
The 'Startup Boom' is a disguised jobs fair for big corporations - hkarthik
http://www.zdnet.com/blog/foremski/silicon-valleys-dirty-little-secret-the-startup-boom-is-a-disguised-jobs-fair-for-big-corporations/2138
======
pron
I think the truth might actually be worse. I don't think that `the startup
boom is really a disguised job fair for big corporations`. The dirty little
secret is that startup scene is an arena and entrepreneurs are the gladiators.
Big lumps of money, that seem imaginary to them are dangled in front of their
eyes, and they're introduced to former gladiators that have attained fame and
glory and were able to buy their freedom, all for the purpose of encouraging
the gladiators to fight to the death. Some die and some succeed and are
compensated nicely. Very few attain fame and glory, but enough to keep the
ranks of new recruits full.

But of course, it's the owners of the arena, the big corporations who make the
real money. Not necessarily from the gladiators themselves, but from the
fight. The startup scene is a testing ground, a lab, for Big Corp. It tells
them which way the market is going, it tests risky territory. And if something
seems to work, Big Corp. snatches it right up. If in the past big research
divisions had to test new ground, all on the company's dime, now startups are
voluntary crash-test dummies, shooting for a big prize.

And the economics are simple: if the king wants to find a big treasure buried
somewhere in the woods he could pay a thousand villagers $1000 each to look
for it, or he could offer $0.5M to the one who finds it and let the villagers
volunteer for the job. He gets the same work done at half the cost, one
villager turns rich and inspires the poor masses, getting a lot of love and
attention, while the king still gets to keep the treasure while giving the
villagers a fake hope of changing their fate. Simple, really.

So the dirty big secret is this: the startup scene isn't a job recruiter for
the big companies, but a way to get workers for free. It's a far worse form of
exploitation.

Sorry for all the metaphors.

~~~
lallysingh
Don't be sorry, it's honestly spot on. It's a wonderful exploitation model of
how young men (18-30s) think and feel natively. Big risks, big rewards.
Legends, folklore, respect. The model was perfect 2000 years ago and finds new
manifestations all over the place.

Of course, I'm not sure it's a terrible thing. Nobody actually dies, at worst
a few years of hard fighting are expended before a "real job" is acquired. The
hard, risky fighting, while exhausting, isn't a bad thing for the young.

~~~
aridiculous
I do think the gladiator metaphor is helpful, but I have to add in that
software developers/technical people tend to hold a lot of cards in the modern
economy. For example, you can work on a startup, take 2 weeks off on a
freelance project, and pay your bills for the next 3 months. Not to mention
the startup itself will sharpen your skillset raising your value to future
employers.

I think if anyone is getting screwed, it's the inexperienced "business co-
founders," who don't have a high hourly rate to fall back on and fall hard for
the emotional myth. They still have the resume item of "Founder" that appeals
to future employers looking for initiative, but their unfocused skill-set
might hurt them.

However, it's interesting that it's self-imposed harm for inexperienced
business types, because I imagine that no one is actively exploiting them. Why
would they?

~~~
ahoyhere
aridiculous, you're right that devs/tech people hold a lot of cards in the
modern economy… they can do all you said and more. But they almost never do.
Holding the cards is worthless when you don't know you're playing a game, much
less that you have a winning hand already.

That's why most "startup guys and girls" work and scrimp and suffer and sleep
under their desks for a minority share in nothing, while VCs (the business
types) laugh all the way to the bank.

Because taking outside capital is like forking over your hand of cards AND
promising to only play tiddlywinks in the future.

Whoever holds the money, holds the power. Unless the other party wakes up to
realize that they don't need the money.

The fact is that for the past decade (and getting better all the time), it
costs virtually nothing to start a profitable web-based business. Almost no
one truly needs the money men at all. Tech types still think they do, though.
They want the security & validation & _ease_ of being handed a great big whack
of cash. Which means they end up the person without power.

The amazing thing about developers, designers, teachers & writers is that we
not only own the means of production, we carry them with us IN OUR HEADS. We
walk around thinking we need to appease the factory owners so we can get to
work, but we don't.

------
patio11
This would be a very penetratingly insightful criticism if you had never heard
of Airbnb, Dropbox, Twilio, etc etc. Some people at the current classes of YC
and 500 Startups may well find themselves working for AmaGooBookSoft in 4
years, and may that be a happy outcome for all concerned, but you've got to
torture the math to come to the conclusion that hiring acquisitions are where
most of the money is changing hands.

That said, it totally makes sense for AmaGooBookSoft to pay at least some
engineers amounts of money which historically were not awarded to technical
employees. This should be priced into everyone's expectations, startup-
affiliated or no.

