Editor’s note: Peter Relan is a former programmer and Internet executive, as well as a successful serial entrepreneur, Silicon Valley executive, angel investor, and technology veteran for over 25 years. He founded YouWeb Incubator in 2007, spinning out a string of successful mobile and gaming companies. Follow him on Twitter @prelan.
There is no doubt about the unprecedented wealth of talent in Silicon Valley, both technical and entrepreneurial. The area has become known as a mecca, and for some the Wild West, of digital innovation. So many entrepreneurs migrate to the Valley in hopes of building the next Facebook or Twitter, and technical talent and engineers are the bread and butter making this possible.
Most of the engineers that come out here after finishing school or graduating from local universities like Stanford or Berkeley have the desire, at some point, to start their own companies. Most of these engineers, however, will find this a daunting task better left for a few years down the road and seek to find their bearings by joining a small but promising startup.
This wealth of talent has led to an idea that you’ve certainly heard a lot about by now: the acqui-hire, the acquisition of a company purely for its talent. Yahoo, Google, Twitter and Facebook are the main companies behind acqui-hires and overall acquisitions over the last couple of years, which has led to many young startups, alongside their handful of rock star engineers, being gobbled up into a new organizational structure.
The next Jack Dorsey is probably already in Silicon Valley but is not currently an entrepreneur.
Make no mistake — even successful M&A deals often leave VCs and founders well compensated. But other senior and mid-level team members are often hungry for more, having tasted some success but are nowhere near ready to retire. Thus, the next Jack Dorsey is probably already in Silicon Valley but is not currently an entrepreneur. Rather, they are biding their time working within a bigger tech titan, dreaming about something bigger.
It seems an innocuous-enough practice, but the acqui-hire and overall M&A trend is the reason behind my conviction that the next big company will be founded by someone who is currently working at one of Silicon Valley’s top tech companies, but who may never been a founder themselves.
What’s unique about this moment in Silicon Valley history is the sheer number of engineers in companies like these that have been brought in through acquisitions, or the increasingly popular acqui-hire. Big companies will acquire smaller, hungrier startups that have great teams with great talent and put these minds to work on existing initiatives. Tim Cook has even publicly stated that this has been Apple’s strategy — to bring in companies that not only contribute a product but a superior team to add value — and it has averaged an acquisition almost every other month for three years.
I’ve been running an incubator for six years, and I’ve observed something interesting. While Peter Thiel’s 20 under 20 program is fascinating and holds promise, and Y Combinator has a great track record for bringing young entrepreneurs to Silicon Valley, there is an untapped group of potential founders who are milling about right under our noses. These individuals, likely engineers and product managers in their late 20s or early 30s, have hard skills working at a startup, an understanding of the market, and are drawn to entrepreneurship but are slightly more risk-averse.
These future founders may not have track records as the founders or CEOs of companies with exits, but they have worked for a startup and now a large company. They understand what it means to build a product, and they also understand what scale looks and feels like now that they have worked at Facebook, Yahoo, Twitter or Google. You need both for the maximum probability of success in building The Next Big Thing.
Many entrepreneurs have seen the former — it’s the easier part — and it’s why Y Combinator is able to pull 50+ companies a class with the seeds of a product already built. Where many entrepreneurs fail, however, is during the scaling stage, as it’s very difficult to get it right if you haven’t seen it done before. Of course, other types of founders can succeed, too, but the maximum probability of success is in this type of founder.
The Company Matters
When I say, “working for a company that is highly innovative,” I mean companies like Google, Twitter and Facebook. Google because it has an agenda, which, as Larry Page put it, is “to build great things that don’t exist”; Facebook because it has the highly iterative hack-and-break things mentality; and Twitter because it’s had to innovate a lot to figure out its monetization models.
Google and Facebook are examples of companies that truly stand apart from the rest and empower their employees, but in slightly different ways — one being a corporate goliath with high ideals to change the world, and the other a big startup that is constantly thinking of better ways to optimize and re-engineer an idea. Yahoo is getting there, as well, under Marissa Mayer. It’s why many founders have come from these companies, including Pinterest founder Ben Silbermann who worked in customer support and sales for Google, when he decided to leave to start his own venture. It’s not that Ben did not like Google, but just as most entrepreneurs, he wanted more.
Another example of a team being acquired, working for their acquirer, and then breaking out to develop their own companies are members from the former AdMob team, which was acquired by Google in 2009. Two members of this team who went on to found companies of their own were Kamakshi Sivaramakrishnan, who founded self-learning, cross-device ad company Drawbridge, and Mike Mettler, founder of Card.io, which was acquired last year by PayPal. This is a great example of two entrepreneurs working from the ground up, seeing and feeling what scale truly feels like, who went into bigger companies and decided that they had what it took to build their own companies. And it worked.
What’s unique about both Facebook and Google is the fact that both have a bottom-up, technically driven culture where they designate a specific amount of time for employees to work on projects they like, encouraging the engineers to take time to work creatively on new, non-initiative products that can spur creativity and new ideas or approaches that might not have otherwise been pursued.
I had lunch with a founder that came out of my incubator that was recently acquired by Facebook, and he had nothing but the highest praise for the hacker way of the entire company and how it works there. In his essay “The Hacker Way,” Mark Zuckerberg defines a hacker as a person who is never finished with their work, believing that there is always room for improvement no matter what the product. This is the vision of the CEO. This is how the company is run, and, for the most part, this is how the majority of the engineers at Facebook feel and operate.
Imagine this situation: You worked for a startup for a year or two, you’ve gone through an acquisition (or acqui-hire) and you now are settled (more than you probably would like to be) in this big company. You’ve been there a year or two and you were then asked to come up with an “intrapreneur” project that you want to drive to scale. What if, as an engineer at Google, you use your weekly 20 percent time to develop and create an idea or product that you’re incredibly passionate about. What better training can you possibly get to be a future founder?
Now add the second ingredient: accelerators popping up everywhere. Despite my prediction that most will fail to do well for their investors, I add that they are great for the U.S. and the world. Well-trained future founders with access to seed capital and mentorship equals a great recipe for creating startups.
While Google, Facebook and Twitter do a fantastic job of acquiring and then retaining rock-star engineers at their bottom-up, technically driven companies, I predict it will be these specific folks who will drive the next evolution of Silicon Valley. Their experience within an innovative big company, coupled with their amazing network and time to think about a problem/solution while being paid a nice salary, makes for the best recipe to build something that succeeds. It is on the heels of this trend that the next Jack Dorsey, Elon Musk or Steve Jobs will appear.
[Image via Shutterstock]