COMPANY CULTURE

The Case, and the Plan, for the Virtual Company

How smart entrepreneurs are finding money and happiness in an office-free life
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On a chilly Monday morning in early February, 30-odd reporters, editors, designers, and the rest of the sundry crew that makes this magazine gathered in a conference room to discuss our next issue. These monthly meetings are typically a time to talk about how stories are coming along, plan art assignments, and make small talk. But this meeting was different, because the issue we were planning -- the physical magazine you are holding in your hands -- would be produced by a company that was not itself entirely physical. When our meeting concluded, we walked back to our desks, packed our things, and headed home. Our experiment had officially begun. We were temporarily turning Inc. into a virtual company.

Everyone fantasizes from time to time about ditching the office -- the commute, the cubicles, the bad coffee -- but it's probably fair to say that leaving this particular office was a little bit harder for the Inc. staff than it would be for most companies. We have probably the nicest offices of any magazine in New York City. We occupy a high floor in a new $700 million building. Our space has floor-to-ceiling windows and views of the Statue of Liberty and the Empire State Building. We rent this place out for photo shoots.

Moreover, magazines seem especially resistant to all things virtual. This is a traditional business that concerns itself with traditional things. For more than 30 years, Inc. has been printing ink on paper, gluing that paper together, and sending it to your home or office via a real-life mail carrier. Even the nonphysical parts of what we do involve intense, on-the-spot collaboration: the over-the-shoulder read, the spontaneous meeting, the fortuitous interruption.

And yet, here I am, writing these words in my slippers, a cat in my lap, my co-workers represented by a neat list on an instant messaging program on my laptop's screen. We at Inc. have written a lot about companies that have experimented with new ways of working. We have been told by entrepreneurs, academics, and consultants that getting rid of the office and working remotely can make a company more productive, better for the planet, and cheaper to run. We have also heard that the idea of taking an organization like ours virtual is totally crazy.

It is a little bit crazy, but it also just might be the future of work. So we tried it. What follows is what we learned -- the why, the how, and the why not of going virtual. Think of it as your blueprint for your officeless future.

Step 1: Crunch the Numbers

Let's start with the most obvious reason to go virtual: It will probably save your company a substantial amount of money.

To be clear: This was in some ways a hypothetical experiment. We continued to pay rent for our empty office, and the noneditorial side of the business, which includes salespeople, administrators, and software engineers, continued to come to work. That said, if Inc.'s editorial operations no longer required an office, we would save about $500,000 a year in rent alone. That's an enormous sum for an organization like ours -- enough to pay every full-time staff member a $16,000 bonus. (This calculation, like many of the numbers in this story, is an estimate. In this case, the real estate savings is based on the average price for office space in Manhattan, which is $49 per square foot per year, times the rough footprint of our editorial operations, about 10,000 square feet.) Another potential area of savings comes in the form of added productivity. Working at home meant that we each saved about an hour every day by not commuting. Theoretically, at least, that would add an additional 20 hours of productivity per person per month. For the company, that's the equivalent of getting an extra half a week's worth of work for free.

Even if employees don't work any extra hours, allowing them to work from home is a benefit that won't cost you much. Time was when companies that wanted to set up a telecommuting program hired a consultant who would write a policy, give the employees a series of seminars, and buy a bunch of expensive equipment. Today, thanks to the widespread availability of free, easy-to-use communications technologies, a lot of telecommuting consultants are out of business -- and most virtual companies end up without offices not as a result of some heated planning meeting, but simply by accident. "My thought was, We'll do it this way in the beginning and centralize the location down the road," says Tony Conrad, who in 2005 founded Sphere, which developed a tool used by publishers and bloggers. Conrad never got around to the centralization part, and, after just three years, he sold Sphere to AOL for $25 million.

Most virtual companies continue to pay for the basic equipment and services employees need to work at home, reimbursing employees for a computer, a cell phone, and any necessary software and repairs. But other expenses -- including Internet access, electricity, and office furniture -- are typically transferred from the company to the employee. "The money employees save on gas, laundry, and lunch out of the office more than makes up for it," says Andy Abramson, the founder of Comunicano, a 32-person PR agency he runs from his Del Mar, California, home. As with traditional companies, employees can claim an income tax deduction for any business expense that the company doesn't cover, including part of their rent or mortgage if they have a room in their home that is used exclusively as an office.

