So when we hired them (just after the start of the project) they worked remotely. They were a small agency who we essentially block-booked for large chunks of time. They would occasionally come to the shared office but not regularly enough to close all the gaps on the project. I estimate that to keep things running reasonably smoothly (and there were still major problems which led to me firing them and hiring brilliant software engineers), I probably spent north of £1k on travel to and from their location to manage them, which was painful both financially (I could be spending that money on almost anything else and it would be better-spent) and emotionally (it's a lot of energy).

Now everyone is in the same room and on the same page. I'm sure there are occasional productivity hits (conversations, phone calls, stand up meetings), but it's a quick "Hey I just deployed this" instead of Email > New Message > everyone@startup.com > I just deployed the XYZ feature we talked about > Send.

It's also more helpful for me to work this way because I am a hands on product manager. We can iterate things very quickly, I can break them and suggest improvements, and we can then iterate them again. Irrespective of whether my benevolent dictatorship is a good way of working, the fact is that I will always work like this and to do that over any kind of distance greater than 5 metres is inefficient and frustrating.