Using Stock Options as Currency: The Perils of Success
I’ll admit it: I’ve been pretty critical of mainstream media on occasion. But Kevin Delaney of the Wall Street Journal penned an excellent piece today on the challenge Google is facing attracting and retaining talent given its scale and stock price. This is not a particularly new theme; I’ve written about this concept in the context of creative destruction several times over the past year. But Mr. Delaney provides many concrete and highly relevant examples of how Google is become a victim of its own success, something about which senior management is aware but has fewer levers to pull given its $500+ stock price and sexy pre-IPO companies like Facebook:
As Google Inc. exploded into a company of more than
12,000 employees, attracting a million resumes a year, the Internet
giant rarely lost staff to start-ups or had prospective workers turn
down job offers. Now, though, Google’s magnetic pull on top Silicon
Valley talent is showing signs of weakening.Take Justin Rosenstein, 24 years old, a Google
employee since March 2004 who invented its Web-site-building service,
Page Creator. He joined social-networking start-up Facebook Inc. last
month as a senior software engineer, and says Google’s past success in
hiring entrepreneurial people helps explain why it’s seeing some of
those people leave as it becomes larger: “That same caliber of people
is naturally going to consider carefully whether it’s at Google or
somewhere else that they have the most potential to do big things and
do them quickly.”
Now, to be clear, Google’s recruiting and HR department may well be the best on the planet. They have fostered a culture that is very enveloping, very supportive and very flexible for its brilliant, high-performance, creative workforce. And this is not an inconsequential lever in the face important quality-of-life issues.
It’s unclear whether the latest departures will have
any impact on Google’s performance down the line. But the company
acknowledges that creative and entrepreneurial people are the core of
its success — that’s one reason Google lavishes them with extravagant
free food and other perks. “If we do not succeed in attracting
excellent personnel or retaining or motivating existing personnel, we
may be unable to grow effectively,” Google has acknowledged in
regulatory filings.
But still, by having among the best, brighest, most ambitious and sought-after people in the technology world on your payroll, it inevitably comes down to the bottom line: money and a direct relationship between what you do and the payoff you get. This is very hard to achieve in a firm with 12k people and a $160 billion market cap:
Facebook, Mr. Rosenstein’s new employer, is one
company that professes having an easier time competing with Google for
staff. Co-founder and engineering vice president Dustin Moskovitz says
the 250-person start-up has managed to hire 10 out of the roughly 11
engineers who had rival job offers from Google since the beginning of
the year, an improvement on the past.“There are lot of people [at Google] who are talking about leaving now and what they want to do next,” says Mr. Moskovitz.
Mr. Rosenstein says he still loves Google, but was
attracted enough by the “huge potential upside” at Facebook and other
factors to leave “a lot of value on the table” in stock options that
had yet to vest when he jumped. After leaving, he posted a note online
for friends describing Facebook as “the Google of yesterday, the
Microsoft of long ago.”
You know what this sounds like? Wall Street and the evolution of where money is made across the broker/dealer community. It used to be that you could mint money in the cash business. It was great! Then it got big and competitive, spreads came in, machines started doing the work of people, and the people-driven cash platforms began to wither. And then derivatives blossomed. First spreads were wide, it was the “wild west,” then counterparties got more comfortable and transactions got more standardized, capital rushed in, the fun ran out of vanilla derivatives and ran into the structured end of the derivatives business. Then proprietary trading became hot. And on and on.
As capital flows into to attactive opportunities, be they companies, technologies or business lines, returns naturally compress and those opportunities need to be re-invented in order to continue their growth and prosperity. Or, as is frequently the case, the best and brightest that identified and extracted value from the opportunity in the first place move on to greener, more exciting pastures, where the direct relationship between work done and rewards received are immutable. As in entrepreneurial Wall Street groups. Or in pre-IPO, entrepreneurial companies. We’re starting to see this happen with Google, which is simply a function of its overwhelming success. Will they be able to stem the tide and avoid the fate of Microsoft and Yahoo!? Maybe for a while, sure. But the inevitable weight of success will hamper them more and more over time. It is just the nature of things. And, as the old saying goes, “You Can’t Fight Mother Nature.”
