To Expand Your Business, Go Home
By JOHN TOZZI, BUSINESSWEEK.COM
Posted: 2008-09-04 14:03:48
Moving out of your brick-and-mortar offices and running your company solely online can cut expenses and boost productivity.
Plenty of Web entrepreneurs start their ventures at home and move into commercial spaces only when they expand. Unity Stoakes and Steven H. Krein did it backwards. They ditched their office space in midtown Manhattan a year after founding OrganizedWisdom, a health search engine vetted by physicians, and sent their staff of nine to work from home. And after more than a year of running OrganizedWisdom remotely, Stoakes and Krein wouldn't do it any other way.
The pair of serial entrepreneurs were willing to experiment based on their experience at their previous venture, Promotions.com, which they took public in 1999 and was acquired by iVillage in 2002. Stoakes recalls being frustrated by how much time they spent finding room and sorting out other operational details for a staff that grew to more than 200 people.
Founded in January 2006, OrganizedWisdom aims to provide health information curated by online guides and vetted by doctors, making money by selling advertising and licensing information to health media companies. To collaborate online, the company depends on group software like chat, wikis, Basecamp for project management, and PlanHQ for business planning tools that were clunky, expensive, or nonexistent just a few years ago. Even when the company had an office, several staffers worked off-site -- one in Boston, another on the West Coast -- and others worked from home part of the time. "More and more we started coming into the office less and less," Stoakes says.
Operating Expenses Slashed
With the infrastructure already in place, Stoakes and Krein gradually switched to remote work early in 2007, abandoning their office entirely that September. Now, Stoakes works from his apartment in Manhattan's West Village or sometimes from a nearby park, his building's roof, or a neighborhood cafÈ. Armed with his MacBook, iPhone, and paper notebook, he says he can work wherever he has a Wi-Fi signal. At first, he and Krein debated whether the change would make them more efficient. Almost a year into operating without an office, Stoakes is unequivocal about the benefits, which he recently enumerated on his blog.
In financial terms, eliminating the cost of Manhattan office space cut OrganizedWisdom's operating expenses by about 30%, Stoakes says. The company now recruits new hires from anywhere, rather than focusing on people in New York. OrganizedWisdom has hired five people abroad through an outsourcing company that manages the tax and employment law issues (BusinessWeek.com, 7/3/08). And Stoakes has positioned the shift as his company's commitment to environmental sustainability, pointing out how it eliminated the energy, paper, and travel costs associated with an office.
Jack Nilles, who first popularized the idea of telecommuting in the 1970s, says Stoakes' estimate of cost savings and productivity are in line with research on telecommuting. The president of Los Angeles consulting firm JALA International, Nilles says a company's savings for each remote worker can equal 20% to 30% of the worker's salary, mostly in the cost of office space, while productivity can rise by 15% to 20%. (JALA's site offers a tool to estimate how telecommuting could affect your company.) With gas topping $4 a gallon, Nilles thinks other companies will follow OrganizedWisdom's lead. "I would expect to see a jump, if not a bubble, in this over the next several months," he says.
Loss of Spontaneity
Beyond saving on rent and commuting time, Stoakes says having employees work from home lets OrganizedWisdom "focus on innovation rather than operations" in a crowded space where competitors include WebMD and Google Health (BusinessWeek.com, 2/29/08). "If we need to hire 20 people tomorrow, we don't need to worry about, 'Oh, where are we going to put them?'" Stoakes says.
Taking a brick-and-mortar company virtual has its own complications. New hires have to be set up to work from home. OrganizedWisdom doesn't provide them equipment, although Stoakes says bonuses based on productivity help offset the cost. Stoakes also understands that not everyone is a good fit for remote work, so he asks job applicants if they have ever worked from home and tries to determine whether they'll like it.
The biggest adjustment to eliminating the office, Stoakes says, was losing some of the spontaneous interaction that occurs when teams share space. To remedy that, the company has quarterly team meetings and brainstorming sessions at an investor's office in New York. OrganizedWisdom's full-time staff has doubled to 18 since the company went virtual, and the meetings help maintain face-to-face connections. (The company also pays hundreds of freelance contributors to help curate content online.)
Of course, not everyone can make a virtual office setup work. As a company that used to have an office, OrganizedWisdom is actually more likely to succeed compared to startups that have never shared a physical space, according to Stephen Barley, an engineering professor at Stanford and co-director of the Center for Work, Technology & Organization. "They may find that the lack of face-to-face coordination may give them trouble, but probably not as much as someone who tries to do this without ever having face-to-face contact," Barley says. Assembling remote workers in person at the start of a venture or project can make them more effective when they work from home, he says.
No Going Back
The greatest risk of going virtual is that companies may not plan enough to keep workers connected when they're apart, says Nilles. "You need to find out whether there's some people who simply cannot work this way," he says. "You need to train them how to work together when they're not together."
The approach seems to be working for OrganizedWisdom. The company raised a $2.3 million Series A investment round led by ETF Venture Funds in June. Stoakes would not disclose the company's revenue, but says he expects to turn a profit in 2009 -- a year earlier than it would have if it still had to pay rent. For Stoakes, there's no looking back to the office. "We've gotten pushback from investors, we've gotten pushback from different friends who think we're crazy, and we've told people, 'This is the future of building companies,'" he says. "We will definitely build our next business this way."
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Tozzi covers small business for BusinessWeek Online.