Startups that Have Employees In Offices Grow 3½ Times Faster

Startups that Have Employees In Offices Grow 3 Times Faster

This vendible previously appeared in EIX – Entreprenuers and Innovators Exchange.

Data shows that pre-seed and seed startups with employees showing up in a physical office have 3½ times higher revenue growth than those that are solely remote.

Let the discussion begin.

During the pandemic, companies engaged in one of the largest unintended experiments in how to organize office work – remotely, in offices, or a hybrid of the two.

Post-pandemic, startups are still struggling to manage the weightier way to manage return-to-office issues – i.e. employee’s expectations of standing to work remotely versus the weightier path to build and grow a profitable company.

Before we can ask which is the weightier configuration, the first question is what, exactly do we midpoint by “remote work” versus “office work”? Today work configurations span the spectrum from no office (fully remote, default digital) to some office (flexible hybrid, synchronized hybrid, office first,) to office only.

James Kim at Reach Capital, an early-stage tech ed investor, surveyed their portfolio of 37 companies using the pursuit taxonomy of how virtual and physical work could be configured.

Using this model James found that pre-seed and seed-stage startups that had employees returning to some type of office had 3½ times the revenue growth of startups that were fully remote. Those are staggeringly large differences, and while other factors may play some role (see “What Does This Mean, below), the impact of the all-hands-on-deck tideway can’t be ignored.

What might worth for these differences? Not surprisingly, scrutinizingly 90% of the responses from pre-seed/seed startups said team culture was influenced by work configuration. However, unexpectedly, self-reported team culture, eNPS (employee Net Promoter Score) and regrettable attrition – departures that hurt the visitor — are similar wideness work configurations.

So while the employees said regardless of the office configuration the team culture didn’t towards to change, the performance of very early stage startups (as measured by revenue growth) told a variegated story.

What Does This Mean?
The data is 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 from the Reach Capital portfolio. That’s large unbearable to see patterns, but not large unbearable to generalize wideness all startups. Next, Reach Capital’s portfolio of companies are in education and the future of work. The revenue results by workplace configuration may be variegated in other markets. Reach Capital’s investments are made in many regions including Brazil, so the geography is not limited to Silicon Valley.

Finally office configuration is only one factor that might influence a startup’s growth rate. Still the results are suggestive unbearable that other VC’s might want to run the same surveys wideness their portfolio of companies and see if the results match.

(BTW, Nick Bloom at Stanford and others have washed-up wide-stretching research with thousands of people on remote and hybrid work here, and here. Their research is mostly focused on employees working on self-sustaining day-to-day tasks such as travel agents. However, we’re interested in the very specific subset of creative knowledge workers in the early stage of startups. Specifically at the stage when startups are searching for product/market fit and a merchantry model not when they are executing day-to-day tasks.

If the results towards elsewhere, then one can speculate why. Working from home may offer increasingly distractions by chores, family, network issues. Do those little things add up to meaningful productivity differences?

Is it that in early-stage startups the random conversations between employees at unscheduled and unplanned times lead to largest insights and ideas? And if so, is the productive brainstorming occurring inside of departments –e.g. engineer to engineer — or is it the cross-fertilization between departments – e.g. engineering to marketing?

Research since the 20th century has proven that informal face-to-face interaction is important for the coordination of group activities, maintaining visitor culture, and team building. This informal information gives employees wangle to new, non-redundant information through connections to variegated parts of an organization’s formal org orchestration and through connections to variegated parts of an organization’s informal liaison network. In addition, research has found that creativity is profoundly enhanced in a “small world network – a network structure that is both highly locally clustered and often a hotbed of unscheduled fluid interactions that support innovation. In other words, inside an early-stage startup.

For decades Silicon Valley visitor founders and investors have known this small world network effect as tacit knowledge. It has been a hallmark of the physical diamond of Silicon Valley office space – from Xerox PARC to Pixar’s headquarters, to Google and Apple.

So perhaps the converse is true. Does remote work with ad hoc or stock-still meetings via Zoom unquestionably stunt the growth of creativity and new insights, just at the time a startup most needs them? Are there new tools such as Discord and others that can indistinguishable the water potation effect of physical proximity?

Either way, it’s the whence of an interesting discussion.

What has been your experience?

Lessons Learned

  • Data from one VC shows pre-seed and seed-stage startups with employees that show up to the office have 3½ times the revenue growth of those that work remotely
  • Is the data valid? Is it the same in all markets/industries?
  • If it’s valid, why?
  • Is there a difference in remote vs. in-office productivity for creative tasks versus execution tasks?