~~~
nelsondooley
It's an interesting point he makes, but you're right, he has no numbers to
back it up. Doesn't anyone keep data startups and acquisitions?

~~~
patrickk
Crunchbase has a section on acquisitions. Never used it personally though.

<http://www.crunchbase.com/acquisitions?page=1>

------
pg
This guy has not done the math. An investor makes so much more from big
successes like Dropbox and Airbnb than from HR acquisitions that they'd be
acting counter to their own interest to focus their attention on the latter.
Far from making out in HR acquisitions, early stage investors generally get
screwed in them. We often make zero from an HR acquisition, between the
liquidation preferences of later stage investors and the fact that much of the
supposed acquisition price is set aside as incentives for the founders to stay
with the acquirer.

~~~
lallysingh
I have to ask, what are the "takes" on different exits? When do founders get
the best return on their energy, vs the best return on the potential of their
company? When do investors?

Edit: basic 3rd grade grammar.

~~~
pg
The expected value of turning down the current offer is almost always
positive. It's very rare for founders to reject an acquisition offer and then
later wish they'd taken it.

The difference between founders and investors is that founders care about more
than just expected value. A founder with no assets other than his stock in the
company will often prefer to sell now and lock in the current price rather
than keep rolling the dice. So to the extent there is a difference between the
motivations of founders and investors, it's exactly the opposite of the
situation this writer describes.

~~~
pron
The author may very well be wrong about the investors' perspective and the
talent-hunt motivation, but he's probably right about who's running the show,
and the answer is, invariably, the big companies. Why? Because there just
aren't enough successful startup IPOs to keep the entrepreneurs trying.
Founders may like risks, but they're not suicidal. The only reason this show
is running is that there are plenty of acquisitions at prices that appeal to
both entrepreneurs and investors. So if it's big-tech that's running the show,
the only question is what's in it for them. The author suggests talent, I
think it's market and product research, but one way or another, if big-tech
stop acquiring, the startup craze will be over within a day.

EDIT:

I guess you could say that entrepreneurs and investors are all actually
working for Google or IBM or whomever, trying to find the next big thing.
They're just not getting a salary but working on a commission. And once in a
while, some startup may get away, do an IPO and become a real force, but
that's just like an agent on commission starting his own competing business.
That's a risk any employer takes.

~~~
pg
At a certain point, big companies don't have any choice about whether they do
acquisitions. If they want to be in a certain business and some startup
already has an unbeatable lead, they have to buy it.

~~~
pron
Maybe, but that startup exists in the first place only because the big
companies willed it. How did that startup come to be? It got some investment
money. And why did anyone invest in it? It wasn't for the hopes of an IPO
because the chances are too low. The only reason that startup came to be is
because the investors liked the odds of that startup being acquired. Like I
said, if tomorrow morning Google, Apple, IBM, Facebook etc. decide they're not
buying startups anymore but employing all developers directly and doing their
own risky development, the startup scene will vanish in an instant. So the
author is right in that the startups exist to serve the big companies. The
reason the big companies don't do that is that they know that true innovation
flourishes under perceived freedom. So we all win, but big-tech still wins the
most.

~~~
pg
_And why did anyone invest in it? It wasn't for the hopes of an IPO because
the chances are too low._

That's not true. VCs will _only_ invest in a startup if they think it has a
chance of an IPO. Angels prefer that sort of startup too, though they are not
as rigid about it as VCs.

