“Experience Accelerated Growth: Startups with Office-Based Employees Grow 3.5 Times Faster, As Per Steve Blank’s Analysis”

Physical Office vs Remote Work: Which is Better for Startups?

Data shows that pre-seed and seed-stage startups with employees showing up in a physical office have 3½ times higher revenue growth than those that are solely remote. This article explores the debate surrounding remote work versus office work for startups in the post-pandemic world.

Defining Remote Work and Office Work Configurations

Before delving into the debate, it is important to understand how virtual and physical work could be configured. Today, work configurations span the spectrum from fully remote to office only. James Kim at Reach Capital, an early-stage tech ed investor, surveyed their portfolio of 37 companies using the following 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 approach can’t be ignored.

Examining Factors Affecting Startup Performance

Almost 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 company — are similar across work configurations. So while the employees said that regardless of the office configuration, the team culture didn’t appear to change, the performance of very early-stage startups (as measured by revenue growth) told a different story.

Understanding the Data Set

The survey sample size was 37 companies from the Reach Capital portfolio. That’s large enough to see patterns, but not large enough to generalize across 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 different 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.

The Importance of Informal Face-to-Face Interaction

Research since the 20th century has proven that informal face-to-face interaction is important for the coordination of group activities, maintaining company culture, and team building. This informal information gives employees access to new, non-redundant information through connections to different parts of an organization’s formal org chart and through connections to different parts of an organization’s informal communication network. In addition, research has found that creativity is greatly 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.

Conclusion

The debate surrounding remote work versus office work for startups is complex. The data from Reach Capital 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. However, this data set is only one factor to consider, and may be different in other markets and industries. Regardless, the importance of informal face-to-face interaction in the early stages of startups cannot be ignored. Whether it be office work or remote work, facilitating these interactions is critical.