The New Silicon Valley Sustainability Spectrum

A few months ago, I wrote a piece about the moving valuations in the tech market and how each company essentially falls into one of three categories:

  • [Level 1] Companies who raised money at bloated valuations and are now considered devalued (i.e. underwater)
  • [Level 2] Companies who recently raised at valuations in line with current public/private comparables and have therefore reset onto a trajectory based on a more realistic and accurate starting point
  • [Level 3] Companies who have budgeted the current valuation methodology into their operating model and are therefore less affected by this resetting process and are continuing along their merry way

Although companies have thus adjusted, or are in the process of adjusting, to the resettling market, hiring strategies have been slow to catch up. In illustration, here's a quick snapshot of what we're seeing:

  • Many companies have yet to lock on their ‘16 headcount plans (IT’S APRIL!!)
  • A number of companies who have locked their ‘16 plans are trying to achieve their annual hiring goal but by the middle of the year
  • Companies who have questionable equity valuations are compensating by paying out of market-band salaries and retention bonuses
  • Company leaders who previously evaluated and decided on hiring strategies are now relying more and more on in-house recruiters and recruiting leaders to make those decisions
  • If you ask 5 recruiting leaders how to solve for the same recruiting problem, you’ll get 5 different approaches
  • Recruiting contractors are quickly becoming a highly sought after profile
  • Companies are delaying start dates and basically doing whatever else it takes to maintain/minimize burn

Now, let’s flip to the candidate side and take a look at how candidates are interpreting these things. Because of all the movement in the market, candidates are no longer unanimously looking for companies on a trajectory of unprecedented growth (read Unicorns). Rather candidates are choosing vetted opportunities that offer growth but within the confines of a sustainable business model. Sustainability plus growth is the new lens via which candidates are evaluating opportunities, both the opportunity to join something new as well as whether to stay with their current employer. Whereas growth was recently the silver bullet of the industry, the current landscape is requiring companies to take a real position around sustainability. This can be further broken down by the following 3 points along the new Silicon Valley sustainability spectrum (Low, Developing and High as aligned to Level 1, 2 and 3 companies) and how they’re being interpreted by candidates:

  1. Companies that have Low Sustainability [Level 1] are spending the biggest chunk of their time finding their footing, thereby letting candidates come to their own conclusions about their state of company. Low sustainability is evident in the form of overly aggressive out-of-market retention and sign-on bonuses and/or in the form of overly conservative ‘wait and see’ advancement strategy.
  2. Companies that have Developing Sustainability [Level 2] aren't being clear enough in signaling the pronounced value of their current position: being sustainable but with high upside. Because there's so much uncertainty from Level 1 companies, these Lever 2 companies are taking an overly conservative approach when in fact they should be doing the exact opposite. In many cases they have caught lightning in a bottle, don’t know it, and fail to communicate it to candidates.
  3. Companies that have High Sustainability [Level 3] are being aggressive but they’re being overshadowed by the over-aggressive actions of Level 1 companies. This is causing candidates to interpret their actions as middle of the road and therefore they’re getting lumped in with Level 2 companies when in fact this should be the clear destination of choice for top candidates in the market.

No matter which camp you fall into, there are ways to signal sustainability to candidates and current employees:

  1. Have a long term vision
  2. Have an annual plan in service of vision
  3. Ensure plan connects to team and role of individual being hired
  4. Have monetization model (or anticipated plan) and clear signal that it's working
  5. Have funding or financial model in support of organization sustainability for next 2-3 years
  6. Show historic precedence for what you're expecting to happen in future (we've seen X over past Y time, we expect to see this continue in Z fashion).
  7. Acknowledge current market conditions and ensure your company position and story aligns
  8. Be able to explain in no more than 2 sentences why it would be advantageous to join your company versus others specifically at this time.

The magic formula though is sustainability + growth so don’t forget the good old growth adages:

  1. Key metrics (users, user engagement, revenue, profit, etc) that show growth over recent period of time (monthly, past 6 months, annually)
  2. Comparable metrics to key familiar benchmarks in your space (notable companies, competitors, recognizable industry benchmarks, etc)
  3. Hiring plans (total company, team, specific initiatives, etc)

It’s time for companies to embrace their past and present and to blaze a path towards the high growth yet equally sustainable future they know they can achieve. There exists an amazing opportunity in our market, but it will require the bold in order to seize it.