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Corporate America, Swing Your Ax Wisely

Big companies could lose valuable employees to rival startups if they abandon their traditional lure: job security

In December, IAC Interactive (IACI) CEO Barry Diller said the unthinkable—at least for a corporate executive amid a recession. "The idea of a company that's earning money…to have cutbacks just so they can earn another $12 million or $20 million or $40 million in a year when no one's counting is really a horrible act when you think about it on every level," Diller told the crowd at the Reuters Media Summit. In other words, if you're making money, you shouldn't be laying off huge numbers of employees to please an investor base that's unlikely to be appeased in any case.

From a CEO, it's a pretty striking comment in a world where even Google-style growth can disappoint. Business is business. The markets are tanking. And if jobs need to go in the name of shareholder value, so be it.

As unpopular as his view may be, Diller has a point. Wielding a more discerning scalpel might be a business advantage long-term. For talented employees, the prospect of job security is one of the best reasons to join a big, publicly traded company. Take that incentive away, and you give smart, energetic people one more reason to join a startup or branch out on their own.

Going Solo

Already in Silicon Valley much of the risk associated with working for a startup compared with a listed behemoth has dissipated. For one thing, there's so much VC money sloshing around that most companies can afford to pay engineers every bit as much as Google (GOOG) or Yahoo! (YHOO). Then, of course, there are the thousands of jobs being eliminated from the publicly traded companies, including Hewlett-Packard (HPQ), Yahoo, and even Google. So if I can get the same money, comparable security, and the prospect of stock options from a startup, where do I sign up?

And it's not just in Northern California that employees are leaving "secure" jobs to branch out on their own. In the course of promoting my book I visited 15 cities around the country and was struck by how many people are quitting jobs and going to work for themselves. No, most of these people aren't looking to start the next great Web company. They're starting their own one-person Web design, graphic design, consulting, or market research firms. They're not backed by venture capital; they're backed by revenue from steady contract jobs.

Sure, as the economy worsens, even contract work is getting harder to come by. But these lean, mean entrepreneurial contractors have a better-than-fighting chance at what's left.

Consider Nathan Wright. He had worked at an ad agency in Des Moines for seven years, carving out a niche as the "Web guy." Over time, that niche began to feel like a prison. So in the spring of 2007, Wright made a bold decision for a guy in Des Moines with a wife in grad school. He quit to start his own "firm"—even though he wasn't entirely sure what that firm would do. His father, who had spent 30 years at one company, thought he was insane. Nevertheless, "you have to rethink what risk is," Wright says. "Is it really safe to stay in a job you hate or are bored with, or [where you] are worth about as much as a stapler?"

The brainchild of his risk-taking is Lava Row, a consulting firm that helps companies use social media for marketing, branding, and communication. Today, Wright has almost matched his former salary, and he has an employee and a proper office. Through his work, which includes organizing "Tweetups" (or Twitter-prompted meetups) with people who've been laid off from big Midwestern companies once considered stable, Wright tries to inspire people to start their own thing. "People are surrounded by cubicle walls and don't know how to get out," he says. "If 100 people just got laid off and 10 started their own businesses, imagine how much better the town would be for that. I'm trying to help people capitalize off these layoffs."

Web Network

In other cases, contractors are banding together and sharing office space. They're not hiring up to build a big company; they farm out extra work to a network of other contractors. Think of it as an ever-configurable collection of professional-service Legos that can assemble themselves on the fly to meet a client's needs. And because they make so much more per hour—a trade off from that so-called stability of a steady job—they can do fewer jobs and still make the same income.

The movement has been enabled by the Web. Your blog, Twitter, and Google are your marketing department. Facebook and LinkedIn are your Rolodexes for potential sales leads. Sites like oDesk and eLance have armies of contractors you can hire up on the fly for Web design, the same way contractors hang out in front of a Home Depot, ready for on-the-fly work. Need benefits? Go to Spurred on by this trend, all the big health-care providers are increasingly offering the same benefits for individuals they give large corporations. And, typically the plans are actually cheaper, because the providers can be picky over who gets approved.

Of course, even with the marvels of Web 2.0., you still have to be your own elephant hunter, you have to be connected, and most of all, you have to be talented.

But that gets me back to the danger for big business. It's easy for companies to substitute contractors for full-time employees in tough times. Companies can keep smart workers and avoid long term commitments or the high cost of benefits? Score!

But when you take away loyalty—read: the advantage of job security—the employer loses a pretty big chit. Suddenly it's not a question of asking someone to work late for the good of "the team." It's paying them more. If they have another client or just want to spend time with their kids? Too bad. It's not part of the contract. Companies are trading in short-term cost savings for a long-term benefit.

Let's be clear. There are some industries in such dire need of restructuring (autos, newspapers, anyone?) that massive job losses are inevitable. But in too many other areas, CEOs have for too long been treating employees as a nice-to-have. But like shareholders and customers, employees—even in a downturn—can vote with their feet too.

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