Will A “Virtual Company” Work For You? Comment

6:32 am on January 8, 2016

vircoJust before Christmas in 2015 Matt and Gail Taylor called a staff meeting at their Washington, D.C., office and gave each of 20 staffers a modem and a book on running their own businesses. They announced that, henceforth, they would be running MG Taylor Corp. from their home on Hilton Head Island, South Carolina. More than 10 years later, most of the 20 staffers are still active in their company, a network that has grown to more than 50 workers nationwide.

Whether individually or as groups of small organizations, more entrepreneurs are following the Taylors’ new business model. They’re organizing technologically linked workgroups on a project basis or as full-blown companies. Together, they deliver services or products that they couldn’t provide alone. They’re called virtual companies or distributed workgroups.

While technology is a key, it isn’t the most important ingredient. “This is not a technological problem,” says Charles Grantham, who has studied the trend as president of the nonprofit Institute for the Study of Distributed Work, based in Walnut Creek, California. “You don’t need online conferencing; you can do it with fax and a telephone. It’s a sociological issue.”

There’s no recipe for successfully organizing or running a virtual company, but an increasing number of entrepreneurs are making it work in a variety of fields, according to Launchscore.com, a small business startup data site.

MG Taylor is just one example. This $5 million enterprise defies easy description. Call them “management consultants” and you’re in trouble. “There’s one thing we don’t do,” says Matt Taylor. “We don’t manage people. In our organization a whole lot of what management does simply doesn’t exist.” It’s the same message they offer clients. Perhaps “unmanagement consultants” is more accurate.

The Taylors work in five-day “engagements,” usually On or near the client’s site, aimed at solving a problem: Create a strategic plan, merge two companies, improve a manufacturing process, to name a few. Clients have included NASA, Avis, Ernst & Young, and the City of Boulder, Colorado. For each engagement, MG Taylor provides a crew of “knowledge workers.” Depending on the engagement, they cull as many as 20 graphic artists, videographers, writers, analysts, or researchers from their network of experts.

The Taylors query their pool of knowledge workers by e-mail, but they use their years of experience working with these people to know which ones will work best for any given engagement. The group comes together to create an office of the future at the client’s site, including more than 200 feet of whiteboard, magnetic walls, more than 20 Macintosh computers, kiosks to the Internet, fax machines, a library of books and CD-ROMs, and other gear. MG Taylor’s group helps as many as 60 workers from all levels of the client’s company to brainstorm and plan until they reach a solution.

Regardless of the total number involved, the Taylors bring everyone’s creative energy and valuable perspectives–the client’s invitees, the Taylors’ knowledge workers, and even the Taylors’ roadies and truck driver–to bear on the problem. By finding the right combination of talents that they temporarily draw from their network, the Taylors continue to win renewed business. They anticipate revenues to hit $10 million over the next year or two.

Distributed Production The Taylors’ virtual company provides a service, but David Cole’s virtual organization supplies a service and puts out a product. The Cole Group is a distributed newspaper technology consulting and publishing business that tops $250,000 in annual revenues.

The former systems editor at the San Francisco Examiner knew something about the equipment necessary for putting out a paper and wanted to tout his expertise to newspapers around the country. After the 1989 San Francisco earthquake, Cole put together a disaster preparedness plan and distributed it for free as a newsletter to promote his new one-man consulting firm. Cole produced the newsletter by himself for 18 months, distributing it at no charge.

But in the middle of the last recession, few newspapers could afford the budget to hire consultants. So in July 1991 Cole put a price tag on the newsletter, and it sold. Suddenly, he was managing a growing publishing business that might have detracted from his consulting work. “I knew I would need help.”

He recruited two friends–a couple, he was the Sunday editor at the Baltimore Sun and she was a homemaker–to handle production and fulfillment. For a long time Cole made the film and shipped it to them. The couple later relocated to Urbana, Illinois, and a service bureau there now makes the film. Whether they lived in Baltimore or Illinois, the two were able to continue working with the San Francisco-based Cole.

Cole also recruited seven part-time correspondents in several states for the Cole Papers, which now has a circulation of just under 1,000, and a subscription price of $139 per year in the U.S. With regular revenue from the newsletter, Cole stepped up his consulting efforts and continued to use the virtual business model. He now has two part-timers helping build up the consulting business: one based in Honolulu, the other in Boca Raton.

