by Rick White, Former U.S. Congressman & CEO of Technet
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Recent reports tell us that some 32,000 tech industry workers were laid off in the last year, mainly from large companies such as Tesla, Coinbase, TikTok, Twitter and others.
Is this bad news for the U.S. tech sector? Probably not. It’s more likely to be good news, both for the employees who end up taking new jobs and for the true drivers of innovation in America—small and medium businesses (SMBs).
The layoffs, as well as hiring freezes, come as the pandemic boom begins to cool off. Some commentators have referred to this phenomenon as a new “dot-com bust” and as a sign of decreasing innovation in the United States.
But most big tech companies, even the most successful, have stopped making major innovations long before they reach their full size. As their initial inventions turn into profitable businesses, they focus more resources on the mechanics of growing a business, managing employees, and developing their existing products. They usually won’t admit it, but they need more managers and fewer innovators.
At the same time, the talent gap in the United States especially for tech-savvy employees, seems to have hit nearly every business sector. While big tech companies may no longer need as many young innovators, the small and medium-sized businesses of America are in dire need of this expertise.
A big opportunity
As a result, layoffs by the big tech companies create enormous opportunities for smaller firms to add tech talent that normally is hard to find. But they need to act quickly and take the right approach to capitalize on this opportunity.
First, SMBs should proactively seek out laid off workers from big tech firms. Although some recruiters see laid off workers as high-risk candidates, the risk-reward ratio for employees laid off from big tech firms is far more positive. A high percentage of the people in this group have world-class training and skills that SMBs need.
Second, firms should look for the right kind of candidates in this group. They should look for workers who have imagination, can tolerate risk, are willing to work for equity in addition to cash and can think creatively even when that requires challenging the conventional wisdom. These are the kinds of employees who were attracted to big tech companies in the first place but may not be suited for a large company’s long march to become an institutional business.
Third, smaller companies can and should hire these candidates for the right kind of roles. They should offer positions where an employee can have an impact on the company and grow as the company grows. They should allow these employees to share in the success of the company—at least a small amount of stock options or other equity should be part of every employee’s compensation package. They should also reward good performance and offer a clear path to more responsibility as long as good performance continues.
Advantages for employees
Paradoxically, big tech layoffs in most cases are also good news for the employees. Many of them joined big tech firms to be part of a start-up culture where young employees could make an impact at a new venture. Being a cog in a machine at a big company wasn’t their goal, and finding a meaningful role at a smaller company, even if it isn’t a new company, is often a much better match for their career aspirations. They often find that the world-class skills they learned at big tech companies allow them to make a valuable contribution right from the beginning at their new firm.
Tech professionals who are part of these layoffs will likely end up on one of two paths: back with another large tech firm in a similar role or forward with a smaller company where they can have more impact, with a career focused on long-term success. A creative smaller business with the right approach can often convince them to take the latter path.
Of course, it takes money to hire people, even when there is a great opportunity that makes long-term sense for the company. But, that’s the icing on the cake when a company hires former employees of big tech firms. In many cases, the government will help the company hire them.
The government provides incentives to encourage innovation, and innovation is almost always part of the job description when companies hire former employees of technology companies. As a result, many companies find that compensation and expenses related to these employees will qualify for these government incentives. For example, the Research and Development Tax Credit of the federal tax code (the R&D Credit) can often provide significant capital to companies when they open new positions, expand their operations and innovate in new areas.
The R&D Credit is often overlooked by smaller companies, but it was created by Congress in the early 1980s specifically to spur innovation in large and small firms alike. It rewards companies by providing refundable credits for expenses related to innovation, including compensation paid to employees who are working to find new ways to improve products or processes.
Even incentives that aren’t related to innovation, such as the Employee Retention Credit and other recent COVID-related incentives, can be leveraged by SMBs to help them hire employees in roles involving innovation.
A win-win situation
Why should the government, or any of us, care enough to give companies incentives? The answer is that innovation is the key to U.S. prosperity, and true innovation almost always comes from SMBs.
We hear a lot about the Googles and Facebooks of the world, and there is plenty of innovation happening at these companies every day, but the big companies are famous because many years ago, when they were an SMB, they came up with one truly innovative and disruptive big idea and built it into a successful business.
The next big idea will come from an SMB who wants to disrupt them. That’s why Congress created the incentives and why SMBs should take advantage of them.
We don’t often see a win-win situation when employees are laid off. But, the layoffs by big tech companies can be a big benefit to all of us if smaller businesses know how to take advantage of them.
About the Author
Rick White is a member of the Strategic Advisory Board at alliantgroup, a consulting and management engineering firm in Houston. He served previously as U.S. Congressman from the Seattle area and CEO of TechNet and currently advises startup companies on financing and other strategic issues.