Like many white-collar workers, I started my career in a cubicle. To say I didn’t like it is a gross understatement. I eventually got used to it, then moved to a company with a better cubicle positioned next to the funny (and cute) receptionist. I had deja vu every time I saw an episode of “The Office.”
Then something happened that I didn’t expect: My work dried up nearly overnight in the housing crisis, and I took a telecommuting job with a young, virtual-only startup. Over the next 12 months it exploded in growth, and I found myself its vice president. That was 10 years ago. I’ve never worked a traditional in-person job since, and I started my own virtual-only business along the way.
While virtual businesses come with their own unique challenges, they boast some compelling benefits compared to their brick-and-mortar counterparts. And that says nothing of the perks that nimble, full-time virtual businesses enjoyed during the coronavirus pandemic.
What Is a Virtual Business?
The stereotype of virtual businesses is an image of online companies that sell digital products: software companies, tech companies, data companies – all ones and zeroes and nothing physical or tangible.
In reality, virtual companies are just businesses without a central office, store, or physical location. Many sell physical products; they simply sell them online or by phone. In the absence of a warehouse, they outsource order fulfillment to drop-shipping companies. Even real estate companies can be virtual, offering listing services, marketing, and other services that take place in the real world.
While some businesses like coffee shops and bars can never go completely virtual because they sell an in-person, location-based experience, most of the world’s businesses can decentralize if they so choose. Cubicle farms and office space, it turns out, are less crucial to business success than many commercial real estate agents would have you believe.
In fact, many of today’s largest companies started as home-based businesses, online-only businesses, or both. Jeff Bezos started Amazon as an online bookstore out of his garage. Steve Wozniak had a hobby of tinkering with computers in his garage, and Steve Jobs saw the potential and joined him. Mattel was originally a picture frame business run by three friends out of their garage.
Advantages of a Virtual Business
Over the last 10 years, I’ve discovered firsthand the incredible advantages of virtual-only companies. Some are obvious, others less so. And, of course, there are a few challenges as well. But in my experience, the advantages far outweigh the challenges.
What’s in it for you as an entrepreneur, whether you have an existing virtual business or are thinking about starting one?
1. Lower Startup Costs
This one is obvious. Physical space costs money: money to rent it in the first place, money to furnish it, and money to keep the lights on. To put the physical costs of a business in perspective, consider how much money health care giant Aetna saved by closing offices and transitioning employees to telecommuting. When the transition was complete, Aetna had eliminated 2.7 million square feet of office space, saving them $78 million.
In my own business, our startup costs were few. We bought a domain name on GoDaddy for $9.99, bought hosting from Bluehost for $20 per month (you can get basic hosting starting at $2.95), and filed an LLC for $90. That made our startup costs around $120, compared to thousands of dollars to find and outfit a physical location.
And as anyone who’s ever tried to get financing to start a business knows, the lower your startup costs, the more likely you are to be able to afford to launch without relying on outside funding.
2. Lower Ongoing Overhead
Physical office space doesn’t only cost money once. Sure, brick-and-mortar businesses have some one-time outfitting expenses like furniture, decor, the initial round of computers and office equipment, and perhaps wiring. But many of these expenses continue ad infinitum. Rent is due every month, as are utilities and property taxes, which often aren’t included in the rent for a commercial space. And we all know how quickly tech equipment goes obsolete and needs replacing.
In an analysis of over 4,000 studies on productivity, costs, and other differences between physical versus virtual companies, Global Workplace Analytics found that the average real estate savings for employers switching to telecommuting are $10,000 per employee per year. That’s just the real estate savings!
American Express reports that they save $10 to $15 million every year by largely virtualizing their workforce, as Forbes reports. Managed services agency LAC Group estimates that the average in-office employee costs companies $200 per year in office supplies alone.
My own business would not have survived if we had incurred overhead. During the lean months, the only reason we could afford to move forward was that our mandatory ongoing expenses averaged between $100 to $200 per month. Everything else could be trimmed back as needed.
If you manage an existing business and aren’t ready to go 100% virtual yet, encouraging telecommuting or closing and powering down the office some of the time can lower your small-business costs in the meantime.
3. Lower IT Costs
As a virtual-only company, you don’t need to provide your employees with computers or even tech support. They provide their own equipment, and if their computer crashes, it’s on them to fix it.
Network Alliance estimates the average company spends $700 per employee per month on IT. That includes equipment, office connectivity, technical support, and IT labor costs.
Do employees object to becoming responsible for providing their own equipment and tech support? Not at all, as it turns out.
4. Higher Demand by Employees
Employees love telecommuting. Global Workplace Analytics reports that 70% of employees rate the ability to telecommute as somewhat to extremely important for choosing their next job. In fact, 37% of employees say they would take a 10% pay cut for the ability to telecommute.
It makes sense. For many workers, flexibility — to set their own hours, be available for their children as needed, and live wherever they want — is worth more than money. They see opportunity for better work-life balance, which in turn means lower likelihood of burnout.