~~~
pron
OK, so the possibility of an IPO is a necessary condition for investment, but
is it sufficient? Would any kind of investor put money in if they think there
is a chance of an IPO (with the odds being what they are now) but _zero_
chance for an acquisition? Isn't acquisition the attractive fallback that
tilts the odds more favorably? Wouldn't a scenario of no acquisitions stack
the odds against the startup so high as to preclude investment? That is the
big question. Aren't acquisitions the motor behind the startup system? Aren't
they its bread and butter?

~~~
pg
A VC would have no problem investing in a company with no chance of being
acquired, if it had IPO potential. Airbnb is an example.

IPOs are unquestionably the "motor" of the VC business. That's what drives all
their thinking.

~~~
pron
Then I stand corrected. :)

------
kjhughes
Foremski totally missed the real "dirty little secret" regarding acquisitions.

Acquisitions are really about control and ownership: Control of IP, control of
customer relationships, control of planning, ownership of growth potential.
It's placing a bet that ownership is strategically beneficial. Sometimes
there's a defensive component.

"We bought them for their talent" is the cover story. It maintains the secrecy
of the real value the acquirer believes it sees. It sounds better too.

And we tech folk eat it up. It plays into our egos.

But think about it. Technical talent is actually fairly fungible above a
certain competency level. You know you or a handful of your friends could
build most products you see. It's the decisions about what to build, how to
build it, when it got built, and how the market responded that are all bundled
up in a company's existence at a point in time. It's this bundle that's being
bought. Not talent.

~~~
mgkimsal
I don't disagree on that IP, but some of that intellectual stuff is still in
people's brains. I do think 'talent acquisition' does play to the egos in some
cases, but there's also the 'keep the talent' away from competition. Just
because people know _how_ it's done doesn't mean you should make it easy for
them. Over time almost all this tech stuff gets commoditized (virtualization,
search, big data, etc) but in the early stages, having some talent on staff
that developed 'big search tech X', and keeping them away from competition,
gives you a short term advantage.

------
dasil003
> _My advice to young engineers is don’t worry too much about your business
> idea and bootstrap your own venture with three pals._

The first rule of selling your startup is don't act like are looking to sell
your startup. If your startup has no chance of making any money, why would a
big company pay you anything more than market salary to work for them? If you
want to get paid a lot for your startup you have to be seriously invested in
it for the long-term, or at least look like you are.

This guy has a point or two, but I wouldn't be taking engineer career advice
from him.

~~~
batista
_If your startup has no chance of making any money, why would a big company
pay you anything more than market salary to work for them?_

Because, as TFA says, they don't buy your startup for its business potential,
but for the proven engineering talent.

------
drblast
I fail to see the problem with this. Why is it bad to work for a large
company?

Do you know how ridiculously difficult it is to prove to an established
business that "no, I don't have the specific experience you are looking for,
but I can learn it in short order and I'll be one of your best employees," and
then stand out from the 100 people behind you who say the exact same thing?

It's also ridiculously difficult for companies to figure out who the talented
people actually are.

If you're really talented, what better way to prove it and lose nothing in the
process? And what better way for a large company to get good people on board?

~~~
AznHisoka
Most people do a startup to get out of a large company.. not to get into a
large company.

~~~
enjo
In my experience most people involved in Startups are trying to make big
money.

------
coryl
_Just one $25 million payday from the sale of a startup will more than cover
an Angel investor’s loss from a hundred dud $25K investments — which is a loss
of just $2.5 million. The risk to reward ratios are off the charts, which is
why so many want to be Angels._

Sure buddy. A $25m payday means you have an 8% stake in a startup worth more
than $300m. And as we all know, $300m+ acquisitions happen every day, right?

But hey, who needs to understand business or technology when you're a writer.

~~~
ericd
Your sarcasm is misplaced. That scenario doesn't need to play out very
frequently at all to make that math work out very well in your favor. Those
specifics aren't quite right, but it demonstrates a valid point. If 1/500 are
massive hits, you're still ahead.

His point doesn't quite fit with his theory that everything's a big talent
acquisition conspiracy, though, since those are usually much, much smaller.
Unless that was your point?

