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Summary:

Silicon Valley, like any other industry town, has its own rhythm: vacillating between boom and bust. The severity of the bust (or boom) might change, but the cycles don’t change very much. These days, Silicon Valley is feeling very optimistic. A very active angel community, a […]

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Silicon Valley, like any other industry town, has its own rhythm: vacillating between boom and bust. The severity of the bust (or boom) might change, but the cycles don’t change very much. These days, Silicon Valley is feeling very optimistic. A very active angel community, a resurgent venture investment climate and a plethora of emergent platforms… whichever way you look at it, these are good days to be an entrepreneur. With newer venture funds coming online by the week, it isn’t surprising to see a sharp surge in funding and the number of new companies.

It is hardly a surprise then, that there’s an unquenchable demand for talented engineers and designers. Why? Because there has been a sharp upsurge in early-stage investing in Internet companies. Early-stage investments accounted for nearly 11 percent of new deals during the third quarter of 2010 versus 1 percent during the third quarter in 2010. Add to that the number of companies that were funded during the first six months of the year, and talent is getting scarce in Silicon Valley. Job-related search engine Indeed points out that job postings related to the IT industry are up over 60 percent for 2010.

That’s precisely the downside to all the Valley’s ebullience.

The Giant Sucking Sound

Over past few days, I’ve talked to many people involved in the industry — friends, sources and entrepreneurs — and most of the conversations I’ve had have been about people: finding people, losing people or other people problems. Here are some conversation snippets that get the point across:

  • Some large web company tried to hire my engineer, and I had to boost the salary by 50 percent.
  • I just lost my key developer to Zynga.
  • Twitter just hired two of my employees.
  • I have four openings at my startup, and I can’t find people.

Welcome to the harsh new reality of technology and its talent crunch. In the real world, we have double-digit unemployment, but on this side of the country, everything seems like it’s 1999. You can thank four companies for that: Facebook, Twitter, Zynga and Google. These four companies are sucking up all kinds of talent: designers, engineers, marketing people and infrastructure folks. They’re able to do so by offering them above-market salaries, insane perks, food and a cachet that’s nice to have during dinner conversations.

 

Zynga's Future Offices in SOMA, SF

 

It’s only going to get worse; Zynga has leased 270,000 square feet of space in San Francisco. The same news story also mentions that Twitter is going to be looking for new office space of around 200,000 square feet. Add to this the new offices for Google, and you’re looking at three web giants that are going to be hiring a lot of people to fill the extra space they’re renting.

Here is what these Zynga, Twitter and Facebook have to say:

  • We (Zynga) are in high growth mode and will continue to hire for near foreseeable future.
  • Facebook is looking to grow at a healthy pace, but unlikely to double its employee base over near one year.
  • Twitter currently has 300 employees. “Based on our current trajectory, at some point we’re going to have to look at other options because we won’t be able to stay on the two floors that we currently have,” a company spokesperson told us

Guess what: it is all going to come at the expense of someone — including your startup!

Startups Are a Team Sport

In my opinion, there are three reasons why Internet startups succeed: a good idea, market traction and most importantly, an awesome team. That’s why companies that are started and built-up during the worst of economic times are very successful. Google, Paypal, Flickr and Facebook are good example of companies that trace their roots back to doom-time. These were good startups that had traction during tough times and hence were able to attract decent investment dollars.

They reason they went from good to great is they were able to attract talented people. Because there were talented people in these companies, more engineers wanted to work there, and thus created a talent cluster that kept growing. Of course, it helped that there were fewer startups and companies competing for their attention as well.

Talented teams help spark creativity and innovations that are long-lasting and have a massive empirical impact. Google’s early engineering innovations are behind products such as Mapreduce and Hadoop. Flickr’s influence on social sharing and communities is undoubtable, and it goes without saying that the work of folks at Facebook will live on, whether as Cassandra or something else.

Just look at the former employees of Google, Flickr and Facebook and you see they are doing amazing things: Ex-Facebook engineer Charlie Cheever is now co-founder of Quora, ex-Flickr architect Cal Henderson is now working with Stewart Butterfield on Glitch, and Bret Taylor left Google and is now CTO of Facebook.

