How Often Do You See Smart People Leaving a Big Company?
Here’s a typical article from a couple of days ago: Microsoft Loses Key Public Sector, Visual Studio and Bing Execs (UPDATED)
The article starts off with: “Several high-ranking Microsoft executives exited the company this week.” And ends with updates from tweets about other senior people leaving in the same week.
This isn’t just happening at Microsoft, it’s common in most big companies.
When I Graduated Everyone Wanted to Work in Big Companies
Back when I graduated from university in the 1980s many of the best and brightest grads wanted to get jobs in the big companies. That’s where the research money was, where the excitement was, and where the opportunities were to do really innovative work.
The Big Companies was Where the Big Money Was
The trend accelerated in the 1990s. Getting hired by Microsoft or one of the other big companies usually meant you’d get a sizable stock-option grant. With the buoyant markets in the 1990s, those options often created truly staggering amounts of capital gains.
Microsoft was Built on Stock Options
In the latter 1990s, the ownership of Microsoft was split about 50-50 between people who had invested money in the company – outside shareholders – and people who had invested human capital – employees and founders. Back then, over 35% of Microsoft’s fully diluted shares were options held by employees. I’ve met many software developers, and mid-level managers, who cashed out of Microsoft with tens of millions of dollars. Senior managers made much more. Is it any wonder the most innovative and most productive people wanted to get jobs at companies like Microsoft?
Big Doesn’t Seem to Work Anymore
But look what’s happened over the last 10 or 15 years. If you factor out the dot com bubble in 2000, Microsoft’s share graph is essentially flat. The greatest software company on the planet hasn’t made any real money for its shareholders, or its employees, for over a decade.
What about the world’s greatest chip company? Here’s Intel’s stock chart over the last 15 years.
Or the world’s greatest networking company – Cisco? (My first company was acquired by Cisco when they bought Scientific Atlanta. Some of my friends still have Cisco options.)
In the 1990s a good option position at one of these companies could give you enough to retire. But for the last ten years, they haven’t created any real value at all.
And this is what’s happened in the best of the big companies. To see an example of a less than excellent company, read my next post about what happened to Nortel over the same period.
Today the Best and Brightest Work in Startups
Why none of these big, great tech companies has had any stock price appreciation is a complex question. But what’s much easier to see is the effect on recruiting and retaining the really good employees. That’s a pretty simple, direct relationship.
The best and brightest either aren’t joining, or aren’t staying in, these big companies. Today, the best and the brightest are going to work in startups. That’s where the excitement, innovation and big capital gains are now.
{ 14 comments… read them below or add one }
Great article and the trend makes a great deal of sense. What does this mean for the big companies and the industry as a whole? Will the decentralization of talent catalyze innovation or impair it by losing momentum?
Lev, it’s not all bad news for the big companies. First, they have so much money that it’s a problem for them (more on that in a future post.)
They know that they aren’t good at innovation. But they do think of themselves as good at growing businesses from say $20 million in value to $100 or 200 million or more.
So the big companies are buying startups. That’s the best way for big companies to grow. Entrepreneurs are good at startups and happy to sell them to big companies for $10, 20 or 30 million.
That’s what’s working in our 21st century, North American economy.
“Greatest software company on the Planet” is a bit of a leap, biggest sure. I’m wondering how much the tax policy and emphasis on dividends has had on already big tech companies’ stock behavior. That aside, if you compared IBM, SAP, and Oracle charts, the story’s very different since 2003. I agree with the general notion that there is a much greater focus on startups, but one might also hypothesize that tech is cannibalistic by its nature…. Cisco is flat, F5 has soared as the focus on app tier has risen; Intel flat, IBM has performed consistently as it’s changed how it’s oriented around mobile and gaming; Microsft flat, Oracle up potentially because it’s better at the innovation through acquisition model.
I agree with you Steve. Tech is very Darwinian – that is also one of the reasons it evolves so quickly. You are correct that IBM has fairing a little better for the past five years. But if you look at IBM over the past 30 or 40 years, I think that company reinforces my point. I also admire what Oracle has done and agree that they are good at “innovation through acquisition model.” Thanks for sharing your observations.
Mmm…I think that’s true, up to a point. You picked some of the biggest companies in the 80s, and you’re right that at this point, they’ve matured and have had a stable business model for a decade or more. It’s also somewhat revealing that these companies are enterprise-oriented.
There are other big companies which have done better, although they may be more recent. Google, Facebook, Salesforce, and Apple are the ones I can think of off the top of my head as large companies which have great people and are doing interesting things. That said, many of these companies have also stated that they want to run themselves as a startup and avoid the bloat and slow-moving issues of large companies.
Good points, Allen. Your examples of Google, Facebook are all still quite young Salesforce. My question is what will their stock charts look like a decade from now? And if you were deciding whether to join one of those companies now, or a startup that might have that type of growth curve ahead of it, which would be the better career decision?
Hi, Basil,
I agree that large firms buy small, innovative ones to enter new markets. There’s a lot of information out there to support that too.
