The Great Migration
As agencies are trading their big city offices for working at home during the pandemic, Blair wants to know if David thinks he should get into real estate.
Links
Work from Home resources at toggl.com
Transcript
Blair Enns: All right, David, In today's episode, we're discussing the fact that the great agency migration is upon us, and let me explain what I mean by that. Anecdotally, it seems to me that the large cities are emptying out. Agencies are all going virtual and many agency owners and people who work in these firms who currently live in the city, those who can afford to leave the city are doing so.
Where I live, real estate is being snapped up. I live in a little remote mountain village in the middle of British Columbia, Canada. I keep hearing these same stories in other more remote, more rural places of like property is just being snapped up. I was talking to somebody the other day in rural Pennsylvania and she lives on a three-acre homestead. She said everything that was on the market just bought almost instantly. The theory is from people from New York and Philadelphia who want to leave the city have been thinking about it for a while. Everybody's emptying out. I've decided that I need to buy as much real estate in Kaslo in rural, British Columbia, as I can, and also that I should develop a large creative co-working space for all of the creative firms who are about to leave New York, London, Toronto, et cetera, and all come to Kaslo. I guess this is another session where I'm getting free advice from you. What I want to know is how astute of an investor am I?
David Baker: Oh, we do not have the time. [chuckles]
Blair: Do the facts support the stories in my investment thesis? Will there be a great migration of the creative class out of cities? Am I going to get rich off of this? Discuss.
David: [laughs] Oh, that's like the perfect volleyball set and then you sit down in a lawn chair and then just spike it. No, I think you're wrong. You might get rich, but probably not from this. I actually bought into that. First of all, whenever you start a sentence with "I've decided" it's like the hair on my arm-- I bought the argument not because you made it to me, but because I've been sensing the same things. A part of the real estate market is fueled by interest rates in the twos, but locally, I know that's true where you have to buy a home within a half a day, and there's three people bidding at the opening price or higher, the list price or higher. It does feel like that's true, but is that really trickling down? I don't know. It's like, what's real anymore? Are you even real?
Blair: Now you're starting to sound like me.
David: Yes. So, no, I don't think that's going to happen. You and I are on different sides of this. If I understand you correctly, even on the work from home thing, I think there's going to be a significant sea change in work from home, but I don't think it will be as severe as I hear a lot of people talking.
Blair: Let's start there. Let's talk about the trends because we started having this conversation over a week ago, like a good podcast where you did some research and I went and had an app. Let's just talk about what the actual trends are, what the stats are in the work-from-home movement and then we can talk about where you think it's going. Then we'll look at how that ties into whether or not people are leaving cities.
David: Most of this comes from a study that the CivicScience people did. I really liked that website and they included a significant number of people from the PR marketing in the creative space. It's not just broad across the workplace. It actually applies to the audience that you and I address. And some of these things are not at all that surprising. The biggest advantages they're finding are things like skipping the commute. That's at the top of the list, the better work-life balance, they're more productive, and then a couple of surprising things, like they're spending less money because they're not buying clothes to go to work.
Obviously, I've seen them on Zoom they're not. They're not going out to eat at lunch. They're not going to a bar or entertainment with workmates after work and better mental health. I think most people really do believe this is a good thing. For one thing, that's not really the owners that they're talking about. That's the employees and their perspectives might be a little bit different than the principals, but on more stats, they would say that working from home is absolutely viable. It just needs serious adaptation.
Blair: When you say they, you're talking about surveying employees or--
David: The employees, yes. Only 5% of them say that it's not viable. I would guess that those are the folks who probably live in a place where they don't have the space to spread out. They have a lot of distractions. Maybe they don't have great internet. Maybe they're extroverts.
Blair: A bunch of kids at home.
David: Yes, or kids at home. Here's something else that was interesting. Now, this was in Racontuer, which is a really interesting publication that comes out. I think it's every month. I love their articles. This was fascinating looking at this. This wasn't just a creative field, but white-collar workers at home. 45% are working more hours, 25% are working the same number, and then 25% are working the same, but spread differently. Only 4% are working fewer hours. That really matches with what I have seen. I think it's contributing a little bit to the fatigue. It's not just Zoom fatigue. It's the fact that they actually are working more hours.