Silicon Valley’s Migraine

In boom times, it is hard to recreate similar talent clusters. As the number of startups goes up, the talent pool starts to get thin, making it difficult for companies to create the momentum that turns a startup into an Internet giant.

We are beginning to see it at work, and as more companies get funded it only exacerbates the problem. More startups competing for fewer talent resources will mean that the cost of doing business is going to go up, which in this era of on-demand infrastructure from the likes of Amazon Web Services means SALARIES, which are essentially the single biggest component of any startups’s spending. Add cash-rich, cool-places-to-work like Zynga, Facebook and Twitter to the mix and things are going to get irrational soon — if they aren’t already!

A proof of this coming crisis: I have over 600 messages in my LinkedIn in-box, and they are all related to jobs!

Related posts from GigaOM Pro (sub req’d):

  1. A big part of this is the fact that startups insist on hiring developers with plug-and-play skill sets, no matter which edge-case languages and architectures they have chosen. The cost of hiring people with non-commodity skills doesn’t factor into their thinking very often.

    Hiring smart people and investing in them through training (as opposed to waiting around for an expensive plug-and-play candidate to show up) seems like a better strategy.

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    1. Jeffrey

      Thanks for your thoughts here. I think the problem is that as you train people, there is also the element of people just leaving when they are “baked” and many folks I talk to, complain of that.

      By the way, if you have any thoughts on how to hire smarter, share them with us.

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      1. I agree with Om here, but I think if we do spot potential, we should also make it as part of the offer to incentivize these folks on the upswing as things grow. Most of the time, when people are hired with a need to train, they are paid just salary – probably lower – and they take it, take the training and find that now they are grown up and can probably do something better.

        The right stratey for these guys – maybe after the first year of getting them onboard and bringing them upto speed – should be how to get them “involved”

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      2. To follow up with Jeffrey McManus’ suggestion of “hiring smart people and investing in them through training,” I would add, “hiring smart YOUNG people.”

        I’ve had surprising luck with college juniors & seniors in internship roles. They’ve come from both marquee names like Stanford University to smaller universities like College of San Mateo. The common denominator has been a kernel of passion in programming and a zest for playing with new technologies.

        It’s tough to identify the right spark, but once you do, make sure you use a different management style. As Om Malik wrote, many of these people leave after they’re well-trained. That is inevitable and should be expected. But it can be minimized with the right kind of management.

        Some successful tips I’ve used:

        + Train someone on your team to be a good mentor. Being a good mentor is tough, but if someone is good at it, they’ll be able to inspire a whole new generation of talent.

        + Give them ownership & responsibility for a feature, minor or major.

        + Have a grand vision and hire those who share a natural passion for it. Make demonstrable advances toward that vision and keep your entire team (not just these young hires) inspired.

        + Maintain a fun & engaging culture. Sure, company culture itself isn’t enough to keep someone around. But without an engaging culture, you’ll lose top talent that much faster.

        + Tell them you’ll teach them how to be an entrepreneur themselves one day. Since some will inevitably leave, embrace this fact and be a mentor to them. Sometimes they’ll stick around just to learn some more.

        + Give them a chance to interact with, and perhaps work in all aspects of your startup. Chances are, this is happening already. I’m a big fan of the cross-pollination of ideas.

        Obviously, some of these tips work for experienced hires as well as inexperienced hires (though the first point is especially pertinent for them). I don’t mean to imply that you should give inexperienced hires special treatment too. But not everyone can be managed the same way.

        In short, expect some churn, but don’t let that stop you from the daily activity of recruiting. Give everyone, experienced & inexperienced, a chance to learn & grow – and focus on giving inexperienced hires a strong mentor.

        My $0.02.

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    2. Mike Lee

      Those are fantastic tips. I love it.

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      1. And after you hire those young people, explain to them how you’ll work together to help them out of the technical track, where ageism and cost-cutting are going to declare them obsolete by the age of 30. After that many years in software, I still learn a language or two every year, but I’ve also been around enough not to make the wet-behind-the-ears mistakes that too-commonly doom career-starting startups. Out of maybe sixty good developers I’ve known who started roughly when I did, all but about five are in completely non-technical jobs now, or are long-term unemployed. Three are senior development managers in large firms, and there’s one other guy who learned Chinese and moved to Shanghai ten years ago. Very, very few other crafts, trades or professions kill off their talent as systematically and arbitrarily as development does.

