Be Careful Hiring Monopolists--Or Becoming One
FAANG employees can be amazing but usually aren't the right fit for startups
I speak with early-stage startup founders for a living—as our company, Hearty, is hired to help source and screen developer talent. Lately, we talk a lot about the layoffs in the tech sector, especially with the “FAANG” companies: Facebook, Amazon, Apple, Netflix, and Google. When I ask their opinion, founders almost always say one of two things:
“I wonder if these layoffs are a chance to pick up some top talent from those companies.”
OR
“We’ve hired FAANG people before, and it didn’t work out. Not interested.”
I tend to agree with the latter. People who have worked at big, highly-successful companies for most of their careers can be very valuable. They are generally smart, skilled, well-trained, and responsible. But they are usually the last people you want to hire in your early-stage company. This post explores why this is the case and is a warning to people who may a bit too comfortable.
Monopoly Power Corrupts Absolutely
As a college Econ major, I should know better than to call the FAANG companies “monopolies”—they don’t hold 100% market share. But they are often pretty close. Google has 92% of the search market, Facebook properties own 77% of social media, and you can Google (ugh) the others’ numbers. The point is that they have enough market power to impose their will on us.
Economists call this result a deadweight loss, where there is an imbalance in production and consumption that shrinks the overall pie. It’s hard to put a real number on the impact of this waste, but most of us see it in the products and services we’re committed to when their prices rise, and quality shrinks. Think cable, healthcare, and college tuition.
Sit back for a moment and consider this thought experiment: Suddenly, your company has zero competitors, you can charge whatever you want for your products or services, and no matter how poorly you treat your customers, they have to keep buying. Someday, the government might catch up, but you’re making so much money you can afford infinite lawyers and finite fines. Sounds pretty sweet—but what would that do to your workplace?
First, you would push through initiatives that increase revenue, profit, and share price despite hurting the experience of your paying customers. You know, like Amazon wedging so many advertisements into its product search screens that you can’t tell what’s organic. Or Google leveraging its 92% share to destroy entire business models by directing searchers to its products.
Second, you would ease waaaaay back on customer service. Take Apple, which provides one of the weakest online service experiences for products that cost $1000s. Just google (ugh) “why isn’t my Mac camera working,” and you’ll be directed to unhelpful answers from 2013. Or maybe you’d turn customer “service” into something that’s an ask for even more money. Delta will make you wait on the phone for hours unless you’re a high-spending Diamond medallion member. The Facebook sales team will only offer human help on ad buying if you’re spending $1 million per year.
Within your company, you sure wouldn’t worry too much about “process”. Ten people in a client meeting? Why not? Weak moderation of your social platform? Sorry, not sorry. The blitzscaling mentality these companies rose from never gave them time to build process or proper organizational design into their DNA. And with the VC and customer money flowing, who needs process and efficiency?
Then, you would realize that the more people you hire, the merrier it gets! And you’d better go build a big team if you want to rise up in the organization. More people under you means more power and promotions. So you’d do what the big tech companies did during COVID—hired headcount at a pace that vastly exceeded revenue growth. You’d also come up with crazy new product ideas to keep the job interesting for you and your friends, telling Wall Street that you’re investing in the future. You know, like Mark Zuckerberg’s $10 billion per year investment in his metaverse vision—that no one else seems to want.
Finally, you would invest more and more on goodies for you and your fellow employees. Here there’s real competition among the tech giants—who strive to see which can spoil their people more. Salaries and equity awards have skyrocketed, leaving us mortal, non-monopoly business owners struggling to stay in the ballpark. And forget about matching their catered sushi, private shuttle buses, 30-hour work weeks, craft beer pong, celebrity visits, and rooftop Slurpee machines. I’ve been inside the Facebook and Google campuses (and had to sign in on NDAs that probably disallow me from writing this), and promise you it’s as amazing as you might imagine.
But today, these high-fliers are waking up with a hangover and feeling new competitive pressure and regulatory threats. Twitter employees got a new boss that gutted the company overnight—some are suggesting that if Twitter can keep running with a fraction of its original employees, other companies will start eyeing the same strategy.
Lack of Challenge Crushes Talent
We’ve all been customers of monopolists like this and felt the rise of prices and service decline when we can’t easily move our business elsewhere. But I’ve also gotten to see it from the inside. I’ve encountered scores of salespeople for Facebook and Google; they are very smart and very, very pushy. Their job is to hold out their hands out for a check from billion-dollar brands that must buy their products. Questions or asks for product improvement go unanswered. My friends at these companies admit to feeling guilty for working so little and being unable to do much for their customers. In their first couple of weeks on the job, they can’t believe how quiet company email is after 2 pm.
The work is just too easy, and without challenge and pressure, you go soft. Add in the fact that these companies get so large that each person’s roles and responsibilities get tighter and tighter. You wait to be told what tiny widget to work on for a 0.004% improvement in landing page conversion.
So while these big tech names look great on a resume and are fun to mention to investors (“We just hired a former Netflix VP!”), they rarely do well in an early-stage startup where you’ve got to wear many hats, work your ass off, make big independent decisions, and have lots fewer free lattes.
And while I pick on big tech here, they are far from the only ones to watch out for. Big retailers and banks are two quasi-monopolies where choices are few and moving your business is hard. Giant non-profits, universities, hospital systems, and government agencies have too much power, and their employees can lose the edge that startups need.
If you are considering hiring people with these kinds of “monopoly” backgrounds, it just means you’ve got to work harder to learn if they’ve got the eye of the tiger. Did they work in an entrepreneurial pocket of the big company? Did they have smaller company experience before? Do they have an entrepreneurial side hustle? If so, you might find an ideal hire that has seen the big leagues yet is eager to start fresh where they can make a more personal impact.
Be Careful in Plotting your Career
I started my marketing career at Procter & Gamble, a big non-tech company that had some monopoly-like power. When I moved to the Tide brand, I was told the cardinal rule: “Don’t fuck it up.” The market share and budgets of brands like Crest, Pampers, and Olay dwarfed our competition, and we tended to walk around thinking we were the best marketers in the world.
Yet there was an inside story that external recruiters pegged us with: “You don’t want to hire P&G people for their first job leaving the company. Get them on the second job after they have learned what it’s like in the real world.”
I left P&G to become an entrepreneur with friends, and it was really tough to get used to. Even today, the P&G name on my resume helps my reputation, so it’s an unfair advantage that has stuck. Folks working at the biggest, sexiest brands similarly benefit from both the reputation value and the learning that they get from working inside those giant walls, touching millions of consumer lives.
But my warning is to be attentive to how the cozy environment of your monopoly-like employer might negatively impact your skills and drive. Our muscles need to work out to stay fit, and our business skills need to be tested to stay sharp. And whether your company needs to shed thousands of jobs to keep investors happy or you’ve got a new investor who decides to torch the place for his entertainment, no big company job is safe. You need to stay in fighting shape to stay competitive in the world.
Challenge leads to improvement, and lack of challenge eventually leads to a fall.
Bob Gilbreath is a 2x-exit entrepreneur and co-founder of Hearty, a curated matchmaking service that combines top software developers with early-stage, venture-backed startups.