Silicon Valley Trends 2015, Part 1: The Hiring Business Is About More Than Hiring

"Silicon Valley Trends 2015" is QDaily's special reporting series from Silicon Valley. Over the past few decades, hundreds of tech companies have been born here, and their technology has touched almost every industry in the world. What are Silicon Valley's tech founders and investors watching and talking about today? This series of trend reports draws on what we saw and heard at dozens of in-person tech events in Silicon Valley this summer, along with our reading of industry figures such as investment and fundraising data.

"I have a pretty good idea. Do you know any programmers who could be my technical co-founder?" a young founder named Pauline asked me at an entrepreneurs' meetup in San Francisco.

Silicon Valley hosts at least several dozen in-person startup meetups every day. Attendees are often asked to write their name and what they are after on a sticker and wear it, so strangers can start talking more easily. Apart from "looking for investors," the most common labels are probably "looking for developers" and "looking for a co-founder."

Meanwhile Zerg, an engineer I met at the Adtech conference, was deciding whether to interview at Facebook, even though he had no wish to work there.

"If you walk into a Google interview with a Facebook offer in hand, you can ask them for a bit more money," the Chinese-American engineer, who works at an ad-tech company, told QDaily. Engineers are so scarce that big companies don't mind joining this programmer "auction," in which an engineer uses one offer to push up the price of the next.

This bidding war used to be fought mainly by tech giants such as Facebook, Google and Microsoft. Now startup giants such as Airbnb and Uber, less than ten years old and valued at around $10 billion, have joined in.

The fierce competition is easy to understand. By one calculation, the average Facebook employee brings in at least $1 million in revenue for the company, though many of them earn less than $200,000 a year.

In Silicon Valley, engineers are not the only ones in demand; recruiting companies are hot too. A programmer agency called 10X became a star company in The New Yorker late last year. Zenefits, a company built around HR management, has been the pride of Y Combinator, Silicon Valley's best incubator, for the past two years, and in May this year it reached a valuation of $4.5 billion. Then there are San Francisco's many expensive coding bootcamps.

In recent years, companies in California's Bay Area have been hiring faster and faster. Since 2011, the time these tech companies take to fill a job has fallen by 66%. Hiring is not only quicker; pay is climbing fast too. According to TechAmerica's Cyberstates 2013 report, tech workers in California earn an average of $124,000 a year, 131% more than the average wage at private companies across the United States.

The demand for managing talent has also produced a new generation of talent-management services. Rather than plugging into a single step of recruiting or HR, they cast themselves as intermediaries and take on many steps along the chain at once.

Until now, the internet changed recruiting mostly by moving paper résumés and job ads online: the American classifieds site Craigslist, the résumé and networking site LinkedIn, and in China job sites such as Zhaopin, Lagou and Liepin.

Talent agents sell more than a person's time

"You can think of 10x as an OKCupid [an American online dating site] for programmers and projects," Altay Guvench, co-founder of the programmer agency 10x, told QDaily.

Compared with job-recommendation sites or algorithms, 10x works the old-fashioned way. Like a matchmaker, it uses people, not software, to find better-paid work for top programmers.

Founded in 2010, the company helps top freelance programmers land higher-paying work, and also handles price negotiation, contract drafting, work insurance and the like.

This kind of business is common in show business. Stars are not employed by any one film studio. Whether the job is a brand endorsement or a film role, an agent negotiates the fee and takes a percentage of every deal closed. 10x works the same way: it negotiates with companies on a programmer's behalf and takes a cut of each deal.

Altay Guvench, co-founder of 10x, in a corner of his office

"We want top programmers to get better-paid work without being stuck in nine-to-five hours, so they have more flexibility over their time and space. If you can focus and finish a job in two hours, and get paid more for it, why work eight hours a day for a company like a salaried employee?" said Altay Guvench. Many excellent programmers are not first-rate negotiators, he said, and haggling over the price of every short-term project and dealing with the paperwork distracts them.

"If you used to negotiate $100 an hour yourself, we might get you $150 an hour. We handle the price negotiation, push for benefits and draw up the contract. You just focus on what you do best."

No networking, no negotiating, no fitting into a company culture; you concentrate on what you're good at, and you earn more. It sounds like a good deal. But there is a condition: the programmers themselves must be "stars" before 10x will represent them. That's right, this service is not for everyone, just like a celebrity talent agency.

Rishon Blumberg, another 10x founder, told us they reject about 90% of programmer applications. How good do you have to be for a 10x agent to take you on? One of 10x's star programmers is Adrian Holovaty, co-creator of the open-source web framework Django.

Being excellent is not enough. Programmers who apply to become 10x "clients" must also fill out a questionnaire more detailed than any dating site's, covering the languages they use, their abilities and how much they enjoy each skill. "We do this for a reason. We need every 'client' to come to 10x because they really want to be represented. And we have to make sure they don't just have a skill but love what they do. That's what makes it a healthy ecosystem for our 'customers.'"

The "customers" Rishon Blumberg means are companies in urgent need of top talent. Thanks to earlier coverage in The New Yorker, The New York Times, Bloomberg and other outlets, 10x has already won big projects from companies including eBay, Google and American Express.

