Strong Opinions @marksbirch

While most of the US economy is saddled with 9.2% unemployment, technology companies are experiencing staggering growth.

People are even reviving my least favorite phrase: the war for talent.  In case you do not believe me, here are a few recent articles:

Tech Startups Face A War For Talent

For Buyers of Web Start-Ups, Quest to Corral Young Talent

Labour market scrambles for new tech stars

Raiders of the Last Nerd

What you can probably gather, the tech talent crunch is global…and writers love to toss around war analogies.  I alluded to this recent tech hiring boom phenomenon in my post about the twelve person, billion dollar startup.  The numbers of employees at some red-hot startups was an eye opener.  In a post by Andrew Parker, the total number of jobs created by just five notable startups over a two year span was close to 15,000.  In the midst of continued weakness in US employment, tech is the sole bright spot.

But what is really behind the current hiring boom?  I believe we are seeing the effects of excessive venture fueled growth and the expansion of non-technical roles in these companies.  As Paul Kedrosky was quoted in a recent post on peHUB, “It’s perverse how many of these marquee names don’t enjoy costless growth.”  In other words, the high valuations from VC’s are driving a hiring arms race* to justify the lofty valuations and compete in a market where barriers to entry are significantly lower.

Kedrosky calls the dilemma “the curse of the lean company. You can create things for half a million dollars,” he says. “But so can everybody else who reads about your success. That pushes funding to the other end of cycle – marketing and sales.”

Which brings us to the second point, the growth is not in technical roles per se, but in sales and marketing roles.  This also creates the need for more support and administrative staff.  This makes sense because it simply takes fewer engineers to develop a high-quality web or mobile application these days.  More people can develop better apps at less cost, and many of these platforms can easily be scaled leveraging technology, much like Facebook does to automate their development and infrastructure.  The irony is that we need fewer technologists as we build smarter technology.  So how does one win in this market if more people have the tools to build a great tech product?  You load up on sales and marketing.

Is this necessarily bad?  Of course not, but this type of hiring is about as sustainable as the Super Bowl tech startup ad economy of the late 90’s.  The VC industry seems to have forgotten the lessons from the first big bust.  If anything, we are going to see tech companies getting much leaner, scaling not through people but through efficient business models, smarter technologies and strategic use of outsourcing.

But can this current growth of tech companies have any impact on overall US job growth?  Yes, but not because tech companies are hiring lots and lots of people.  It is because groundbreaking technology creates entirely new economic models or liberates closed models.  Think of such tech startups such as eBay and the auction business, Airbnb and the hotel business and Google and the advertising industry.  These companies and many others opened up new ways to make money for a new breed of entrepreneurs that leveraged Internet technologies to build their own small businesses.

Growth in the US economy will not come from the likes of Facebook and Groupon and Zygna employing hundreds of thousands of people over the next decade.  The era of the mega-corporation is coming to an end.  The real growth is going to be from small businesses, many of which will be built on the  Internet infrastructures that we are building today.

* Like how I incorporated yet another war analogy?