The second half of the article is arguably more interesting than the first: it covers Zappos' CEO's idea for increasing productivity with large numbers of employees.
I'll be very interested to see if his "city" experiment works.
I've worked at firms in suburban office parks, and I've worked at firms in downtown urban areas. I like the latter more, simply because you can walk to lunch and interact with people (sometimes they're the homeless, which is how I learned about Blue Leapers being a global threat to mankind...)
With the suburban offices, either I'm bringing my lunch, or I'm driving somewhere to go eat. In both cases I'm in a sensory bubble, and that's bad. So I think Tony's idea has a lot of validity.
Even more than that, every person I know who in their 20s and 30s would prefer to work in the city and either do a quick commute in via public transportation or live in the city. No one wants to have to get in a car and drive for 40 minutes. If they do, they justify it due to cost, not actual benefit.
The companies that get the best people are the one's located in downtown. That alone increases productivity.
The vast majority want to live in cities. It is proven quantitatively through rents rising much faster in all the dense areas of the US while suburban rents and prices have lagged.
Sure "Lots of people don't want to live or work in a large city." is technically correct, but pretty much every other person wants to be able to walk to work, walk to resturants and never have to touch a car except for trips outside where they live. That lifestyle doesn't exist when you work in office parks.
The only argument for living in the burbs is price. People say "I want a yard"... if you had the money you would have it in the city.
Sure, some people make tradeoffs and would rather have the yard, but most people I know move to the burbs because of price and justify it with the yard. Most of the top talent lives in cities.
I would be interested in analysis and discussion of this quantitative analysis.
I'm not sure we can say that youth wanting to move into cities is the main reason for rent increasing. That would seem to make a complex market far too simple.
The article is 2 years old, but cites 2010 US Census data which found:
The article observes that 25-34 year olds were also flocking to cities in the 90's, based on data from the 2000 Census. However,
"In the last ten years, [the 25-34 year-olds from 2000's] presence grew 12% in the suburbs and shrunk by 22.7% in "historic core cities," like New York and San Francisco, according to Joel Kotkin at Forbes."
This may suggest a nuance, where urban areas are attractive to people with little relative wealth (can always find "cheap" apartments) and exploratory social lives (not yet married / having kids). And it suggests that the drive isn't necessarily novel.
But given some money and changed social needs, the same people end up moving out to where they have more space and greater comforts.
Even here in Germany, the same trend is evident -- lots of young and old people in the city centers, and a lot more families and middle-aged people out in the lower-density areas.
The rent differential can be explained by nothing more than the natural dynamics of the situation. Want to live in a big city? Probably really want to live in NYC or SanFran, right? Whereas if you want to live "in the burbs", you can go pretty much anywhere. And if you want acreage, you have even more options (assuming you can telecommute).
Was that intended to be a serious response? "I know what people really want even if they say they want something else"? People being forced into cities quantitatively proves they want to be in cities?
More space, less crime, parking, cheaper rent or mortgage, cleaner air, quieter, more green spaces, and typically only a 20-30 minute drive from the city if you actually want to go to something big-metro-specific, like the opera/museum/theater/etc.
I generally agree, but recent planning movements have managed to produce suburban areas with centralized work/shop centers for the community giving lots of options for the suburban worker.
Something I've noticed working in a couple of city environments is that most of the variety of restaurants in the area I don't take advantage of anyway since their geared towards dinner patrons and/or are overpriced for the kind of quick lunch I want during the work day. So I usually end up boiling down an urban work area to a half dozen places to eat.
A suburb area I worked in before had twice that many with good lunch options within a 5 minute walk. A couple nearby office campuses require a short drive, but at least 2 dozen good lunch places to eat within a 5-10 minute drive.
In NY near the Flatiron, I have several thousand lunch options within a 5-10 minute walk/subway ride. Of course I tend to return to the ones I've had good experiences with, but unlike suburbs I get my fill of novelty in many ways other than just the food I select from some megastripmall.
Urban centers also offer a much richer after-work culture of independent films, theater, music, and general night life that can't be found in the suburbs.
I would definitely make some exceptions to my statement for NYC and other similarly dense cities. However, lower density cities, liked DC or Austin don't really offer anywhere near the variety.
Las Vegas seems like a challenging environment to make it work, but I think he's definitely on to something. I think this is why the technology scene in California pivoted to San Francisco. It's also what makes NYC promising. Seems most people would prefer to work in am urban core rather than in an office park.
I think it would be interesting to see corporate campuses follow dense residential trends and create multi-use buildings with the ground floor dedicated to publicly accessible restaurants, retail, etc. That would even help fund the project.
I too am intrigued by the move to SF away from the Peninsula/Valley. I think though it's a subset of the "Software eating the World" thesis. You can now build much bigger companies with fewer people who are younger (no middle management) and get them significantly further along. So you don't need that campus to house 1000 employees to build a $100 million company as in the past. It'll also be interesting to see if startups begin to leave SF if they really get big. I hope not, but am curious.
