John Sullivan and Trena Luong
There is an innovator brain drain going on. The drain is away from larger established firms, which desperately need more innovators, and toward startup firms, which are successfully recruiting a disproportionately high percentage of these prized innovators.
It doesn’t matter whether your corporation is trying to hire experienced talent or recent grads; it seems like every innovator and entrepreneur these days is seriously considering working at a startup (or creating their own startup). What makes the “brain drain to startups” a problem so unique is that corporations are fully aware that they are currently outmatched in this recruiting battle and most are also painfully aware of the economic damage that they suffer whenever they lose an innovator.
Given this awareness, it would seem logical that, at least at large tech firms in the Silicon Valley, each would have a dedicated “counter-startup recruiting program” designed specifically to reverse this brain drain. But for some unexplained reason, it’s almost impossible to find a large corporation (tech or otherwise) that has a comprehensive formal recruiting program for landing innovators who have had a natural inclination to bypass them and go to startups. Yes, some large firms like Google, WL Gore, Yahoo, Facebook, and recently Zappos have a few features that are attractive to innovators but no one has a visible comprehensive “counter-startup recruiting program.”
The basic plan behind a counter-startup program is to first identify the factors that draw innovators to startups and then to show these innovators that a corporate entity can actually match startups feature to feature. For that reason, you could also call your recruiting program a “startup feature-to-feature matching program.” A unique and separate tailored recruiting program is necessary for two basic reasons:
If you are a corporate recruiting leader and you are intrigued with the prospect of reversing this “innovation brain drain” away from startups and toward your firm, please read on.
Perhaps one of the reasons that there is an absence of dedicated counter-startup recruiting programs is that corporate recruiting leaders have failed to provide an effective business case to their own executives that clearly demonstrate that unnecessarily losing these innovators is costing their firm tens of millions and possibly up to $100 million each year. If you doubt the economic value of the innovative employees who are drawn to startups, you have two choices, estimating the dollar value of individual employees at startups or calculating the performance differential between an average new hire and an innovator at your own firm. Let’s look at the dollar value of individual employees at startups first.
Almost everyone has heard about corporate acquisitions where startup firms with a small number of employees are acquired for over $1 billion. These acquisitions it turns out are an excellent way to illustrate the tremendous economic value of a single startup employee. The calculation is actually quite simple. Begin with the billion-dollar buyout value when the firm is acquired (or their valuation estimate when a VC invests in them). Next divide that value by the number of employees at the startup. Illustrative examples that come to mind include WhatsApp, which was worth $19 billion with only 55 employees ($354 million each) and $1 billion Instagram with only 13 employees ($76 million each). That of course doesn’t mean that every startup employee is worth tens of millions of dollars (an acquired startup employee is estimated by PrivCo to be worth a minimum or $750,000) but clearly the best ones are (i.e. the ones that you should target your recruiting effort on).
How can a firm determine the dollar value that is added to its revenue when it recruits a single prospect who was going to go to a startup? Initially $100 million might seem like an outrageous amount of money for recruiting a dozen or so innovators each year away from startups, but let us illustrate how you can arrive at that number using your own firm’s data.
Let’s assume that you are a high-tech giant like Google, Facebook, or Apple. Current high-quality employees at all of these firms each generate on average more than $1 million in corporate revenue each year. An innovator would produce much more than the average employee, but precisely how much more than the baseline $1 million?
If you take the performance differential number, or what I call the “the innovator multiplier,” identified in this case by Steve Jobs when he was at Apple, at 25 times more than the average worker, then a single recruited innovator at one of these firms would be worth $25 million (25 X $1 million). Thus you would only have to recruit four of these innovators each year in order to generate $100 million in extra revenue. Even if he used the more conservative performance differential of 10 times the average employee that several other sources have identified, it would still only take 10 innovative recruits each year to reach the $100 million threshold. If your revenue per employee was lower, in this case the $295,000 at the much younger Twitter, at a multiplier of 10, the value of each innovator would still approach $3 million each for every year that they stayed at your firm.
Work with your CFO’s office in order to estimate their actual value at your individual firm, but capturing innovators who were headed to startups has a stunning ROI. This is because of their obvious impact on product development but also because these innovators can attract other innovators, and they will also energize your existing employees. Compared to the cost of a “counter-startup program,” the results can only be classified as stunning!
Incidentally, it’s not just a dollar gain that makes not having a counter-startup recruiting program an unforgivable missed opportunity, but also because we have found that it’s not that difficult to develop a successful recruiting approach that makes a large firm seem almost as desirable as a startup.
After six months of benchmarking and research, we have put together an outline of what a major corporation would have to do in order to develop a recruiting program that would reverse the brain drain towards startups. The major components of that plan include developing a business case, identifying startup attraction factors, identifying large firm attraction advantages and rejection factors, and developing corporate recruiting and branding approaches that are tailored to attract and sell those who are inclined to go to startups.
The last but most important component of the plan is implementing corporate approaches that have been successful in making the corporate “working life” of these recruited innovators appear and feel to be “startup like.”
One of the most important components of any startup recruiting effort is to identify the factors that attract innovators to startups. This involves some simple marketing research, where using surveys, focus groups, or interviews you identify and categorize a list of the perceived factors that attract innovators to startups. Our initial research has already identified some of those “startup attraction factors,” which corporations will have to learn to match. Those attraction factors include:
Although many firms don’t successfully market them to recruits, we found that large firms do have their own compelling attraction factors. They can include:
Perhaps the most important goal of our research is to identify the actions that larger firms can take so that their newly hired innovative employees will continually feel like they are working at a startup. These “startup-like” features to add or emphasize include:
This summer (2014) we will be working on the second phase of our counter-startup research. It will involve collaborating with one or more larger Bay Area tech firms in order to: 1) conduct surveys that will reveal a complete list of the attraction factors, 2) to design and test the possible components of a counter-startup recruiting program, including the best approaches for spreading your recruiting message to those who might not normally even consider a major firm, and 3) to compile and test the viability of the doable actions that larger firms can reasonably take to make their work environment “more startup like.” If you are a recruiting leader and you are willing to help us with our surveys or if you would consider financially sponsoring the entire Phase II effort (and have it focused exclusively on your firm) please contact Addie at addie@drjohnsullivan.com or call 650-468-6588.
After a great deal of initial research, we have concluded that large corporations are missing out on a powerful opportunity to successfully recruit innovators who are also considering startups. It’s a missed opportunity because even though recruiting leaders are aware of the brain drain, it appears from the outside that they have failed to mount any more than a token effort to make their corporations as attractive to innovators as startups. Our preliminary research shows that large corporations can in fact match many of the reasons that cause innovators to go to startups.
We assert that corporations can win “the war for innovators” provided that they have a data-driven recruiting approach and the courage to go “mano y mano” with startups that have consistently proven to be bolder and more aggressive in their recruiting.
If you have any ideas to share on how corporations can become more attractive to those innovative prospects considering startups, please use the comments section following the online version of this article on ERE.net or send them directly to me at my university email address, which is JohnS@sfsu.edu.
