Linkedin & The Future of Recruiting – Part II

1 Aug

In Part I of this series on Linkedin, I talked about how traditionally corporate recruitment has been driven by job boards – which are a combination of job postings and resume books – and the professional headhunter offering.  The third and fast-growing juggernaut in the recruitment space is, of course, Linkedin.  In this post I’ll talk about how Linkedin is disrupting traditional recruiting.

As a professional, Linkedin is one of my favorite web services.  For work, I probably use it more frequently than any other service besides Gmail.  As a work utility, it outshines Facebook by miles.  The ways in which it helps business professionals to meet and to interact is clear to anyone who uses the service.  If you don’t follow the company or recruitment industry closely, though, Linkedin’s impact on the recruitment space isn’t as obvious.

Linkedin’s primary innovations vis-a-vis the recruitment space are really two-fold.  The first is that Linkedin has basically created a public resume book. Your Linkedin profile is the modern-day resume.  It has all of the same information, but it’s there for all to see.  When you submit a resume to Monster or some other job board, it goes into a proprietary resume database.  Once submitted, there’s no real incentive for you to continue to resubmit your resume as it gets updated.  Your Linkedin profile, in contrast, is public and therefore there’s an incentive to have up-to-date information.

So now individual or corporate recruiter has access to the same set of public profiles.  The proprietary resume databases of the job boards and the value of the “proprietary networks” of the headhunter are now highly diminished, some exceptions of course withstanding (e.g., board level retained search).  Not only is the Linkedin “resume book” public, but it’s also more up-to-date than the traditional resume sources.  Linkedin therefore scores on two fronts.

Linkedin’s second and related innovation is it’s emphasis on social, which is all based off the fact that profiles are public and have a real life identity attached to them.  You come back to Linkedin again and again because of the social features – seeing who’s connected to who, commenting on messages, following companies, joining groups, etc.  The traditional job board tries to bring people back with industry news, which is less valuable, easier to replicate, and less frequent a use case than social.

What all of this creates is a rich database of professional profiles that are generally up-to-date.  This, of course, is fertile hunting ground for recruiters.  With a subscription to Linkedin Talent Solutions, a recruiter gets the ability to search Linkedin’s entire database of profiles and to message anyone on the network.  This shifts significant power into the hands of recruiters and away from the job board and the headhunter.  Talk to any corporate recruiter and they’ll talk about how Linkedin has become an indispensable tool.  It shows up in Linkedin’s financial results as well.  Last quarter, nearly 60% of revenue came from Linkedin’s recruiter focused SaaS offering vs. <40% of revenue in Q1 2010 (see chart below from Linkedin’s Q1 2013 earnings slides).

LNKD Chart

Whether large or small, it’s harder now for a company to justify the cost of using a 3rd party recruiter or heavy use of job boards, though the latter is still quite prominent (see Part I where I discuss how the “death of job boards” is really the death of Monster/CareerBuilder/other generalists).  Companies are increasingly favoring hiring of in-house recruiters versus paying contingent search fees.  After all, it’s not just in-house recruiters who are using Linkedin but headhunters as well.  Everyone’s fishing in the same pond now.

Linkedin is now the tool for recruiting passive candidates.  Recruiters signed up for Linkedin’s Talent Solutions have the ability to message any person on Linkedin’s network.  Linkedin’s network is stronger and more up-to-date than any resume book.  It also allows recruiters to see who’s connected to who, which is important as companies increasingly try to turn their current employees into recruiters.

All of this has created an awesome revenue trajectory for Linkedin and really put pressure on traditional recruitment offerings.  Having said that though, Linkedin’s success and some of its product design choices are creating challenges for both users and recruiters.  This is creating opportunities for startups to try to address some of Linkedin’s shortcomings.  In Part III of this series, I’ll go into some of the challenges that I see Linkedin facing in the recruiting world and some brief thoughts on how they might go about addressing these.


How High Private Valuations are Contributing to the Decline in IPOs

11 Jul

I just read this piece from March written by Scott Kupor, a partner at VC firm Andreessen Horowitz.  I broadly agree with most of his argument (though I think he overstates the importance of the IPO market to strengthening the American middle class).  Taking a company public today is a bigger regulatory and financial burden than it needs to be.  The more onerous parts of Sarbanes-Oxley should be amended and reverting back to a higher minimum tick size should be changed as well.

