The Wall Street Journal's Virtual Biotechs: No Lab Space, Few Employees focuses on how biotech startups are outsourcing lab work and hiring consultants and other contingent workers instead of traditional employees.
Hundreds of virtual biotechs are estimated to be operating today, in tech hubs from San Francisco to Cambridge, England. Bruce Booth, a partner at venture-capital firm Atlas Venture in Cambridge, Mass., estimates that as much as a third of the $4 billion to $5 billion in annual U.S. venture funding for biotech goes to virtual firms these days. Atlas is funding about a dozen, most of which have one or two employees. Atlas and other venture partners invest $2 million to $3 million to fund the virtual firms' first year.
While the article focuses on the biotech space, we're seeing the same trend in almost every industry we study.
Companies in all industries are increasingly using technology, automation, partnering, outsourcing and contingent workers instead of investing in fixed assets and traditional employees.
The reasons for this are straight forward. Economic uncertainty, high rates of technological change and competitive pressures are resulting in firms focusing on becoming more agile and flexible.
To do this they are reducing their fixed costs - which include investments in plant and equipment (like lab space) and employees - and increasing their use of variable cost services, including consultants and contingent workers.
We believe this is a structural shift that is changing how industries are organized and work is done. We also think it's changing the competitive dynamic between large and small businesses.
We'll have more on this shift in the coming months.