CEO Guide to Virtual Offices

Why Some Company Offices Are Virtual


Why Some Company Offices Are Virtual

Photograph by Martin Barraud/Getty Images

Visitors to the San Francisco headquarters of Automattic, the company behind WordPress blogging software, inevitably ask themselves: “Where is everyone?”

The office is ostensibly home to WordPress.com, a service that powers 32 million blogs. In short, the company is a key part of the Internet. Yet on a recent Monday afternoon, the office is nearly empty—as is usually the case. Only eight employees sit around a table amid a sea of empty desks and chairs.

This is the realization of an unusual business philosophy implemented by Toni Schneider, Automattic’s chief executive. Automattic is known as a distributed, or virtual, company. Instead of requiring employees to come into the office every day, he lets everyone work from home. Home may just as easily be Bulgaria, Vietnam, or Alabama as San Francisco. He doesn’t care where his employees are, just that they do their job.

“The first few years, there was lots of pressure on us to change and grow up,” Schneider says. “I should have kept notes on how many people claimed that this wasn’t going to work—that this would break—and that I’d have to move everybody to San Francisco.”

Automattic, which has 123 employees, is not the only business to adopt the distributed model. A number of other tech companies, such as GitHub, 37signals, and MCF Technology Solutions, follow a similar philosophy. Establishing a distributed company comes with plenty of risks and challenges. To avoid chaos, executives must adopt an array of technologies, monitor employees thousands of miles away, and avoid leaving workers out of the loop.

The benefit, at least in theory, is the ability to recruit the best workers no matter where they live. Candidates are not limited to just those who are willing to move to a specific city.

Cost is also a factor. Virtual companies can save money by leasing smaller offices or foregoing an office entirely. Moreover, they can save on salaries. Instead of paying high Silicon Valley wages, for example, companies can base their pay on the lower costs where remote employees live.

Of course, telecommuting is hardly a new idea. Companies of all industries and sizes endorse work-from-home programs to a certain extent. What is different about distributed companies is the scope. Rather than being an option, working remotely is the norm and central to how the business operates.

MySQL, a business software maker, was among the forerunners of the distributed model, starting in the 1990s, and a template for Automattic. MySQL, which had several hundred employees at its peak, was subsequently acquired by Oracle (ORCL).

Keeping remote employees informed and from feeling like they are at a disadvantage in terms of promotions is the biggest hurdle for a company like Automattic. The concept of “out-of-sight, out-of-mind” is a big danger for employees, as is failing to share basic details about strategy, projects, and changes in plans.

To avert such problems, most internal discussions at Automattic take place on what’s known as P2, a blog built in house that has specific pages for dozens of teams and topics. Announcements, conversations, and questions are posted to the blogs so that everyone interested can stay up to date. If employees have an inconsequential conversation, they often use Skype or ICQ instant messenger.

E-mail is rarely used except in such cases as sharing confidential information. The problem, Schneider explains, is that e-mail traps information that should otherwise be shared. All meetings are broadcast via Skype (MSFT) or Google + Hangouts, a video chat service, and archived so that employees can tune in at any time. Meeting notes are also published. The same formula is followed for meetings where most, if not all of the participants happen to be in the same place. Doing so helps to keep “centralization from creeping in,” Schneider says.

Because there is limited personal contact at distributed companies, it is inevitably difficult to build rapport with colleagues. There’s none of the after-work drinks or chitchat around the water cooler that fosters team spirit and builds friendships as in a typical office.

“Just knowing somebody personally, it makes your job more satisfying and makes you better at communicating,” Schneider says. “Some of that stuff is lost in written communication. You don’t see the person’s face; you don’t know their sense of humor. We have to make up for that.”

As a substitute, Automattic, like many distributed companies, holds annual staff-wide meetings in different locations around the globe where employees work together and get to know each other. Individual teams are also encouraged to gather at least a couple of times a year.

Still, some of the serendipity is lost, says Chris Silva, an analyst at Altimeter Group, a technology consulting firm in San Mateo, Calif. Granted, the same could be said of any traditional company that has employees in offices across the globe. “Nothing replaces seeing someone walking down the hall and going up to them to talk,” Silva says. “That’s hard to overcome, even with the best technology.”

For now, the distributed model appeals almost exclusively to small businesses, particularly in the technology industry. No one can point yet to a large corporation using a similar model. Many managers have a negative view of working from home, which may play a role in the limited adoption of the distributed model. Forty-one percent of them agreed that working remotely limits career advancement, according to a survey last year by Forrester Research (FORR) of more than 1,800 managers.

In any case, managers can’t be just turned lose in a distributed company without any training, says Leslie Fiering, an analyst at Gartner (IT). Making decisions without reaching out to others is a mistake, as is forgetting to invite colleagues to conference calls, a fate she often suffered at a prior job where she worked from home. “You’ve got to attend those meetings,” Fiering says. “You’ve got to participate, and you can’t just be playing solitaire.”

Automattic’s history as a distributed company developed naturally at its founding in 2005 from the open source origins of WordPress software. Volunteers from all over the world helped to write the code. Those developers were the logical recruits for Automattic, Schneider says. But requiring them to move to San Francisco seemed unreasonable after they had already made major contributions from afar.

“So we started thinking about how do you build a company where you can live anywhere?” Schneider says. “How can you pay people?”

Only 20 or so of the company’s workers live near San Francisco. On an average day, not even half of them show up in the office, an open space with a spectacular view of the downtown skyline.

The rest of the staff is scattered across the U.S. and overseas in around 26 countries. Many are programmers, but there are also designers, customer service representatives, and systems engineers. With so many people spread around the globe, it might seem easy for someone to goof off. In fact, it’s fairly difficult, Schneider says, because workers post the code they write online and regularly chime in on the internal blogs about their work.

Going radio silent would be a giveaway to teammates. In any case, the greater problem is making sure that workers do not burn themselves out by working too much, Schneider says, a danger exacerbated by working at home and always being online. Schneider cautions that a distributed model is not for every business. Startups are the most likely candidates. Companies considering switching from a traditional office setup should think twice. Changing midstream is probably a recipe for failure, he says.

“Switching over is really hard once your culture is based around a particular place,” he says. Schneider has similar concerns about companies that want to go halfway by implementing a telecommuting policy while keeping all their offices. “If you do it distributed, you have to do it all the way. You have to do it right.”

Kopytoff is a Bloomberg Businessweek contributor in San Francisco.

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