Why big high tech companies are losing the talent war

Big companies are losing their “A” players and they're struggling to attract “B” players. In an industry where everything is about people, large tech companies are in trouble because they are losing the talent war. And keep in mind, an “A” player in an organization can usually produce the same results as three “B” players.

Joining a big company is irrational in today's market

Why would you want to join a big high tech company (Yahoo, Microsoft, eBay, HP, Oracle, or Cisco) when you can join a cool startup? [Disclosure: Auren is NOT a shareholder in any public high-tech company] At a big company you're stuck with corporate politics, paralysis decision making, and a lack of getting things done. At a small company you're having fun, pursuing your dream, and actually getting things done.

Job security is about a wash. While start-ups tend to go under, big companies are always doing lay-offs and good people are often getting fired due to corporate politics and purges. Thinking about cash compensation, if you make $130K at a big company, you'll likely make $110K at a funded start-up - a significant difference ($11K after taxes), but not astronomical. Also let’s not forget the stock compensation which has no comparison.

In today's hot startup market, it is essentially irrational to join a big company. That means that big companies are only attracting “B” and “C” players or they are attracting irrational A players. And they are losing all those great “A” players they hired in the dog days of 2002 (most of which now have fully vested stock-options).

Essentially, when the economy is good and massive amount of startup activity is happening, the big companies suffer. Just think about it…when you see the Google $1.65 billion acquisition of YouTube, does that make you want to work more for a Google or for a potential YouTube? I venture to guess that you’ll want to go out there and work for startups like POSTroller and Blip.tv [Disclosure: Auren is an investor in POSTroller and is on the advisory board of Blip.tv and both companies are looking to recruit “A” players right now]

Now there are some rational “A” players that are still going to large companies. In order to recruit rockstar engineers, companies like Google significantly increase the pay and offer too many perks to list. And some people have their own reasons to join these tech companies. Niall Kennedy, a true “A” player, joined Microsoft last April because he wanted to be at the epicenter of the PC user experience. Like a scientist attracted to a university with great resources, Niall was attracted to Microsoft not to make a personal profit but to build true, long-lasting innovations. Unfortunately Niall left four months later when he realized corporate bureaucracy can stifle innovation.

When people like Niall (who make career calculations based on doing something cool rather than on compensation) are leaving big companies, you know these Microsofts and HPs are in serious trouble. Too bad for them.

In fact, the only rational reason that I can think of to work for one of these large tech companies is if you want to work less (or eat free gourmet food). If you are content with working 35-40 hours a week and are not interested in growing your career at this point in your life, then working for a large company is a good short-term decision.

Rapleaf recently hired five people. None of those people were seriously considering working at large firms (and we actually recruited some of them out of large firms) but all of them were considering other startups. Rapleaf was competing for talent with other startups.

Now I know someone that just joined a company a large tech company is going to get mad at me. That person might well be an A Player because there are always personal factors (like you get to work directly with Vint Cerf). However, large tech companies are, on the whole, getting whipped by start-ups in the battle for talent.

The big macro trend in technology is the big sucking sound coming out of the large tech companies. Whooooosh!