Also, Kupor doesn’t point this out, but the pressure created by the quarterly earnings cycle is as intense as ever (see declining CEO tenure)  Simply put, with late-stage private financing opportunities abundantly available for the best companies, why should founders/management opt for the IPO route?

Companies are staying private longer in favor of a “private IPO.”  That’s to say that they’re both issuing new shares and offering secondary share sales to large institutional investors to achieve investor, founder, and early employee liquidity.  Only in these “IPOs” there is no public participation.

I think one of the more subtle factors at work here isn’t simply that companies are choosing to stay private longer through late stage financings, but also that these rounds are being done at extremely high valuations.

From a public markets perspective, the current financials of many of these companies wouldn’t support the valuation they’re getting in the private market.  I’m not going to get into whether public market investor are applying a more rigorous standard or are simply naive (i.e., they don’t get the story behind tech), though I tend to think they’re pretty rationale and that investors understand consumer web, SaaS, and other types of businesses than they have in the past.

Late-stage, private investors are clamoring to get into the “hottest” companies – EvernoteUberFab, etc. and once private companies like FacebookZynga, and Groupon.  The excess supply of capital and fear of missing out on the next homerun are driving some valuations above where they would trade if public today.    Some of these companies have to delay an IPO because they don’t have the financials to support the valuation they require to earn an appropriate return for the last round investors.

Twitter is a good example.  It’s only in the last year that its advertising efforts and revenue trajectory have really taken off.  The late stage bets being taken in 2009-10 were being taken on the site’s awesome user growth and assumption that monetization would eventually catch up.  Financials at the time wouldn’t have supported the valuations these rounds were being done at.  As the valuations being to support the valuation, the main beneficiaries will be the private investors, not the public guys.

Thoughts on Coursera After a Few Weeks In

8 Jul

I recently started taking two courses on Coursera, spending time on them late at night and on weekends.  One course is on Startup Engineering (i.e., basic web programming) and the other is on Competitive Strategy (i.e., game theory for business).  After a couple of weeks, I have to say that what the team at Coursera has built is pretty awesome.

If you’re unfamiliar with Coursera, the concept is pretty simple.  It’s an online platform that provides free classes from university instructors.  The structure of the classes is similar to a class in the real world.  There’s a course syllabus, weekly video lectures, weekly quizzes, supplemental reading material, etc.  There are also online forums where you can post questions and interact with other students and the instructors.

The quality of the instructors that Coursera has assembled is impressive and is the first aspect that stands out.  These are top academics from top universities in the US and abroad – Stanford, Duke, Columbia, Michigan, Berkeley, etc.  Each has invested significant time and effort in building the course material, recording videos, and all the other work that the product requires.


Every course is free as well, which is leading to massive adoption from people around the world.  The Startup Engineering course had over 100k signups at the time it started.  I expect Coursera to keep the service free as that really removes one of the main barriers to adoption.  There are all sorts of ways they can make money eventually – premium features, employers paying for student placement, etc.

I also like the fact that the course catalog spans the full breadth of disciplines – humanities, social sciences, engineering, law, business, the arts, etc. rather than focusing more narrowly on say more vocation or “hard skills” (e.g., computer science).  In that sense, Coursera’s offering really does mimic a world-class university.

A frequent debate I’ve seen is whether online education efforts like Coursera can replace the university.  One of the frequent criticisms of the online model is the high “virtual dropout” rate.  I think these types of criticism and the very question of “replacing the traditional college model” miss the point.

Coursera isn’t about necessarily about providing an alternative to traditional higher education.  For someone like me, the choice is between Coursera and nothing.  I wouldn’t be taking a class in game theory or startup engineering if there wasn’t the Coursera option.  Maybe I’d buy a book and try to self-teach, or more likely I probably wouldn’t do anything.  My guess is most people are in this category.

The beauty of Coursera is that it allows you to get as much or as little out of a given course as you want.  If you want to spend hours every week watching every lecture, taking every quizz, reading all of the supplemental material, etc. then that is your choice.  If you want to take a “light” approach and be more casual about the work, you can do that as well.  Coursera doesn’t need to replace anything to be an awesome education tool.

Scoring on Our Own Goal: the US’ Self-Created Fiscal Problems

1 Jul

The CBO released a revised US national debt forecast last month, which I wrote about here.  Basically, a combination of the sequester, fiscal cliff, improving economy, etc. mean that the deficit as a percent of GDP will shrink over the next 2 years and then begin to slowly rise, all at a manageable rate.  In other words, we’ve accomplished Republicans’ #1 economic priority – deficit reduction.  This of course assumes that intermediate events don’t change that forecast, either for better or for worse.