~~~
ookblah
But I feel like it isn't 1/500. Maybe on the order of like 1/5000... Think
about how many companies apply to just one program like YC at any given
SEASON. And this is just one program. When you factor in the other ones like
TS, AP, 500 Startups how many years did it take for the first Heroku to come
out. And then these guys are considered the "best" at picking and cultivating
startups. Think about all the crap other angels have to probably go through.

They might be ahead but I don't think it's that easy.

~~~
ericd
Sure, for angels who aren't very prolific, it's a lot more variable. I should
have mentioned that I was thinking about it from an incubator's perspective.

Normal angels aren't investing in a uniform random manner, though, and I have
to assume that that helps their odds. Lending their money and their name to
the company can help the odds as well.

Heroku was founded in 2008, years before 500 Startups and many of the other
incubators, so it didn't take that long. (YC was founded in 2005)

~~~
rdl
The bigger issue is access to dealflow -- if you're a no-name angel, with no
particular accomplishments, connections, etc. you're not even going to get
entrepreneurs to talk to you. Even if you mail a top company a $50k check and
investment offering, it will probably get rejected.

If I had $1mm to invest and got to put it into exactly the companies I wanted
every year, I could probably get great returns, but for a random dentist from
Oklahoma, he'd be better off just buying AAPL stock.

------
brown9-2
This theory seems to assume that the startup founders have no say in being
"talent acquired" by the big corporation.

Being angry at Apple or Twitter for buying a company and shutting down their
operations seems misplaced - why not be angry at the founders that agreed to
do this?

~~~
tsunamifury
Important note: If you are a founder who has taken venture capital, you may
not have a real choice in the matter.

~~~
brown9-2
I am curious though how often the other shareholders are able to force the
founders into a sale against their will. Is this common / documented? Seems
doubtful that a Big Co would go into a talent acquisition if the talent wasn't
on board.

~~~
ImprovedSilence
It really depends on who owns how much stock. And if you the founder are
disgruntled or not, if you sell, you may have to work for them for a year to
get your money. Life's tough when you sell you soul to a VC.

------
d4nt
This strikes me as no worse that the traditional approach of hiring recruiters
and HR people to processes thousands of CVs and sit through hours of
interviews.

The engineers have a route to distinguish themselves, they get well rewarded
in the process, the big companies get the talent they want and society runs
lots of experiments in the marketplace as a result.

Only only downside I can see is that a particular valuable service may get
shut down, but at least the model has been proven and someone else in search
of an idea could emulate it (think etherpad).

------
wtvanhest
The term "talent acquisition" has been applied to a number of startup
successes over the past few years.

I question whether that is in part due to anti competitive agreements between
Intel, Google etc.

If they can't poach each other's engineers, they must go somewhere else for
talent. What better place than the most ambitious, intelligent group?

~~~
mseebach
Uhm, why wouldn't they want to approach "the most ambitious, intelligent
group" even without anti-poaching agreements?

