You Need To Be A Billion Just To Make A Million

I always love peering into the world of executive recruiting. As a grad student and as a writer, the thought that there are people out there chasing other people to get them to work at massive wages always seemed to me like a bounty hunter scene out of a strange science fiction movie. Sometimes the wages offered are as much as $1 million; sometimes, that’s not enough.
Competition in the Valley has started reaching a new peak, with candidates demanding all kinds of accoutrements just to change jobs. But it’s not just recruiting that has become more challenging. Sales, marketing, public relations — essentially every task that a startup has to do is just more difficult today given this cutthroat environment.
The only way to respond to the higher threshold has been to raise ever more capital, and earlier as well. We now have the rise of the “instant unicorn” that can raise hundreds of millions of capital in just the first months of a company’s existence. That means companies are already worth billions, before they may have made their first million dollars in revenue or gotten their first million users. That’s the new normal, and founders have to be ready to adapt.

Competition That Affects Everyone

I had a typical conversation with Joe Riggione, a managing partner with True, an exec search firm. The stories from recruiters are always fascinating. “We had a search fall apart because a candidate was in the most expensive part of New York and saw the cost of living in California” and proceeded to quit just three days before they were supposed to join, Riggione regaled me.
In another search, the firm had a CMO candidate who signed with a startup and was pretty much ready to go until a hiccup came up. “We got past everything including compensation and equity, but the candidate wanted the company to get her kids into a specific private school,” he explained. If you haven’t found a use for your VC investors (and their private school connections) yet, this would seem like an opportune moment.
Unsurprisingly, the baseline trends continue in the directions they have been traveling on for sometime. The labor market – particularly for CMOs and CFOs with public markets experience – has tightened to extreme proportions. Companies have better information than ever about the performance of their competitors, and they want to match them hire for hire.
There is even a meta element to this. Hiring great individual recruiters has become one of the toughest challenges for startups. The Valley’s top executive recruiters can easily make more than $1 million a year in compensation, and even those just a few notches lower on the rankings are getting enviable offers from venture firms to build out their “platforms.” Who can hire the hirers?
The so-called talent wars has affected even the most notable entrepreneurs in the Valley. Marc Lore, the founder of Jet and former founder of Quidsi (which owned Diapers.com and a number of other ecommerce properties), has completely changed his attitude toward executive recruiting. “Earlier on in my career, I thought it was really expensive, and I thought it was a luxury, but it is a necessity,” he explained to me. Jet recently conducted searches for a Chief Customer Officer (CCO) as well as a Chief People Officer (CPO) with True.
Lore’s comment really struck me. Here is a quite successful entrepreneur and thoughtful recruiter of talent, and even he relies on incredible resources to compete in today’s market.

The Need For Instant Unicorns

That’s perhaps why Jet is a part of this rise of the “instant unicorn.” The company was founded just last year and has already raised $225 million in venture capital funding according to Crunchbase. Jet is hardly alone, with Slack raising $340 million in less than two years since its product launch. When we place these sorts of companies in historical perspective, such early success is absolutely stunning.

And arguably absolutely necessary. It’s easy to look at the venture capital sloshing around the Bay Area and think that this is all just a bunch of financiers run amok. Certainly some of this money is going to be lost in a bonfire.

It used to be that a series A round was sufficient to separate yourself from the rabble, but that is now so common that it has almost no effect on anyone’s decision-making.

With competition so fierce these days though, nearly every action a startup takes exerts an inertial dampener on its growth trajectory. Hiring a head of marketing can require the attention of senior executives for several weeks to several months, and that is with the constant help of a recruiting firm. Many fast-growing startups have dozens of positions to fill throughout the organization, and a number of senior positions to hire for as well.
It’s not just recruiting that is challenging. Sales and just getting a product out into the market can be an exhausting affair. Talk to CMOs or CIOs at large companies these days, and they are absolutely inundated with new products and platforms designed to solve every problem they have (and even some they don’t). For consumer businesses, it has never been harder to get featured in an app store or top their rankings.
Then you want your startup to get the attention of the tech press. Journalists these days are also completely swamped with product pitches, which means the bar gets higher for what we can reasonably cover. A top public relations firm can help, but they often require minimum spends of a half million dollars per year. A great PR director can also really help tell a story that will attract attention, but then you are back to that recruiting problem.

Competition From Below

I have always argued that this instant unicorn trend was really a cause of competition from above. Jet is ultimately competing against Amazon, which means it needs the resources to fight one of the industry’s true behemoths. Just look at Meerkat and Periscope – here is a startup fighting the potentially full resources of Twitter. Of course it needs unicorn status as soon as possible to compete.
But I perhaps have underestimated just how much competition there is from below. There are way more startups today than ever before, which has exacerbated the challenge of doing pretty much anything. It used to be that a series A round was sufficient to separate yourself from the rabble, but that is now so common that it has almost no effect on anyone’s decision-making. Today, unicorn status is really the only objective bright line that can truly separate a startup from the masses of others.
In the world today, you need to be worth a billion dollars just to get to that first million milestone.
Competition is an incredibly powerful force, a distribution mechanism that ensures that capital and talent are properly arrayed throughout the economy. We are way, way beyond that today, asking our baby startups to act like mature adults almost from conception. We are indeed living through a strange science fiction movie, but it isn’t clear yet whether it is utopia, or dystopia.