Your Open Office Space May be Tainting Your Subscription Growth
This episode might reference ProfitWell and ProfitWell Recur, which following the acquisition by Paddle is now Paddle Studios. Some information may be out of date.
Originally published: January 29, 2018
While open offices were around as early as the 1750s, they didn’t really gain popularity until the early 1900s when famous American architect Frank Lloyd Wright started to popularize them through his designs.
Then, in the 1950s, the Burolandschaft movement out of Germany was pushed forward by Herman Miller’s action offices, considered the best way to design an office at the time.
Now the thing to keep in mind here is that these open offices were not the open offices a lot of us have today. They were cathedrals with tons of nooks and crannies to balance the collaboration dream of open offices with the need for distraction free zones. Like most good ideas, we all then bastardized it with the IKEA rows of desks a lot of us work in today.
I’m sure that was more office architecture knowledge than you wanted, so let’s get to the data. We studied just over one thousand subscription and SaaS companies who had teams that were co-located in the same location.
But first, if you like this kind of content and want to learn more, subscribe to get in the know when we release new episodes.
Open offices didn’t impact overall growth as much as I thought it would.
What you’re seeing here is the relative growth rate of open office environments compared to those who have closed offices or some arrangement for everyone to have their own space.
Notice how open offices at each of these ARPU levels only have show 6 to 12% lower growth on a relative basis compared to their closed office counterparts. Don’t get me wrong, I’ll always take an extra 10% when it comes to growth, but when you think of cost savings, maybe that 10% isn’t too bad of a loss.
Here’s a fascinating finding though: Companies with open offices tend to have much worse gross churn than their closed office counterparts.
As you’ll see here, the data indicates that open offices have 11 to 18% higher gross churn rates than their closed office counterparts.
What in the world is happening here? Well, my instinct tells me that this comes down to developer and product productivity. If you think about where a lot of growth comes from, you have elements of growth that are marketing and sales and elements of growth that are product.
Yet, it’s relatively easy to turn up sales and marketing. Not easy, but comparatively easy. Turning these up can overcome churn problems and think about the bullpens of sales teams - they feed off of one another and the distraction is almost ok.
Churn always creeps up at some point, and gross churn is almost purely a product problem, so if your development and product teams are distracted, aren’t productive, or aren’t happy because of those things, you’re likely not going to have the ability to solve your churn.
That being said, there are likely a lot of lurking variables here, so we probably shouldn’t take this as the nail in the coffin for open offices. More research needs to be done, but in the context of all the other research that’s been completed, focusing a bit more on distraction free product productivity is likely worthy of your focus.
Want to learn more? Check out our recent episode: Are Remote Teams Growing Slower Than Their Co-located Counterparts? and subscribe to the show to get new episodes.
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You've got the questions,
and we have the data.
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This is the ProfitWell Report.
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Hey, Neil. This is Sarah.
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I'm one of the cofounders and
the head of marketing at Compt.
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I'm curious.
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Do you have any data on how
open office offices impact
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subscription growth?
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Thanks.
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Welcome back, everyone. Neil
here for the ProfitWell Report.
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This is a fascinating question.
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Because while open offices
were around as early as the
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seventeen fifties,
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00:00:28,095 --> 00:00:30,495
they didn't really gain
popularity until the early
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nineteen hundreds when Frank
Lloyd Wright started to
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00:00:33,135 --> 00:00:35,040
popularize them
through his designs.
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00:00:35,040 --> 00:00:37,600
And then the Burelenschaft
movement out of Germany was
17
00:00:37,600 --> 00:00:40,480
pushed forward by Herman
Miller's action offices in the
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00:00:40,480 --> 00:00:43,245
nineteen fifties as the best
way to design an office.
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00:00:43,245 --> 00:00:46,605
Now, the thing to keep in mind here
is that these open offices were
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00:00:46,605 --> 00:00:48,925
not the open offices a
lot of us have today.
