The year 2020 will be forever remembered as one of the most turbulent in recent history. The innovation economy entered 2020 on a high as technology-driven opportunities continued to grow at historic rates. While the fear of an imminent downturn persisted, market success, company growth and venture investment endured. Then the world changed suddenly. By mid-March, the COVID-19 pandemic was upon us, resulting in global financial, health and social crises. In person interactions disappeared, and we were forced to change how we work. Businesses had to quickly decide how to proceed and invest in order to survive. Finding ways to connect, maintaining productivity and preserving company culture and work-life balance were some of the many challenges.
Yet people are resilient. The imminent implosion of the innovation economy, which many thought was inevitable, did not happen. We adapted to the largest (forced) remote-work experiment in history and discovered that the new way of doing things wasn’t actually all that bad. Challenges became opportunities for development, optimization and innovation. Difficult questions arose, but silver linings appeared too, as the innovation economy got the chance to reexamine the way things are and the way things could be.
This largely positive experiment with remote work debunked the theory that the majority of workers are less productive at home. In a recent survey by PwC, 83% of employers and 71% of employees agreed that remote work has been successful. After some initial uncertainty, companies successfully transitioned to remote work 40 times faster, on average, than initially expected, and productivity increased in many areas due to several factors, most notably the elimination of commutes and easier, more frequent access to colleagues and customers. As the COVID-19 pandemic slowly eases, employers are considering what their future workplace model will look like. The “future of work” is not a one-size-fits-all approach. Employers are exploring a broad spectrum of work models (see chart), including Back to the Office, Hybrid, Remote First and Fully Remote, each with benefits and challenges. No matter what approach a company chooses, one thing is clear — the way the innovation economy “works” is changing.
Notable proposed models for the future of work
The pandemic-driven uncertainty pushed businesses to realign their expense profiles while prioritizing efficiency and cost optimization. With no one going into the office, businesses reevaluated their physical spaces to save costs in the short term and to put themselves in a position to return when things got back to normal. Many companies relinquished their leases in major metro areas, in line with the trend of tech workers departing expensive places to live. Compared to prior years, 2020 saw more businesses start outside of major innovation hubs. Monthly median rent for early-stage tech companies declined 64%, to $1,600, by the end of the year.
No longer beholden to a physical office, employees took advantage of cheaper costs of living and more space elsewhere. But the impact of remote work goes beyond savings. More flexibility enables employers to hire in areas previously not considered, thus increasing the pool of top talent and more diverse candidates.
Employers have had to invest quickly to keep employees safe and to ensure they can work virtually. This drove a rapid shift toward digitization and cloud adoption, with cloud infrastructure spend increasing 33% in 2020 to $142 billion. While an emerging trend over the past few years, the rate of adoption soared, pushing spending levels for cloud storage and computing providers much higher.
Not only did the pandemic lead to changes in business priorities, but it also led to a renewed focus within venture capital. After an initial pause at the start of the pandemic, venture capitalists quickly grew more comfortable with no in person meetings and remote due diligence, resulting in the highest levels of US venture investment since 2018 ($103 billion), venture firm fundraising ($76 billion) and venture-backed IPOs (25) since 2014.
Key considerations for investors were how long the current situation would last and which industries, sectors and companies would prosper. Communication tools and collaboration software garnered increased attention, as both sectors became essential in enabling businesses to operate with a remote workforce. Workers also required access to everyday essentials that were no longer available in person, such as schooling, doctors’ appointments, fitness classes and many financial services. Many sought solutions that would allow some semblance of normal life from the confines of their homes, which spurred increased investment in digital health, health and wellness and digital payment platforms.
Median Revenue Growth by Sector*
Not all challenges related to the future of work can be solved with software, however. Burnout, work/life imbalance, profoundly increased levels of stress and feelings of isolation are just a few of the issues brought about by the switch to remote work. While the waning of the pandemic should alleviate some of this stress, it is crucial for employers to address these key areas to ensure the continued success and well-being of their employees. In the past year, the overall compensation package across the innovation economy has shifted to focus on stress relief and mental health programs, child care subsidies and access to career development opportunities.
Change can be daunting, but clear communication and the transparent dissemination of information ensure that nothing is lost in translation while also empowering employees to feel a part of the conversation. Facilitating equal opportunities and parity among employees, regardless of physical location, should remain a key area of focus, one that will build trust and enable more collaboration. Clearly defined values will help everyone rally behind the company’s mission and provide a continued sense of community. Finally, fostering culture and taking a deliberate approach to inclusivity and opportunity will ensure that businesses not only survive, but also thrive. The future of work is here; now is the time to shape this movement for generations to come. Find the full Future of Work Report from SVB here.