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Joe Lonsdale: Remote Offices Aren’t an Option For Startups — They’re the Only Option.

November 13, 2018
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Startups from NYC to SF are starting to take advantage of remote teams. Hims, Zenreach, and Eventbrite are just that are helping to lead the charge.

Joe Lonsdale, the entrepreneur and investor behind success stories like Addepar, Palantir, and the venture capital group 8VC, always seems to be a lap ahead of everyone else. To keep his startups and portfolio companies ahead of the competition, Joe has recently embraced remote offices, starting with the first engineering hire.

Joe believes it’s nearly impossible to scale a world-class technical team in Silicon Valley today. That’s why he joined forces with Atomic to start Terminal, which has successfully supported teams in several Canadian markets.

To better understand Joe’s perspective on remote work, we secured a rare interview. We joined Joe in his car where — in typical fashion — he fired off a series of unfiltered responses while commuting to another meeting.

Q1: The engineering skills gap in the Bay Area is widening at an alarming pace despite being the most sought-after destination for skilled tech workers across the globe. In Data Science, for example, Silicon Valley is experiencing a skills gap of over 31,000 workers. When did this phenomenon first start creating issues in the Bay Area and for 8VC companies?

Joe: I’ve been building companies in the Bay Area for about 15 years. Back when I first started, the tech bubble had just burst so there was actually a lot of talent around. It’s never easy to find and hire great talent, but back then it was definitely easier than it is today, especially if you had a strong culture that employees could buy into. One of the biggest changes has been the success and growth of what we call the FANG companies. They started to dominate the talent market. They were able to hire a lot of people very quickly and are still able to pay more for specific roles and price out the competition. That issue has only grown exponentially over the last decade.

Another factor is that there’s been a massive amount of venture capital innovation. What tends to happen is that whenever a company is successful — and there have been a lot of success stories over the last decade here in the Bay Area — a lot of the people who are involved in that success go on to build their own companies. This happens because people tend to learn how to succeed best through experience. When they work on a successful team, it often equips them with what they need to go start their own thing. This creates a really positive upward cycle where there are many more great companies started locally based on previous successful companies and adds to the exponential growth of the area and demand for talent. Because of this, we’ve seen a dramatic rise in salary for tech workers and it’s really heated up since 2014. That’s when everyone had to stop and say wow, this is a really huge problem. Now even the very best companies, including those FANG companies, can’t find all the talent they need.

Q2: What have been the most successful remedies so far?

You have to allocate more of your time than ever before to recruiting and to building your team. In the current environment, you need to make recruiting a core principle and you need to make sure your engineering leaders know how to chip in and recruit. You need to hire people to recruit early on. There are many early-stage companies that already have a full-time recruiter supporting their CEO, supporting their engineering leaders. If you aren’t doing that, you are at a disadvantage. It requires a lot of time and resources, and frankly, you have to be willing to pay much higher salaries than in the past. Just a few years ago, I wouldn’t have called you a real startup if you weren’t offering really low salaries and high equity. That’s the traditional model for a startup. Today, I think companies should still strive for that, but a low salary in some of these essential positions can be $150K or $180K.

What would you have said to that ten years ago?

I would have thought that was a joke — you could never pay that for a startup position. So there’s really been a shift in the game regarding how you go after top talent and how you compensate them.

Q3: How do you view remote versus distributed teams? Do companies build distributed teams for the same reasons that they start remote teams?

There are different views on this across the Valley, many of which differ from mine. Don’t take my view as gospel, but I personally am against distributed teams. I think company culture is really, really hard to develop if people aren’t physically present and interacting face-to-face. In fact, I was reluctant to hire outside of the Bay Area for a long time. The only reason that I’m now in favor of opening new remote offices is because there is a huge shortage of talent. It’s very hard to find the right people here, which makes it really hard to grow technical teams without tapping into another market. To that end, I’m very much in favor of having a strong secondary office, maybe a tertiary office as well, depending on the stage of the company, but I think if you decide to allow employees to be fully distributed too early, that makes it much harder to succeed long term. Again, that’s just my point of view, and it’s how I prefer to run companies, but there are a lot of other people out there who are very talented who see success with a fully distributed model.

But I think it’s critically important to have a very strong office culture and it takes a lot of work to bring that culture to a second office, and a third, and a fourth. You need to be there in person. You need to put in the time to establish that culture in your other offices. That’s even harder to do with a headquarters and a distributed team that has members in five different time zones, especially for younger companies. Culture atrophies when you distribute teams.

Remote community members collaborate in Vancouver, B.C.