It’s worth exploring what caused that deficit in the first place.  Ezra Klein wrote a great piece last week on Republicans’ odd willingness to trust 30-year CBO projections.  He used the chart below from a Pew Foundation report to show how wildly off the CBO can be in terms of even 10-year projections.  Note that the chart isn’t entirely up-to-date, but I think the broad conclusions are the same.

CBO's projected debt projections changed between 2001 and 2011

I want to talk about a point different from the one Klein made, namely that much of the rise in debt is self-inflicted.  It’s us scoring on our own goal through legislative choices like unnecessary tax cuts that disproportionately benefit the wealthy and a wholly unnecessary war in Iraq.  And, as must be pointed out, the most egregious examples started under the last administration.

Four big facts stand out to me:

  1. The biggest single driver of debt growth has been the reduction in revenue caused by cyclical downturns in the economy, especially the recession that started in 2007-08.  As we are starting to see, the number one thing the US can do to stabilize deficit spending is to grow the economy.  We can’t cut our way to no debt.  This seems like a basic fact to me, but it’s not necessarily accepted wisdom in Washington, especially among Republicans.
  2. It’s hard to overstate how damaging the 2001/2003 tax cuts under GW Bush have been to debt levels.  After the economic downturn, these tax cuts were the single greatest contributor to rising debt.  If this doesn’t serve to dispel the fanciful notion that on their own tax cuts always raise revenue, I don’t know what will.
  3. The tax cuts and war in Iraq were entirely unnecessary.  They were very poor choices and, in the case of the Iraq War, it’s consequences reached far beyond helping to explode the debt.  These are examples of us self-inflicting pain.  I’d add the 2009 decision to continue and to escalate the war in Afghanistan – a decision made by Obama – to this list as well.
  4. TARP and the 2009 stimulus barely register as major contributors to the debt.  Combined, they account for <7% of the rise in the debt after 2001.  The two wars and the 2001/2003 tax cuts account for 4x the rise in debt.  If Republicans really want to address the debt issue and win back public support at the national level, they need to honestly reckon with this fact.  They haven’t so far and will continue to lose national elections until they do.

As best as we can predict the next 10 years, our near term fiscal house is in order.  The US economy continues to recover, albeit slowly and weakly.  The focus should be on stimulating demand to accelerate this progress.

Much of the fiscal and political problems we’ve had over the last decade are entirely self-created.  Compared with the much of the globe, the US has an excellent opportunity to lead the world out of recession and to have a more productive decade than the last.  That will not happen, though, if we enact dumb legislation and fail to pass sensible laws (think Immigration).  We need to stop scoring on our own goal.


Driven by Android, the Tablet Market in India is Exploding

25 Jun


I wrote a post last week on what’s driving smartphone/Android adoption in emerging markets.  I wrote mostly about smartphones and largely ignored the tablet market.

And like clockwork, IDC just released a report on the tablet market in India.  In short:

  • The tablet market is booming as “shipments soared to 2.66 million in 2012, a mammoth 901 percent year-on-year growth from 2011…”;
  • It’s dominated by Android with Apple having <10% of the market;
  • Low-cost (<$250), 7″ tablets are vast majority of share;
  • Local players like Micromax and Karbonn and cheap Chinese imports are winning even though Samsung has the largest market share.  Note: local players still use contract manufacturing in China, but they’re Indian brands.

This article has a nice rundown of the report and quick summary from IDC here.

I wouldn’t expect any major changes to Android/non-Apple dominance in the near future.  Apple simply can’t compete on price in a market where most consumers can’t shell out hundreds of dollars for even an iPad mini.

Also, as with the smartphone market, I’d expect spending on cheap Android tablets in India to continue to grow rapidly.  Prices will continue to decline, there’s several government initiatives aimed at growing tablet access, and you have Reliance’s 4G rollout coming soon.  Expect Reliance 4G rollout to pair a cheap Android tablet with affordable data plans and bundled content/services.

The next really interesting question that needs to be answered is what killer apps and services are going to be built on top of all of these tablet and smartphone devices, especially in India.  And can they figure out a way to make money in a market where non-text, non-search mobile advertising is extremely low in $ terms and where consumers willingness to spend is low.