This is fueled and there's evidence for this in part because people, in the early days of this, say in late March, April, and May, it was fueled a little bit by fear of getting laid off. They needed to demonstrate that they were essential to the organization. That's where some of this extra hard work is coming from. Then in some cases, it's not really extra hard work. It just feels like extra hard work because we've lost those normal boundaries. We're not traveling from one place to the next. We're not running into new people. We're not getting dressed to go to work.
It just feels like it never ends. It's like this endless vacation without a lot of fun things planned. I tweeted about that a few weeks ago.
Blair: I remember-- I'm trying to think back because I'm not very good with dates, but I think it was circa 1990 when I worked from home for six months. I was running a field office for a large multinational agency. A large account required this office in the middle of nowhere in Canada. When I say I was running the field office in the early days, it was just me and then it was me and one other person. I don't remember the circumstances, but I had to move my office. I thought, "Well, I'm just going to work from home." For six months, I worked from a home office and it was a horrible experience because I felt like an unwanted guest had moved into my house and that guest wasn't me. It was the job.
The problem with the unwanted guest was the lines between when I was working and not working started to blur and I found myself working more often, like almost always working and being less productive because I was more distracted by my actual life or the things that were going on around me at home. That was 30 years ago. I decided, "Okay, I need to move back into an office." I went and found an office, and I suspect there's a lot of that going on right now, too. It's like, "Well, the lines, they're just not as clear anymore, are they?"
David: Your experience is a little bit like mine in that I've been to your home a couple of times and I've seen your office. You walked down the hill and you're in a separate building. I walked across the field to a separate building. How much of the time are you working in that separate place versus working in your home during the day?
Blair: These days I'm almost not working at home at all. There are times when I might do half of my work sitting at the kitchen table, but there's so many people in my house these days. I can't get any work done at home. I actually have to come to work to get work done. Right now, because the office is outside of the home, all of my work gets done at the office. When I'm at home, I'm not in work mode at all.
David: That's probably a lot healthier, but most of the people that we're talking about here, they don't have that option. They're working from another spot in the home, whether it's a spare bedroom, or the basement. I've been working with a client recently where he's in a closet and there's a blanket hanging up over him. He looks like he's in a child's tent, one of those tents that you set up in the living room. It's all over the place.
The other thing that surprised me about this is that people are more interested in going back to the office as a group than I expected they would be. I thought that a lot of folks were accepting this for a long time. The truth is we really don't know what the long-term implications of this are. We do know some things for sure. It seems to me. One of those is that, working from home, working remotely is a lot more doable than we thought. Another thing I would say is that this fear we had about people not working hard, that was pretty unfounded. We can trust our folks and so on. What we don't know though, is what will happen to the collaboration/innovation long-term because that's something you've got to look at on a long-term horizon.
The other thing we don't know is how it will work to integrate new people that we hire into this environment because it's an unfair test at the moment for firms that have gone virtual who weren't virtual before because they had this undercarriage of a fabric of culture that they trusted each other and knew how to read each other, they had collaborated in many cases, so to move away from that gave them this advantage that a new employee who's coming in won't have, and we don't really know yet what that will look like, although a lot of firms, a lot of your clients, a lot of my clients, have been remote forever, so it obviously can be done well, but will these firms that have made this change, will they be able to make that transition? They'll be able to make it, but how painful will it be?
Blair: I always wonder about that too because even before the pandemic hit you and I know firms that have been virtual for a while, and I have always wondered how they dealt with that. Let's get back to my real estate investing, okay?
David: I'm not going to be an investor. Let's just clarify that, okay?
Blair: [laughs] Well, we might as well just end this podcast now. But more seriously, I am interested as somebody who lives in a small town, and I've lived here 20 years. For the 20 years that I've been here, the local residents have been saying a variation of "brace yourself, because it's about to happen." It is "this little beautiful remote mountain village is about to be discovered, and the entire world is going to move here." I've been part of this conversation for 20 years. "Brace yourself, it's going to happen." I guess early on, I was probably one of those people saying brace yourself, it's going to happen. The people who grew up here have been here longer than me will just roll their eyes and go, "Uh-huh." Now I'm the person rolling his eyes.
