Our Distributed Future And The Impact It Could Have On Startups


Guest writers: Evan J. Zimmerman is the Chairman of Jovono, a venture capital firm. He is also the Chairman of the Clinton Health Access Initiative technology council and cofounder of Mighty Mug. Follow him on twitter @ejzimDaniel Imberman is an Apache Airflow committer, an engineer at astronomer.io, and a full-time digital nomad. He currently lives in any city that will tolerate him. Follow him on Twitter @danimberman.

Distributed companies are experiments in technology and management. The challenges are interesting and consequential, both for companies and even the economy at large. The result is a fertile area of experimentation of the kind that is always fun to watch and important to participate in. Distributed work is a very big idea that will reverberate across the entire startup ecosystem, and there is no better time than now to dive in.

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At the vast majority of companies, every Monday through Friday from 9-to-5, billions of workers all over the world get to work, usually by driving. They all congregate in a physical space with coworkers and the obligation of small talk. Usually, there is a central headquarters from which all central commands emanate. This is the traditional company. Distributed work is a revolution, right now, that could change the way everyone, everywhere works. It is a rebellion against the tyranny of the centralized corporation.

To proceed, we need to clarify what we mean by “distributed.” The standard conception of a corporation is “centralized”: there is a central office, where perhaps all of the employees work, or at least all of the executives. There may be other regional offices, but the decision-making power all lies in a centralized place. Think Google. [1] A more modern approach involves a company that may or may not have a central headquarters, but that nonetheless distributes its decision-making power and resources among several offices, like Amazon proposed to do with its HQ2.[2]

The new approach is a distributed workforce. A distributed workforce has no central physical locus of control, even though it may be incorporated in one state or another. Employees may be anywhere on the planet. The key element is the absence of control over how and where employees work or spend their days, not a lack of physical space or dedicated work hours. Perhaps the best illustration of this concept is a drawing from Paul Baran’s legendary paper on distributed systems.

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Distributed workforces are a major growth area. In 2018, 5.2 percent of Americans worked from home, up from 3 percent in 2000. Among tech workers it’s almost certainly higher, as those with advanced degrees are almost five times more likely to have done some work from home. This is a global trend, not just an American one.[3] These numbers don’t merely reflect centralized companies allowing some employees to work from home. In recent years, many recognizable companies have become huge with no central office, like Automattic, Heroku, Invision, Astronomer.io, and Gitlab.

On top of the data, one of our favorite indicators of growth is the proliferation of other startups to service a new trend. One of the most important of these trends is coworking. WeWork is the 800-pound gorilla in this sector, but there are many local variants, like Mindspace and One Piece, as well as large competitors like Knotel. One company, Codi, even lets people share their living rooms with other distributed workers.

There are also several companies that help companies recruit talent wherever it may be, like Toptal,[4] and recreate the watercooler digitally, like Mural.[5] Several startups are now making tools designed for non-physical collaboration, like Figma. Many of today’s fastest-growing startups deal with issues of communication, like Front; distributed code committing, like Gitlab; the digital office, like Tandem; and distributed knowledge management, like Notion.

Indirectly, it’s notable that some of the most successful IPOs this year have involved remote collaboration tools, such as Slack and Zoom, while some of the best performing public companies deal with the challenges of global workforces, like Atlassian and Salesforce.

Distributed companies have a different culture surrounding knowledge. Distributed companies use more explicit and frequent documentation systems and are on the front lines for experimentation in knowledge management. Expect to see new startups tackling just this problem, including passive knowledge capture. In contrast, traditional companies all have a corpus of unspoken knowledge that exists in spoken conversation and unwritten relationships, otherwise known as tribal knowledge. Distributed companies do not have the same informal networks because everyone is not in the same place, so they create their own tribal knowledge through better tools for distributed communication.

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There are two distinct advantages for distributed companies.

First, distributed companies may be better able to unlock global talent teams. While there are islands of talent that attract fresh blood through network effects, like Silicon Valley, not all talent is in one place. The more obscure the skill or knowledge, the less likely this is to be true, as the skilled individual is likely to be associated with, say, a particular university—and because the skill is so rare and valuable, they have the leverage not to leave. This is especially the case with arcane fields like cryptography, which is probably why so many crypto teams are distributed. Distributed teams don’t need to negotiate complex or expensive relocation packages for competitive hires but can instead allow them to stay where they are, focusing instead on the job that needs to be done. Furthermore, by having people all over the globe, distributed companies can have someone working 24/7 so that people in one time zone can put in a job and wake up to the result.[6]

Second, distributed companies do not have to put up with real estate while giving engineers freedom, thus providing (for now) an arbitrage opportunity. Real estate prices in the bay area are insane, and even Peter Thiel has lamented that the majority of venture capital goes not to product or technology but “urban slumlords.”[7] Duolingo, which is based in Pittsburgh, recently pitched itself as offering a job in a place where engineers can afford a house. The advantage of a distributed company is that it offers the same advantage without forcing employees to choose Pittsburgh specifically. In fact, given the price wedge, a distributed company can offer wages that are princely almost everywhere but miserly in San Francisco, thus saving overall costs. It will be interesting to see if distributed companies consequently have lower churn over time.

Credit: @luisvonahn

Decentralized companies are not without risk, however. Perhaps the biggest risk such companies will have to navigate is creativity. Creativity is essential for the long-term progress of companies, which must create new products and solve unanticipated problems. The challenge is that 80 percent of critical creativity is unplanned, so some of the most creative companies in history have worked hard to maximize unplanned interactions. That’s why Pixar built a central atrium everyone has to walk through and why Bell Labs had moveable walls.

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Additionally, humans are more effective face-to-face than online—one study found that humans were 34 times more persuasive in person—and it is still an open question whether this is hardwired in the human brain or the result of a lack of adaptation to distributed workplaces. Decentralized companies will also need to rethink the way we deal with intellectual property, as they will have to face challenges regarding disclosure and creation of subject matter all over the globe. Are challenges like these insurmountable? Probably not—in fact, there are probably several unicorns to be made in solving them.

The bottom line is that distributed work is a bona fide way of running a company. If you are a VC, you should be watching carefully to see which metrics are different for distributed companies and look for companies making tools for this growth area. If you are a startup, think about being distributed, or what aspects of distributed companies can be used to help your business.

[1] As the famed Roman proverb goes: “All servers point to Mountain View.”
[2] Most multi-office venture capital firms are decentralized. Interestingly, though, there does not appear to be many distributed venture capital firms.
[3] MBO Partners found that 4.8 million Americans described themselves as digital nomads, an even more extreme practice.
[4] There are also many companies that were not created with a distributed work in mind but that aid in it, such as Hired, Lattice, and Trilobyte.
[5] Some people also love Google Jamboard, which is not a startup but a related product.
[6] This is also a double-edged sword, obviously, because you might badly need to speak to someone who is currently asleep.
[7] One Houston law firm actually bought a jet to avoid having to pay rent in the Bay Area.





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