Employers who offer telecommuting benefit from greater demand and competition among potential hires, helping them fill coveted positions faster and with better employees.
5. Broader Labor Pool
Similarly, employers who can hire people anywhere in the world have a virtually limitless talent pool of prospective hires. But for an in-person company based in an isolated small town, the potential workforce is limited to whoever happens to live within a 30-mile radius. That small pool of prospective hires may not have the skills the company needs.
In my own company, we have employees in Pennsylvania and Pakistan, in Houston and India. I live in Brazil much of the year. We’re less concerned about where an employee lives than we are with their skills, personality, productivity, and costs.
When you’re ready to expand your remote team, start by deciding whether to hire a freelancer or an actual employee.
6. Lower Labor Costs
When you can hire people from anywhere in the world, you can take advantage of geoarbitrage.
Geoarbitrage is a fancy word for hiring workers in areas with lower costs of living to reduce personnel costs. For example, I’ve paid $12 per hour for Web development through services in India. In many cases, they did excellent work. And while I’ve had some bad experiences with low-cost Web developers, I’ve also had plenty of bad experiences with high-cost American Web developers too.
Web development education service Codementor ran a study on Web development costs across the world. They found the average employment cost for a Web developer in Palo Alto is $87 per hour. That’s 7.25 times more than the $12 per hour I’ve paid to some Indian Web developers. Even if the Palo Alto Web developer is more skilled and experienced, which is far from guaranteed, it’s hard to imagine them being 7.25 times more efficient and productive.
But the lower labor costs don’t only derive from geoarbitrage. Remember the survey above, in which over a third of employees said they’d be willing to take a pay cut to work from home?
Also, consider the number of employees who take sick or personal days when what they really need is simply to be in the house while their sick daughter sleeps upstairs. Maybe they want the flexibility to run an important errand for one hour, or maybe they just didn’t feel like getting dressed that morning and braving the commute and their gossipy coworkers.
A CareerBuilder study found that 35% of employees call in sick even when they’re feeling fine. Global Workplace Analytics found evidence that the opposite is true for telecommuters; they tend to work even when they’re sick and return to work after surgery or other medical issues faster than in-person employees. The American Management Association found that companies who implemented telecommuting saw a 63% drop in unscheduled absences.
Here are some additional tips to lower your labor costs as you scale your business.
7. Lower Labor Turnover
Employee turnover is expensive. The Center for American Progress analyzed 11 research papers conducted over a 15-year period and found that skilled employees cost up to 213% of their annual salary to replace. That’s why it matters that telecommuting employees are happier with their jobs. In a study reviewed by Forbes, telecommuting workers were nearly twice as likely as office workers to love their jobs.
Employers have noticed. According to Global Workplace Analytics, 95% of surveyed employers responded that offering telecommuting had a “high impact” on employee retention. I’ve experienced this myself. Of the dozens of remote workers I’ve managed over the years, I can only think of one who quit, and it had more to do with personality differences than dissatisfaction with the job itself.
Employee retention is not only about worker happiness. Often, employees quit not because they hate their jobs, but because they’re moving and either cannot or will not commute the extra distance. When employees can work from anywhere, and they like their job, they have little reason to change jobs.
8. Higher Productivity
It’s amazing how much time is lost to “watercooler talk,” impromptu meetings, and other workplace time-wasters.
The statistics on higher remote working productivity are persuasive. At American Express, telecommuters produce 43% more work than their in-office counterparts, according to Forbes. The same report found a 35% bump in tech retailer Best Buy’s employee productivity when they implemented a telecommuting program. In a Stanford study of 16,000 call center workers, telecommuters were 16% more productive than in-office employees.
Employees self-rate themselves as more productive as well. A survey by ConnectedSolutions found that 77% of workers reported higher productivity and performance results when telecommuting.
One reason for this higher productivity is that workers can’t get away with just showing up and being physically present. By its very nature, remote workforces employers to set specific milestones and more accurate metrics of employees’ work and value (more on this shortly).
What happens when an office-based company of 15 people, with office space for 15 desks, needs to hire a 16th employee? They need a new office, which is expensive, time-consuming, and disruptive to the entire company.
Remote companies have no such restrictions. When my partner approached me about hiring a new employee last month, the conversation went something like this: “OK, sounds good. Can you post the ad and take care of reviewing resumes? Let me know when you’re ready for me to get involved.” That’s it. No discussions about where we’d put the new employee, which computer they’d get, or whether they’d be able to put up with sitting next to Negative Nancy.
The same principle applies not only to expanding your team, but also expanding geographically into new markets. In a virtual-only company, you don’t need to open a new office in Texas to serve the Texas market.
