The Golden Age for Talent is Over

Talent Dynamics – why Talent joins a company, moves to a city, or starts a company – fascinates me.

I've written so much about Gresham's Law for Talent that a friend jokingly calls it my own version of Aggregation Theory (I'm well aware I'm no Ben Thompson).

That is because Talent (yes, capital T) is at the intersection of everything happening in technology and society. Talent starts companies, Talent makes investments and Talent builds ecosystems.

Instead we tend to think about startups, investors or ecosystems as shapeless entities. This is me referencing Estonia on a previous edition.

"Estonia has been doing a fantastic job at enabling talent to gravitate to Tallinn, creating a positive Talent growth loop on the city."

But it's not Estonia as an entity doing a "fantastic job." – it's a group of people (a.k.a. Talent) within Estonia who are doing it.

You could argue that Talent is technology. This insight, even if it's not heart-stoppingly novel, is captivating to me.

So if Talent is technology, then we better pay attention and try to understand what the hell is going on.

So... what the hell is going on right now? Quite a bit.

We've been assuming that the post-COVID-19 world will normalize sometime in Q3 or Q4 and go back to the pre-COVID-19 up-and-to-the-right demand trajectory.

But what if we don't see the V-shaped recovery everyone is expecting? What if after all countries lift their lockdowns and everyone goes back to worrying about the culture wars, recovery doesn't come? What if, instead, we experience something like this:

Not only I think that's accurate, I also think I that COVID-19 will have a tremendous impact on the Hiring Market and change the entire dynamics of how talent and companies interact.

Let me explain.

First, let's defining the Hiring Market and its Players

Imagine a fictitious marketplace where talent and companies interact.

• Available Talent are the Sellers (or the little blue guys) – they sell their labor and knowledge at a previously agreed price.
• Hiring Companies are the Buyers (or the little blue squares) – they hire (or buy) labor and knowledge at a previously agreed price.

When there is a balanced ratio of Talent to Companies and vice versa, both parties interact constantly, trading services for money at market prices in a healthy way.

But as you can probably tell, it's never that easy.

The Hiring Market pre-COVID-19 was a Seller's Market

For the past decade, the Hiring Market has been a Seller's Market.

"A seller's market is a market condition characterized by a shortage of goods available for sale, resulting in pricing power for the seller. A seller's market is a term commonly applied to the property market when low supply meets high demand." - Investopedia

Here's an example with tangible stuff you can relate more to – houses.

During the housing bubble of the early-to-mid 2000s, the real estate market was considered to be a Seller's Market. Properties were in high demand and likely to sell, even if overpriced or in poor condition. In many cases, a home would receive multiple offers and the price would be bid up above the seller's initial asking price.

There were so many home buyers looking at limited inventory that realtors had the upper hand, and those buyers had to make non-optimal decisions.

But let's go back to Hiring.

For the past 10 years, Hiring has been a Seller's Market. There were a lot more Companies willing to hire great Talent than great Talent looking for a job and willing to be hired by those Companies.

Since most Talent was unavailable (the little red guys are not looking for a job), whatever available Talent (still wearing blue) there was dictated the terms because companies were desperate to hire them.

When supply is scarce, power shifts heavily to the Seller's side. How do we know that? A few clues:

• If you spoke to HR people (as I do everyday), you'd learn one thing from them – they rarely had enough great candidates on their pipeline.
• Most companies go to ridiculous lengths – including paying thousands of euros to recruiters – because they can't find the right talent fast enough.

This problem is so ridiculous that there is (or was?) a $157 billion dollar industry built on top of this market inefficiency.

Like realtors in the early-to-mid 200s, Talent had the upper hand at choosing where to work, what to work on and for how much because there were plenty of Companies willing to hire them.

In January, this looked like an irreversible trend. But over the past 4 weeks we've seen a complete reversal. And I'd argue it's not a gradual change, but a sudden one.

But in comes COVID-19 and things change

COVID-19 will trigger one of the biggest recessions in history.

Startups are one of the hardest hit sectors because they don't have a proven business model and run on VC money while they figure it out. If most startups raise aiming to get 18 months of runway, and fundraising takes a few months, by definition, a high percentage of startups has less than 12 months of runway.

Startups (even some that looked very | well | capitalized) are shutting down, doing layoffs (to protect their runway), and at best, freezing hiring.

Here's the New York Times:

"The fallout is hitting the highest-profile start-ups as well as the smaller ones trying to disrupt them. Airbnb, the home rental start-up valued at $31 billion, has stopped hiring and has suspended $800 million of marketing. Bird, an electric scooter start-up, laid off 30 percent of its staff last week, while Everlane, an apparel company, cut or furloughed hundreds of workers.