I think WhatsApp is the first app to really take advantage of the Android adoption trend in emerging markets like India, and it’s also showing the way in terms of how to monetize price-sensitive users at scale.  More on this soon.

Technology Advancement: Capital Wins Over Labor?

20 Jun

In a recent post,  Paul Krugman writes about the effect of technology on workers.  He argues that until the year 2000, disruptive technology’s effect on Labor was to displace low-skilled workers.  The beneficiaries were better-educated workers with the skills to design and to use new technology.  A handful of Netflix software engineer benefit, a large number of Blockbuster store clerks lose.  And so on and so forth.

The answer from government and business has traditionally been to emphasize education.  Go back to any presidential election from the last 15 years and you’ll see discussions of “retraining workers in high growth industries” and whatnot.  But Krugman says that the education argument is a mirage.  Highly-skilled workers are also facing displacement.

One current example of this is that many of the new business intelligence software and big data processing tools that are becoming widespread can replace functions that have traditionally been performed by teams of business/data analysts.  These are skilled, college -educated professionals that are being replaced (partially) through software.  And of course it’s not a 1-to-1 trade.  The capabilities of new types of software to analyze data and extract insights is far beyond what teams of humans were capable of performing even  recently.

You are also going to continue to see examples of technology disrupting low-level labor as we’ve traditionally believed to happen.  The implications of self-driving cards and robotics in industrial manufacturing are yet to fully be seen.  It’s not out of the question to imagine a world in 10-15 years where most of the delivery drivers, truck drivers, street sweepers, etc. are replaced through automation.  You’re already seeing it in the industrial world.

Who benefits from this?  Capital and often consumers as well.  I think this story helps to partially explain the rising income equality you’ve seen over the last 40 years.  Recent research shows that 30% of income inequality in the US can be attributed to tax policy.  Perhaps the accrual of technology benefits to capital helps to explain the other 70% of the puzzle.

Technology is great.  The iPhone, Google Maps, Wikipedia, Tableau, Kiva Systems, etc. are incredible.  They are amazingly powerful tools for improving the lives of consumers and raising the efficiency of businesses.  I also think that this “displacement effect” is less pronounced in technology areas outside of pure IT.  My sense is that technology in Energy, Medicine, etc. tends to have a less deleterious effect on Labor, though I’m interested in hearing counterexamples to this.

I would never argue that we shouldn’t pursue technological advancement.  But if workers across the spectrum are suffering short-term displacement, it only exacerbates inequality and all of the attendant problems.  I’m not sure what the solution is, but the first step is to at least to recognize the challenge.

Smartphone Adoption, Emerging Markets, & the Android Effect

17 Jun
There’s a huge explosion happening in smartphone usage.  Growth in penetration rates in developed markets has started to slow, but in emerging markets like China and especially places like India and Indonesia, smartphone ownership rates are still relatively low as a percentage of subscribers (see slide 40 of Mary Meeker’s latest Internet Trends report).

The main factor driving growth in emerging markets has been the decline in device prices being driven by cheap, local handset brands running pretty generic versions of Android, as well as the rise of Samsung as the premier Android handset maker.  In terms of local competitors, you have companies like Xiaomi and ZTE in China and Micromax and Karbonn in India.

Hardware prices are declining quickly and hardware is being commoditized by the use of low-cost contract manufacturers in China.  Also, the quality of the low-end Android devices being produced today is dramatically better than it was even 18 months ago.  They’re not iPhones or Samsung Galaxy level, but they’re quite good.  And for people using internet on their phone for the first time or having any internet access period, it’s more than adequate.

Most of the smartphone growth in emerging markets is going to Android.  In Q4 2012, ~70% of smartphones sold globally were running Android compared with 30% for iOS.  This is a significant increase in share over 2011.  Many of the market share losses from RIM, Nokia, etc. are accruing to Android.  The big point, though, is that most people in emerging markets cannot afford an expensive device and lower-end Androids are orders of magnitude cheaper than iPhones.

In addition to wealthier populations, the rise of the cheap Android device is less notable in the US because carriers subsidize a large portion of the handset price.  In the US, Android has ~52% of the market according to comScore and iPhone has 35% for the 3 months ending Nov 2012.  In India, an entry-level iPhone 5 retails for ~$800.  That same phone is $199 with a voice and data plan from a US carrier.  Of course wireless rates in the US are higher and you’re locked into a single plan for a fixed amount of time, but nonetheless the upfront investment in the device is relatively low.  At $199 or $299, it’s harder for Android to have as pronounced cost advantage over iPhone.

