Google's Talent Drain: Why Its Best Brains Are Bolting

Google's Talent Drain: Why Its Best Brains Are Bolting One of the best aspects of America's high-tech startup machine is its ability to attract talent to the best ideas. And if that machine is working well, the turnover of that talent will be efficient: Good ideas that have peaked will lose their talent to better ones that are just taking off. And when those ascending ideas start to lose altitude, new startups will take their place.

That sort of talent drain is a great early-warning indicator for investors in publicly traded tech companies. Admittedly, just because a company is losing some of its best people doesn't mean it will go out of business. After all, Microsoft (MSFT) has survived the loss of all sorts of talented employees in the ten years since Bill Gates stepped down as CEO. But the lousy performance of Microsoft's stock over the last decade attests to the way talent drain can hit investors where it hurts

And during the last couple of years, talent has been draining out of a more recent Silicon Valley icon: Google (GOOG). For many years, Google was able to hire great people and pay them less than the competition. That worked when Google was the new "new thing."

But now, Facebook is a hotter property, and Google isn't adapting well to that change. Thanks to its dominance in search advertising -- it controls over 65% of that roughly $12 billion market (which is 47% of the estimated $25 billion in 2010 U.S. Internet advertising) -- it has thought of itself as the king of the hill. That mindset has enabled it to attract great people whose talent it too often squanders. Indeed, complaints from Google employees about poor management and lack of opportunities for advancement read like those of any other company.

This weekend, I was developing an analysis of Google's Value Quotient (VQ) -- a measure I developed in my book, Value Leadership: The 7 Principles That Drive Corporate Value in Any Economy. The VQ scores companies on 24 attributes within the seven principles. I gave it a very good 88 out of 100 because I found that Google was strong in experimenting frugally, but relatively weak when it comes to valuing human relationships and fostering teamwork.

How so? According to a January 2009 TechCrunch post, there were plenty of 2008 emails from former employees that suggest some pretty serious management problems at Google. Google's HR department set up a Google Group to find out why people left. According to the TechCrunch post -- which includes many emails from that group -- the top complaints include: "low pay relative to what they could earn elsewhere, disappearing fringe benefits, too much bureaucracy, poor management, poor mentoring, and a hiring process that took months."

The Frustrations of Freedom


Since Google sells itself as an employee Nirvana, the reality that it is in many respects just like other companies has to be a let-down to those who make it through the hiring process. And given the level of startup activity in Silicon Valley, many of those great people won't be motivated to stay in a work environment that frustrates them, even for a bit more money. So Google's recent announcement that it will boost pay 10% is unlikely to keep its best talent on the payroll.

What those entrepreneurial engineers really want is to be working on the cutting edge of technology, developing products that millions of people will use. And no doubt they'd also like a chance to get really rich by owning shares of stock before a boffo public offering. No surprise, the IPO people are most interested in getting a piece of is Facebook's. As The New York Times reports, no fewer than 142 of Facebook's employees came from Google.

Almost paradoxically, another reason people are leaving Google is because of its policy of allowing employees to spend 20% of their time on self-directed projects. It sounds great for creative programmers in principle, but in practice, it leads to more innovative ideas than Google can commercialize. People spend huge amounts of time on these projects because Google doesn't have a system for killing mediocre ideas and promoting the best ones, which leads to equally huge amounts of frustration. As one peeved Google product manager told The New York Times, "There's a lot of these cool features that are very hidden, and a lot of people worked very hard on them and they were kind of sad that they spent a year of their life on something that gets 0.1% usage."

Until Google rethinks its entire approach to managing people, it is going to keep losing its top talent. And some of those who leave could out-innovate Google and attack it.

Meanwhile, Google's inability to come up with big new sources of revenues is putting its stock value at risk. Google's price/earnings to growth ratio (PEG) is a high 1.5 -- in my opinion, a PEG of less than 1 denotes a reasonably valued stock. In Google's case, that 1.5 PEG based on a price/earnings ratio of 24 with earnings expected to grow 16.1% in 2011.

The good news for investors is that Google has a habit of beating analysts' earnings estimates. But unless it can reverse its talent drain, it's not going to be a great place for investors to search for profits over the long term.

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Submad

http://submad.com/825-the-things-that-google-is-most-complained-by-employees-12.html

June 18 2012 at 6:37 AM Report abuse rate up rate down Reply
Ken

Google does not pay any US taxes, it funnels the money through Ireland

November 30 2010 at 7:28 PM Report abuse rate up rate down Reply
1 reply to Ken's comment
ak841

Ken you dont know that for a fact, its just something that is going around.

November 30 2010 at 8:51 PM Report abuse rate up rate down Reply
Lee

chaspharrington You need to learn to deal in FACTS. China and Russian investors do not own much of Facebook. Your dealing in Internet rumor rather then real life FACTS.

November 30 2010 at 3:55 PM Report abuse rate up rate down Reply
1 reply to Lee's comment
alfredschrader

If you get a few minutes, check out the National Geographic Documentary on North Korea. Is it true ? Do they really have a 1950 crank telephone at the 38th parallel ? They prohibit all radio & TV & the entire country has one million land mines on the border so no one gets in or out. The whole North Korean society is a freeze frame of 1950. Would I make this up ?...Al-

November 30 2010 at 8:18 PM Report abuse +1 rate up rate down Reply
topmind

It looks like Google is attempting to capture and hold as many potential competitors' potential employees that would force Google to push harder to win. When you want to win, you seize all the good heads and bury them if you don't really need them. Google would therefore be a heaven for slackers. However, the people who get hired have a passion: create. They are not allowed to see their offsprings come out and be put to use. No reward, no success, no money, no glory, you walk out.

November 30 2010 at 1:59 PM Report abuse +1 rate up rate down Reply
1 reply to topmind's comment
chaspharrington

IF IT IS TRUE THAT FACEBOOK HAS 65% OF THE MARKET, BY FEDERAL LAW THAT WOULD BE CONSIDERED A MONOPOLY AND I AM SURE THE FEDS ARE LOOKING CLOSE AT FACEBOOK, GIVEN THE FACT THAT ITS TWO LARGEST INVESTORS ARE CHINA AND RUSSIAN, BOTH KNOWN FOR HUGE IDENTIFY THEIF COUNTRYS, SO I WOULD BE CAREFUL BEFORE I JUNP SHIP FOR FACEBOOK, BECAUSE OFTEN THE GRASS IS NOT GREENER ON THE OTHER SIDE.

November 30 2010 at 3:07 PM Report abuse -1 rate up rate down Reply
RYAN

Ive never understood people going job to job.....Ive worked at the same place for 27 years come this next spring......and Im only 44 years old.

November 30 2010 at 1:01 PM Report abuse rate up rate down Reply
1 reply to RYAN's comment
Get Rich Mitch!

movement if often necessary to move up, get substantially higher pay and sometimes to get away from a bad boss that encourges you to work holidays and without pay then takes the day off himself.. understand now? if you making 100k a year now, your in good shape after 27 years...

November 30 2010 at 1:15 PM Report abuse +2 rate up rate down Reply
Sharon

It seems like anytime the media/internet ISP's finds someone in competitions or if that person/company is in opposing views ...then the media/ISP's writes negative articles about their downfalls or even still make large of little incident...

November 30 2010 at 8:41 AM Report abuse +2 rate up rate down Reply
cnsrvtvj

They had a special on Google last week at donsmithshow.com. Amazing how those guys are always a week ahead of everyone else.

November 29 2010 at 12:49 PM Report abuse +4 rate up rate down Reply