Friday, October 25, 2013

The Curse of the Rocket Ship

A guest article by John Cambier, Managing Partner at IDEA Fund Partners

Many of us who make venture investments in tech companies located in the
Southeast have, over the years, heard questions from our friends on the West Coast as to whether sufficient entrepreneurial and managerial talent is present here to staff a successful startup with the team it needs to scale.  This is a legitimate question.

I will concede that the breadth and depth of human capital present in Silicon Valley is second-to-none for building (most types of) venture-backed companies. However, as someone who has active portfolio companies on both coasts and has seen, first-hand, the challenges of building a great team in both geographies, I will suggest that the culture of the Valley creates an environment where the price of this talent perhaps outweighs the benefits of abundance.

The problem is quite simply this; in the Valley, everyone wants to be an astronaut.  What do I mean by that? I mean that the default position for 90% of the people I’ve met in the tech ecosystem out there - from the receptionists to the CEOs - is that they’re looking for a rocket ship to ride; ALL THE TIME.  The positive aspect of this is that you have a large number of driven, ambitious people clustered in a (relatively) tight geography.  The downside is that the second someone does not think your particular company is a rocket ship, they bolt for (what they believe is) the current or next one.

So, as a CEO of a company in the Valley, you’re not only constantly having to convince prospective employees that your company is THE current (or next) rocket ship, but you’re also having to convince your existing employees that the company still THE rocket ship.   All of this results in a much higher rate of employee turnover and lower productivity as new people are constantly having to be recruited and trained.  This all has a real cost.

In the Southeast, on the other hand, the default position for most of the people I’ve met in the tech ecosystem is that the company they’re currently with is their company of choice.   I would describe it as a stronger sense of team and tribe where, unless the company is clearly struggling or someone’s boss is an insufferable jerk, a person is generally not actively looking for a job if they’re currently employed.  This, I think, has a huge and underappreciated value.

So, not only does the lower cost of living in this part of the country make for a lower compensation expense as compared to the Valley, but the much lower rate of employee turnover also has very tangible benefits on the productivity of the senior managers and, ultimately, their ability to scale the company.  Hiring the right team is critical to building a scalable and successful venture.  I would prefer that my managers and their reports spend their time on filling new positions as opposed to backfilling existing ones.

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