Why big high tech companies are losing the talent war

Big companies are losing their “A” players and they’re struggling to attract “B” players. In an industry where everything is about people, large tech companies are in trouble because they are losing the talent war. And keep in mind, an “A” player in an organization can usually produce the same results as three “B” players.

Joining a big company is irrational in today’s market

Why would you want to join a big high tech company (Yahoo, Microsoft, eBay, HP, Oracle, or Cisco) when you can join a cool startup? [Disclosure: Auren is NOT a shareholder in any public high-tech company] At a big company you’re stuck with corporate politics, paralysis decision making, and a lack of getting things done. At a small company you’re having fun, pursuing your dream, and actually getting things done.

Job security is about a wash. While start-ups tend to go under, big companies are always doing lay-offs and good people are often getting fired due to corporate politics and purges. Thinking about cash compensation, if you make $130K at a big company, you’ll likely make $110K at a funded start-up – a significant difference ($11K after taxes), but not astronomical. Also let’s not forget the stock compensation which has no comparison.

In today’s hot startup market, it is essentially irrational to join a big company. That means that big companies are only attracting “B” and “C” players or they are attracting irrational A players. And they are losing all those great “A” players they hired in the dog days of 2002 (most of which now have fully vested stock-options).

Essentially, when the economy is good and massive amount of startup activity is happening, the big companies suffer. Just think about it…when you see the Google $1.65 billion acquisition of YouTube, does that make you want to work more for a Google or for a potential YouTube? I venture to guess that you’ll want to go out there and work for startups like POSTroller and Blip.tv [Disclosure: Auren is an investor in POSTroller and is on the advisory board of Blip.tv and both companies are looking to recruit “A” players right now]

Now there are some rational “A” players that are still going to large companies. In order to recruit rockstar engineers, companies like Google significantly increase the pay and offer too many perks to list. And some people have their own reasons to join these tech companies. Niall Kennedy joined Microsoft last April because he wanted to be at the epicenter of the PC user experience. Like a scientist attracted to a university with great resources, Niall was attracted to Microsoft not to make a personal profit but to build true, long-lasting innovations. Unfortunately Niall left four months later when he realized corporate bureaucracy can stifle innovation.

When people like Niall (who make career calculations based on doing something cool rather than on compensation) are leaving big companies, you know these Microsofts and HPs are in serious trouble. Too bad for them.

In fact, the only rational reason that I can think of to work for one of these large tech companies is if you want to work less (or eat free gourmet food). If you are content with working 35-40 hours a week and are not interested in growing your career at this point in your life, then working for a large company is a good short-term decision.

Rapleaf recently hired five people. None of those people were seriously considering working at large firms (and we actually recruited some of them out of large firms) but all of them were considering other startups. Rapleaf was competing for talent with other startups.

Now I know someone that just joined a company a large tech company is going to get mad at me. That person might well be an A Player because there are always personal factors (like you get to work directly with Vint Cerf). However, large tech companies are, on the whole, getting whipped by start-ups in the battle for talent.

The big macro trend in technology is the big sucking sound coming out of the large tech companies. Whooooosh!

