It is Time to Let Go of the Start-up Get Rich Dream
I have been in the Silicon Valley for thirty years and recruiting for twenty five of those. Over the years I have seen a lot of financial ambition. In the 80’s the goal was to make $5-10m on an equity gain from a start-up. In those days you could actually buy a house in Woodside for $1m and the thought of earning $10m seemed like more than enough.
During the 90’s as the tech market accelerated the goal became making $20m+, you now needed $5m to buy a nice place in Woodside, and peaked with the dot com mentality of earning $50-100m on a newly public IPO with an outlandish valuation. After the crash I met many tech executives that had $10m+ in equity value on paper, never monetized and saw their paper fortune vanish forever. Many of these executives had to face the new reality of working a lot longer than they thought and giving up the dream of a “life style change” fueled by their equity wealth. Of course some dot com executives did monetize, those were the lucky few.
But what about now, and going forward? How should an executive look at wealth creation in 2012? In the Silicon Valley today the wealth dream has changed. It is no longer in the favor of the player to bet on the equity of a pre-public company. Yes, some will win that game to the envy of others, but most will lose. In 2012 and for the foreseeable future the certainty of stable and predictable income will trump the more speculative strategy of deferred compensation and wealth creation through a back end loaded equity play.
In summary, if you are betting on which will create more wealth over time the big company career with predictable salary, bonus and restricted stock versus the lower current compensation and hockey stick equity profile of a start-up, it is the big company plan that wins more often. Careers in the Silicon Valley are now like marriages. Find the right one and stick with them.
“Leo, you have to be kidding!”
I have been in the Silicon Valley for a long time and have seen a lot of amazing performance by executives, and now the most bizarre. It is beyond my comprehension that Leo Apothoker believes he can survive as CEO of HP after announcing the sale or divestiture of PSG. The equity market has voted with their pocketbook taking $20b of value from HP shareholders and pushing the stock to a six year low but what was Leo thinking? It does not matter whether the sale or divestiture of PSG is good or bad strategically. What matters is the distraction this action will have on HP management will render the company the lame duck of the tech industry. This is truly a shame as HP will always represent the foundational company of the Silicon Valley. I cannot imagine how Leo survives this move. I can only hope HP survives as an independent company.
My advice to the HP BOD – Go enterprise, forgot finding another “Steve Jobs”!
You cannot be in my business without getting drawn in to the discussion “what do you think the spec should be for Mark Hurd’s replacement"?.
My former partners at Heidrick & Struggles, Spencer Stuart and Russell Reynolds are probably busily working on pitch decks for the HP CEO Search Committee as you read this BLOG. It is common for the search firm to present their specific ideas, i.e. to “show their hand” on who they think should run the company. It would be interesting to see these ideas. I was a part of similar discussions when Apple was looking for a new CEO in ’98. It is interesting to think back to what might have happened if any of those candidates were hired instead of Steve Jobs deciding to save his company. For those who are too young to remember, Steve was actually doing quite well running Pixar and was seriously evaluating external CEO candidates for Apple.
I believe Steve made the decision to remove the interim from his CEO title because he believed in his heart that the candidates he met did not have the ability to make Apple great again. Steve could not stand by and see the company fail and the rest is history, and $100b in valuation later. HP is in a much different place than was Apple in ’98. HP is operationally an excellent company. Apple in ’98 was an operational mess and Steve was focused on creating a build-to-order online system like Dell, which was the poster child for cost and efficiently at the time. However, Steve knew that Apple needed more than a person to fix operations, Apple needed a way forward with consumers. Apple needed to be a leader again. Apple needed to regain its stature as a great products company. Steve concluded that no one person could do both of these things so he hired Tim Cook to fix operations and he removed the “i” from his card.
My advice to the HP BOD is not to fall in to the trap of thinking about the consumer market and try to find a brilliant visionary like Steve Jobs. Don’t become intoxicated by the volumes of mobile, the success of iPad and the trend of pervasive consumer internet access through these cool new devices. HP is an enterprise company like Oracle and IBM. They have already taken a page out of the IBM play book and expanded beyond systems to software and services. However, the company recently bought Palm and believes they can challenge Apple with their own iPad like device.
I think they are confused. I saw Microsoft do the same thing with Xbox a decade ago. Did Microsoft really need to invest $8b to be in the consumer gaming business while missing virtualization as SAAS? I think HP and Microsoft share the same identity crisis trying to be both a consumer and enterprise company. My advice to the HP BOD on this spec is to forget about consumer and focus on enterprise.
There is only one Steve Jobs and he is not recruitable.
Am I really going to work this hard at 60?
It is true tech executives are growing older but continue to work hard. Why is this? Larry Ellison, John Chambers, Carol Bartz etc. are all over 60 and continue to impress. When I first started my search career the idea of a 50 year old executive seemed insane. Today late 40’s to early 50’s does not create any question of energy level nor “do they get it”.
On the contrary. Today, you can find 20 year Oracle or Cisco executives that are in their 50’s and very much in the flow of what is going on in their respective business and still motivated to work hard. Many other industries have senior executives that are in their 60’s so why not tech? The other factor affecting this aging up of tech executives is the recent market “correction” (why can’t we just call it a crash and be honest). I have met many tech executives that have to continue to work. Yes, they have a nice net worth but many are real estate rich (and illiquid) and worried about money when they thought they were “done”.
This mentality is driving an interesting phenomenon in executive recruiting. It is a mentality of “maybe I should work for HP, or Cisco and make $1m/year between base, bonus and equity in the form of restricted stock." This certainty of $5m of income over 5 years vs. a small company risk is driving executives back to big companies.
I am turning 53 next week and feel as vibrant and motivated as when I was 30. I am looking forward to seeing this aging up of tech executives over the next decade and representing my industry with grace and vigor.
Where are all the searches?
I meet hundreds of senior level technology executives a year and many ask me the same set of questions. It is interesting to think back over the past twenty years and thousands of meetings I have had and correlate these questions to the state of the industry at that point of time.
Lately, I have been asked about the lack of quality executive opportunities that seems to exist in the technology industry today. If there was an index for the number and quality of opportunities for tech executives it would surely be a low value today. Does this mean tech executives are doomed to mediocrity? I don’t think so but it is important to think about the state of the industry and apply a realistic strategy to advancing a career, or harvesting a career for a final push to the beach.
Today there are fewer companies that represent most of the tech GDP. The recent acquisition of SUN by Oracle removes yet another very good company of scale (SUN was $12b+) and consolidates even more control of the industry to one $100b+ cap powerhouse. What does this mean to tech executives? It means there is one less place to find a big job that pays $500k+. SUN hired a few high level executives from outside the company each year. I don’t see Oracle hiring much from the outside at all. This is the point of the reduction of the chairs around which the tech executives circle.
On the other end of the spectrum the venture capital and private equity funded companies are fewer than before. The venture game is becoming a strategy for the younger consumer web generation and the private equity deal flow has slowed down along with the debt collapse. Of course there is always the vision of green tech driving fun and instant wealth. Ah, the dream of the Silicon Valley!