The one expense that is likely to grow as your company goes virtual is your legal bill. In general, U.S. law treats home offices no differently from traditional ones, which can create administrative headaches for companies that have employees in multiple states. "The rule of thumb is that if you have an employee in a state, you're doing business there," says David Goldenberg, a founding attorney of Virtual Law Partners, an officeless law firm. The upshot: Each home office has to comply with that state's labor laws and pay taxes on any income earned there. Your overall tax bill probably won't go up much -- it might even go down if your employees live in states with low taxes -- but you should count on spending at least a few thousand dollars to make sure you are following the rules.

Step 2: Get the Tech

Repeat after us: The technology doesn't matter as much as you think it does. The more time we spent out of the office, the less we even thought about the technology. Most virtual employees can do their jobs with a laptop, some free software programs, an Internet connection, and not a whole lot else.

Unlike companies with offices -- which often have servers, a telephone switchboard, and a bunch of enterprise software licenses -- virtual companies usually take advantage of the same free and low-cost services that consumers have been using for years. This is no sacrifice. Not only are consumer services, such as Gmail, Skype, and Dropbox, generally cheaper than their business counterparts, they are just as good. Except when they are better. "Enterprise software companies invest all of their money in sales and very little of their money in actually improving their products," says Paul Graham, who co-founded a business software company before starting Y Combinator, a small-scale venture capital fund that has invested in numerous virtual companies. "One of the advantages of going virtual is that you escape crappy enterprise software and get to use the cheap consumer stuff."

Case in point: Skype. Our staff loved Skype, which put us in the company of some 500 million people who use it to make free and low-cost long distance calls through their computers. But most businesses have ignored Skype. That includes Inc., which spends a hefty chunk of change -- roughly $770 per person per year -- on traditional telephone service. Our phones work fine; there's a very satisfying dial tone when you pick up the handset. But Skype makes and receives calls perfectly well, and then throws in free video calling, instant messaging, and superior sound quality. Our annual phone bill from Skype would be around $80 per person.

Not only are consumer technologies generally cheap, easy to use, and reliable, but the pace of improvement is breathtaking. Because there's brutal competition between the big tech companies and upstarts, virtual companies are constantly getting more for less. Just as we were preparing to leave the office, Skype announced that it would support high-definition video calling for free. Companies like Cisco charge tens of thousands of dollars for similar services. Around the same time, Google announced that it would begin allowing people to upload and share any file on its servers -- also for free.

The only real technological hang-up for us involved our existing IT infrastructure. Virtual companies don't own servers; instead, they rent storage space from the likes of Amazon and Rackspace. The approach is generally a lot cheaper than buying and maintaining hardware. But Inc., partly because it's part of a larger company and partly because our systems were designed before the explosion in popularity of cloud computing, relies on a room with dozens of physical servers that handle our e-mail and allow us to collaborate on magazine pages. The system works fine when we are all in the office, but connecting remotely during our virtual experiment was another story. Downloading a magazine layout, which normally takes a few seconds, took as long as 10 minutes. That gave our designers a chance to tune in to the Olympics as they waited for a file to load, but it also slowed things down.

Step 3: Settle In

This step sounds easy -- what could be more comfortable than working in your own home? -- but it's deceptively hard. During the first week of our experiment, many of us were very nearly losing our minds. Some forgot to eat lunch; others ate way too much. Our feet were cold; our backs ached; and, in a few dire cases, our relationships suffered. "The hardest aspect was just getting my family to accept that while I am now physically at home, I am not really available," says Rick Schine, a senior editor. "There were moments of sheer joy -- like overhearing my son practice his piano downstairs -- but there were also unexpected tensions."