Q4: What about teams like InVision or Elastic that have had wild successes as fully distributed teams and cultures?

Those companies were fully distributed from day one. That’s a very different approach and a different culture to build. It can work for some leaders, but it’s not a culture I know how to build yet. I’m very comfortable building a culture with a really strong secondary or tertiary office. I’m fascinated by the idea of fully distributed teams, but I have seen it done wrong far too often. A lot of distributed cultures are total messes and they can’t hold a candle to a truly great office culture.

Q5: At what point do you advise a startup to go with a remote operation as a service partner versus going it alone?

I think you need to take a step back to see how a second office is even possible. It all starts with leadership, right? These things are really hard to do without having the right leaders in place whether you choose to work with a remote operations partner or not. I think that’s a prerequisite to build a second office in general. Start by hiring great managers and great leaders. I say this because even if you do get through the process of the 100+ things you need to do to open a foreign office, if you can’t recreate that powerful culture that you have built at HQ, it’s all for naught. You need to make sure it’s integrated and run the way you want it to be run. That said, I think most companies would benefit by avoiding the upfront costs and risks associated with opening in a new market, which is exactly what Terminal helps companies do.

Q6: You are a proponent of forging relationships with universities to create great opportunities for graduates as well as talent pipelines for companies. What countries are ahead of the game when it comes to tech education?

I still think the U.S. is number one by far. There are probably 20 or 25 universities in the U.S, that we at 8VC are most bullish on. I guess the one other country that I think is truly ahead is Canada. If you look at the Toronto-Waterloo area, what they’ve done is incentivize and push universities to graduate more engineers per school. If you speak with the deans and administrators at these schools, you realize that they are doing everything that they can to keep up with their numbers. The result is that these universities do whatever they can to support the development of engineers. It’s unlike anything I’ve seen before. So when it comes to the framework, Canada is ahead of the game. China obviously has a lot of talent and top universities as well, and in my mind it is a clear number two to North America. The bottom line is that there is talent everywhere and we are only going to see it pop up more and more. Vietnam is a great example. They have a lot of Western-trained engineers. We are hiring in Chile and South America. India has a wealth of talent. But overall, I think the U.S is still number one for developing those relationships, though Canada has a lot to be excited about.

Q7: Last year, software engineering had the highest job turnover rate of any sector, at 13.2 percent. In American tech hubs like San Francisco, the average tenure of a software engineer is alarmingly low. Which practices has 8VC seen that reduce attrition with tech teams?

First off, this is another area where I think managing a distributed team is difficult. It’s really hard to keep people working on something and building exponential value over multiple years if you don’t create strong relationships and a strong company culture. I think having great leaders that inspire loyalty, that inspire passion, that challenge employees and help them have fun is essential. It’s about understanding that you are responsible for the development and livelihood of people. If you invest in them, they are more likely to invest more of the precious years of their life with you. That’s the positive thing leadership can do.

The second thing that’s been common practice recently revolves around the stick and the carrots. In other words, how we choose to reward loyalty for those that stick around versus what we withhold from someone who leaves early. Basically, what companies are saying is, if you want to leave early, we aren’t going to extend your option. This is now a common thing, the whole point being to reward loyalty and, in a certain way, punish those who aren’t. I was very against that idea 5–10 years ago, but I’ve been coming around more to that point of view because we are seeing young people jump around too much, and I don’t think people should be rewarded for that.

Q8: Are founders having to think about the loyalty factor much earlier than they used to?

Yes. And to clarify, there’s nothing wrong with being focused on yourself and your career, but there’s a really unhealthy culture amongst certain segments of the Millennial population that ignores any sense of duty, honor or loyalty. It’s really important in a startup to have a mutual sense of responsibility for each other, a mutual level of loyalty and honor and have each other’s back. Culture, in part, is built this way and it’s not something you can’t fake or make up. You have to really care about people and treat people the way you want to be treated. That’s hard to do when leaders or important employees leave every couple of months. Startups need to think about how they approach loyalty and rewards for loyalty.

Remote workers collaborating in the Terminal Vancouver office.

Q9: What do you consider to be other benefits of remote offices?

There are a lot of possibilities. One of the biggest is time zone alignment. A team at HQ can’t work 24–7, but time zones can complement each other to extend the work day and productivity. There are others, but at the end of the day, it’s about finding the right people. If you could put them all under one roof that would be ideal, but that’s impossible these days. Remote teams aren’t just an option for most startups — they’re the only option that can help them achieve their goals.

To learn more about how Terminal can help your company build successful remote teams, contact us here.

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