10. No Commute
Studies show that the longer people’s commutes, the lower their productivity at work, and the lower their satisfaction with their job in general. One Swedish study even found that couples had a 40% higher chance of divorce if one partner had a commute longer than 45 minutes. No wonder workers are willing to take a pay cut to telecommute. (And let’s be honest, working in your pajamas isn’t that bad, either.)
Coming full-circle to employee retention and demand, over two-thirds of employees report that they would take another job to reduce their commute, according to Global Workforce Analytics. By offering this arrangement, you can hire better people and keep them longer.
As a final thought, telecommuting dramatically reduces road traffic and carbon emissions. A 2017 study by telecommuting job listing website FlexJobs found that people who telecommuted at least half the time saved 7.8 billion miles of vehicle travel, 3 million tons of greenhouse gas emissions, and $980 million in oil in 2017 alone.
Challenges of a Virtual Business
Virtual businesses don’t come without their risks and downsides. Here are the challenges I’ve found with virtual businesses, and a few tips to mitigate them.
1. Team Communication, Camaraderie, and Culture
There’s still nothing like speaking with someone face-to-face. Email and phone communication are all well and good, but there are social nuances and body language cues that you pick up on when you speak to someone in person. A twitch of the mouth here, a slight frown there, the sparkle of good-natured humor in the eye that lets you know you’re included in a joke and not the butt of it.
These communication challenges can be magnified in a team dynamic, where multiple people are trying to collaborate and brainstorm. And when you have distributed team members all over the world with different norms, cultural backgrounds, and time zones, the risk of misunderstandings and resentment grows exponentially.
Feelings of isolation and loneliness can also be a real problem for remote workers, from the CEO down to the part-time virtual assistant.
First, use video conferencing whenever possible. It helps to see the people you’re talking to. RingCentral is a great tool for small businesses. Not only does it serve as a web-based phone system but it also gives you video access so you can see the people you’re talking to.
Second, schedule regular calls, even if they’re quick. Team members need to hear each other’s voices and see each other’s faces, if only for a few minutes once or twice each week. Open each meeting with at least a minute or two of personal catchup in which everyone shares what’s going on in their lives.
Also, establish informal communication channels for employees in addition to formal channels like Slack or project management tools. Sometimes people just need to gripe for a minute to get something off their chest. In my businesses, we use Skype as a flexible way for workers to communicate through instant messaging, voice call, or video call, either in groups or one-on-one.
Finally, give employees ownership of their piece of a given project. Make sure they know how their specific work fits into the larger whole; not only does it give them a greater sense of purpose, but it also helps clarify their role and responsibilities.
2. Remote Management
How do you know if an employee is working if you can’t see them working?
Admittedly, it’s a partially irrational fear. After all, you wouldn’t physically look over every employee’s shoulder every minute of every day, and just because you see someone sitting at their desk doesn’t mean they’re working. But there is a kernel of truth here; managers are forced to more specifically define expectations and metrics for success when overseeing remote workers.
Standing around looking at people work, and occasionally yelling at them to work faster, doesn’t cut it in virtual businesses. (For that matter, it’s not effective in traditional workplaces, either.)
For some employees, like salespeople, success is easy to measure. For others, it’s murkier. Is a customer support rep successful if they answer a large number of tickets? What if they answer tickets quickly but leave their customers unsatisfied and ready to abandon your brand?
Every employee should serve a specific function in your business. Define it carefully, and communicate exactly what you expect from them and how you will measure their success.
Schedule regular calls with each employee to check in with them and see how they’re doing, both professionally and personally. Remember, everyone needs to feel connected to something larger than themselves, and that connection can feel especially tenuous for remote workers.
3. Remote Hiring
Remote hiring, just like everything else about remote work, can be tricky without face-to-face interactions. Trusting your gut and intuition is harder when you can’t see the person’s micro-expressions and mannerisms. It’s harder to know when a person is lying or get an accurate measure of them.
And the simple fact is that not everyone is cut out for remote work. Telecommuters must be intrinsically motivated and have their own fire burning inside them. There’s no place in virtual business for paper-shuffling bureaucratic types who work hard at appearing to work hard.
If a hire is not a “heck yes,” then they’re a “heck no.”
Interview promising candidates as many times as you need to make a hire with 100% confidence. Keep interviewing fresh faces until you feel the heat of that internal fire. Once again, video conferences help.
Another option is to hire people locally and hold your interviews in person. The company can occasionally get together in person as desired for team-building exercises, parties, and important meetings, but day to day, employees can work from home. My former company took this approach, and it worked well.
It’s easier to start and scale a company in today’s world than ever before. Selling widgets in the 20th century may have required an expensive storefront with plenty of foot traffic, but nowadays, all you need is $9.99 for a domain name.
Still, that knife cuts both ways. Because the barrier to entry is so much lower, it means that business owners face constant disruption and challenges from both existing competitors and upstart startups. Becoming a virtual-only business can help you stay lean, green, and agile, reducing your costs and helping you focus your efforts where they’re most productive: marketing, sales, improvement, and expansion.