Strategic Exits observed that virtual companies, ones with no physical presence where every employee works and communicates online, are attracting higher prices in the acquisition market.
Few people noticed the slow emergence of these new companies. This is surprising because virtual companies have significant advantages over their bricks and mortar competitors. Virtual companies are resilient. With everyone working apart, no one can spread a virus. With no head office and minimal hard assets, they are agile, responding quickly to opportunities and threats. Their cost base is lower, so they are more profitable. They can hire top talent from around the world.
Virtual companies benefit workers too. They can avoid the daily commute and work from home or anywhere with a high-speed WiFi connection. Up to three-quarters of workers would rather work from home so they can better balance work with the rest of their lives. They work 40% more efficiently by minimizing the distractions of working in the office.
Companies benefit, and workers prefer it, so why did it take so long for virtual companies to take off?
First, the virtual revolution needed several technologies to mature to be fully useful in a corporate environment, as we discuss in a companion article.
Secondly, established companies face a host of challenges to move online. You cannot just retrofit old business ideas; you must rebuild them from the ground up. It is a large effort usually defeated by corporate inertia. There was no compelling reason for most companies to upset their well-established systems that seemed to be working well.
Then the COVID-19 pandemic hit. Suddenly virtual companies and remote work became all the rage. Overnight, companies closed their head offices and hastily set up remote working systems for their employees. Companies were forced to quickly to adapt decades of office-centric systems to the virtual environment. It has not been smooth. Many continue to struggle.
Large companies should look to the new breed of virtual companies for inspiration. Most are young entrepreneurial tech startups that have been digital since their founding. They adopted the best management practices from the outset. They never had the weight of deeply embedded office-centric practices to inhibit progress.
As a result, the new virtual companies are very successful. They are agile, profitable, growing quickly and are great places to work. As the large firms complete their virtual transition, they are discovering the advantages. Employees are more efficient. Many hidebound procedures have been swept away. More than coping, the renovated companies are thriving.
What happens when the pandemic ends?
The vast majority of employees do not want to return to the office when the crisis passes. They love the new-found freedom to schedule their day around their family and activities, not work.
Despite the advantages, the change is too drastic for many companies. They want to return to the familiar office protocols. The systems are too deeply imbedded.
Is there a showdown coming? Will you have old-fashioned management going to war with their employees to protect the status quo? Or will the freedom-loving workers, who do not want to get back in the car, prevail?
Ultimately, the economy will sort it out. Technological development is accelerating. Virtual companies are borne and thrive in rapid change. Traditional companies, struggling to even adapt to an online world, are poorly prepared to harness the constant evolution of new technologies. In companion articles, we discuss these characteristics as part of the onset of the Fourth Productivity Revolution.
At the end of the day, traditional bricks and mortar companies with slow, inefficient procedures must embrace the opportunity COVID-19 has provided to reinvent themselves for the Fourth Revolution. Those that cannot be overtaken by agile virtual companies.
The COVID-19 crisis has pulled virtual companies from the bleeding edge of new technological development and organizational change into the mainstream of business. With lower costs, world-class talent, and greater agility to exploit rapid change, it is no surprise that in a technology company exit they are more valuable than their office-centric counterparts.