A couple of takeaways from all of this:
  1. Despite their impressive growth, I would be leery of investing in local handset brands.  They are producing a good whose price is consistently falling.  They’re also benefitting from the open runway that low smartphone penetration provides, but as ownership broadens, new purchases will be driven by the replacement cycle and their growth rate will fall.  Replacement cycles in emerging markets are longer as well, which exacerbates the problem.  Finally, I expect Apple to introduce a lower cost iPhone and also expect the cost advantage between “budget brand” Android handsets and “premium brand” handsets (i.e., Samsung) to narrow as the latter gets more aggressive on price.  We are on the upward part of a hardware cycle for these companies and I wouldn’t want to get caught on the tail end.  This isn’t to say that these aren’t great companies with impressive growth over the last few years, but just a reflection on their investment potential at this point.
  2. Hardware is hard.  This reminds me of the PC market.  You have punishing downward pressure on prices driven by ever declining component price declines and manufacturing efficiencies.  This isn’t the case in software and services.  Yes, as Apple and Samsung have shown, software can help differentiate your device and drive consumer preference, but it’s not an adequate bulwark against price erosion.  As Apple shows, margins still erode.
  3. Despite #1-2, there’s an opportunity for local players to build durable brands in their home country and region.  Clever marketing, pricing schemes, proprietary apps (thinks Messaging and Games), etc. can all help these players differentiate.  I wonder though if these become the Compaqs, Gateways, and Dells of their market.
  4. As many people are expecting it to do, Apple needs to introduce a lower cost iPhone.  It’s margins will decrease further if it does, but pure profit dollars should surge.
  5. Open source — in this case, Android — helps to commoditize hardware and to lower the cost of new technology adoption.
  6. The sheer number of Android users in markets like India and China (iPhone too) will be staggering.  Even if ARPU is low, there’s a huge opportunity for apps targeting these users.  WhatsApp and other mobile messaging apps might be the first examples of this.

Linkedin & The Future of Recruiting – Part I

30 May

I’ve been thinking quite a bit about Linkedin and the talent/recruitment market lately.  Linkedin is on an absolute tear on all fronts.  I’m a huge fan of its product and use it multiple times a day.  Financially, the company beat Wall St. estimates on both top and bottom line last quarter, and its stock is up over 2x since it’s public debut 2 years ago.  Linkedin’s rapid revenue growth is being driven by the fact that it’s an indispensable tool for recruiters and candidates alike.  This has led to significant changes in the recruiting landscape over the last few years and will continue to do so.

To understand Linkedin’s current positioning and future opportunity set, it’s important to understand what the recruiting universe was like pre-Linkedin and what it’s like today.  Before Linkedin, there were two major tools for corporate recruiters.  One was job boards like Monster.  The other was professional search firms like Korn/FerryHeidrick & Struggles, etc.  More on this below.

A quick word on some terminology.  In recruiting parlance, there are two classes of candidates.  One are “active” candidates.  These are people who are actively searching for employment, either looking to switch positions or they are unemployed.  The other class of candidates are “passive” candidates.  These are people who are gainfully employed and not actively looking to switch jobs.  They may, however, be open to considering new opportunities.  Most candidates for higher end jobs (i.e., professional, higher paying, top employers, etc.) end up being passive.  Think of say a Director of Finance at a large company who’s happily employed, but is then approached by a hot new startup that convinces him/her that they have a great opportunity he/she should at least consider.

There are by some estimates +100k job boards available online.  They run the gamut from huge generalist players like Monster and CareerBuilder, to niche boards focused on specialized recruiting in any function/industry you can think of.  Job boards for nurses, miners, construction workers, and so on.

Job boards provide recruiters with two main products.  The first is job postings.  Companies typically pay a monthly fee to post a job on the board’s website.  This is a pure listing fee, not a performance-based product.  It’s also a “pull” or “outbound” product in the sense that it requires candidates to proactively apply for a position.

The other traditional job board offering is the resume book.  Most boards allow candidates to submit their resume to their site for free.  Some boards will charge candidates to include their resume in their database.  Recruiters are then able to search this database for resume profiles that match their req.  The recruiter then has to proactively reach out to the candidate to test the candidate’s interest in what they are offering.  In this sense, it’s the opposite of a job posting.  Recruiters typically receive some type of resume access along with the fees they pay for job postings, though it can be unbundled as a separate product as well.

