Business Planning: Understanding the Benefits and Risks of a Virtual Business

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

Even a virtual business needs a solid business plan. The most obvious benefit of a virtual business is tallied up in dollars and cents — the money saved by not having to maintain a snazzy suite of offices, a high-rent storefront, or other facilities. When a well-known business magazine headquartered in New York contemplated going virtual, it projected savings from rent alone at about half a million dollars a year — enough to give every employee a $16,000 bonus.

Even if you’re not paying Manhattan commercial real estate prices, you can still save a bundle by creating a virtual office rather than renting a physical one. Here are some other benefits:

  • Flexibility: If your business uses independent contractors who are hired on a project basis or for limited periods of time, you can respond more flexibly to the ups and downs of the market, taking people on only when you need them.
  • An edge in hiring: Ask most people if they’d prefer to work at home and on their own schedule, and the answer is a resounding “yes!” Not everyone is cut out for working independently, of course, but for those who are, a virtual business can be attractive — making hiring top talent that much easier.
  • Productivity: A recent Stanford University study found that employees who telecommute or work remotely are 13.5 percent more productive. Maybe that’s because they spend less time in meetings or hanging out around the water cooler.
  • Employee retention: The same Stanford University study found that employees who work remotely are half as likely to quit as office-based workers. That discovery speaks to the job satisfaction many people feel when they’re judged by the work they do rather than the hours they put in.
  • Creativity: Creative solutions are the driving force behind many innovative businesses. Where creativity requires uninterrupted stretches of time and when the creative spark flashes at odd hours, a virtual business organization may be ideal.

If you’re considering a virtual business operation, use Form 12-1 to check off the benefits that you hope to get. Highlighting the benefits you hope to enjoy by going virtual is important because it allows you to focus your planning to give you the best shot at attaining them. Go to www.dummies.com/go/businessplanskit to find and download the forms.

Many virtual businesses we are sold on the benefits of operating chiefly or entirely online. They love the cost savings, the flexibility, and the competitive agility they gain by operating as a virtual team. Businesses that depend on creative output are convinced that a virtual operation gives their employees the freedom to be more creative. Firms that employ young programmers say a virtual organization helps them keep and attract the best talent. Businesses looking for geographic reach say there’s no better way to go after far-flung markets.

Check out the websites of many pioneering virtual companies and you can practically feel the excitement.

  • Automattic, which describes itself as “the people behind WordPress” is “a distributed company, democratizing publishing and development.” All its employees, the website proudly proclaims, “work from their own home or office, and we’re spread all over the world.”
  • Mozilla, the nonprofit behind the web browser Firefox, has employees working in more than 30 countries. It describes itself to prospective employees as “a global pack of do-gooders, rabble-rousers, and passionate defenders of the web.”
  • Upworthy, a fast-growing virtual media company, trumpets the fact that employees can work and live anywhere. “Work from home, from a coffee shop, from a coworking space,” the company’s website says. “Go move to Montana for a month and work from there if you want. (And if you already live in Montana, go on living there!)”
  • Fire Engine RED, a data solutions company that serves the education marketplace, boasts about the talent it has attracted as a 100% virtual company. “We’re able to attract and hire top talent, no matter where they live.”
  • Genuitec, a software company with a small home base in Texas, employs programmers around the world. With teams telecommuting in the United States, India, Mexico, Africa, and Europe, “we thrive in a full-time telecommuting environment,” the firm’s website proclaims.

Sound great? You bet. But creating and managing a virtual business isn’t all polka dots and moonbeams. Many companies had bumpy rides as they planned and launched their virtual businesses. Hiring people suited to working on their own can be tricky. Communicating with a remote workforce isn’t easy, especially if you have employees scattered across many time zones.

Creating a sense of teamwork and a shared commitment also can be a challenge in a company where people spend very little time face-to-face with one another. A virtual company can’t easily take advantage of the synergy that comes from in-person meetings and the back-and-forth banter that goes with them.

The fact is, as cool as the idea of a virtual company sounds, not all business ideas are suited to operating without an office or home base.

Consider the example of several start-ups that are testing whether people will be willing to seek medical advice from remote teams of physicians. One new app provides dermatology advice (and prescriptions, if appropriate), on your smartphone. Instead of going into a brick-and-mortar clinic, you send a list of your symptoms and a photo of your skin problem. A remote dermatologist makes a diagnosis and provides a treatment plan without ever laying eyes on you.

The jury is still out on whether this kind of virtual clinic will work. But almost everyone agrees that a virtual clinic is appropriate only for certain forms of medicine. Diagnosing and treating skin diseases may lend itself particularly well to a virtual format. Fixing broken bones, not so much.