25 Sep Employee Turnover: A Cloud with a Silver Lining
In a recent Washington Post commentary, DC-area entrepreneur Joel Holland cites four reasons he believes account for the recent emergence of the nation’s capital as a modest but real center of startup-driven innovation and venture investing. One reason he cites is a business and social culture that – in sharp contrast with Silicon Valley, he notes – supports more stable employment relationships. Holland posits that lower employee churn is something that gives DC-area innovators a competitive advantage over their Silicon Valley counterparts.
I beg to differ.
Now, it stands to reason that a startup is well served by loyal employees. But it is much more complicated than that, and when you consider those complications (wait for it) it seems clear to me that Silicon Valley’s higher churn rate is in fact a regional advantage.
There are several related threads that together make a strong argument for higher employee churn rates in startup-driven innovation and investing communities. Let’s start with one of the more obvious ones, to wit that when a startup hits the accelerated growth curve – and the ultimate success of these innovation centers is mostly a function of the number of startups that get to that curve – they generate lots of new jobs. In the Valley, most of those new employees come from either larger, more established and at least somewhat slower-growing firms, or other startups. (While folks entering the workforce, and net in-migration, are important sources of new employees for the “gazelle” startups, they are not nearly sufficient, quantitatively or qualitatively, to fill the total need.)
Now the folks leaving the more established firms may do so for several reasons, but in my experience and research what drives the “best and the brightest” to leave for a gazelle or a startup is a strong desire – financial, emotional; usually both – to get back on the high risk/reward/impact career path. And these are great reasons; I would go so far as to suggest that a region that did not have a skilled labor supply with an unusually high proportion of people driven by those factors has no real future as a startup-driven innovation center (see below for an example). These folks are not as a rule disloyal – they are just driven more by what drives entrepreneurs; a chance to be at or near ground zero of the innovation explosion again and again and again.
Of course, the other source of new employees for the gazelle firms is startups that have not yet reached the gazelle stage. Now, it is a hard truth that a key venture investing principle is also one that for startups as a whole, if not in any given case, is equally important: better to cut your losses early than walk the path of the living dead. (I know, I have been there.) It is hard to do, but important, and while many a startup employee has no doubt jumped prematurely, my experience and gut tells me that more such employees jumped because they saw the handwriting on the wall (and we willing to act on it) faster than the founders (and their investors) who employed them. Good for them – and for the Valley.
Now, if you think these arguments are speculative, there is a very good example of what happens to a startup-driven innovation center where low employee turnover is an important part of the business and social culture. Consider Boston, circa 1960 to say 1980. Which is roughly the period over which Boston went from the birthplace and center of the startup-driven venture-investing universe to a distant second place behind Silicon Valley. It was a time where a few entrepreneurial giants were built – companies like DEC, Data General and Wang. Firms that had “us vs. them” cultures and low employee turnover. Firms that were ultimately eclipsed by companies that were much more open to outsiders and their ideas. Firms that were as well – does anyone remember “Fairchild University”, or how about the “Paypal Mafia” – themselves the first or second homes of dozens of folks who went on to found dozens of new startups that themselves have become gazelles and in many cases today’s tech giants. (Two cheers for anyone who can name even a half-dozen important startups that emerged from the cloistered corridors of DEC, DG or Wang.)
Now for any given startup creating the kind of culture that will keep the best and the brightest on the team to and through the gazelle stage is a worthy – and perhaps even mission critical – goal. But it is equally critical, I think, for that given startup and for the regional startup community as a whole – to have a skilled labor force heavily-weighted towards folks who are always looking for the next big thing; who are more likely, perhaps, to pull the career move trigger sooner rather than later when a gazelle or a (in their view, at least) more promising startup opportunity comes calling. Which is why for me the high employee churn in Silicon Valley is more a case of every silver lining having its cloud than the other way around.
More articles by Paul A. Jones
- Partially participating preferred: An alternative to participation caps
- Choosing counsel for your startup
- Angels and Early Exits: Sometimes, a Bird in the Bush is Worth More than a Bird in the Hand
- Beyond the “A” Round
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