        Sorry for restating the obvious, but every time I see someone emphasize how “YOUNG people” are somehow intrinsically superior to others, I get angry. It’s the most reliable, inexcusable troll bait I’ve seen in thirty years online.

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  2. Perhaps it’s time to open an engineering office somewhere else than San Francisco? Can I suggest Atlanta?

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    1. I think the problems are more acute for companies that are not big enough to have offices in different locations. But as the companies become more mature, it becomes easier for companies to be using non-SV locations.

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      1. Om,

        I’m in agreement with Don about Atlanta but I don’t think at this point there’s as much of a cost in employing remotely as there used to be.

        You don’t need an office outside of SV. Coworking facilities combined with any number of tools (low cost/free/opensource) can provide for all situations except when you really need to be locked in a room with someone to work out issues.

        There are plenty of successful groups like Sonian and Opscode that have a distributed workforce with only the occasional travel back to the mothership. I think that’s a true test of how well your team gels if they don’t even have to be in the same room to get work done.

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      2. I was just about to suggest the same thing as Don :)

        Om – To me, the problem you’re describing is yet another reason why SV investors should consider putting at least some of their money to work outside the valley. Then companies wouldn’t have to wait until they’re large enough to have remote offices in order to take advantage of the great development talent we have in places like Atlanta…they could just headquarter here. It’s not that crazy a thought!

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  3. VMware has also said they will hire 1,500-2,000 people this year. They are very engineering hungry right now as well.

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    1. James

      Indeed. But from what I understand that they are hiring at a global scale and there is not as much a crunch for talent in say Asia/Europe? Am I correct in my thinking here.

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      1. Actually the tech crunch in Asia is just as tough if not moreso as far as talent scarcity and compensation. My own company is having a hard time pulling experienced talent in the region without breaking our base comp curve. We build financial softare and offer enterprise services.

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  4. The lack of engineering talent has been an issue for the past 12 to 18 months and I agree it is going to get a worse. As an anecdote, I met with a NYC seed funded company last week and they are moving to the Bay Area, since there is more engineers available here. The CEO mentioned that he hired three Facebook engineers and they didn’t have an interest to move to NYC, so the founders are moving to the Bay Area.

    Although the big companies you mentioned are hiring, there is always a certain percentage of engineers who don’t want to work for big companies, so Zynga and Facebook are not that compelling for some.

    Lastly, Palantir is another growing startup that I hear is actively hiring engineers.

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    1. Shai,

      THanks for bringing up Palantir. I have heard similar stories about them on a hiring binge too. As for the engineering talent crisis — it is actually more acute for folks in the mobile space.

      Share
  5. I sincerely hope this means some startups will start considering remote leadership. I ran Digg during it’s explosive years 3 out of 4 weeks a month from Ohio. And with a terrible housing market here in the Midwest, I’m not likely to moving out to SF anytime soon (now that I can!).

    If you know of anyone willing to entertain top notch talent working remotely, please let me know!

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  6. Om,I think you are more right than you realize. There is a macro-economic impact on success rate, future valuations, etc.. And then you get kids like the creator of youtube instant search, itunes instant search that release some beta code hacked together in a weekend and everyone is offering them jobs like they are the next shawn fanning or Zuck. The talent grab is crazy right now. As for better hiring strategies, Joel Spolsky uses high paid interns from college and gives them great perks in hopes that he gets a few back. Pretty smart to get’em young and identify high talent early on…. :)

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    1. Andy,

      Thanks for the kind words. Looks like Joel is onto something. What do you think – can rest of actually copy that approach. I mean he has a certain catchet.

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      1. Brilliant Strategy here. Get em young, make an impression and hope they come back – requires a bit of mature folks around to guide these folks, but well worth the investment – in a way people who can manage interns, do become well versed in communication skills :)

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      2. Lots of companies are actually doing this. Universities across the globe are starting co-op programs, such as the University of Waterloo (where it’s required for all engineering programs) and startups are keen to hire.

