Woodwards building Vancouver demolition 2” by Tannoy | CC BY-SA 3.0 via Wikimedia Commons

Distributed Teams — the Next Big Economic Sea-Change?

The shift from “building your own datacenter” to “using the cloud” revolutionized how companies viewed internal infrastructure, and significantly reduced the barrier to starting your own global-scale company. WhatsApp, Instagram, github and airbnb are some famous examples, but there are many, many, others.

Like any new major change, “the cloud” went through an uphill acceptance curve with resistance from established nay-sayers. Meanwhile, smaller companies with no practical alternatives jumped in with both feet and found that “the cloud” worked just fine. And scaled better. And was cheaper to run. And was faster to setup, so the opportunity-cost was significantly reduced.

(Personally, I dislike the term “cloud” but it’s the easiest vendor-neutral term I know for describing essential infrastructure running on Amazon AWS, Google GCE, Microsoft Azure and others…)

Today, of course, “using the cloud” for your infrastructure has crossed the chasm. It is the default. Today, if you were starting a new company, and went looking for funding to build your own custom datacenter, you’d need to explain why you were not “using the cloud”.

Rethinking infrastructure from the fixed costs of servers and datacenters to rented by the hour “in the cloud” is an industry game changer. Similarly, rethinking the other expensive part of a company’s infrastructure — the physical office — is a game changer.

Deciding to setup an office is an expensive decision which complicates, not liberates, the ongoing day-to-day life of your company.

If you convince yourself that your new company needs a physical office, you quickly get distracted by crucial topics that are not about the shipping product per se, and are instead about the operational mechanics of a physical building. Deciding to have your own physical data center involves one-time-setup costs as well as ongoing recurring operational costs. Similarly, deciding to have a physical office involves one-time-setup costs as well as ongoing recurring operational costs.

  1. Where do you put your office? What city, and which neighborhood in the city, is best for your company? Sometimes the answer is “near to where the CEO lives”, or “near the offices of our lead VCs”. However, this should include answers to questions like “where will we find most of the talent (people) we plan to hire?” and “where will most of our customers be?”. Figuring out location and size of your office requires thinking through your hiring plans — not just for today, but also for the duration of the lease — typically 3–5–10 years. (The consequences of this decision may be even longer, given how some people do not like relocating!) When starting a company, it is very tricky to accurately predict the answers to these questions for multiple years into the future. Business plans change. Technologies change. Market needs and finances change. Product scope changes. Companies pivot. Brick-and-mortar buildings (usually) stay where they are.
  2. Once you have a physical office, the logistics of setting up and running an office are “non-trivial”. Negotiate, sign and pay leases. Debate offices-with-doors vs open-plan — and if open-plan, do you want library-quiet, or bull-pen with cross-chatter and music? Negotiate seating arrangements — including the who-gets-a-window-view debate. Construct the actual office-space, bathrooms. Pick, buy and install desks, chairs, ping-pong tables and fridges. Set up wifi, security doorbadge systems, printers, phones. Hire staff who are focused on running the physical office, not focused on your product. The list goes on and on. All of these take time, money and most importantly focus. This distracts humans away from the entire point of the company — hiring humans to create and ship product. And the distraction does not end once the office is built — maintaining and running a physical office takes ongoing time, money and focus.
  3. After your office is up-and-running, you discover the impact this new office has on hiring. You pay to relocate people who would be great additions to your company, but do not live near your new office. You are disappointed by good people turning down job offers because of the location. You have debates about “hiring the best person for the job” vs “hiring the best person for the job who is willing to relocate”. You have to limit hiring because you don’t have a spare desk available. You need to sublease a part of your new office space, because growth plans changed and now you have unused idle office space costing you money every month.

There’s plenty of information available on why distributed teams and working-from-home, is better for the mental and physical health of the individual humans. Even on why reduced commuting is good for the environment. By contrast, there is relatively little about why distributed teams are also better for the organization. Thankfully, this is changing. Scott Berkun wrote a book about Wordpress/Automattic. Jason Fried and DHH wrote a book about Basecamp/37signals. Both are well-known, large, profitable, companies built with very distributed teams, and it’s great to see them talking publicly about how they did it. I’m writing my own book “Distributed” based on my experiences. (The publishers, O’Reilly are also a distributed organization!) The more people describe what did, and didn’t, work for them, the easier it will be for other companies to start growing distributed teams.

For organizations, I believe the competitive advantages are too huge to ignore:

  1. Dedicate more time, money and focus on the people, and the shipping product — simply by avoiding the financial costs, lead-time-delays and focus-distractions of setting up a physical office. Even larger companies with established offices, like Aetna, have also been encouraging work-from-home since 2005 simply because of the money savings from real estate. Last I’ve heard, Aetna was saving $78 million a year [1]. Each year. No wonder Dell and others are doing the same [2]. Phrased another way: Distributed teams let you focus the company time and money where it is most important — on the people and the product. After all, it doesn’t matter how fancy your office is unless you have a product that people want to use.
  2. Sidestep a few potentially serious and distracting ongoing problems. You don’t need to worry about signing a lease for a space that is too small (or too large) for the planned growth of the company. You don’t need to worry if the location of the office helps or hinders future hiring plans. You don’t need to worry about good people turn down your job offers simply because of the location. You sidestep human distractions about office layout. Sidestepping all these distractions helps you (and everyone else in the company) focus on the people and the product you are building and shipping.

A few years ago, “using the cloud” was new. People with “build your own datacenter” experience needed to change how they worked “in the cloud” — while people who had never worked in either environment thought “using the cloud” was normal. Now, of course, “using the cloud” has crossed the tipping point.

Similarly, working in distributed teams is still new(ish) for some people. People who have experience working and managing all-in-one-location companies may need to change how they work and lead in distributed companies — while people who have never worked in either environment think that “distributed teams” are normal.

Technology is helping with this transition. Products like Slack, Google Hangouts, Skype/Lync make complex communication technologies easily available to all. These technologies help all-in-one-office organizations be more efficient, and help make distributed organizations possible. Products like linkedin.com, upwork.com and flexjobs.com enable people to have distributed careers — recreating the trusted friend-of-a-co-worker network of loose connections that grew organically whenever people from different companies rubbed shoulders at the neighborhood deli lunch counter or conferences or cross-company projects or volunteering events.

All of these new technologies, along with the super-hot hiring crisis in some locations, is encouraging more and more companies to try “distributed teams”. This sea-change towards distributed teams has impact rippling out across multiple industries, society in general and our global economy. Literally change-the-world stuff!

With all this going on, the upcoming Next:Economy conference should be exciting.