I know a large established company that did this and turned out to make more from the commercial property letting than their core business, which presents them with an interesting dilemma...
Agreed. Makes some intuitive sense. If we knew exactly what made things work, it would make sense to pick that environment. Since we clearly don't, it seems most of the limiting actions we take actually reduce the chances of finding that random walk that leads to success.
Agreed. I'd love to read more about the Zappos case study. I'd love to see how they've solved some of the finer challenges of attempting a work environment like this.
This is obvious, but sometimes tough on employees. At a prior employer I watched how early employees felt that things had become too impersonal when they had to start recording their time and submitting expense reports. But the reality is the company was suffering from under-management as the founders couldn't keep a grip on the firm with their informal management style. They were smart enough to change some of the culture to enable the company to keep growing.
From an employee's point of view, it's tough, but if you're happiest at a 20-50 person firm, it's best to move on (at least after vesting) when the company gets too big.
I'd say that the moment you start doing time keeping is the moment the startup culture days are over. It's like a mental switch for everybody in the company. Everybody feels it and there's simply no going back.
It's like puberty, painful, but inevitable, and leads to more maturity later.
I'm curious about what's so wrong about time keeping.
I've seen startups that did some time keeping (though not in a very tight way, more in just keeping track of who did what on a half-day basis), some that didn't keep any, and I can't see much of a difference in the culture or how it's a bad thing. I don't see how it's useful, but it's never been a red flag to me by itself.
Is it because of the formal process that comes with it, because of the way it's usually done at bigco, or do some people feel annoyed about having to always count their time ?
> Is it because of the formal process that comes with it, because of the way it's usually done at bigco, or do some people feel annoyed about having to always count their time ?
Some people must account for all of their time in 15 minute blocks. It's frustrating because either you do it properly, and have people complaining about the amount of time you spend doing the paperwork; or you fudge it, in which case whyTF do they specify it to 15 minutes why don't they just let you give a broad outline of what you've done?
My sense is people generally separate their work into, "Tasks I like to do" and "Administrative overhead". For small companies, being nimble is more important than scale or coordination, so the overhead takes a back seat. To use Lean Startup lingo, until you have product-market fit, scale and coordination isn't a concern.
Once you have product-market fit, then coordination and scale matters. Understanding how people are spending their time is important for service companies to understand billing, and product companies to understand if people are working on the right priorities. It also helps estimation.
I've seen very talented people that are loath to enter time reports. I've seen companies lose money because talented expensive consultants didn't bother getting it in on time.
My suspicion is there are a subset of people who just don't want to be bothered. The best seats for them are small non-consulting firms that are focused more on market response than scaling or coordinating. It's not a judgment call, it's more about going where their mentality fits best. (It took me a long time to realize this in my own career)
I agree with the other comments responding to your question. I don't think time-keeping is itself a bad thing, or that the things that happen to a company once they start keeping track of time is a bad thing, but it's definitely painful to go through the transition.
Time keeping ends up being more important in some kinds of companies than others, but all growing companies end up doing it in some way eventually. For example, Google finally started keeping accurate track of what different services were actually costing them to keep running and the result has been pretty painful for lots of people who use Google products and services. Some example, GAE hosting prices jumped thousands of percent overnight, Google Maps API became so expensive that numerous companies built around it shuttered or moved to other technologies completely, Translate API was shuttered etc.
In aggregate Google was making loads of money, despite having huge money losing parts of the company...and those weren't acting as traditional loss leaders either (meaning they lose a little money in one place to bring customers in to make more money in total).
In a B2B company, you often end up with contracts to manage, and contracts usually have strict labor hours that have to be accounted for. Even if the contract itself doesn't specify the hours (some kind of firm fixed price deal), you still have to internally manage hours to make sure that you're making money on the contract instead of losing it to salaries. The only way to really do that is time keeping.
In most early stage companies, the ones that are still building their products and have lots of investment money to work with and no particular contracts or anything to worry about, the assumption is that they're going to lose money for a while anyways, so there's not a lot of reason to keep track of it. And even as they grow, so long as money coming in is more than money going out things look pretty good.
But eventually somebody will want to squeeze a bit more efficiency out of the company, and time-keeping is the signal that that is happening. It means the end of the loose structure you had been working in and the introduction of metric tracking. With time-keeping comes head counting, more rigid delivery dates, more rigid tracking of every aspect of the business process.
It's like a switch gets flipped and the organization suddenly becomes a regular old company. Which is fine. It usually also means more job stability. But you usually see lots of flight out of the company as people move on to a less rigid environment. And the introduction of very stable personality types who don't mind being a development drone. The culture just...changes.
I've never worked anywhere where I had to do time recording - but even in a 2 person startup I've always done "formal" expense claims to avoid the potential wrath of tax authorities.
I feel like there are four stages of company development that need distinct sets of people.
1. Pioneers who can survive and search for a successful direction.
2. Generalists who can take that direction and establish a foundation.
3. Specialists who can take that foundation and build something that can succeed on a large scale. (I don't like the Specialist label, but I couldn't think of a better one.)