It turns out that spending your entire adult life working in an office causes you to develop habits -- taking a walk to buy lunch, for instance, or leaving the office at 6:30 every night -- that are an effective buffer against stress, frustration, and all other manner of emotional instability. But these habits didn't immediately take at home. "In a strange way, I felt more tied to my computer than I felt before," says Kasey Wehrum, an Inc. writer. "I was spending all day in my tiny apartment, not talking to anyone. I felt weird." He had expected to use his lunch hour during the virtual month to go to the gym or take care of chores. Instead, he rarely took a lunch break at all.

This is all to say that proximity to home doesn't automatically lead to harmony there. "My work-life balance sucks," says Matt Trifiro, the CEO of 1000 Markets, a virtual company that he directs from his Orcas Island, Washington, home. "But if I had to go to the office, I'd see my family even less." Trifiro says home-based workers will probably need to establish the meaning of a closed door. "My 2-and-a-half-year-old son knows that if he comes into my office, it has to be a special occasion," he says. The routine of going to a private, dedicated workspace in your home -- or even getting dressed as if to go to the office before sitting down to work -- is a good way to emotionally prepare yourself, or your family, for the workday.

Meanwhile, getting comfortable at home means designing your workspace with the same care with which you would plan a traditional office. In the first week of our experiment, we IM'ed constantly about how much we missed our office chairs. Working from bed may sound like a dream, but, in practice, trading an ergonomic chair for a mattress will give most people back pain within a few days.

Of course, the beauty of running a virtual company is that you don't need to confine yourself to one place. After a few days of working alone -- and feeling starved for human contact -- I found myself splitting my days between coffee shops and my living room. Meanwhile, co-working centers, which are communal workplaces that charge by the day, can serve as a laptop-friendly alternative to the coffee shop. Another ridiculously underrated place to get work done: the public library.

Step 4: Master Your Emoticons (And Everything Else About Communicating Online)

For many companies this isn't easy -- and it wasn't for us. Making a magazine, like other creative endeavors, involves a certain amount of controlled chaos. We pop in, eavesdrop, and generally express ourselves at will, which can feel a little bit chaotic to outsiders but which also happens to work.

These characteristics make us a particularly hard case for going completely virtual. "The virtual approach can be especially destructive for companies where decisions are made in the hallways," says Batia Wiesenfeld, a professor at New York University's Stern School of Business. "What happens is that decisions start getting made independently without discussion." That can be a good thing when the decisions are small, but when they get to the heart of what you do, you are in trouble.

There are ways to encourage collaboration. Most officeless companies use some sort of virtual water cooler, either with a communal chat room on Skype or with one of a handful of specialized services made for this very purpose (see "The Best Collaboration Tools"). And then there's video chat. We tried out several options, including Skype's free offering and a pricey videoconferencing system from Vidyo. The experience is surprisingly intimate, and it allows you to have a more complete sense of who your employees are. (You will be familiar with their homes, their kids, and their taste in casualwear.) But it's still hard to achieve the easy spontaneity of a face-to-face meeting. Setting up a videoconference just to shoot the breeze felt somehow wasteful, and we ended up talking much less to one another than we do in person. "I got my work done, but I really didn't interact with that many people virtually," says Lindsay Silberman, a reporter who joined Inc. just two months before our experiment began. "Not seeing people every day really hindered my ability to bond with everyone else."

From some points of view, of course, that might have been a good thing. "Working virtually makes you a much more effective manager," says Conrad. "When everyone works in proximity, your viewpoint can get clouded, and you can end up giving people a bit more leeway than they really deserve." It's a harsh thing to say, but it's true. Many managers, consciously or not, place a lot of emphasis on their employees' ability to show up on time and stay late. Going virtual removes this proxy.

Cutting down the volume of communication also makes it easier to do certain kinds of work. I was much more productive as a writer at home, where I found myself able to stay focused for long stretches of time, often becoming so engrossed that I would work late into the night, forgetting to stop. On the other hand, when I wasn't writing, I felt isolated; my mood swung wildly from extreme satisfaction one minute to dire self-doubt the next. These feelings are common among remote workers and require regular, deliberate attention from virtual CEOs. "Some of my employees end up feeling out of the loop," says Trifiro. "So once every couple of weeks, I'll just call them up and chat with them for an hour or so about nothing in particular. It helps fill the emotional gap."