I woke up one day not too long ago and I thought it's actually happening. It feels like it's actually happening. Now, at what scale is it going to happen? Let's just broaden the conversation out to just this idea of moving out at the cities. At what scale is it going to happen? How long is it going to happen? How long before people get sick of this? I was talking to a friend of mine before we recorded this morning. She's in Ireland, lives in Dublin, moved her young family out to the country six months ago, and got stuck there in quarantine, was happy to be stuck there near a beach, raising two little kids, et cetera, but they go back to Dublin tomorrow and man, is she looking forward to getting back to the city.
Dublin is like New York too. When I talk to the people who are in the cities right now, basically, the cities have been emptied out. A friend of mine said, "I'm great in my apartment, but as soon as I go outside, it's really depressing. The service sector part of the economy is all shut down. The restaurants and bars aren't open." He said there's homeless people on every street. It feels like we're back to the mid '80s, when it comes to the big cities, crime is up, et cetera. Now, again, this is all anecdotal, but I believe that's the current state of a lot of the big cities.
I guess my question is, there's so much change going on? Do you see a fundamental shift from urban living to more rural living because of this? Because if all of a sudden you realize that you can do your job from anywhere, it makes sense that you would move to wherever you wanted to and could afford to. You would live where you wanted to live and just bring your job with you. Why is that not going to happen?
David: I think because it's a little bit of an overreaction. We've read things on both ends of the spectrum about the death of cities and the city is going to be hurt badly for a while, but it'll come roaring back and be even better than before. My assumption was that people were wanting to move away from cities because it was so expensive to live there, because disease spreads more quickly when you have humans concentrated together.
The data again, CivicScience and Wall Street Journal, are showing that there are a lot of people who are interested in moving, but there's only a 1% difference in their wanting to move from the city or wanting to move from, say, suburban or from rural. The move is not being driven by the fact that they're in a city, the move is being driven by the fact that if they're going to be working from home, they want more space. They think they might be able to get more space. But here's the question that was asked. Now this is a little bit different, would you be willing to take a pay cut if you move to a less expensive locale? One third would be somewhat willing, and the rest of them is like, "Absolutely not. That's not a part of it."
Then if you look at how interested are people moving based on where they're living now, city dwellers are only 1% more likely to move, than suburban or rural movers. I just don't think change happens that quickly. I see this rapidly increasing sense, particularly from principals and long term employees that they are anxious to get back in the office. I'm talking out of both sides of my mouth so I just said that. Now listen to this, just over 50% of people would be willing to take a vaccine if one is developed. That's going to impact these two.
Blair: Just over 50%?
David: Yes, exactly.
Blair: I wonder what's driving that, so much for heard immunity via vaccine.
David: We think of anti-vaxxers as a small percentage. It’s not really. Here's the actual - this is CivicScience last month: “Would I be willing to take a vaccine?” This is related to “so I can go back to work.” 53% said yes. Two quarters earlier it was 69%. It's dropped drastically to about half of the population be willing to take a vaccine related to going back to work. I don't know what's driving that. Maybe it's the fact that we're discovering that I'm not an epidemiologist, as you'll soon find out. There's different strains of this, so maybe it's not that effective, a little bit like a flu shot, maybe it's only going to last for three months, I don't know what's in people's minds.
Blair: My answer is I'm absolutely willing to take a vaccine, I'm just not going to be in the first 200 million.
David: It's like, you don't have to outrun the bear, you don't have to be the slowest--
Blair: [laughs]Just don't like that Russian vaccine that Putin is fast tracking, not interested in that one, so it really depends on the vaccine.
David: Can we talk a little bit about how recruiting might change, because I think about how recruiting has been done before this, where you try to have a local presence, you might guest teach a class at a local college or university, and cherry pick the top students. You might have interns come over, and so on. I think all of that is going to change, just like when the world was Google-ized, we could have now clients from anywhere across the country of the world and we did not have any local protective geographic barriers. If people are working from home more then our recruitment is going to be international or at least national.
That means that what I've been calling for, I think you have to really needs to be realized, and that's that you need to be viewing attracting great people to your team as almost as important as attracting new clients. You need an actual business plan to attract recruits. You're not going to be to rely on the normal local connections if you're willing to let people work from home.