"For a company, employing people is actually very expensive. You pay for employees' time off, their working hours, their meals and their vacations, and you spend a lot of money on a nice office to bring them together... and even then you may not keep these talented people or get the best work out of them." Rishon Blumberg believes 10x lets top programmers anywhere in the world work for you directly, and because they are smart enough, they offer more than an ordinary employee beyond writing code: useful advice on a project, and help making a project team run more smoothly.

Even so, there isn't enough work for 10x's "talent pool." "We have 80 programmers working on projects, and another 2,000 excellent programmers on the waiting list. The biggest problem is still a shortage of projects," he said. 10x is not a "light" operation. It still matches projects with suitable programmers "by hand," the traditional matchmaker way: spending time getting to know the programmers, finding out what a company's project really needs, and then acting as the bridge between them.

Michael Solomon, another 10x founder, says the model has made money from the start, but growing it is hard. They need to train more "agents" who know technology well; at present 5 of the company's 10 staff hold such roles. Even so, 10x wants to keep doing it "by hand."

The 10x team has just moved into BeSpoke, a co-working space in San Francisco

This may have to do with the business Michael Solomon and Rishon Blumberg came from. Before founding 10x, they had already built a celebrity talent management company, Brick Wall Management, whose clients include the famous American singer Bruce Springsteen.

"We want to keep this human way of matching people and not hand it all over to algorithms and machines. Companies often don't fully know what they actually need, and programmers' needs and interests change at each stage of their careers, so algorithmic matching doesn't work very well. We want both sides to be happy, because that's how the business keeps going," said Rishon Blumberg.

Recruiting, company admin, insurance... bundle it all together

Zenefits, another hot Silicon Valley company, is also a broker, though not for programmers: it combines cloud-based HR software with insurance brokerage. You may not have heard of it, but its valuation has risen sevenfold in a year, to $4.5 billion. More important, the company is only two years old and has already changed how human resources services and health insurance are sold in the United States.

On the surface, Zenefits offers simple, free cloud software for companies' HR departments. HR staff can upload and manage employee records, covering every step from recruiting to payroll, tax payments, health insurance and overtime pay. Because it is convenient and free, many companies' HR departments have taken it up.

But the clever part comes next. One concrete reason Zenefits can keep the service free is that it is also an insurance broker. Besides handling chores such as tax forms, it gives users a way to buy commercial insurance. All your data is already on the platform, so buying insurance there is easier, and each time you buy a policy through Zenefits, it charges the insurer a 5% commission. According to Zenefits' own figures, 50% of its users buy insurance products through it.

Yet this startup, a graduate of the incubator Y Combinator, struggled to raise money at first. After it graduated in 2013, Y Combinator's president Sam Altman said, "Most VCs missed Airbnb, Dropbox and Zenefits."

Less than a year later, Zenefits was a star. In January 2014 it raised a $15 million Series A, with even Andreessen Horowitz, one of Silicon Valley's top venture firms, taking part. In June 2014 it raised a $66.5 million Series B at a $650 million valuation. In May 2015 it raised $500 million at a valuation of $4.5 billion.

Crash courses for programmers

If you go to many startup events and talks in San Francisco, you are bound to end up at one kind of place: a coding school, because these schools usually lend their space to startups for meetups. Their courses don't follow university curricula; they teach the technical skills companies are hiring for now. General Assembly is one of the most active of these schools, and a story it likes to tell is how it turned a food-delivery guy into a coding whiz: just 8 to 12 weeks of coding classes and $10,000 in tuition, and tech companies may come knocking with six-figure offers, whatever you did before.

When QDaily visited, General Assembly, in downtown San Francisco, looked like a co-working space, with many classrooms running classes at once, on everything from basic Excel to front-end development to UI design. General Assembly now has campuses in New York, San Francisco, Sydney and Hong Kong and charges tuition for tech courses both online and in person. By the end of this year it will have more than 40,000 graduates.

Hack Reactor, another San Francisco coding school, is no cheaper, at $17,000 in tuition. But it promises that 98% of graduates will land tech jobs within 90 days of finishing the program, at an average salary of $110,000 a year. General Assembly has also published figures saying 95% of its graduates find jobs within three months.

One reason students find jobs easily is that before the term ends, these schools hold small mixers and info sessions with companies they know, so that students get not only lessons for their money but plenty of chances to meet employers. Some of General Assembly's partners are startup incubators such as 500 Startups, which turn out dozens or even hundreds of startups a year and naturally have a big appetite for technical staff.

After the dot-com bubble burst in 2000, large numbers of venture-backed internet startups went bankrupt, and both jobs and average pay at Silicon Valley tech companies fell for several years in a row.

From 2005, a series of changes revived tech entrepreneurship. Amazon, eBay and other companies that survived the bubble changed how people shop; cloud computing spared startups the cost of buying servers; the iPhone put internet services on a screen in everyone's pocket; and social networks cut marketing costs further...

Today, although people still talk about a bubble, there is no doubt that technology, apps and the internet are no longer products that stand on their own but tools every industry and every company will use. As traditional industries adopt new technology, the demand for people, and the changes it brings to hiring and management, will not stop. These examples are only the beginning.

This is the first article in QDaily's series on the new trends we observed in Silicon Valley this year. The rest will be published over the next two weeks. Stay tuned.