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00:00:48,925 --> 00:00:52,080
They were cathedrals with
tons of nooks and crannies to
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00:00:52,080 --> 00:00:55,680
balance the collaboration dream
of open offices with the need
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00:00:55,680 --> 00:00:57,855
for distraction free zones.
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00:00:57,855 --> 00:00:59,055
Like most good ideas,
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00:00:59,055 --> 00:01:02,335
we all then bastardized it with
the IKEA rows of desks and a
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00:01:02,335 --> 00:01:03,935
lot of us work in today.
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I'm sure that was more office
architecture knowledge than you
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wanted, so let's
get to the data.
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We studied just over one
thousand subscription and SaaS
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companies who had teams that were
co located in the same location.
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00:01:15,290 --> 00:01:18,235
Open offices didn't impact
overall growth as much as I
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00:01:18,235 --> 00:01:19,515
thought it would.
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00:01:19,515 --> 00:01:21,915
What you're seeing here is the
relative growth rate of open
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00:01:21,915 --> 00:01:25,120
office environments compared to
those who have closed offices
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00:01:33,335 --> 00:01:36,215
lower growth on a relative
basis compared to their closed
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office counterparts.
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00:01:37,815 --> 00:01:38,855
Don't get me wrong.
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I'll always take an extra
ten percent when it comes to
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00:01:40,935 --> 00:01:43,330
growth, but when you
think of the cost savings,
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00:01:43,330 --> 00:01:46,130
maybe ten percent isn't
that bad of a loss.
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Before I get ahead
of myself, though,
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here's a fascinating finding.
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Companies with open offices
tend to have much worse gross
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churn than their closed
office counterparts.
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As you'll see here,
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the data indicates that open
offices have eleven to eighteen
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percent higher gross churn rates than
their closed office counterparts.
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00:02:03,280 --> 00:02:05,680
What in the world
is happening here?
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00:02:05,680 --> 00:02:08,960
Well, my instinct tells me that
this comes down to developer and
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00:02:08,960 --> 00:02:10,315
product productivity.
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00:02:10,315 --> 00:02:12,555
If you think about where a
lot of growth comes from,
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00:02:12,555 --> 00:02:15,275
you have elements of growth
that are marketing and sales
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00:02:15,275 --> 00:02:17,480
and elements of growth
that are product.
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00:02:17,480 --> 00:02:20,760
Yet, it's relatively easy to
turn up sales and marketing.
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00:02:20,760 --> 00:02:23,480
Not easy, but
comparatively easy.
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00:02:23,480 --> 00:02:26,035
Turning these up can
overcome churn problems.
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00:02:26,035 --> 00:02:28,355
And think about
bullpens of sales teams.
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00:02:28,355 --> 00:02:29,555
They feed off of one another,
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00:02:29,555 --> 00:02:32,095
and the distraction
is almost okay.
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00:02:32,195 --> 00:02:34,580
Yet churn always creeps
up at some point,
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and gross churn is almost
a purely a product problem.
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So if your dev and product
teams are distracted,
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aren't productive, or aren't
happy because of those things,
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you're likely not gonna have
the ability to solve your churn.
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00:02:46,515 --> 00:02:49,475
That being said, there are likely
a lot of lurking variables here,
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00:02:49,475 --> 00:02:52,880
so we probably shouldn't take
this as the nail in the coffin
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00:03:00,600 --> 00:03:01,700
the
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00:03:02,485 --> 00:03:04,485
is likely worthy of your focus.
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00:03:04,485 --> 00:03:06,005
Well, that's it for now.
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00:03:06,005 --> 00:03:06,965
If you have any questions,
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00:03:06,965 --> 00:03:09,925
send me an email or video
to neil at profit well dot com.
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And if you got value here or on
any other week of the report,
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we appreciate any and all
shares on Twitter and LinkedIn
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because that's how we
know to keep going.
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I will see you next week.
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This week's episode is brought
to you by Rainforest QA.
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