Far-FlungPosted on Thursday, May 4th, 2006 by Chris Freeburn
New technologies and creative management strategies make decentralized operations increasingly feasible for small business
James Marciano, co-owner of DesignScape.com, a landscape design firm based in San Diego, California, had a problem, one with huge implications for his new company’s bottom line: People don’t think about landscape design during the winter, even in California. So when the days grew shorter and the mercury fell, DesignScape.com felt the chill. “We had a fairly high fixed cost of landscape designers working in house, and when seasonality hit the business in December and January, our sales dropped but the costs stayed fixed and we were in big trouble.”
Marciano and his team studied their options and came up with a solution. They would let their twenty landscape designers work from home. “We pulled the trigger on December 17 and said to our designers, ‘you work from home, using your own computer,’ ” he recalls. It was a radical decision for the small company, but the results were immediate. The office staff shrunk to fifteen executives and managers and the need for office space and equipment was cut in half. “This helped us improve our gross margins by almost double and weather the storm of a decline in sales.” It also allowed them to recruit designers who lived far beyond Southern California, improving their pool of design talent. “We started attracting superqualified designers from across the country,” Marciano says. This in turn helped the company to extend its business nationwide.
The rise of the “distributed” small business
DesignScape’s decision illustrates a rising trend among small businesses: the proliferation of small companies with multiple offices or widely dispersed employees. Small businesses have always come in many different configurations. But never before has technology put such a diverse array of business operations at the small business owner’s disposal. From the simple home office to partnerships with principals located on either coast, today’s small business can literally extend its reach across the Earth, establishing branches or offices anywhere in the world.
Previously, managing multiple offices was something best left to larger firms with deep pockets. True, a small business could keep several locations, but only if those fell in fairly restrictive proximity to each other. Otherwise, communications and information exchange were dependent on the telephone or mail service, not the cheapest or quickest way to exchange information.
The proliferation of e-mail, cell phones, instant messaging, fax, and Internet telephony has dramatically changed the picture. Not only has the technology emerged to manage many far-separated office locations without a huge support staff, but the cost of that technology has plunged, putting it easily within reach of even the smallest businesses.
Even large companies are acquiescing to the trend. Business giants like IBM, AT&T, and Agilent already have significant percentages of their workforces working outside the traditional office. According to management consultant Charlie Grantham, within a decade as much as 40 percent of the U.S. workforce will be “distributed,” that is, working from locations other than their company’s offices. Many of those will be telecommuters—workers who work from their homes—exchanging data with their managers electronically.
The greatest problem facing small companies with distributed offices or workers—especially when distributed across states or regions—is finding a communications solution that addresses the company’s needs. Most pressingly, how can a small firm arrange its communications to present an image of stability and professionalism to its most important constituents, its customers? The answer has arrived with the web-hosted phone systems.
DesignScape was able to maintain company operations by using a variety of new communications technologies and management software that is allowing even small businesses to manage multiple locations and highly dispersed workforces on a par with larger, established companies. Central to DesignScape’s success was its adoption of GotVMail’s virtual phone system, which permitted the company to instantly transfer incoming calls from its 1-800 number to its designers’ home phones.
Prior to GotVMail, Marciano says the company had an antiquated phone system. “I’ve always said the only thing harder than raising venture capital is getting your company phone system to work right,” he says, laughing. The traditional landline system would not have permitted the company to distribute its workforce. Virtual phone systems function like a web-based private branch exchange (PBX), a private telephone network that directs calls to and from its own extensions. Before virtual web-based PBX’s, companies with enough resources would install physical PBX equipment within their offices to handle calls in and out of their systems. Such systems were uniformly expensive to install and maintain and required the phone company’s support. Virtual PBX’s make use of the Internet’s digital flexibility to carry both voice and data and route incoming calls as the software directs.
“We wanted to maintain one face to the customer—that of a professional, large company,” Marciano says. GotVMail’s system allowed DesignScape to give each designer’s phone an extension in their main directory, regardless of where the designer was actually based. When a customer calls the company’s main office, and keys in that extension, he or she is put right through to the designer. “To the customer, it sounds as if everyone is working out of one office, when in fact, our design team is now scattered across the country,” Marciano explains. “Our designers work from home, they work from Starbucks, we have one woman who went to Hawaii for vacation and was literally designing while on the beach with a wireless connection on her cell phone.”
Another virtual phone service, Packet8’s Virtual Office, offers small businesses similar options, but works on a slightly different basis. According to Dave Immethun, Director of Marketing at Packet8, Virtual Office “is an easy way for companies to employ a hosted PBX service with endless scalability to employees in the same building, regional office, or individual home offices without loss of functionality.” The greatest benefit is that outside callers have “the impression that they are calling an actual company, when they have really called a service that connects all employees to callers anywhere a broadband connection is present.”