Scoping Out Business Katie La Chance and Maureen Robinson not only created a virtual firm, they also met virtually. They formed Legal Services Institute Inc. 18 months ago, even though La Chance lives in Clearwater, Florida, and Robinson resides in south Philadelphia. They’ve met face-to-face only twice. Each is a scopist–someone who proofreads a court reporter’s notes to help turn them into a polished transcript. Robinson’s been scoping for 20 years, La Chance for five. Both were running their own businesses from home and–here’s the key–both were on CompuServe. Frequently.

“Through e-mail, we realized we were spending a lot of time consulting [prospective scopists],” La Chance says. “We were giving away a lot of time.” In August 1994 they decided to write down the advice they had been providing on the forum and create a training program. By the end of 1994 they were training would-be scopists.

Scoping itself pays mid-$30,000 a year. In the first nine months of their training business, La Chance and Robinson grossed more than six figures. They do all marketing and much of the training online. CompuServe, America Online, Prodigy, the Internet–they work them all. Robinson runs many newsgroups and La Chance is a section leader on a Compuserve forum. They’ve got an online newsletter and are setting up a Web page.

A scopist needs about $900 in software and modules, followed by a year of support that sells for $2,185. The total start-up cost? About $3,000. Part of the training teaches students how to market. themselves and run a business. The year-long support consists of critiquing the first three or four transcripts.

La Chance and Robinson are incorporated in Florida for tax advantages. They split profits evenly. Would they consider a third partner? “Two works well. Three gets sticky,” says La Chance.

They finally spent 15 minutes together in person when La Chance passed through the Philadelphia airport in October 1994, then had some quality time–three days–at the annual court reporter’s national convention in Cleveland last summer.

Making It Happen Virtual companies face a peculiar set of dilemmas. By their very nature, they require a different sort of person than is attracted to a traditional entrepreneurial company. Once you’ve made the decision to go virtual, the three crucial factors to your success are finding people you can work with, figuring out how to keep in touch with them, and managing the whole process.

Partners and alliances. Like any company, virtual organizations need to find the talent that allows them to deliver products and services to clients. Some tap into working mothers who prefer to work from home. In many ways, these types of organizations resemble a traditional office, only distributed. However, virtual companies are almost always part-time alliances. Rarely do people work exclusively within one organization. They’re primarily Form 1099 folks to the IRS. Building trust is a key component.

La Chance and Robinson went through a get-to-know-you period before forming Legal Services Institute. “We found ourselves within the scopist on-line forum of the court reporter’s forum on CompuServe,” La Chance recalls. “We decided we had similar philosophies.” After getting to know each other online, they formed a business without meeting in person.

Their business marriage works because La Chance and Robinson both share a strong commitment to their craft, trade a lot of e-mail, use technology wisely, and complement each other’s talents. La Chance says she is more polished technically and Robinson has more highly developed social skills.

MG Taylor also follows a partnership model. The company has a core salaried staff of about six–also distributed. The CEO lives in Waynesville, North Carolina, and the finance person in Louisville, Kentucky. Besides the core staff, five or six workers derive nearly 100 percent of their income from MG Taylor. All the others have additional outside work.

The Taylors talk a lot about “the net,” but they don’t mean the Internet. They mean their distributed workforce of more than 50 knowledge workers–and growing–from all fields. The ever-expanding net allows them to take on many more engagements than the core staff could handle. “Our knowledge worker group at any given time tends to be extremely eclectic and talented, many of them genius-level people,” says Taylor. “Often, they are people who have not done well in traditional environments.” New recruits usually join by word of mouth, and their first engagement is an apprenticeship–MG Taylor pays only expenses.

David Cole tends to follow a more conventional means of finding talent. He recruits writers from the people he knew when he was a systems editor–people who were doing similar work at other newspapers. Through CompuServe’s Journalism forum, however, he also met and corresponded with a writer in Connecticut who went on to become his top reporter.

Cole is a sole proprietor. None of the 10 people he works with is an employee. “We keep the IRS independent contractor regulations close by,” he says. Everyone has other sources of income. Cole lines up the work, makes assignments, coordinates, and does the billing.

