Tag Archives: Linkedin

Wall St’s too short term? Look in the mirror.

11 Aug

A friend sent me a link today to Jeff Bezos’ letter to shareholders from Amazon’s 1997 Annual Report.  It’s a great read.  Bezos lays out his long-term operating principles and basically cautions investors that Amazon will (a) focus on long-term strategy and dominance; and (b) this will mean that it will sacrifice short-term profitability.  Amazon continues to follow this strategy today as it invests heavily in long-term bets (AWS, Kindle, logistics infrastructure, etc.) and runs a low-margin business.  And investors continue to reward the company.  The stock is at an all-time high and it’s market cap is approaching that of traditional software giants like Oracle.  The latter fact is pretty astounding when you realize that Oracle had $5b of operating income quarter, whereas Amazon had <$100m.

I say all of this because one of the big debates in Silicon Valley over the last 4 years has been over the merits of going public versus staying private.  And one of the most often cited reasons for staying private is the ability to “innovate” outside the quarterly earnings pressure of public markets (other reasons are the distraction of the IPO process itself, cost of filings and ongoing SOX compliance, etc.)  In most cases, I don’t think the idea that Wall St is too short-term is a valid reason to stay private, though there may be other reasons.

wall st bull

There are two related arguments people make.  One is that the market is too focused on short-term earnings.  The other is that public companies can’t innovate because of this.  So I ask: what’s the evidence for this?  Some of the most innovative companies in tech – Google, Apple, Amazon, VMWare, eBay, Tesla, Netflix, Linkedin – are public.  These companies don’t have any trouble pursuing new initiatives, speculative ventures, interesting M&A, high R&D spend, etc. under the glare of the public market.  And every company on this list has been richly rewarded by the market.

In fact, some of these companies actively shun Wall St’s supposedly myopic focus on short-term earnings.  Amazon continues to be an incredibly low margin business and continues to invest heavily in growth and new businesses.  Similarly, Google doesn’t even provide quarterly guidance to investors.

The reality is that the public companies that face supposed Wall St “short termism” are the ones that have flawed business models.  Would Zynga and Dell (to name two troubled companies) rather be private right now?  Of course, well at least we know for sure in the latter company’s case.  It would take the heat off.  But the reason there’s heat to begin with is they’re flawed companies.  People don’t want to play expense-to-produce Zynga style social games on their desktop, and PCs are rapidly losing favor to the tablet revolution.  Public markets are very efficient at recognizing this.

If Dell and Zynga laid out a credible, long-term story to investors then I public markets could be receptive.  But they haven’t.  Dell has been trying to transform itself in to an IBM style enterprise software and services company for years.  It has spent billions of dollars in the process, which incidentally it may not have had access to as a private company.  Similarly, Zynga hasn’t laid out a credible story for where it goes from here, for example backtracking on earlier talk of exploring the online gambling market.  Zynga might even be in a worse position right now if private because they wouldn’t have access to the $1.1b of cash they currently have on their balance sheet.  Ditto all of this for other companies like RIM, which is also reportedly thinking of going private to “refocus with less scrutiny.”

Maybe the point of all of this is that a few exceptions withstanding, the best companies go public and they have no problem doing so.  They’re able to think about the long-term and invest in innovation without difficulty.

If you can’t compete effectively under the lights of the public market, don’t blame Wall St.  Look in the mirror instead.


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.

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 Dice.com, 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 Indeed.com 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 xyzjobboard.com, 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 Dice.com, 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.


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