Google’s Employee Retention & Entrepreneurship

Posted on June 5, 2008

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About a year ago, I explored Google’s investment per employee during their growth phase, noting that the Google’s employee retention might suffer in the long term as a result of simple mathematics. As Google continues to grow its revenue and employee numbers, maintaining the investment rate per employee to pay for its innovation and development would become increasingly more difficult.

As is well-known, Google inherently breeds entrepreneurialism by allowing its employees to spend 20% of their time on self-developed projects. Projects are presented to Google’s product councils for further internal funding and support. Once the “true entrepreneurs” (which I am defining in this case as individuals that would actually leave their corporate binds to strike out on their own) learn the skills necessary to develop and incubate a new innovation, it is a natural progression to expect that they will move on to work on their own.

The brightest minds that have been with Google since the early days have little monetary incentive to stay now that their share options have vested. Those that came aboard Google after their successful IPO and subsequent share price growth have even less upside to sticking around in the near term. Why give up self-developed intellectual property to the “mothership” when you can add the Google brand name to your resume, retain ownership of your idea for a few years, and pursue your own interests afterward. This raises an interesting management question – is it possible that current Google employees are sand-bagging? Could they be working on only a part of their own ideas while working with Google, but saving their very best for a planned departure in the near future?

Adam Lashinsky’s article a recent issue of Fortune Magazine – “Where Does Google Go Next?” – examines the departure of key personnel at Google leaving to create their own start-ups. Some of the individuals and examples that Lashinky cites are Paul Buchheit who co-founded of FriendFeed (with three other former Googlers), Yanda Erlich who founded Mogad, and Nathan Stoll who founded Mechanical Zoo (with other ex-Google engineers). Which of these companies (if any) and their core ideas where actually developed during employment at Google?

The natural metamorphosis of many start-ups is to create a product model legitimized through a rapidly growing user base (and sometimes even paying customers!), and then an exit via acquisition to a larger firm seeking new technologies and products not otherwise developed in-house – companies like Yahoo! and, of course, Google.

Following this line of thinking, Google’s growth creates a reduced incentive system for the true entrepreneurs, but the corporate culture formalizes their employees’ entrepreneurship skills and strengthens their ability to develop and build their own businesses. During this employment period, the true entrepreneurs may sandbag on their ideas, then leave to start their own technology companies that conceivably end up as an eventual acquisition target for Google and its competitors.

This presents an interesting moral hazard for Google. While they deliberately strive to hire people with a penchant for entrepreneurialism, they may not know which employees are “true entrepreneurs” and which simply have an entrepreneurial spirit willing to share their best ideas with Google. This places even more emphasis on the recruiting and hiring process to vet out which applicants are entrepreneurial, but are not necessarily true entrepreneurs.

While each of these thoughts require additional analysis and research, Lashinsky’s article and listening to Paul Buchheit at a recent SVASE Panel Speaker event got me thinking about the Google-employee incentive relationship. More to come on this idea….

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