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3 minute read / May 28, 2019 /

The Benefits of and Questions Facing Remote and Distributed Startups

In 2013, Scott Berkun authored a book called The Year Without Pants. Scott shared his experience working remotely for Wordpress. After I read the book, I wrote:

In the coming years, video conferencing and online meetings will become much more prevalent as stories like the ones Scott shares are told and retold. If you’re looking to understand how a fully distributed team used chat and video conferencing to build a world changing product, reading The Year Without Pants is a great way to answer those questions.

Six years later, it’s become a norm with a few different flavors.

There are examples of fully distributed companies. Wordpress was among the earliest. Invision, Buffer and Gitlab are three others. This is a corporate structure where team members rarely come into the office and work through the internet.

There are examples of semi-distributed companies. Hashicorp and Mattermost staff their GTM functions in headquarters, but manage a distributed engineering team. This structure is common across companies monetizing open source software. The engineering community contributing to a project often are scattered across the globe. They are among the best engineers to recruit to the team and the first to join.

And there are plenty of examples of companies with a HQ in the US and an engineering team in another country. Ten years ago, Israel and India were the most common. Today, China, Brazil, India, Argentina, France, Ireland, Germany; you name it, there’s a startup with a remote office there.

The last is something that’s not discussed as much but is increasingly common: a collection of small offices. Several of the companies in our portfolio operate the business from three or four small offices before they reach 100 people.

Sometimes, management spins up new offices to start a functional team like support or success or sales development. (This is different from starting a sales office with an AE covering a region.) Other times, a key executive who operates remotely catalyzes a new office. And still other offices form from acquisitions.

These new models afford startups flexibility in the way they build their companies and the talent pools to farm.

This flexibility does have some trade-offs. The immediately obvious one: developing techniques to communicate well across geographies. We’ve all been the lone person to video conference when everyone else is in person. It’s much harder to be effective. Some companies employ an egalitarian policy: if one person is on video, all participants must video.

The second one is managing internal communication. Many hallway conversations happen in person. How does a company share those decisions and knowledge with the distributed team? Answering this question is key to sustaining a healthy culture.

Third, hiring and paying employees in other countries is complex. New legal entities, varying governmental policies for stock options, taxes, benefits, severance. This costs money and attention to get it right.

Last, there’s an open question of how public market investors and in particular acquirers will evaluate a distributed team. Is there a greater risk in managing a distributed team for a classically structured acquirer? Is that outweighed by the access to talent? How does an acquirer assimilate a distributed team? It’s too early to say.

Venture investors seem unfazed by these new models, and I hope that this sets the precedent for other investors and acquirers.

Ultimately, these novel corporate structures are here to stay. The benefits to quality of life for employees, access to new forms of talent, and the potential labor market arbitrage are simply too compelling to pass up.

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