Packet8’s Virtual Office relies on a web-hosted PBX system, though Packet 8 subscribers must purchase Packet 8 phones (priced at $99 each) to connect to the system. “The only installation required for Virtual Office consists of plugging the phones in and having call routing set by the service provider,” Immelthun explains. “For a monthly subscription fee, a business enjoys unlimited long distance and local calls in the U.S. and Canada, and can use all the advanced applications including auto attendant, ring groups, and extensions.”
Packet 8 claims that Virtual Office cuts typical PBX start-up costs by up to 90 percent, while reducing monthly phone bills by 50 percent. “For the price of an upgrade to a business VoIP PBX , the value of some applications included with Virtual Office can exceed the start-up cost of a fully hosted solution with several months of service and maintenance-free usage,” Immelthun says. John Marcone, owner of Oakland, California-based Sabre Marketing, used Virtual Office to reduce his telecommunications budget by 40 percent. The six-person business has three employees working from its Los Angeles office and two others working from other offices in San Jose, while Marcone runs the business from his home office in San Francisco. “Customers think we’re all in the same office,” Marcone says.
Immelthun notes that Packet8 will perform all the system configuration before the phones arrive, further reducing the technical demands on the small business owner. The system can be adjusted or reconfigured via the Packet8 web-based online portal at any time. He notes that the Virtual Office’s bandwidth requirements are low. “We only use 30Kpbs per concurrent call so our footprint is a third of our competitor’s, thereby saving our customers money,” he says, adding, “We are broadband agnostic so a company can realistically be connected on five different carriers in five different states.”
Siamak Taghaddos, CEO at GotVMail says that the demand for virtual phone systems is only going to grow. “More and more businesses, especially small businesses, have workers scattered over a state or several states,” he explains. “This means that in order to keep their company working cohesively, they must be able to communicate seamlessly with all their employees—many of whom may be traveling or well outside any office at the time they’re needed.” Thus, GotVMail and other virtual phone systems can link to cellular phones as easily as landlines.
Taghaddos says that virtual phone systems like GotVMail enable small, distributed businesses to project the image they want to customers. “We designed it so that it mimics a Fortune 500 company phone system for $20-30 a month,” he says, noting that while GotVMail can be configured to handle dozens or even hundreds of employees, most of the firm’s subscribers are small businesses with mobile workers. “Our average customer is between one and ten employees, with between three to five being the majority,” Taghaddos says.
Internet telephony packages like GotVMail and Packet 8’s Virtual Office and a host of other vendors are quickly eclipsing the traditional landline telephone. According to telecom giant Avaya, in 2005 new Internet telephony lines exceeded the number of new traditional telephone lines issued. The Yankee Group, a leading industry research firm, found that Internet telephony ranked second in the list of Information Technology professionals’ top priorities last year.
Some small businesses use different systems for communications within the company and without. Mi Casa del Mar is a real estate development company founded in Baja California, Mexico, in 2002. Company owner Brian Crumrine says that while he uses a virtual phone system to handle incoming calls from customers, internal communication between the company’s sixty employees are managed entirely by cellular phones and email
“We have an office in the town of San Felipe, Mexico, another office on-site in our new residential development, two home offices on-site on the development, a model home which is staffed by sales people, and an office in Martinez, California,” Crumrine says. “Our people are traveling all the time between these locations.” The company’s virtual phone system allows customers to connect directly with the company representative they want. But for communicating between employees or just sending documents or spreadsheets, “email and cell phones work very well,” Crumrine explains.
Other firms use a combination of email and instant messaging, which allows rapid communication between workgroups and departments, no matter how far separated by geography.
The Decentralized Future
Good statistics regarding the numbers of distributed workforces and telecommuting employees are hard to come by. However, it is generally conceded that with the accelerating improvements in communications technology, their ranks can only grow.
Of course, when technology solves a problem, it often creates one as well. When DesignScape allowed its designers to work from home (or wherever they wanted), it saved money on space and equipment, but it sacrificed the ability to keep a physical eye on their employees while they worked. “The operations manager has to really focus on training and retention of the designers,” Marciano says. But Design- Scape has found that its employees’ productivity has improved. “People tend to be more efficient on their own time,” he adds.
The question for the future is whether that will prove true of other businesses as well. How will these far-flung operations function in more collaborative industries in which face-to-face meetings and consensual decision-making are the norm? Landscape designers may be capable of working independently quite well with minimal supervision from the home office, but what about sales and marketing teams or creative and research groups in which coordinated effort is critical to success? Will web conferencing be the answer or will some businesses require employees in the field to make regular trips to company headquarters for group meetings? Will new software packages that allow employees to log their activities and place their logs on web servers become more ubiquitous as a means for managers to keep tabs on their people? What of the psychological issues of isolation that sometime accompany employees who work on their own? All of these issues present tremendous challenges for company managers as we move into this decentralized future.
For DesignScape and other business like it, that future is now. Their experience proves that small businesses can now compete with the big boys over vast geographic areas. And that can only be good news for small business.