August 15, 2018

Alexa, who moved my employee?

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Hint: it rhymes with “Aragon”, “Babylon” and even “Bourguignonne”. But there are others to point at as well…

Lately, I hear some of my colleagues and start-up entrepreneurs from the high-tech industry grumbling and being outraged by their employees being ‘poached’ by huge and powerful companies (or recruiting agencies acting on their behalf).

A post on Facebook (a huge and powerful company in itself) published by Shai Wininger, founder and president of Lemonade, has brought leading entrepreneurs to come out against Amazon, claiming that the American giant is trying to consistently recruit their employees.

Amazon is just one of the giant monopolies that can dictate the industry characteristics and future structure. Giant strong companies are after tax havens and cheap labour. As soon as they find a suitable location, they take their powerful brand, vast legal robustness and piles of cash with them. Such opportunities do not exist in a start-up environment. Large companies are able to expand their organisational structure and nobody can stand in their way.

Employees everywhere are not indifferent to this reality. In today’s technology-driven business environment, it is not about the product’s physical components, but the knowledge that can be utilised to innovate, develop and present the next ‘whatever’ thing, first.

The hunt for quality human resources is fierce. In the recruitment race for expert positions, salaries have almost doubled since 2011 and they keep rising. This changing employment balance challenges the start-ups to guard their main asset – their minds. They fight over recruiting and retaining talented employees. Unfortunately for some, it already seems a lost battle.

For example, according to Tomer Tagrin, co-founder and CEO of the SMB Yotpo, his company has invested US$ 14.7 million in scanning 15,000 CVs, 3,000 administration hours of initial job interviews, and 1,500 face-to-face interviews – all to recruit 160 employees in the past year. These employees become expensive resources which can disappear any day. For small start-ups, those who are still in the garage/accelerator, the reality is even tougher. Their workforce is smaller; hence every developer or data engineer that moves away generates a shock wave across the company, directly affecting the dream of becoming the new (say) Microsoft and maybe even determining the lifespan of this fragile entity strangled by limited financial backing.

Some big companies have opened development centres right where active start-up hubs are operating and ‘poof!’ workers are flocking there. There is no doubt that those young educated employees of start-ups are independent, intelligent and talented people and have the right to work for any employer that will ultimately offer the highest rewards. It is hard to resist a double-wage offering, upholstered with benefits such as trendy working environment, top-class food and snacks, personal assistants and of course financial bonus packages; apparently, a simple supply and demand behaviour.

While start-ups are agile and fast to react, the more “sleepy” (some will argue even “sloppy”) giants are waiting to see where the next new idea will come from in order to put their hands on it, either by acquiring the start-up (this is the dream for some of the small companies), or just to tempt their employees to move to the other side. Indeed, why should they spend tens of millions of dollars (and much more) to buy a start-up, when they can get its valuable assets for a fraction of the cost? The grim result is that young start-ups are being crashed.

Recently, new players have joined the battle for talents and now the cryptocurrency companies working on blockchain technology are paying obscure salaries for the right people, even more than the high-tech giants.

The above mentioned existential and ethical challenges already have an impact on local start-ups and SMBs. Many young start-ups will not be able to withstand these conditions and will think very hard where to start or develop their company in the future, as more and more companies are dealing with the shortage of employees and inability to pay the high salaries through the opening of development centres in Eastern Europe or India, where human labour costs are cheaper. They also do their best to keep their loyal talents by offering stock options and other unique start-up attributes. They can still offer a dream to hold on to.

What do you think about this reality? Is this a simple matter of “survival of the fittest (giants)”? Potentially, the competition operates in both directions and if there is an employment gap, it will soon be addressed. Will it? What would be the implications on the future of start-ups?

Shai Davidov About Shai Davidov

Shai Davidov, Edinburgh Business School, Senior Teaching Fellow