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  7. While there is a huge talent glut for engineers, with so many open positions in engineering, its interesting that the same isn’t true for related job roles.

    Product development in particular doesn’t seem to be experiencing any where near the kind of demand engineering is, yet it’s an equally vital role.

    I wonder if the new trend in smaller funding rounds is simply pushing product development onto founders or engineers themselves or whether we’re building products in a different way now.

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    1. Ben

      I think at Mobilize, Christian Lindholm while talking about devices etc., pointed out that unless you are a product guy, you cannot be a successful founder/CEO

      In my experience I have seen that too. I would point to Zuck as an example. Amongst my close friends, @hnshah of @kissmetrics is a good example. I think @jack at Square is also a product guy. I mean there are ample examples that show that “we are thinking about companies differently.”

      Love to hear your/other folks thoughts.

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    2. Unfair though it may be to people with real experience in product development, “product guy” is sort of a catch-all where silicon valley wannabes with no real skills end up positioning themselves. In a boom cycle the ones who can talk fast get funded, and the first thing they need are actual designers and engineers to build their vision.

      Meanwhile, the move from consumer goods to software, and SaaS in particular has lowered the cost of product development, increased the urgency of time-to-market, and allowed rapid iteration and mechanization of things that previously were under the purview of production development (think A/B testing vs market research).

      This dynamic places a high premium on the doers rather than the thinkers. It’s to the point now where even designers are getting frozen out if they don’t have enough low-level skills. Given the increasing technological immersion of youth, and the lowering barriers to entry of development thanks to open source and improved mobile platforms, I only see the demand for overlapping skills increasing.

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      1. I think doing over thinking *is* the new paradigm. Approaches like Lean Startup are making iteration and testing very effective and low-cost, and to some degree that replaces the need for deep thinking.

        At the same time, you can’t make huge leaps forward without deep thinking. But without the budgets for deep thinkers, startups have to be smart and hire thinkers that are also doers.

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  8. Since I left the Bay Area for Atlanta, I have found startups here also have a people problem, but the problem is different in nature. Namely, there are plenty of people available to hire, but most don’t get startup culture. In many ways, I’d rather fight for people who “get it” in the Bay Area than this any day.

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    1. Interesting – I moved from Atlanta to the Bay Area earlier this year. I agree with your sentiment about the Atlanta startup landscape. Atlanta has a lot of great things for startups — cheap local talent (and great developers coming out of Georgia Tech.. but subsequently leaving the area), affordable housing, a vibrant city for single founders, a ton of Fortune 500 companies that could be great customers for B2C companies and a great hub for media and music startups — but there is a lack of early-stage seed funding and of investors that intimately grok the emerging and fast-paced industries of mobile, real-time and their ilk.

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      1. Paul

        Welcome back to the Bay. Coffee sometime soon?

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      2. St. Louis has an identical problem. I’m deeply involved in the startup scene here (yes, there is one), but lack of people that “get it” results in the ones that do leaving for the valley, Seattle, etc.

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      3. Sure thing Om! Would love for you to meet my co-founder as well.

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      4. I wholeheartedly agree with your comment on the fact there is a lack of early-stage seed funding. I have devised a totally disruptive e-commerce solution, yet nobody here gets it.

        They all want to invest in growth stage companies only. So yeah, it sucks to be a seed stage startup trying to grow a business in Atlanta.

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    2. Matt,

      I can’t disagree more that people don’t “get” startup culture. It’s more of an issue of different priorities. I fully understand the startup culture but startup cultures don’t understand someone who can’t put in 20 hour days or who, from past experience, consider 20 hour days a sign of poor management.

      There is some amazing talent available in the metro Atlanta area but they simply value things like family higher than career and have reached the point where they can make that call.

      I haven’t met anyone who isn’t willing to put in extra hours needed to really get things going as long as that’s the exception rather than the rule.

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      1. There is more to startup culture than hours.

