Moving businesses to remote work model can lead to massive growth: UBC study
A new UBC Sauder School of Business case study shows that even traditional businesses can go all-virtual — and net big profits.
When the COVID-19 pandemic began sweeping the globe early in 2020, companies around the world scrambled to adopt remote work — but eXp Realty, a multi-billion-dollar real estate brokerage, was already there. In fact, Vancouver-based founder Glenn Sanford had grown the company from just seven staff and 20 agents in 2009 to a team of 700 staff and 38,000 agents and brokers in 2020. The financial growth was staggering, too, with compound annual revenue topping 156 per cent over four years. By November 2020, the company was worth $2.9 billion.
Now more and more businesses are ditching the office in favour of online environments, realizing that going virtual can make for serious real-world profits.
To study this growing phenomenon, UBC Sauder Associate Professor Jan Bena (he/him), along with Harvard Business School Associate Professor Prithwiraj Choudhury, independent researcher David Rowat and Harvard research associate Emma Salomon, took a deep dive into eXp Realty’s story, and published a fascinating case study. We sat down with Dr. Bena to talk about his findings.
Many companies have gone remote during COVID, but eXp Realty made that leap more than a decade earlier. What drove that?
The founder, Glenn Sanford, set up his real estate brokerage as all-remote after the 2008 financial crisis. It was a necessity-driven innovation because during the real estate market crash, he didn't have enough money to sustain the expense of their physical offices. So he said to his people, “I'll send you home and we'll see if we can make it all-remote.” It was a bet: either it would work or it wouldn’t.
What made eXp an especially strong case study?
The founder of the company is a Vancouverite, and he offered extensive interviews and information sharing. Also, it was a longstanding company with a proven concept in a traditional business space where you wouldn't expect this concept to be successful. When people think of remote companies, they think of computer science students setting up a coding company, but eXp was in a mainstream real estate business that is very customer-oriented. We found it a fascinating case study in an area we wouldn’t expect.
How did remote work make eXp successful?
One key to their success was that all-remote work allowed them to cut a lot of costs. All the expenses that come with having an office — things like rent, heating, copy machines — were gone, so the cost structure was a lot leaner. Also, in real estate, there is lot of need for teaching and mentoring new agents, and they managed to move that online. All of those watercooler conversations that people have in the office to share ideas and insights, or about a given market or approach to a given client, they did successfully online. This is remarkable achievement and key to eXp’s success, I believe.
In 2018, eXp Realty acquired a small virtual reality start-up called Virbela, which allowed workers to move around a virtual space. How did that help the company’s fortunes?
We now hear all about the Metaverse, but Glenn was doing it years earlier. Agents would use avatars to move around the eXp campus, and do things like go to a lecture hall where they would attend a workshop or tutorial. In that framework, there is less burden on people because they’re not on camera all the time (like on Zoom), so they don't need to constantly watch themselves and others, but they see the others at the lecture. Everybody knows they are at work, but there wasn’t this burden to be on camera all the time.
Virbela also offered an online answer to so-called watercooler conversations. How did they do that?
Yes, those random interactions were quite important as people grew through the organization. Virbela had this feature where, when avatars became close to each other in the virtual campus, you could hear what they were saying. So if you saw two avatars talking, and you approached them, you heard them, just as you would if there were two people in a hallway talking. That’s one of the clever technical details that made it successful.
What elements of the business continued in person?
Certainly, the customer-facing business was in person, and when the real estate agent was meeting a client who wanted to buy or sell a property, that was all in person, and done in a very traditional way. The online avatar-like interactions were only within the organization itself. The combination of the two created a very lean cost structure — and it was more efficient, because the agent doesn't have to go to the office in the morning, then go see the client, then go back to the office, and so on.
eXp saw enormous growth in a short time. What drove that?
Because Glenn was saving on fixed costs, he could reward the agents more, so a higher portion of the revenue they generated could stay with them. As a result, you had more motivated agents, because they got a higher fraction of the revenue from the deal flow they generated. That in turn fueled the growth of the company, because the agents worked more and more efficiently — and yet it didn’t hurt what the owner was getting, because the fixed costs for the office and other brick-and-mortar expenses were going to the agents. For Glenn it was a win-win. In terms of revenue growth, he totally outgrew other major competitors, and it all boils down to that virtual lean structure.
How did the virtual environment help in terms of hiring?
If I set up a traditional company in Vancouver I would have to rely on the local labour market. Maybe I would gain something by having people physically interacting in the office and, if I go online, I would lose that benefit — but I would gain access to people all over the world who might be terrific, and I can employ them at lower cost because they don’t have that Vancouver cost of living. There are trade-offs to remote work, but one of the major benefits is access to a global labour force rather than the labour force in a given metropolitan area.
It seems it was an attractive option for agents, too.
Yes, eXp virtually walked into a Re/Max office and said, “This is your cost structure, and this is how much you’re getting. If you switch to eXp, this is the cost structure and this is how much you will be getting.” The next day the whole Re/Max office moved to eXp, and they’ve done that many times. They went from tens of agents to thousands.
In general, what are the downsides to going all virtual?
If you have people who used to work with each other in the office, they have no problem transacting online because they know each other, and they have established trust. The biggest challenge is onboarding new people and promoting them. If you compare people who are new to a company, those who work remotely are less likely being promoted than those who work in the office. In terms of promotion and growth, it seems some sort of in-person interaction is important, but that might be overcome over time.
How did the all-remote work approach affect the value of eXp?
Faster-growing companies are often more valuable than companies with less growth. But if you have a start-up that’s growing, and your operations are brick-and-mortar, as a young company you may not have enough to cover costs. So then you have to raise money from outside investors, and they will want an equity share in the firm — which means the fraction the founder owns will be smaller. But if you don’t have to cover those costs, you don’t have to raise venture capital, and the founder gets to retain more. Overall, you get lower costs and higher growth, and you get a higher return on your entrepreneurship as a founder.
So when COVID-19 hit, what happened with eXp?
When COVID-19 hit, all the brick-and-mortar real estate companies needed to immediately transition to remote work, but they weren’t prepared for it. For eXp, basically nothing changed, and their stock price just exploded. In January 2021, Glenn and the management started to sell down their stakes. They didn’t fully exit from the firm, but they sold at a very high price that was fueled by the COVID surge of companies that weren’t negatively affected. And that was the reward for his entrepreneurial effort.
What do you think the “post-pandemic” work world will look like?
I don’t think there will be a big, black-and-white switch from in-person to virtual, but I think every firm will have to evaluate what activities are critical to be done in person and what activities can be done remotely. In the financial world, everyone was flying everywhere all the time, but now they’re saying, “Let’s wait for that critical meeting.”
What should other businesses take away from eXp’s experience?
They should acknowledge that a traditional business like real estate — which has nothing to do with technology, internet, big tech, etc. — can sustain a very successful virtual organization. Then maybe that will trigger them to think, “This really is possible: traditional business can be done remotely.” And for people who are thinking of setting up new firms, the key is to think about the return on entrepreneurship, because it might be hugely affected by how, and where, you set up your business.
Interview languages: English, Czech