4. Optimizers who can grow and refine a large-scale business.
Many companies (Microsoft, for example) make the mistake of promoting themselves as a stage 1 or 2 company when they function like a stage 3 or 4 company. They keep looking for Pioneers who are going to be unhappy and quit after a year when what they really need are Optimizers.
It's not that later-stage companies can't benefit from having and keeping Generalists, it's just that the company is too large to be doing the things that Generalists enjoy. They don't need somebody who can build a server one day and code a new contact page the next. They need somebody who will spend six months working on a project that makes a certain kind of transaction 10% faster.
I'd add a 5th. "Maxing the value of a mature or declining business." Many companies overinvest on #4, when the business has moved to step 5. IBM played this very well. Blackberry, perhaps not so well.
I'd argue that what IBM did well was build a consultancy business. That is where a lot of their growth came from over the past 5 years. Their core business is being used as a cash cow and brand for their new business.
True. I view the move to services as a way of monetizing the brand. Historically their HW and SW weren't always the best, but people knew you could call their support with a problem. Now they've found a way to get paid for the support as demand for their big iron shrank. They've done a lot of acquisitions too, but not wasteful ones. They still do share buybacks every year, which suggests they know their place as a shrinking company, so they invest profits in shrinking the amount of outstanding shares. You know something is up when Warren Buffett is investing in them. :-)
Compare this to other mature tech companies who blow away all the shareholder wealth once the growth stops.
Yeah, I've found that companies are usually bad at knowing when to buy back shares. I'd usually prefer them to just pay a dividend, but you are definitely correct that they [IBM] are much better with being shareholder friendly than a lot of tech companies.
I really like the framework proposed by the OP and added by you.
Dividend paying stocks outperform non-dividend payers over time, so you're on the right track. Giving the owners their money back keeps mature firms from wasting it. (This is very different from high growth firms who have a high cost of capital)
The upside on buying shares back is that it doesn't force people to reinvest in the company - it just shrinks the ownership base as the company shrinks.
The OP deserves the credit. He did the harder thinking.
When I said dividend, I should have specified 'special dividend' one that is paid out once in a large cash payment.
"The upside on buying shares back is that it doesn't force people to reinvest in the company - it just shrinks the ownership base as the company shrinks."
That upside is really not important for professional investors when dealing with mid cap or larger companies. Assuming best case that management teams are genuinely looking out for shareholders rather than inflating the stock price for their options, management teams are not very good at predicting when their own stock is under/over valued.
Most investors want them to return cash to shareholders in most cases as liquidity for companies like IBM is so big that it doesn't matter if they must buy back shares.
Since it is professional investor's jobs to value the share price, they are in a much better position to decide whether the share should be bought or not.
Also, dividend stocks have supposedly performed better over history, but dividends is not a recognized alpha factor by the main finance research relied upon by market participants(1). Dividends go in and out of favor depending on a number of factors, right now, its probably the market's expectation of raising rates set against the background of increasing demand for income.
Professional investors like dividends because they can simply put that money to work somewhere else.
(1) There are papers that say dividends are a factor, but I'm not aware of one that is widely implemented.
Anything beyond fama-french's 3 factor model doesn't have widespread acceptance yet. There are a number of other models in use, especially by quant funds, but they are not public and tested in public.
The whole idea of bringing people together for more interaction can easily be abused. As a dev at a startup, we just sit at a big table (well, technically 6 desks pushed together). While we have had some great discussions that improved our workflow and even the direction of the company, we also had many, many discussions about football, Verge articles, and Youtube videos. Being motivated, (generally) hard-working developers, we actually got a bit frustrated with how easy it was to interact with each other.
A few months ago, we let go of most of our scheduling structure, and now we have virtually no obligation to be in the office if we don't want to. Now we just work from home if we absolutely need a highly productive day. I like the structure we've come up with (plus we distract each other a lot less these days), and we are much more productive. There's a balance to be struck, and encouraging interaction can have unintended side effects if you aren't careful.
We had a similar problem here. I was frustrated when people felt like they had to stay home to get work done. We set aside one of the meeting rooms as a quiet work room (with monitors/keyboards/mice). Gives another option for getting away from the noise to focus but you are still close enough for collaboration when you want/need it.
I was employee 40 at a startup that went to 400. I think Dick's advice is right. The hardest part is losing many of the early employees once you hit about 150. But the bigger problem would be trying to keep them. You need different skill sets and different people for different stages. It hurts though. (also agree that the Zappos piece was much more interesting to me - but Vegas?! It's tough to go outside 3 months of the year after 9am)
The company I work for has been going through the metamorphosis of startup to medium sized over the last few years.
I firmly believe that there needs to be more structure (policies, procedures, documentation) as you get bigger and add employees. If those are lacking, you'll get a lot of uninformed employees making poor decisions and a product that looks and feels disjointed.
I'll be very interested to see if his "city" experiment works.