I’m curious about the claims, “The Best People are Leaving the Big Companies” and “Today the Best and Brightest Work in Startups.” I hope it doesn’t offend you for me to point out that I didn’t see any evidence supporting those statements, other than this news that some people are leaving Microsoft — that doesn’t mean it is an industry-wide characteristic or trend. Did I miss that evidence supporting your claims?
Certainly, there are lots of innovative folks at start-ups and it seems, more and more, that is their role in the current economic world. There are, however, lots of very smart people at big organizations too. Just think of IBM, Google, and even Microsoft. They, and many other giants, have massive R&D departments with very intelligent people developing new ideas and solving complex problems. I bet if you were to see some of that first-hand, you would be pretty impressed. As well, there are many start-ups (I’m betting it’s actually most but I don’t have hard data on it), that don’t have a tonne of innovation going on and generate little, if any, payoff beyond salaries, for any of their stakeholders — stock-holders, managers, and employees alike.
Mike
Mike, you make a good point, and one that frustrates me in the work, and writing, that I do. I have no doubt that the best and brightest are leaving the big companies and are more likely to be working in startups. But I agree that one article is certainly not statistically valid evidence to prove that. Unfortunately, the data just isn’t available to show that directly.
But I believe that if you asked a number of people with lots of grey hair, who have worked in tech for decades, that the majority would agree with me. I don’t think you’d find many that would agree genearlly with your point: “have massive R&D departments with very intelligent people developing new ideas and solving complex problems”.
Here’s an article that I think helps support my argument: http://www.voiceofsandiego.org/science/article_b107c536-1d6c-5c9a-9d13-6a879f3fe43f.html
It talks about Big Pharma companies laying off their R&D workers and doing deals with startups to acquire new drugs. Again, this is a single data point, but I see this type of thing all the time.
In my opinion, the best and brightest are more often working in startups – at least until they are acquired by the big guys. You can tell who they are by the really big grins on their faces…..
Basil
Neat article. As someone who recently quit a large firm for the startup world let me add my 2cents.
My motivation to leave a comfortable job, corroborated with others who had left large firms, is definitely not money. It would probably be 4th or 5th in the order of causes. First and foremost is the impulse to build something without having to wade through corporate politics. Or be hampered by lumbering processes.
With that as context I would say that stock price is definitely not a causal factor, at least not directly. Not directly because for an organization to scale structures and processes are necessary, which in turn lets in the mediocre hordes, and invariably things slow down. It is hard to retain a nimble culture and the hunger to deliver when you have to coordinate thousands of people across different geographies. Some orgs handle it well and most do not.
Second reason is the cost of building something that makes an impact. Cheap hosting services, open-source frameworks/libraries and growing/maturing online market makes it possible to build something innovative and try it out without mortgaging the house! Availability of funds with moderate effort is also a factor.
Third reason is sheer information available for doing a startup online. It does two things, first it emboldens people that it is possible to do something on their own. Second, it gives access to ideas and best practices on the challenges one can face in a startup. Location is not a factor too, no longer is it necessary for an entrepreneur to be in Silicon Valley or London, to be clued into mentors, VCs and a community. I could sit in Bangalore and learn from Brad Feld, Robert Scoble, Guy Kawasaki and their ilk in near real-time.
Fourth is the new technical challenges, and corresponding tools available to solve them. The smart ones see the opportunity and invariably bounce it within the organization, typically these get shot down or are not pursued with the intensity or focus it deserves. The entrepreneurial types can’t help but want to scratch that itch!
Hope that adds to the conversation. Your thoughts?
Cheers!
Excellent points, Mahesh. I can tell you have been thinking seriously about this.
The psychologists agree that money usually ranks 4 to 7 on the list of job motivators.
Your point is well taken about the causality of the stock price. In some ways, I also see the stock graph as the result, not the cause, of the best and brightest leaving.
Also excellent points about the “mediocre hordes, and invariably things slow down.” In my experience, only a very few big companies have avoided that. It seems to be the result of something inherent in the human animal.
I agree that politics and process are huge considerations. They can get to #1 on my list very quickly.
The costs of building a startup today and the transformation effects of the internet are enormously important. I’m working on posts on both of those topics.
Thanks for sharing your wisdom! (And impressive writing by the way.)
I don’t believe that this argument is so much to do with big versus small companies. I think that bright people want to be challenged and do meaningful work. Those goals are more readily satisfied in a start-up environment where those that have ambition and smarts can stretch themselves without being encumbered by process or stifled by politics. If big, established companies embraced these paradigms they would attract, or at least be able to keep talent. And don’t be naive to think that money is not part of the equation. The allure of founder shares or pre-IPO dollars is still a big draw.
Eric, I completely agree that “bright people want to be challenged and do meaningful work”. Also agree that IF big companies could do that they would be much farther ahead. My belief is that there is something inherent in the human animal that makes that very, very difficult in large organizations.
So true. I work for a startup that helps startups find engineers and many of the engineers that register on our site come from the big companies. Many of them talk about wanting to find a place where their contributions mean more and the pace keeps up with their ideas. Most of the big companies seem to have a hard time maintaining that level of excitement and passion.
Sahra, sounds like you and I also agree with Eric. I think the process you describe is healthy. Kind of a perpetual renewal process in the economy.