The resume books that job boards provide have a few downsides.  One is that many of the resumes are out-of-date.  Someone submitted their resume 4 years ago, but they haven’t maintained a relationship with the site and the resume is now out of date.  Also, outside of the really large players like a, most job boards will have a fairly limited number of resumes, or in other words a small percent of the total available candidates in a given speciality.

On the other hand, resume books can be quite valuable to recruiters, even in the age of Linkedin.  Recruiters can filter by resume submission date to ensure that the resumes they’re using are updated.  And if someone submits their resume to a job board, that usually implicitly means they are an active candidate.  This is valuable to the recruiter because the recruiter now knows that the candidate is actively looking for employment, more likely to return their call, etc.  Also, recruiters really like the fact that resumes provide a candidate’s email address and/or phone number.  This makes it much easier to reach out to a candidate rather than having to go through InMail, Linkedin’s messaging system.  This is especially true given the high volume of InMail’s some high-demand passive candidates are receiving.  More on some of the shortcomings of InMail in the next post in this series.

Finally, a word on job board marketing and user acquisition.  A key challenge for any job board is attracting users.  It’s the age old chicken-and-the-egg problem.  Employers aren’t interested in your offering if you don’t have traffic or resumes, and candidates aren’t interested in your site if you don’t have job postings.  How do you solve this?  The classic answer most boards have followed is to focus on content, either job search related (e.g., “How to write a great resume”) or industry specific.  Bring people in for the content and then monetize with your job offering.

That’s a quick overview of the job board product and business model.  In terms of key trends in the job board market, a few stand out:
  1. Applicant Tracking Systems (ATS) have allowed HR depts to much more efficiently allocate their recruiting spend.  Without going into all the details on the ATS market, ATS’ are basically a piece of software that allows recruiters to manage their recruiting pipeline.  Building a resume database, scheduling interviews, collecting feedback on candidates, posting jobs to your company website, and many other functions are provided by ATS’ from the likes of JobviteTaleoThe Resumator, etc.  Any decent size organization will have an ATS and those that don’t are adopting them quickly.  Most ATS’ have some basic analytics that allow HR depts to easily see what their best sources of referrals are – where do leads come from, which leads are highest quality, etc.  People are reallocating spend based on these findings.
  2. ImageJob boards aren’t dying, CareerBuilder and Monster are.  CareerBuilder and Monster are the (once) giants of the job board space and they are really suffering from several concurrent trends.  One is that the ATS analytics described above increasingly show that smaller, specialized job boards provide better results than generalist boards.  Also, Linkedin is of course putting pressure on generalist boards since Linkedin is really the mother of all generalist job boards/resume books.  Sites like CareerBuilder have become simply irrelevant to people in many higher-end professions.  Finally, the rise of and SimplyHired have given recruiters a better way to reach the same audience as generalist job boards, but at a cheaper price.
  3. Indeed and SimplyHired have put enormous pressure on job boards, especially generalist boards.  If you aren’t familiar with Indeed or SimplyHired, think of them as metasearch for jobs.  They aggregate postings from thousands of individual job boards and layer a Google AdWords-like CPC model on top.  If you’re a job board, you can pay Indeed for better placement in search results.  Job seekers are typically taken to the site of the original posting, but Indeed has become such an important player (it reportedly did $150m in revenue last year) that increasingly recruiters are posting directly to Indeed.  The CPC model and Indeed’s huge traffic volume is very powerful because now instead of paying a flat monthly fee to post your job on, you can now post directly to Indeed and get access to the same audience of job seekers but at a much lower price.
  4. Specialized job boards seem to be doing OK.  While the generalist boards are taking a beating, more niche players seem to be surviving.  One proxy we can look at is, the leading job board for mostly “mid tier” technology professionals.  Dice did $155m in revenue in 2008 and $195m in 2012.  They’ve done some acquisitions, but even stripping that out revenue and margins have held up well.  Also, anecdotal conversations with recruiters reveals continuing interest in certain types of specialized boards.

These, in short, are headhunters.  These are people-driven, services businesses akin to law firms, consulting firms, etc.  Their business is segmented by vertical, geography, and search model.  There are two main search models.  One is retained search and the other is contingent search.

