developments and projects before the COVID crisis hit, and that has fueled their recent time working remotely. As time goes on, however, that culture and project work will most likely atrophy. Cultural breakdowns and project slowdowns will develop the longer teams stay apart.
Remote work also brings other challenges. There are corporate tax implications with employees residing in different states, sales tax issues with the added complexity of multiple states as well, time zone differences, and major management challenges around junior workforces.
And yet when Jeff started Burkland, he set it up as a remote workforce primarily because he was employing CFOs who would be meeting with their clients at the clients’ offices. Also, CFOs are very autonomous senior-level employees who know how to manage their time. Burkland CFOs already had to travel to multiple client offices, so making them travel to a central office as well would not have been well-received, especially because Burkland CFOs do not need to coordinate with each other. Since each client situation is unique, there is no shared work among the team.
Building a Culture Requires ‘In-Person Time’
Jeff quickly saw that even though the company was successful in that the CFOs were meeting all their client needs, the company was not developing a strong culture. Jeff started CFO meetings every two weeks at a shared workspace so the team could meet and give each other updates. He figured the CFOs would get to know each other and form relationships in this setting, but Jeff quickly learned that those update meetings were unproductive and not a good use of time. CFOs didn’t learn much from each other’s status updates on their clients. Where they did build relationships and start to form a culture was around knowledge sharing. This happened when the status updates shared by CFOs presented an opportunity for others to take learnings back to their client projects.
The Purpose of In-Person Time Matters
Jeff changed the purpose of the meetings from status updates to knowledge share. Each meeting had a specific topic to learn about and discuss. A ‘working together time’ and lunch were added. The sharing of knowledge, lunch, and informal opportunities to work and interact started to build relationships and stronger company culture. Jeff learned that getting together in person was important – but even more important was the purpose of the get-togethers – this is what builds culture. Jeff then added summer and holiday events as other opportunities for team building. Purposeful in-person time together has contributed to a strong Burkland culture. Burkland continues to do things to make remote work successful – and that’s good. Jeff still believes the benefits from in-person teams cannot fully be replicated and remote work isn’t the right thing for most startups.
Jeff still believes the benefits from in-person teams cannot fully be replicated and remote work isn’t the right thing for most startups.
Darius came to the same conclusion but through a different company building experience. Darius built his company quickly at one point scaling from 300 to 800 employees in 18 months with many remote. Darius’ employees were not senior-level CFOs, but a mix of employee type with unique skill and experience sets but less autonomous and requiring more supervision.
Working Remotely Worked for Some, But Not Most
Darius conducted several experiments with the way he set these teams up. He tried Zoom pods where their entire workday was broadcast to the team, and he also tested employees working from home versus those that were in an office. Darius found that a third of the employees could not perform remotely, a third could marginally, and only one third excelled in the remote environment. This group was more autonomous by nature. He found along with being autonomous, level of ability, type of job, and home life also contributed to the success. It became clear to Darius that many needed the separation from their home to be effective.
Remote Work Saw Productivity Fall 20%
Through his experiments and clocking work, he found there was a 20% overall loss of productivity when employees worked from home. The benefit that made up for the loss in productivity was lower costs due to fewer physical offices. However, even with this loss of productivity equaling cost savings, he quickly found his remote workforce was harder to manage, more difficult to communicate with, and showed little employee loyalty.
Employee Turnover Started to Soar
When Darius’ competitors followed his business model and started hiring talent remotely, his employees would change jobs on a whim. Darius’ employee turnover started to soar. This required him to have to increase pay and offer bonuses and other incentives to retain employees, which then started to eat into the savings of having a remote workforce in the first place.
Executives Performed Well
There was one team within Darius’ workforce that performed well – and that was on an executive level. To attract top talent and industry rockstars, Darius’ C-suite was dispersed throughout the United States. Darius found offering remote work was really worthwhile for recruiting high-level senior people. C- level executives are typically autonomous and can be successful in a home office, and this allowed Darius to attract top talent in his industry.
For example, Darius had a CMO in Michigan, CFO in Florida, and a Compliance Officer in DC – his entire C suite was spread out all over the United States. They made it work through extensive travel. Not only flying around the country to meet with their teams but also with each other. Every month, for one entire week, they met and worked together in New York. Since the in-person meetings were so productive with his C-level executives, Darius started rolling out more in-person interaction with his remote employees.
Human Interaction Was Difficult and Expensive to Replicate Remotely
To encourage productivity and loyalty, he started running in-person regional team meetings. Darius also started conducting all new employee onboarding in person. Culture, performance, and loyalty started to improve, but so did the dilution of the cost savings from having few offices (and so did the personal costs of such travel). It showed Darius clearly that human interaction is not only necessary, but it is difficult, time-consuming, and expensive to recreate in a remote workforce.
It showed Darius clearly that human interaction is not only necessary but it is difficult, time-consuming, and expensive to recreate in a remote workforce.
Darius is emphatic that in his next company, everyone will be face-to-face in Austin. It’s imperative for an early-stage company that everyone is all in one room together. The only exception Darius will make will be for rock star hires. However, this will be augmented with travel for in-person meetings in the central office.
Even in the Best Cases, Remote Work Has Its Limits
On the flip side, consulting businesses, like Burkland, where the employees are primarily senior, autonomous, and work out of clients’ offices, create the best scenario for a remote workforce. Yet even Burkland had to and continues to implement in-person working time and events to build and maintain culture. Another option that seems to work well is a hybrid approach. This is where both of our companies have found success with both in-person workings combined with remote work opportunities – whether it be all flying in for a week of meetings or gathering at a shared workspace.
The bottom line is that there are serious negative impacts and ramifications to a company when they choose an all-remote workforce. Twitter and Square’s announcements make great headlines. It’s easy to quickly point to the cost savings and flexibility for employees and declare that remote work is an easy win. Yet in a year or two, we bet Twitter and Square, and the other tech companies and startups who follow suit will find their decisions have had some negative ramifications. When evaluating the cost savings from an all-remote workforce, as our experiences prove, companies need to consider the other implications seriously.