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      2. Amen, to both John’s post and Matt’s reply. Those of us who have been through a startup or six generally have a short but significant list of “Nuclear Red Flags” that make us keep at least one eye firmly planted on the exit, no matter how excited we are about the potential of the startup. I’ve seen that in everything from expecting life- and marriage-threatening hours (clichéd but still too real) to my personal “fave,” the guy who’s latched onto Kawasaki’s “don’t worry, be crappy” idea without understanding, let alone meeting, the conditions that Kawasaki sets for that. If you’re a revolutionary, creating an entirely new product space that didn’t exist before you, fine. If you’re creating the 21,472nd clone of Digg and thinking it “revolutionary” because nobody that you know of has ever tailored it to your local market before, not so much.

        I understand effort; I understand ‘short-term sacrifice for the long-term success of the team.’ I also understand that running people into the ground, refusing to buy or borrow (e.g., open source) to solve pieces of your puzzle and reinventing all your wheels instead is a guaranteed, time-honored recipe for failure. You may get your 1.0 out the door, but you’ve got nothing and nobody in any shape to build 1.1, let alone 2.0 or 6.0.

        Having said that, if anybody has any interesting opportunities that they’re interested in working with a highly experienced American dev in Beijing or Singapore, drop me a line. :-)

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    3. I can testify from personal experience (former Bay Area resident currently running a consumer tech start-up in Atlanta) that the primary problem in Atlanta is lack of investors that “get” consumer tech. Investors here are, unfortunately, scared to death of consumer tech. I think they WANT to invest, but they’re just too afraid, and no one is willing to step up and lead with confidence. The main questions I get from investors here are always about finding some B2B angle to my start-up, even though we’re cash-flow positive in B2C!!!

      What I don’t understand, though, is why investors need to be local? If we’ve got a promising start-up community sans investors, shouldn’t investors be willing to hop on a plane?

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  9. How does this reconcile with an overall unemployment rate of 11.5% in Silicon Valley? And a 20+% unemployment rate of engineers age 40+ in the Valley?

    Assuming the skills are there and people get the culture, there seems to still be plenty of talent around…

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    1. Veit,

      Can you kindly share the source of that data. I would very much like to provide a link to it in my post and add more context.

      As to your point about there being a lot of other engineers who are unemployed, I wonder if that has to do with skills and focus of their talents. I am not sure. Perhaps you or one of other readers will enlighten me.

      Share
      1. The 11% (if accurate) rate mentioned above is understated as people who are not actively looking for are not included in the unemployment rate. Some people have taken a break for looking for work as they get frustrated in not landing a job, so therefore they are not actively looking.

        So say that there is some age discrimination that is taking place in hiring engineers, but I don’t have evidence to prove it. Vivek wrote an interesting blog post on this topic, which ties in to this conversation.

        http://techcrunch.com/2010/08/28/silicon-valley%E2%80%99s-dark-secret-it%E2%80%99s-all-about-age/

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      2. There is something called Google…

        Silicon Valley’s Dark Secret: It’s All About Age
        TechCrunch. Vivek Wadhwa. Aug 28, 2010
        http://techcrunch.com/2010/08/28/silicon-valley%E2%80%99s-dark-secret-it%E2%80%99s-all-about-age/

        Silicon Valley’s uneven employment rates
        http://marketplace.publicradio.org/display/web/2010/09/17/mm-silicon-valleys-uneven-employment-rates/

        and I am sure a bunch of other links and stories if I had the time to find and post.

        As for “doers” vs. “thinkers” – I agree that technical founders and engineers for a start-up in the early stages of a company should absolutely be the focus. And getting “product” oriented folks rather than just pure programming genius is kind of obvious. But at some point, as you scale, you’re going to want to have a better division of labor between engineering and “product” – product management, marketing, PR, etc. On another related note, experience and judgment still matter. My friend reminds me of some of the mistakes his junior members of his team at Facebook make.

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    2. Thanks Shai and John for those links. Appreciated. I had read this post but somehow slipped my mind. Just too many things to read :-)

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  10. Hadoop was a yahoo creation, not google. Come on, basic fact checking.

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    1. Rabble,

      Hadoop was inspired by thinking that started inside Google. http://ostatic.com/hadoop It took a cue from Google File Sytem efforts and that is why I wrote, “Google’s early engineering innovations are behind products”. Yahoo sponsored and nurtured Hadoop inside the company.

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