16 thoughts on “Why big high tech companies are losing the talent war

  1. Bernadette Balla

    One reason I believe this is true is because entrepreneurs are more willing to invest in human capital. To make this short:-
    •Entrepreneurs are more flexible when it comes to amending policies, changing their business models, developing rapport between teams, incorporating different management skills and styles, and promoting ethical behavior within their ventures.
    •Entrepreneurs are not afraid to fail and constantly take risks to compete with their competitors from every aspect. Entrepreneurs also change before changes are needed. Changes are only made if it compliments the structure of the company for survival. It is always easier to implement change before the market shifts as companies will be prepared for the worst times.
    •Entrepreneurial leaders are not process oriented. Therefore most venture firms are less hierarchical and cross functional teams are encouraged to exchange ideas from all levels of the organization. Entrepreneurial ventures are also tolerant of deviant behaviors if it contributes to the success and creativity of the company.
    •Larger corporations are deficient in open communication. Every employee in the company must have a clear belief of where the company is heading in the future and the plans for achieving it. In large corporations most of these ideas and values are not communicated through their organization.
    •Big companies are at a disadvantage at interpersonal relationships with their employees in terms of researching and interacting across departments to discover talents beyond their division and requesting for assistance.
    •Rules and regulations in entrepreneurial firms are treated as guidelines and changes are encouraged when necessary. Policies such as sick leaves and vacation days can be exchanged between employees to encourage camaraderie and team work. Employees are also allowed to telecommute and work flexible hours.
    •However, large corporations also boast in recruiting high school and college graduates; investing the time to train new employees. Many entrepreneurs gained their experiences from working in a corporate work environment before starting their own venture (s) to bring more innovation and flexibility into their firms.
    Ok maybe this is not as short as I intended it to be but nevertheless, my 2 cents as always.

  2. Social computation and creativity

    Problems of big companies: org structure vs leaders

    Recently there had been a lot of discussion about Yahoo and big companies in connection to the Peanut Butter Manifesto. The manifesto was written for Yahoo, but it might have influenced Google as well (see my previous post). Apparently, the problems id…

  3. John

    I was an “A” player who worked at Microsoft. Leaving for a startup had nothing to do with job security, since job security at Microsoft, especially for high-performers, is extremely high.
    I left to work at a startup because a) the potential upside was higher and was more tightly tied to my ability, which is high (I’m being honest here to make my point clearly), b) mediocrity is starting to permeate the workforce of Microsoft, and it’s a worse place to work as a result, and c) startup work is more rewarding, since you work on more than one minute aspect of a product, no matter its popularity.

  4. bubblebuster

    Another sure sign that bubble 2.0 is about to pop. Articles about how joining a startup for a chance at millions????? HAVEN’T WE LEARNED ANYTHING FROM 1999? THIS IS FUNNY AND TRAGIC AT THE SAME TIME.

  5. Chris Brainard

    This is bullshit. You are just spouting the hype that was all over the place with the last tech bubble. There are already too many idiots who are after the quick cash through startups and investors. They think they are can just create a company and make it big with a web 2.0 formula. Just throw cash at it and copy someone else. There are about 20 new idea and 10,000 copy cats all flooding the same markets. Stock is the fever that destroys great companies, because it comes down to two things; make a shit load of money and dump the company or create a great company and have it screwed up by stock holder’s desires to make a consistent profit. Unless people are in it for the long haul 90% of the companies are a joke. Just look at all the Digg clones. Everyone seems to forget the last tech bubble where you got kicked out onto the street after the upper level management took all the money and left everyone to find new jobs.
    But hey it is web 2.0! Now it looks better than ever! So go at it and do it all over again.

  6. someone

    I think, it would be a good idea to look at the bubble from as a whole.. rather than just looking for similar behavior or patterns….
    To me: whatever bubble is a paradox…that builds itself, from a simple point of view. A bubble can’t burst if it wasn’t blown.
    So who is blowing it ?? those StartUps??? I do not think so.
    I’m only a student so I really don’t know much. But it feels* like almost everyone is blowing this big bubble. [people who’s in it and people who have nothing to do with it]
    so it look like this to me: external behavior leads to internal behavior which leads to another external behavior which leads to yet another internal ….
    paradox ??? or not ??? so much to do with individual’s confidence level.
    *feels: means from what I read and saw, people do it intentionally, or unconciously.

  7. peter

    I used to work for a small startup company, but it wasn’t that much fun, after all. Now I work for a big corporation, have a secure job with an ok salary…no problem. Maybe I am an B or C or D player…who cares?

  8. IndianPad

    Why big high tech companies are losing the talent war

    Why big high tech companies are losing the talent war posted at IndianPad.com

  9. Matt

    Interesting perspective. I’m not sure how much it could be applied here in the UK; I’ve recently been employed directly out of university into a huge technology company after spending a LOT of time visiting tech companies and doing interviews and stuff looking for somewhere to work once I graduated.
    Here it seems that all the big technology companies are offering the most: the best salaries, the best working environment, the best benefits, the best training, and the best potential for future employment. I would have thought that startups and trendier smaller outfits would be falling over themselves to employ fresh university graduates full of new ideas and energy, but they all seemed pretty dull and didn’t really seem that bothered, compared to the big corps who were hugely enthusiastic and friendly. Maybe that is more a comment about the state of “startups” in the UK than anything!

