Go Back To The Office

The Evidence is Piling Up

Yesterday, Stanford professor Steve Blank sent out a blog about startups with teams in offices versus startups with remote teams. Startups with offices grew revenue 3.5 times faster than startups that were remote.

In the startup world, growing revenue is what it is all about. You might not make a net profit, but if your customer acquisition costs (CAC<LTV) are lower than your long-term customer value then putting the pedal to the metal and growing revenue takes you up the value scale.

Chicago Booth Professor Mike Gibbs is a researcher on human capital and labor. Covid gave him an opportunity to do some research on workers working from home. The summary of the linked paper is this:

We study employee productivity (output per hour worked) before and during the working from home [WFH] period of the Covid-19 pandemic, using personnel and analytics data from over 10,000 skilled professionals at a large Asian IT services company. Hours worked increased, including a rise of 18% outside normal business hours. Average output declined slightly and employee productivity fell 8-19%. We then analyze determinants of changes in productivity. An important source is higher communication costs. Time spent on coordination activities and meetings increased, while uninterrupted work hours shrank considerably. Employees networked with fewer individuals and business units, both inside and outside the firm. They received less coaching and 1:1 meetings with supervisors. The findings suggest key issues for firms to address in implementing WFH policies.

The data is not conclusive, but it is clear.

Steve Blank pokes holes in the data he received. He freely admits that the data he saw is from one venture capital firm, with only 37 companies. In Gibbs's case, it’s one very large Asian IT tech firm with thousands of employees. However, there is enough evidence and data to show a trend.

What is interesting to me is the conclusion. Blank’s data shows that firms without an office aren’t growing as fast. Gibbs’s data shows employees who work from home aren’t as productive. That should be a wake-up call to everyone. Less revenue+Less production isn’t a recipe for success.

Employees that work from home are on an island. They don’t get mentorship like they would in an office. Videoconferencing is a convenient tool, but it cannot replace face-to-face communication, especially in times of crisis.

There is no data just gut feel in this post by VC Fred Wilson but the sentiment is the same. Fred’s one of the most successful VCs going and they have quite a few portfolio companies in their portfolio.

This is an unrelated anecdote. I remember going from the pit to the screen back in the early 2000’s. Not only did you lose the speed edge of being in the pit, but you lost the social capital edge you had. The speed edge meant more than the social capital edge but when you are playing a high-stakes game, you need every edge you can get. The trading game changed dramatically and instead of favoring entrepreneurial risk takers who could be anybody, it favored engineers. Most of us that were in the pits didn’t make it on the screen. The engineers that were crowded together in offices with the speed advantage did.

JP Morgan CEO Jaimie Dimon was criticized roundly for telling people to get back in the office. But, he continues his crusade to get people back to work, and without masks. Goldman Sachs did similarly. From the linked article:

Dimon has emphasized that banking is an apprenticeship model and employees need to be together to collaborate and work together.

In this “eat-what-you-kill environment,” face time is critical if an aspiring dealmaker is looking to impress his or her supervisors, one banking source told The Post. The source added, “In the ’80s, we had a saying on Wall Street: They can’t take your desk away from you if you’re sitting at it.”

There are a lot of jobs that are apprenticeship models. It’s not just finance. Law, accounting, architecture, and plenty of other professions rely on older more experienced people passing along their skills to newer employees. That doesn’t happen when you are locked up at home alone.

You can deride all these data points and anecdotes as it’s just old white men used to doing business the old-fashioned way. But, everyone is human, and humans want to be with other humans. It’s one reason co-work spaces became a thing for independent workers.

You can also point to Covid, but the data coming out shows the vaccine didn’t work and neither did masks. The fear that was brewed and spread by a corrupt media complex was a politically motivated firestorm designed to help one party have success over another.

It’s fun to look at the vacancies in commercial real estate and wonder how much money is being lost, as long as you aren’t invested in it. However, I wouldn’t short the sector because I think that once we get through all this Covid bullshit, offices will hum again. The difference might be that some cities which are growing won’t have enough CRE to satisfy demand, and cities that continue to see flight will have too much. You can’t move city centers and buildings.

The moral of this story is if you are an employee and have access to an office, go back to it. It will be better for your career. If you are a boss, tell employees that they need to come back to the office. It will be better for your company. If you are a shareholder of a company, tell the CEO and Board of Directors to get their employees back in the office.