As anti-competitive and illegal as the anti-poaching agreements are, they
contain an important insight: These companies need to grow the total pool of
people working for them to keep growing the sector. At the macro-level, it is
perfectly in Googles interest that Apple grows, and vice-verse.

~~~
wtvanhest
The anti-competitive agreements pose a restriction on HR departments and there
for the markets which force companies to look at startups for talent.

In order to get such talent companies must offer large payouts to founders
since the next source for talent is a highly fragmented group and there for
hard to target.

------
sbronstein
Another problem with this article is that only one of the three acquisitions
he cites was actually your standard 'acqui-hire'.

Teachstreet was doing great until Google changed their algorithm last year.
That apparently killed their traffic and so they started looking for a buyer
since their main business was no longer viable. So yes, a talent acq, but not
in the way that he suggests.

Lala's technology supposedly formed the basis for iTunes Match and iCloud. I
personally think that there may have been a bidding war between Apple and
Google (because IMO $85M was ridiculously high for LaLa) but that's just my
own hypothesis. Regardless, not a talent acquisition.

Summify was a 'traditional' talent acq. of the type Twitter, FB, and Google
have been doing of late. So he is one for three of the examples _he chose to
cite_ in his article.

------
hoodq19
For as long as there have been acquisitions (at any scale), there's been
anecdotal evidence that innovation quickly dies in the acquired company. One
thing to consider is that innovation is not dying because the larger company
is killing the acquired product but rather that its dying because the talent
is being integrated into the larger company's priorities.

------
neworbit
To take a slightly more balanced view on it, acquiring the team and the early
fruits of their research but not a market-dominating position was Cisco's
growth strategy for a long long time - cherry-picking startups that had built
an amazing new next-gen router or other critical appliance, or even just built
the core of what would one day be one, and acquiring the team and what they'd
built. Cisco then excelled at taking that from "great prototype" to "market
ubiquity". You could do a lot worse.

And talent acquisitions alone aren't terrible either, at least for the
founding team. They're never the home run investors hope for but they have
been known to return a profit on "sunk costs" cash.

------
curtisholmes
> _A giant Internet company such as Amazon can leverage the output of a
> software engineer far more efficiently than a startup_

Really? I doubt that. I would imagine software engineers could be much more
efficient without the drag of a large company

~~~
DennisP
I think he just means that code has more impact when you have ten million
users than when you have ten thousand.

------
arikrak
Investors are often bothered by talent acquisitions since they get small
returns when they're hoping for big winners. So that article's claim is
probably false. However, I wondered why it was worthwhile for the big
companies to acquire for talent, since they're paying a lot more than standard
salaries for people who might leave after 2 years. The article claims they
don't want the status quo disrupted, but that doesn't really make sense,
unless the startup is creating a product that will directly compete with them.

~~~
wtvanhest
It is worthwhile for big companies to acquire talent because of the way
investors in the public market value the stock of large companies. Investors
don't care much about a few million spent on acquisition that happened 2
months before they get the earnings report. They care far more about future
growth and how the company will achieve it.

------
SudarshanP
Here is a suggestion for those who build a statup for getting acquired as a
team. Build a start up centered around an opensource project that is awesome
but not necessarily profitable. A Big$ company could acquire the group. They
get a bunch of top quality programmers. Your creation wont be sunset. The
opensource project may develop a life of its own at least through forking. At
least it is better than creating a project that will be terminated on
acquisition or lack of business model.

------
jessicarichman
Perhaps this should be viewed as a good development rather than as a problem.
Talent acquisitions may be a much easier way of rewarding entrepreneurial
spirit and innovation than traditional recruiting mechanisms. There is a
continuum between recruiting and acquisition that has previously been seen as
a binary. Why not fill in this continuum with new ways of hiring that reward
creating new ventures instead of filling out job applications and sending
resumes?

This is not a bug. It's a feature.

------
geofflewis
This is one of the most ignorant, poorly written articles I've ever seen on
Hacker News. it doesn't belong here.

~~~
corford
It may not be a conscious conspiracy by the big boys but the reality of the
startup scene isn't too far from what he describes.

Edit: I'd also say that a certain section of startups are in on the game too -
how many startups can you recall where their sole raison d'être and exit
strategy was to be acquired by Google, Facebook or Apple? The dropboxes and
facebooks of the startup world are much more rare.

~~~
lallysingh
Indeed. A lot of it comes from the lack of other exit-options. Large companies
aren't cool anymore, so nobody wants their startup to become one --- that's
just a means to the end of a big payout. Getting acquired is substantially
less work than being a full-on success, and avoids a lot of the drudgework of
the middle/large-stage parts of a company's lifecycle.

Back a dozen years ago (omg, has it really been that long now?), you'd IPO and
use all that new money to hire people to take care of the actual business
management for you. A founder could get back to hacking on new, fun stuff, or
let his board bribe him to step down :-)

------
chaostheory
secret? <http://paulgraham.com/hiring.html>

I don't think it's dirty either, since it helps big companies innovate.

------
outside1234
i think there is some truth to this but only to the extent that the talent
acquisition is a way of blunting losses, not the goal.

