Work-From-Home Policies Driving Investment Decisions? Absolutely

Jeff Klemens is a partner at Sageview Capital, helping founders build technologies that redefine industries.

More than three years after the pandemic changed the way we work, businesses are continuing to wrestle with work-from-home policies. Companies have adopted different approaches, with some high-profile financial institutions leading the return-to-office charge as many larger tech companies have been slower to alter the more flexible, fully remote or hybrid work policies put in place during the Covid pandemic.

Many employees, having now re-architected their lives around a more flexible work routine, are resisting a full return-to-office policy. At the same time, many executives are left questioning whether intangibles fostered by workforce presence such as mentorship, creativity and collaboration are being sacrificed.

As our firm observed companies grappling with this conundrum, we initially assumed there would be a correlation between policy (in-office, hybrid or fully remote) and performance.

But as we looked closer, we observed that the type of policy actually matters much less to a tech company’s success compared to the clarity of a particular policy and how much that policy was ingrained in the company’s culture. Based on our informal observations, at B2B SaaS companies—Sageview’s specialty and a rapidly growing segment of the tech industry—employee support and consistent management expectations have a much stronger effect on a company’s performance than when, and from where, employees work.

Creating policy clarity after the pandemic, however, is easier said than done. Many B2B SaaS companies were primarily in-office before the pandemic, quickly shifted to fully remote work at the height of the pandemic and are now caught debating how to proceed. Entrepreneurs are now in the unenviable position of trying to navigate policy change amid varied demands from employees, investors and stakeholders. Understanding how different policy choices impact business performance may help clarify the direction a company should set for the future.

How WFH Policies Impact Company Performance

The most obvious reason WFH policies impact business performance in the software sector is their impact on employees, typically the most valuable asset in the company.

Consider an average B2B SaaS company. Most physical assets include things such as laptops, data storage and perhaps office space; there are no factories, mines or heavy industrial equipment. By contrast, its human capital commands a premium and includes highly skilled talent across a variety of functions, from engineering to product design to sales. How well the employees work together has a more tangible impact on performance than almost everything else.

While flexible WFH policies may help attract better talent at an individual level, policy inconsistency can create interdepartmental friction that negatively impacts employee productivity, which can ultimately manifest itself to customers. The customer journey typically requires a number of interdepartmental hand-offs between various teams, from sales to onboarding to customer success and more. The success of these hand-offs relies on each team’s ability to smoothly transition customers between groups, including transferring all relevant context and “soft” relationship management information in addition to hard data.

When a clear WFH policy is in place, employees know how to transfer this information in advance. An in-person employee can stop by a colleague’s desk, a remote employee knows to communicate all information digitally and so forth. Where WFH policies aren’t clear, these opportunities to communicate customer information can be missed or are disorganized. Not knowing how or when you’ll next communicate with a colleague leads teams to be less cohesive and successful, even if flexible WFH policies may increase productivity at an individual level.

What This Means For Investors

The effect of policy clarity on customer relationships and business success is so pronounced that I recommend investors incorporate WFH policy clarity and employee buy-in into their investment criteria. This can be an explicit or implicit consideration. I believe the trade-off between attracting the best talent by hiring from anywhere versus creating a localized nexus of employees should be weighed more heavily than it presently is and that policy clarity success starts at the top level of the company, including the board of directors.

Nowhere is the role of a board clearer than in the case of several recent instances in which a new CEO has changed an existing work-from-home policy. Employees who made significant life and investment decisions based on the old policy have been understandably upset. In addition to generating employee churn and creating internal fractures, this can strain customer relationships that were built under different policy considerations.

In addition, investors should strongly consider securing a board seat at the outset of a new portfolio company relationship to help steer the company through sweeping change. The importance of having a clear WFH policy that is not subject to CEO and senior leadership transitions, and is truly embedded in the culture of the company, is impossible to overstate. Employees need to buy into the policy during their interview and onboarding processes and feel confident that the policy will not change based on a given executive’s preference. Similarly, when hiring for the C-suite, boards must discuss WFH policy clarity at the outset of the interview process, before making a hiring decision.

While so far most WFH productivity and policy discussions have been oriented around the preferences of individuals, industries or teams, the connection point between teams is where I believe policy inconsistency can have the highest impact on business performance. This is especially relevant for businesses with high human capital investments that rely on seamless, positive customer journeys, as is the case with B2B SaaS companies.

The pandemic proved through necessity that companies can adopt a wide variety of WFH policies for their employees and be successful. But this flexibility can come at the expense of coherence and employee productivity. Investors should take a more critical view of WFH policies, and startups should be aware that this is increasingly becoming a criterion for investment evaluation.

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