Battle for talent

By: ispeculatornew
Date posted: 11.26.2010 (5:00 am) | Write a Comment  (1 Comment)

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Most of the tech companies that we follow are based in Silicon Valley and it is becoming very clear that the biggest problem that they are facing does not involved technology, financing, investors or getting the next big ideas. Instead, the major problem that these companies are facing is the lack of talent. Not that there’s no talent in Silicon Valley. But engineers and capable programmers are becoming a scarce resource. I think the main difference is that the digital economy is quickly becoming a critical part of the economy. A big part of that is because of the fact that the internet is now at the center of our lives, our social networks, our entertainment, our shopping and much more. That has spurred a wave of innovation and as the number of internet companies continues to explode, the number of solid workers has been unable to keep the pace.

It struck me in the last wave of earnings call to hear the vast majority of these companies discuss the importance of talent search and being able to retain their most talented employees. The biggest problem of course is that creating an internet company is very easy and it becomes very tempting for the best engineers from any of the big tech’s to head for the exit and start their own project.

How are companies like AOL, Yahoo, Google and Facebook  trying to keep their employees? Here are a few of the tactics being used:

Work environment

It’s now famous how Google has set a new standard in terms of work environment. Among other perks, they have several types of food cooked by talented cooks, served for free to all employees at all time. Add to that equipment to help Googlers rest and get more oxygen, rest areas and giving them one free hour per day to work on personal ideas or projects.

Raising Salaries

But having a great and stimulating work environment does not seem to be enough, even for Google. Why? Because a few weeks ago, the search company announced that after doing surveys, it found what its employees were looking for the most was a better salary. For that reason, they decided to give a 10% increase for all employees around the world. That certainly says a lot about how determined Google is to improve its retention rate. Another tactic that tech employees routinely use, especially in the earlier years is giving out stock and options to keep employees extremely motivated. The effect of course is to make employees care more about the company’s future as well as tie the employee (since these options & stocks usually cannot be sold in the earlier years).

Buying Companies

As crazy as it may sound, it certainly looks like buying companies is now seen as a good way to recruit top talent. AOL recently discussed this in their earnings call as they said that the days where they would buy a company only to see the founder exit were gone. These buyouts are now being made with strict conditions for the founders…the carrot and the stick:

Carrot: Major incentives offered on a performance basis for the founders
Stick: The sale contracts generally have strict conditions regarding the founder staying put

Think I’m exaggerating? Just think about Facebook which recently made an acquisition of NextStop and decided to close down the website. Why buy it then? Because by doing so Facebook was able to get the founder and the technology/idea. And since talent is the rare commodity, making a purchase might be worth it. If a big proportion of the more talented engineers are working on their own start ups, the best way to get access to that workforce for a few years is to buy the company..

Being “In”

It’s unfortunate for some… but working for Facebook and Twitter is seen as “cool”. In finance, working for Goldman Sachs is seen as the top of the world and that same hierarchy exists in Silicon Valley. There is no doubt that you will impress friends and family if you are working for Facebook & Twitter or maybe even Google. You probably will have a more difficult time if you work for Yahoo, AOL, MySpace or others. It’s difficult to explain and is certainly difficult to control. I think it’s mostly about the prospects for the company. While Twitter and Facebook are already major successes, most would still expect the companies to be much bigger in 3 or 4 years.  That is not as clear for companies like Yahoo or MySpace which seem to have their best days behind them…

What does all of this mean?

In my opinion, it means that I will be looking more closely at the efforts made by these companies in order to attract talent because it will be a major factor in their medium to long term success

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1 Comment

  1. […] In a world where talent is a very rare resource, Facebook’s innovation and focus on improvement have been key in attracting […]

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