Just because you need employees doesn't mean you need an office with all that overhead. Why not build a virtual network of employees where you communicate with each other via phone, e-mail and fax to get the job done?

Husband-and-wife entrepreneurs Greg Chagaris, 59, and Anthea Stratigos, 45, did just that with their market research and analytics business, Outsell Inc., in Burlingame, California. For four years they ran the business from a traditional office space with employees. But in 1998, Stratigos interviewed a highly qualified job candidate whose husband had recently been transferred to Maine. Says Stratigos, "[Greg] and I looked at each other, and that was the sign from the universe. We went with it."

They repositioned Outsell to be a virtual company, maintaining their small office with five employees, and soon expanding to include 35 virtual employees nationwide. Though finding a health plan to cover employees in so many states proved to be a challenge, Outsell's sophisticated intranet, telephone and e-mail systems keep their virtual team tightly connected. Now with 2005 sales projected at about $7 million, the setup seems to be working.

Although Amy Zuckerman, founder of Hidden-Techin Amherst, Massachusetts, is a virtual workplace proponent, she cautions: "People have to be extremely disciplined, and it's not for everyone." Her nonprofit organization--which helps local, national and global virtual entrepreneurs network--plans in-person events to battle isolation and provides resources for virtual companies.

Managing a scattered network of virtual employees brings its own set of challenges. Kelly O'Neil, founder of UpLevel Strategies, a small-business coaching company in Los Gatos, California, advises entrepreneurs to be strong leaders, be very clear about what they expect from employees (in terms of deadlines and so on) and treat payroll much like they would in a traditional office, with direct deposit or mailed paychecks.

"Hire slowly, and fire quickly," says O'Neil, who adds that you should always meet potential new hires at least once face to face. In the interview, ask: Have you ever worked in this kind of situation before? What is your personal strategy for getting work done remotely? Do you have a dedicated office space at home with the necessary technology? Finally, O'Neil says, "Listen to your gut. If [they're] not returning your phone calls or e-mails, let them go."

Note: This article originally ran in the October 2005 issue of Entrepreneur magazine.