Retained search is when a professional recruiter is contracted by a company to fill a given opening.  They get paid regardless of whether the position gets filled or not.  Typical retained search fees would be ~30% of the target first year salary for a role.  Retained search is the most sophisticated, most expensive form of executive search.  It’s typically used for very senior and/or high profile roles – C suite, board of director, key hires, etc.

Contingent search is where a recruiter is contracted to fill a role on a success fee basis, typically 20-30% of the candidate’s first year comp.  Contingent search is typically used for the next tier down of roles in a company from those covered by retained search.  It’s also used for specialized roles like Tax professionals.

For the most part, the retained search business hasn’t changed much over the last decade.  These firms suffered with the recession starting in 2008, but most of that downturn is related to a lessening of hiring at top levels than any major move away from retained search as a service.  This is maybe the hardest segment of the job search market to disrupt.  I don’t think Linkedin or other technologies can play well here, and I don’t expect them to try to.

Contingent search, on the other hand, is facing pressure as a business model.  Headhunters’ historic advantage has been their proprietary networks and resume books.  Pre-Linkedin, they had a real value proposition to offer.  Imagine you’re a small business trying to hire a new Director of Engineering.  Ten years ago, you had three options: (1) the job board; (2) your own network; (3) the headhunters network.  In a world where contacts and relationships were much more proprietary, the contingent recruiter had a clear value proposition to the hiring company.  With Linkedin, this has changed.

HR departments are increasingly building up their own in-house recruiting functions to save costs, bring recruiting closer to the business, etc.  Why not simply hire recruiters yourself instead of paying out contingency fees?  Linkedin is a big reason why companies are able to do this.  As we’ll see in the next post, Linkedin allows in-house and 3rd party recruiters to fish in the same pond.  Everyone has access to the same profiles and pool of talent.
A couple quick takeaways:
  1. I think certain types of job boards and professional search firms are here to stay.  They will face increasing pressure from Linkedin and others and their share/size of the market will dwindle, but let’s not overstate things and call them “dead.”
  2. Linkedin isn’t the only new technology changing the recruiting landscape.  The rise of the ATS, Indeed’s prominence, and other factors are all challenging established players and creating new opportunities.
  3. Recruiting is becoming more scientific and technology led rather than networking-led and service-oriented.  That’s not to say that there’s no longer a human element, but rather that the field is being leveled.  There are more tools available to allow recruiters to reach more candidates than ever before.

Linkedin has become the thousand pound gorilla in the recruiting space.  If it isn’t already, it is rapidly becoming a must-have, indispensable tool for any recruiter, whether in-house or third party.  Will explore why in the next post.

Apple, Taxes, & the Silly Investment Argument

22 May


Apple CEO Tim Cook testified before Congress this week regarding the low overall amount that Apple pays on its earnings, much of which is overseas.  Some quick thoughts:

  1. The corporate tax code (and personal as well) is insanely complex.  This complexity creates an untold number of deductions, exemptions, etc. for companies to utilize to lower their tax rate.  Complexity in rules creates opportunities for avoidance.  The code should be simplified.  It would make it easier for the government to enforce, easier for companies to structure their tax policies, and would offer a win-win for companies (reduced compliance costs, better transparency, etc.) and the government (more revenue, easier enforcement).
  2. It’s not the job of Apple or any other business to decide the right level of taxation, set optimal social policy, etc.  The system is set up in such a way that it asks companies to maximize revenue and profit to the extent that they aren’t doing anything illegal.  If we want to change the system, fine.  But Apple is only playing its role (maximize profit to the extent legal) within the framework that we/Congress have created.  
  3. Similarly, if we want Apple or American businesses to pay more in taxes, we should change the tax code.  Nobody is accusing Apple of doing anything illegal.  They’re simply following the law, which happens to be extremely complex and allow for the type of tax structuring that Apple has followed.  If Congress is unhappy with Apple, then change the rules.
  4. Finally, this whole episode is bringing up the issue of what we should do about overseas cash that companies have sitting in offshore accounts.  In a nutshell, multinational US companies earn money overseas.  If they repatriate that money back to the US, they have to pay US corporate taxes on the overseas earnings, whereas many other countries don’t tax earnings outside their borders.  So cash sits overseas.  US companies have over $800b of cash sitting abroad.  Apple has about $100b of it’s $145b total abroad.  We need a way for US companies to bring some of this overseas cash into the US.  