  10. Andy Maleh

    Interesting read.
    Remember that successful startup companies may grow large one day 😉 Many gigantic corporations started small ya know?! Just as adults were kids once 🙂
    I think the challenge is to keep up with the growth and still have fun, so in my opinion, working in a startup gives people a chance to adapt gradually to the growth as opposed to immediately joining a huge corporation with huge politics. It is quite a talent and skill to be able to work in a deep hierarchical structure of people and still get things done.
    (note that I do not work for a big corporation)

  11. Managing Intellectual Property & IT Security

    Why is it hard to get great “A” talent?

    All companies really want to hire the best and brightest; the best ones that they can find that meet the criteria of the job, would seem to fit into the organization, and has the ability to actually do the job. It is costly to hire wrong, if you hire r…

  12. Joe Duck

    I’ll be more convinced of this when I go to internet conferences and the startup people are more impressive than the big company folks. I’m still *very* impressed with the depth of talent at Yahoo, Google, Microsoft, Amazon, etc, especially in the cutting edge areas. Also, many big companies have liberal rules about starting your own project under the company umbrella, which minimizes personal risk but preserves the chance at home run profits (I think you could build an interesting big company around this single notion).
    I’m guessing if you did a study you’d find that the company choice for top candidates is more a function of individual preference than company size (e.g. the entrepreneurial-risk-taker vs the stable-income-and-fat-pension person.

  13. Small Business Strategy

    Why big high tech companies are losing the talent war

    Auren makes assumptions about large companies and small companies that don’t hold up. There are plenty of small companies that stifle innovation because they don’t know what they are doing and there are many big companies that innovate and thrive. It a…

  14. Raul Perez

    I will not defend big companies as I used to work at one and saw corporate politics at its worse. I finally left in disgust. Big companies try to hire talent and then promote loyalty for political reasons. A system that in essence almost guarantees top talent will leave the company given that technical talent usually doesn’t play politics; too time consuming and not much fun(unless you’re a psychopath). So usually the kiss-up-kick-down corporate politicians end up being the boss and top talent doesn’t like working for this kinds of guys/gals for very long.
    However, working for a startup is not a panacea for all the negative aspects of employee serfdom. If you’re going to be working on an idea you or your friends have had and will be coming into the startup as an insider, you will very likely have a lot of fun; so do it! But if you’re hiring into a startup as an outsider, it will be hard to get the startup to reveal the secret sauce so that you can make an informed decision about whether or not this outfit has any chance to succeed and these set of guys is the real deal or they are full of it. If you come as an outsider, you’ll probably stay an outsider and the insiders will dominate what happens(or doesn’t happen). Startups can have a lot of politics too, maybe more nerdy politics than at a big company but this is still politics and it sucks.
    I don’t know about many of the “A” players being at startups, I met a lot of great guys at big companies too. In semiconductors, cutting edge work takes a lot of cash and expensive infrastructure that startups sometimes can’t afford. So it may be hard to be on the cutting edge of semiconductors while working at a startup. A lot of crazy people end up at startups too, the kinds of guys that cannot deliver a product to the market no matter how much money they raise. It helps to work at a big company and see how manufacturing and production aspects should be worked out to be able to ramp up to volume once the great idea is implemented in silicon and the big orders start coming in.
    So my advice would be to grow your career at a big company, learn all you can and then when you’re worthy to get funded or one of your friends gets funded jump into you’re own venture with both feet. Even if you don’t hit the pot of gold, you’ll have a lot more fun than at a big company and you’ll hopefully have a good amount of accomplishments from your previous big company gig so that you don’t completely fall off the cliff if you’re startup doesn’t make it.


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