Step 5: Explain Yourself

So you have shuttered the office, gone home, and gone virtual. You are saving money and your employees are happy. Your company has never been stronger. The only problem is that your neighbors, customers, and competitors all think you have gone out of business. The day after we announced that we were temporarily shutting down our office, a blogger for the Columbia Journalism Review wrote this: "If I were a staff member at Inc., I'm not sure if I would be approaching this experiment [as] a clever bit of participatory journalism, an innovative, cost-cutting measure that could help save the future of the ailing magazine industry, or just be really freaked out that it sounds eerily like what happens when a title in said industry goes to that virtual workplace in the sky and shuts down for good."

This insinuation -- that our experiment in doing without an office was a prelude to shutting down the business altogether -- betrays a widely held prejudice about virtual work. Outsiders are apt to view even the most successful virtual companies with a measure of skepticism, if not outright derision. Convincing them otherwise means carefully managing perceptions about yourself and your company.

Telecommuters have long dealt with the perception problem by using creative descriptions for what they do. Leigh Buchanan, who has worked as an editor-at-large for Inc. from her home in suburban Boston since 2006, suggested that Inc. employees tell people "I work out of my home office," rather than saying "I work at home." Thanks to services like Google Voice, which allows you to forward calls to any domestic phone number for free, it's getting harder to tell who is at work and who isn't. Most outsiders who called me during our experiment simply assumed I was in the office, and I never bothered to correct them.

Meanwhile, given that 34 million Americans are working from home at least part time, according to the research firm Forrester, outsiders are increasingly less likely to look down on you. During our virtual month, senior editor Nadine Heintz scheduled a meeting with Fellowes, the office-supply company. Not only did the company's representatives happily agree to visit her home in Staten Island -- 45 minutes from Inc.'s headquarters -- but they came during a storm that dumped a foot of snow on New York City. "They acted like we were at the office," she says. She had her husband shovel the driveway, and she served homemade zucchini bread.

Even so, not everyone is so open-minded. "Never say, 'We're a virtual company,' " advises Tony Conrad, who, in addition to founding Sphere, is a partner in True Ventures, a VC firm that has invested in several virtual companies. "Say, 'Our headquarters is in San Francisco' -- or wherever -- 'but we have employees all over the place.' " He recommends renting a small office if necessary; you can use it for meetings with potential investors, clients, and business partners. This is the approach taken by one of Conrad's portfolio companies, Automattic, which leases an office on San Francisco's Pier 38, a block from founder Matt Mullenweg's home. It has some desks but no computers, and most of the time it's empty. "It makes visitors and partners feel better," says Mullenweg. "But I don't go in at all unless I have a meeting."

Though a company's virtual status might be seen as a downside by potential customers, it can be an asset when it comes to hiring. Automattic is based in the Bay Area, where competition for the sort of talented engineers the company needs is brutal. But Mullenweg can hire from a talent pool that extends well beyond Northern California; and, in fact, only seven employees live locally.

Moreover, the option to work from home can be an attractive benefit even to those who don't immediately take you up on it, a fact that became clear as we attempted to hire a new Web producer during our virtual month. "I had to reassure people coming in for interviews that we hadn't laid off the entire staff," says Mike Hofman, the deputy editor for Inc.com. "But I think it made us more appealing, conveying a sense that this was a workplace where employees are allowed flexibility and where you are judged by the work you get done, not simply for showing up." Take that, Columbia Journalism Review.

Step 6: Consider Your Culture

This step is the hardest step of all, because it's more or less incompatible with everything else about breaking free from the office. It involves costs and benefits that are unknown and difficult to predict; it has very little to do with new technologies or improved managerial techniques; and it can't be solved by any amount of communication. Instead, it means asking yourself big questions about the kind of company you have, the kind of company you want to have, and why you became an entrepreneur in the first place.