There’s no sign that under the current regulations any US company plans to repatriate cash.  This is bad for the companies and it’s bad for the government since we’re earning no tax revenue on these earnings.  I don’t know what the right rate is for these overseas earnings, but it should be something that’s broadly acceptable to most companies as well as the government.  

Having said that, I don’t buy the argument that simply letting companies repatriate their cash with a lower tax burden is going to somehow spur new investment.  US companies, including Apple, are already sitting on record levels of cash here in the US.  If they want to invest in the US, they already have plenty of cash to do so.  The reason they aren’t investing isn’t a lack of cash, it’s a lack of aggregate demand from consumers and other businesses for the goods/services that businesses are selling.  Changing tax rates won’t solve this.  

We could lower Apple’s tax rate to 0% tomorrow and that won’t change the investment decisions they make.  Businesses are rational.  If Apple saw growth opportunities they could capture by investing in the US, they would do it irregardless of tax rates.  They have plenty of cash to do so.  

This also gets to some of the arguments around businesses and employment.  Many people argue that if we lower the corporate tax burden, this will kickstart hiring by companies.  The same argument applies.  The reason companies aren’t hiring more aggressively isn’t a lack of cash/margin to do so, it’s principally a lack of demand and other factors like increasing productivity from existing workers.  If order books, foot traffic, etc. were growing at a brisk pace, companies would hire to meet the demand.  Absent that, why would they hire additional workers?  

Some of this logic might not apply to small and medium size businesses.  For business with less scale, lowering their tax burden might provide those businesses with the additional capital they need to make investments.  Would love to hear a strong argument why this is also the case with large businesses.  

The US Market is Underappreciated

20 May

Unless you’ve lived or worked extensively outside the US, I think you don’t appreciate enough some of the major advantages that the US market provides businesses.  This is especially true for new businesses, whether in technology or other industries. 

One major advantage is size of markets, as the US has the 3rd largest population of any country in the world.  Choose any reasonably established market in the US and its large.  Online advertising, dog food, financial trading systems, etc.  This is perhaps obvious, but rarely recognized.  Most markets are large on both an aggregate dollar size basis as well as on a per capita basis (where relevant, eg for a consumer products business).  You don’t need to own half the market to build a big business.  In some industries in some countries, you will never build a big business.  The market isn’t there.  And yet you still see entrepreneurs starting businesses in those markets.  

One nuance on market size that people sometimes miss is that it’s not simply about a large population or aggregate market size, but also per capita.  In other words, you want individuals consumers to have a high ability to purchase your goods and services, and you want consumption power to be distributed.  India’s population is 4x the US’, but on a per capita basis the consumption power of a US consumer is many orders of magnitude larger.  Low per capita GDP really limits your addressable market and can complicate your go-to-market strategy.  For instance, in some countries your target population may be small but very spread out geographically, so you have to have a national presence to build scale whereas in the US may be able to build a big business in a single state.  

Also, while incredibly diverse, the US is homogenous in some important ways.  One is language.  You team, marketing materials, website, sales reps, etc. for the most part only need to speak English and in some business maybe Spanish as well.  Dealing with multiple languages doesn’t have to be a huge obstacle, but it creates additional friction.  Similarly, differing currencies and rules/regulations can generate friction.  

Finally, I think the average US consumer is pretty forward thinking when it comes to experimental consumption.  There are a lot of first adopters willing to try new goods and services.  

This is especially true and critical in technology.  One of the big challenges facing startups (especially tech startups) in less “developed” environments is the lack of early adopters, both in terms of consumers and enterprises   These startups are unable to test their products to make sure they have product-market fit.  This is one of the big reasons why startups and big trends often start in cities like San Francisco and NYC.  There are just more first adopters.  This effect is magnified when you think across countries.  

In the technology arena, you really see this in the enterprise space.  The spread of cheap smartphones and global platforms like Twitter and Facebook means that consumers around the world are getting more and more sophisticated when it comes to their personal technology usage.  I’m not sure that the same can be said of enterprises in many countries.  In Europe, small and large enterprises have been behind the US in adopting new technologies (e.g., SaaS, cloud delivery, etc.)  Take a more difficult market like India and it’s worse.  

Some of the above helps explain the US’ success in leading the world in new technology formation.  But it certainly isn’t the whole story.  Will save that for another post.  


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