Blair: I hadn't even thought of that. That's a profound insight, I think. If you imagine an efficient recruiting market, and I don't think we're anywhere near close to an efficient recruiting market. By that I mean it's basically you have this ability to identify, reach out to those people who are a good fits for the job that you have and vice versa. You're in a really efficient market like that, all of the best talent will just accrue to all of the best firms.
One of your advantages, if you're in-- Just pick a secondary market, let's say you're in Boise Idaho, is like you're not competing with a firm in San Francisco for that person who's in Boise. Maybe this makes sense only in my mind.
David: No, it makes perfect sense. Look at all the firms that have struggled to attract enough employees, and so they would, as an example, and I hear this all the time, I heard it all the time, "Let's open an office in Austin, that way we can attract some of the great digital talent there." Well, that's not going to be necessary anymore, and I'm hoping this trickles down so that we don't have this silly notion of "we're a worldwide firm, we've got six offices really, really have one, but five of them are employees working from the city." That's a little bit just unnecessary in a new world.
It's an exciting time to be alive. I think most of this is really good for the industry. We've had this change forced on us so quickly, and we're still working to catch up, but we're a very adaptable industry. It's probably some of the other industries that are going to struggle a little bit more I just find it interesting to watch and see what happens and see how people react to it.
Blair: Do you have any sources for suggestions on how people can get better at the whole work from home thing?
David: I'm in massive listen mode, just trying to learn from as many people as possible. I did two keynote speeches yesterday, and one of them was on that, so it was pretty interesting to learn. I found a useful collection of stuff over at Toggl, T-O-G-G-L, how to work from home. They basically just scraped together some of their best practices as a firm they've been working from home or distributed/remote for many many years.
There's also some nice apps coming up that I think could help. What I hear people miss the most is just the casual connections that you have, and it doesn't feel casual when you have to schedule it in Zoom, and then sit and stare at a screen. They're about a half a dozen of them. The one that seems most promising is called Water Cooler. It's in beta right now, but it allows for those casual conversations.
I see more people oddly enough, they're going back to some physical connection in the absence of working face-to-face. They're mailing packages to employees, and then calling them to follow up with it and so on. There's so many great things that are happening honestly, like this meeting culture. Gosh, before all this happened meetings were the bane of somebody's existence, and now thankfully, that average meeting that just had to be 60 minutes, it can be 30 minutes now, and do we really have to have it. Those are the really good things that are happening because of this.
Blair: There's got to be a backlash. I was talking to somebody this morning, and we're just saying, "Okay, I think we're in this new normal." A surprisingly large percentage of the economy that would include most of the listeners to this podcast, are in pretty good shape, but some of the PPP money where the government financial support is going to run out soon. Then if we think ahead into, I just think of spring 2021, I don't know why I'm picking that date, it just feels to me like that's going to be the time when maybe I can't stand it, and I need to be with people more. I'm not suffering because where I live, and we're relatively sheltered from COVID right now, touch wood, but I can imagine there's going to be a backlash. There's going to be this collective frustration and the fact that we can't be together physically anymore.
David: Right. Yes, you can already feel that people are loosening some of the restrictions in their mind, and willing to accept some of what that means. It's going to happen more and more. What's hard to sort out is that this isn't just COVID. It's also political and social unrest, and of course, the economic uncertainty that comes from all of this. This is one of those times where you going to tell your kids, "You wouldn't believe what it was like in 2020." Then you'll pull out pictures of you in a mask and so on, and you'll pull out clippings of really serious unrest where people were hurt, and it just built this uncertainty. That's the big thing I would want to say, what wears folks out right now more than anything is the uncertainty about everything. That's what wears them out.
Blair: Yes, so let's put a bow around this. Do have some advice for people?
David: Yes, don't make big decisions around all of this. Just keep learning with an open mind and make slow decisions, and make them on a temporary basis. Let's test this for a while and see how it works.
Blair: Other than, I mean if your big decision is to move to Kaslo and rent a co-working space from [crosstalk] and that would be a valid one.
David: [chuckles] This is really a [crosstalk]
Blair: This whole interview isn't going the way I thought it would. You keep wanting to talk about facts, I want to sell real estate.