At its most basic level, going virtual means moving away from a culture of collaboration by a group of competent generalists and toward one based on specialists who are cheap, efficient, and good at meeting deadlines. To the hard-nosed operator, this probably sounds good -- who doesn't want a cheap, efficient staff? -- but to those entrepreneurs who think of their employees as extensions of their own family and who are skeptical of the ability of strangers to work well together -- which is to say, to most entrepreneurs -- it might sound a little bit scary.

Indeed, management theory says that companies exist because collaboration creates more value than individuals working on their own. So if a virtual company can't figure out a way for dispersed workers to add to one another's efforts, there is a risk it will cease to create value and will fail. "There's a danger that a company that goes virtual will stop being an organization and turn into a market," says Wiesenfeld, the NYU professor. By that she means that workers, feeling increasingly disconnected, will be more inclined to make decisions based solely on their self-interest.

To be sure, there are entire companies built on the premise that treating one's business like a market is not a bad thing. oDesk, for instance, is a Menlo Park, California–based start-up that has fashioned itself as an eBay for virtual companies. The company sells software that allows you to manage the hiring, firing, and payment of employees the same way you might buy office supplies. Potential hires are listed in a Web-based directory -- on a recent search I found a journalist who claimed to do the same job I do for a lot less than I earn. Once employees are hired, oDesk's software monitors them throughout the workday. It logs the frequency of their keystrokes and mouse clicks and even takes pictures at random intervals using a webcam.

oDesk is popular -- to date, businesses have spent $128 million using the company's platform -- but the company isn't virtual itself. It rents an 8,000-square-foot space that costs $300,000 a year, and most of its 32 full-time employees come to work four days a week. I called oDesk's CEO, Gary Swart, on a Tuesday, which was supposed to be his work-from-home day, but I found him in the office. "I think I get more done here," he confessed.

This is not to say that it's impossible to create a strong culture outside of an office -- the CEOs mentioned in this story are confident that they have done it. But most virtual companies build their cultures from scratch, hiring the sort of people who want to work remotely, who don't want to be friends with their co-workers, and who like being a long distance away from their bosses. Virtual companies are also, crucially, run by CEOs who are able to derive a sense of personal fulfillment from this arrangement. Many entrepreneurs speak of the flush of pride they feel when they walk into their offices and see the people they have created jobs for and the culture they have fostered; Matt Mullenweg gets that same rush from looking at a map and seeing his employees scattered across the world.

As we returned to the office on March 1, a month after our departure, I wrote an e-mail to the staff asking them this: If you had to choose, would you stay virtual or return to the office?

A handful came down firmly in favor of working from home. Our copy chief, Peter McLaughlin, who was among the most skeptical before our experiment began, changed his mind completely. "I would, without a shadow of a doubt, choose to work from home full time," he says. "Not only would it save me $300 a month in commuting costs, it would allow me to roll out of bed at 10 a.m., walk 20 feet, and be at work." Some begged for a middle ground -- a hybrid approach with a smaller office, less commuting, and the flexibility to work where one is most comfortable. That is probably the model that will be adopted by more companies as technology improves, as our economy becomes even more globalized, and as concerns about the environmental impact of commuting grow.

But most Inc. employees said that, although an office in the abstract sounds like a rather depressing place to spend the majority of one's adult life -- easy to mock, difficult to love -- they had nonetheless found room in their hearts for this peculiar institution. "I liked the freedoms that working from home presented, but I felt like my life became less dynamic," wrote Travis Ruse, our photo director and the guy who conceived of the pictures in this article. "My job really became just about my job. I missed the distractions and surprises that my co-workers bring to the day. Part of working is the social aspect of doing something collaboratively. I missed that very much."

Travis also wrote this: "I missed my friends," which, when you think about it, is probably the most powerful argument of all in favor of sticking with the office, one more or less immune to number crunching or prognosticating or anything else.

As we finished the issue you are reading and started working on the one we hope you will read next month, it was a relief to settle into our old rhythms and to catch up with our old friends. It also was a relief to know that, if pressed, we could survive without our ridiculously nice offices and still make a magazine. But mostly, it was good to be back.

Max Chafkin is Inc.'s senior writer.

Last updated: Apr 1, 2010




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