Keeping connected. Once you’ve found people that you feel you can work with, you still need a way to stay in touch. OccasiOnally dropping by a desk to ask a question won’t work because there’s no office. You also can’t rely on simply picking up the phone to get an answer. Whether voice mail or e-mail, you need some way to leave the equivalent of a Post-it note for your part-time partner when she’s off working with a client for her other business.

For MG Taylor, e-mail is key. The Taylors themselves have been using e-mail since the late 1970s. Now they use e-mail on AOL or the Internet to keep their network active all the time. Several weeks before each engagement, they put out the call on e-mail. Within 48 hours, members respond about their availability for that particular event. From that population, the Taylors choose the right people for the team.

Until last year, members of The Cole Group all communicated on CompuServe. Then Cole took a Mac IICX and turned it into a server. He now has a Web and e-mail server at his house, which he finds much cheaper for his company than CompuServe. It also lays a foundation for his business strategy, which includes selling Web consulting services to newspapers. He already puts out a weekly Cole Newswire–edited press releases distributed to about 180 Web sites including his own (http://www.colegroup.com).

Cole advises people to use e-mail properly. It’s easier to offend someone on e-mail than in person. Be cognizant that one of the frustrations of a virtual company is that you can’t just run down the hall to get rapid action from a worker. Leave a voice-mail or e-mail message and the worker gets back to you when they get back to you. “If a virtual worker does not want to be contacted, he or she will not be contacted.”

Managing. In all, Cole figures his virtual workgroup of 10 is manageable. He spends at least 10 percent of his time managing, especially writers. “Independent contractors, virtual or not, are people who by definition do what they want to do. You have to spend time and energy convincing people that making a specific deadline has a real important rationale behind it.”

Cole believes face time is crucial. He gets together with the couple in Urbana at least twice a year. Once a year he pays for everyone to attend NEXPO, the annual trade show for newspaper technology. They not only work but hold a staff dinner the night before the show and get together frequently during the week.

Although the Taylors believe that it’s crucial to get extremely good at virtual connectivity, they also understand the benefit of getting together with their people often. The team gathers the Sunday before an engagement to go through a ritual of setting up and walking through the session. The Taylors believe that bringing the right people together allows them to do what they’re good at: be creative. They also like to provide big enough challenges so they’ll build a high-performance team. MG Taylor builds on this success by assigning newcomers to the people who recruited them. The recruiter becomes the newcomer’s mentor.

Virtually Too Much? Virtual is not always virtuous. Ask Nathaniel Borenstein, chief scientist and one of four founders of First Virtual Holdings. The company was formed in early 1994 to develop software products for Internet commerce. There were no physical offices for 15 months. Borenstein says they couldn’t have hired their software developers if they had tried to relocate people.

In the beginning First Virtual was an extreme example of a virtual company. The four founders lived in New Jersey, Silicon Valley, San Diego, and Orange County, California. The team hired additional members in other states. Marketing was in Washington, D.C.; public relations in San Diego; lawyers in San Diego, Los Angeles, Chicago, and Seattle, to name a few. They rolled out their first product–a payment system–in October 1994.

Shipping its first product, however, led to a rude awakening. Although First Virtual found that it could technically handle customer service from remote locations, it discovered problems with training and keeping up the morale of its dispersed customer service representatives. “The customer support staff is like the sewer crew,” says Borenstein. “They’re slogging through problems. That is not the ideal job description for someone working in isolation.” The support crew needed to work together in one place to trade solutions and blow off steam.

The company also found a need to group together its creative staff. Today Borenstein says that creative people need to hang out with other creative people.

So after 15 months, First Virtual consolidated all its business, marketing, and customer services operations in San Diego. Borenstein relocated to Ann Arbor, Michigan, to establish an R&D center for its creative staff. The four programmers will be free to work from home or hang out at the Ann Arbor office.

Borenstein had worked from his home for 13 years and thought any kind of work could be done from home. “I started with the assumption that a whole lot of people were old-fashioned and stuck in offices. I got some rude surprises.” Some people and some tasks are well suited to working from home, and others aren’t.

Today the company has about 30 employees, seven of whom still work remotely. Borenstein’s advice: Maximize the advantages of a distributed company and minimize its disadvantages. The right question is not, “Should you be virtual?” but “How virtual should you be?”

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