David: I thought you were on the right track about people moving there, and then you told me what some of the real estate cost. It's a lot more expensive than I expected it would be.
Blair: Yes, it's Canadian dollars though, it's like monopoly money. All right, back to your advice, so don't make any big decisions. It's like you're hungry, angry, lonely or tired, don't make any big decisions about your life in that moment.
David: Right. Don't decide if you love your kid when they're hangry at this moment.
Blair: Yes, what else?
David: Note that your employees might not be like you. I keep seeing principles talking with this built in assumption that employees don't need as much structure, and they're open to change. All of that is true, but they're not like you. You left a job, and started a company, and put everything on the line and are constantly taking risks. That's not the environment that a lot of employees, your team members, want, so just take that into account. I'd say be more flexible about things too. Here's one example. This is a perfect time to think less about how long people work and what they accomplish. Blair, in your business, you're talking a lot about value pricing. It's not about inputs, it's about outputs, but why do we then insist on inputs for our team rather than outputs?
This is a great opportunity to begin rethinking that. I don't have all the answers to that one, but I just think it's worth thinking about. Just watch for those long term unintended consequences. Specifically, how we incorporate new employees, where we don't have that underlying cultural fabric. Also, are we missing any collaboration or innovation over time. Then, well, let's keep ripping the band-aid off. Let's not let a great crisis go to waste. Let's really rip the band-aid off and make any changes that are necessary, recognizing that you still have to be involved in change management, and keeping other people up to speed and socializing decisions and so on. I wish I had more definitive stuff. I'm just listening very carefully to what I'm hearing out there as well.
Blair: As you make that last point, I'm thinking of some conversations that I've had with agency principles. "Yes, it's fine, we're adapting." Even in our business, and I'm sure in your business a little surprised that our ability to adapt and how bad things are not, but just because you've turned the corner financially, you've figured out the new business model, et cetera, you've got everybody working from home, doesn't mean that everything's okay for those people in their situation at home.
David: You may need all the money that you're supposedly saving on your expensive facility on 5th or Broadway. You're probably going have to spend all of that and more to make this more workable long-term, so it's not really about money as much as it is allocation of that money.
Blair: I once heard, I forget who it is. It's the guys who do the fractional CPA stuff for the agency world.
David: Summit CPA?
Blair: Yes, I once heard him speak at a Bureau of Digital Conference, and he's talking about these financial ratios in your firm, and I forget you would know what the ratios would be for what percentage of your income you should be spending on your overhead. He said, in a distributed firm, that cost goes way down, but essentially you should reallocate the bulk of that cost to other ways of keeping your people connected. It would be back at the pre-COVID days. It would be gatherings of some kind, parties even, so I think that's one way to think about it. You're saving an overhead costs, facilities cost, but it might be a mistake to put all of that into your pocket. You should think about reallocating some of those costs into some other tools or means of getting your people more connected.
David: Yes, exactly. 6% is that number, so you can usually afford to spend 6% on facility costs that includes the lease payment, any parking and any utilities, security, cleaning and so on. Yes, you could reallocate that for sure, and it probably needs to be done. I wouldn't want people making a decision about facility based on money, because I'm not sure it's really going to save money.
Blair: Let me put a bow around the real estate thing. What I really think is going on with people buying up land and houses in these more rural markets, I think most of these purchases will end up being second and third homes. I think they will be escape clauses for if the shit hits the fan again in some capacity, people have a place to go. It's been my experience as somebody who's lived in a market like this for 20 years. I've watched from the advertising profession in particular, where you get these rockstar creative people in the ad business. You watch them burn out, and then they make big public pronouncement to the industry that they're dropping out and moving to the middle of nowhere. They disappear and then they're back six months later. Turns out people didn't need to move, they just needed a vacation.
David: That's like CPB from Florida to Colorado. That's what happened there.
Blair: Yes, right. All right, this has been helpful, but I'm left with no further advice on what I should be doing in the real estate investment plan.
David: I'm picturing you all hot and sweaty, and digging holes to put your signs up. Then wearing a sandwich board sign hoping that anybody passing through will buy land from you. Good luck with that Blair.
Blair: Welcome to BlairTopia, where the population is still one.
David: [laughs] Thanks Blair.
Blair: Thanks David.