The real estate start-ups Knotel and Convene have laid off or furloughed half of their workers. The hiring site ZipRecruiter cut around 40 percent of its staff. OneWeb, a satellite start-up that had raised $3 billion in venture funding from investors including SoftBank, the Japanese conglomerate, filed for bankruptcy on Friday and plans to sell itself. And travel start-ups — Vacasa, Sonder, Inspirato, Zeus Living and TripActions, among others — have been some of the hardest hit.

Daniel Zhao, a senior economist at Glassdoor, a workplace review and job listings site, said the situation facing start-ups now was worse than in downturns like the dot-com bust in the early 2000s and the financial crisis of 2008."

If we want to look beyond anecdotal data, we can look at a few proxies:

• The number of startup jobs – Sean Linehan from Placement, a startup that aggregates job listings from all over the web, tweeted on March 22 that he is seeing a 50% decline in startup jobs compared to 2 weeks ago.
• The number of jobless claims – we've seen 9 millions claims in the US alone. I know, it's not Europe, but it's a good enough proxy for this. COVID-19 is so big that you can barely see the 2008 global recession.

So what happens when Talent is layed off en masse?

A shift in Hiring Markets towards a Buyer's Market

When Talent is layed off en masse because companies are cutting costs or shutting down two things happen:

• the Hiring Market receives a sudden influx of available Talent and an abrupt increase in supply of labor.
• the Hiring Market suffer a sudden outflow of Companies hiring and an abrupt decrease in demand for labor.

As a result of those forces, the supply-demand balance that favored Talent and created a Seller's Market won't be there anymore.

From a limited quantity of Talent available for hire and a lot of Companies hiring, we are going towards a saturation of great Talent looking, and few Companies hiring.

Suddenly, the Hiring Market will become a Buyer's Market, where supply exceeds the demand and therefore the power resides with the buyer in terms of setting a price.

"A buyer's market refers to a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiations."

Going back to the previous example, the 2008 housing market crash created a Buyer's Market in which a seller had to work much harder to generate interest in his or her property. A buyer expected a home to be in excellent condition or priced at a discount, and could often secure a transaction for less than the seller's asking price for the property.

Like post-2008 crash home buyers, Companies will have the upper hand because Hiring Markets are being inundated by great Talent who – because of COVID-19 – are out of a job and looking for new opportunities.

And the plot thickens.... The question is – what now?

Talent Loops are more relevant than ever

Great Talent has been gravitating towards Great Talent for centuries, and that won't change. Not even because of COVID-19. I wrote last year arguing for a European Tech Visa:

"Historically, extraordinary talent gravitates toward extraordinary talent.
At the very beginning of the 15th century, an extraordinary group of young artists and intellectuals, formed under the patronage of the Medici family, flocked to Florence. Thus began the Renaissance, which later spread to Rome, Venice and the rest of the country.

During the early 1900s, Paris became a literary mecca. Its Quartier Latin on the 5eme Arrondisement became the adopted home of America’s postwar Lost Generation – the group of literary expatriates hosted by Gertrude Stein that included, among others, Ernest Hemingway, F. Scott Fitzgerald and T. S. Eliot.

Now, entrepreneurs gravitate toward other entrepreneurs."

Even though companies have the upper hand in the Talent Hunger Games, I'd argue that it is more important than ever to focus on attracting, hiring and nurturing the right Talent.

Who you hire now will determine who you'll hire later. Zack Kanter, CEO at Stedi, said it better than I ever could:

"Talent density matters more than absolute number of people.... Eventually you reach this inflection point where you have a bunch of people who can seat around the table and everybody can say: “This is the best group that I’ve ever worked with.”

And all of a sudden, when they can say that, an engineer will go out to the previous people they worked with and say “Hey, this is the best people I ever worked with.” And they can say that with no caveats. And all of a suddenly, this flywheel starts to turn.”

The novel challenge is the increased amount of noise because of the sudden influx of available Talent inundating the market.

In a Seller's Market, startups need to compete for Great Talent against other startups.

In a Buyer's Market, startups need to compete for Great Talent against Big Tech (who has deep recession-proof pockets) and filter out Bad Talent who just entered the market in droves.

The problem with building an organization where Bad Talent thrives is that if you go through enough iterations you'll end up with nothing but Bad Talent. As all flywheels, it can go the other way.

"On the contrary, if Good Talent is hoarded somewhere else, Bad Talent will be given more movement and circulation within the Talent Market. As more and more Bad Talent starts to circulate within a market, companies will start hiring that Bad Talent, mostly because this is the only currency being traded.

If Bad Talent is rewarded with a job and power, word will spread and Good Talent will move while Bad Talent will notify gravitates towards whatever they can get."

In a post-COVID-19 world where capital isn't as abundant, hiring Great Talent will be an extremely important job. Maybe the most important job. Just like before. Which brings me to question – did anything really change?