The Talent Economy

An interesting and predictable thing is happening in the technology startup business these days.

From 1997 through the end of 2000, we had a situation where every company struggled to hire and retain its best employees. But we also had a huge number of people deciding they wanted to get into the high tech startup business so there was always a source of new talent. Developers and engineers were often the most difficult hires because there was a limited ability to go outside the tech industry to find them.

From 2001 through the end of 2003, we had a radically different situation. Jobs were hard to find in the technology startup business, and those who had good jobs in stable technology companies were not likely to leave them. Many of the people who flooded into the technology startup business in the 1999/2000 period left it just as quickly.

This year its starting to feel more like the 1997 to 2000 period again. We are seeing turnover of people in our portfolio companies again. Talented employees are leaving for new opportunities elsewhere.

But I don’t think this is entirely a bad thing. Sure a stable work force is critical for every company, but some new blood is also a good thing. I like to say that nobody is irreplaceable. If they are, you don’t have a company, you’ve got rock star.

The excitement of working for a young high growth company is back in vogue and we are recruiting new people into the tech industry again from more established industries and bigger companies. That is sometimes a good thing and sometimes a bad thing. This “new blood” brings skills, relationships, and new ways of looking at things. But they also bring bad habits like needing lots of resources to get anything done, big expense accounts, and bureaucracy. I think companies need to “tread carefully” when hiring out of bigger companies.

The other issue that is coming into play for many companies is the issue of hiring from within versus recruiting from outside. Many small high growth companies just don’t have a big enough work force to be able to hire from within as a matter of practice. But it’s always a good idea to look inside the company for someone who can fill a role before going outside. It creates a stronger culture and keeps talented people motivated and energized.

The CEOs who survived the downturn with their companies intact proved that they were tenacious, creative, hard nosed, and financially savvy. Now they are waking up to find out that the game has changed. They have to start focusing on the people side of the business a lot more. Hiring, managing, and retaining the talent is back at the top of the priority list.

#VC & Technology